N-CSR 1 d452366dncsr.htm INTERNATIONAL INCOME PORTFOLIO International Income Portfolio

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act File Number: 811-22049

International Income Portfolio

(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, Massachusetts 02110

(Address of Principal Executive Offices)

Maureen A. Gemma

Two International Place, Boston, Massachusetts 02110

(Name and Address of Agent for Services)

(617) 482-8260

(Registrant’s Telephone Number)

October 31

Date of Fiscal Year End

October 31, 2012

Date of Reporting Period

 

 

 


Item 1. Reports to Stockholders


International Income Portfolio

October 31, 2012

 

Consolidated Portfolio of Investments

 

 

Foreign Government Bonds — 29.6%   
     
Security        Principal
Amount
    Value  
     

Australia — 0.1%

  

Commonwealth of Australia, 6.25%, 4/15/15

  AUD     146,000      $ 164,792   

Commonwealth of Australia, 6.50%, 5/15/13

  AUD     152,000        160,867   
   

Total Australia

      $ 325,659   
   

Bosnia and Herzegovina — 0.9%

  

Republic of Srpska, 1.50%, 6/30/23

  BAM     1,430,229      $ 507,089   

Republic of Srpska, 1.50%, 10/30/23

  BAM     1,518,328        512,164   

Republic of Srpska, 1.50%, 12/15/23

  BAM     724,245        242,431   

Republic of Srpska, 1.50%, 5/31/25

  BAM     4,620,722        1,340,023   

Republic of Srpska, 1.50%, 6/9/25

  BAM     105,000        30,784   
   

Total Bosnia and Herzegovina

      $ 2,632,491   
   

Brazil — 2.1%

  

Nota do Tesouro Nacional, 6.00%, 5/15/15(1)

  BRL     11,400,221      $ 6,139,361   
   

Total Brazil

      $ 6,139,361   
   

Canada — 1.2%

  

Canada Housing Trust, 2.20%, 3/15/14(2)

  CAD     135,000      $ 137,191   

Canada Housing Trust, 3.60%, 6/15/13(2)

  CAD     2,001,000        2,034,599   

Canada Housing Trust, 3.75%, 3/15/20(2)

  CAD     665,000        745,519   

Canada Housing Trust, 4.10%, 12/15/18(2)

  CAD     475,000        537,465   
   

Total Canada

      $ 3,454,774   
   

Colombia — 3.0%

  

Titulos De Tesoreria B, 6.00%, 4/17/13

  COP     6,500,000,000      $ 3,570,544   

Titulos De Tesoreria B, 7.25%, 6/15/16

  COP     9,100,000,000        5,290,799   
   

Total Colombia

      $ 8,861,343   
   

Costa Rica — 0.4%

  

Titulo Propiedad Ud, 1.00%, 1/12/22(1)

  CRC     480,702,006      $ 743,864   

Titulo Propiedad Ud, 1.63%, 7/13/16(1)

  CRC     266,476,112        504,477   
   

Total Costa Rica

      $ 1,248,341   
   

Denmark — 0.9%

  

Kingdom of Denmark, 4.00%, 11/15/15

  DKK     215,000      $ 41,804   

Kingdom of Denmark, 4.00%, 11/15/17

  DKK     1,008,000        206,117   

Kingdom of Denmark, 5.00%, 11/15/13

  DKK     10,898,000        1,993,215   

Kingdom of Denmark, 7.00%, 11/10/24

  DKK     790,000        221,921   
   

Total Denmark

      $ 2,463,057   
   
Security        Principal
Amount
    Value  
     

Dominican Republic — 0.2%

  

Dominican Republic “Bonos Internos” Total Return Linked Bond (Citibank NA), 13.00%, 2/25/13(3)

  DOP     25,000,000      $ 640,840   
   

Total Dominican Republic

      $ 640,840   
   

Georgia — 2.8%

  

Georgia Treasury Bond, 7.40%, 4/19/14

  GEL     5,880,000      $ 3,565,030   

Georgia Treasury Bond, 8.50%, 7/26/17

  GEL     516,000        318,151   

Georgia Treasury Bond, 8.90%, 1/12/14

  GEL     810,000        498,642   

Georgia Treasury Bond, 9.10%, 12/8/13

  GEL     400,000        246,453   

Georgia Treasury Bond, 9.80%, 4/26/17

  GEL     490,000        316,158   

Georgia Treasury Bond, 11.30%, 1/26/17

  GEL     500,000        337,497   

Georgia Treasury Bond, 12.00%, 6/15/13

  GEL     500,000        311,008   

Georgia Treasury Bond, 12.00%, 6/15/14

  GEL     3,222,000        2,090,478   

Georgia Treasury Bond, 12.00%, 9/15/15

  GEL     500,000        338,515   

Georgia Treasury Bond, 13.80%, 12/16/12

  GEL     332,000        201,957   
   

Total Georgia

      $ 8,223,889   
   

Ghana — 1.0%

  

Ghana Government Bond, 23.00%, 8/21/17

  GHS     2,000,000      $ 1,196,850   

Ghana Government Bond, 26.00%, 6/5/17

  GHS     2,600,000        1,679,060   
   

Total Ghana

      $ 2,875,910   
   

Mexico — 2.2%

  

Mexican Bonos, 8.00%, 12/19/13

  MXN     42,279,000      $ 3,346,554   

Mexican Bonos, 9.00%, 12/20/12

  MXN     41,212,200        3,168,687   
   

Total Mexico

      $ 6,515,241   
   

Peru — 3.0%

  

Republic of Peru, 9.91%, 5/5/15

  PEN     16,241,000      $ 7,297,326   

Republic of Peru, 9.91%, 5/5/15(4)

  PEN     3,174,000        1,426,126   
   

Total Peru

      $ 8,723,452   
   

Philippines — 1.6%

  

Republic of the Philippines, 4.95%, 1/15/21

  PHP     106,000,000      $ 2,836,747   

Republic of the Philippines, 8.75%, 3/3/13

  PHP     75,770,000        1,889,773   
   

Total Philippines

      $ 4,726,520   
   

Serbia — 2.7%

  

Serbia Treasury Bill, 0.00%, 11/22/12

  RSD     121,470,000      $ 1,375,737   

Serbia Treasury Bill, 0.00%, 7/4/13

  RSD     329,070,000        3,443,580   

Serbia Treasury Bond, 10.00%, 9/14/15

  RSD     300,080,000        2,968,329   
   

Total Serbia

      $ 7,787,646   
   
 

 

  19   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Portfolio of Investments — continued

 

 

Security        Principal
Amount
    Value  
     

Sweden — 0.4%

  

Government of Sweden, 3.75%, 8/12/17

  SEK     5,510,000      $ 936,331   

Government of Sweden, 6.75%, 5/5/14

  SEK     395,000        64,841   
   

Total Sweden

      $ 1,001,172   
   

Turkey — 2.9%

  

Turkey Government Bond, 0.00%, 11/7/12

  TRY     15,276,000      $ 8,517,148   
   

Total Turkey

      $ 8,517,148   
   

United Kingdom — 0.5%

  

United Kingdom Government Bond, 4.25%, 12/7/27

  GBP     230,000      $ 459,432   

United Kingdom Government Bond, 4.75%, 3/7/20

  GBP     285,000        570,943   

United Kingdom Government Bond, 5.00%, 9/7/14

  GBP     266,000        466,686   
   

Total United Kingdom

      $ 1,497,061   
   

Uruguay — 1.1%

  

