<PAGE>
LOGO
Investing
for the
21st
Century(R)
EATON VANCE FLOATING-RATE FUND
A mutual fund seeking high current income
Prospectus Dated
October , 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Information in this prospectus
Page Page
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Fund Summary 2 Sales Charges 7
Investment Objective & Principal Policies
and Risks 4 Redeeming Shares 8
Management and Organization 5 Shareholder Account
Valuing Shares 6 Features 9
Purchasing Shares 6 Tax Information 10
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This prospectus contains important information about the
Fund and the services available to shareholders. Please
save it for reference.
SUBJECT TO COMPLETION - AUGUST 1, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
FUND SUMMARY
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES. The Fund's investment objective
is to provide a high level of current income. To do so, the Fund invests
primarily in senior secured floating rate loans. The Fund will invest a
substantial portion of assets in debt obligations issued in connection with
corporate restructurings.
The Fund invests at least 65% of its net assets in income producing floating
rate loans and other floating rate debt securities. The Fund may also purchase
investment grade fixed income debt securities and money market instruments. The
Fund may invest up to 25% of its total assets in foreign securities and may
engage in certain hedging transactions.
Investments are actively managed, and may be bought or sold on a daily basis
(although loans are generally held until repaid). The investment adviser's staff
monitors the credit quality of Fund holdings, as well as other investments that
are available. Preservation of capital is considered when consistent with the
Fund's objective.
The Fund currently seeks its objective by investing its assets in another
registered investment company.
PRINCIPAL RISK FACTORS. The Fund invests primarily in below investment grade
debt obligations, which are considered speculative because of the credit risk of
their issuers. Such companies are more likely to default on their payments of
interest and principal owed to the Fund, and such defaults will reduce the
Fund's net asset value and income distributions. An economic downturn generally
leads to a higher non-payment rate, and a debt obligation may lose significant
value before a default occurs. Moreover, the specific collateral used to secure
a loan may decline in value or become illiquid, which would adversely affect the
loan's value.
Loans and other debt securities are also subject to the risk of increases in
prevailing interest-rates, although floating rate securities reduce this risk.
Interest rate changes may also increase prepayments of debt obligations and
require the Fund to invest assets at lower yields. Most loans are not actively
traded, which may impair the ability of the Fund to realize full value in the
event of the need to liquidate such assets. Foreign securities are subject to
adverse changes in currency exchange rates and economic and political
developments abroad. Hedging transactions involve a risk of loss due to
unanticipated changes in exchange or interest rates, as well as the risk of
counterparty default.
As a non-diversified fund, the Fund may invest a larger portion of its assets in
the obligations of a limited number of issuers than may a diversified fund. This
makes the Fund more susceptible to adverse economic, business or other
developments affecting such issuers. The Fund may invest, with respect to 50% of
its total assets, more than 5% (but not more than 25%) of its total assets in
securities of any one issuer, other than U.S. Government securities.
The Fund is not a money market fund and its net asset value will fluctuate. The
Fund is not a complete investment program and you may lose money by investing in
the Fund. An investment in the Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE INFORMATION. As of the date of this prospectus, the Fund had not
begun operations so there is no performance history.
2
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FUND FEES AND EXPENSES. These tables describe the fees and expenses that you may
pay if you buy and hold shares.
Shareholder Fees
(fees paid directly from your Class A Class B Class C
investment)
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Maximum Sales Charge (Load)(as a
percentage of offering price) 4.75% None None
Maximum Deferred Sales Charge (Load)(as
a percentage of the lower of net
asset value at time of purchase or time
of redemption) None 5.00% 1.00%
Maximum Sales Charge (Load)Imposed on
Reinvested Distributions None None None
Exchange Fee None None None
Redemption Fee (as a percentage of 1.00%* None None
amount redeemed)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B Class C
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Management Fees 0.58% 0.58 0.58
Distribution and Service (12b-1) Fees 0.00% 1.00% 1.00%
Other Expenses** 0.62% 0.37% 0.37%
----- ----- -----
Total Annual Fund Operating Expenses 1.20% 1.95% 1.95%
* Effective for Class A shares redeemed or exchanged within three months of
purchase.
** Other Expenses are based on estimates and for Class A shares include a
service fee of 0.25%.
EXAMPLE. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years
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Class A shares $ 591* $ 838
Class B shares $ 698 $ 1,012
Class C shares $ 298 $ 612
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years
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Class A shares $ 591 $838
Class B shares $ 198 $612
Class C shares $ 198 $612
* Due to the redemption fee, the cost of investing in Class A shares for one
year would be $100 higher for shares redeemed or exchanged within three
months of purchase.
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<PAGE>
INVESTMENT OBJECTIVE & PRINCIPAL POLICIES AND RISKS
The Fund's investment objective is to provide a high level of current income.
The Fund's investment objective and most policies may be changed by the Trustees
without shareholder approval. The Trustees have no present intention to make a
change and intend to submit any material change in the objective to shareholders
for approval. The Fund currently invests in Floating Rate Portfolio (the
"Portfolio"), which has the same investment objective as the Fund.
The Portfolio normally invests primarily in interests in senior secured floating
rate loans ("Senior Loans"). Senior Loans hold the most senior position in the
capital structure of a business entity (the "Borrower"), are secured with
specific collateral and have a claim on the assets of the Borrower that is
senior to that of subordinated debt and stock of the Borrower. The proceeds of
Senior Loans primarily are used to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, stock repurchases, and, to a lesser extent, to finance
internal growth and for other corporate purposes. Senior Loans typically have
rates of interest which are redetermined either daily, monthly, quarterly or
semi-annually by reference to a base lending rate, plus a premium. These base
lending rates generally are the London Inter-Bank Offered Rate ("LIBOR"), the
prime rate offered by one or more major United States banks (the "Prime Rate"),
the certificate of deposit ("CD") rate or other base lending rates used by
commercial lenders. The Senior Loans held by the Portfolio will have a
dollar-weighted average period until the next interest rate adjustment of
approximately 90 days or less. In the experience of the investment adviser over
the last decade, because of prepayments the average life of Senior Loans has
been two to three years.
The Portfolio may also purchase unsecured loans, other floating rate debt
securities such as notes, bonds and asset-backed securities, investment grade
fixed income debt obligations and money market instruments, such as commercial
paper. Those money market holdings with a remaining maturity of less than 60
days will be deemed floating rate assets.
Loans and other corporate debt obligations are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Fund, a reduction in the value of the investment
and a potential decrease in the net asset value of the Fund. There can be no
assurance that the liquidation of any collateral securing a loan would satisfy
the Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Portfolio could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. To the extent that a Senior Loan is
collateralized by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy of a Borrower.
Some Senior Loans are subject to the risk that a court, pursuant to fraudulent
conveyance or other similar laws, could subordinate such Senior Loans to
presently existing or future indebtedness of the Borrower or take other action
detrimental to the holders of Senior Loans including, in certain circumstances,
invalidating such Senior Loans.
Many loans in which the Portfolio will invest may not be rated by a rating
agency, and may not be registered with the Securities and Exchange Commission or
any state securities commission and will not be listed on any national
securities exchange. The amount of public information available with respect to
Senior Loans will generally be less extensive than that available for rated,
registered or exchange listed securities. In evaluating the creditworthiness of
Borrowers, the investment adviser will consider, and may rely in part, on
analyses performed by others. Borrowers may have outstanding debt obligations
that are rated below investment grade by a rating agency. Rating agencies have
begun rating Senior Loans and most Senior Loans have been assigned a rating
below investment grade. Debt securities which are unsecured and rated below
investment grade (i.e. Baa and below by Moody's Investors Service, Inc.
("Moody's") or BBB and below by Standard & Poor's Ratings Group ("S&P")) and
comparable unrated bonds, are viewed by the rating agencies as having
speculative characteristics and are commonly known as "junk bonds". A
description of the ratings of corporate bonds by Moody's and S&P is included as
Appendix A to the Statement of Additional Information. Because of the protective
features of Senior Loans (being senior and secured by specific collateral), the
investment adviser believes that Senior Loans tend to have more favorable loss
recovery rates as compared to most other types of below investment grade debt
obligations. Accordingly, the investment adviser does not view ratings as a
determinative factor in its investment decisions and relies more upon its credit
analysis abilities than upon ratings.
The value of Fund shares will usually change in response to interest rate
fluctuations, although investment in floating rate obligations will mitigate
this risk. When interest rates decline, the value of holdings may rise.
Conversely, when interest rates rise, the value of holdings may decline. Other
economic factors (such as a large downward movement in stock prices) can also
adversely impact the markets for debt obligations. Rating downgrades of holdings
will generally reduce their value.
4
<PAGE>
Most Loans are not highly marketable and may be subject to restrictions on
resale. No active trading market may exist for many loans. A secondary market
may be subject to irregular trading activity, wide bid/ask spreads and extended
trade settlement periods, which may impair the ability to realize full value.
The Portfolio may invest not more than 15% of its net assets in illiquid
securities, which may be difficult to value properly and may involve greater
risks.
The Portfolio may invest up to 25% of total assets in foreign securities,
predominantly in developed countries. The value of foreign securities is
affected by changes in foreign tax laws (including withholding tax), government
policies (in this country or abroad) and relations between nations, and trading,
settlement, custodial and other operational risks. In addition, the costs of
investing abroad are generally higher than in the United States, and foreign
securities markets may be less liquid, more volatile and less subject to
governmental supervision than markets in the United States. Foreign investments
also could be affected by other factors not present in the United States,
including exploration, armed conflict, confiscatory taxation, lack of uniform
accounting and auditing standards, less publicly available financial and other
information and potential difficulties in enforcing contractual obligations. The
Portfolio may use forward currency exchange contracts to attempt to mitigate
adverse effects of foreign currency fluctuations. These contracts allow The
Portfolio to establish a currency exchange rate with payment and delivery at a
future date. They are subject to a risk of loss due to unanticipated changes in
currency exchange rates and default by the counterparty to the contract. There
can be no assurance that this hedging strategy will be advantageous.
The Portfolio may use interest rate swaps for risk management purposes and not
as a speculative investment and would typically use interest rate swaps to
shorten the average interest rate reset time of the Portfolio's holdings.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interests, e.g., an exchange of
fixed rate payments for floating rate payments. The use of interest rate swaps
is a highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The investment adviser has had limited experience in the use of interest rate
swaps but has utilized other types of hedging techniques. If the investment
adviser is incorrect in its forecasts of market values, interest rates and other
applicable factors, the investment performance of the Fund would be less
favorable than what it would have been if this investment technique were never
used.
The Portfolio may borrow amounts up to one-third of the value of its total
assets (including borrowings), but will not borrow more than 5% of the value of
its total assets except to satisfy redemption requests or for other temporary
purposes. Such borrowings would result in increased expense and, while they are
outstanding, magnify increases or decreases in the value of Fund shares. The
Portfolio will not purchase additional investment securities while outstanding
borrowings exceed 5% of the value of its total assets. During unusual market
conditions, the Portfolio may temporarily invest up to 100% of its assets in
cash or cash equivalents. While temporarily invested, the Fund may not achieve
its investment objective.
MANAGEMENT AND ORGANIZATION
MANAGEMENT. The Portfolio's investment adviser is Boston Management and Research
("BMR"), a subsidiary of Eaton Vance Management ("Eaton Vance"), with offices at
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109. Eaton
Vance has been managing assets since 1924 and managing mutual funds since 1931.
