<PAGE>
PERFORMANCE HIGHLIGHTS
"A Consistent Yield Advantage"
Top of Page 1
Month after month, the Fund has provided a yield advantage over 3-month bank
CDs.
This chart shows the yield advantage of Prime Rate Reserves over 3 month CD
Rates, during the year ended December 31, 1994.
Month Yield
Dec 93 2.99
Jan 94 2.9
Feb 2.66
Mar 2.52
Apr 2.41
May 2.76
Jun 2.8
Jul 2.79
Aug 3.13
Sep 3.28
Oct 3.56
Nov 3.58
Dec 3.88
All figures are as of 12/31/94. Prime Rate Reserves figure represents effective
yield (distribution for the latest 30-day period, annualized, divided by the net
asset value per share at the end of the period, and then compounded over a
12-month period). The Fund is not insured nor does it offer a fixed rate of
return like bank certificates of deposit or bank money market funds and does not
attempt to maintain a constant net asset value per share, as do money market
funds. Past performance is no guarantee of future results. Principal value and
investment return will flucutate with changes in market conditions. Sources:
Eaton Vance Management, The Wall Street Journal.
"Relative Stability of Net Asset Value" Bottom of Page 1
Throughout 1994, the Federal Reserve fought inflation by raising interest rates.
While higher rates sent bond prices into a tailspin, the Fund maintained a
relatively stable share price.
This chart shows the share price of Prime Rate Reserves during the year ended
December 31, 1994.
NET ASSET VALUE
MONTH ENDED PER SHARE
Dec 93 10.03
J 10.03
F 10.03
M 10.00
A 9.99
M 9.99
J 94 10.00
J 10
A 9.96
S 9.96
O 9.97
N 9.97
D 10.02
Source: Eaton Vance Management.
<PAGE>
TO SHAREHOLDERS
During the year ended December 31, 1994, Eaton Vance Prime Rate Reserves
shareholders continued to enjoy a significant yield advantage over other
short-term investments as the Fund's portfolio of senior, secured, floating rate
loans met the Fund's objective of maintaining a high level of current income
with a relatively stable net asset value.
AS THE ECONOMY GATHERED MOMENTUM IN 1994, SHORT-TERM RATES EDGED HIGHER...
With unemployment falling to 5.4 percent in December, a level not seen in four
years, the economy generated significant momentum in 1994. Gross domestic
product - which measures the nation's output of goods and services - rose 4.1
percent in the fourth quarter. While inflation for the year averaged only 2.7
percent, the Federal Reserve continued to aggressively pursue their
anti-inflation policy. The Fed raised short-term interest rates on six separate
occasions in 1994. At year-end, the Federal funds rate - a key barometer of
short-term interest rates - stood at 5.5 percent, significantly higher than its
3 percent level on December 31, 1993.
PRIME RATE RESERVES MAINTAINED ITS YIELD ADVANTAGE OVER OTHER SHORT-TERM FIXED
INCOME INVESTMENTS...
The Fund paid shareholders distributions from net investment income totaling
$0.601 during the year. As the chart on page 4 illustrates, the Fund had an
effective yield of 8.00 percent at December 31, up from 5.50 percent a year
earlier. The Fund's yield continued to represent a significant advantage over
money market mutual funds, 3-month certificates of deposit, and bank money
market accounts, which offered rates of 5.25, 4.12 and 3.26 percent,
respectively, according to the Wall Street Journal. Of course, unlike bank
certificates of deposit, the Fund is not insured and does not offer a fixed rate
of return, and unlike money market accounts, the Fund's principal value and
return can fluctuate with market conditions.
WITH THE FED DETERMINED TO BATTLE INFLATION, SHORT-TERM INTEREST RATES COULD
TREND HIGHER...
Federal Reserve chairman Alan Greenspan has long indicated his overriding
interest in fighting inflation, and in the course of 1994 and as late as
February 2, 1995, the Fed clearly established its credibility in that area by
raising interest rates. Recent Fed statements suggest that, for the foreseeable
future, the trend in short-term interest rates will likely remain
stable-to-slightly higher. Naturally, past performance is no guarantee of future
returns. But if the Fed continues its inflation fighting efforts, that could
mean even better returns for investors in floating rate loans. Prime Rate
Reserves will continue its pursuit of attractive yields and relative stability
in senior floating rate loans as well as its efforts to give shareholders a leg
up on future inflation.
Sincerely
James B. Hawkes
President
February 21, 1995
[Photograph of James B. Hawkes]
MANAGEMENT DISCUSSION
Questions and answers with Jeffrey S. Garner, Vice President and Portfolio
Manager, Eaton Vance Prime Rate Reserves.
Q: JEFF, THE FUND HAD A VERY SUCCESSFUL YEAR IN 1994. TO WHAT WOULD YOU
ATTRIBUTE THE FUND'S PERFORMANCE?
A: Prime Rate Reserves shareholders benefited throughout the year as the Fund's
dividend reflected the rise in short-term interest rates in general. The
year was marked by a much stronger economy and an about-face in Federal
Reserve policy. In response to increased economic activity and concerns that
a stronger economy may lead to higher inflation, the Fed raised short-term
rates a total of 250 basis points in 1994. In reaction to the Fed actions,
interest rates rose across the rate spectrum, with short-term rates
registering the largest increase.
Q. HOW WOULD YOU CHARACTERIZE THE LOAN MARKET IN 1994?
A. Conditions in the loan market continued to improve during 1994. In terms of
supply, the volume of new loans underwritten surged to $81 billion in 1994,
according to Loan Pricing Corp., an increase of over 100 percent from 1993's
volume of $40 billion. An important development, which accelerated during
1994, is the entry of prominent investment banks, including Goldman Sachs,
Merrill Lynch, and CS First Boston, as investors in and underwriters of new
loans. Clearly, the larger number of transactions offers the Fund an
increasing opportunity for selectivity. In terms of demand, the "wake-up
call" of rising interest rates caught many investors with a high exposure to
interest rate risk watching prices fall on their bond funds. As such, the
attraction of investors in a portfolio of floating rate loans, such as our
fund, became even more apparent. Our fund and other large, sophisticated
non-bank institutional investors have seen increasing investor
contributions. In summary, this has been a year of broader supply of new
loans and increasing demand for senior, secured floating rate loans.
