<PAGE>
EATON VANCE
PRIME RATE RESERVES
- ------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF EATON VANCE PRIME RATE RESERVES (THE "FUND") IS TO
PROVIDE AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION
OF CAPITAL, BY INVESTING IN A PORTFOLIO PRIMARILY OF SENIOR SECURED FLOATING
RATE LOANS. THE FUND CURRENTLY SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING ITS
ASSETS IN SENIOR DEBT PORTFOLIO (THE "PORTFOLIO"). THE PORTFOLIO HAS THE SAME
INVESTMENT OBJECTIVE AS THE FUND. THE FUND, A CONTINUOUSLY OFFERED, CLOSED-END,
NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY, INVESTS DIRECTLY IN THE
PORTFOLIO, A SEPARATE, CLOSED-END, NON-DIVERSIFIED MANAGEMENT INVESTMENT
COMPANY, RATHER THAN, AS WITH AN HISTORICALLY STRUCTURED INVESTMENT COMPANY,
INVESTING DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF LOANS AND SECURITIES.
THE PORTFOLIO AND THE FUND MAY BORROW, PRIMARILY IN CONNECTION WITH THE FUND'S
TENDER OFFERS FOR ITS SHARES. SEE "USE OF LEVERAGE" ON PAGE 9.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus sets forth information about the Fund that an investor should
know before investing. It should be read and retained for future reference. A
Statement of Additional Information for the Fund dated November 28, 1995, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Table of Contents of the
Statement of Additional Information appears at the end of this Prospectus. The
Statement of Additional Information is available without charge from the Fund's
principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
PRICE TO PUBLIC SALES LOAD(2) PROCEEDS TO FUND
--------------- ------------- ----------------
Per Share(1) ............ $10.03 None $10.03
Total ................... $4,003,000,000 None to be paid $4,003,000,000
by the Fund
- ----------
(1)The shares are offered on a best efforts basis at a price equal to the net
asset value, which, as of November 20, 1995, was $10.03 per share. See "How
to Buy Fund Shares."
(2)Because Eaton Vance Distributors, Inc. and its affiliates will pay all sales
commissions to authorized firms from their own assets, the net proceeds of
the offering will be available to the Fund for investment in the Portfolio.
See "How to Buy Fund Shares."
- -------------------------------------------------------------------------------
EATON VANCE DISTRIBUTORS, INC.
PROSPECTUS DATED NOVEMBER 28, 1995
- ----------
Copyright (C) 1995. Eaton Vance Management
<PAGE>
The Fund is engaged in a continuous public offering of its shares at net asset
value without an initial sales charge. An early withdrawal charge of up to 3%
will be imposed on most shares held for less than four years which are accepted
for repurchase pursuant to a tender offer, as set forth below. See "How to Buy
Fund Shares" and "Early Withdrawal." The address of the Fund is 24 Federal
Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolio's investment adviser is Boston Management and Research (the
"Investment Adviser" or "BMR"), a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"), and Eaton Vance is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
NO MARKET PRESENTLY EXISTS FOR THE FUND'S SHARES AND IT IS NOT CURRENTLY
ANTICIPATED THAT A SECONDARY MARKET WILL DEVELOP FOR THE FUND'S SHARES. Fund
shares are not readily marketable. To provide investor liquidity, the Trustees
of the Fund presently intend each quarter to consider the making of a tender
offer to purchase all or a portion of the Fund's shares at net asset value.
See "Tender Offers to Purchase Shares."
TABLE OF CONTENTS
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PAGE
Shareholder and Fund Expenses ......................................... 3
The Fund's Financial Highlights ....................................... 4
The Fund's Investment Objective ....................................... 6
How the Fund and the Portfolio Invest their Assets
(including "Risk Factors") ........................................... 6
Yield and Performance Information ..................................... 12
Organization of the Fund and the Portfolio ............................ 13
Management of the Fund and the Portfolio .............................. 16
Valuing Fund Shares ................................................... 17
How to Buy Fund Shares ................................................ 18
Tender Offers to Purchase Shares ...................................... 19
Early Withdrawal ...................................................... 21
Reports to Shareholders ............................................... 22
The Lifetime Investing Account/Distribution Options ................... 22
Eaton Vance Shareholder Services ...................................... 23
Distribution and Taxes ................................................ 24
Table of Contents of the Statement of Additional Information .......... 25
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER AND FUND EXPENSES<F1>
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
--------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Load (as a percentage of offering price) None
Dividend Reinvestment Fees None
Range of Early Withdrawal Charges Imposed on Tender of Entire Account During the First
Five Years (as a percentage of tender proceeds exclusive of all reinvestments and capital
appreciation in the account)<F2> 3.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets attributable to shares of
beneficial interest)
---------------------------------------------------------------------------------------------------------------------
Investment Advisory Fee<F3> 0.95%
Interest Payments on Borrowed Funds 0.08
Other Expenses (including administration fees<F3> of .25%) 0.65
-----
Total Annual Expenses 1.73%
=====
<PAGE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following early
withdrawal charge and expenses on a
$1,000 investment, assuming (a) 5% annual
return and (b) tender at the end of each period: $48 $75 $95 $206
An investor would pay the following expenses on
the same investment, assuming (a) 5% annual
return and (b) no tenders: $18 $55 $95 $206
NOTES:
<F1> The purpose of the above table and the Example is to summarize the aggregate expenses of the Fund and the Portfolio and to
assist investors in understanding the various costs and expenses that investors in the Fund will bear directly or
indirectly. The Fund Trustees believe the aggregate per share expenses of the Fund and the Portfolio should approximate, and
over time may be less than, the per share expenses which the Fund would incur if the Fund were instead to retain the
services of an investment adviser and the assets of the Fund were invested directly in the type of securities being held by
the Portfolio. The costs and expenses included in the table and the Example are estimated based on the Fund's and the
Portfolio's projected fees for the fiscal year ending December 31, 1995, and reflect the Fund's current policy of investing
its assets in the Portfolio. The Example should not be considered a representation of past or future expenses since future
expenses may be greater or less than those shown. For further information regarding the expenses of both the Fund and the
Portfolio see "The Fund's Financial Highlights", "Organization of the Fund and the Portfolio", "Management of the Fund and
the Portfolio", "How to Buy Fund Shares" and "Tender Offers to Purchase Shares".