Eaton Vance and its subsidiaries currently manage over $46 billion on behalf of
mutual funds, institutional clients and individuals.
The investment adviser manages the investments of the Portfolio and provides
related office facilities and personnel. Under its investment advisory
agreement with the Portfolio, BMR receives a monthly advisory fee equal to the
aggregate of a daily asset based fee and a daily income based fee. The fees are
applied on the basis of the following categories.
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
--------------------------------------------------------------------------------
1 up to $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
Scott H. Page and Payson F. Swaffield, Vice Presidents of Eaton Vance and BMR,
are co-portfolio managers of the Portfolio (since inception) and of other Eaton
Vance floating-rate loan portfolios (since August 1, 1996). Prior thereto,
Messrs. Page and Swaffied were senior analysts of Eaton Vance.
5
<PAGE>
The investment adviser and the Fund and the Portfolio have adopted Codes of
Ethics governing personal securities transactions. Under the Codes, Eaton Vance
employees may purchase and sell securities (including securities held by the
Portfolio) subject to certain pre-clearance and reporting requirements and other
procedures.
Eaton Vance serves as administrator of the Fund, providing the Fund with
administrative services and related office facilities. In return, the Fund is
authorized to pay Eaton Vance a fee of 0.15% of average daily net assets.
ORGANIZATION. The Fund is a series of Eaton Vance Mutual Funds Trust, a
Massachusetts business trust. The Fund offers multiple classes of shares. Each
Class represents a pro rata interest in the Fund, but is subject to different
expenses and rights. The Fund does not hold annual shareholder meetings, but may
hold special meetings for matters that require shareholder approval (like
electing or removing trustees, approving management contracts or changing
investment policies that may only be changed with shareholder approval). Because
the Fund invests in the Portfolio, it may be asked to vote on certain Portfolio
matters (like changes in certain Portfolio investment restrictions). When
necessary, the Fund will hold a meeting of its shareholders to consider the
Portfolio matter and then vote its interest in the Portfolio in proportion to
the votes cast by its shareholders. The Fund can withdraw from the Portfolio at
any time.
VALUING SHARES
The Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The purchase
price of shares is their net asset value (plus a sales charge for Class A
shares), which is derived from Portfolio holdings. Most loans are valued by
dealer quotations and most other debt securities are valued by an independent
pricing service; however, the investment adviser may use the fair value of a
foreign security if events occurring after the close of a foreign securities
market would materially affect net asset value. Because foreign securities trade
on days when Fund shares are not priced, net asset value can change at times
when Fund shares cannot be redeemed.
When purchasing or redeeming Fund shares, your investment dealer must
communicate your order to the principal underwriter by a specific time each day
in order for the purchase price or redemption price to be based on that day's
net asset value per share. It is the investment dealer's responsibility to
transmit orders promptly. The Fund may accept purchase and redemption orders as
of the time of their receipt by certain investment dealers (or their designated
intermediaries).
PURCHASING SHARES
You may purchase shares through your investment dealer or by mailing the account
application form included in this prospectus to the transfer agent (see back
cover for address). Your initial investment must be at least $1,000. The price
of Class A shares is the net asset value plus a sales charge. The price of Class
B and Class C shares is the net asset value; however, you may be subject to a
sales charge (called a "contingent deferred sales charge" or "CDSC") if you
redeem Class B shares within six years of purchase or Class C shares within one
year of purchase. The sales charges are described below. Your investment dealer
can help you decide which Class of shares suits your investment needs.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and Class of
Shares with each investment.
You may also make automatic investments of $50 or more each month or each
quarter from your bank account. You can establish bank automated investing on
the account application or by calling 1-800-262-1122. The minimum initial
investment amount and Fund policy of redeeming accounts with low account
balances are waived for bank automated investing accounts and certain group
purchase plans.
You may purchase Fund shares in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. The Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
6
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SALES CHARGES
FRONT END SALES CHARGE. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of Net as a Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------ -------------- ----------------- ---------------
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than $100,000 4.50% 4.71% 4.25%
$100,000 but less than $250,000 3.75% 3.90% 3.50%
$250,000 but less than $500,000 3.00% 3.09% 2.75%
$500,000 but less than $1,000,000 2.00% 2.04% 2.00%
$1,000,000 or more 0.00* 0.00* See Below
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more. A CDSC of 1.00% will be imposed on such investments (as
described below) in the event of redemptions within 12 months of purchase.
The principal underwriter will pay a commission to investment dealers on sales
of $1 million or more as follows: 1.00% on amounts of $1 million or more but
less than $3 million; plus 0.50% on amounts over $3 million but less than $5
million; plus 0.25% on amounts over $5 million. Purchases totaling $1 million or
more will be aggregated over a 12-month period for purposes of determining the
commission. The principal underwriter may also pay commissions of up to 1.00% on
sales of Class A shares to certain tax-deferred retirement plans.
CONTIGENT DEFERRED SALES CHARGE. Each Class of shares is subject to a CDSC on
certain redemptions. Class A shares purchased at net asset value in amounts of
$1 million or more are subject to a 1.00% CDSC if redeemed within 12 months of
purchase. Class C shares are subject to a 1.00% CDSC if redeemed within 12
months of purchase. Class B shares are subject to the following CDSC schedule:
Year of Redemption After Purchase CDSC
-------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh or following 0%
The CDSC is based on the lower of the net asset value at the time of purchase or
at the time of redemption. Shares acquired through the reinvestment of
distributions are exempt from the CDSC. Redemptions are made first from shares
that are not subject to a CDSC.
CLASS B CONVERSION FEATURE. After eight years, your Class B shares will
automatically convert to Class A shares. Class B shares acquired through the
reinvestment of distributions will convert in proportion to shares not so
acquired.
REDUCING OR ELIMINATING SALES CHARGES. Front-end sales charges on purchases of
Class A shares may be reduced under the right of accumulation or under a
statement of intention. Under the right of accumulation, the sales charges you
pay are reduced if the current market value of your current holdings (based on
the current offering price), plus your new purchases, total $25,000 or more.
Class A shares of other Eaton Vance funds owned by you can be included as part
of your current holdings for this purpose. Under a statement of intention,
purchases of $25,000 or more made over a 13-month period are eligible for
reduced sales charges. Under a statement of intention, the principal underwriter
may hold 5% of the dollar amount to be purchased in escrow in the form of shares
registered in your name until you satisfy the statement or the 13-month period
expires.
Class A shares are offered at net asset value to clients of financial
intermediaries who charge a fee for their services; accounts affiliated with
those financial intermediaries; tax-deferred retirement plans; investment and
institutional clients of Eaton Vance; certain persons affiliated with Eaton
Vance; and certain Eaton Vance and fund service providers. Ask your investment
dealer for details. Class A shares are also sold at net asset value if the
amount invested represents redemption proceeds from a mutual fund not affiliated
with Eaton Vance, provided the redemption occurred within 60 days of the Fund
share purchase and the redeemed shares were subject to a sales charge. Class A
7
<PAGE>
shares so acquired will be subject to a0.50% CDSC if they are redeemed within 12
months of purchase. Investment dealers will be paid a commission on such sales
equal to 0.50% of the amount invested.
CDSCs are waived for certain redemptions pursuant to a Withdrawal Plan (see
"Shareholder Account Features") and, for Class B and Class C shares, in
connection with certain redemptions from tax-sheltered retirement plans. Call
1-800-225-6265 for details. The Class B CDSC is also waived following the death
of all beneficial owners of shares, but only if the redemption is requested
within one year after death (a death certificate and other applicable documents
may be required).
If you redeem shares, you may reinvest at net asset value all or any portion of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Under these circumstances your
account will be credited with any CDSC paid in connection with the redemption.
Any CDSC period applicable to the shares you acquire upon reinvestment will run
from the date of your original share purchase. Reinvestment requests must be in
writing. If you reinvest, you will be sold shares at the next determined net
asset value following receipt of your request.
DISTRIBUTION AND SERVICE FEES. Class B and Class C shares have in effect plans
under Rule 12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B and Class C shares pay
distribution fees of 0.75% of average daily net assets annually. Because these
fees are paid from Fund assets on an ongoing basis, they will increase your cost
over time and may cost you more than paying other types of sales charges. All
Classes pay service fees for personal and/or account services equal to 0.25% of
average daily net assets annually. The principal underwriter pays commissions to
investment dealers on sales of Class B and Class C shares (except exchange
transactions and reinvestments). The sales commission on Class B shares equals
4% of the purchase price of the shares. The principal underwriter compensates
investment dealers who sell Class C shares at a rate of 1.00% of the purchase
price of the shares, consisting of 0.75% of sales commission and 0.25% of
service fee (for the first year's service). After the first year, investment
dealers also receive 0.75% of the value of Class C shares in annual distribution
fees. After the sale of shares, the principal underwriter receives service fees
for one year and thereafter investment dealers receive them based on the value
of shares sold by such dealers. Distribution and service fees are subject to the
limitations contained in the sales charge rule of the National Association of
Securities Dealers, Inc.
REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with any
certificates and stock powers. The request must be signed
exactly as your account is registered and signature
guaranteed. You can obtain a signature guarantee at certain
banks, savings and loan institutions, credit unions,
securities dealers, securities exchanges, clearing agencies
and registered securities associations. You may be asked to
provide additional documents if your shares are registered
in the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 by calling the transfer agent
at 1-800-262-1122 on Monday through Friday, 9:00 a.m. to
4:00 p.m. (eastern time). Proceeds of a telephone redemption
can be mailed only to the account address. Shares held by
corporations, trusts or certain other entities and shares
that are subject to fiduciary arrangements cannot be
redeemed by telephone.
<PAGE>
Through an Investment
Dealer Your investment dealer is responsible for transmitting the
order promptly. An investment dealer may charge a fee for
this service.
Redemptions (including exchanges) of Class A shares made within three months of
their purchase will be subject to a redemption fee equal to 1% of the amount
redeemed. All redemption fees will be paid to the Fund. Redemptions of shares
acquired as the result of reinvesting distributions and those held by 401(k)
plans or in proprietary fee-based programs sponsored by broker-dealers are not
subject to the redemption fee.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and/or redemption fee and any federal income tax
required to be withheld. Payments will be sent by mail unless you complete the
Bank Wire Redemptions section of the account application.
8
<PAGE>
If you recently purchased shares, the proceeds of a redemption will not be sent
until the purchase check (including a certified or cashier's check) has cleared.
If the purchase check has not cleared, redemption proceeds may be delayed up to
15 days from the purchase date. If your account value falls below $750 (other
than due to market decline), you may be asked to either add to your account or
redeem it within 60 days. If you take no action, your account will be redeemed
and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account(R) for you. Share certificates are issued only on request.
DISTRIBUTIONS. You may have your Fund distributions paid in one of the
following ways:
Full Reinvest
Option Dividends and capital gains are reinvested in additional
shares. This option will be assigned if you do not specify
an option.
Partial Reinvest
Option Dividends are paid in cash and capital gains are reinvested
in additional shares.
Cash Option Dividends and capital gains are paid in cash.
Exchange Option Dividends and/or capital gains are reinvested in additional
shares of another Eaton Vance fund chosen by you. Before
selecting this option, you must obtain a prospectus of the
other fund and consider its objectives and policies
carefully.
INFORMATION FROM THE FUND. From time to time, you may be mailed the following:
Annual and Semi-Annual Reports, containing performance information and
financial statements.
Periodic account statements, showing recent activity and total share
balance.
Form 1099 and tax information needed to prepare your income tax returns.