[Photograph of Jeffrey S. Garner]
Q. CAN YOU GIVE SOME EXAMPLES OF YOUR INVESTMENT FOCUS IN RECENT MONTHS?
A. The Fund has maintained its traditionally high level of diversification,
both in terms of borrower and industry. Paper and packaging companies have
been among the Fund's largest holdings. Companies like Fort Howard and Stone
Container have benefited strongly from the resurgent economy. Inventories,
which were still building as late as last spring, have fallen sharply in
recent months with a rising demand for paper, packaging, and newsprint.
Pricing flexibility has subsequently improved for most paper grades,
resulting in improved cash flows and interest coverage for these paper and
forest product companies.
<PAGE>
Top of Page 4:
Prime Rate Reserves:
In a rising rate environment, the Fund enjoyed a yield advantage over other
popular short-term investment vehicles.
All figures are as of 12/31/94. Prime Rate Reserves figure represents effective
yield (distribution for the latest 30-day period, annualized, divided by the net
assets value per share at the end of the period and then compounded over a
12-month period). The Fund is not insured by the FDIC nor does it offer a fixed
rate of return like bank certificates of deposit or bank money market funds, and
does not attempt to maintain a constant net asset value per share, as do money
market funds.
Past performance is no guarantee of future results. Principal value and
investment return will fluctuate with changes in market conditions. Sources:
Eaton Vance Management, The Wall Street Journal.
This table shows the respective yields at 12/31/94 of Prime Rate Reserves,
average money market yields, average 3 month CDs and average bank money market
accounts.
Prime Rate Reserves 8
Money markets 5.25
3-month CDs 4.12
Bank Money Market Accounts 3.26
Q: HOW DID THE FUND'S PERFORMANCE COMPARE TO THAT OF BONDS?
A. Very well. The Fund delivered a positive total return of 6.1 percent in
1994. However, throughout the year, investors in fixed-rate bond funds -
including government bonds, corporate bonds, mortgage securities, and high
yield bonds - were hard hit by rising rates. For example, the Lehman
Brothers Government/Corporate Bond Index had a negative total return of -3.5
percent in 1994. So, on a relative total return basis, the Fund compared
very favorably to bonds in 1994.
Q: THE AVERAGE MATURITY OF THESE LOANS IS AROUND FIVE YEARS. HOW HAS THE FUND'S
DIVIDEND BEEN ABLE TO RESPOND SO QUICKLY TO RISING INTEREST RATES?
A: The Fund's escalating dividend rate was due not to contractual maturity, but
rather to interest rate reset provisions. As part of the loan agreements,
the interest rates paid by borrowers are typically reset every 30, 60 or 90
days, reflecting changes in the prevailing interest rate environment.
Naturally, these reset periods may vary from loan to loan. The Fund's
relatively short average interest rate reset period - 55 days at December 31
- made the Fund responsive to the changing rate environment. As a result, as
rates rose over the past year, the interest payments received by the Fund
rose correspondingly. The Fund was therefore able to increase its
distribution rate to our shareholders. This reset characteristic of floating
rate loan investments represents a major advantage over other fixed income
vehicles such as bonds, whose interest rates remain fixed and whose prices
typically decline in the face of rising interest rates.
<PAGE>
PORTFOLIO HIGHLIGHTS
December 31, 1994
GENERAL PORTFOLIO INFORMATION
Total net assets ................................................ $612 million
Assets invested in loan interests ............................... $611 million
Number of borrowers ............................................. 45
Industries represented .......................................... 21
FUNDAMENTAL CHARACTERISTICS OF PORTFOLIO LOANS
Senior .......................................................... 100%
Secured ......................................................... 100%
Floating rate ................................................... 100%
Commercial & industrial ......................................... 100%
AVERAGE PORTFOLIO STATISTICS
(DOLLAR-WEIGHTED)
Collateral coverage ratio ....................................... 1.5 to 1*
Days to interest-rate reset ..................................... 55
Maturity ........................................................ 5.2 years
Size per borrower ............................................... $13.6 million
Average size as percent of total net assets ..................... 2.2%
* At time of purchase
Source: Eaton Vance Management
Q: NATURALLY, EVERY INVESTMENT INVOLVES SOME DEGREE OF RISK. WHAT ARE THOSE
RISKS AND HOW DO YOU MANAGE DAY-TO-DAY RISK WITHIN THE FUND?
A. There is, of course, default risk, the risk that a borrower may be unable to
make principal or interest payments. Next, there is the risk that the value
of a loan's collateral could decline. Finally, there is a very minimal
degree of interest rate risk as interest rates fluctuate.
We have established very strict criteria with respect to any potential loan
investment. First, we invest in senior floating rate loans only, which give
lenders like the Fund priority over other creditors and over shareholders.
In addition, we value those assets conservatively. At the heart of our
efforts is sound fundamental research. While aiming for a diversified
portfolio, the Fund has focused its investments in recent months on
borrowers and industries whose business prospects are likely to improve with
an improving economy. But it's important to focus on a company's ability to
meet interest payments in a wide range of business conditions. Finally, we
insist on covenants that restrict the borrower's ability to take on
additional debt and strictly limit the ways in which loan proceeds may be
used. Thus, by employing strict investment criteria we have managed to limit
risk and maintain a relatively stable share price, which is a prime
consideration for our shareholders.
Q: FOR WHAT KIND OF INVESTOR IS PRIME RATE RESERVES ESPECIALLY SUITED?
A. I consider the Prime Rate Reserves investor to be someone who is
"yield-hungry, but risk-averse:" typically, an investor who wants to
complement his or her CDs and money market investments with a higher current
yield investment that may preserve purchasing power against the ravages of
inflation, yet is willing to undertake some modest degree of volatility.
<PAGE>
Page 6, left hand side
WITH A LARGE NON-INVESTMENT GRADE UNIVERSE TO DRAW FROM . . .
