<Page>
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-04015
Eaton Vance Strategic Income Fund
---------------------------------
(Exact Name of Registrant as Specified in Charter)
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Address of Principal Executive Offices)
Alan R. Dynner
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Name and Address of Agent for Services)
(617) 482-8260
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(Registrant's Telephone Number)
October 31
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Date of Fiscal Year End
October 31, 2003
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Date of Reporting Period
ITEM 1. REPORTS TO STOCKHOLDERS
<Page>
[EATON VANCE(R) LOGO]
[PHOTO IMAGE]
ANNUAL REPORT OCTOBER 31, 2003
EATON VANCE STRATEGIC INCOME FUND
[PHOTO IMAGE]
[PHOTO IMAGE]
<Page>
EATON VANCE FUNDS
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
EATON VANCE DISTRIBUTORS, INC.
PRIVACY NOTICE
The Eaton Vance organization is committed to ensuring your financial
privacy. This notice is being sent to comply with privacy regulations of
the Securities and Exchange Commission. Each of the above financial
institutions has in effect the following 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.
- 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).
- Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality
of such information.
For more information about Eaton Vance's privacy policies,
call: 1-800-262-1122
----------
IMPORTANT NOTICE
REGARDING 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 ADVISER, MAY HOUSEHOLD THE MAILING OF YOUR
DOCUMENTS INDEFINITELY UNLESS YOU INSTRUCT EATON VANCE, OR YOUR FINANCIAL
ADVISER, 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
adviser.
Your instructions that householding not apply to delivery of your Eaton
Vance documents will be effective within 30 days of receipt by Eaton Vance
or your financial adviser.
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 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 without charge, upon request, by calling 1-800-262-1122. This
description is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
<Page>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2003
LETTER TO SHAREHOLDERS
[PHOTO OF THOMAS E. FAUST]
Thomas E. Faust
President
Eaton Vance Strategic Income Fund Class A shares had a total return of 16.65%
during the year ended October 31, 2003. That return was the result of an
increase in net asset value (NAV) per share from $7.55 on October 31, 2002 to
$8.10 on October 31, 2003, and the reinvestment of $0.669 in dividends.(1)
The Fund's Class B shares had a total return of 15.61% during the year ended
October 31, 2003. That return resulted from an increase in NAV per share from
$7.15 on October 31, 2002 to $7.66 on October 31, 2003, and the reinvestment of
$0.576 in dividends.(1)
Class C shares had a total return of 15.68% for the year ended October 31, 2003,
the result of an increase in NAV per share from $9.04 on October 31, 2002 to
$9.69 on October 31, 2003, and the reinvestment of $0.728 in dividends.(1)
A STRONGER ECONOMY BROUGHT CHANGES IN THE GLOBAL BOND MARKETS IN 2003...
The world's bond markets were characterized by widely divergent performance in
2003. As the U.S. economy showed signs of recovery, the Federal Reserve - which
had lowered interest rates on thirteen occasions between January 2001 and June
2003 for a total of 550 basis points (5.50%) - indicated that it was less
concerned about the possibility of deflation. The stronger economic news brought
about a correction in the Treasury market.
The U.S. high-yield market, however, responded favorably to a more robust
economy and improving corporate profits. As a result, yield spreads over U.S.
Treasuries for both high-yield corporate bonds and for investment-grade
corporate bonds decreased significantly.
Meanwhile, the emerging markets continued to fluctuate. An impressive economic
recovery took hold in Asia, while countries in Eastern Europe and Latin America
continued to work on economic reforms.
ONCE AGAIN, THE GLOBAL MARKETS SAW CHALLENGES AND OPPORTUNITIES...
The past year once again demonstrated the challenges and opportunities in the
global markets. Fixed-income markets played a major role in capital formation
for emerging economies, while providing strong returns in the U.S. corporate
sector. The ability to participate in these diverse domestic and foreign markets
is a key to Strategic Income Fund's flexibility. We believe that 2004 will bring
more such opportunities. In the pages that follow, portfolio manager
Mark Venezia provides his thoughts on the Fund and the markets in the fiscal
year ended October 31, 2003.
Sincerely,
/s/ Thomas E. Faust Jr.
Thomas E. Faust Jr.
President
December 10, 2003
FUND INFORMATION
AS OF OCTOBER 31, 2003
<Table>
<Caption>
PERFORMANCE(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
One Year 16.65% 15.61% 15.68%
Five Years 6.72 5.82 5.82
Ten Years N.A. 6.21 N.A.
Life of Fund+ 5.56 6.09 7.18
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
One Year 11.06% 10.61% 14.68%
Five Years 5.69 5.54 5.82
Ten Years N.A. 6.21 N.A.
Life of Fund+ 4.67 6.09 7.18
</Table>
+Inception Dates - Class A: 1/23/98; Class B: 11/26/90; Class C: 5/25/94
[CHART]
QUALITY WEIGHTINGS(3)
<Table>
AAA 62.1%
Below BBB and Non-Rated 34.1%*
BBB 0.8%
A 3.0%
</Table>
*Includes Equity and High Yield Swaps
(1) These returns do not include the 4.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC)
for Class B and Class C shares. (2) Returns are historical and are
calculated by determining the percentage change in net asset value with all
distributions reinvested. SEC returns for Class A reflect the maximum 4.75%
sales charge. SEC returns for Class B reflect applicable CDSC based on the
following schedule: 5% - 1st and 2nd years; 4% - 3rd year; 3% - 4th year;
2% - 5th year; 1% - 6th year. SEC 1-Year return for Class C reflects a 1%
CDSC. (3) Because the Portfolio is actively managed, Quality Weightings are
subject to change. Weightings include the Fund's investment in Strategic
Income Portfolio (holdings described beginning on page 16) and 18.8% of its
net assets invested in High Income Portfolio.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
MUTUAL FUND SHARES ARE NOT INSURED BY THE FDIC AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
2
<Page>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2003
MANAGEMENT DISCUSSION
[PHOTO OF MARK S. VENEZIA]
Mark S. Venezia
Portfolio Manager
AN INTERVIEW WITH MARK S. VENEZIA,
PORTFOLIO MANAGER OF
STRATEGIC INCOME PORTFOLIO.
Q: MARK, THE PAST FISCAL PERIOD WAS ANOTHER EVENTFUL YEAR IN THE GLOBAL BOND
MARKETS. IN YOUR VIEW, WHAT WERE SOME OF THE MOST NOTABLE DEVELOPMENTS THAT
DROVE THE MARKETS IN 2003?
A: 2003 has been a transition year for the global economy. The U.S. economy
has showed convincing early signs of a recovery. While stronger data kept
the Treasury and mortgage-backed securities markets on the defensive for
much of the period, it drove a strong rally in the high-yield corporate
sector. In Japan and Asia, economies gathered strength, with currency
issues increasingly prominent in U.S.-Asia trade talks. In Latin America,
Brazil fared well, as the da Silva government made progress on social
security reforms and inflation. Eastern Europe economies continued their
strong expansion, while making further progress on their reform packages.
Thus, differentiation between markets was the key to performance during the
fiscal year.
Q: WHAT IMPACT HAS THE FEDERAL RESERVE'S POSTURE HAD ON THE BOND MARKETS?
A: The Federal Reserve has maintained an accommodative interest rate policy
for three years running. Even as the economy has rebounded in the second
half of 2003, the Fed refrained from raising rates. While that posture has
helped ease the nation's economy out of recession, it has also contributed
to a weaker U.S. dollar versus the euro. Europe's recovery has lagged that
of the U.S., the European Central Bank having taken a more passive attitude
toward interest rates. Those trends make managing foreign currency
positions more challenging for global investors. As demand increases and
inflationary pressures build, the Fed will surely be forced at some point
to raise rates. Such a move would likely reverse the dollar's decline
against the euro.
Q: HOW HAVE YOU REPOSITIONED THE FUND OVER THE LAST YEAR?
A: First we've moved the duration from a relatively low level of just under
three years, to an even lower level of about two years. This reflects our
optimism about the U.S. economy, which, week by week is turning into
pessimism about inflation.
Going one step further, we're even heavier into seasoned mortgage-backed
securities than we were a year ago. Then, we were a bit under 60%, now
nearly 70%. If interest rates in the middle of the curve just steady in the
3.25% to
FOREIGN POSITIONS
By total net assets. Positions are in Local Currency unless otherwise noted.
<Table>
Indonesia** 5.9%
Hungary 4.1
Slovakia 3.9
Brazil* 3.1
India 1.8
Colombia 1.6
Thailand 1.0
Taiwan 0.9
South Korea 0.9
Poland 0.3
Morocco* 0.2
Phillippines* 0.1
</Table>
*Positions are in Hard Currency.
**Position is in Local Currency and Hard Currency.
3
<Page>
4.25% range, refinancings should drop on these premium bonds. The
mortgage-backed securities that we buy are typically ten years or more old,
so the home owners that are left are far and few between; we believe that
those who had a lot of equity to take out of their homes, have done so
already.
Q: WHAT ABOUT YOUR POSITIONS IN THE HIGH-YIELD SECTOR?
A: Looking at end of year reports you'd get the impression that we've only
increased these bonds from about 24% to 28% of the Fund. In fact, we did
reach levels over 30% during the year, but now we're pulling back a bit
because spreads over Treasuries have come way in. When markets were still
reacting to the defaults of 2001-2002, last October, spreads were 1000
basis points (10%) over Treasuries. Now they're less than half of that.
Q: WHAT ABOUT EMERGING MARKETS? HAVE YOU PARED DOWN POSITIONS?
A: We've pared down our positions in the dollar bond sector, only to replace
it with currency positions. Let me explain. The rally in the traditional
Brady and global bonds of once defaulting countries such as Russia and
Brazil, worked in parallel with the rally in our local high yield sector;
indeed it was even more dramatic. Last October we had already brought these
positions down to about 12% percent of the Fund; as the rally gathered
momentum we cut these positions further and further, down to just over 3%
of net assets.
However, the last frontier of emerging markets are the local markets of
these countries, where one can take advantage of high interest rates and
undervalued currencies. At fiscal year's close, we had nearly 20% of the
Fund in these foreign currency positions; the largest were Indonesia with
5.4% and Slovakia with 3.9%. It should be noted that most of these
positions were in what are called "currency forwards", i.e., agreements to
buy the currencies for delivery a number of months from the trade date,
usually at a substantial discount. We often cross-hedge these positions
with another currency from the same region, so that our regional exposure
is kept to what we believe to be manageable levels.
Q: THE FUND POSTED A STRONG RETURN DURING THE FISCAL YEAR. TO WHAT DO YOU
ATTRIBUTE THE FUND'S PERFORMANCE?
A: The net asset value of the Fund rose by nearly 9% from last October to the
middle of June 2003. This was the period of the extraordinary rally in the
high yield and dollar denominated emerging market sectors, when spreads
compressed by about 500 basis points (5.0%). We had between 30% and 40% of
the Fund invested in these sectors during that period.