<F2> No early withdrawal charge is imposed on (a) shares purchased more than four years prior to the acceptance for tender, (b)
shares acquired through the reinvestment of dividends and distributions and (c) any appreciation in value of other shares in
the account (see "Tender Offers to Purchase Shares").
<F3> As of the close of business on February 21, 1995, the Fund transferred its assets to the Portfolio in exchange for an
interest in the Portfolio. The Portfolio's investment adviser is Boston Management and Research, a wholly-owned subsidiary
of Eaton Vance. Prior to such date, the Fund retained Eaton Vance as its investment adviser. After such transfer of assets
the Fund has continued to retain Eaton Vance as administrator. The Investment Advisory and Administration Fees are based
upon a percentage of the Portfolio's average daily gross assets, which are estimated to be approximately the same as its
average daily net assets for the fiscal year to end December 31, 1995.
<F4> Other investment companies with different distribution arrangements are investing in the Portfolio and others may do so in
the future. See "Organization of the Fund and the Portfolio".
</TABLE>
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information through December 31, 1994 should be read in
conjunction with the audited financial statements included in the Statement of
Additional Information, all of which have been so included in reliance upon the
report of Deloitte & Touche LLP, independent certified public accountants, as
experts in accounting and auditing, which report is contained in the Fund's
Statement of Additional Information. Unaudited financial statements for the six
months ended June 30, 1995 are also contained in the Statement of Additional
Information. Further information regarding the performance of the Fund is
contained in the Fund's semi-annual and annual reports to shareholders which may
be obtained without charge by contacting the Fund's Principal Underwriter, Eaton
Vance Distributors, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 -------------------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989<F1>
----------------- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value --
Beginning of year $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income<F4> $ 0.3935 $ 0.5966 $ 0.4970 $ 0.5415 $ 0.7500 $ 0.9505 $ 0.3535
Net realized and
unrealized gain
(loss) on
investments 0.0099 (0.0059) 0.0258 0.0575 (0.0035)<F2> (0.0305) --
-------- -------- -------- -------- -------- -------- --------
Total income from
investment
operations $ 0.4034 $ 0.5907 $ 0.5228 $ 0.5990 $ 0.7465 $ 0.9200 $ 0.3535
-------- -------- -------- -------- -------- -------- --------
Less distributions:
From net investment
income $(0.3934) $(0.5966) $(0.5110) $(0.5296) $(0.7522) $(0.9500) $(0.3535)
In excess of net
investment
income<F10> -- (0.0041) -- -- -- -- --
From net realized
gain on investments -- -- -- (0.0094) (0.0043) -- --
In excess of net
realized gain on
investment
transactions<F10> -- -- (0.0018) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total
distributions $(0.3934) $(0.6007) $(0.5128) $(0.5390) $(0.7565) $(0.9500) $(0.3535)
-------- -------- -------- -------- -------- -------- --------
Net asset value --
End of year $ 10.03 $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97 $ 10.00
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN<F3> 4.1% 6.1% 5.3% 6.2% 7.8% 9.6% 3.6%
RATIOS (as a percentage
of average daily net
assets)<F5>:
Operating
expenses<F4> 1.68%<F9> 1.63% 1.55% 1.44% 1.37% 1.43% 1.30%<F9>
Interest expense<F4> 0.08%<F9><F8> 0.21% 0.22% 0.18% 0.16% -- --
Net investment
income 7.84%<F9> 5.95% 4.98% 5.33% 7.42% 9.48% 8.52%<F9>
SUPPLEMENTAL DATA:
Net Assets, End of
Year (000 omitted) $808,779 $611,588 $683,393 $1,011,006 $1,694,332 $2,095,692 $1,751,363
Portfolio turnover<F6> 5% 60% 37% 26% 16% 43% 18%
Number of Shares
Outstanding at
End of Year
(000 omitted) 80,630 61,040 68,165 100,877 170,032 210,285 175,136
LEVERAGE ANALYSIS:
Borrowings by the Fund from issuance of commercial paper:
<CAPTION>
AVERAGE WEEKLY
AVERAGE DAILY BALANCE
AMOUNT OF DEBT BALANCE OF SHARES AVERAGE AMOUNT OF
OUTSTANDING AT OF DEBT OUTSTANDING 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
June 30, 1995<F7> $ -- $ 9,688,000 62,118,000 $0.1560
<FN>
<F1> For the period from the start of business, August 4, 1989, to December 31, 1989.