Proxy materials, in the event a shareholder vote is required.
Special notices about significant events affecting your Fund.
WITHDRAWAL PLAN. You may redeem shares on a regular monthly or quarterly basis
by establishing a systematic withdrawal plan. Withdrawals will not be subject to
any applicable CDSC if they are, in the aggregate, less than or equal to 12%
annually of the greater of either the initial account balance or the current
account balance. A minimum account size of $5,000 is required to establish a
systematic withdrawal plan. Because purchases of Class A shares are generally
subject to an initial sales charge, you should not make withdrawals from your
account while you are making purchases.
TAX-SHELTERED RETIREMENT PLANS. Class A and Class C shares are available for
purchase in connection with certain tax-sheltered retirement plans. Call
1-800-225-6265 for information. Distributions will be invested in additional
shares for all tax-sheltered retirement plans.
EXCHANGE PRIVILEGE. You may exchange your Fund shares for shares of the same
Class of another Eaton Vance fund. Exchanges are generally made at net asset
value. If you hold Class A shares for less than six months and exchange them for
shares subject to a higher sales charge, you will be charged the difference
between the two sales charges. If your shares are subject to a CDSC, the CDSC
will continue to apply to your new shares at the same CDSC rate. For purposes of
the CDSC, your shares will continue to age from the date of your original
purchase. Class A shares may also be exchanged for the Fund's Institutional
Shares, subject to the terms for investing in those shares.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, write to the transfer agent (address on back cover)
or call 1-800-262-1122. Periodic automatic exchanges are also available. The
exchange privilege may be changed or discontinued at any time. You will receive
60 days' notice of any material change to the privilege. This privilege may not
be used for "market timing". If an account (or group of accounts) makes more
than two round-trip exchanges (exchanged from one fund to another and back
again) within 12 months, it will be deemed to be market timing. The exchange
privilege may be terminated for market timing accounts.
9
<PAGE>
TELEPHONE AND ELECTRONIC TRANSACTIONS. You can redeem or exchange shares by
telephone as described in this prospectus. In addition, certain transactions may
be conducted through the Internet. The transfer agent and the principal
underwriter have procedures in place to authenticate telephone and electronic
instructions (such as using security codes or verifying personal account
information). As long as the transfer agent and principal underwriter follow
reasonable procedures, they will not be responsible for unauthorized telephone
or electronic transactions and you bear the risk of possible loss resulting from
these transactions. You may decline the telephone redemption option on the
account application. Telephone instructions are tape recorded.
"STREET NAME" ACCOUNTS. If your shares are held in a "street name" account at an
investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. You will not be able to
utilize a number of shareholder features, such as telephone transactions,
directly with the Fund. The transfer of shares in a "street name" account to an
account with another investment dealer or to an account directly with the Fund
involves special procedures and you will be required to obtain historical
information about your shares prior to the transfer. Before establishing a
"street name" account with an investment dealer, you should determine whether
that dealer allows reinvestment of distributions in "street name" accounts.
ACCOUNT QUESTIONS. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
The Fund declares dividends daily and ordinarily pays distributions monthly. Any
net realized capital gains will be distributed annually. Your account will be
credited with dividends beginning on the business day after the day when the
funds used to purchase your shares are collected by the transfer agent. The Fund
expects that its distributions will consist primarily of ordinary income.
Distributions will generally be taxable to shareholders as ordinary income.
Distributions of any long-term capital gains are taxable as long-term gains. A
portion of the Fund's distributions may be eligible for the corporate
dividends-received deduction. The Fund's distributions are taxable as described
above whether they are paid in cash or reinvested in additional shares. A
redemption of Fund shares, including an exchange for shares of another fund, is
a taxable transaction.
Shareholders should consult with their advisers concerning the applicability of
state, local and other taxes to an investment.
10
<PAGE>
LOGO
Investing
for the
21st
Century(R)
MORE INFORMATION
--------------------------------------------------------------------------------
About the Fund: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional information
about the Portfolio's investments will be available in the annual and
semi-annual reports to shareholders. In the annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the past year. You may
obtain free copies of the statement of additional information by
contacting:
Eaton Vance Distributiors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about the Fund (including the
statement of additional information and shareholder reports): at the
Securities and Exchange Commission's public reference room in Washington,
DC (call 1-202-942-8090 for information on the operation of the public
reference room); on the EDGAR Database on the SEC's Internet site (http://
www.sec.gov); or, upon payment of copying fees, by writing to the SEC's
public reference section, Washington, DC 20549-0102, or by electronic mail
at [email protected].
About Shareholder Accounts: You can obtain more information from Eaton
Vance Shareholder Services (1-800-225-6265). If you own shares and would
like to add to, redeem or change your account, please write or call the
transfer agent:
PFPC, Inc.
P.O. Box 9653
Providence, RI 02904-9653
1-800-262-1122
--------------------------------------------------------------------------------
The Fund's SEC File No. is 811-4015. FRP
<PAGE>
Subject to Completion -- August 1, 2000
The information in this Statement of Additional Information is not complete and
may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information, which is not a prospectus, is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
STATEMENT OF
ADDITIONAL INFORMATION
, 2000
EATON VANCE FLOATING-RATE FUND
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Fund and the Portfolio. The Fund is a series of Eaton
Vance Mutual Funds Trust. Capitalized terms used in this SAI and not otherwise
defined have the meanings given them in the prospectus. This SAI contains
additional information about:
Page
Investment Policies and Risks ......................................... 1
Investment Restrictions ............................................... 7
Management and Organization ........................................... 8
Investment Advisory and Administrative Services ....................... 12
Other Service Providers ............................................... 13
Purchasing and Redeeming Shares ....................................... 14
Sales Charges ......................................................... 16
Performance ........................................................... 19
Control Persons ....................................................... 20
Taxes ................................................................. 20
Portfolio Security Transactions ....................................... 22
Financial Statements .................................................. 23
Appendix A: Description of Securities Ratings ............................. a-1
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
, 2000, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS, WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
INVESTMENT POLICIES AND RISKS
STRUCTURE OF SENIOR LOANS. A Senior Loan is typically originated, negotiated
and structured by a U.S. or foreign commercial bank, insurance company,
finance company or other financial institution (the "Agent") for a lending
syndicate of financial institutions ("Lenders"). The Agent typically
administers and enforces the Senior Loan on behalf of the other Lenders in the
syndicate. In addition, an institution, typically but not always the Agent,
holds any collateral on behalf of the Lenders.
Senior Loans include senior secured floating rate loans and
institutionally traded senior secured floating rate debt obligations issued by
an asset-backed pool, and interests therein. Loan interests generally take the
form of direct interests acquired during a primary distribution and may also
take the form of participation interests in, assignments of, or novations of a
Senior Loan acquired in secondary markets. Such loan interests may be acquired
from U.S. or foreign commercial banks, insurance companies, finance companies
or other financial institutions who have made loans or are members of a
lending syndicate or from other holders of loan interests.
The Portfolio may purchase "Assignments" from Lenders. The purchase of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan
Agreement with the same rights and obligations as the assigning Lender.
Assignments may, however, be arranged through private negotiations between
potential assignees and potential assignors, and the rights and obligations
acquired by the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
The Portfolio also may invest in "Participations". Participations by the
Portfolio in a Lender's portion of a Senior Loan typically will result in the
Portfolio having a contractual relationship only with such Lender, not with
the Borrower. As a result, the Portfolio may have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by such Lender of
such payments from the Borrower. In connection with purchasing Participations,
the Portfolio generally will have no right to enforce compliance by the
Borrower with the terms of the loan agreement, nor any rights with respect to
any funds acquired by other Lenders through set-off against the Borrower and
the Portfolio may not directly benefit from the collateral supporting the
Senior Loan in which it has purchased the Participation. As a result, the
Portfolio may assume the credit risk of both the Borrower and the Lender
selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Portfolio may be treated as a general creditor of
such Lender. The selling Lenders and other persons interpositioned between
such Lenders and the Portfolio with respect to such Participations will likely
conduct their principal business activities in the banking, finance and
financial services industries. Persons engaged in such industries may be more
susceptible to, among other things, fluctuations in interest rates, changes in
the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.
The Portfolio will only acquire Participations if the Lender selling the
Participation, and any other persons interpositioned between the Portfolio and
the Lender, at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by Standard & Poor's
Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service,
Inc. ("Moody's") or comparably rated by another nationally recognized rating
agency (each a "Rating Agency")) or determined by the investment adviser to be
of comparable quality. Securities rated Baa by Moody's have speculative
characteristics. Similarly, the Portfolio will purchase an Assignment or
Participation or act as a Lender with respect to a syndicated Senior Loan only
where the Agent with respect to such Senior Loan at the time of investment has
outstanding debt or deposit obligations rated investment grade or determined
by the investment adviser to be of comparable quality. Long-term debt rated
BBB by S&P is regarded by S&P as having adequate capacity to pay interest and
repay principal and debt rated Baa by Moody's is regarded by Moody's as a
medium grade obligation, i.e., it is neither highly protected nor poorly
secured. Commercial paper rated A-3 by S&P indicates that S&P believes such
obligations exhibit adequate protection parameters but that adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation and
issues of commercial paper rated P-3 by Moody's are considered by Moody's to
have an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced.
LOAN COLLATERAL. In order to borrow money pursuant to a Senior Loan, a
Borrower will frequently, for the term of the Senior Loan, pledge collateral,
including but not limited to, (i) working capital assets, such as accounts
receivable and inventory; (ii) tangible fixed assets, such as real property,
buildings and equipment; (iii) intangible assets, such as trademarks and
patent rights (but excluding goodwill); and (iv) security interests in shares
of stock of subsidiaries or affiliates. In the case of Senior Loans made to
non-public companies, the company's shareholders or owners may provide
collateral in the form of secured guarantees and/or security interests in
assets that they own. In certain instances, a Senior Loan may be secured only
by stock in the Borrower or its subsidiaries. Collateral may consist of assets
that may not be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy fully a Borrower's obligations under
a Senior Loan.
LENDING FEES. In the process of buying, selling and holding Senior Loans the
Portfolio may receive and/or pay certain fees. These fees are in addition to
interest payments received and may include facility fees, commitment fees,
commissions and prepayment penalty fees. When the Portfolio buys a Senior Loan
it may receive a facility fee and when it sells a Senior Loan it may pay a
facility fee. On an ongoing basis, the Portfolio may receive a commitment fee
based on the undrawn portion of the underlying line of credit portion of a
Senior Loan. In certain circumstances, the Portfolio may receive a prepayment
penalty fee upon the prepayment of a Senior Loan by a Borrower. Other fees
received by the Portfolio may include covenant waiver fees and covenant
modification fees.
BORROWER COVENANTS. A Borrower must comply with various restrictive covenants
contained in a loan agreement or note purchase agreement between the Borrower
and the Lender or lending syndicate (the "Loan Agreement"). Such covenants,
in addition to requiring the scheduled payment of interest and principal, may
include restrictions on dividend payments and other distributions to
stockholders, provisions requiring the Borrower to maintain specific minimum
financial ratios, and limits on total debt. In addition, the Loan Agreement
may contain a covenant requiring the Borrower to prepay the Loan with any free
cash flow. Free cash flow is generally defined as net cash flow after
scheduled debt service payments and permitted capital expenditures, and
includes the proceeds from asset dispositions or sales of securities. A breach
of a covenant which is not waived by the Agent, or by the lenders directly, as
the case may be, is normally an event of acceleration; i.e., the Agent, or the
lenders directly, as the case may be, has the right to call the outstanding
Senior Loan. The typical practice of an Agent or a Lender in relying
exclusively or primarily on reports from the Borrower may involve a risk of
fraud by the Borrower. In the case of a Senior Loan in the form of a
Participation, the agreement between the buyer and seller may limit the rights
of the holder to vote on certain changes which may be made to the Loan
Agreement, such as waiving a breach of a covenant. However, the holder of the
Participation will, in almost all cases, have the right to vote on certain
fundamental issues such as changes in principal amount, payment dates and
interest rate.