Monetary Regulation Bill, 0.00%, 8/15/13

  UYU     47,300,000      $ 2,220,439   

Monetary Regulation Bill, 0.00%, 2/27/14(1)

  UYU     3,604,265        178,136   

Republic of Uruguay, 4.375%, 12/15/28(1)

  UYU     7,010,016        422,731   

Uruguay Notas Del Teso, 10.25%, 8/22/15

  UYU     9,980,000        514,159   
   

Total Uruguay

      $ 3,335,465   
   

Vietnam — 2.6%

  

Vietnam Government Bond, 8.80%, 6/15/14

  VND     55,000,000,000      $ 2,616,666   

Vietnam Government Bond, 11.25%, 5/13/13

  VND     46,250,000,000        2,236,200   

Vietnam Government Bond, 11.40%, 4/19/13

  VND     45,359,500,000        2,191,569   

Vietnam Government Bond, 11.59%, 2/20/14

  VND     8,696,500,000        429,009   
   

Total Vietnam

      $ 7,473,444   
   

Total Foreign Government Bonds
(identified cost $84,823,225)

   

  $ 86,442,814   
                     
Collateralized Mortgage Obligations — 0.5%   
     
Security        Principal
Amount
    Value  

Federal Home Loan Mortgage Corp.:

  

 

Series 2127, Class PG, 6.25%, 2/15/29

    $ 364,593      $ 386,561   

Federal National Mortgage Association:

  

 

Series 2009-62, Class WA, 5.55%, 8/25/39(5)

      901,385        1,016,453   
   

Total Collateralized Mortgage Obligations
(identified cost $1,314,968)

   

  $ 1,403,014   
   
Mortgage Pass-Throughs — 3.9%   
Security        Principal
Amount
    Value  
     

Federal National Mortgage Association:

  

 

2.344%, with maturity at 2035(6)

    $ 1,392,975      $ 1,466,732   

4.154%, with maturity at 2035(6)

      1,326,150        1,447,543   

6.50%, with various maturities to 2036

      2,639,352        3,070,697   

7.00%, with maturity at 2033

      944,381        1,104,203   

7.50%, with maturity at 2035

      522,711        642,282   

8.50%, with maturity at 2032

      468,934        598,437   
                     
      $ 8,329,894   
                     

Government National Mortgage Association:

  

 

7.00%, with maturity at 2035

    $ 1,301,984      $ 1,572,615   

8.00%, with maturity at 2016

      356,225        379,024   

9.00%, with various maturities to 2024

      886,919        1,050,800   
                     
      $ 3,002,439   
                     

Total Mortgage Pass-Throughs
(identified cost $10,474,553)

   

  $ 11,332,333   
                     
Precious Metals — 6.0%   
     
Description        Troy Ounces     Value  

Gold(7)

      6,349      $ 10,929,966   

Platinum(7)

      4,250        6,671,323   
   

Total Precious Metals
(identified cost $17,123,704)

   

  $ 17,601,289   
   
Short-Term Investments — 58.6%   
Foreign Government Securities — 31.8%   
     
Security        Principal
Amount
(000’s omitted)
    Value  

Croatia — 1.6%

  

Republic of Croatia Ministry of Finance, 0.00%, 5/9/13

  HRK     28,000      $ 4,775,178   
   

Total Croatia

      $ 4,775,178   
   

Georgia — 1.2%

  

Bank of Georgia Promissory Note, 1.00%, 12/20/12(4)

  AZN     901      $ 1,149,142   

Georgia Treasury Bill, 0.00%, 1/17/13

  GEL     3,000        1,784,752   

Georgia Treasury Bill, 0.00%, 3/14/13

  GEL     980        577,228   
   

Total Georgia

      $ 3,511,122   
   
 

 

  20   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Portfolio of Investments — continued

 

 

Security        Principal
Amount
(000’s omitted)
    Value  
     

Hong Kong — 1.8%

  

Hong Kong Treasury Bill, 0.00%, 11/7/12

  HKD     20,000      $ 2,580,548   

Hong Kong Treasury Bill, 0.00%, 1/30/13

  HKD     20,000        2,578,874   
   

Total Hong Kong

      $ 5,159,422   
   

Hungary — 0.9%

  

Hungary Treasury Bill, 0.00%, 12/12/12

  HUF     593,320      $ 2,702,008   
   

Total Hungary

      $ 2,702,008   
   

Malaysia — 4.1%

  

Bank Negara Monetary Note, 0.00%, 11/22/12

  MYR     10,823      $ 3,547,189   

Bank Negara Monetary Note, 0.00%, 12/20/12

  MYR     17,534        5,734,020   

Bank Negara Monetary Note, 0.00%, 1/10/13

  MYR     8,005        2,613,405   
   

Total Malaysia

      $ 11,894,614   
   

Mauritius — 1.0%

  

Mauritius Treasury Bill, 0.00%, 1/24/13

  MUR     54,700      $ 1,756,678   

Mauritius Treasury Bill, 0.00%, 4/26/13

  MUR     36,300        1,153,340   
   

Total Mauritius

      $ 2,910,018   
   

Mexico — 1.0%

  

Mexico Cetes, 0.00%, 9/19/13

  MXN     39,750      $ 2,916,224   
   

Total Mexico

      $ 2,916,224   
   

Nigeria — 4.5%

  

Nigeria Treasury Bill, 0.00%, 2/7/13

  NGN     98,200      $ 603,145   

Nigeria Treasury Bill, 0.00%, 2/21/13

  NGN     168,070        1,027,337   

Nigeria Treasury Bill, 0.00%, 3/7/13

  NGN     145,800        884,469   

Nigeria Treasury Bill, 0.00%, 3/28/13

  NGN     97,400        589,855   

Nigeria Treasury Bill, 0.00%, 4/4/13

  NGN     377,600        2,281,108   

Nigeria Treasury Bill, 0.00%, 4/25/13

  NGN     52,900        315,824   

Nigeria Treasury Bill, 0.00%, 5/9/13

  NGN     45,800        272,384   

Nigeria Treasury Bill, 0.00%, 5/23/13

  NGN     285,000        1,692,197   

Nigeria Treasury Bill, 0.00%, 10/24/13

  NGN     975,000        5,416,661   
   

Total Nigeria

      $ 13,082,980   
   

Philippines — 2.1%

  

Philippine Treasury Bill, 0.00%, 11/7/12

  PHP     37,880      $ 919,483   

Philippine Treasury Bill, 0.00%, 2/6/13

  PHP     71,520        1,734,202   

Philippine Treasury Bill, 0.00%, 8/7/13

  PHP     149,240        3,599,402   
   

Total Philippines

      $ 6,253,087   
   
Security        Principal
Amount
(000’s omitted)
    Value  
     

Serbia — 1.5%

  

Serbia Treasury Bill, 0.00%, 1/17/13

  RSD     310,500      $ 3,449,359   

Serbia Treasury Bill, 0.00%, 3/28/13

  RSD     79,350        859,338   
   

Total Serbia

      $ 4,308,697   
   

South Korea — 3.8%

  

Korea Monetary Stabilization Bond, 0.00%, 11/13/12

  KRW     4,505,800      $ 4,127,287   

Korea Monetary Stabilization Bond, 0.00%, 12/25/12

  KRW     7,706,910        7,035,573   
   

Total South Korea

      $ 11,162,860   
   

Sri Lanka — 4.1%

  