<F2> 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 Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F3> 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 (assuming no early withdrawal charge was imposed). Dividends and
distributions, if any, are assumed to be reinvested at the net asset value on the payable date.
<F4> Includes the Fund's share of Senior Debt Portfolio's allocated expenses for the period from February 22, 1995 to June 30,
1995.
<F5> For the year ended December 31, 1991, and for the period from the start of business, August 4, 1989, to December 31, 1989,
the expenses related to the operation of the Fund were reduced by a reduction of the investment advisory fee. Had such
action not been taken, the ratios would have been as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1989<F1>
------------- -------------
<S> <C> <C>
RATIOS (as a percentage of average daily net assets):
Operating expenses 1.40% 1.34%<F9>
Interest expense 0.16% --
Net investment income 7.39% 8.48%<F9>
<F6> Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making investments directly
in securities. The portfolio turnover for the period since the Fund transferred substantially all of its investable assets
to the Portfolio is shown in the Portfolio's financial statements which are included in the Fund's semi-annual report to
shareholders.
<F7> The Leverage Analysis is for the period January 1, 1995 to February 21, 1995, when the Fund transferred the commercial paper
program to the Portfolio.
<F8> Interest expense is for the period from January 1, 1995 to February 21, 1995.
<F9> Computed on an annualized basis.
<F10> During the year ended December 31, 1993, the Fund adopted Statement of Position (SOP) 93-2: Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. The
SOP requires that differences in the recognition or classification of income between the financial statements and tax
earnings and profits that result in temporary over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized gains.
</TABLE>
Note: During each of the fiscal years shown above the Fund invested directly in
loans and securities. As of the close of business on February 21, 1995,
the Fund transferred its assets to the Portfolio in exchange for an
interest in the Portfolio (unaudited).
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Eaton Vance Prime Rate Reserves (the "Fund") is a closed-end, non-diversified
management investment company which continuously offers its shares of beneficial
interest ("shares") to the public. The Fund's investment objective is to provide
as high a level of current income as is consistent with the preservation of
capital, by investing in a portfolio primarily of senior secured floating rate
loans. The Fund currently seeks to achieve its objective by investing its assets
in the Senior Debt Portfolio (the "Portfolio"), a separate closed-end,
non-diversified management investment company with the same investment objective
as the Fund. There is no assurance that the Fund's objective, or any specific
yield on Fund shares, will be achieved. See "Yield and Performance Information."
An investment in shares of the Fund is not a complete investment program.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
The Portfolio will invest primarily in senior secured floating rate loans, and
also in other institutionally traded senior secured floating rate debt
obligations (collectively, "Loans"). Under normal market conditions, the
Portfolio will invest at least 80% of its total assets in interests in Loans
("Loan Interests"). These Loans are made primarily to U.S. companies or their
affiliates or issuers of asset-backed interests (collectively, "Borrowers") and
have floating interest rates. Up to 20% of the Portfolio's total assets may be
held in cash, invested in investment grade short-term debt obligations, and
invested in interests in Loans that are unsecured ("Unsecured Loans"). See
"Other Investment Policies" below.
The Loans in which the Portfolio acquires Loan Interests will, in the judgment
of Boston Management and Research (the "Investment Adviser" or "BMR"), be in the
category of senior debt of the Borrower and will generally hold the most senior
position in the capitalization structure of the Borrower. Loans will consist
primarily of direct obligations of U.S. companies or their affiliates undertaken
to finance a capital restructuring or in connection with recapitalizations,
acquisitions, leveraged buy-outs, refinancings or other financially leveraged
transactions. Such Loans may include those made to a Borrower for the purpose of
acquiring ownership or control of a company, whether as a purchase of equity or
of assets, or for a leveraged recapitalization with no change in ownership.
Except for Unsecured Loans, each Loan will be secured by collateral which BMR
believes to have a market value, at the time of acquiring the Loan Interest,
which equals or exceeds the principal amount of the Loan. Subsequent to
purchase, the value of the collateral may decline, and the Loan may no longer be
as secured. The Loans will typically have a stated term of five to eight years.
However, since the Loans typically amortize principal over their stated life and
are frequently prepaid, their effective maturity is expected to be two to three
years. The Portfolio will maintain a segregated account with its custodian of
liquid, high grade debt obligations with a value equal to the amount, if any, of
the Loan which the Portfolio has obligated itself to make to the Borrower, but
which has not yet been requested from the Portfolio. The Portfolio will attempt
to maintain a portfolio of Loan Interests that will have a dollar weighted
average period to next interest rate adjustment of approximately 90 days or
less. As of October 31, 1995, the Portfolio had a dollar weighted average period
to adjustment of approximately 58 days.