ADMINISTRATION OF LOANS. In a typical Senior Loan the Agent administers the
terms of the Loan Agreement. In such cases, the Agent is normally responsible
for the collection of principal and interest payments from the Borrower and
the apportionment of these payments to the credit of all institutions which
are parties to the Loan Agreement. The Portfolio will generally rely upon the
Agent or an intermediate participant to receive and forward to the Portfolio
its portion of the principal and interest payments on the Senior Loan.
Furthermore, unless under the terms of a Participation Agreement the Portfolio
has direct recourse against the Borrower, the Portfolio will rely on the Agent
and the other members of the lending syndicate to use appropriate credit
remedies against the Borrower. The Agent is typically responsible for
monitoring compliance with covenants contained in the Loan Agreement based
upon reports prepared by the Borrower. The seller of the Senior Loan usually
does, but is often not obligated to, notify holders of Senior Loans of any
failures of compliance. The Agent may monitor the value of the collateral and,
if the value of the collateral declines, may accelerate the Senior Loan, may
give the Borrower an opportunity to provide additional collateral or may seek
other protection for the benefit of the participants in the Senior Loan. The
Agent is compensated by the Borrower for providing these services under a Loan
Agreement, and such compensation may include special fees paid upon
structuring and funding the Senior Loan and other fees paid on a continuing
basis. With respect to Senior Loans for which the Agent does not perform such
administrative and enforcement functions, the Portfolio will perform such
tasks on its own behalf, although a collateral bank will typically hold any
collateral on behalf of the Portfolio and the other lenders pursuant to the
applicable Loan Agreement.
A financial institution's appointment as Agent may usually be terminated
in the event that it fails to observe the requisite standard of care or
becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the Loan Agreement should remain available
to holders of Senior Loans. However, if assets held by the Agent for the
benefit of the Portfolio were determined to be subject to the claims of the
Agent's general creditors, the Portfolio might incur certain costs and delays
in realizing payment on a Senior Loan, or suffer a loss of principal and/or
interest. In situations involving intermediate participants similar risks may
arise.
PREPAYMENTS. Senior Loans will usually require, in addition to scheduled
payments of interest and principal, the prepayment of the Senior Loan from
free cash flow, as defined above. The degree to which Borrowers prepay Senior
Loans, whether as a contractual requirement or at their election, may be
affected by general business conditions, the financial condition of the
Borrower and competitive conditions among lenders, among others. As such,
prepayments cannot be predicted with accuracy. Upon a prepayment, either in
part or in full, the actual outstanding debt on which the Portfolio derives
interest income will be reduced. However, the Portfolio may receive both a
prepayment penalty fee from the prepaying Borrower and a facility fee upon the
purchase of a new Senior Loan with the proceeds from the prepayment of the
former. Prepayments generally will not materially affect the Fund's
performance because the Portfolio should be able to reinvest prepayments in
other Senior Loans that have similar or identical yields and because receipt
of such fees may mitigate any adverse impact on the Fund's yield.
OTHER INFORMATION REGARDING SENIOR LOANS. From time to time the investment
adviser and its affiliates may borrow money from various banks in connection
with their business activities. Such banks may also sell interests in Senior
Loans to or acquire them from the Portfolio or may be intermediate
participants with respect to Senior Loans in which the Portfolio owns
interests. Such banks may also act as Agents for Senior Loans held by the
Portfolio.
The Portfolio may purchase and retain in its portfolio a Senior Loan where
the Borrower has experienced, or may be perceived to be likely to experience,
credit problems, including involvement in or recent emergence from bankruptcy
reorganization proceedings or other forms of debt restructuring. Such
investments may provide opportunities for enhanced income as well as capital
appreciation. At times, in connection with the restructuring of a Senior Loan
either outside of bankruptcy court or in the context of bankruptcy court
proceedings, the Portfolio may determine or be required to accept equity
securities or junior debt securities in exchange for all or a portion of a
Senior Loan.
The Portfolio may acquire interests in Senior Loans which are designed to
provide temporary or "bridge" financing to a Borrower pending the sale of
identified assets or the arrangement of longer-term loans or the issuance and
sale of debt obligations. The Portfolio may also invest in Senior Loans of
Borrowers who have obtained bridge loans from other parties. A Borrower's use
of bridge loans involves a risk that the Borrower may be unable to locate
permanent financing to replace the bridge loan, which may impair the
Borrower's perceived creditworthiness.
To the extent that collateral consists of the stock of the Borrower's
subsidiaries or other affiliates, the Portfolio will be subject to the risk
that this stock will decline in value. Such a decline, whether as a result of
bankruptcy proceedings or otherwise, could cause the Senior Loan to be
undercollateralized or unsecured. In most credit agreements there is no formal
requirement to pledge additional collateral. In addition, the Portfolio may
invest in Senior Loans guaranteed by, or fully secured by assets of,
shareholders or owners, even if the Senior Loans are not otherwise
collateralized by assets of the Borrower; provided, however, that such
guarantees are fully secured. There may be temporary periods when the
principal asset held by a Borrower is the stock of a related company, which
may not legally be pledged to secure a Senior Loan. On occasions when such
stock cannot be pledged, the Senior Loan will be temporarily unsecured until
the stock can be pledged or is exchanged for or replaced by other assets,
which will be pledged as security for the Senior Loan. However, the Borrower's
ability to dispose of such securities, other than in connection with such
pledge or replacement, will be strictly limited for the protection of the
holders of Senior Loans and, indirectly, Senior Loans.
If a Borrower becomes involved in bankruptcy proceedings, a court may
invalidate the Portfolio's security interest in the loan collateral or
subordinate the Portfolio's rights under the Senior Loan to the interests of
the Borrower's unsecured creditors. Such action by a court could be based, for
example, on a "fraudulent conveyance" claim to the effect that the Borrower
did not receive fair consideration for granting the security interest in the
loan collateral to the Portfolio. For Senior Loans made in connection with a
highly leveraged transaction, consideration for granting a security interest
may be deemed inadequate if the proceeds of the Loan were not received or
retained by the Borrower, but were instead paid to other persons (such as
shareholders of the Borrower) in an amount which left the Borrower insolvent
or without sufficient working capital. There are also other events, such as
the failure to perfect a security interest due to faulty documentation or
faulty official filings, which could lead to the invalidation of the
Portfolio's security interest in loan collateral. If the Portfolio's security
interest in loan collateral is invalidated or the Senior Loan is subordinated
to other debt of a Borrower in bankruptcy or other proceedings, it is unlikely
that the Portfolio would be able to recover the full amount of the principal
and interest due on the Loan.
The Portfolio may acquire warrants and other equity securities as part of
a unit combining a Senior Loan and equity securities of a Borrower or its
affiliates. The acquisition of such equity securities will only be incidental
to the Portfolio's purchase of a Senior Loan. The Portfolio may also acquire
equity securities issued in exchange for a Senior Loan or issued in connection
with the debt restructuring or reorganization of a Borrower, or if such
acquisition, in the judgment of the investment adviser, may enhance the value
of a Senior Loan or would otherwise be consistent with the Portfolio's
investment policies.
REGULATORY CHANGES. To the extent that legislation or state or federal
regulators that regulate certain financial institutions impose additional
requirements or restrictions with respect to the ability of such institutions
to make loans, particularly in connection with highly leveraged transactions,
the availability of Senior Loans for investment may be adversely affected.
Further, such legislation or regulation could depress the market value of
Senior Loans.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
with member banks of the Federal Reserve System or primary dealers in U.S.
Government securities. Under a repurchase agreement, the Portfolio buys
securities at one price and simultaneously promises to sell back those
securities at a higher price. The Portfolio's repurchase agreements will
provide that the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement, and will be marked to market
daily. The repurchase date is usually within seven days of the original
purchase date. In all cases, the investment adviser must be satisfied with the
creditworthiness of the other party to the agreement before entering into a
repurchase agreement. In the event of the bankruptcy of the other party to a
repurchase agreement, the Portfolio might experience delays in recovering its
cash. To the extent that, in the meantime, the value of the securities the
Portfolio purchased may have declined, the Portfolio could experience a loss.
INTEREST RATE SWAPS. The Portfolio may enter into interest rate swaps on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities. For example, if the Portfolio holds a
Senior Loan with an interest rate that is reset only once each year, it may
swap the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset daily. Such a swap position would offset
changes in the value of the Senior Loan because of subsequent changes in
interest rates. This would protect the Portfolio from a decline in the value
of the Senior Loan due to rising interest rates, but would also limit its
ability to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch
as these transactions are entered into for good faith hedging purposes and
because a segregated account will be used, the Portfolio will not treat them
as being subject to the Portfolio's borrowing restrictions. The net amount of
the excess, if any, of the Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account
by the Portfolio's custodian. The Portfolio will not enter into any interest
rate swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be
investment grade by the investment adviser. If there is a default by the other
party to such a transaction, the Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
The Portfolio may enter into interest rate swaps only with respect to
positions held in its portfolio. Interest rate swaps do not involve the
delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to interest rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make or receive. Since interest rate swaps are individually negotiated, the
Portfolio expects to achieve an acceptable degree of correlation between its
rights to receive interest on Senior Loans and its rights and obligations to
receive and pay interest pursuant to interest rate swaps.
BOND RATINGS. The rating assigned to a security by a rating agency does not
reflect assessment of the volatility of the security's market value or of the
liquidity of an investment in the securities. Credit ratings are based largely
on the issuer's historical financial condition and the rating agency's
investment analysis at the time of rating, and the rating assigned to any
particular security is not necessarily a reflection of the issuer's current
financial condition. Credit quality can change from time to time, and recently
issued credit ratings may not fully reflect the actual risks posed by a
particular security.
CALLS. Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
INVESTMENT COMPANY SECURITIES. The Portfolio may invest in closed-end
investment companies which invest in floating rate instruments. The value of
common shares of closed-end investment companies, which are generally traded
on an exchange, is affected by the demand for those securities regardless of
the demand for the underlying portfolio assets.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to seek to hedge against fluctuations
in interest rates, securities prices or currency exchange rates to change the
duration of the Portfolio's portfolio or as a substitute for the purchase or
sale of securities or currency. Options may be written to enhance income. The
Portfolio's transactions in derivative instruments may include the purchase or
sale of futures contracts on securities, (such as U.S. Government securities),
indices, other financial instruments (such as certificates of deposit,
Eurodollar time deposits, and economic indices) or currencies; options on
futures contracts; exchange-traded options on securities, indices or
currencies; and forward contracts to purchase or sell currencies. All of the
Portfolio's transactions in derivative instruments involve a risk of loss or
depreciation due to: unanticipated adverse changes in interest rates,
securities prices or currency exchange rates; the inability to close out a
position; tax constraints on closing out positions; default by the
counterparty; imperfect correlation between a position and the desired hedge;
and portfolio management constraints on disposing of securities subject to
such transactions. The loss on derivative instruments (other than purchased
options) may substantially exceed the Portfolio's initial investment in these
instruments. In addition, the Portfolio may lose the entire premium paid for
purchased options that expire before they can be profitably exercised by the
Portfolio. The Portfolio incurs transaction costs in opening and closing
positions in derivative instruments. Under regulations of the Commodity
Futures Trading Commission ("CFTC"), the use of futures transactions for
nonhedging purposes is limited. There can be no assurance that the investment
adviser's use of derivative instruments will be advantageous.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instrument and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Portfolio's assets.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may enter into
forward foreign currency exchange contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
The Portfolio will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of
the value of the securities held by the Portfolio or other assets denominated
in that currency. Under normal circumstances, consideration of the prospect
for currency parities will be incorporated into the long-term investment
decisions made with regard to overall diversification strategies. However, the
Portfolio believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of the
Portfolio will be served. The Portfolio generally will not enter into a
forward contract with a term of greater than one year.