Sri Lanka Treasury Bill, 0.00%, 12/7/12

  LKR     244,000      $ 1,854,513   

Sri Lanka Treasury Bill, 0.00%, 2/1/13

  LKR     18,260        136,565   

Sri Lanka Treasury Bill, 0.00%, 3/8/13

  LKR     859,290        6,350,494   

Sri Lanka Treasury Bill, 0.00%, 3/29/13

  LKR     8,590        63,025   

Sri Lanka Treasury Bill, 0.00%, 6/7/13

  LKR     465,550        3,335,618   

Sri Lanka Treasury Bill, 0.00%, 10/4/13

  LKR     50,880        350,584   
   

Total Sri Lanka

      $ 12,090,799   
   

Thailand — 2.7%

  

Bank of Thailand, 0.00%, 11/8/12

  THB     110,050      $ 3,589,306   

Bank of Thailand, 0.00%, 11/15/12

  THB     134,029        4,369,608   
   

Total Thailand

      $ 7,958,914   
   

Uruguay — 1.5%

  

Monetary Regulation Bill, 0.00%, 2/15/13

  UYU     52,100      $ 2,565,462   

Monetary Regulation Bill, 0.00%, 4/26/13(1)

  UYU     33,758        1,696,999   
   

Total Uruguay

      $ 4,262,461   
   

Total Foreign Government Securities
(identified cost $92,511,167)

   

  $ 92,988,384   
   
U.S. Treasury Obligations — 6.9%   
     
Security        Principal
Amount
(000s omitted)
    Value  

U.S. Treasury Bill, 0.00%, 11/15/12(8)

    $ 20,200      $ 20,199,495   
   

Total U.S. Treasury Obligations
(identified cost $20,199,368)

   

  $ 20,199,495   
   
 

 

  21   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Portfolio of Investments — continued

 

 

Other — 19.9%   
     
Description        Interest
(000’s omitted)
    Value  
     

Eaton Vance Cash Reserves Fund, LLC, 0.12%(9)

    $ 58,129      $ 58,129,189   
   

Total Other
(identified cost $58,129,189)

    $  58,129,189   
   

Total Short-Term Investments
(identified cost $170,839,724)

   

  $ 171,317,068   
   

Total Investments — 98.6%
(identified cost $284,576,174)

   

  $ 288,096,518   
   

Other Assets, Less Liabilities — 1.4%

  

  $ 4,237,442   
   

Net Assets — 100.0%

  

  $ 292,333,960   
   

The percentage shown for each investment category in the Consolidated Portfolio of Investments is based on net assets.

 

AUD     Australian Dollar
AZN     Azerbaijani Manat
BAM     Bosnia-Herzegovina Convertible Mark
BRL     Brazilian Real
CAD     Canadian Dollar
COP     Colombian Peso
CRC     Costa Rican Colon
DKK     Danish Krone
DOP     Dominican Peso
GBP     British Pound Sterling
GEL     Georgian Lari
GHS     Ghanaian Cedi
HKD     Hong Kong Dollar
HRK     Croatian Kuna
HUF     Hungarian Forint
KRW     South Korean Won
LKR     Sri Lankan Rupee
MUR     Mauritian Rupee
MXN     Mexican Peso
MYR     Malaysian Ringgit
NGN     Nigerian Naira
PEN     Peruvian New Sol
PHP     Philippine Peso
RSD     Serbian Dinar
SEK     Swedish Krona
THB     Thai Baht
TRY     New Turkish Lira
UYU     Uruguayan Peso
VND     Vietnamese Dong
  (1) 

Inflation-linked security whose principal is adjusted for inflation based on changes in a designated inflation index or inflation rate for the applicable country. Interest is calculated based on the inflation-adjusted principal.

 

  (2) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. At October 31, 2012, the aggregate value of these securities is $3,454,774 or 1.2% of the Portfolio’s net assets.

 

  (3) 

Represents a structured security whose market value and interest rate are linked to the performance of the underlying security.

 

  (4) 

Security exempt from registration under Regulation S of the Securities Act of 1933, which exempts from registration securities offered and sold outside the United States. Security may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

 

  (5) 

Weighted average fixed-rate coupon that changes/updates monthly.

 

  (6) 

Adjustable rate mortgage security. Rate shown is the rate at October 31, 2012.

 

  (7) 

Non-income producing security.

 

  (8) 

Security (or a portion thereof) has been pledged to cover collateral requirements on open financial contracts.

 

  (9)

Affiliated investment company available to Eaton Vance portfolios and funds which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of October 31, 2012.

 

 

  22   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Statement of Assets and Liabilities

 

 

Assets   October 31, 2012  

Investments —

 

Securities of unaffiliated issuers, at value (identified cost, $209,323,281)

  $ 212,366,040   

Affiliated investment, at value (identified cost, $58,129,189)

    58,129,189   

Precious metals, at value (identified cost, $17,123,704)

    17,601,289   

Total Investments, at value (identified cost, $284,576,174)

  $ 288,096,518   

Cash

  $ 449,792   

Restricted cash*

    10,000   

Foreign currency, at value (identified cost, $4,464,719)

    4,454,433   

Interest receivable

    1,940,763   

Interest receivable from affiliated investment

    7,241   

Receivable for open forward foreign currency exchange contracts

    510,703   

Receivable for closed forward foreign currency exchange contracts

    18,515   

Receivable for closed swap contracts

    8,270   

Receivable for closed options

    13,126   

Tax reclaims receivable

    2,664   

Total assets

  $ 295,512,025   
Liabilities        

Payable for investments purchased

  $ 2,579,928   

Payable for variation margin on open financial futures contracts

    18,344   

Payable for open forward foreign currency exchange contracts

    276,358   

Payable for closed forward foreign currency exchange contracts

    2,784   

Payable to affiliates:

 

Investment adviser fee

    149,981   

Trustees’ fees

    890   

Accrued expenses

    149,780   

Total liabilities

  $ 3,178,065   

Net Assets applicable to investors’ interest in Portfolio

  $ 292,333,960   
Sources of Net Assets        

Investors’ capital

  $ 288,576,070   

Net unrealized appreciation

    3,757,890   

Total

  $ 292,333,960   

 

* Represents restricted cash on deposit at the custodian as collateral for open financial contracts.

 

  23   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Statement of Operations

 

 

Investment Income   Year Ended
October 31, 2012
 

Interest (net of foreign taxes, $266,150)

  $ 10,801,614   

Interest allocated from affiliated investment

    52,796   

Expenses allocated from affiliated investment

    (7,011

Total investment income

  $ 10,847,399   
Expenses        

Investment adviser fee

  $ 1,522,808   

Trustees’ fees and expenses

    10,203   

Custodian fee

    480,713   

Legal and accounting services

    104,396   

Miscellaneous

    18,352   

Total expenses

  $ 2,136,472   

Deduct —

 

Reduction of custodian fee

  $ 355   

Total expense reductions

  $ 355   

Net expenses

  $ 2,136,117   

Net investment income

  $ 8,711,282   
Realized and Unrealized Gain (Loss)        

Net realized gain (loss) —

 

Investment transactions

  $ (3,985,371

Investment transactions allocated from affiliated investment

    671   

Financial futures contracts

    (400,129

Swap contracts

    210,431   

Foreign currency and forward foreign currency exchange contract transactions

    3,575,479   

Net realized loss

  $ (598,919

Change in unrealized appreciation (depreciation) —

 

Investments (including net decrease of $70,230 from precious metals)