CORPORATE FINANCING
This table shows the number of companies that issue high grade debt instruments
juxtaposed against companies issuing high yield debt instruments.
Loan Universe
High Grade 800 companies
High Yield 12000 companies
Source: Standard & Poor's
Page 6, right hand side
The volume of new floating rate loans has surged!
This graph shows the growth in floating rate loan volume from 1991 through 1994.
Loan paper data Source: Loan Pricing Corp.
1991 $20.9B
1992 $28.2B
1993 $39.9B
1994 $81B
This past year provided a textbook example of the benefits of a floating
rate investment for that type of investor. First, the Fund provided
investors a good total return opportunity. In a period when returns for most
fixed income securities turned negative, the Fund turned in a positive
return. In fact, the Fund managed to outperform the equity market, which
returned 1.3 percent, as represented by the S&P 500, an unmanaged index of
common stocks. Naturally, past performance is no guarantee of future
results.
Next, the Fund once again displayed very little price fluctuation, ending
only one cent from its level at the beginning of the year. Maintaining
relative stability remains one of the Fund's primary goals, but once again,
past performance is no guarantee of future results.
And finally, the Fund gained ground against inflation. Let's not forget that
interest rates have risen in the past year because of the conviction of the
Federal Reserve and many investors that inflation may ultimately work its
way back into the economy. Therefore, investors in floating rate assets have
enjoyed an additional advantage of maintaining purchasing power.
Q. WHAT IS YOUR OUTLOOK FOR 1995?
A. In my view, the outlook is quite favorable for 1995. The economy shows
little sign of slowing at this point, and, in fact has gathered momentum in
recent months, with fourth quarter GDP rising 4.1 percent. And with more
companies coming into the senior floating rate loan market, the
opportunities continue to expand. Naturally, past performance is no
guarantee of future results. But the Fund remains well-positioned to
continue delivering competitive yields and a relatively stable net asset
value, as well as delivering potentially rising total returns in a rising
rate environment.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EATON VANCE PRIME RATE
RESERVES AND THE FEDERAL RESERVE 90-DAY COMMERCIAL PAPER INDEX
From August 31, 1989
through December 31, 1994
Average Annual 1 5 Life of
Returns Year Year Trust*
- -------------- ---- ---- -------
6.1% 7.0% 7.1%
This chart shows the growth of a hypothetical $10,000 investment in Prime Rate
Reserves and in the Federal Reserve 90 day Commercial Paper Index from 8.89 to
12/94.
Reserves
Year Prime Rate Federal Reserves 90-day Commercial Paper Index
8/89 10000 10000
9/89 10000 10070
10/89 10142 10139
11/89 10216 10207
12/89 10295 10275
1/90 10377 10342
2/90 10452 10409
3/90 10535 10478
4/90 10617 10548
5/90 10703 10618
6/90 10788 10688
7/90 10876 10756
8/90 10964 10825
9/90 11051 10894
10/90 11140 10964
11/90 11217 11034
12/90 11284 11103
1/91 11359 11166
2/91 11433 11225
3/91 11514 11283
4/91 11592 11339
5/91 11668 11393
6/91 11739 11450
7/91 11813 11506
8/91 11886 11560
9/91 11956 11612
10/91 12026 11662
11/91 12092 11710
12/91 12159 11754
1/92 12207 11793
2/92 12263 11833
3/92 12322 11874
4/92 12379 11913
5/92 12437 11951
6/92 12499 11990
7/92 12555 12023
8/92 12623 12057
9/92 12712 12089
10/92 12752 12122
11/92 12829 12158
12/92 12910 12195
1/93 12967 12227
2/93 12976 12259
3/93 13004 12291
4/93 13096 12323
5/93 13176 12355
6/93 13245 12388
7/93 13288 12420
8/93 13371 12453
9/93 13441 12485
10/93 13475 12518
11/93 13535 12553
12/93 13600 12588
1/94 13657 12621
2/94 13710 12657
3/94 13728 12697
4/94 13772 12739
5/94 13838 12787
6/94 13917 12834
7/94 13986 12884
8/94 14004 12935
9/94 14078 12988
10/94 14176 13046
11/94 14261 13108
12/94 14426 13174
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that on investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced on 8/4/89.
FUND PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
we are including a performance chart that compares your Fund's total return with
that of a broad-based market index. The lines on the chart represent the total
returns of $10,000 hypothetical investments in the Fund, and the Federal
Reserve's 90-Day Commercial Paper Index.
THE TOTAL RETURN FIGURES
The bold solid line on the chart represents the Fund's performance. The Fund's
total return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The dotted line represents the performance of the Federal Reserve 90-Day
Commercial Paper Index. The unmanaged Index is composed of corporate commercial
paper rated A1 and P1, respectively, by Moody's and Standard & Poor's, two major
independent ratings agencies. Commercial paper represents short-term obligations
of corporate borrowers, which are usually backed by bank lines of credit.
<PAGE>
<TABLE>
------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS -- 99.9%
---------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE -- 3.5%
TRACOR, INC.
$10,000,000 Term loan, maturing February 28, 2001 $ 10,000,000
Technical services to defense companies
VSI INDUSTRIES, INC.
11,095,867 Term loan, maturing March 31, 1997 11,095,867
Aerospace and specialty fasteners, and plastics ------------
industry tooling systems
$ 21,095,867
------------
AUTO PARTS -- 0.4%
STANADYNE AUTOMOTIVE CORP.
$ 2,281,759 Term loan, maturing December 31, 1995 $ 2,281,759
Auto and light truck fuel injection equipment ------------
BROADCAST MEDIA -- 1.1%
COAXIAL COMMUNICATIONS, INC.
$ 7,000,000 Term loan, maturing December 31, 1999 $ 7,000,000
Cable television franchise ------------
BUILDING MATERIALS -- 6.3%
AMERICAN STANDARD, INC.
$14,816,556 Term loan, maturing February 28, 2000 $ 14,816,556
10,000,000 Term loan, maturing February 28, 2001 10,000,000
Bathroom and kitchen fixtures, air conditioning
systems and air brake controls
FORMICA CORP.