The Portfolio will purchase Loan Interests only if, in BMR's judgment, the
Borrower can meet debt service on the Loan. In addition, a Borrower must meet
other criteria established by BMR and deemed by it to be appropriate to the
analysis of the Borrower, the Loan and the Loan Interest. The Loan Interests in
which the Portfolio invests are not currently rated by any nationally recognized
rating service. The primary consideration in selecting such Loan Interests for
investment by the Portfolio is the creditworthiness of the Borrower. The quality
ratings assigned to other debt obligations of a Borrower are generally not a
material factor in evaluating Loans in which the Portfolio may acquire a Loan
Interest, since such obligations will typically be subordinated to the Loans and
be unsecured. Instead, BMR will perform its own independent credit analysis of
the Borrower in addition to utilizing information prepared and supplied by the
Agent (as defined below) or other participants in the Loans. Such analysis will
include an evaluation of the industry and business of the Borrower, the
management and financial statements of the Borrower, and the particular terms of
the Loan and the Loan Interest which the Portfolio may acquire. BMR's analysis
will continue on an ongoing basis for any Loan Interest purchased and held by
the Portfolio. No assurance can be given regarding the availability at
acceptable prices of Loan Interests that satisfy the Portfolio's investment
criteria.
A Loan in which the Portfolio may acquire a Loan Interest 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. The Agent typically
administers and enforces the loan on behalf of the other lenders in the
syndicate. In addition, an institution, typically but not always the Agent (the
"Collateral Bank"), holds any collateral on behalf of the lenders. The
Collateral Bank must be a qualified custodian under the Investment Company Act
of 1940, as amended (the "1940 Act"). These 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
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 also
acquire Loan Interests under which the Portfolio derives its rights directly
from the Borrower. Such Loan Interests are separately enforceable by the
Portfolio against the Borrower and all payments of interest and principal are
typically made directly to the Portfolio from the Borrower. In the event that
the Portfolio and other lenders become entitled to take possession of shared
collateral, it is anticipated that such collateral would be held in the custody
of a Collateral Bank for their mutual benefit. The Portfolio may not act as an
Agent, a Collateral Bank, a guarantor or sole negotiator or structurer with
respect to a Loan.
BMR also analyzes and evaluates the financial condition of the Agent and, in the
case of Loan Interests in which the Portfolio does not have privity with the
Borrower, those institutions from or through whom the Portfolio derives its
rights in a Loan (the "Intermediate Participants"). The Portfolio will invest in
Loan Interests only if the outstanding debt obligations of the Agent and
Intermediate Participants, if any, are, at the time of investment, investment
grade, i.e., (a) rated BBB or better by Standard and Poor's Ratings Group
("S&P") or Baa or better by Moody's Investors Service, Inc. ("Moody's"); or (b)
rated A-2 by S&P or P-2 by Moody's; or (c) determined to be of comparable
quality by BMR.
The Portfolio may from time to time acquire Loan Interests in transactions in
which the current yield to the Portfolio exceeds the stated interest rate on the
Loan. These Loan Interests are referred to herein as "Discount Loan Interests"
because they are usually acquired at a discount from their nominal value or with
a facility fee that exceeds the fee traditionally received in connection with
the acquisition of Loan Interests. The Borrowers with respect to such Loans may
have 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 credit restructuring. In addition,
Discount Loan Interests may become available as a result of an imbalance in the
supply of and demand for certain Loan Interests. The Portfolio may acquire
Discount Loan Interests in order to realize an enhanced yield or potential
capital appreciation when BMR believes that such Loan Interests are undervalued
by the market due to an excessively negative assessment of a Borrower's
creditworthiness or an imbalance between supply and demand. The Portfolio may
benefit from any appreciation in value of a Discount Loan Interest, even if the
Portfolio does not obtain 100% of the Loan Interest's face value or the Borrower
is not wholly successful in resolving its credit problems.
From time to time BMR and its affiliates may borrow money from various banks in
connection with their business activities. Such banks may also sell interests in
Loans to or acquire such interests from the Portfolio or may be Intermediate
Participants with respect to Loans in which the Portfolio owns interests. Such
banks may also act as Agents for Loans in which the Portfolio owns interests.
RISK FACTORS
BMR expects the Fund's net asset value to be relatively stable during normal
market conditions because the Portfolio's assets will consist primarily of
interests in floating rate Loans and of short-term instruments. Accordingly, the
value of the Portfolio's assets may fluctuate significantly less as a result of
interest rate changes than would a portfolio of fixed-rate obligations.
Nevertheless, a default in a Loan in which the Portfolio owns a Loan Interest, a
material deterioration of a Borrower's perceived or actual creditworthiness or a
sudden and extreme increase in prevailing interest rates may cause a decline in
the Fund's net asset value. Conversely, a sudden and extreme decline in interest
rates could result in an increase in the Fund's net asset value. The Fund is not
a money market fund and its net asset value will fluctuate, reflecting any
fluctuations in the Portfolio's net asset value.