OPTIONS ON SECURITIES. An options position may be closed out only on an
options exchange which provides a secondary market for an option of the same
series. Although the Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time. For some options, no secondary
market on an exchange may exist. In such event, it might not be possible to
effect closing transactions in particular options, with the result that the
Portfolio would have to exercise its options in order to realize any profit
and would incur transaction costs upon the sale of underlying securities
pursuant to the exercise of put options. If the Portfolio as a covered call
option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation ("OCC") may not
at all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the OCC inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
FUTURES CONTRACTS. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
CFTC. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a U.S. exchange or board of trade.
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. The Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
the qualification of the Fund as a regulated investment company for federal
income tax purposes.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the CFTC, in each case that are not for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish these positions (excluding the amount by which options
are "in-the-money") may not exceed 5% of the liquidation value of the
Portfolio's investments, after taking into account unrealized profits and
unrealized losses on any contracts the Portfolio has entered into.
RESTRICTED SECURITIES. The Portfolio may invest up to 15% of net assets in
illiquid securities. Illiquid securities include securities legally restricted
as to resale, such as commercial paper issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and securities eligible for resale
pursuant to Rule 144A thereunder. Section 4(2) and Rule 144A securities may,
however, be treated as liquid by the investment adviser pursuant to procedures
adopted by the Trustees, which require consideration of factors such as
trading activity, availability of market quotations and number of dealers
willing to purchase the security. If the Portfolio invests in Rule 144A
securities, the level of portfolio illiquidity may be increased to the extent
that eligible buyers become uninterested in purchasing such securities.
It may be difficult to sell such securities at a price representing their
fair value until such time as such securities may by sold publicly. Where
registration is required, a considerable period may elapse between a decision
to sell the securities and the time when the Portfolio would be permitted to
sell. Thus, the Portfolio may not be able to obtain as favorable a price as
that prevailing at the time of the decision to sell. The Portfolio may also
acquire securities through private placements under which it may agree to
contractual restrictions on the resale of such securities. Such restrictions
might prevent their sale at a time when such sale would otherwise be
desirable.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may seek to increase its
income by lending portfolio securities to broker-dealers or other
institutional borrowers. Under present regulatory policies of the Securities
and Exchange Commission ("SEC"), such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned,
which will be marked to market daily. Cash equivalents include certificates of
deposit, commercial paper and other short-term money market instruments. The
Portfolio would have the right to call a loan and obtain the securities
loaned at any time on up to five business days' notice. During the existence
of a loan, the Portfolio will continue to receive the equivalent of the
interest paid by the issuer on the securities loaned and will also receive a
fee or all of a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of a loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower fails financially.
However, the loans will be made only to organizations deemed by the investment
adviser to be of good standing and when the consideration which can be earned
from securities loans of this type, net of administrative expenses and any
finders fees, justifies the attendant risk. The financial condition of the
borrower will be monitored by the investment adviser on an ongoing basis. If
the investment adviser determines to make securities loans, it is not intended
that the value of the securities loaned would exceed 30% of the Portfolio's
total assets. Securities lending involves risks of delay in recovery or even
loss of rights on the securities loaned if the borrower fails financially. As
of the present time, the Trustees of the Portfolio have not made a
determination to engage in this activity, and have no present intention of
making such a determination during the current fiscal year.
FOREIGN INVESTMENTS. Since foreign companies are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies, there may be
less publicly available information about a foreign company than about a
domestic company. Volume and liquidity in most foreign bond markets is less
than in the United States and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies. There
is generally less government supervision and regulation of securities
exchanges, broker-dealers and listed companies than in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. The Portfolio may be required to pay for securities before
delivery. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Portfolio's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
ASSET COVERAGE REQUIREMENTS. Transactions involving swaps, forward contracts
or futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. The
Portfolio will not enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities or other options, forward
contracts or futures contracts, or (2) cash or liquid securities (such as
readily marketable obligations and money market instruments) with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. (Only the net obligation of a swap will be covered).
The Portfolio will comply with SEC guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S. Government
securities or other liquid securities in a segregated account with its
custodian in the prescribed amount. The securities in the segregated account
will be marked to market daily. Assets used as cover or held in a segregated
account maintained by the Portfolio's custodian cannot be sold while the
position requiring coverage or segregation is outstanding unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Portfolio's assets to segregated accounts or to cover could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as
used in this SAI means the lesser of (a) 67% of the shares of the Fund present
or represented by proxy at a meeting if the holders of more than 50% of the
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of the Fund. Accordingly, the Fund may not:
(1) Purchase any security if, as a result of such purchase, 25% or more of
the Fund's total assets (taken at current value) would be invested in the
securities of Borrowers and other issuers having their principal business
activities in the same industry (the electric, gas, water and telephone
utility industries, commercial banks, thrift institutions and finance
companies being treated as separate industries for the purpose of this
restriction); provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
(2) Borrow money or issue senior securities except as permitted by the
1940 Act;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(5) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(6) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities; or
(7) Make loans to any person, except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, (c) lending portfolio securities and (d) lending cash consistent
with applicable law.
For the purpose of investment restriction (1), the Fund will consider all
relevant factors in determining who is the issuer of the loan interest,
including: the credit quality of the Borrower, the amount and quality of the
collateral, the terms of the Loan Agreement and other relevant agreements
(including inter-creditor agreements), the degree to which the credit of such
interpositioned person was deemed material to the decision to purchase the
loan interest, the interest rate environment, and general economic conditions
applicable to the Borrower and such interpositioned person.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest in one or more open-end management investment companies (a
Portfolio) with substantially the same investment objective, policies and
restrictions as the Fund.
The Portfolio has adopted the same fundamental investment restrictions as
the foregoing investment restrictions adopted by the Fund, which restrictions
cannot be changed without the approval of a "majority of the outstanding
voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trustees with respect to the Fund without
shareholder approval or with respect to the Portfolio without approval by the
Fund or its other investors. The Fund and Portfolio will not:
(a) invest more than 15% of net assets in investments which are not
readily marketable, including restricted securities and repurchase agreements
with a maturity longer than seven days. Restricted securities for the purposes
of this limitation do not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 and commercial paper issued
pursuant to Section 4(2) of said Act that the Board of Trustees of the Trust
or the Portfolio, or their delegate, determines to be liquid. Any such
determination by a delegate will be made pursuant to procedures adopted by the
Board; or
(b) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless no more than 25% of its net
assets (taken at current value) is held as collateral for such sales at any
one time.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Notwithstanding the foregoing, the Fund and the
Portfolio must always be in compliance with the borrowing policy set forth
above and may not invest more than 15% of net assets in illiquid securities.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust'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. Unless otherwise noted, the business address of each
Trustee and officer is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Trust
or the Portfolio, as defined in the 1940 Act are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (40), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April 1999). President and Chief
Operating Officer of John A. Levin & Co. (a registered investment advisor)
(July 1997 to April 1999) and a Director of Baker, Fentress & Company which
owns John A. Levin & Co. (July 1997 to April 1999). Formerly Executive Vice
President of Smith Barney Mutual Funds (from July 1994 to June 1997).
Elected Trustee October 30, 1998. Trustee of various investment companies
managed by Eaton Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
DONALD R. DWIGHT (69), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (58), President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee
and officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (65), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (64), Trustee
Chairman of the Board, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (42), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (70), Trustee
Investment adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
WILLIAM H. AHERN, JR. (41), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS J. FETTER (57), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ARMIN J. LANG (36), Vice President of the Trust
Vice President of Eaton Vance and BMR since March 1998. Previously he was a
Vice President at Standish, Ayer & Wood.
MICHAEL R. MACH (52), Vice President of the Trust
Vice President of Eaton Vance and BMR since December 15, 1999. Previously, he
was a Managing Director and Senior Analyst for Robertson Stephens
(1998-1999); Managing Director and Senior Analyst for Piper Jaffray
(1996-1998); and Senior Vice President and Senior Analyst for Putnam
Investments (1989-1996). Officer of various investment companies managed by
Eaton Vance or BMR.
ROBERT B. MACINTOSH (43), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
EDWARD E. SMILEY, JR. (55), Vice President of the Trust
Vice President of Eaton Vance and BMR since November 1996. Previously he was a
Senior Vice President at Nationsbank. Officer of various investment
companies managed by Eaton Vance or BMR.
SCOTT H. PAGE (40), Vice President of the Portfolio
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
PAYSON F. SWAFFIELD (44), Vice President of the Portfolio
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (55), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (59), Secretary
Vice President, Secretary and Chief Legal Officer of BMR, Eaton Vance and EVC.
Prior to joining Eaton Vance on November 1, 1996, he was a Partner of the
law firm of Kirkpartrick & Lockhart LLP, New York and Washington, D.C., and
was Executive Vice President of Neuberger & Berman Management, Inc., a
mutual fund management company. Officer of various investment companies
managed by Eaton Vance or BMR.
JANET E. SANDERS (64), Assistant Treasurer and Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (37), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (43), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolio is comprised of Trustees who are not "interested persons" as that
term is defined under the 1940 Act ("noninterested Trustees"). The purpose of
the Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Trust and of the
Portfolio. The purpose of the Special Committee is to consider, evaluate and
make recommendations to the full Board of Trustees concerning (i) all
contractual arrangements with service providers to the Fund and the Portfolio,
including investment advisory (Portfolio only), administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or
potential conflict of interest with the Fund, the Portfolio or investors
therein.
Messrs. Treynor (Chairman), Dwight and Reamer are members of the Audit
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Audit Committee's functions include making recommendations to the Trustees
regarding the selection and performance of the independent accountants, and
reviewing matters relative to accounting and auditing practices and procedures,
accounting records, and the internal accounting controls of the Trust, the
Portfolio and certain of their service providers.
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 a Trustees Deferred Compensation Plan (the
"Trustees' Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by the Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services
of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the Trust nor the Portfolio has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of
the Portfolio are paid by the Fund (and the other series of the Trust) and of
the Portfolio, respectively. (The Trustees of the Trust and of the Portfolio
who are members of the Eaton Vance organization receive no compensation from
the Trust or the Portfolio.) During the fiscal year ending October 31, 2000,
it is estimated that the noninterested Trustees of the Portfolio will earn the
following compensation in their capacities as Trustees of the Portfolio and,
for the year ended December 31, 1999, earned the following compensation in
their capacities as Trustees of the Trust and of the funds in the Eaton Vance
fund complex(1):
<TABLE>
<CAPTION>
SOURCE OF JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
COMPENSATION BIBLIOWICZ DWIGHT HAYES, III REAMER STOUT TREYNOR
------------ ---------- ------ ---------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) ............................... $ 8,968 $ 8,508 $ 9,043 $ 8,575 $ 8,420 $ 9,365
Portfolio* ............................. 29 29 29 29 29 29
Trust and Fund Complex ................. 160,000 160,000(3) 170,000 160,000 160,000(4) 170,000
------------
*Estimated.