  $ 1,537,837   

Financial futures contracts

    27,822   

Swap contracts

    (275,074

Foreign currency and forward foreign currency exchange contracts

    407,805   

Net change in unrealized appreciation (depreciation)

  $ 1,698,390   

Net realized and unrealized gain

  $ 1,099,471   

Net increase in net assets from operations

  $ 9,810,753   

 

  24   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Statements of Changes in Net Assets

 

 

    Year Ended October 31,  
Increase (Decrease) in Net Assets   2012     2011  

From operations —

   

Net investment income

  $ 8,711,282      $ 5,290,442   

Net realized gain (loss) from investment transactions, financial futures contracts, swap contracts, foreign currency and forward foreign currency exchange contract transactions

    (598,919     7,529,517   

Net change in unrealized appreciation (depreciation) from investments, financial futures contracts, swap contracts, foreign currency and forward foreign currency exchange contracts

    1,698,390        (6,091,788

Net increase in net assets from operations

  $ 9,810,753      $ 6,728,171   

Capital transactions —

   

Contributions

  $ 95,846,225      $ 35,325,507   

Withdrawals

    (19,978,899     (4,103,246

Net increase in net assets from capital transactions

  $ 75,867,326      $ 31,222,261   

Net increase in net assets

  $ 85,678,079      $ 37,950,432   
Net Assets                

At beginning of year

  $ 206,655,881      $ 168,705,449   

At end of year

  $ 292,333,960      $ 206,655,881   

 

  25   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Consolidated Supplementary Data

 

 

    Year Ended October 31,  
Ratios/Supplemental Data   2012     2011     2010     2009     2008  

Ratios (as a percentage of average daily net assets):

                                       

Expenses(1)

    0.88     0.92     0.96     0.90     1.01

Net investment income

    3.57     2.81     2.51     3.34     4.01

Portfolio Turnover

    37     31     45     28     14

Total Return

    3.93     4.05     1.85     20.91     (0.64 )% 

Net assets, end of year (000’s omitted)

  $ 292,334      $ 206,656      $ 168,705      $ 69,581      $ 33,755   

 

(1) 

Excludes the effect of custody fee credits, if any, of less than 0.005%.

 

  26   See Notes to Consolidated Financial Statements.


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements

 

 

1  Significant Accounting Policies

International Income Portfolio (the Portfolio) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, open-end management investment company. The Portfolio’s investment objective is total return. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. At October 31, 2012, Eaton Vance Diversified Currency Income Fund, Eaton Vance International (Cayman Islands) Strategic Income Fund and Eaton Vance Strategic Income Fund held an interest of 30.8%, 10.8% and 57.4%, respectively, in the Portfolio.

The Portfolio seeks to gain exposure to the commodity markets, in whole or in part, through investments in Eaton Vance IIP Commodity Subsidiary, Ltd. (the Subsidiary), a wholly-owned subsidiary of the Portfolio organized under the laws of the Cayman Islands with the same objective and investment policies and restrictions as the Portfolio. The Portfolio may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary at October 31, 2012 were $18,019,780 or 6.2% of the Portfolio’s consolidated net assets. The accompanying consolidated financial statements include the accounts of the Subsidiary. Intercompany balances and transactions have been eliminated in consolidation.

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 — Debt obligations (including short-term obligations with a remaining maturity of more than sixty days and excluding most seasoned, fixed-rate 30-year mortgage-backed securities as noted below) are generally valued on the basis of valuations provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Most seasoned, fixed-rate 30-year mortgage-backed securities are valued through the use of the investment adviser’s matrix pricing system, which takes into account bond prices, yield differentials, anticipated prepayments and interest rates provided by dealers. Short-term obligations purchased with a remaining maturity of sixty days or less (excluding those that are non-U.S. dollar denominated, which typically are valued by a pricing service or dealer quotes) are generally valued at amortized cost, which approximates market value. Precious metals are valued at the New York composite mean quotation reported by Bloomberg at the valuation time. Exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. Over-the-counter options (including options on securities, indices and foreign currencies) are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Financial futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Portfolio’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service. Interest rate swaps are normally valued using valuations provided by a third party pricing service. Such pricing service valuations are based on the present value of fixed and projected floating rate cash flows over the term of the swap contract. Future cash flows are discounted to their present value using swap rates provided by electronic data services or by broker/dealers. Credit default swaps are normally valued using valuations provided by a third party pricing service. The pricing services employ electronic data processing techniques to determine the present value based on credit spread quotations obtained from broker/dealers and expected default recovery rates determined by the pricing service using proprietary models. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio in a manner that fairly reflects the security’s value, or the amount that the Portfolio might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.

The Portfolio may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities in the same manner as debt obligations described above.

B  Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.

 

  27  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

C  Income — Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Inflation adjustments to the principal amount of inflation-adjusted bonds and notes are reflected as interest income. Withholding taxes on foreign interest have been provided for in accordance with the Portfolio’s understanding of the applicable countries’ tax rules and rates.

D  Federal Taxes — The Portfolio has elected to be treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes on its share of taxable income. Since at least one of the Portfolio’s investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the applicable source of income and diversification requirements (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio will allocate, at least annually among its investors, each investor’s distributive share of the Portfolio’s net investment income, net realized capital gains and any other items of income, gain, loss, deduction or credit.

The Subsidiary is treated as a controlled foreign corporation under the Internal Revenue Code and is not expected to be subject to U.S. federal income tax. The Portfolio is treated as a U.S. shareholder of the Subsidiary. As a result, the Portfolio is required to include in gross income for U.S. federal tax purposes all of the Subsidiary’s income, whether or not such income is distributed by the Subsidiary. If a net loss is realized by the Subsidiary, such loss is not generally available to offset the income earned by the Portfolio.

As of October 31, 2012, the Portfolio had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Portfolio files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.

E  Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Portfolio. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Portfolio maintains with SSBT. All credit balances, if any, used to reduce the Portfolio’s custodian fees are reported as a reduction of expenses in the Consolidated Statement of Operations.

F  Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.

G  Use of Estimates — The preparation of the consolidated 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 consolidated financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

H  Indemnifications — Under the Portfolio’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Portfolio. Under Massachusetts law, if certain conditions prevail, interestholders in the Portfolio could be deemed to have personal liability for the obligations of the Portfolio. However, the Portfolio’s Declaration of Trust contains an express disclaimer of liability on the part of Portfolio interestholders and the By-laws provide that the Portfolio shall assume the defense on behalf of any Portfolio interestholder. Moreover, the By-laws also provide for indemnification out of Portfolio property of any interestholder held personally liable solely by reason of being or having been an interestholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Portfolio enters into agreements with service providers that may contain indemnification clauses. The Portfolio’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet occurred.

I  Financial Futures Contracts — Upon entering into a financial futures contract, the Portfolio is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the purchase price (initial margin). Subsequent payments, known as variation margin, are made or received by the Portfolio each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Portfolio. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Portfolio may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.

J  Forward Foreign Currency Exchange Contracts — The Portfolio may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed or offset by another contract with the same broker for the same settlement date and currency. 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.

K  Written Options — Upon the writing of a call or a put option, the premium received by the Portfolio is included in the Consolidated Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in

 

  28  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

accordance with the Portfolio’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Portfolio is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Portfolio may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.