Q: WERE THERE ANY AREAS THAT PERFORMED POORLY FOR THE FUND?
A: Yes. Mortgage-backed securities (MBS) had a difficult year. The primary
reason for the sector's underperformance was the sharp rise in prepayment
rates. Prepay rates rose as homeowners refinanced their mortgages to take
advantage of the lowest interest rates in 45 years.
While it's not unusual to see rising prepayment rates accompany lower
interest rates, the surge of refinancings during this period was
remarkable. The increase was evident not only among generic MBS, but also
among seasoned MBS, which have historically displayed much more predictable
prepayment rates.
While this was a challenging period for the mortgage market, we believe
that, at this point in the economic cycle, interest rates have likely
bottomed. Accordingly, we would expect that prepayment rates would ease
over time, providing a better climate for MBS investments.
4
<Page>
Q: MARK, HOW WOULD YOU CHARACTERIZE THIS PAST YEAR IN THE GLOBAL BOND MARKETS?
A: I believe that this fiscal year once again pointed out the value of a
broadly diversified bond portfolio. As we've seen, even in a global
economy, different countries continued to move within their own regional
economic cycles. As a result, opportunities may be emerging in some
countries, even as other markets are retrenching. In the increasingly fluid
global bond markets, the flexibility of a vehicle like Strategic Income
Fund - with its latitude to move between countries and sectors, exploit
changing currency and spread relationships, and adopt a variety of hedging
techniques to manage risk - can be especially valuable.
[CHART]
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EATON VANCE STRATEGIC
INCOME FUND, CLASS B VS. THE LEHMAN AGGREGATE BOND INDEX & THE COMPOSITE OF
LIPPER FUND AVERAGES*
October 31, 1993 - October 31, 2003
EATON VANCE STRATEGIC INCOME FUND- CLASS B
INCEPTION:11/26/90
<Table>
<Caption>
FUND FUND LEHMAN COMPOSITE OF
VALUE AT VALUE WITH AGGREGATE BOND LIPPER FUND
DATE NAV SALES CHARGE INDEX AVERAGES
- ------------------------------------------------------------------------
10/31/1993 10,000 N/A 10,000 10,000.00
11/30/1993 9,964 9,915 9,966.00
12/31/1993 10,083 9,969 10,057.69
1/31/1994 10,246 10,103 10,129.10
2/28/1994 9,962 9,928 9,980.20
3/31/1994 9,418 9,683 9,845.47
4/30/1994 9,492 9,606 9,851.37
5/31/1994 9,635 9,604 9,780.44
6/30/1994 9,268 9,583 9,812.72
7/31/1994 9,313 9,773 9,839.21
8/31/1994 9,451 9,786 9,869.71
9/30/1994 9,446 9,642 9,909.19
10/31/1994 9,467 9,633 9,925.04
11/30/1994 9,577 9,612 9,638.21
12/31/1994 9,552 9,678 9,575.56
1/31/1995 9,376 9,869 9,615.78
2/28/1995 9,355 10,104 9,595.59
3/31/1995 9,329 10,166 9,756.79
4/30/1995 9,738 10,308 9,887.53
5/31/1995 10,117 10,707 9,913.24
6/30/1995 10,016 10,785 10,002.46
7/31/1995 10,098 10,761 10,046.47
8/31/1995 10,278 10,891 10,143.92
9/30/1995 10,481 10,997 10,202.76
10/31/1995 10,540 11,140 10,271.12
11/30/1995 10,746 11,307 10,345.07
12/31/1995 10,931 11,466 10,429.90
1/31/1996 11,368 11,542 10,400.69
2/29/1996 11,146 11,341 10,420.45
3/31/1996 11,219 11,263 10,487.15
4/30/1996 11,457 11,199 10,528.05
5/31/1996 11,519 11,176 10,601.74
6/30/1996 11,696 11,327 10,668.53
7/31/1996 11,723 11,358 10,718.67
8/31/1996 11,924 11,339 10,821.57
9/30/1996 12,295 11,536 10,924.38
10/31/1996 12,488 11,792 11,030.35
11/30/1996 12,870 11,994 11,052.41
12/31/1996 12,920 11,882 11,062.35
1/31/1997 13,188 11,919 11,065.67
2/28/1997 13,312 11,948 10,862.06
3/31/1997 13,184 11,816 10,967.43
4/30/1997 13,274 11,993 11,180.19
5/31/1997 13,381 12,106 11,352.37
6/30/1997 13,501 12,250 11,611.20
7/31/1997 13,766 12,580 11,554.31
8/31/1997 13,590 12,473 11,796.95
9/30/1997 13,813 12,657 11,700.21
10/31/1997 13,792 12,840 11,758.71
11/30/1997 13,898 12,899 11,851.61
12/31/1997 14,021 13,029 11,998.57
1/31/1998 14,129 13,197 12,081.36
2/28/1998 14,184 13,187 12,187.67
3/31/1998 14,354 13,232 12,220.58
4/30/1998 14,341 13,301 12,199.81
5/31/1998 14,361 13,427 12,169.31
6/30/1998 14,317 13,541 12,222.85
7/31/1998 14,430 13,570 11,517.59
8/31/1998 13,647 13,791 11,692.66
9/30/1998 13,743 14,114 11,619.00
10/31/1998 13,763 14,039 11,990.80
11/30/1998 14,318 14,119 11,977.61
12/31/1998 14,291 14,161 12,045.89
1/31/1999 14,313 14,262 11,913.38
2/28/1999 14,341 14,013 12,087.32
3/31/1999 14,573 14,091 12,323.02
4/30/1999 14,837 14,136 12,061.77
5/31/1999 14,612 14,012 12,072.63
6/30/1999 14,644 13,967 12,041.24
7/31/1999 14,630 13,908 11,965.38
8/31/1999 14,531 13,901 12,027.60
9/30/1999 14,649 14,062 12,046.84
10/31/1999 14,770 14,114 12,156.47
11/30/1999 14,924 14,113 12,284.11
12/31/1999 15,065 14,045 12,178.47
1/31/2000 15,067 13,999 12,350.19
2/29/2000 15,307 14,168 12,346.48
3/31/2000 15,292 14,355 12,194.62
4/30/2000 15,184 14,314 12,044.62
5/31/2000 14,936 14,307 12,334.90
6/30/2000 15,223 14,605 12,381.77
7/31/2000 15,316 14,737 12,477.11
8/31/2000 15,482 14,951 12,367.31
9/30/2000 15,168 15,045 12,128.62
10/31/2000 14,781 15,144 11,977.02
11/30/2000 14,481 15,392 12,303.99
12/31/2000 14,897 15,678 12,714.94
1/31/2001 15,507 15,934 12,740.37
2/28/2001 15,460 16,073 12,537.80
3/31/2001 15,187 16,153 12,428.72
4/30/2001 15,044 16,086 12,515.72
5/31/2001 15,118 16,183 12,434.37
6/30/2001 15,051 16,245 12,559.96
7/31/2001 15,136 16,608 12,721.98
8/31/2001 15,362 16,798 12,367.04
9/30/2001 15,203 16,994 12,653.95
10/31/2001 15,493 17,349 12,760.25
11/30/2001 15,801 17,110 12,710.48
12/31/2001 15,889 17,001 12,777.85
1/31/2002 16,040 17,139 12,823.85
2/28/2002 16,097 17,305 12,826.41
3/31/2002 16,145 17,017 13,026.50
4/30/2002 16,253 17,347 13,072.10
5/31/2002 16,132 17,495 12,857.71
6/30/2002 15,913 17,646 12,682.85
7/31/2002 15,523 17,859 12,941.58
8/31/2002 15,802 18,160 12,950.64
9/30/2002 15,601 18,454 12,983.02
10/31/2002 15,796 18,370 13,292.01
11/30/2002 16,187 18,366 13,556.52
12/31/2002 16,318 18,745 13,723.27
1/31/2003 16,562 18,761 13,937.35
2/28/2003 16,729 19,020 14,065.57
3/31/2003 16,954 19,006 14,515.67
4/30/2003 17,564 19,163 14,846.63
5/31/2003 17,768 19,520 14,956.49
6/30/2003 18,039 19,481 14,591.56
7/31/2003 17,920 18,826 14,715.58
8/31/2003 18,058 18,951 15,145.28
9/30/2003 18,193 19,453 15,213.43
10/31/2003 18,262 19,271 15,370.13
</Table>
<Table>
<Caption>
PERFORMANCE** CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
One Year 16.65% 15.61% 15.68%
Five Years 6.72 5.82 5.82
Ten Years N.A. 6.21 N.A.
Life of Fund+ 5.56 6.09 7.18
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
One Year 11.06% 10.61% 14.68%
Five Years 5.69 5.54 5.82
Ten Years N.A. 6.21 N.A.
Life of Fund+ 4.67 6.09 7.18
</Table>
+Inception Dates - Class A: 1/23/98; Class B: 11/26/90; Class C: 5/25/94
* Sources: Thomson Financial; Lipper, Inc. The chart compares the Fund's total
return with that of the Lehman Aggregate Bond Index, an unmanaged,
broad-based index containing only investment-grade, fixed-income securities
traded in the U.S. Securities in the Index are included without regard to
their duration. The lines on the chart represent the total returns of $10,000
hypothetical investments in the Fund and the Index. Returns are calculated by
determining the percentage change in net asset value (NAV) with all
distributions reinvested. The chart also offers a comparison with a Composite
of Lipper Fund Category averages, reflecting the average total returns of the
funds in the same categories as this Fund. The fund categories are
established by Lipper, Inc., a nationally recognized monitor of mutual fund
performance. Funds within a category have similar investment policies. The
Composite is provided because the Fund amended its investment policies on
March 1, 1997, allowing the Fund to invest in a portfolio with a
dollar-weighted average maturity of any duration. In connection with this
change, the Fund's Lipper category also changed. Reflecting that change, the
performance of a Composite is based on the Lipper Short World Multi-Market
Income Funds Classification from October 31, 1991 through March 1, 1997, and
thereafter, on the Lipper Multi-Sector Income Funds Classification. An
investment in the Fund's Class A shares on 1/23/98 at net asset value would
have been worth $13,665 on October 31, 2003; $13,015 including the 4.75%
sales charge. An investment in the Fund's Class C shares on 5/25/94 at net
asset value would have been worth $19,239 on October 31, 2003. The graph and
performance table do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares. The Index's
and Composite's total returns do not reflect commissions or expenses that
would have been incurred if an investor individually purchased or sold the
securities represented in the Index. It is not possible to invest directly in
an Index or a Composite.
** Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC returns for
Class A reflect the maximum 4.75% sales charge. SEC returns for Class B
reflect applicable CDSC based on the following schedule: 5% - 1st and 2nd
years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. SEC 1-year
return for Class C reflects 1% CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
THE VIEWS EXPRESSED IN THIS REPORT ARE THOSE OF THE PORTFOLIO MANAGER AND ARE
CURRENT ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THESE VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND EATON VANCE DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS.
THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE INVESTMENT
DECISIONS FOR AN EATON VANCE FUND ARE BASED ON MANY FACTORS, MAY NOT BE RELIED
ON AS AN INDICATION OF TRADING INTENT ON BEHALF OF ANY EATON VANCE FUND.
5
<Page>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2003
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 2003
<Table>
ASSETS
Investment in Strategic Income Portfolio, at value
(identified cost, $278,453,943) $ 277,081,103
Investment in High Income Portfolio, at value
(identified cost, $61,596,184) 63,839,001
Receivable for Fund shares sold 1,624,876
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 342,544,980
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 1,122,100
Payable for Fund shares redeemed 1,071,550
Payable to affiliate for distribution and service fees 69,929
Payable to affiliate for Trustees' fees 57
Accrued expenses 85,814
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 2,349,450
- ---------------------------------------------------------------------------------------------------
NET ASSETS $ 340,195,530
- ---------------------------------------------------------------------------------------------------
SOURCES OF NET ASSETS
Paid-in capital $ 372,795,458
Accumulated net realized loss from Portfolios (computed on the basis of
identified cost) (33,404,648)
Overdistributed net investment income (65,257)
Net unrealized appreciation from Portfolios (computed on the basis of
identified cost) 869,977
- ---------------------------------------------------------------------------------------------------
TOTAL $ 340,195,530
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES
NET ASSETS $ 48,737,764
SHARES OUTSTANDING 6,020,188
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets DIVIDED BY shares of beneficial interest outstanding) $ 8.10
MAXIMUM OFFERING PRICE PER SHARE
(100 DIVIDED BY 95.25 of $8.10) $ 8.50
- ---------------------------------------------------------------------------------------------------
CLASS B SHARES
NET ASSETS $ 217,340,587
SHARES OUTSTANDING 28,359,330
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE (NOTE 6)
(net assets DIVIDED BY shares of beneficial interest outstanding) $ 7.66
- ---------------------------------------------------------------------------------------------------
CLASS C SHARES
NET ASSETS $ 74,117,179
SHARES OUTSTANDING 7,650,278
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE (NOTE 6)
(net assets DIVIDED BY shares of beneficial interest outstanding) $ 9.69
- ---------------------------------------------------------------------------------------------------
On sales of $25,000 or more, the offering price of Class A shares is reduced.
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
OCTOBER 31, 2003
<Table>
INVESTMENT INCOME
Interest allocated from Portfolios $ 14,960,523
Dividends allocated from Portfolios 125,175
Expenses allocated from Portfolios (1,966,130)
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME FROM PORTFOLIOS $ 13,119,568
- ---------------------------------------------------------------------------------------------------
EXPENSES
Trustees' fees and expenses $ 2,915
Distribution and service fees
Class A 70,077
Class B 1,946,052
Class C 559,690
Transfer and dividend disbursing agent fees 254,823
Registration fees 52,015
Legal and accounting services 42,420
Printing and postage 35,579
Custodian fee 34,403
Miscellaneous 10,223
- ---------------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 3,008,197
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 10,111,371
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) FROM PORTFOLIOS
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 8,102,635
Financial futures contracts (1,037,192)
Written options 251,687
Swap contracts 4,292,036
Foreign currency and forward foreign currency exchange
contract transactions (396,088)
- ---------------------------------------------------------------------------------------------------
NET REALIZED GAIN $ 11,213,078
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 15,986,196
Financial futures contracts (538,824)
Written options 85,812
Swap contracts 839,871
Foreign currency and forward foreign currency exchange contracts 1,109,262
- ---------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 17,482,317
- ---------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 28,695,395
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 38,806,766
- ---------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
6
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
From operations --
Net investment income $ 10,111,371 $ 13,406,462
Net realized gain (loss) 11,213,078 (6,603,858)
Net change in unrealized
appreciation (depreciation) 17,482,317 (2,696,121)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 38,806,766 $ 4,106,483
- ----------------------------------------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income
Class A $ (2,334,579) $ (1,293,307)
Class B (14,878,342) (13,320,246)
Class C (4,266,210) (3,501,766)
Return of capital
Class A -- (55,179)
Class B -- (657,737)
Class C -- (135,287)
- ----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ (21,479,131) $ (18,963,522)
- ----------------------------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest --
Proceeds from sale of shares
Class A $ 36,999,852 $ 14,540,453
Class B 65,385,912 49,549,673
Class C 38,018,958 16,182,754
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class A 1,142,873 563,339
Class B 4,836,578 3,819,622
Class C 2,076,591 1,734,618
Cost of shares redeemed
Class A (8,217,001) (9,037,822)
Class B (39,316,527) (31,787,954)
Class C (14,671,975) (14,311,374)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS $ 86,255,261 $ 31,253,309
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 103,582,896 $ 16,396,270
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
At beginning of year $ 236,612,634 $ 220,216,364
- ----------------------------------------------------------------------------------------------------------------
AT END OF YEAR $ 340,195,530 $ 236,612,634
- ----------------------------------------------------------------------------------------------------------------
OVERDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS
AT END OF YEAR $ (65,257) $ (972,413)
- ----------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
7
<Page>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2003(1) 2002(1)(2) 2001(1) 2000 1999(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- Beginning of year $ 7.550 $ 8.030 $ 8.360 $ 9.110 $ 9.220
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income $ 0.336 $ 0.504 $ 0.705 $ 0.795 $ 0.852
Net realized and unrealized gain (loss) 0.883 (0.286) (0.250) (0.698) (0.095)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 1.219 $ 0.218 $ 0.455 $ 0.097 $ 0.757
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $ (0.669) $ (0.670) $ (0.723) $ (0.847) $ (0.819)
From paid-in capital -- (0.028) (0.062) -- (0.048)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.669) $ (0.698) $ (0.785) $ (0.847) $ (0.867)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 8.100 $ 7.550 $ 8.030 $ 8.360 $ 9.110
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3) 16.65% 2.68% 5.69% 0.88% 8.40%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 48,738 $ 17,418 $ 12,352 $ 10,350 $ 6,050
Ratios (As a percentage of average daily net assets):
Expenses(4) 1.11% 1.17% 1.21% 1.19% 1.08%
Net investment income 4.19% 6.39% 8.63% 8.83% 9.20%
Portfolio Turnover of the Strategic Income Portfolio 71% 63% 54% 49% 47%
Portfolio Turnover of the High Income Portfolio 122% 88% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Net investment income per share was computed using average shares
outstanding.
(2) The Fund, through its investment in the Portfolios, adopted the provisions
of the revised AICPA Audit and Accounting Guide for Investment Companies
and began amortizing market premiums on fixed-income securities, excluding
mortgage-backed securities, and accreting certain discounts using a
different methodology. Additionally, the Portfolios reclassified net losses
realized on prepayments received on mortgage-backed securities that were
previously included in realized gains/losses to interest income. The effect
of these changes for the year ended October 31, 2002 were to decrease net
investment income per share by $0.095, decrease net realized and unrealized
loss per share by $0.095 and decrease the ratio of net investment income to
average net assets from 7.58% to 6.39%. Per share data and ratios for the
periods prior to November 1, 2001 have not been restated to reflect this
change in presentation.
(3) Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. Total return
is not computed on an annualized basis.
(4) Includes the Fund's share of the Portfolios' allocated expenses.
See notes to financial statements.
8
<Page>
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2003(1) 2002(1)(2) 2001(1) 2000 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- Beginning of year $ 7.150 $ 7.600 $ 7.910 $ 8.610 $ 8.720
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income $ 0.269 $ 0.425 $ 0.607 $ 0.674 $ 0.731
Net realized and unrealized gain (loss) 0.817 (0.272) (0.241) (0.651) (0.105)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 1.086 $ 0.153 $ 0.366 $ 0.023 $ 0.626
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $ (0.576) $ (0.575) $ (0.614) $ (0.723) $ (0.688)
From paid-in capital -- (0.028) (0.062) -- (0.048)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.576) $ (0.603) $ (0.676) $ (0.723) $ (0.736)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 7.660 $ 7.150 $ 7.600 $ 7.910 $ 8.610
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3) 15.61% 1.96% 4.82% 0.07% 7.32%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 217,341 $ 173,780 $ 163,261 $ 152,535 $ 155,768
Ratios (As a percentage of average daily net assets):
Expenses(4) 1.86% 1.93% 1.96% 1.98% 1.96%
Net investment income 3.57% 5.68% 7.83% 7.99% 8.31%
Portfolio Turnover of the Strategic Income Portfolio 71% 63% 54% 49% 47%
Portfolio Turnover of the High Income Portfolio 122% 88% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Net investment income per share was computed using average shares
outstanding.
(2) The Fund, through its investment in the Portfolios, adopted the provisions
of the revised AICPA Audit and Accounting Guide for Investment Companies
and began amortizing market premiums on fixed-income securities, excluding
mortgage-backed securities, and accreting certain discounts using a
different methodology. Additionally, the Portfolios reclassified net losses
realized on prepayments received on mortgage-backed securities that were
previously included in realized gains/losses to interest income. The effect
of these changes for the year ended October 31, 2002 were to decrease net
investment income per share by $0.090, decrease net realized and unrealized
loss per share by $0.090 and decrease the ratio of net investment income to
average net assets from 6.86% to 5.68%. Per share data and ratios for the
periods prior to November 1, 2001 have not been restated to reflect this
change in presentation.
(3) Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. Total return
is not computed on an annualized basis.
(4) Includes the Fund's share of the Portfolios' allocated expenses.
See notes to financial statements.
9
<Page>
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2003(1) 2002(1)(2) 2001(1) 2000 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- Beginning of year $ 9.040 $ 9.610 $ 9.990 $ 10.870 $ 11.010
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income $ 0.337 $ 0.538 $ 0.773 $ 0.850 $ 0.912
Net realized and unrealized gain (loss) 1.041 (0.346) (0.304) (0.826) (0.132)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 1.378 $ 0.192 $ 0.469 $ 0.024 $ 0.780
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income $ (0.728) $ (0.734) $ (0.787) $ (0.904) $ (0.872)
From paid-in capital -- (0.028) (0.062) -- (0.048)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.728) $ (0.762) $ (0.849) $ (0.904) $ (0.920)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 9.690 $ 9.040 $ 9.610 $ 9.990 $ 10.870
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(3) 15.68% 1.95% 4.90% 0.02% 7.23%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 74,117 $ 45,414 $ 44,603 $ 40,023 $ 30,882
Ratios (As a percentage of average daily net assets):
Expenses(4) 1.86% 1.93% 1.96% 2.00% 2.03%
Net investment income 3.53% 5.69% 7.89% 7.94% 8.22%
Portfolio Turnover of the Strategic Income Portfolio 71% 63% 54% 49% 47%
Portfolio Turnover of the High Income Portfolio 122% 88% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Net investment income per share was computed using average shares
outstanding.