14,000,000 Term loan, maturing October 21, 2001 14,000,000
Household and commercial surfacing materials -----------
$ 38,816,556
------------
CHEMICALS -- 4.3%
FREEDOM CHEMICAL COMPANY
$ 9,000,000 Term loan, maturing June 30, 2002 $ 9,000,000
Organic dyes, pigments, textile chemicals, and other
specialty chemicals
HARRIS SPECIALTY CHEMICALS, INC.
5,739,695 Term loan, maturing December 31, 2001 $ 5,739,695
1,594,959 Term loan, maturing December 31, 1999 1,594,959
Construction chemicals
INDSPEC CHEMICAL CORP.
10,000,000 Term loan, maturing December 2, 2000 10,000,000
Resorcinol and other specialty chemical products ------------
$ 26,334,654
------------
<PAGE>
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS (Continued)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 0.9%
DONNELLEY MARKETING, INC.
$ 5,743,054 Term loan, maturing December 31, 1996 $ 5,743,054
Direct mail consumer promotions ------------
CONGLOMERATES -- 2.0%
SPALDING & EVENFLO COMPANIES, INC.
$12,465,278 Term loan, maturing October 13, 2002 $ 12,465,278
Sporting goods and infant products
------------
CONTAINERS-METAL & GLASS -- 1.2%
SILGAN CORP.
$ 7,637,022 Term loan, maturing September 15, 1996 $ 7,637,022
Metal and plastic packaging products ------------
CONTAINERS-PAPER -- 12.2%
IVEX PACKAGING CORP.
$ 9,631,266 Term loan, maturing December 31, 1999 $ 9,631,266
3,737,173 Term loan, maturing December 17, 1998 3,737,173
Plastic and paper packaging products
JEFFERSON SMURFIT CORP.
29,000,000 Term loan, maturing April 30, 2002 29,000,000
Liner board and other paper board products
STONE CONTAINER CORP.
32,000,000 Term loan, maturing April 1, 2000 32,000,000
Commodity pulp, paper and packaging products ------------
$ 74,368,439
------------
ELECTRONICS-INSTRUMENTATION -- 5.2%
BERG ELECTRONICS, INC.
$11,950,000 Term loan, maturing March 31, 2001 $ 11,950,000
Electronic connectors
ELSAG BAILEY, INC.
12,945,833 Term loan, June 25, 2002 12,945,833
Electronic process control systems
SPERRY MARINE, INC.
6,741,463 Term loan, maturing December 31, 2000 6,741,463
Marine navigational equipment
------------
$ 31,637,296
------------
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS (Continued)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
FOOD WHOLESALERS -- 3.7%
CATERAIR HOLDINGS CORP.
$12,496,766 Term loan, maturing December 31, 1996 $ 12,496,766
Food service to airlines
U.S. FOODSERVICE, INC.
9,866,667 Term loan, maturing June 30, 2000 9,866,667
Food distributor to businesses ------------
$ 22,363,433
------------
FOODS -- 4.0%
ENVIRODYNE INDUSTRIES, INC.
$13,335,000 Term loan, maturing December 31, 1999 $ 13,335,000
Cellulosic and plastic based products for the food
industry
SPECIALTY FOODS CORP.
11,326,275 Term loan, maturing August 31, 1999 11,326,275
Bread and cheese products ------------
$ 24,661,275
------------
MANUFACTURING-DIVERSIFIED -- 8.1%
INTERLAKE CORP.
$13,657,633 Term loan, maturing September 27, 1996 $ 13,657,633
Engineered materials
INTERMETRO INDUSTRIES CORP.
3,569,044 Term loan, maturing June 30, 2001 3,569,044
5,113,939 Term loan, maturing December 31, 2002 5,113,939
Shelving
MOSLER, INC.
1,944,879 Term loan, maturing June 1, 1998 1,944,879
Safes, vaults, electronic security systems
THERMADYNE HOLDINGS CORP.
14,495,438 Term loan, maturing February 1, 2001 14,495,438
Cutting and welding products and floor cleaning
equipment
WATERS CORP.
6,250,000 Term loan, maturing November 30, 2001 6,250,000
4,375,000 Term loan, maturing November 30, 2002 4,375,000
Manufacturer of high performance liquid
chromatography instruments ------------
$ 49,405,933
------------
<PAGE>
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS (Continued)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 11.9%
FORT HOWARD CORP.
$ 9,782,847 Term loan, maturing December 31, 1996 $ 9,782,847
9,000,000 Senior Secured Notes, maturing September 11, 1998 19,000,000
19,000,000 Senior Secured Notes, maturing September 11, 1999 19,000,000
Sanitary tissue paper products
SDW ACQUISITION CORP.
25,000,000 Term loan, maturing December 30, 2002 25,000,000
Largest U.S. producer of coated free paper ------------
$ 72,782,847
------------
PUBLISHING -- 6.6%
KRUEGER RINGIER, INC.
$ 9,052,569 Term loan, maturing December 31, 1997 $ 9,052,569
6,096,786 Term loan, maturing December 31, 1998 6,096,786
Printers and binders of mass market and hardcover
books
ZIFF-DAVIS PUBLISHING COMPANY
12,867,647 Term loan, maturing December 31, 2001 12,867,647
12,132,353 Term loan, maturing December 31, 2002 12,132,353
Computer magazine and newspaper publications
------------
$ 40,149,355
------------
PUBLISHING-NEWSPAPERS -- 0.7%
AMERICAN MEDIA OPERATIONS, INC.
$ 4,500,000 Term loan, maturing September 30, 2002 $ 4,500,000
Weekly periodical publisher ------------
RESTAURANTS -- 6.5%
AMERICA'S FAVORITE CHICKEN COMPANY
$22,122,093 Term loan, maturing November 5, 1998 $ 22,122,093
Church's Fried Chicken and Popeye's restaurants
LONG JOHN SILVER'S RESTAURANTS, INC.
17,545,637 Term loan, maturing December 31, 1996 17,545,637
Fish restaurants
------------
$ 39,667,730
------------
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS (Continued)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 3.9%
CAMELOT MUSIC, INC.