L  Purchased Options — Upon the purchase of a call or put option, the premium paid by the Portfolio is included in the Consolidated Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Portfolio’s policies on investment valuations discussed above. As the purchaser of an index option, the Portfolio has the right to receive a cash payment equal to any depreciation in the value of the index below the strike price of the option (in the case of a put) or equal to any appreciation in the value of the index over the strike price of the option (in the case of a call) as of the valuation date of the option. If an option which the Portfolio had purchased expires on the stipulated expiration date, the Portfolio will realize a loss in the amount of the cost of the option. If the Portfolio enters into a closing sale transaction, the Portfolio will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the Portfolio exercises a put option on a security, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Portfolio exercises a call option on a security, the cost of the security which the Portfolio purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid.

M  Interest Rate Swaps — Pursuant to interest rate swap agreements, the Portfolio either makes floating-rate payments based on a benchmark interest rate in exchange for fixed-rate payments or the Portfolio makes fixed-rate payments in exchange for payments on a floating benchmark interest rate. Payments received or made are recorded as realized gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. The value of the swap is determined by changes in the relationship between two rates of interest. The Portfolio is exposed to credit loss in the event of non-performance by the swap counterparty. Risk may also arise from movements in interest rates.

N  Cross-Currency Swaps — Cross-currency swaps are interest rate swaps in which interest cash flows are exchanged between two parties based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the inception of the trade. Cross-currency swaps also involve the exchange of the notional amounts at the start of the contract at the current spot rate with an agreement to re-exchange such amounts at a later date at either the same exchange rate, a specified rate or the then current spot rate. The entire principal value of a cross-currency swap is subject to the risk that the counterparty to the swap will default on its contractual delivery obligations.

O  Credit Default Swaps — When the Portfolio is the buyer of a credit default swap contract, the Portfolio is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract if a credit event by a third party, such as a U.S. or foreign corporate issuer or sovereign issuer, on the debt obligation occurs. In return, the Portfolio pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Portfolio would have spent the stream of payments and received no proceeds from the contract. When the Portfolio is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and in certain instances take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring, obligation acceleration and repudiation/moratorium. If the Portfolio is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Portfolio could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Portfolio for the same referenced obligation. As the seller, the Portfolio may create economic leverage to its portfolio because, in addition to its total net assets, the Portfolio is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized gain upon receipt or realized loss upon payment. The Portfolio also records an increase or decrease to unrealized appreciation (depreciation) in an amount equal to the daily valuation. Upfront payments or receipts, if any, are recorded as other assets or other liabilities, respectively, and amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps as presented in Notes 5 and 8. The Portfolio segregates assets in the form of cash or liquid securities in an amount equal to the notional amount of the credit default swaps of which it is the seller. The Portfolio segregates assets in the form of cash or liquid securities in an amount equal to any unrealized depreciation of the credit default swaps of which it is the buyer, marked to market on a daily basis. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.

P  Repurchase Agreements — A repurchase agreement is the purchase by the Portfolio of securities from a counterparty in exchange for cash that is coupled with an agreement to resell those securities to the counterparty at a specified date and price. When a repurchase agreement is entered, the Portfolio typically receives securities with a value that equals or exceeds the repurchase price, including any accrued interest earned on the agreement. The value of such securities will be marked to market daily, and cash or additional securities will be exchanged between the parties as needed. Except in the case of a repurchase agreement entered to settle a short sale, the value of the securities delivered to the Portfolio will be at least equal to 90% of the

 

  29  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

repurchase price during the term of the repurchase agreement. The terms of a repurchase agreement entered to settle a short sale may provide that the cash purchase price paid by the Portfolio is more than the value of purchased securities that effectively collateralize the repurchase price payable by the counterparty. Since in such a transaction, the Portfolio normally will have used the purchased securities to settle the short sale, the Portfolio will segregate liquid assets equal to the marked to market value of the purchased securities that it is obligated to return to the counterparty under the repurchase agreement. In the event of insolvency of the counterparty to a repurchase agreement, recovery of the repurchase price owed to the Portfolio may be delayed. Such an insolvency also may result in a loss to the extent that the value of the purchased securities decreases during the delay or that value has otherwise not been maintained at an amount at least equal to the repurchase price.

2  Investment Adviser Fee and Other Transactions with Affiliates

The investment adviser fee is earned by Boston Management and Research (BMR), a subsidiary of EVM, as compensation for investment advisory services rendered to the Portfolio and the Subsidiary. Pursuant to the investment advisory agreement between the Portfolio and BMR and the investment advisory agreement between the Subsidiary and BMR, the Portfolio and Subsidiary each pay BMR a fee at an annual rate of 0.625% of its respective average daily net assets up to $1 billion and at reduced rates on daily net assets of $1 billion or more, and is payable monthly. In determining the investment adviser fee for the Portfolio and Subsidiary, the applicable advisory fee rate is based on the average daily net assets of the Portfolio (inclusive of its interest in the Subsidiary). Such fee rate is then assessed separately on the Portfolio’s average daily net assets (exclusive of its interest in the Subsidiary) and the Subsidiary’s average daily net assets to determine the amount of the investment adviser fee. The Portfolio invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. For the year ended October 31, 2012, the Portfolio’s investment adviser fee amounted to $1,522,808 or 0.625% of the Portfolio’s consolidated average daily net assets.

Trustees and officers of the Portfolio who are members of EVM’s or BMR’s organizations receive remuneration for their services to the Portfolio out of the investment adviser fee. Trustees of the Portfolio who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended October 31, 2012, no significant amounts have been deferred. Certain officers and Trustees of the Portfolio are officers of the above organizations.

3  Purchases and Sales of Investments

Purchases and sales of investments, other than short-term obligations and including maturities and paydowns, for the year ended October 31, 2012 were as follows:

 

     Purchases      Sales  

Investments (non-U.S. Government)

  $ 69,113,703       $ 39,980,276   

U.S. Government and Agency Securities

            2,557,333   
    $ 69,113,703       $ 42,537,609   

4  Federal Income Tax Basis of Investments

The cost and unrealized appreciation (depreciation) of investments of the Portfolio at October 31, 2012, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

  $ 285,042,039   

Gross unrealized appreciation

  $ 6,383,530   

Gross unrealized depreciation

    (3,329,051

Net unrealized appreciation

  $ 3,054,479   

The net unrealized appreciation on futures contracts, foreign currency and forward foreign currency exchange contracts at October 31, 2012 on a federal income tax basis was $170,662.

5  Financial Instruments

The Portfolio may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include forward foreign currency exchange contracts, financial futures contracts and swap contracts and may involve, to a varying degree, elements of risk

 

  30  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Portfolio has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the 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, 2012 is as follows:

 

Forward Foreign Currency Exchange Contracts            
          

Sales

 
Settlement Date   Deliver    In Exchange For    Counterparty   

Net Unrealized

Appreciation

(Depreciation)

 
11/26/12   Euro
22,473,624
   United States Dollar 29,148,290    State Street Bank and Trust Co.    $ 13,027   
11/26/12   Euro
883,149
   United States Dollar 1,145,745    State Street Bank and Trust Co.      812   
12/17/12   Canadian Dollar
1,300,000
   United States Dollar 1,290,943    Citibank NA      (9,444
                   $ 4,395   
          

Purchases

                    
Settlement Date   In Exchange For    Deliver    Counterparty   

Net Unrealized

Appreciation

(Depreciation)

 
11/7/12  

Guatemalan Quetzal

41,100,000

  

United States Dollar

5,227,411

   Citibank NA    $ 15,367   
11/13/12  

Polish Zloty

12,636,408

  

Euro

3,073,580

   Barclays Bank PLC      (30,063
11/13/12  

Polish Zloty

12,636,000

  