(2) The Fund, through its investment in the Portfolios, adopted the provisions
of the revised AICPA Audit and Accounting Guide for Investment Companies
and began amortizing market premiums on fixed-income securities, excluding
mortgage-backed securities, and accreting certain discounts using a
different methodology. Additionally, the Portfolios reclassified net losses
realized on prepayments received on mortgage-backed securities that were
previously included in realized gains/losses to interest income. The effect
of these changes for the year ended October 31, 2002 were to decrease net
investment income per share by $0.113, decrease net realized and unrealized
loss per share by $0.113 and decrease the ratio of net investment income to
average net assets from 6.88% to 5.69%. Per share data and ratios for the
periods prior to November 1, 2001 have not been restated to reflect this
change in presentation.
(3) Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. Total return
is not computed on an annualized basis.
(4) Includes the Fund's share of the Portfolios' allocated expenses.
See notes to financial statements.
10
<Page>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2003
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Strategic Income Fund (the Fund) is a non-diversified series of
Eaton Vance Mutual Funds Trust (the Trust). The Fund is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund offers three classes of shares. Class A shares
are generally sold subject to a sales charge imposed at the time of
purchase. Class B and Class C shares are sold at net asset value and are
generally subject to a contingent deferred sales charge (see Note 6). Each
class represents a pro rata interest in the Fund, but votes separately on
class-specific matters and (as noted below) is subject to different
expenses. Realized and unrealized gains and losses are allocated daily to
each class of shares based on the relative net assets of each class to the
total net assets of the Fund. Net investment income, other than class
specific expenses, is allocated daily to each class of shares based upon
the ratio of the value of each class' paid shares to the total value of all
paid shares. Each class of shares differs in its distribution plan and
certain other class specific expenses. The Fund currently invests all of
its investable assets in interests in two Portfolios, Strategic Income
Portfolio and High Income Portfolio (the Portfolios), New York trusts which
have investment objectives consistent with that of the Fund. The value of
the Fund's investment in the Portfolios reflects the Fund's proportionate
interest in the net assets of the Strategic Income Portfolio and the High
Income Portfolio (99.9% and 5.5% at October 31, 2003, respectively). The
performance of the Fund is directly affected by the performance of the
Portfolios. The financial statements of the Strategic Income Portfolio,
including the portfolio of investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements. See Note 8 for further information on the results of operations
of High Income Portfolio. A copy of the financial statements of High Income
Portfolio is available on the EDGAR Database on the Securities and Exchange
Commission's website (www.sec.gov), at the Commission's public reference
room in Washington, DC or upon request from the Fund's principal
underwriter, Eaton Vance Distributors Inc. (EVD) by calling 1-800-225-6265.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in
the United States of America.
A INVESTMENT VALUATION -- Valuation of securities by the Strategic Income
Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial
Statements, which are included elsewhere in this report. High Income
Portfolio's valuation policies are as follows: Fixed income investments
(other than short-term obligations), including listed investments and
investments for which price quotations are available, will normally be
valued on the basis of market valuations furnished by a pricing service.
Marketable securities that are listed on foreign or U.S. securities
exchanges are valued at closing sale prices on the exchange where such
securities are principally traded. Marketable securities listed in the
NASDAQ National Market System are valued at the NASDAQ official closing
price. Listed or unlisted investments for which closing sale prices are not
available are valued at the mean between the latest bid and ask prices.
Financial futures contracts listed on commodity exchanges are valued at
closing settlement prices. Short-term obligations, maturing in sixty days
or less, are valued at amortized cost, which approximates value.
Investments for which there are no quotations or valuations are valued at
fair value using methods determined in good faith by or at the direction of
the Trustees.
B INCOME -- The Fund's net investment income consists of the Fund's pro
rata share of the net investment income of the Portfolios, less all actual
and accrued expenses of the Fund determined in accordance with accounting
principles generally accepted in the United States of America.
C FEDERAL TAXES -- The Fund's policy is to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute to shareholders each year all of its taxable income,
including any net realized gain on investments. Accordingly, no provision
for Federal income or excise tax is necessary. At October 31, 2003, the
Fund, for Federal income tax purposes, had a capital loss carryover of
$35,214,191 which will reduce the Fund's taxable income arising from future
net realized gains on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal income or excise tax. Such capital loss carryover
will expire on October 31, 2006 ($1,984,147), October 31, 2007
($7,933,008), October 31, 2009 ($9,854,300), October 31, 2010 ($14,208,464)
and October 31, 2011 ($1,234,272). The amount of the tax basis capital loss
carryforward differed from the accumulated net realized loss due primarily
to the timing of recording gain/loss on certain futures contracts. At
October 31, 2003, the undistributed ordinary income on a tax basis was
$3,341,979. All distributions in the year ended October 31, 2003 were from
ordinary income for tax purposes.
11
<Page>
D USE OF ESTIMATES -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expense
during the reporting period. Actual results could differ from those
estimates.
E EXPENSES -- The majority of expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated taking into consideration,
among other things, the nature and type of expense and the relative size of
the funds.
2 DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of
record at the time of declaration. Distributions are paid monthly.
Distributions of allocated realized capital gains, if any, are made at
least annually. Shareholders may reinvest income and capital gain
distributions in additional shares of the Fund at the net asset value as of
the ex-dividend date. Distributions are paid in the form of additional
shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial
reporting basis. Accounting principles generally accepted in the United
States of America require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences between book and tax accounting relating to
distributions primarily relate to futures, swaps, and foreign currency
transactions; difference in method for amortizing premiums, accreting
certain discounts and recognizing distributions to shareholders; treatment
of paydown losses; and expired capital loss carryforwards. Permanent
differences between book and tax accounting relating to distributions are
reclassified to paid-in capital.
3 SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------
CLASS A 2003 2002
-------------------------------------------------------------------------------------
Sales 4,600,754 1,831,820
Issued to shareholders electing to receive
payments of distributions in Fund shares 142,606 71,825
Redemptions (1,028,743) (1,135,544)
-------------------------------------------------------------------------------------
NET INCREASE 3,714,617 768,101
-------------------------------------------------------------------------------------
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------
CLASS B 2003 2002
-------------------------------------------------------------------------------------
Sales 8,645,301 6,568,813
Issued to shareholders electing to receive
payments of distributions in Fund shares 639,463 522,773
Redemptions (5,228,731) (4,259,717)
-------------------------------------------------------------------------------------
NET INCREASE 4,056,033 2,831,869
-------------------------------------------------------------------------------------
<Caption>
YEAR ENDED OCTOBER 31,
---------------------------
CLASS C 2003 2002
-------------------------------------------------------------------------------------
Sales 3,953,399 1,722,079
Issued to shareholders electing to receive
payments of distributions in Fund shares 217,482 183,562
Redemptions (1,544,901) (1,521,743)
-------------------------------------------------------------------------------------
NET INCREASE 2,625,980 383,898
-------------------------------------------------------------------------------------
</Table>
4 INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory
services. See Note 2 of each of the Portfolio's Notes to financial
statements. Except as to Trustees of the Fund and the Portfolios who are
not members of EVM's organization, officers and Trustees receive
remuneration for their services to the Fund out of such investment adviser
fee. Certain officers and Trustees of the Fund and of the Portfolios are
officers of the above organizations (see Note 5). EVM serves as the
sub-transfer agent of the Fund and receives an aggregate fee based upon the
actual expenses incurred by EVM in the performance of those services.
12
<Page>
During the year ended October 31, 2003, EVM earned $21,111 in sub-transfer
agent fees. The Fund was informed that Eaton Vance Distributors, Inc.
(EVD), a subsidiary of EVM and the Fund's principal underwriter, received
$30,550 as its portion of the sales charge on sales of Class A shares for
the year ended October 31, 2003.
5 DISTRIBUTION AND SERVICE PLANS
The Fund has in effect distribution plans for Class B shares (Class B Plan)
and Class C shares (Class C Plan) pursuant to Rule 12b-1 under the
Investment Company Act of 1940 and a service plan for Class A shares (Class
A Plan) (collectively, the Plans). The Class B and Class C Plans require
the Fund to pay EVD, amounts equal to 1/365 of 0.75% of the Fund's average
daily net assets attributable to Class B and Class C shares, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue payments to EVD during any period in which there
are no outstanding Uncovered Distribution Charges, which are equivalent to
the sum of (i) 5% and 6.25% of the aggregate amount received by the Fund
for Class B and Class C shares sold, respectively, plus (ii) interest
calculated by applying the rate of 1% over the prevailing prime rate to the
outstanding balance of Uncovered Distribution Charges due EVD, of each
respective class reduced by the aggregate amount of contingent deferred
sales charges (see Note 6) and daily amounts theretofore paid to EVD by
each respective class. The amount payable to EVD with respect to each day
is accrued on such day as a liability of the Fund and, accordingly, reduces
the Fund's net assets. For the year ended October 31, 2003, the Fund paid
or accrued $1,459,539 and $419,767, respectively, to or payable to EVD
representing 0.75% of average daily net assets of Class B and Class C
shares, respectively. At October 31, 2003, the amount of Uncovered
Distribution Charges of EVD calculated under the Plans was approximately
$31,866,000 and $6,105,000 for Class B and Class C shares, respectively.
The Plans authorize the Fund to make payments of service fees to EVD,
investment dealers and other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets attributable to Class A, Class B, and Class
C shares for the fiscal year. Service fee payments will be made for
personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales and commissions and
distribution fees payable by the Fund to EVD, and, as such are not subject
to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of EVD. Service fees for the year ended October 31,
2003 amounted to $70,077, $486,513, and $139,923 for Class A, Class B, and
Class C shares, respectively.
6 CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) generally is imposed on
redemptions of Class B shares made within six years of purchase and on
redemptions of Class C shares made within one year of purchase. Generally,
the CDSC is based on the lower of the net asset value at the date of
redemption or date of purchase. No charge is levied on shares acquired by
reinvestment of dividends or capital gains distributions. The Class B CDSC
is imposed at declining rates that begin at 5% in the case of redemptions
in the first and second years of redemption after purchase, declining one
percentage point each subsequent year. Class C shares will be subject to a
1% CDSC if redeemed within one year of purchase. No CDSC is levied on
shares which have been sold to EVM or its affiliates or to their respective
employees or clients and may be waived under certain other limited
conditions. CDSC charges are paid to EVD to reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plans. CDSC
charges received when no Uncovered Distribution Charges exist will be
credited to the Fund. The Fund has been informed that EVD received
approximately $629,000 and $11,000 of CDSC paid by shareholders of Class B
and Class C shares, respectively, during the year ended October 31, 2003.
7 INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Strategic Income
Portfolio for the year ended October 31, 2003, aggregated $139,366,724 and
$78,107,725, respectively. There were no increases or decreases in the
Fund's investment in the High Income Portfolio for the year ended October
31, 2003.