$12,918,750 Term loan, maturing February 28, 2001 $ 12,918,750
Music stores
GRIFFITH CONSUMERS COMPANY
1,000,000 Term loan, maturing December 31, 2002 11,000,000
Retail petroleum distributor
SPIRIT HOLDING CO., INC.*
80,039 Term loan, maturing June 13, 1997 52,826
Do-it-yourself hardware stores
------------
$ 23,971,576
------------
RETAIL STORES-DRUG STORES -- 1.2%
DUANE READE, INC.
$ 7,516,667 Term loan, maturing December 31, 1997 $ 7,516,667
Retail drug stores ------------
RETAIL STORES-FOOD CHAINS -- 11.8%
CIRCLE K CORP.
$ 4,983,333 Term loan, maturing July 31, 2001 $ 4,983,333
Convenience stores and gasoline retailer
PATHMARK STORES, INC.
35,000,000 Term loan, maturing October 31, 1999 35,000,000
Supermarket chain in mid-Atlantic states
RALPHS GROCERY COMPANY
21,700,000 Term loan, maturing June 30, 1998 21,700,000
Third largest supermarket chain in Southern
California
STAR MARKET COMPANY, INC.
5,894,738 Term loan, maturing December 31, 2001 5,894,738
4,421,053 Term loan, maturing December 31, 2002 4,421,053
Supermarket chain in Massachusetts
------------
$ 71,999,124
------------
TEXTILES -- 4.4%
BLACKSTONE CAPITAL COMPANY II, L.L.C.
$ 5,000,000 Term loan, maturing January 13, 1997 $ 5,000,000
Automotive products, residential upholstery fabrics,
and wallcoverings
<PAGE>
---------------------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS (Continued)
---------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
---------------------------------------------------------------------------------------------
LONDON FOG INDUSTRIES, INC.
$12,000,000 Term loan, maturing June 30, 2001 $ 11,760,000
5,000,000 Term loan, maturing June 30, 2002 4,900,000
Outerwear
WASSERSTEIN/C & A HOLDINGS, L.L.C.
5,000,000 Term loan, maturing January 13, 1997 5,000,000
Automotive products, residential upholstery fabrics,
and wallcoverings
------------
$ 26,660,000
------------
TOTAL LOAN INTERESTS (IDENTIFIED COST, $612,159,991) $611,057,865
------------
--------------------------------------------------------------------------------------------
STOCKS & WARRANTS -- 1.4%
--------------------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
--------------------------------------------------------------------------------------------
54,895 America's Favorite Chicken Company, 8%, Preferred Stock $ 4,035,899
11,504 DM Holdings, Inc., Series A Warrants<F2><F1> 3,555,311
3,498 DM Holdings, Inc., Series B Warrants<F2><F1> 648,634
------------
TOTAL STOCKS & WARRANTS (IDENTIFIED COST, $4,168,518) $ 8,239,844
------------
TOTAL INVESTMENTS (IDENTIFIED COST,
$616,328,509) -- 101.3% $619,297,709
OTHER ASSETS, LESS LIABILITIES -- (1.3%) (7,710,191)
------------
TOTAL NET ASSETS -- 100% $611,587,518
============
<FN>
<F1> Non-income producing security.
<F2> Restricted Security -- At December 31, 1994, the Trust owned such
securities (constituting 0.7% of net assets) which were not readily
marketable at such date. The Trust has various registration rights
(exercisable under a variety of circumstances) with respect to these
securities. The fair values of these securities are determined in good
faith under methods or procedures authorized by the Trustees.
Note: The description of the principal business for each security set forth
above is unaudited.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (identified cost, $616,328,509) $619,297,709
Cash 9,397,820
Receivable for investments sold 2,937,034
Receivable for Trust shares sold 2,430,988
Interest receivable 4,598,880
Prepaid expenses 658,407
------------
Total assets $639,320,838
LIABILITIES:
Notes Payable $20,403,169
Distributions payable 2,833,076
Deferred facility fee income (Note 1B) 4,243,777
Accrued interest expense on notes payable 123,649
Trustees' fees payable 5,059
Custodian fee payable 10,000
Accrued expenses 114,590
-----------
Total liabilities 27,733,320
------------
NET ASSETS for 61,040,057 shares of beneficial interest outstanding $611,587,518
============
SOURCES OF NET ASSETS:
Paid-in capital $614,489,902
Accumulated undistributed net realized gain (loss) on investment
transactions (computed on the basis of identified cost) (5,893,284)
Unrealized appreciation of investments (computed on the basis of
identified cost) 2,969,200
Undistributed net investment income 21,700
------------
Total $611,587,518
============
NET ASSET VALUE PER SHARE (NOTE 6)
($611,587,518 / 61,040,057 shares of beneficial interest) $10.02
=====
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
-----------------------------------------------------------------
<CAPTION>
For the year ended December 31, 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $46,031,176
Facility fees earned 3,266,632
-----------
Total income $49,297,808
EXPENSES:
Investment advisory fee (Note 4) $ 6,116,870
Administration fee (Note 4) 1,609,703
Compensation of Trustees not members of the Investment
Adviser's organization 20,587
Custodian fee (Note 4) 278,996
Interest expense 1,299,638
Legal and accounting services 548,473
Transfer and dividend disbursing agent fees 497,078
Printing and postage 282,964
Registration costs 242,252
Amortization of organization expenses 125,138
Miscellaneous 580,215
-----------
Total expenses 11,601,914
-----------
Net investment income $37,695,894
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions $ 6,890,227
Decrease in unrealized appreciation of investments (7,115,207)
-----------
Net realized and unrealized loss on investments (224,980)
-----------
Net increase in net assets from operations $37,470,914
===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
STATEMENT OF CASH FLOWS
------------------------------------------------------------------------------------------
<CAPTION>
For the year ended December 31, 1994
------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES --
Purchase of Loan Interests $(375,884,709)