Euro

3,074,079

   JPMorgan Chase Bank      (30,837
11/19/12  

Singapore Dollar

12,290,244

  

United States Dollar

9,996,782

   Standard Chartered Bank      78,658   
11/19/12  

Yuan Renminbi

32,484,000

  

United States Dollar

5,170,142

   Goldman Sachs International      27,869   
11/19/12  

Yuan Renminbi

35,902,000

  

United States Dollar

5,711,877

   Standard Chartered Bank      33,074   
11/26/12  

Swedish Krona

36,809,000

  

Euro

4,322,081

   Barclays Bank PLC      (57,678
11/26/12  

Swedish Krona

22,708,923

  

Euro

2,666,493

   Deutsche Bank      (35,625
11/27/12  

Norwegian Krone

52,604,281

  

Euro

7,133,267

   Citibank NA      (29,331
11/27/12  

Norwegian Krone

20,290,000

  

Euro

2,743,753

   Deutsche Bank      (1,435
11/30/12  

Swiss Franc

1,240,000

  

Euro

1,033,204

   Deutsche Bank      (7,486
12/4/12  

Brazilian Real

6,050,000

  

United States Dollar

2,964,378

   BNP Paribas SA      2,445   
12/10/12  

Indonesian Rupiah

38,304,000,000

  

United States Dollar

3,988,338

   JPMorgan Chase Bank      (20,602
12/14/12  

Indian Rupee

272,100,000

  

United States Dollar

4,848,928

   BNP Paribas SA      168,390   

 

  31  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

Forward Foreign Currency Exchange Contracts (continued)            
          

Purchases

 
Settlement Date   In Exchange For    Deliver    Counterparty   

Net Unrealized

Appreciation

(Depreciation)

 
12/14/12  

Indian Rupee

155,140,000

  

United States Dollar

2,862,679

   BNP Paribas SA    $ (2,015
12/14/12  

Israeli Shekel

5,247,000

  

United States Dollar

1,323,980

   BNP Paribas SA      24,683   
12/17/12  

Canadian Dollar

3,650,795

  

United States Dollar

3,553,085

   Australia and New Zealand Banking Group Limited      98,796   
12/26/12  

Indian Rupee

294,310,000

  

United States Dollar

5,468,108

   Citibank NA      (51,842
4/30/13  

Russian Ruble

93,900,000

  

United States Dollar

2,896,807

   BNP Paribas SA      10,025   
6/14/13  

Canadian Dollar

1,430,000

  

United States Dollar

1,386,901

   Barclays Bank PLC      37,557   
                   $ 229,950   

 

Futures Contracts                              
Expiration Month/Year   Contracts    Position    Aggregate Cost      Value     

Net Unrealized

Appreciation

(Depreciation)

 
12/12   34

U.S. 5-Year Treasury Note

   Short    $ (4,226,625    $ (4,224,500    $ 2,125   
12/12   14

U.S. 10-Year Treasury Note

   Short      (1,860,031      (1,862,437      (2,406
12/12   7
U.S. 30-Year Treasury Bond
   Short      (1,050,235      (1,045,188      5,047   
                                $ 4,766   

At October 31, 2012, the Portfolio had sufficient cash and/or securities to cover commitments under these contracts.

In the normal course of pursuing its investment objective and its use of derivatives, the Portfolio is subject to the following risks:

Credit Risk:  The Portfolio entered into credit default swap contracts to manage certain investment risks and/or to enhance total return.

Foreign Exchange Risk:  The Portfolio engages in forward foreign currency exchange contracts to enhance total return, to seek to hedge against fluctuations in currency exchange rates and/or as a substitute for the purchase or sale of securities or currencies.

Interest Rate Risk:  The Portfolio utilizes various interest rate derivatives including futures and interest rate swaps to enhance total return, to seek to hedge against fluctuations in interest rates and/or to change the effective duration of its portfolio.

The Portfolio enters into swap contracts and forward foreign currency exchange contracts that may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Portfolio’s net assets below a certain level over a certain period of time, which would trigger a payment by the Portfolio for those derivatives in a liability position. At October 31, 2012, the fair value of derivatives with credit-related contingent features in a net liability position was $279,142. The aggregate fair value of assets pledged as collateral by the Portfolio for such liability was $159,996 at October 31, 2012.

The non-exchange traded derivatives in which the Portfolio invests, including swap contracts and forward foreign currency exchange contracts, are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. At October 31, 2012, the maximum amount of loss the

 

  32  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

Portfolio would incur due to counterparty risk was $529,218 with the highest amount from any one counterparty being $205,910. Such maximum amount would be reduced by any unamortized upfront payments received by the Portfolio. Such amount would be increased by any unamortized upfront payments made by the Portfolio. To mitigate this risk, the Portfolio has entered into master netting agreements with substantially all its derivative counterparties, which allows it and a counterparty to aggregate amounts owed by each of them for derivative transactions under the agreement into a single net amount payable by either the Portfolio or the counterparty. At October 31, 2012, the maximum amount of loss the Portfolio would incur due to counterparty risk would be reduced by approximately $58,000 due to master netting agreements. Counterparties may be required to pledge collateral in the form of cash, U.S. Government securities or highly-rated bonds for the benefit of the Portfolio if the net amount due from the counterparty with respect to a derivative contract exceeds a certain threshold. The amount of collateral posted by the counterparties with respect to such contracts would also reduce the amount of any loss incurred.

The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at October 31, 2012 was as follows:

 

    Fair Value  
Consolidated Statement of Assets and Liabilities Caption   Credit     

Foreign

Exchange

     Interest
Rate
 

Net unrealized appreciation*

  $       $       $ 7,172   

Receivable for open forward foreign currency exchange contracts

            510,703           

Total Asset Derivatives

  $       $ 510,703       $ 7,172   

Net unrealized appreciation*

  $       $       $ (2,406

Payable for open forward foreign currency exchange contracts

            (276,358        

Total Liability Derivatives

  $       $ (276,358    $ (2,406
       

*     Amount represents cumulative unrealized appreciation or (depreciation) on futures contracts in the Futures Contracts table above. Only the current day’s variation margin on open futures contracts is reported within the Consolidated Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable.

          

The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Consolidated Statement of Operations by risk exposure for the year ended October 31, 2012 was as follows:    
       
Consolidated Statement of Operations Caption   Credit     

Foreign

Exchange

     Interest
Rate
 

Net realized gain (loss) —

       

Financial futures contracts

  $       $       $ (400,129

Swap contracts

    133,419                 77,012   

Foreign currency and forward foreign currency exchange contract transactions

            3,340,507           

Total

  $ 133,419       $ 3,340,507       $ (323,117

Change in unrealized appreciation (depreciation) —

       

Financial futures contracts

  $       $       $ 27,822   

Swap contracts

    (143,418              (131,656

Foreign currency and forward foreign currency exchange contracts

            563,092           

Total

  $ (143,418    $ 563,092       $ (103,834

The average notional amounts of futures contracts, forward foreign currency exchange contracts and swap contracts outstanding during the year ended October 31, 2012, which are indicative of the volume of these derivative types, were approximately $5,985,000, $113,193,000 and $2,664,000, respectively.

 

  33  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

6  Line of Credit

The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $600 million unsecured line of credit agreement with a group of banks. Borrowings are made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to the Portfolio based on its borrowings at an amount above either the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an annual rate of 0.08% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. Because the line of credit is not available exclusively to the Portfolio, it may be unable to borrow some or all of its requested amounts at any particular time. The Portfolio did not have any significant borrowings or allocated fees during the year ended October 31, 2012.