(1) As of June 1, 2000, the Eaton Vance Fund complex consists of 146 registered investment companies or series thereof.
(2) The Trust consisted of 16 Funds as of December 31, 1999.
(3) Includes $60,000 of deferred compensation.
(4) Includes $16,000 of deferred compensation.
</TABLE>
ORGANIZATION. The Fund is a series of the Trust, which is organized under
Massachusetts law and is operated as an open-end management investment
company. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series (such as the Fund).
The Trustees of the Trust have divided the shares of the Fund into multiple
classes. Each class represents an interest in the Fund, but is subject to
different expenses, rights and privileges. The Trustees have the authority
under the Declaration of Trust to create additional classes of shares with
differing rights and privileges. When issued and outstanding, shares are fully
paid and nonassessable by the Trust. Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
of the Fund will be voted together except that only shareholders of a
particular class may vote on matters affecting only that class. Shares have no
preemptive or conversion rights and are freely transferable. In the event of
the liquidation of the Fund, shareholders of each class are entitled to share
pro rata in the net assets attributable to that class available for
distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for growth in the assets of the Portfolio,
may afford the potential for economies of scale for the Fund and may over time
result in lower expenses for the Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will
call a shareholders' meeting for the election of Trustees. Except for the
foregoing circumstances and unless removed by action of the shareholders in
accordance with the Trust's By-laws, the Trustees shall continue to hold
office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series of classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. (The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class).
Moreover, the Trust's By-laws also provide for indemnification out of the
property of the Fund of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising
from such liability. The assets of the Fund are readily marketable and will
ordinarily substantially exceed its liabilities. In light of the nature of the
Fund's business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is remote.
The Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of the Portfolio, there will normally
be no meetings of the investors for the purpose of electing Trustees unless
and until such time as less than a majority of the Trustees of the Portfolio
holding office have been elected by investors. In such an event the Trustees
of the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio's Declaration of Trust provides that the Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Whenever the Fund as an investor in the Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. The Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in the Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of the Fund to do so. In the event the Fund withdraws
all of its assets from the Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Trustees would
consider what action might be taken, including investing the assets of the
Fund in another pooled investment entity or retaining an investment adviser to
manage the Fund's assets in accordance with its investment objective. The
Fund's investment performance may be affected by a withdrawal of all its
assets (or the assets of another investor in the Portfolio) from the
Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of the
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolio investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. The Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities. For a
description of the compensation that the Portfolio pays BMR, see the
prospectus.
The Investment Advisory Agreement with BMR continues in effect from year
to year for so long as such continuance is approved at least annually (i) by
the vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time without penalty on sixty days' written notice by
the Board of Trustees of either party, or by vote of the majority of the
outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. The Agreement provides
that BMR may render services to others. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves
as administrator of the Fund, and the Fund is authorized to pay Eaton Vance a
fee in the amount of 0.15% of average daily net assets for providing
administrative services to the Fund. Under its Administrative Services
Agreement with the Trust, Eaton Vance has been engaged to administer the
Fund's affairs, subject to the supervision of the Trustees of the Trust, and
shall furnish for the use of the Fund office space and all necessary office
facilities, equipment and personnel for administering the affairs of the Fund.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business
trusts organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as
trustee of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned
subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland corporation and
publicly-held holding company. EVC through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Directors of EVC are James B. Hawkes, John G.L. Cabot, Leo I.
Higdon, Jr., John M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. All of
the issued and outstanding shares of Eaton Vance are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
the Voting Trustees of which are Mr. Hawkes, Jeffrey P. Beale, Alan R. Dynner,
Thomas E. Faust, Jr., Thomas J. Fetter, Scott H. Page, Duncan W. Richardson,
William M. Steul, Payson F. Swaffield, Michael W. Weilheimer, and Wharton P.
Whitaker (all of whom are officers of Eaton Vance). The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Management and
Organization", all of the officers of the Trust (as well as Mr. Hawkes who is
also a Trustee) hold positions in the Eaton Vance organization.
EXPENSES. The Fund and Portfolio are each responsible for all expenses not
expressly stated to be payable by another party (such as the investment
adviser under the Investment Advisory Agreement, Eaton Vance under the
Administrative Services Agreement or the principal underwriter under the
Distribution Agreement). In the case of expenses incurred by the Trust, the
Fund is responsible for its pro rata share of those expenses. The only
expenses of the Fund allocated to a particular class are those incurred under
the Distribution or Service Plan applicable to that class and the fee paid to
the principal underwriter for handling share repurchases.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton
Vance Building, 255 State Street, Boston, MA 02109, is the Fund's principal
underwriter. The principal underwriter acts as principal in selling shares
under a Distribution Agreement with the Trust. The expenses of printing copies
of prospectuses used to offer shares and other selling literature and of
advertising are borne by the principal underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of
the Fund and its shares under federal and state securities laws are borne by
the Fund. The Distribution Agreement as it applies to Class A and Class I
shares is renewable annually by the Board of Trustees of the Trust (including
a majority of the noninterested Trustees) may be terminated on six months'
notice by either party and is automatically terminated upon assignment. The
Distribution Agreement as it applies to Class B and Class C shares is
renewable annually by the Trust's Board of Trustees (including a majority of
the noninterested Trustees who have no direct or indirect financial interest
in the operation of the Distribution Plan or the Distribution Agreement), may
be terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding shares of the relevant class or on six months'
notice by the principal underwriter and is automatically terminated upon
assignment. The principal underwriter distributes shares on a "best efforts"
basis under which it is required to take and pay for only such shares as may
be sold. The principal underwriter allows investment dealers discounts from
the applicable public offering price which are alike for all investment
dealers. See "Sales Charges." EVD is a wholly-owned subsidiary of EVC. Mr.
Hawkes is a Vice President and Director and Messrs. Dynner and O'Connor are
Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to the Fund and Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of the Portfolio's assets, maintains the general ledger
of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Trust and the Portfolio. IBT also
provides services in connection with the preparation of shareholder reports
and the electronic filing of such reports with the SEC. EVC and its affiliates
and their officers and employees from time to time have transactions with
various banks, including IBT. It is Eaton Vance's opinion that the terms and
conditions of such transactions were not and will not be influenced by
existing or potential custodial or other relationships between the Fund or the
Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston,
MA 02116, are the independent accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. PFPC, Inc., P.O. Box 9653, Providence, RI 02904-9653, serves
as transfer and dividend disbursing agent for the Fund.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of the Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in that
Portfolio for the current Portfolio Business Day.
Debt obligations (other than short-term obligations maturing in sixty days
or less), including listed securities and securities for which price
quotations are available and forward contracts, will normally be valued on the
basis of market valuations furnished by dealers or pricing services. Financial
futures contracts listed on commodity exchanges and exchange-traded options
are valued at closing settlement prices. Over-the-counter options are valued
at the mean between the bid and asked prices provided by dealers. Short-term
obligations and money market securities maturing in sixty days or less are
valued at amortized cost which approximates value. Investments for which
market quotations are unavailable are valued at fair value using methods
determined in good faith by or at the direction of the Trustees of the
Portfolio. Occasionally, events affecting the value of a foreign security may
occur between the time trading is completed abroad and the close of the
Exchange will not be reflected in the computation of the Portfolio's net asset
value (unless the Portfolio deems that such event would materially affect its
net asset value in which case an adjustment would be made).
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated
by the sales charge table set forth in the prospectus. The sales charge is
divided between the principal underwriter and the investment dealer. The
sales charge table is applicable to purchases of the Fund alone or in
combination with purchases of certain other funds offered by the principal
underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account. The table is
also presently applicable to (1) purchases of Class A shares pursuant to a
written Statement of Intention; or (2) purchases of Class A shares pursuant to
the Right of Accumulation and declared as such at the time of purchase. See
"Sales Charges".
In connection with employee benefit or other continuous group purchase
plans, the Fund may accept initial investments of less than $1,000 on the part
of an individual participant. In the event a shareholder who is a participant
of such a plan terminates participation in the plan, his or her shares will be
transferred to a regular individual account. However, such account will be
subject to the right of redemption by the Fund as decribed below.
SUSPENSION OF SALES. The Trust may, in its absolute discretion, suspend,
discontinue or limit the offering of one or more of its classes of shares at
any time. In determining whether any such action should be taken, the Trust's
management intends to consider all relevant factors, including (without
limitation) the size of the Fund or class, the investment climate and market
conditions, the volume of sales and redemptions of shares, and in the case of
Class B and Class C shares, the amount of uncovered distribution charges of
the principal underwriter. The Class B and Class C Distribution Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plan for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
In connection with employee benefit or other continuous group purchase
plans, the Fund may accept initial investments of less than $1,000 on the part
of an individual participant. In the event a shareholder who is a participant
of such a plan terminates participation in the plan, his or her shares will be
transferred to a regular individual account. However, such account will be
subject to the right of redemption by the Fund as described below.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or the net asset value of Class B and Class C shares on the day
such proceeds are received. Eaton Vance will use reasonable efforts to obtain
the then current market price for such securities but does not guarantee the
best available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities. Securities determined to be
acceptable should be transferred via book entry or physically delivered, in
proper form for transfer, through an investment dealer, together with a
completed and signed Letter of Transmittal in approved form (available from
investment dealers). Investors who are contemplating an exchange of securities
for shares, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of the
Fund can be suspended and the payment of the redemption price deferred when
the Exchange is closed (other than for customary weekend and holiday
closings), during periods when trading on the Exchange is restricted as
determined by the SEC, or during any emergency as determined by the SEC which
makes it impracticable for the Portfolio to dispose of its securities or value
its assets, or during any other period permitted by order of the SEC for the
protection of investors.
While normally payments will be made in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn from the Portfolio. The securities so distributed would be valued
pursuant to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges
in converting the securities to cash.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required by the
Trust if the cause of the low account balance was a reduction in the net asset
value of shares. No CDSC will be imposed with respect to such involuntary
redemptions.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by
the shareholder based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, may require the recognition of taxable
gain or loss. Income dividends and capital gains distributions in connection
with withdrawal plan accounts will be credited at net asset value as of the
record date for each distribution. Continued withdrawals in excess of current
income will eventually use up principal, particularly in a period of declining
market prices. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the transfer agent
or the principal underwriter will be able to terminate the withdrawal plan at
any time without penalty.