Proceeds from sales and principal repayments 438,605,296
Interest received 44,425,826
Facility fees received 3,202,537
Interest paid (1,175,989)
Operating expenses paid (10,176,219)
--------------
Net cash provided by operating activities $ 98,996,742
--------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES --
Proceeds from shares sold $ 57,625,779
Payments for shares reacquired in tender offers (149,902,946)
Cash distributions paid (excluding reinvestments of distributions
of $18,665,751) (18,120,929)
Payments made upon maturity of commercial paper (246,048,739)
Proceeds from issuance of commercial paper 248,470,683
-------------
Net cash used for financing activities $(107,976,152)
-------------
Net decrease in cash $ (8,979,410)
CASH AT BEGINNING OF YEAR 18,377,230
-------------
CASH AT END OF YEAR $ 9,397,820
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FROM OPERATING ACTIVITIES:
Net increase in net assets from operations $ 37,470,914
Increase in receivable for investments sold (2,512,664)
Increase in interest receivable (1,520,750)
Decrease in commitment fees receivable 14,814
Decrease in prepaid expenses 203,267
Decrease in deferred organization expenses 125,138
Decrease in deferred facility fee income (247,182)
Decrease in payable to affiliates (38,126)
Decrease in accrued expenses and other liabilities (40,573)
Net decrease in investments 65,541,904
-------------
Net cash provided by operating activities $ 98,996,742
=============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993
------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 37,695,894 $ 43,598,541
Net realized gain (loss) on investment transactions 6,890,227 (12,203,678)
Change in unrealized appreciation (depreciation) of
investments (7,115,207) 13,261,884
------------ --------------
Net increase in net assets from operations $ 37,470,914 $ 44,656,747
------------ --------------
Distributions to shareholders (Note 2) --
From net investment income $(37,695,894) $ (44,592,169)
In excess of net investment income (281,944) --
In excess of net realized gain on investment
transactions -- (165,896)
------------ --------------
Total distributions to shareholders $(37,977,838) $ (44,758,065)
------------ --------------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $ 59,869,598 $ 20,789,439
Net asset value of shares issued to shareholders in
payment of distributions declared 18,665,751 21,943,704
Cost of shares reacquired in tender offers (149,834,588) (370,244,501)
------------ --------------
Decrease in net assets from Trust share
transactions $(71,299,239) $ (327,511,358)
------------ --------------
Net decrease in net assets $(71,806,163) $ (327,612,676)
NET ASSETS:
At beginning of year 683,393,681 1,011,006,357
------------ --------------
At end of year (including undistributed net
investment income of $21,700
and $303,643, respectively) $611,587,518 $ 683,393,681
============ ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value and market
value --
Beginning of year $ 10.03 $ 10.02 $ 9.96 $ 9.97 $ 10.00
------------ ----------- ----------- ----------- -----------
Income from Investment
Operations:
Net investment income $ 0.5966 $ 0.4970 $ 0.5415 $ 0.7500 $ 0.9505
Net realized and unrealized
gain (loss) on investments (0.0059) 0.0258 0.0575 (0.0035)(a) (0.0305)
------------ ----------- ----------- ----------- -----------
Total income from
investment operations $ 0.5907 $ 0.5228 $ 0.5990 $ 0.7465 $ 0.9200
------------ ----------- ----------- ----------- -----------
Less Distributions:
From net investment income $ (0.5966) $ (0.5110) $ (0.5296) $ (0.7522) $ (0.9500)
In excess of net investment
income (0.0041) -- -- -- --
From net realized gain on
investments -- -- (0.0094) (0.0043) --
In excess of net realized
gain on investment
transactions -- (0.0018) -- -- --
------------ ----------- ----------- ----------- -----------
Total distributions $ (0.6007) $ (0.5128) $ (0.5390) $ (0.7565) $ (0.9500)
------------ ----------- ----------- ----------- -----------
Net asset value and market value --
End of year $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97
============ =========== =========== =========== ===========
TOTAL INVESTMENT RETURN(b) 6.1% 5.3% 6.2% 7.8% 9.6%
============ =========== =========== =========== ===========
RATIOS (as a percentage of average daily net
assets)(c):
Operating expenses 1.63% 1.55% 1.44% 1.37% 1.43%
Interest expense 0.21% 0.22% 0.18% 0.16% --
Net investment income 5.95% 4.98% 5.33% 7.42% 9.48%
SUPPLEMENTAL DATA:
Net Assets, End of Year (000
omitted) $611,588 $683,393 $1,011,006 $1,694,332 $2,095,692
Portfolio Turnover 60% 37% 26% 16% 43%
Number of Shares Outstanding
at End of Year (000 omitted) 61,040 68,165 100,877 170,032 210,285
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LEVERAGE ANALYSIS:
Borrowings from issuance AMOUNT OF DEBT AVERAGE DAILY BALANCE AVERAGE WEEKLY BALANCE AVERAGE AMOUNT OF
of commercial paper: OUTSTANDING AT OF DEBT OUTSTANDING OF SHARES OUTSTANDING DEBT PER SHARE
YEAR ENDED END OF YEAR DURING YEAR DURING YEAR DURING YEAR
------ ---------------- --------------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1991 $ -- $34,893,000 189,758,055 $0.1839
December 31, 1992 $39,764,710 $37,304,000 132,343,142 $0.2819
December 31, 1993 $17,981,224 $24,585,000 85,859,000 $0.2863
December 31, 1994 $20,403,169 $10,236,000 63,465,000 $0.1613
---------
</TABLE>
(a) The per share amount is not in accordance with the net realized and
unrealized gain for the period because of the timing of sales of Trust
shares and the amount of per share realized and unrealized gains and losses
at such time.
(b) Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to
be reinvested at the net asset value on the payable date.
(c) For the year ended December 31, 1991, the expenses related to the operation
of the Trust were reduced by a reduction of the investment advisory fee.