Investments in Loan Interests by the Portfolio bear certain risks common to
investing in many secured debt instruments of nongovernmental issuers, including
the risk of nonpayment of principal and interest by the Borrower, that Loan
collateral may become impaired, that any losses will be proportionate to the
degree of Loan Interest diversification and Borrower industry concentration, and
that the Portfolio may obtain less than full value for Loan Interests sold
because they are illiquid.
CREDIT RISK. Loan Interests are primarily dependent upon the creditworthiness of
the Borrower for payment of interest and principal. The nonreceipt of scheduled
interest or principal on a Loan Interest may adversely affect the income of the
Portfolio or the value of its investments, which may in turn reduce the amount
of dividends or the net asset value of the shares of the Fund. The Portfolio's
ability to receive payment of principal of and interest on a Loan Interest also
depends upon the creditworthiness of any institution interposed between the
Portfolio and the Borrower. To reduce credit risk, BMR actively manages the
Portfolio as described above. For information regarding the status of holdings
of the Portfolio, see the Fund's financial statements.
Loan Interests in Loans made in connection with leveraged buy-outs,
recapitalizations and other highly leveraged transactions are subject to greater
credit risks than many of the other Loan Interests in which the Portfolio may
invest. As of the date of this Prospectus, such Loan Interests constituted
substantially all of the Portfolio's Loan Interests. These credit risks include
the possibility of a default on the Loan or bankruptcy of the Borrower. The
value of such Loan Interests are subject to a greater degree of volatility in
response to interest rate fluctuations and may be less liquid than other Loan
Interests.
The Portfolio may acquire interests in 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 Loan Interests 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.
Although Loans in which the Portfolio invests will generally hold the most
senior position in the capitalization structure of the Borrowers, the
capitalization of many Borrowers will include non-investment grade subordinated
debt. During periods of deteriorating economic conditions, a Borrower may
experience difficulty in meeting its payment obligations under such bonds and
other subordinated debt obligations. Such difficulties may detract from the
Borrower's perceived creditworthiness or its ability to obtain financing to
cover short-term cash flow needs and may force the Borrower into bankruptcy or
other forms of credit restructuring.
COLLATERAL IMPAIRMENT. Loans (excluding Unsecured Loans) will be secured unless
(i) the value of the collateral declines below the amount of the Loans, (ii) the
Portfolio's security interest in the collateral is invalidated for any reason by
a court or (iii) the collateral is partially or fully released under the terms
of the Loan Agreement as the creditworthiness of the Borrower improves. There is
no assurance that the liquidation of collateral would satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal, or
that collateral could be readily liquidated. The value of collateral generally
will be determined by reference to financial statements of the Borrower, an
independent appraisal performed at the request of the Agent at the time the Loan
was initially made, the market value of such collateral (e.g., cash or
securities) if it is readily ascertainable and/or by other customary valuation
techniques considered appropriate in the judgment of BMR. Collateral is
generally valued on the basis of the Borrower's status as a going concern and
such valuation may exceed the immediate liquidation value of the collateral.
Collateral may include (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. 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 Loan
to be undercollateralized or unsecured. In most credit agreements there is no
formal requirement to pledge additional collateral. In the case of 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 addition, the Portfolio may invest in Loans guaranteed by, or
fully secured by assets of, such shareholders or owners, even if the 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 Loan. On occasions when such stock cannot be
pledged, the 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 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 Loans and, indirectly,
Loan Interests.
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 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 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 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.
DIVERSIFICATION AND INDUSTRY CONCENTRATION. The Fund and the Portfolio have each
registered with the U.S. Securities and Exchange Commission as a
"non-diversified" investment company. As a result, the Fund and the Portfolio
are required to comply only with the diversification requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" in
the Statement of Additional Information for a description of these requirements.
Because the Portfolio may invest a relatively high percentage of its assets in
the obligations of a limited number of issuers, the value of the Portfolio's
investments will be more affected by any single adverse economic, political or
regulatory occurrence than will the value of the investments of a diversified
investment company. It is the Portfolio's current intention not to invest more
than 10% of its total assets in Loans of any single Borrower. The Portfolio may
invest more than 10% (but not more than 25%) of its total assets in Loan
Interests for which the same Intermediate Participant is interposed between the
Borrower and the Portfolio. The Portfolio may acquire Loan Interests in Loans
made to Borrowers in any industry. However, the Portfolio will not concentrate
in any one industry with respect to Borrowers in whose Loans the Portfolio
acquires Loan Interests or interpositioned persons that the Portfolio determines
to be issuers for the purpose of this policy. See "Investment Restrictions" in
the Statement of Additional Information.