7  Risks Associated with Foreign Investments

Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Certain foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Portfolio, political or financial instability or diplomatic and other developments which could affect such investments. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker/dealers and issuers than in the United States.

8  Fair Value Measurements

Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

 

Ÿ  

Level 1 – quoted prices in active markets for identical investments

 

Ÿ  

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

Ÿ  

Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments)

In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

  34  


International Income Portfolio

October 31, 2012

 

Notes to Consolidated Financial Statements — continued

 

 

At October 31, 2012, the hierarchy of inputs used in valuing the Portfolio’s investments and open derivative instruments, which are carried at value, were as follows:

 

Asset Description   Level 1      Level 2      Level 3      Total  

Foreign Government Bonds

  $       $ 86,442,814       $         —       $ 86,442,814   

Collateralized Mortgage Obligations

            1,403,014                 1,403,014   

Mortgage Pass-Throughs

            11,332,333                 11,332,333   

Precious Metals

    17,601,289                         17,601,289   

Short-Term Investments —

          

Foreign Government Securities

            92,988,384                 92,988,384   

U.S. Treasury Obligations

            20,199,495                 20,199,495   

Other

            58,129,189                 58,129,189   

Total Investments

  $ 17,601,289       $ 270,495,229       $       $ 288,096,518   

Forward Foreign Currency Exchange Contracts

  $       $ 510,703       $       $ 510,703   

Futures Contracts

    7,172                         7,172   

Total

  $ 17,608,461       $ 271,005,932       $       $ 288,614,393   

Liability Description

                                  

Forward Foreign Currency Exchange Contracts

  $       $ (276,358    $       $ (276,358

Futures Contracts

    (2,406                      (2,406

Total

  $ (2,406    $ (276,358    $       $ (278,764

The Portfolio held no investments or other financial instruments as of October 31, 2011 whose fair value was determined using Level 3 inputs. At October 31, 2012, there were no investments transferred between Level 1 and Level 2 during the year then ended.

 

  35  


International Income Portfolio

October 31, 2012

 

Report of Independent Registered Public Accounting Firm

 

 

To the Trustees and Investors of International Income Portfolio:

We have audited the accompanying consolidated statement of assets and liabilities of International Income Portfolio and subsidiary (the “Portfolio”), including the consolidated portfolio of investments, as of October 31, 2012, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, and the consolidated supplementary data for each of the five years in the period then ended. These consolidated financial statements and consolidated supplementary data are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated supplementary data based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and consolidated supplementary data are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2012, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements and consolidated supplementary data referred to above present fairly, in all material respects, the financial position of International Income Portfolio and subsidiary as of October 31, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the supplementary data for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Boston, Massachusetts

December 21, 2012

 

  36  


Eaton Vance

Diversified Currency Income Fund

October 31, 2012

 

Management and Organization

 

 

Fund Management.  The Trustees of Eaton Vance Mutual Funds Trust (the Trust) and International Income Portfolio (the Portfolio) are responsible for the overall management and supervision of the Trust’s and Portfolio’s affairs. The Trustees and officers of the Trust and the Portfolio are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. Trustees and officers of the Trust and the Portfolio hold indefinite terms of office. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Trust and the Portfolio, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110. As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research and “EVD” refers to Eaton Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVD is the Fund’s principal underwriter, the Portfolio’s placement agent and a wholly-owned subsidiary of EVC. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 187 portfolios in the Eaton Vance Complex (including all master and feeder funds in a master feeder structure). Each officer serves as an officer of certain other Eaton Vance funds. Each Trustee and officer serves until his or her successor is elected.

 

Name and Year of Birth   

Position(s)

with the

Trust and the
Portfolio

     Length of
Service
    

Principal Occupation(s) and Directorships

During Past Five Years and Other Relevant Experience

Interested Trustee

         

Thomas E. Faust Jr.

1958

   Trustee      Since 2007     

Chairman, Chief Executive Officer and President of EVC, Director and President of EV, Chief Executive Officer and President of EVM and BMR, and Director of EVD. Trustee and/or officer of 187 registered investment companies. Mr. Faust is an interested person because of his positions with EVM, BMR, EVD, EVC and EV, which are affiliates of the Trust and the Portfolio.

Directorships in the Last Five Years.(1) Director of EVC and Hexavest Inc.

            

Noninterested Trustees

Scott E. Eston

1956

   Trustee      Since 2011     

Private investor. Formerly held various positions at Grantham, Mayo, Van Otterloo and Co., L.L.C. (investment management firm) (1997-2009), including Chief Operating Officer (2002-2009), Chief Financial Officer (1997-2009) and Chairman of the Executive Committee (2002-2008); President and Principal Executive Officer, GMO Trust (open-end registered investment company) (2006-2009). Former Partner, Coopers and Lybrand L.L.P. (now PricewaterhouseCoopers) (public accounting firm) (1987-1997).

Directorships in the Last Five Years. None.

Benjamin C. Esty

1963

   Trustee      Of the Trust since 2005 and of the Portfolio since 2007     

Roy and Elizabeth Simmons Professor of Business Administration and Finance Unit Head, Harvard University Graduate School of Business Administration.

Directorships in the Last Five Years.(1) None.

Allen R. Freedman

1940

   Trustee      Since 2007     

Private Investor. Former Chairman (2002-2004) and a Director (1983-2004) of Systems & Computer Technology Corp. (provider of software to higher education). Formerly, a Director of Loring Ward International (fund distributor) (2005-2007). Former Chairman and a Director of Indus International, Inc. (provider of enterprise management software to the power generating industry) (2005-2007). Former Chief Executive Officer of Assurant, Inc. (insurance provider) (1979-2000).

Directorships in the Last Five Years.(1) Director of Stonemor Partners, L.P. (owner and operator of cemeteries). Formerly, Director of Assurant, Inc. (insurance provider) (1979-2011).

William H. Park

1947

   Trustee      Of the Trust since 2003 and of the Portfolio since 2007     

Consultant and private investor. Formerly, Chief Financial Officer, Aveon Group L.P. (investment management firm) (2010-2011). Formerly, Vice Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm) (1972-1981).

Directorships in the Last Five Years.(1) None.

Ronald A. Pearlman

1940

   Trustee      Of the Trust since 2003 and of the Portfolio since 2007     

Professor of Law, Georgetown University Law Center. Formerly, Deputy Assistant Secretary (Tax Policy) and Assistant Secretary (Tax Policy), U.S. Department of the Treasury (1983-1985). Formerly, Chief of Staff, Joint Committee on Taxation, U.S. Congress (1988-1990).

Directorships in the Last Five Years.(1) None.

 

  37  


Eaton Vance

Diversified Currency Income Fund

October 31, 2012

 

Management and Organization — continued

 

 

Name and Year of Birth   

Position(s)

with the

Trust and the
Portfolio

     Length of
Service
    

Principal Occupation(s) and Directorships

During Past Five Years and Other Relevant Experience

Noninterested Trustees (continued)

Helen Frame Peters

1948

   Trustee      Since 2008     

Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002). Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm) (1991-1998).

Directorships in the Last Five Years.(1) Formerly, Director of BJ’s Wholesale Club, Inc. (wholesale club retailer) (2004-2011). Formerly, Trustee of SPDR Index Shares Funds and SPDR Series Trust (exchange traded funds) (2000-2009). Formerly, Director of Federal Home Loan Bank of Boston (a bank for banks) (2007-2009).