SALES CHARGES
DEALER COMMISSIONS. The principal underwriter may, from time to time, at its
own expense, provide additional incentives to investment dealers which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the principal underwriter. In some instances, such additional
incentives may be offered only to certain investment dealers whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the principal underwriter may from time to time increase or decrease
the sales commissions payable to investment dealers. The principal underwriter
may allow, upon notice to all investment dealers with whom it has agreements,
discounts up to the full sales charge during the periods specified in the
notice. During periods when the discount includes the full sales charge, such
investment dealers may be deemed to be underwriters as that term is defined in
the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares and Class I shares may be sold at net
asset value to current and retired Directors and Trustees of Eaton Vance
funds, including the Portfolio; to clients and current and retired officers
and employees of Eaton Vance, its affiliates and other investment advisers of
Eaton Vance sponsored funds; to officers and employees of IBT and the transfer
agent; to persons associated with law firms, consulting firms and others
providing services to Eaton Vance and the Eaton Vance funds; and to such
persons' spouses, parents, siblings and children and their beneficial
accounts. Such shares may also be issued at net asset value (1) in connection
with the merger of an investment company (or series or class thereof) with the
Fund (or class thereof), (2) to investors making an investment as part of a
fixed fee program whereby an entity unaffiliated with the investment adviser
provides multiple investment services, such as management, brokerage and
custody, and (3) to investment advisors, financial planners or other
intermediaries who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services; clients of such investment advisors, financial planners or other
intermediaries who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor, financial planner or
other intermediary on the books and records of the broker or agent. Class A
shares may also be sold at net asset value to retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Internal
Revenue Code of 1986, as amended (the "Code") and "rabbi trusts". Class A
shares and Class I shares may be sold at net asset value to any investment
advisory, agency, custodial or trust account managed or administered by Eaton
Vance or by any parent, subsidiary or other affiliate of Eaton Vance. Class A
shares are offered at net asset value to the foregoing persons and in the
foregoing situations because either (i) there is no sales effort involved in
the sale of shares or (ii) the investor is paying a fee (other than the sales
charge) to the investment dealer involved in the sale.
The CDSC applicable to Class B shares will be waived in connection with
minimum required distributions from tax-sheltered retirement plans by applying
the rate required to be withdrawn under the applicable rules and regulations
of the Internal Revenue Service to the balance of Class B shares in your
account. All CDSC waivers are prospective only.
STATEMENT OF INTENTION. If it is anticipated that $25,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance fund will be purchased within a 13-month period, the Statement of
Intention section of the account application should be completed so that
shares may be obtained at the same reduced sales charge as though the total
quantity were invested in one lump sum. Shares held under Right of
Accumulation (see below) as of the date of the Statement will be included
toward the completion of the Statement. If you make a Statement of Intention,
the transfer agent is authorized to hold in escrow sufficient shares (5% of
the dollar amount specified in the Statement) which can be redeemed to make up
any difference in sales charge on the amount intended to be invested and the
amount actually invested. A Statement of Intention does not obligate the
shareholder to purchase or the Fund to sell the full amount indicated in the
Statement.
If the amount actually purchased during the 13-month period is less than
that indicated in the Statement, the shareholder will be requested to pay the
difference between the sales charge applicable to the shares purchased and the
sales charge paid under the Statement of Intention. If the payment is not
received in 20 days, the appropriate number of escrowed shares will be
redeemed in order to realize such difference. If the total purchases during
the 13-month period are large enough to qualify for a lower sales charge than
that applicable to the amount specified in the Statement, all transactions
will be computed at the expiration date of the Statement to give effect to the
lower sales charge. Any difference will be refunded to the shareholder in cash
or applied to the purchase of additional shares, as specified by the
shareholder. This refund will be made by the investment dealer and the
principal underwriter. If at the time of the recomputation, the investment
dealer for the account has changed, the adjustment will be made only on those
shares purchased through the current investment dealer for the account.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current
purchase and adding it to the value (calculated at the maximum current
offering price) of the Class A shares the shareholder owns in his or her
account(s) in the Fund, and shares of other funds exchangeable for Class A
shares. The sales charge on the shares being purchased will then be at the
rate applicable to the aggregate. Shares purchased (i) by an individual, his
or her spouse and their children under the age of twenty-one, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for the Right of Accumulation and if qualifying, the
applicable sales charge level. For any such discount to be made available, at
the time of purchase a purchaser or his or her investment dealer must provide
the principal underwriter (in the case of a purchase made through an
investment dealer) or the transfer agent (in the case of an investment made by
mail) with sufficient information to permit verification that the purchase
order qualifies for the accumulation privilege. Confirmation of the order is
subject to such verification. The Right of Accumulation privilege may be
amended or terminated at any time as to purchases occurring thereafter.
CONVERSION FEATURE. Class B shares held for eight years (the "holding
period") will automatically convert to Class A shares. For purposes of this
conversion, all distributions paid on Class B shares which the shareholder
elects to reinvest in Class B shares will be considered to be held in a
separate sub-account. Upon the conversion of Class B shares not acquired
through the reinvestment of distributions, a pro rata portion of the Class B
shares held in the sub-account will also convert to Class A shares. This
portion will be determined by the ratio that the Class B shares being
converted bear to the total of Class B shares (excluding shares acquired
through reinvestment) in the account. This conversion feature is subject to
the continuing availability of a ruling from the Internal Revenue Service or
an opinion of counsel that the conversion is not taxable for federal income
tax purposes.
EXCHANGE PRIVILEGE. In addition to exchanges into the same class of another
Eaton Vance fund, Class B shares may be exchanged for shares of a money market
fund sponsored by an investment dealer and approved by the principal
underwriter (an "investment dealer fund"). For purposes of calculating the
CDSC applicable to investment dealer fund shares acquired in an exchange, the
CDSC schedule applicable to the exchanged shares will apply and the purchase
of investment dealer fund shares is deemed to have occurred at the time of the
original purchase of the exchanged shares, except that the time during which a
shareholder holds such investment dealer fund shares will not be credited
toward completion of the CDSC period.
TAX-SHELTERED RETIREMENT PLANS. Class A and Class C shares are available for
purchase in connection with certain tax-sheltered retirement plans. Detailed
information concerning these plans, including certain exceptions to minimum
investment requirements, and copies of the plans are available from the
principal underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Participant accounting
services (including trust fund reconciliation services) will be offered only
through third party recordkeepers and not by the principal underwriter. Under
all plans, dividends and distributions will be automatically reinvested in
additional shares.
DISTRIBUTION AND SERVICE PLANS. The Trust has in effect a Service Plan (the
"Class A Plan") for the Fund's Class A shares that is designed to meet the
service fee requirements of the sales charge rule of the National Association
of Securities Dealers, Inc. (the "NASD"). (Management believes service fee
payments are not distribution expenses governed by Rule 12b-1 under the 1940
Act, but has chosen to have the Plan approved as if that Rule were
applicable.) The Class A Plan provides that the Class A may make service fee
payments for personal services and/or the maintenance of shareholder accounts
to the principal underwriter, investment dealers and other persons in amounts
not exceeding .25% of its average daily net assets for any fiscal year.
The Trust also has in effect compensation-type Distribution Plans (the
"Class B and Class C Plans") pursuant to Rule 12b-1 under the 1940 Act for the
Fund's Class B and Class C shares that permit compensation to be made to the
principal underwriter to the maximum extent permitted by the NASD sales charge
rule. The Class B and Class C Plans are designed to permit an investor to
purchase shares through an investment dealer without incurring an initial
sales charge and at the same time permit the principal underwriter to
compensate investment dealers in connection therewith. Each Class pays the
principal underwriter a fee, accrued daily and paid monthly, at an annual rate
not exceeding .75% of its average daily net assets to finance the distribution
of its shares. Such fees compensate the principal underwriter for sales
commissions paid by it to investment dealers on the sale of shares and for
interest expenses.
The Class B and Class C Plans also authorize each Class to make payments
of service fees to the principal underwriter, investment dealers and other
persons in amounts not exceeding .25% of its average daily net assets for
personal services, and/or the maintenance of shareholder accounts. This fee is
paid quarterly in arrears based on the value of Class B shares sold by such
persons. For Class C, investment dealers currently receive (a) a service fee
(except on exchange transactions and reinvestments) at the time of sale equal
to .25% of the purchase price of the Class C shares sold by such dealer, and
(b) monthly service fees approximately equivalent to 1/12 of .25% of the
value of Class C shares sold by such dealer. During the first year after a
purchase of Class C shares, the principal underwriter will retain the service
fee as reimbursement for the service fee payment made to investment dealers at
the time of sale.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at
the time of sale, it is anticipated that the Eaton Vance organization will
profit by reason of the operation of the Class B and Class C Plans through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of shares and through the amounts
paid to the principal underwriter, including CDSCs, pursuant to the Plans. The
Eaton Vance organization may be considered to have realized a profit under the
Class B and Class C Plans if at any point in time the aggregate amounts
theretofore received by the principal underwriter pursuant to the Class B or
Class C Plan and from CDSCs have exceeded the total expenses theretofore
incurred by such organization in distributing shares. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without
limitation leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense
and other miscellaneous overhead items. Overhead is calculated and allocated
for such purpose by the Eaton Vance organization in a manner deemed equitable
to the Trust.
The Class A, Class B and Class C Plans continue in effect from year to
year so long as such continuance is approved at least annually by the vote of
both a majority of (i) the noninterested Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Plan Trustees") and (ii) all of the
Trustees then in office. Each Plan may be terminated at any time by vote of a
majority of the Plan Trustees or by a vote of a majority of the outstanding
voting securities of the applicable Class. Each Plan requires quarterly
Trustee review of a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. The Plans may not be
amended to increase materially the payments described therein without approval
of the shareholders of the affected Class and the Trustees. So long as a Plan
is in effect, the selection and nomination of the noninterested Trustees shall
be committed to the discretion of such Trustees. The Plans were initially
approved by the Trustees, including the Plan Trustees, on August 14, 2000. The
Trustees of the Trust who are "interested" persons of the Fund have an
indirect financial interest in the Plans because their employers (or
affiliates thereof) receive distribution and/or service fees under the Plans
or agreements related thereto.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of the Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the principal underwriter under the
Class B and Class C Plans will compensate the principal underwriter for its
services and expenses in distributing those classes of shares. Service fee
payments made to the principal underwriter and investment dealers provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the principal
underwriter and investment dealers, each Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based
on the foregoing and other relevant factors, the Trustees of the Trust have
determined that in their judgment there is a reasonable likelihood that each
Plan will benefit the Fund and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions
are reinvested at net asset value on the reinvestment dates during the period,
(ii) the deduction of the maximum sales charge from the initial $1,000
purchase order for Class A shares, (iii) a complete redemption of the
investment and, (iv) the deduction of any CDSC at the end of the period. The
Fund may also publish total return figures for each class based on reduced
sales charges or at net asset value. These returns would be lower if the full
sales charge was imposed.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per
share is calculated from the yields to maturity of all debt obligations held
by the Portfolio based on prescribed methods, reduced by accrued Fund and
Class expenses for the period with the resulting number being divided by the
average daily number of Class shares outstanding and entitled to receive
distributions during the period. This yield figure does not reflect the
deduction of any CDSCs which (if applicable) are imposed upon certain
redemptions at the rates set forth under "Sales Charges" in the prospectus.
Yield calculations assume the current maximum initial sales charge for Class A
shares set forth under "Sales Charges" in the prospectus. (Actual yield may be
affected by variations in sales charges on investments).
The Fund may also publish total return figures for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. The Fund's performance may be compared in publications to the
performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information
prepared by recognized mutual fund statistical services. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
The Fund's total return may be compared to various domestic, international
and global securities indices, such as the Commodity Research Bureau Futures
Price Index. The Fund's yield may also be compared to the yields of other
fixed-income securities, such as U.S. Treasuries, mortgage-backed securities,
and corporate bonds or other securities comparable to the securities held by a
Portfolio as reported by various independent sources (such as Bloomberg L.P.).
In making such comparisons, the Fund may provide information concerning the
nature of such indices or securities. This information may be used in
advertisements and in information furnished to present or prospective
shareholders. The Fund's performance may differ from that of other investors
in the Portfolio, including other investment companies.