13
<Page>
8 INVESTMENT IN PORTFOLIOS
For the year ended October 31, 2003, the Fund was allocated net investment
income and realized and unrealized gain (loss) from the Portfolios as
follows:
<Table>
<Caption>
STRATEGIC HIGH
INCOME INCOME
PORTFOLIO PORTFOLIO TOTAL
--------------------------------------------------------------------------------------
Interest income $ 9,112,876 $ 5,847,647 $ 14,960,523
Dividend income -- 125,175 125,175
Expenses (1,598,338) (367,792) (1,966,130)
--------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 7,514,538 $ 5,605,030 $ 13,119,568
--------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions $ 5,872,776 $ 2,229,859 $ 8,102,635
Financial futures contracts (1,037,192) -- (1,037,192)
Written options 251,687 -- 251,687
Swap contracts 4,292,036 -- 4,292,036
Foreign currency and forward
foreign currency
exchange contracts (329,638) (66,450) (396,088)
--------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) $ 9,049,669 $ 2,163,409 $ 11,213,078
--------------------------------------------------------------------------------------
Change in unrealized
appreciation (depreciation)
Investments $ 7,316,866 $ 8,669,330 $ 15,986,196
Financial futures contracts (538,824) -- (538,824)
Written options 85,812 -- 85,812
Swap contracts 839,871 -- 839,871
Foreign currency and forward
foreign currency
exchange contracts 1,101,542 7,720 1,109,262
--------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) $ 8,805,267 $ 8,677,050 $ 17,482,317
--------------------------------------------------------------------------------------
</Table>
9 SHAREHOLDER MEETING (UNAUDITED)
The Fund held a Special Meeting of Shareholders on June 6, 2003 to elect
Trustees. The results of the vote were as follows:
<Table>
<Caption>
NUMBER OF SHARES
NOMINEE FOR TRUSTEE AFFIRMATIVE WITHHOLD
-----------------------------------------------------
Jessica M. Bibliowicz 24,381,879 314,873
Donald R. Dwight 24,429,267 267,485
James B. Hawkes 24,440,664 256,088
Samuel L. Hayes, III 24,440,413 256,339
William H. Park 24,446,175 250,577
Norton H. Reamer 24,434,186 262,566
Lynn A. Stout 24,369,423 327,329
</Table>
Each nominee was also elected a Trustee of the Portfolio. Donald R. Dwight
retired as a Trustee effective July 1, 2003 pursuant to the mandatory
retirement policy of the Trust.
14
<Page>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2003
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF EATON VANCE STRATEGIC INCOME FUND:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Eaton Vance Strategic Income Fund (the "Fund") at October 31, 2003, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 16, 2003
15
<Page>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2003
PORTFOLIO OF INVESTMENTS
BONDS & NOTES -- 98.2%
<Table>
<Caption>
SECURITY PRINCIPAL U.S. $ VALUE
- ---------------------------------------------------------------------------------------------
BRAZIL -- 3.7%
Republic of Brazil, 10.125%, 5/15/27 $ 4,000,000 $ 3,785,000
Republic of Brazil, 11.00%, 8/17/40 6,500,000 6,361,875
- ---------------------------------------------------------------------------------------------
TOTAL BRAZIL (IDENTIFIED COST $6,348,048) $ 10,146,875
- ---------------------------------------------------------------------------------------------
INDONESIA -- 2.6%
APP China Group Ltd., 14.00%, 3/15/10(1) $ 2,000,000 $ 400,000
APP Finance VI, 0.00%, 11/18/12(1)(2) 4,000,000 90,000
APP Finance VII, 3.50%, 4/30/03(1)(2) 2,000,000 85,000
DGS International Finance, 10.00%, 6/1/07(1) 2,000,000 60,000
Indah Kiat Finance Mauritius, Sr. Unsec. Notes,
10.00%, 7/1/07(1) 1,000,000 460,000
Indah Kiat International Finance,
12.50%, 6/15/06(1) 1,000,000 455,000
Indonesia Recapital, 14.00%, 6/15/09 IDR 45,000,000,000 5,633,937
- ---------------------------------------------------------------------------------------------
TOTAL INDONESIA (IDENTIFIED COST $13,457,539) $ 7,183,937
- ---------------------------------------------------------------------------------------------
MOROCCO -- 0.2%
Snap Ltd., 11.50%, 1/29/09 DEM 1,075,000 $ 608,984
- ---------------------------------------------------------------------------------------------
TOTAL MOROCCO (IDENTIFIED COST $541,239) $ 608,984
- ---------------------------------------------------------------------------------------------
NEW ZEALAND -- 2.4%
New Zealand Government,
6.50%, 4/15/13 NZD 10,700,000 $ 6,680,645
- ---------------------------------------------------------------------------------------------
TOTAL NEW ZEALAND (IDENTIFIED COST $4,522,373) $ 6,680,645
- ---------------------------------------------------------------------------------------------
PHILIPPINES -- 0.1%
Bayan Telecommunications,
13.50%, 7/15/06(1)(3) $ 2,000,000 $ 370,000
- ---------------------------------------------------------------------------------------------
TOTAL PHILIPPINES (IDENTIFIED COST $1,917,237) $ 370,000
- ---------------------------------------------------------------------------------------------
UNITED STATES -- 89.2%
CORPORATE BONDS & Notes -- 2.8%
Baltimore Gas and Electric, 6.73%, 6/12/12 $ 400,000 $ 444,698
BellSouth Capital Funding, 6.04%, 11/15/26 300,000 327,424
Coca-Cola Enterprise, 7.00%, 10/1/26 375,000 431,383
Eaton Corp., 8.875%, 6/15/19 500,000 650,301
Ford Holdings, 9.30%, 3/1/30 $ 1,000,000 $ 1,044,886
General Motors Acceptance Corp., 8.875%, 6/1/10 1,000,000 1,145,953
Ingersoll-Rand Co., 6.48%, 6/1/25 1,050,000 1,134,203
NBD Bank N.A., 8.25%, 11/1/24 610,000 762,811
US Bancorp, 7.50%, 6/1/26 840,000 987,097
Williamette Industries, 7.35%, 7/1/26 50,000 56,546
Worldcom, Inc., 6.95%, 8/15/28(1) 1,000,000 370,000
Worldcom, Inc., 7.75%, 4/1/27(1) 1,000,000 370,000
- ---------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & Notes
(IDENTIFIED COST, $7,894,169) $ 7,725,302
- ---------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 17.7%
Federal Home Loan Mortgage Corp.,
Series 1548, Class Z,
7.00%, 7/15/23 $ 2,611,511 $ 2,760,665
Federal Home Loan Mortgage Corp.,
Series 1817, Class Z,
6.50%, 2/15/26 2,534,333 2,640,367
Federal Home Loan Mortgage Corp.,
Series 1927, Class ZA,
6.50%, 1/15/27 9,679,576 10,106,688
Federal National Mortgage Association,
Series 1993-141, Class Z,
7.00%, 8/25/23 6,099,527 6,476,521
Federal National Mortgage Association,
Series 1993-16, Class Z,
7.50%, 2/25/23 10,268,953 10,973,116
Federal National Mortgage Association,
Series 1993-79, Class PL,
7.00%, 6/25/23 6,822,828 7,204,660
Federal National Mortgage Association,
Series 1994-89, Class ZQ,
8.00%, 7/25/24 5,661,736 6,124,928
Federal National Mortgage Association,
Series 1996-35, Class Z,
7.00%, 7/25/26 2,447,985 2,586,200
- ---------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (IDENTIFIED COST, $49,261,867) $ 48,873,145
- ---------------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 68.0%
Federal Home Loan Mortgage Corp.:
6.50% with various maturities to 2024 $ 10,990,238 $ 11,585,562
7.00% with various maturities to 2024 9,967,266 10,624,525
7.50% with various maturities to 2025 29,622,703 31,916,107
7.95% with maturity at 2022 2,263,176 2,456,917
8.00% with various maturities to 2021 1,214,192 1,300,300
</Table>
See notes to financial statements.
16
<Page>
<Table>
<Caption>
SECURITY PRINCIPAL U.S. $ VALUE
- ---------------------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
8.15% with maturity at 2021 $ 1,816,013 $ 1,943,157
8.30% with maturity at 2021 1,248,993 1,382,797
8.47% with maturity at 2018 1,174,205 1,301,421
8.50% with various maturities to 2019 337,915 373,693
9.00% with various maturities to 2027 3,451,042 3,857,286
9.25% with various maturities to 2016 1,051,151 1,141,886
9.50% with various maturities to 2027 2,013,487 2,267,809
9.75% with various maturities to 2020 230,850 258,434
10.00% with maturity at 2021 526,421 614,146
10.25% with maturity at 2013 589,166 654,126
10.50% with various maturities to 2021 2,350,409 2,785,855
11.00% with various maturities to 2019 4,277,684 5,071,542
11.25% with maturity at 2010 38,970 44,790
12.50% with various maturities to 2019 618,201 744,534
12.75% with maturity at 2013 32,415 38,374
13.25% with maturity at 2013 14,532 17,533
13.50% with maturity at 2019 73,807 88,490
- ---------------------------------------------------------------------------------------------
$ 80,469,284
- ---------------------------------------------------------------------------------------------
Federal National Mortgage Association:
6.50% with various maturities to 2028 $ 19,925,293 $ 20,953,249
7.00% with various maturities to 2024 5,318,886 5,677,936
7.50% with various maturities to 2025 5,733,514 6,152,053
8.00% with various maturities to 2020 735,042 801,187
8.00% with maturity at 2033 (TBA) 2,687,000 2,938,911
8.50% with various maturities to 2026 1,463,970 1,591,574
8.881% with maturity at 2010 705,891 773,235
9.00% with various maturities to 2024 4,147,361 4,609,021
9.50% with various maturities to 2026 2,603,740 2,913,099
10.50% with maturity at 2020 488,722 579,953
11.00% with maturity at 2025 130,773 155,266
11.50% with maturity at 2019 451,261 536,813
12.00% with maturity at 2015 236,956 284,718
12.50% with maturity at 2015 1,360,736 1,638,127
12.75% with maturity at 2014 68,479 84,865
13.00% with various maturities to 2015 546,269 667,079
13.25% with maturity at 2014 79,693 100,035
13.50% with various maturities to 2015 296,968 356,330
14.75% with maturity at 2012 813,325 1,021,157
- ---------------------------------------------------------------------------------------------
$ 51,834,608
- ---------------------------------------------------------------------------------------------
Government National Mortgage Association:
6.00% with maturity at 2033 (TBA) $ 16,000,000 $ 16,643,588
7.00% with various maturities to 2024 10,181,501 10,866,903
7.50% with various maturities to 2028 10,085,163 10,872,928
7.75% with maturity at 2019 214,311 234,465
8.00% with various maturities to 2023 2,461,997 2,693,348
8.30% with various maturities to 2020 1,211,241 1,336,470
8.50% with various maturities to 2021 859,556 942,555
9.00% with various maturities to 2016 414,678 456,514
9.50% with various maturities to 2026 $ 10,020,350 $ 11,246,813
12.50% with maturity at 2019 665,045 803,127
13.50% with maturity at 2014 53,504 67,220
- ---------------------------------------------------------------------------------------------
$ 56,163,931
- ---------------------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS
(IDENTIFIED COST, $186,839,994) $ 188,467,823
- ---------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 0.7%
United States Treasury Bond,
7.875%, 2/15/21(4) --
(identified cost, $1,853,631) $ 1,500,000 $ 1,981,173
- ---------------------------------------------------------------------------------------------
TOTAL UNITED STATES
(IDENTIFIED COST $245,849,661) $ 247,047,443
- ---------------------------------------------------------------------------------------------
TOTAL BONDS & NOTES
(IDENTIFIED COST, $272,636,097) $ 272,037,884
- ---------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
<Caption>
SECURITY SHARES VALUE
- ---------------------------------------------------------------------------------------------
INDONESIA -- 0.0%
Asia Pulp and Paper(1) 2,000 $ 0
- ---------------------------------------------------------------------------------------------
$ 0
- ---------------------------------------------------------------------------------------------
TOTAL INDONESIA (IDENTIFIED COST $0) $ 0
- ---------------------------------------------------------------------------------------------
TOTAL WARRANTS (IDENTIFIED COST $0) $ 0
- ---------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
17
<Page>
SHORT-TERM INVESTMENTS -- 9.2%
<Table>
<Caption>
SECURITY PRINCIPAL VALUE
- -------------------------------------------------------------------------------------
Autobahn funding, 1.12%, 11/6/03 $ 11,000,000 $ 10,998,289
Investors bank & Trust Company Time Deposit,
1.08%, 11/3/03 14,521,000 14,521,000
- -------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST, $25,519,289) $ 25,519,289
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 107.4%
(IDENTIFIED COST $298,155,386) $ 297,557,173
- -------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES -- (7.4)% $ (20,476,057)
- -------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 277,081,116
- -------------------------------------------------------------------------------------
</Table>
DEM - Deutsche Mark
NZD - New Zealand Dollar
IDR - Indonesian Rupiah
(1) Defaulted security.