Lynn A. Stout

1957

   Trustee      Of the Trust since 1998 and of the Portfolio since 2007     

Distinguished Professor of Corporate and Business Law, Jack G. Clarke Business Law Institute, Cornell University Law School. Formerly, the Paul Hastings Professor of Corporate and Securities Law (2006-2012) and Professor of Law (2001-2006), University of California at Los Angeles School of Law.

Directorships in the Last Five Years.(1) None.

Harriett Tee Taggart

1948

   Trustee      Since 2011     

Managing Director, Taggart Associates (a professional practice firm). Formerly, Partner and Senior Vice President, Wellington Management Company, LLP (investment management firm) (1983-2006).

Directorships in the Last Five Years. Director of Albemarle Corporation (chemicals manufacturer) (since 2007) and The Hanover Group (specialty property and casualty insurance company) (since 2009). Formerly, Director of Lubrizol Corporation (specialty chemicals) (2007-2011).

Ralph F. Verni

1943

  

Chairman of the Board and

Trustee

     Chairman of the Board and Trustee of the Portfolio since 2007 and Trustee of the Trust since 2005     

Consultant and private investor. Formerly, Chief Investment Officer (1982-1992), Chief Financial Officer (1988-1990) and Director (1982-1992), New England Life. Formerly, Chairperson, New England Mutual Funds (1982-1992). Formerly, President and Chief Executive Officer, State Street Management & Research (1992-2000). Formerly, Chairperson, State Street Research Mutual Funds (1992-2000). Formerly, Director, W.P. Carey, LLC (1998-2004) and First Pioneer Farm Credit Corp. (2002-2006).

Directorships in the Last Five Years.(1) None.

            

Principal Officers who are not Trustees

    
Name and Year of Birth   

Position(s)

with the

Trust and the

Portfolio

    

Length of

Service

    

Principal Occupation(s)

During Past Five Years

Duncan W. Richardson

1957

   President of the Trust      Since 2011      Director of EVC and Executive Vice President and Chief Equity Investment Officer of EVC, EVM and BMR.

John R. Baur

1970

   President of the Portfolio      Since 2012      Vice President of EVM and BMR.

Payson F. Swaffield

1956

   Vice President      Since 2011      Vice President and Chief Income Investment Officer of EVM and BMR.

Barbara E. Campbell

1957

   Treasurer      Of the Trust since 2005 and of the Portfolio since 2008      Vice President of EVM and BMR.

Maureen A. Gemma

1960

   Vice President, Secretary and Chief Legal Officer      Vice President since 2011, Secretary since 2007 and Chief Legal Officer since 2008      Vice President of EVM and BMR.

 

  38  


Eaton Vance

Diversified Currency Income Fund

October 31, 2012

 

Management and Organization — continued

 

 

Name and Year of Birth   

Position(s)

with the

Trust and the

Portfolio

    

Length of

Service

    

Principal Occupation(s)

During Past Five Years

Principal Officers who are not Trustees (continued)

    

Paul M. O’Neil

1953

   Chief Compliance Officer      Of the Trust since 2004 and of the Portfolio since 2007      Vice President of EVM and BMR.

 

(1)

During their respective tenures, the Trustees (except Mr. Eston and Ms. Taggart) also served as trustees of one or more of the following Eaton Vance funds (which operated in the years noted): Eaton Vance Credit Opportunities Fund (launched in 2005 and terminated in 2010); Eaton Vance Insured Florida Plus Municipal Bond Fund (launched in 2002 and terminated in 2009); and Eaton Vance National Municipal Income Trust (launched in 1998 and terminated in 2009).

The SAI for the Fund includes additional information about the Trustees and officers of the Fund and the Portfolio and can be obtained without charge on Eaton Vance’s website at www.eatonvance.com or by calling 1-800-262-1122.

 

  39  


Eaton Vance Funds

 

IMPORTANT NOTICES

 

 

Privacy.  The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:

 

Ÿ  

Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions.

 

Ÿ  

None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers.

 

Ÿ  

Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information.

 

Ÿ  

We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com.

Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, please call 1-800-262-1122.

Delivery of Shareholder Documents.  The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.

Portfolio Holdings.  Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).

Proxy Voting.  From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.

 

  40  


Investment Adviser of International Income Portfolio

Boston Management and Research

Two International Place

Boston, MA 02110

Investment Adviser and Administrator of Eaton Vance Diversified Currency Income Fund

Eaton Vance Management

Two International Place

Boston, MA 02110

Principal Underwriter*

Eaton Vance Distributors, Inc.

Two International Place

Boston, MA 02110

(617) 482-8260

Custodian

State Street Bank and Trust Company

200 Clarendon Street

Boston, MA 02116

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Attn: Eaton Vance Funds

P.O. Box 9653

Providence, RI 02940-9653

(800) 262-1122

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA 02116-5022

Fund Offices

Two International Place

Boston, MA 02110

 
* FINRA BrokerCheck.  Investors may check the background of their Investment Professional by contacting the Financial Industry Regulatory Authority (FINRA). FINRA BrokerCheck is a free tool to help investors check the professional background of current and former FINRA-registered securities firms and brokers. FINRA BrokerCheck is available by calling 1-800-289-9999 and at www.FINRA.org. The FINRA BrokerCheck brochure describing this program is available to investors at www.FINRA.org.


LOGO

 

3042-12/12    INTLISRC


Item 2. Code of Ethics

Not required in this filing

Item 3. Audit Committee Financial Expert

The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a consultant and private investor. Previously, he served as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).


Item 4. Principal Accountant Fees and Services

(a)-(d)

The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended October 31, 2011 and October 31, 2012 by the registrant’s principal accountant, Deloitte & Touche LLP (“D&T”), for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.

 

Fiscal Years Ended

   10/31/11      10/31/12  

Audit Fees

   $ 55,310       $ 57,930   

Audit-Related Fees(1)

   $ 0       $ 0   

Tax Fees(2)

   $ 22,720       $ 26,670   

All Other Fees(3)

   $ 900       $ 7,630   
  

 

 

    

 

 

 

Total

   $ 78,930       $ 92,230   
  

 

 

    

 

 

 

 

(1) 

Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the category of audit fees.

(2) 

Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other tax related compliance/planning matters.

(3) 

All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services.

(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.

The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.

(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01 (c)(7)(i)(C) of Regulation S-X.

(f) Not applicable.


(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended October 31, 2011 and October 31, 2012; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.

 

Fiscal Years Ended

   10/31/11      10/31/12  

Registrant

   $ 23,620       $ 34,330   

Eaton Vance(1)

   $ 266,431       $ 566,619   

 

(1) Certain subsidiaries of Eaton Vance Corp. provide ongoing services to the registrant.

(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants

Not required in this filing.

Item 6. Schedule of Investments

Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not required in this filing.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.


Item 11. Controls and Procedures

(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.

(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits

 

(a)(1)   Registrant’s Code of Ethics – Not applicable (please see Item 2).
(a)(2)(i)   Treasurer’s Section 302 certification.
(a)(2)(ii)   President’s Section 302 certification.
(b)   Combined Section 906 certification.


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

International Income Portfolio
By:  

/s/ John R. Baur

  John R. Baur
  President
Date:   December 20, 2012

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/ Barbara E. Campbell

  Barbara E. Campbell
  Treasurer
Date:   December 20, 2012
By:  

/s/ John R. Baur

  John R. Baur
  President
Date:   December 20, 2012