Had such action not been taken, the ratios would have been as follows:
YEAR ENDED
DECEMBER 31,
1991
------------
RATIOS (as a percentage of average daily net assets):
Operating expenses 1.40%
Interest expense 0.16%
Net investment income 7.39%
See notes to financial statements
<PAGE>
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
The Trust is an entity of the type commonly known as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
a non-diversified closed-end management investment company. The following is a
summary of significant accounting policies consistently followed by the Trust in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATION - The Trust's investments in interests in loans (Loan
Interests) are valued at fair value by the Trust's administrator, Eaton Vance
Management, under procedures established by the Trustees as permitted by Section
2(a)(41) of the Investment Company Act of 1940. Such procedures include the
consideration of relevant factors, data and information relating to fair value,
including (i) the characteristics of and fundamental analytical data relating to
the Loan Interest, including the cost, size, current interest rate, period until
next interest rate reset, maturity and base lending rate of the Loan Interest,
the terms and conditions of the loan and any related agreements and the position
of the loan in the borrower's debt structure; (ii) the nature, adequacy and
value of the collateral, including the Trust's rights, remedies and interests
with respect to the collateral; (iii) the creditworthiness of the borrower,
based on evaluations of its financial condition, financial statements and
information about the borrower's business, cash flows, capital structure and
future prospects; (iv) information relating to the market for the Loan Interest
including price quotations for and trading in the Loan Interests and interests
in similar loans and the market environment and investor attitudes towards Loan
Interests and interests in similar loans; (v) the reputation and financial
condition of the agent bank and any intermediate participant in the loan; and
(vi) general economic and market conditions affecting the fair value of the Loan
Interest. Other portfolio securities (other than short-term obligations, but
including listed issues) may be valued on the basis of prices furnished by one
or more pricing services which determine prices for normal, institutional-sized
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. In certain circumstances,
portfolio securities will be valued at the last sales price on the exchange that
is the primary market for such securities, or the last quoted bid price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. The value of
interest rate swaps will be determined in accordance with a discounted present
value formula and then confirmed by obtaining a bank quotation. Short-term
obligations which mature in sixty days or less are valued at amortized cost, if
their original term to maturity when acquired by the Trust was 60 days or less,
or are valued at amortized cost using their value on the 61st day prior to
maturity, if their original term to maturity when acquired by the Trust was more
than 60 days, unless in each case this is determined not to represent fair
value. Repurchase agreements are valued at cost plus accrued interest. Other
portfolio securities for which there are no quotations or valuations are valued
at fair value as determined in good faith by or on behalf of the Trustees.
<PAGE>
- ------------------------------------------------------------------------------
B. INCOME - Interest income from Loan Interests is recorded on the accrual basis
at the then-current interest rate, while all other interest income is determined
on the basis of interest accrued, adjusted for amortization of premium or
discount when required for federal income tax purposes. Facility fees received
are recognized as income over the expected term of the loan.
C. FEDERAL TAXES - The Trust's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal income or excise tax
is necessary. At December 31, 1994, the Trust, for federal income tax purposes,
had a capital loss carryover of $5,893,284 which will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Trust of any liability for federal income or excise tax. Such capital loss
carryover will expire on December 31, 2001.
- ------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net investment income of the Trust is determined daily, and substantially
all of the net investment income so determined is declared daily as a dividend
to shareholders of record at the time of declaration. Such daily dividends will
be paid monthly. Distributions of realized capital gains, if any, are made at
least annually. Shareholders may reinvest capital gain distributions in
additional shares of the Trust at the net asset value as of the ex-dividend
date. Distributions are paid in the form of additional shares of the Trust or,
at the election of the shareholder, in cash. The Trust distinguishes between
distributions on a tax basis and a financial reporting basis. Generally accepted
accounting principles require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in
over-distributions for financial statement purposes only are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital. The tax treatment of
distributions for the calendar year will be reported to shareholders prior to
February 1, 1995 and will be based on tax accounting methods which may differ
from amounts determined for financial statement purposes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). The Trust
may from time to time, at its discretion, make tender offers at net asset value
for the purchase of all or a portion of its shares. The price will be
established at the close of business on the last day the tender offer is open.
(An early withdrawal charge will be imposed on most shares accepted for tender
which have been held less than four years.) (See Note 6.) The Trustees approved
tender offers for the periods from January 14, 1994 to February 11, 1994, from
April 18, 1994 to May 16, 1994, from July 18, 1994 to August 12, 1994, from
October 21, 1994 to November 18, 1994 and from January 23, 1995 to February 17,
1995. Transactions in Trust shares were as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
--------- ---------
Sales 5,996,851 2,074,916
Issued to shareholders electing
to receive payments of
distributions in Trust shares 1,868,329 2,190,350
Reacquired in tender offers (14,990,693) (36,976,837)
------------ ------------
Net decrease (7,125,513) (32,711,571)
========== ==========
- ------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The investment advisory fee was earned by Eaton Vance Management (EVM) as
compensation for investment advisory services rendered to the Trust. The fee is
computed at the monthly rate of 19/240 of 1% (0.95% per annum) of the Trust's
average daily gross assets up to and including $1 billion and at reduced rates
as daily gross assets exceed that level. For the year ended December 31, 1994,
the effective annual rate, based on average daily gross assets, was 0.95%
(annualized). An administration fee, computed at the monthly rate of 1/48 of 1%
(0.25% per annum) of the Trust's average daily gross assets, was also paid to
EVM for managing and administering business affairs of the Trust. Except as to
Trustees of the Trust who are not members of EVM's organization, officers and
Trustees receive remuneration for their services to the Trust out of such
investment advisory fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM, serves as custodian of the Trust. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on average daily
cash balances the Trust maintains with IBT. Certain of the officers and Trustees
of the Trust are officers and directors/trustees of the above organizations.
- ------------------------------------------------------------------------------
(5) INVESTMENTS
The Trust invests primarily in Loan Interests. The ability of the issuers of the
Loan Interests to meet their obligations may be affected by economic
developments in a specific industry. The cost of purchases and the proceeds from
principal repayments and sales of Loan Interests for the year ended December 31,
1994 aggregated $375,595,829 and $439,402,249, respectively.