(2) Convertible bond.
(3) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(4) Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
See notes to financial statements.
18
<Page>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2003
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF OCTOBER 31, 2003
<Table>
ASSETS
Investments, at value (identified cost, $298,155,386) $ 297,557,173
Cash 105
Receivable for investments sold 86,706
Receivable for open swap contracts 529,954
Interest receivable 2,259,459
Receivable for open forward foreign currency contracts 1,278,307
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 301,711,704
- -------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased, including
when-issued securities of $19,676,374 $ 24,098,374
Payable for daily variation margin on open financial futures contracts 120,273
Payable for open forward foreign currency contracts 383,550
Payable to affiliate for Trustees' fees 185
Accrued expenses 28,206
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 24,630,588
- -------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $ 277,081,116
- -------------------------------------------------------------------------------------------
SOURCES OF NET ASSETS
Net proceeds from capital contributions and withdrawals $ 278,453,956
Net unrealized depreciation (computed on the basis of identified cost) (1,372,840)
- -------------------------------------------------------------------------------------------
TOTAL $ 277,081,116
- -------------------------------------------------------------------------------------------
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
OCTOBER 31, 2003
<Table>
INVESTMENT INCOME
Interest $ 9,112,876
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 9,112,876
- -------------------------------------------------------------------------------------------
EXPENSES
Investment adviser fee $ 1,053,507
Administration fee 335,533
Trustees' fees and expenses 11,493
Custodian fee 91,778
Legal and accounting services 91,347
Miscellaneous 14,680
- -------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 1,598,338
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 7,514,538
- -------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 5,872,776
Financial futures contracts (1,037,192)
Written options 251,688
Swap contracts 4,292,036
Foreign currency and forward foreign currency exchange
contract transactions (329,638)
- -------------------------------------------------------------------------------------------
NET REALIZED GAIN $ 9,049,670
- -------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 7,316,866
Financial futures contracts (538,824)
Written options 85,812
Swap contracts 839,871
Foreign currency and forward foreign currency exchange contracts 1,101,542
- -------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 8,805,267
- -------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 17,854,937
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 25,369,475
- -------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
19
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
- ----------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
From operations --
Net investment income $ 7,514,538 $ 10,912,356
Net realized gain 9,049,670 1,956,204
Net change in unrealized
appreciation (depreciation) 8,805,267 (3,749,032)
- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 25,369,475 $ 9,119,528
- ----------------------------------------------------------------------------------
Capital transactions --
Contributions $ 139,366,724 $ 80,054,746
Withdrawals (78,107,725) (78,213,706)
- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS $ 61,258,999 $ 1,841,040
- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 86,628,474 $ 10,960,568
- ----------------------------------------------------------------------------------
NET ASSETS
At beginning of year $ 190,452,642 $ 179,492,074
- ----------------------------------------------------------------------------------
AT END OF YEAR $ 277,081,116 $ 190,452,642
- ----------------------------------------------------------------------------------
</Table>
See notes to financial statements.
20
<Page>
SUPPLEMENTARY DATA
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2003 2002(1) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Ratios (As a percentage of average daily net assets):
Expenses 0.71% 0.77% 0.79% 0.83% 0.86%
Net investment income 3.36% 5.88% 8.10% 8.36% 9.14%
Portfolio Turnover 71% 63% 54% 49% 47%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 12.97% 5.25% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S OMITTED) $ 277,081 $ 190,453 $ 179,492 $ 154,712 $ 150,282
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) The Portfolio adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing market premiums on
fixed-income securities, excluding mortgage-backed securities, and
accreting certain discounts using a different methodology. Additionally,
the Portfolio reclassified net losses realized on prepayments received on
mortgage-backed securities that were previously included in realized
gains/losses to interest income. The effect of these changes for the year
ended October 31, 2002 was a decrease in the ratio of net investment income
to average net assets from 7.32% to 5.88%. Ratios for the periods prior to
October 31, 2001 have not been restated to reflect this change in
presentation.
(2) Total return is required to be disclosed for fiscal years beginning after
December 15, 2000.
See notes to financial statements.
21
<Page>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2003
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Strategic Income Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a non-diversified open-end investment
company. The Portfolio, which was organized as a trust under the laws of
the State of New York in 1992, seeks to achieve a high level of income by
investing in a global portfolio consisting primarily of high grade debt
securities. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. At October 31, 2003, Eaton Vance
Strategic Income Fund held an approximate 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.
A INVESTMENT VALUATION -- Seasoned mortgage backed, pass-through securities
are valued using an independent matrix pricing system applied by the
advisor which takes into account closing bond valuations, yield
differentials, anticipated prepayments and interest rates provided by
dealers. Debt securities (other than seasoned mortgage-backed, pass-through
securities and short-term obligations maturing in sixty days or less),
including listed securities and securities for which price quotations are
available and forward contracts, will normally be valued on the basis of
market valuations furnished by pricing services. Marketable securities that
are listed on foreign or U.S. securities exchanges are valued at closing
sale prices on the exchange where such securities are principally traded.
Marketable securities listed in the NASDAQ National Market System are
valued at the NASDAQ official closing price. Unlisted or listed securities
for which closing sale prices are not available are valued at the mean
between the latest available bid and ask prices. For foreign investments,
if trading or events occurring in other markets after the close of the
principal exchange in which the securities are traded are expected to
materially affect the value of the investments, then those investments are
valued, taking into consideration these events, at their fair value
following procedures approved by the Trustees. Financial futures contracts
listed on commodity exchanges and exchange-traded options are valued at
closing settlement prices. Short-term obligations and money-market
securities maturing in sixty days or less are valued at amortized cost
which approximates value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency
and translated to U.S. dollars at the current exchange rate. Investments
for which market quotations are unavailable are valued at fair value using
methods determined in good faith by or at the direction of the Trustees.
B INCOME -- Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of premium or accretion of
discount. Dividend income is recorded on the ex-dividend date for dividends
received in cash and/or securities. However, if the ex-dividend date has
passed, certain dividends from foreign securities are recorded as the
Portfolio is informed of the ex-dividend date. Dividend income may include
dividends that represent returns of capital for federal income tax
purposes.
C GAINS AND LOSSES FROM INVESTMENT TRANSACTIONS -- Realized gains and
losses from investment transactions are recorded on the basis of identified
cost. For book purposes, gains and losses are not recognized until
disposition. For federal tax purposes, the Portfolio is subject to special
tax rules that may affect the amount, timing and character of gains
recognized on certain of the Portfolio's investments.
D INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since 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 any
other items of income, gain, loss, deduction or credit. Withholding taxes
on foreign dividends and capital gains have been provided for in accordance
with the Portfolio's understanding of the applicable countries' tax rules
and rates.
E FINANCIAL FUTURES CONTRACTS -- Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount (initial margin),
either in cash or securities, equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio (variation margin) each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed for
both hedging against anticipated future changes in interest or currency
exchange rates and investment purposes. Should interest or currency
exchange rates move
22
<Page>
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. If the Portfolio enters
into a closing transaction, the Portfolio will realize, for book purposes,
a gain or loss equal to the difference between the value of the financial
futures contract to sell and financial futures contract to buy.
F WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Portfolio may engage
in when-issued and delayed delivery transactions. The Portfolio records
when-issued securities on trade date and maintains security positions such
that sufficient liquid assets will be available to make payments for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked-to-market daily and begin earning interest on
settlement date.
G FOREIGN CURRENCY TRANSLATION -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing
on the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to changes in foreign currency
exchange rates are recorded for financial statement purposes as net
realized gains and losses on investments. That portion of unrealized gains
and losses on investments that results from fluctuations in foreign
currency exchange rates is not separately disclosed.
H WRITTEN OPTIONS -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amount paid on the transaction to determine the
realized gain or loss. If a put option is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio
as writer of an option may have no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the securities
underlying the written option.
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. Risks may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from movements in
the value of a foreign currency relative to the U.S. dollar. The Portfolio
will enter into forward contracts for hedging purposes as well as
non-hedging purposes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any
gains or losses are recorded for financial statement purposes as unrealized
until such time as the contracts have been closed.
J REVERSE REPURCHASE AGREEMENTS -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty,
in return for cash. At the same time, the Portfolio agrees to repurchase
the security at an agreed-upon price and time in the future. The Portfolio
may enter into reverse repurchase agreements for temporary purposes, such
as to fund withdrawals, or for use as hedging instruments where the
underlying security is denominated in a foreign currency. As a form of
leverage, reverse repurchase agreements may increase the risk of
fluctuation in the market value of the Portfolio's assets or in its yield.
Liabilities to counterparties under reverse repurchase agreements are
recognized in the Statement of Assets and Liabilities at the same time at
which cash is received by the Portfolio. The securities underlying such
agreements continue to be treated as owned by the Portfolio and remain in
the Portfolio of Investments. Interest charged on amounts borrowed by the
Portfolio under reverse repurchase agreements is accrued daily.
K TOTAL RETURN SWAPS -- The Portfolio may enter into swap agreements to
enhance return, to hedge against fluctuations in securities prices or
interest rates or as substitution for the purchase or sale of securities.