ILLIQUID INSTRUMENTS. Loan Interests are, at present, not readily marketable and
may be subject to legal and contractual restrictions on resale. Although Loan
Interests are traded among certain financial institutions, some of the Loan
Interests acquired by the Portfolio will be considered illiquid. The Portfolio's
ability to dispose of a Loan Interest may be reduced to the extent that there
has been a perceived or actual deterioration in the creditworthiness of an
individual Borrower or the creditworthiness of Borrowers in general, or by
events that reduce the level of confidence in the market for Loan Interests. As
the market for Loan Interests becomes more seasoned, liquidity is expected to
improve. However, the Portfolio has no limitation on the amount of its
investments which can be not readily marketable or subject to restrictions on
resale. Such investments may affect the Portfolio's ability to realize its net
asset value in the event of a voluntary or involuntary liquidation of its
assets. To the extent that such investments are illiquid, the Portfolio may have
difficulty disposing of portfolio securities in order to make its tender offer
payment obligations, if any. The Trustees of the Portfolio will consider the
liquidity of the Portfolio's investments in determining whether a tender offer
should be effected by the Portfolio. Tender offer decisions of the Portfolio
directly affect the ability of the Fund to make its tender offers.
USE OF LEVERAGE
The Portfolio may from time to time (i) borrow money on a secured or unsecured
basis at variable or fixed rates, and (ii) issue indebtedness such as commercial
paper, bonds, debentures, notes or similar obligations or instruments and invest
the capital raised in additional portfolio investments and/or meet its
obligations pursuant to tender offers, if any. BMR currently expects that the
Portfolio may incur borrowings and issue such debt in order to remain fully
invested by managing anticipated cash infusions from the prepayment of Loans and
the sale of Fund shares and cash outflows from the repurchase of Fund shares in
connection with tender offers. For example, the Portfolio may use borrowed cash
to purchase Loan Interests and repay such borrowings from the proceeds of
expected sales of Fund shares. The Portfolio may also borrow and issue debt for
the purpose of acquiring additional income-producing investments when it
believes that the interest payments and other costs with respect to such
borrowings or indebtedness will be exceeded by the anticipated total return (a
combination of income and appreciation) on such investments. The amount of any
such borrowing or issuance will depend upon market or economic conditions
existing at that time.
However, as prescribed by the 1940 Act, the Portfolio will be required to
maintain specified asset coverages of at least 300% with respect to any bank
borrowing or issuance of indebtedness immediately following any such borrowing
or issuance and on an ongoing basis as a condition of declaring dividends. The
Portfolio's inability to make distributions as a result of these requirements
could cause the Fund to fail to qualify as a regulated investment company and/
or subject the Fund to income or excise taxes. The Portfolio may be required to
dispose of portfolio investments on unfavorable terms if market fluctuations or
other factors reduce the required asset coverage to less than the prescribed
amount.
Capital raised through leverage will be subject to interest costs which may or
may not exceed the interest earned on the assets purchased. The Portfolio may
also be required to maintain minimum average balances in connection with
borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate. The issuance of additional classes of debt involves offering
expenses and other costs and may limit the Portfolio's freedom to pay dividends
or to engage in other activities. Borrowings and the issuance of indebtedness
create an opportunity to be more fully invested and to earn greater income.
However, any such borrowing or issuance is a speculative technique in that it
will increase the Portfolio's exposure to capital risk. Such risks may be
mitigated through the use of borrowings and issuances of indebtedness that have
floating rates of interest. Unless the income and appreciation, if any, on
assets acquired with borrowed funds or offering proceeds exceeds the cost of
borrowing or issuing debt, the use of leverage will diminish the investment
performance of the Fund compared with what it would have been without leverage.
The Portfolio will not always borrow money or issue debt to finance additional
investments. The Portfolio may borrow money to finance its tender offer payment
obligations, if any, or for temporary, extraordinary or emergency purposes. The
Portfolio's willingness to borrow money and issue debt for investment purposes,
and the amount it will borrow, will depend on many factors, the most important
of which are the investment outlook, market conditions and interest rates. To
the extent that the Portfolio invests borrowed money in short-term fixed-rate
debt obligations, successful use of a leveraging strategy depends on BMR's
ability to correctly predict interest rates and market movements over these
short-term periods. There is no assurance that a leveraging strategy will be
successful during any period in which it is employed.
The Portfolio has established a $245 million commercial paper program, pursuant
to which it may from time to time sell its unsecured notes ("commercial paper")
with short-term maturities of up to 270 days from the issuance thereof to
accredited investors. Prior to its investment in the Portfolio, the Fund
maintained the same commercial paper program. During the most recent fiscal year
ended December 31, 1994 (prior to the Fund's investment in the Portfolio), the
amount of commercial paper that the Fund had outstanding averaged $10,236,000
and ranged from $0 to $46,288,000. The annual interest rates on such paper
ranged from 3.25% to 6.10%. The amount of commercial paper that the Portfolio
had outstanding on October 31, 1995 was $0. The Portfolio may use the proceeds
from the sale of its commercial paper to finance on a short-term basis the cash
payments made for tender offers and may repay such borrowings from principal and
interest payments made on the Loans. The Portfolio expects to continue to use
commercial paper borrowings to finance such payments in the future as well as
for investment purposes, and for paying interest or principal in respect of its
obligations. The Portfolio's commercial paper will be issued pursuant to an
Issuing and Paying Agency Agreement between the Portfolio and Citibank, N.A.,
and will be entitled to the benefits of a commercial paper surety bond made by
Capital Markets Assurance Corporation in favor of Citibank, N.A. as a limited
fiduciary for the holders of the commercial paper. The Portfolio has entered
into an Insurance and Indemnity Agreement with Capital Markets Assurance
Corporation, pursuant to which the Portfolio has agreed that, in the event of
default under said Agreement, it will not distribute dividends or other
distributions on, or repurchase or otherwise acquire, an interest of the
Portfolio or pay fees to BMR as compensation for the provision of managerial or
administrative services. In the event of such a default, the Portfolio's
inability to distribute dividends and distributions as a result of these
requirements could cause the Fund to fail to qualify as a regulated investment
company and/or subject it to income or excise taxes. Although the Fund has no
current intention to engage in borrowing, because the Portfolio will borrow the
Fund will be affected thereby.