<PAGE>
- ------------------------------------------------------------------------------
(6) EARLY WITHDRAWAL CHARGE
Eaton Vance Distributors, Inc. (EVD), a subsidiary of EVM, serves as the Trust's
principal underwriter. EVD compensates authorized dealers for sales commissions
at a rate of 2 1/2% of the purchase price of shares purchased through such
dealers. EVD also pays additional compensation to each dealer equal to .25% per
annum of the value of Trust shares sold by such dealer that are outstanding for
more than one year. An early withdrawal charge to recover distribution expenses
will be charged to redeeming shareholders and paid to EVD in connection with
most shares held for less than four years which are accepted by the Trust for
repurchase pursuant to tender offers. The early withdrawal charge is imposed at
declining rates that begin at 3% in the case of redemptions in the first year
after purchase, declining to 2.5%, 2%, 1% and 0% in the second, third and fourth
year and thereafter, respectively. The early withdrawal charge will be imposed
on those shares accepted for tender, the value of which exceeds the aggregate
value at the time the tender is accepted of: (a) all shares in the account
purchased more than four years prior to such acceptance, (b) all shares in the
account acquired through reinvestment of distributions, and (c) the increase, if
any, in value of all other shares in the account (namely those purchased within
the four years preceding the acceptance) over the purchase price of such shares.
In determining whether an early withdrawal charge is payable, it is assumed that
the acceptance of a repurchase offer is made from the earliest purchase of
shares. The total early withdrawal charges received by EVD for the year ended
December 31, 1994 amounted to $423,222.
- ------------------------------------------------------------------------------
(7) SHORT-TERM DEBT AND CREDIT AGREEMENTS
The Trust participates with other funds managed by EVM in a $120 million
unsecured line of credit agreement with a bank. The line of credit consists of a
$20 million committed facility and a $100 million discretionary facility.
Borrowings will be made by the Trust solely to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Interest is charged
to each fund based on its borrowings at an amount above either the bank's
adjusted certificate of deposit rate, a variable adjusted certificate of deposit
rate, or a federal funds effective rate. In addition, a fee computed at an
annual rate of 1/4 of 1% on the $20 million committed facility and on the daily
unused portion of the $100 million discretionary facility is allocated among the
participating funds at the end of each quarter. The Trust did not have any
significant borrowings or allocated fees under this agreement during the period.
The Trust has also entered into a revolving credit agreement, that will allow
the Trust to borrow an additional $245 million to support the issuance of
commercial paper and to permit the Trust to invest in accordance with its
investment practices. Interest is charged under the revolving credit agreement
at the bank's base rate or at an amount above either the bank's adjusted Libor
rate or adjusted certificate of deposit rate. Interest expense includes a
commitment fee of approximately $612,500 which is computed at the annual rate of
1/4 of 1% on the unused portion of the revolving credit agreement. There were no
borrowings under this agreement during the period. As of December 31, 1994, the
Trust had $20,403,169 in commercial paper outstanding with an annual weighted
interest rate of 6.0%. The maximum amount of commercial paper outstanding at any
month end and average borrowings for the year ended December 31, 1994 were
$46,288,000 and $10,236,000, respectively, and the average interest rate was
5.11%.
- ------------------------------------------------------------------------------
(8) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost and unrealized appreciation/depreciation in the value of investments
owned at December 31, 1994, as computed on a federal income tax basis, were as
follows:
Aggregate cost $616,328,509
============
Gross unrealized appreciation $ 4,203,945
Gross unrealized depreciation 1,234,745
------------
Net unrealized appreciation $ 2,969,200
============
<PAGE>
INDEPENDENT AUDITORS' REPORT
-----------------------------------------------------------------
To the Trustees and Shareholders of
Eaton Vance Prime Rate Reserves:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Eaton Vance Prime Rate Reserves as of December
31, 1994, and the related statements of operations and cash flows for the year
then ended, the statement of changes in net assets for the years ended December
31, 1994 and 1993, and the financial highlights for each of the years in the
five-year period ended December 31, 1994. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities and Loan
Interests owned at December 31, 1994, by correspondence with the custodian and
selling or agent banks; where replies were not received from selling or agent
banks, we performed other auditing procedures. 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Eaton Vance Prime
Rate Reserves at December 31, 1994, the results of its operations and its cash
flows, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
As discussed in Note 1A, the financial statements include Loan Interests and
certain other securities held by Eaton Vance Prime Rate Reserves valued at
$619,297,709 (101.3% of net assets of the Trust), which values are fair values
determined by the Trust's administrator in the absence of actual market values.
Determination of fair value involves subjective judgment, as the actual market
value of a particular Loan Interest or Security can be established only by
negotiation between the parties in a sales transaction. We have reviewed the
procedures established by the Trustees and used by the Trust's administrator in
determining the fair values of such Loan Interests and securities and have
inspected underlying documentation, and in the circumstances, we believe that
the procedures are reasonable and the documentation appropriate.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1995
<PAGE>
INVESTMENT MANAGEMENT
EATON VANCE OFFICERS
PRIME RATE JAMES B. HAWKES INDEPENDENT TRUSTEES
RESERVES President and Trustee DONALD R. DWIGHT
24 Federal Street M. DOZIER GARDNER President, Dwight Partners,
Boston, MA 02110 Vice President and Trustee Inc., Chairman, Newspapers of
JEFFREY S. GARNER New England, Inc.
Vice President and SAMUEL L. HAYES, III
Portfolio Manager Jacob H. Schiff Professor of
JAMES L. O'CONNOR Investment Banking, Harvard
Treasurer University Graduate School
THOMAS OTIS of Business Administration
Secretary NORTON H. REAMER
BARBARA E. CAMPBELL President and Director, United
Assistant Treasurer Asset Management Corporation
JANET E. SANDERS JOHN L. THORNDIKE
Assistant Treasurer and Director, Fiduciary Trust
Assistant Secretary Company
JACK L. TREYNOR
Investment Adviser and
Consultant
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE PRIME RATE RESERVES
24 FEDERAL STREET
BOSTON, MA 02110
M-PRSRC
EATON VANCE
PRIME RATE
RESERVES
ANNUAL
SHAREHOLDER REPORT
DECEMBER 31, 1994
[Photograph]