Pursuant to these agreements, the Portfolio makes monthly payments at a
rate equal to a predetermined spread to the one-month LIBOR. In exchange,
the Portfolio receives payments based on the rate of return of a benchmark
industry index. During the term of the outstanding swap agreement, changes
in the underlying value of the swap are recorded as unrealized gains and
losses. Payments received or made at the end of the measurement period are
recorded as realized gains and losses. The value of the swap is determined
by changes in the relationship between the rate of interest and the
benchmark industry index. The Portfolio is exposed to credit loss in the
event of non-performance by the swap counterparty. However, the Portfolio
does not anticipate non-performance by the counterparty. Risk may also
arise from the unanticipated movements in value of interest rates or the
index.
23
<Page>
L EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balance the Portfolio maintains with IBT. All significant
credits used to reduce the Portfolio's custodian fees are reported
separately as a reduction of total expenses in the Statement of Operations.
For the year ended October 31, 2003, $284 in credits were used to reduce
the Portfolio's custodian fee.
M USE OF ESTIMATES -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expense
during the reporting period. Actual results could differ from those
estimates.
N OTHER -- Investment transactions are accounted for on a trade date basis.
2 INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research
(BMR), a subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The
fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
investments and paydown gains/losses). Such percentages are reduced as
average daily net assets exceed certain levels. For the year ended October
31, 2003, the fee was equivalent to 0.47% of the Portfolio's average net
assets for such period and amounted to $1,053,507. An administration fee,
computed at an effective annual rate of 0.15% of average daily net assets
was also paid to BMR for administrative services and office facilities.
Such fee amounted to $335,533 for the year ended October 31, 2003.
Except as to Trustees of the Portfolio who are not members of EVM's or
BMR's organization, officers and Trustees receive remuneration for their
services to the Portfolio out of such investment adviser fee. Trustees of
the Portfolio that are not affiliated with the Investment Adviser may elect
to defer receipt of all or a portion of their annual fees in accordance
with the terms of the Trustees Deferred Compensation Plan. For the year
ended October 31, 2003, no significant amounts have been deferred. Certain
officers and Trustees of the Portfolio are officers of the above
organizations.
3 LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR
or EVM and its affiliates in a $150 million unsecured line of credit
agreement with a group of banks. Borrowings will be made by the Portfolio
solely to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Interest is charged to each portfolio or fund
based on its borrowings at an amount above the Eurodollar rate or federal
funds rate. In addition, a fee computed at an annual rate of 0.10% on the
daily unused portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter. The
Portfolio did not have any significant borrowings or allocated fees during
the year ended October 31, 2003.
4 INVESTMENT TRANSACTIONS
The Portfolio invests primarily in foreign government and U.S. Government
debt securities. The ability of the issuers of the debt securities to meet
their obligations may be affected by economic developments in a specific
industry or country. The Portfolio regularly invests in lower rated and
comparable quality unrated high yield securities. These investments have
different risks than investments in debt securities rated investment grade
and held by the Portfolio. Risk of loss upon default by the borrower is
significantly greater with respect to such debt securities than with other
debt securities because these securities are generally unsecured and are
more sensitive to adverse economic conditions, such as recession or
increasing interest rates, than are investment grade issuers. At October
31, 2003, the Portfolio had invested 6.74% of its net assets or
approximately $18,700,000 in high yield securities. Purchases and sales of
investments, other than short-term obligations, and including paydowns on
mortgage backed securities, for the year ended October 31, 2003 were as
follows:
<Table>
PURCHASES
Investments (non-U.S. Government) $ 18,374,699
U.S. Government Securities 206,077,687
---------------------------------------------------
$ 224,452,386
---------------------------------------------------
SALES
Investments (non-U.S. Government) $ 50,801,352
U.S. Government Securities 99,056,190
---------------------------------------------------
$ 149,857,542
---------------------------------------------------
</Table>
24
<Page>
5 FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities and to assist
in managing exposure to various market risks. These financial instruments
include written options, forward foreign currency contracts, financial
futures contracts and swaps and may involve, to a varying degree, elements
of risk in excess of the amounts recognized for financial statement
purposes. The notional or contractual amounts of these instruments
represent the investment the Portfolio has in particular classes of
financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered. A summary of obligations under these financial
instruments at October 31, 2003 is as follows:
<Table>
<Caption>
NET UNREALIZED
SETTLEMENT DATES DELIVER IN EXCHANGE FOR APP/DEP.
----------------------------------------------------------------------------------
1/28/04 Czech Republic Koruna United States Dollar
173,417,000 6,134,312 $ (139,344)
11/03/03 - 9/20/04 Euro Dollar United States Dollar
21,600,000 24,942,051 (88,020)
1/15/04 Euro Dollar Hungarian Forint
5,365,333 1,451,430,000 152,780
11/26/03 Euro Dollar Slovakia Koruna
5,700,000 241,281,000 127,173
9/27/04 Hong Kong Dollar United States Dollar
50,400,000 6,514,153 14,436
11/25/03 Japanese Yen United States Dollar
1,083,600,000 9,841,604 (59,728)
11/21/03 Mexican Peso United States Dollar
35,000,000 3,085,468 (76,990)
- ---------------------------------------------------------------------------------------
$ (69,693)
- ---------------------------------------------------------------------------------------
<Caption>
NET UNREALIZED
SETTLEMENT DATES IN EXCHANGE FOR DELIVER APP/DEP.
-----------------------------------------------------------------------------------
11/12/03 Columbian Peso United States Dollar
16,000,000 5,463,529 $ 82,439
1/15/04 Euro Dollar Czech Republic Koruna
5,380,424 170,513,700 67,152
11/3/03 Euro Dollar United States Dollar
7,950,000 9,252,210 (16,695)
1/28/04 Hungarian Forint United States Dollar
1,485,594 6,136,282 368,524
12/8/03 - 1/30/04 Indonesian Rupiah United States Dollar
107,000,000,000 12,288,212 148,804
12/8/03 Indian Rupee United States Dollar
282,500,000 6,131,973 103,142
1/30/04 Korean Won United States Dollar
3,686,000,000 3,091,763 1,109
9/20/04 Slovakia Koruna United States Dollar
243,219,000 6,402,810 190,568
1/30/04 Taiwan United States Dollar
107,000,000 3,160,071 (2,773)
1/30/04 Thai Baht United States Dollar
130,000,000 3,235,843 22,180
----------------------------------------------------------------------------------
$ 964,450
----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
WRITTEN CALL OPTIONS NUMBER OF CONTRACTS PREMIUMS
-----------------------------------------------------------------
Outstanding, beginning of year 250 $ 251,688
-----------------------------------------------------------------
Options expired (250) (251,688)
-----------------------------------------------------------------
Outstanding, end of year -- $ --
-----------------------------------------------------------------
</Table>
FUTURES CONTRACTS
<Table>
<Caption>
EXPIRATION NET UNREALIZED
DATE(S) CONTRACTS POSITION DEPRECIATION
----------------------------------------------------------------------
12/03 17 Japan Bond 10 year Short $ (311,625)
12/03 884 U.S. Treasury 5 year Note Short (1,889,155)
----------------------------------------------------------------------
$ (2,200,780)
----------------------------------------------------------------------
</Table>
At October 31, 2003, the Portfolio had sufficient cash and/or securities to
cover potential obligations arising from open futures and forward
contracts, as well as margin requirements on open futures contracts.
25
<Page>
The Portfolio has entered into a total return swap agreement with Credit
Suisse First Boston International whereby the Portfolio makes monthly
payments at a rate equal to the one-month LIBOR plus 0.05% on the notional
amount of $10,000,000. In exchange, the Portfolio receives payments equal
to the total returns on the Lehman Brothers U.S. Corporate High Yield Bond
Index on the same notional amount. The value of the contract, which
terminates on December 1, 2003 is recorded as a receivable for open swap
contracts of $191,877 at October 31, 2003.
The Portfolio has entered into a total return swap agreement with Lehman
Brothers whereby the Portfolio makes monthly payments at a rate equal to
the one-month LIBOR minus 0.10% on the notional amount of $20,000,000. In
exchange, the Portfolio receives payments equal to the total returns on the
Lehman Brothers U.S. Corporate High Yield Bond Index on the same notional
amount. The value of the contract, which terminates on May 1, 2004 is
recorded as a receivable for open swap contracts of $386,338 at October 31,
2003.
The Portfolio has entered into a total return swap agreement with Morgan
Stanley Capital Services whereby the Portfolio makes quarterly payments at
a rate equal to the three-month LIBOR minus 1.50% on the notional amount of
$1,000,000. In exchange, the Portfolio receives payments equal to the total
returns on the MSCI Poland Gross Dividend Reinvested Index on the same
notional amount. The value of the contract, which terminates on October 7,
2004 is recorded as a receivable for open swap contracts of $(36,107) at
October 31, 2003.
The Portfolio has entered into a total return swap agreement with Morgan
Stanley Capital Services whereby the Portfolio makes quarterly payments at
a rate equal to the three-month LIBOR minus 1.50% on the notional amount of
$1,100,000. In exchange, the Portfolio receives payments equal to the total
returns on the MSCI Hungary Gross Dividend Reinvested Index on the same
notional amount. The value of the contract, which terminates on October 7,
2004 is recorded as a receivable for open swap contracts of $(12,154) at
October 31, 2003.
6 FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of the
investments at October 31, 2003, as computed on a federal income tax basis,
were as follows:
<Table>
AGGREGATE COST $ 299,180,060
-----------------------------------------------------
Gross unrealized appreciation $ 8,920,622
Gross unrealized depreciation (10,543,509)
----------------------------------------------------
NET UNREALIZED DEPRECIATION $ (1,622,887)
----------------------------------------------------
</Table>
The net unrealized appreciation on foreign currency, swaps, forwards and
futures contracts at October 31, 2003 on a federal income tax basis was
$249,722.
7 INTERESTHOLDER MEETING (UNAUDITED)
The Portfolio held a Special Meeting of Interestholders on June 6, 2003 to
elect Trustees. The results of the vote were as follows:
<Table>
<Caption>
INTEREST IN THE PORTFOLIO
NOMINEE FOR TRUSTEE AFFIRMATIVE WITHHOLD
------------------------------------------------------------
Jessica M. Bibliowicz 99% 1%
Donald R. Dwight 99% 1%
James B. Hawkes 99% 1%
Samuel L. Hayes, III 99% 1%
William H. Park 99% 1%
Norton H. Reamer 99% 1%
Lynn A. Stout 99% 1%
</Table>
Results are rounded to the nearest whole number. Donald R. Dwight retired
as a Trustee effective July 1, 2003 pursuant to the mandatory retirement
policy of the Portfolio.
26
<Page>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2003
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF STRATEGIC INCOME PORTFOLIO:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Strategic Income Portfolio (the "Portfolio")
at October 31, 2003, and the results of its operations, the changes in its net
assets, and the supplementary data for the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 16, 2003
27
<Page>
EATON VANCE STRATEGIC INCOME FUND
MANAGEMENT AND ORGANIZATION
Fund Management. The Trustees of Eaton Vance Mutual Funds Trust (the Trust) and
Strategic Income Portfolio and High Income Portfolio (the Portfolios) are
responsible for the overall management and supervision of the Trust's and
Portfolios' affairs. The Trustees and officers of the Trust and the Portfolios
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 Portfolios 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 The Eaton Vance
Building, 255 State Street, Boston, Massachusetts 02109. 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 Portfolios' placement agent and a wholly-owned subsidiary of EVM.