Evaluations of the Fund's performance (including ratings and rankings)
made by independent sources, may be used in advertisements and in information
furnished to present or prospective shareholders. In addition, information
showing the effects of compounding interest may be included in advertisements
and other material furnished to present and prospective shareholders.
Compounding is the process of earning interest on principal plus interest that
was earned earlier. Interest can be compounded annually, semi-annually,
quarterly or daily. Examples of compounding will be used for illustration
purposes only.
Information used in advertisements and in materials provided to present
and prospective shareholders may include descriptions of Eaton Vance and other
Fund service providers, their investment styles, other investment products,
personnel and Fund didstribution channels.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in equity
securities. Such information may describe: the potential for growth; the
performance of equities as compared to other investment vehicles; and the
value of investing as early as possible and regularly, as well as staying
invested. The benefits of investing in equity securities by means of a mutual
fund may also be included (such benefits may include diversification,
professional management and the variety of equity mutual fund products).
Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific financial goals. Such information may provide
hypothetical illustrations which include: results of various investment
strategies; performance of an investment in the Fund over various time
periods; and results of diversifying assets among several investments with
varying performance. Information in advertisements and materials furnished to
present and prospective investors may also include quotations (including
editorial comments) and statistics concerning investing in securities, as well
as investing in particular types of securities and the performance of such
securities.
The Trust (or principal underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
CONTROL PERSONS
As of the date hereof, Eaton Vance owned one share of each Class of the
Fund, being the only shares of the Fund outstanding on such date.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated and intends to qualify
each year, as a RIC under the Code. Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute substantially all of its net investment ordinary
income and net income in accordance with the timing requirements imposed by
the Code, so as to maintain its RIC status and avoid paying any federal income
or excise tax. Because the Fund invests substantially all of its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to also satisfy these
requirements. The Portfolio will allocate at least annually among its
investors, including the Fund, each investor's distributive share of the
Portfolio's net taxable and tax-exempt (if any) investment income, net
realized capital gains, and any other items of income, gain, loss, deduction
or credit. For purposes of applying the requirements of the Code regarding
qualification as a RIC, the Fund (i) will be deemed to own its proportionate
share of each of the assets of the Portfolio and (ii) will be entitled to the
gross income of the Portfolio attributable to such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that the Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income for such
year, at least 98% of its capital gain net income (which is the excess of its
realized capital gains over its realized capital losses), generally computed
on the basis of the one-year period ending on October 31 of such year, after
reduction by (i) any available capital loss carryforwards, and (ii) 100% of
any income from the prior year (as previously computed) that was not paid out
during such year and on which the Fund paid no federal income tax. Under
current law, provided that the Fund qualifies as a RIC and the Portfolio is
treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio should be liable for any income, corporate excise
or franchise tax in the Commonwealth of Massachusetts.
The federal income tax rules governing the taxation of interest rate swaps
may require the Fund to treat certain payments received by the Portfolio under
such arrangements as ordinary income and to amortize such payments under
certain circumstances. The Portfolio will limit its activity in this regard if
necessary in order to enable the Fund to maintain its qualification as a RIC.
Certain investments of the Portfolio may bear original issue discount or
market discount for tax purposes. The Fund will be required to include in
income each year a portion of such original issue discount and may elect to
include in income each year a portion of such market discount. The Portfolio
may have to dispose of investments that it would otherwise have continued to
hold to provide cash to enable the Fund to satisfy its distribution
requirements with respect to such income.
Distributions made by the Fund, if any, that are derived from dividends
received by the Portfolio from domestic corporations and allocated to the Fund
may qualify for the dividends-received deduction for corporations. The
dividends-received deduction for corporate shareholders is reduced to the
extent the Fund shares with respect to which the dividends are received are
treated as debt-financed under federal income tax law and is eliminated if the
shares are deemed to have been held for less than a minimum period, generally
46 days, which must be satisfied separately for each dividend during a
specified period. Receipt of certain distributions qualifying for the
deduction may result in reduction of the tax basis of the corporate
shareholder's Fund shares and require current income recognition to the extent
in excess of such basis. Distributions eligible for the dividends-received
deduction may give rise to or increase an alternative minimum tax for
corporation.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and, hence, for the Fund to the extent that the
issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences
of the Portfolio's taking certain positions in connection with ownership of
such distressed securites. For example, the Code is unclear regarding: (i)
when the Portfolio may cease to accrue interest, original issue discount, or
market discount; (ii) when and to what extent deductions may be taken for bad
debts or worthless securities; (iii) how payments received on obligations in
default should be allocated between principal and income; and (iv) whether
exchanges of debt obligations in a workout context are taxable.
Distributions of the excess of net long-term capital gain over net short-
term capital loss (including any capital losses carried forward from prior
years) earned by the Portfolio and allocated to the Fund are taxable to
shareholders of the Fund as long-term capital gains (generally at a 20% rate
for noncorporate shareholders), whether received in cash or in additional
shares and regardless of the length of time their shares have been held.
Distributions of net income and net short-term capital gains are taxable to
shareholders as ordinary income. Certain distributions declared in October,
November or December and paid the following January will be taxed to
shareholders as if received on December 31 of the year in which they are
declared.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gain or loss on these transactions. In
general, any gain realized upon a taxable disposition of shares will be
treated as long-term capital gain if the shares have been held for more than
one year. Otherwise, the gain on the sale, exchange or redemption of Fund
shares will be treated as short-term capital gain.
Any loss realized upon the sale or exchange of shares of the Fund with a
tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. In addition, all or a portion of a loss realized on a
redemption or other disposition of Fund shares may be disallowed under "wash
sale" rules if other Fund shares are acquired (whether through reinvestment of
dividends or otherwise) within a period beginning 30 days before and ending 30
days after the date of such redemption or other disposition. Any disallowed
loss will result in an adjustment to the shareholder's tax basis in some or
all of the other shares acquired.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and
other retirement plans, and persons investing through such plans should
consult their tax advisers for more information. The deductibility of
contributions to IRAs may be restricted or eliminated for particular
shareholders. Amounts paid by the Fund to individuals and certain other
shareholders who have not provided the Fund with their correct taxpayer
identification number ("TIN") and certain certifications required by the
Internal Revenue Service (the "IRS"), as well as shareholders with respect to
whom the Fund has received certain information from the IRS or a broker, may
be subject to "backup" withholding of federal income tax arising from the
Fund's taxable dividends and other distributions as well as the proceeds of
redemption transactions (including repurchases and exchanges), at a rate of
31%. An individual's TIN is generally his or her social security number.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as IRAs and other retirement plans, tax-
exempt entities, insurance companies and financial institutions. Shareholders
should consult their own tax advisers with respect to special tax rules that
may apply in their particular situations, as well as the state, local and,
where applicable, foreign tax consequences of investing in the Fund.
PORTFOLIO SECURITY TRANSACTIONS
The Portfolio will acquire Senior Loans from major international banks,
selected domestic regional banks, insurance companies, finance companies and
other financial institutions. In selecting financial institutions from which
Senior Loans may be acquired, BMR will consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. While these financial institutions are
generally not required to repurchase Senior Loans which they have sold, they
may act as principal or on an agency basis in connection with their sale by
the Portfolio.
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer firm, are made by
BMR. BMR is also responsible for the execution of transactions for all other
accounts managed by it. BMR places the security transactions of the Portfolio
and of all other accounts managed by it for execution with many broker-dealer
firms. BMR uses its best efforts to obtain execution of portfolio transactions
at prices which are advantageous to the Portfolio and at reasonably
competitive spreads or (when a disclosed commision is being charged) at
reasonably competitive commission rates. In seeking such execution, BMR will
use its best judgment in evaluating the terms of a transaction, and will give
consideration to various relevant factors, including without limitation the
full range and quality of the broker-dealer's services, the value of the
brokerage and research services provided, the responsiveness of the broker-
dealer to BMR, the size and type of the transaction, the general execution and
operational capabilities of the broker-dealer, the nature and character of the
market for the security, the confidentiality, speed and certainty of effective
execution required for the transaction, the reputation, reliability,
experience and financial condition of the broker-dealer, the value and quality
of services rendered by the broker-dealer in this and other transactions, and
the reasonableness of the commission or spread, if any. Transactions on United
States stock exchanges and other agency transactions involve the payment by
the Portfolio of negotiated brokerage commissions. Such commissions vary among
different broker-dealer firms, and a particular broker-dealer may charge
different commissions according to such factors as the difficulty and size of
the transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities often involve the payment of brokerage
commissions, which may be higher than those in the United States. There is
generally no stated commission in the case of securities traded in the over-
the-counter markets, but the price paid or received by the Portfolio usually
includes an undisclosed dealer markup or markdown. In an underwritten offering
the price paid by the Portfolio often includes a disclosed fixed commission or
discount retained by the underwriter or dealer. Although spreads or
commissions paid on portfolio security transactions will, in the judgment of
BMR, be reasonable in relation to the value of the services provided,
commissions exceeding those which another firm might charge may be paid to
broker-dealers who were selected to execute transactions on behalf of the
Portfolio and BMR's other clients in part for providing brokerage and research
services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such compensation was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places portfolio transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic political, business
and market information, industry and company reviews, evaluations of
securities and portfolio strategies and transactions proxy voting data and
analysis services, technical analysis of various aspects of the securities
markets, and recommendations as to the purchase and sale of securities and
other portfolio transactions, financial, industry and trade publications, news
and information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by
BMR in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to BMR in rendering investment advisory services to all or
a significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may
be useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory
fee paid to the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
The Portfolio and BMR may also receive Research Services from underwriters
and dealers in fixed price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance may allocate brokerage
commissions to acquire information relating to the performance, fees and
expenses of such companies and other mutual funds, which information is used
by the Trustees of such companies to fulfill their responsibility to oversee
the quality of the services provided by various entities, including BMR, to
such companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
Portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the NASD, which rule
provides that no firm which is a member of the NASD shall favor or disfavor
the distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregate order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust
and the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of and independent accountants reports
for the Portfolio appear herein. Consistent with applicable law, duplicate
mailings of shareholder reports and certain other Fund information to
shareholders residing at the same address may be eliminated.
<PAGE>
FINANCIAL STATEMENTS
FLOATING RATE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 20, 2000
ASSETS:
Cash ............................................................. $100,010
--------
Total Assets ................................................. $100,010
LIABILITIES:
Net assets ....................................................... $100,010
--------
NOTES:
(1) Floating Rate Portfolio (the "Portfolio") was organized as a New York
Trust on June 19, 2000 and has been inactive since that date, except for
matters relating to its organization and registration as an investment
company under the Investment Company Act of 1940 and the sale of interests
therein at the purchase price of $100,000 to Eaton Vance Management and
the sale of an interest therein at the purchase price of $10 to Boston
Management & Research (the "Initial Interests").
(2) At 4:00 p.m., New York City time, on each business day of the Portfolio,
the value of an investor's interest in the Portfolio is equal to the
product of (i) the aggregate net asset value of the Portfolio multiplied
by (ii) the percentage representing that investor's share of the aggregate
interest in the Portfolio effective for that day.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of
Floating Rate Portfolio:
We have audited the accompanying statement of assets and liabilities of
Floating Rate Portfolio (a New York Trust) (the Portfolio) as of June 20,
2000. This financial statement is the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of Floating Rate Portfolio as of
June 20, 2000, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 21, 2000
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or
because S&P's does not rate a particular type of obligation as a matter of
policy.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.