OTHER INVESTMENT POLICIES
The Portfolio will, during normal market conditions, invest at least 80% of its
total assets in Loan Interests that conform to the requirements described above.
However, up to 20% of the Portfolio's total assets may be held in cash, invested
in short-term debt obligations, and invested in interests in Loans that are
unsecured. The Portfolio will invest in only those Unsecured Loans that have
been determined by BMR to have a credit quality at least equal to that of the
collateralized Loans in which the Portfolio primarily invests. Should the
Borrower of an Unsecured Loan default on its obligation there will be no
specific collateral on which the Portfolio can foreclose, although the Borrower
will typically have assets believed by BMR at the time of purchase of the
Unsecured Loans to exceed the amount of the Loan. The short-term debt
obligations in which the Portfolio may invest include, but are not limited to,
interests in senior Unsecured Loans with a remaining maturity of one year or
less ("Short-Term Loans"), certificates of deposit, commercial paper, short-term
and medium-term notes, bonds with remaining maturities of less than five years,
obligations issued by the U.S. Government or any of its agencies or
instrumentalities and repurchase agreements. The credit quality of Short-Term
Loans must be determined by BMR to be at least equal to that of the Portfolio's
investments in Loans. All of such other debt instruments will be investment
grade (i.e., rated Baa, P-3 or better by Moody's or BBB, A-3 or better by S&P
or, if unrated, determined by BMR to be of comparable quality). Securities rated
Baa, BBB, P-3 or A-3 are considered to have adequate capacity for payment of
principal and interest, but are more susceptible to adverse economic conditions.
Securities rated BBB or Baa (or comparable unrated securities) have speculative
characteristics. Also, the capacity of their issuers to make principal and
interest payments would be weakened by changes in economic conditions or other
circumstances to a greater extent than for issuers of higher grade bonds.
Pending investment of the proceeds of Fund sales by the Portfolio or when BMR
believes that investing for defensive purposes is appropriate, more than 20% of
the Portfolio's total assets may be temporarily held in cash or in the
short-term debt obligations described above.
Although the Portfolio currently holds Loan Interests only in Loans for which
the Agent and Intermediate Participants, if any, are banks, it may acquire Loan
Interests from non-bank financial institutions and in Loans originated,
negotiated and structured by non-bank financial institutions, if such Loan
Interests conform to the credit requirements described above. As these other
types of Loan Interests are developed and offered to investors, BMR will,
consistent with the Portfolio's investment objective, policies and quality
standards, and in accordance with applicable custody and other requirements of
the 1940 Act, consider making investments in such Loan Interests. Also, the
Portfolio has acquired and may continue to acquire warrants and other equity
securities as part of a unit combining Loan Interests and equity securities of
the Borrower or its affiliates. The acquisition of such equity securities will
only be incidental to the Portfolio's purchase of a Loan Interest. The Portfolio
may also acquire equity securities issued in exchange for a Loan or issued in
connection with the debt restructuring or reorganization of a Borrower, or if
such acquisition, in the judgment of BMR, may enhance the value of a Loan or
would otherwise be consistent with the Portfolio's investment policies.
The Portfolio will limit its investments to those which are eligible for
purchase by national banks for their own portfolios. The conditions and
restrictions governing the purchase of Fund shares by national banks are set
forth in the U.S. Comptroller of the Currency's Banking Circular 220. Subject to
such conditions and restrictions, national banks may acquire Fund shares for
their own investment portfolio.
FOREIGN INVESTMENTS. The Portfolio may also acquire U.S. dollar denominated Loan
Interests in Loans which are made to non-U.S. Borrowers in developed countries;
provided, however, that any such Borrower meets the credit standards established
by BMR for U.S. Borrowers, and no more than 35% of its net assets are invested
in Loan Interests of such Borrowers. Investing in Loan Interests of non-U.S.
Borrowers involves certain special considerations, which are not typically
associated with investing in U.S. Borrowers. Since foreign companies are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. Borrowers,
there may be less publicly available information about a foreign company than
about a domestic company. There is generally less government supervision and
regulation of financial markets 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. As of the date of this Prospectus, none
of the Portfolio's assets were invested in Loan Interests of non-U.S. Borrowers.