<Table>
<Caption>
NUMBER OF
POSITION(S) TERM OF PORTFOLIOS
WITH THE OFFICE AND IN FUND COMPLEX
NAME AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH THE PORTFOLIOS SERVICE DURING PAST FIVE YEARS TRUSTEE(1) OTHER DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE(S)
Jessica M. Bibliowicz Trustee Since 1998 Chairman,President and 192 Director of National
11/28/59 Chief Executive Officer Financial Partners
of National Financial
Partners (financial
services company) (since
April 1999). President and
Chief Operating Officer
of John A. Levin & Co.
(registered investment
adviser) (July 1997 to
April 1999) and a Director
of Baker, Fentress&
Company, which owns John
A. Levin& Co. (July 1997
to April 1999).
Ms. Bibliowicz is an
interested person because
of her affiliation with a
brokerage firm.
James B. Hawkes Trustee Trustee of Chairman, President and 194 Director of EVC
11/9/41 the Trust Chief Executive Officer
since 1991; of BMR, EVC, EVM and EV;
of the Director of EV; Vice
Portfolios President and Director of
since 1992 EVD. Trustee and/or
officer of 194
registered investment
companies in the Eaton
Vance Fund Complex.
Mr. Hawkes is an interested
person because of his
positions with BMR, EVM,
EVC and EV, which are
affiliates of the Trust and
the Portfolios.
NONINTERESTED TRUSTEE(S)
Samuel L. Hayes, III Trustee Trustee of Jacob H. Schiff Professor 194 Director of Tiffany &
2/23/35 the Trust of Investment Banking Co. (specialty
since 1986; Emeritus, Harvard retailer) and
of the University Graduate Telect, Inc.
Portfolios School of Business (telecommunication
since 1993 Administration. services company)
William H. Park Trustee Since 2003 President and Chief 191 None
9/19/47 Executive Officer, Prizm
Capital Management, LLC
(investment management
firm) (since 2002).
Executive Vice President
and Chief Financial
Officer, United Asset
Management Corporation (a
holding company owning
institutional investment
management firms)
(1982-2001).
Ronald A. Pearlman Trustee Since 2003 Professor of Law, 191 None
7/10/40 Georgetown University Law
Center (since 1999). Tax
Partner Covington &
Burling, Washington, DC
(1991-2000).
</Table>
28
<Page>
<Table>
<Caption>
NUMBER OF
POSITION(S) TERM OF PORTFOLIOS
WITH THE OFFICE AND IN FUND COMPLEX
NAME AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH THE PORTFOLIOS SERVICE DURING PAST FIVE YEARS TRUSTEE(1) OTHER DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTERESTED
TRUSTEE(S) (CONTINUED)
Norton H. Reamer Trustee Trustee of President and Chief 194 None
9/21/35 the Trust Executive Officer of
since 1986; Asset Management Finance
of the Corp. (a specialty
Portfolios finance company serving
since 1993 the investment management
industry) (since
October 2003). President,
Unicorn Corporation (an
investment and financial
advisory services
company) (since
September 2000). Formerly,
Chairman, Hellman, Jordan
Management Co., Inc. (an
investment management
company) (2000-2003).
Formerly, Advisory
Director of Berkshire
Capital Corporation
(investment banking firm)
(2002-2003). Formerly,
Chairman of the Board,
United Asset Management
Corporation (a holding
company owning
institutional investment
management firms) and
Chairman, President and
Director, UAM Funds
(mutual funds)
(1980-2000).
Lynn A. Stout Trustee Since 1998 Professor of Law, 194 None
9/14/57 University of California
at Los Angeles School of
Law (since July 2001).
Formerly, Professor of
Law, Georgetown
University Law Center.
</Table>
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
<Table>
<Caption>
POSITION(S) TERM OF
WITH THE OFFICE AND
NAME AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE PORTFOLIOS SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------------------
Thomas E. Faust Jr. President of the Trust Since 2002 Executive Vice President of EVM, BMR, EVC and EV; Chief
5/31/58 Investment Officer of EVM and BMR and Director of EVC.
Chief Executive Officer of Belair Capital Fund LLC,
Belcrest Capital Fund LLC, Belmar Capital Fund LLC,
Belport Capital Fund LLC and Belrose Capital Fund LLC
(private investment companies sponsored by EVM). Officer
of 53 registered investment companies managed by EVM or
BMR.
William H. Ahern, Jr. Vice President of the Since 1995 Vice President of EVM and BMR. Officer of 35 registered
7/28/59 Trust investment companies managed by EVM or BMR.
Thomas J. Fetter Vice President of the Since 1997 Vice President of EVM and BMR. Trustee and President of
8/20/43 Trust The Massachusetts Health & Education Tax-Exempt Trust.
Officer of 127 registered investment companies managed by
EVM or BMR.
Thomas P. Huggins Vice President of the Since 2000 Vice President of EVM and BMR. Officer of 8 registered
3/7/66 High Income Portfolio investment companies managed by EVM or BMR.
Michael R. Mach Vice President of the Since 1999 Vice President of EVM and BMR. Previously, Managing
7/15/47 Trust Director and Senior Analyst for Robertson Stephens
(1998-1999). Officer of 25 registered investment
companies managed by EVM or BMR.
Robert B. MacIntosh Vice President of the Since 1998 Vice President of EVM and BMR. Officer of 127 registered
1/22/57 Trust investment companies managed by EVM or BMR.
Duncan W. Richardson Vice President of the Since 2001 Senior Vice President and Chief Equity Investment
10/26/57 Trust Officer of EVM and BMR. Officer of 41 registered
investment companies managed by EVM or BMR.
Walter A. Row, III Vice President of the Since 2001 Director of Equity Research and a Vice President of EVM
7/20/57 Trust and BMR. Officer of 22 registered investment companies
managed by EVM or BMR.
</Table>
29
<Page>
<Table>
<Caption>
POSITION(S) TERM OF
WITH THE OFFICE AND
NAME AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE PORTFOLIOS SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------------------
Judith A. Saryan Vice President of the Since 2003 Vice President of EVM and BMR. Previously, Portfolio
8/21/54 Trust Manager and Equity Analyst for State Street Global
Advisers (1980-1999). Officer of 24 registered investment
companies managed by EVM or BMR.
Susan Schiff Vice President of the Since 2002 Vice President of EVM and BMR. Officer of 26 registered
3/13/61 Trust and investment companies managed by EVM or BMR.
the Strategic
IncomePortfolio
Mark S. Venezia President of Since 2002(2) Vice President of EVM and BMR. Officer of 3 registered
5/23/49 Strategic Income investment companies managed by EVM or BMR.
Portfolio
Michael W. Weilheimer President of High Since 2002(2) Vice President of EVM and BMR. Officer of 10 registered
2/11/61 Income Portfolio investment companies managed by EVM or BMR.
Alan R. Dynner Secretary Since 1997 Vice President, Secretary and Chief Legal Officer of
10/10/40 BMR, EVM, EVD, EV and EVC. Officer of 194 registered
investment companies managed by EVM or BMR.
Barbara E. Campbell Treasurer of the Since 2002(2) Vice President of EVM and BMR. Officer of 194 registered
6/19/57 Portfolios investment companies managed by EVM or BMR.
James L. O'Connor Treasurer of the Trust Since 1989 Vice President of BMR, EVM and EVD. Officer of 115
4/1/45 registered investment companies managed by EVM or BMR.
</Table>
(1) Includes both master and feeder funds in a master-feeder structure.
(2) Prior to 2002, Mr. Venezia served as Vice President of Strategic Income
Portfolio since 1992, Mr. Weilheimer served as Vice President of High
Income Portfolio since 1995, Ms. Campbell served as Assistant Treasurer of
High Income Portfolio since 1993 and Strategic Income Portfolio since 1998.
The SAI for the Fund includes additional information about the Trustees and
officers of the Fund and the Portfolios and can be obtained without charge by
calling 1-800-225-6265.
30
<Page>
This Page Intentionally Left Blank
<Page>
This Page Intentionally Left Blank
<Page>
INVESTMENT ADVISER OF STRATEGIC INCOME PORTFOLIO
BOSTON MANAGEMENT AND RESEARCH
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
ADMINISTRATOR OF EATON VANCE STRATEGIC INCOME FUND
EATON VANCE MANAGEMENT
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
PRINCIPAL UNDERWRITER
EATON VANCE DISTRIBUTORS, INC.
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
(617) 482-8260
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC INC.
ATTN: EATON VANCE FUNDS
P.O. BOX 9653
PROVIDENCE, RI 02940-9653
(800) 262-1122
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
125 HIGH STREET
BOSTON, MA 02110
EATON VANCE STRATEGIC INCOME FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH
CONTAINS MORE COMPLETE INFORMATION ON THE FUND, INCLUDING ITS DISTRIBUTION PLAN,
SALES CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
<Page>
028-12/03 SISRC
<Page>
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.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has designated William H. Park, Samuel L. Hayes, III and
Norton H. Reamer, each an independent trustee, as its audit committee financial
experts. Mr. Park is a certified public accountant who is the President and
Chief Executive Officer of Prizm Capital Management, LLC (a fixed income
investment management firm). Previously, he served as Executive Vice President
and
<Page>
Chief Financial Officer of United Asset Management Corporation ("UAM") (a
holding company owning institutional investment management firms). Mr. Hayes is
the Jacob H. Schiff Professor of Investment Banking Emeritus of the Harvard
University Graduate School of Business Administration. Mr. Reamer is the
President of Unicorn Capital (an investment and financial advisory services
company), Chairman of Hellman, Jordan Management Co., Inc. (an investment
management company) and Advisory Director of Berkshire Capital Corporation (an
investment banking firm). Previously, Mr. Reamer was Chairman of the Board of
UAM and Chairman, President and Director of the UAM Funds (mutual funds).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Required in Filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Required in Filing.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not required in this filing.
ITEM 8. [RESERVED]
ITEM 9. 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 significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS
(a)(1) Registrant's Code of Ethics - Not applicable (please see Item 2).
(a)(2)(i) Treasurer's Section 302 certification.
<Page>
(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.
EATON VANCE MUTUAL FUNDS TRUST (ON BEHALF OF EATON VANCE STRATEGIC INCOME FUND)
By: /s/ Thomas E. Faust Jr.
-----------------------
Thomas E. Faust Jr.
President
Date: December 19, 2003
-----------------
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 L. O'Connor
-----------------------
James L. O'Connor
Treasurer
Date: December 19, 2003
-----------------
By: /s/ Thomas E. Faust Jr.
-----------------------
Thomas E. Faust Jr.
President
Date: December 19, 2003
-----------------