Moreover, the Portfolio has no current intention to invest more than 5% of its
net assets in such Loan Interests.
INTEREST RATE TRANSACTIONS. In order to attempt to protect the value of the
Portfolio's assets from interest rate fluctuations and to maintain a dollar
weighted average period to next interest rate adjustment of approximately 90
days or less, the Portfolio may enter into interest rate swaps. The Portfolio
intends to use interest rate swaps as a hedge and not as a speculative
investment and will typically use interest rate swaps to shorten the average
time to interest rate reset of the Portfolio. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective commitments to
pay or receive interest, 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. BMR has not been involved in
the use of interest rate swaps but has utilized other types of hedging
techniques. If BMR 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 was
never used. The Portfolio has not engaged in such transactions and has no
current intention to invest more than 5% of its net assets in such transactions.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
respect to its permitted investments, but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same security
back to the seller 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.
Repurchase agreements are deemed to be loans under the 1940 Act. In all cases,
BMR 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. To date, the Portfolio has not engaged in
repurchase agreements.
CERTAIN INVESTMENT RESTRICTIONS AND POLICIES. The Fund and the Portfolio have
adopted certain fundamental investment restrictions and policies which are
enumerated in detail in the Statement of Additional Information and which may
not be changed unless authorized by a shareholder or investor vote,
respectively. Among these fundamental restrictions, the Portfolio may not
purchase any security if, as a result of such purchase, 25% or more of the
Portfolio'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. Except for the
fundamental restrictions and policies enumerated in the Fund's Statement of
Additional Information, the investment objective and policies of the Fund and
the Portfolio are not fundamental policies and accordingly may be changed by the
Trustees of the Fund and the Portfolio without obtaining the approval of the
Fund's shareholders or the investors in the Portfolio, as the case may be. If
any changes were made, the Fund might have an investment objective different
from the objective which an investor considered appropriate at the time the
investor became a shareholder of the Fund.
YIELD AND PERFORMANCE INFORMATION
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The rate of interest payable on Loans is established as the sum of a base
lending rate plus a specified spread. These base lending rates are generally the
Prime Rate of a designated U.S. bank, the London InterBank Offered Rate
("LIBOR"), the Certificate of Deposit ("CD") rate of a designated U.S. bank or
another base lending rate used by commercial lenders. The Prime Rate is the rate
banks typically use as a base for a wide range of loans to individuals and
midsize and small businesses. LIBOR is the rate typically used by banks
worldwide as a base for loans to large commercial and industrial companies. A
Borrower usually has the right to select the base lending rate and to change the
base lending rate at specified intervals. The interest rate on Prime Rate- based
Loans floats daily as the Prime Rate changes, while the interest rate on
LIBOR-based and CD-based Loans is periodically reset with reset periods
typically ranging from 30 to 180 days. At the time of acquisition of a Loan
Interest, the Portfolio may also receive an upfront facility fee.
The yield on a Loan Interest held by the Portfolio will primarily depend on the
terms of the underlying Loan and the base lending rate chosen by the Borrower
initially and on subsequent dates specified in the applicable loan agreement.
The relationship between the Prime Rate, the CD rate and LIBOR will vary as
market conditions change. In the past, the relationship between the Prime Rate
and the other possible base lending rates was reasonably stable, and Loans were
structured with appropriate spreads over the base rates so that the income
earned by the Portfolio was approximately the same no matter which alternative
the Borrower selected. Since Borrowers tend to select the base lending rate
which results in the lowest interest cost, the distribution of the Portfolio's
investments among Prime Rate, CD rate and LIBOR based Loans is likely to shift
in favor of Loans with the base lending rate that generates the lowest rate of
return to the Portfolio. BMR anticipates that, during normal market conditions,
the effective yield of the Fund may approximate the average Prime Rate of
leading U.S. banks as published in The Wall Street Journal. When the traditional
spread between the Prime Rate and other base lending rates widens, the Fund will
be unable to achieve an effective yield approximating the average published
Prime Rate of leading U.S. banks. Such has been the case since February 1991.
Currently, the Borrowers with respect to over 90% of the value of Loans held by
the Portfolio have selected LIBOR as the base lending rate for such Loans, which
has lowered their interest cost and reduced the level of the Fund's effective
yield for this period to below the Prime Rate. Although BMR believes the present
wide differential between the Prime Rate and LIBOR is unusual, it has occurred
before at low points in the economic cycle. BMR hopes that, as the economy
continues to improve, the long-term relationship between the Prime Rate and
LIBOR may be restored and the Fund should again be able to achieve an effective
yield approximating the Prime Rate. However, there is not yet evidence that this
will occur by the end of 1995 or thereafter.
From time to time, the Fund may quote a current and/or effective yield based on
a specific one-month period. The current yield is calculated by annualizing the
most recent monthly distribution (i.e., multiplying by 365/31 for a 31 day
month) and dividing the product by the current maximum offering price. The
effective yield is calculated by dividing the current yield by 365/31 and adding
1. The resulting quotient is then taken to the 365/31st power and reduced by 1.
The result is the effective yield. Yields will fluctuate from time to time and
are not necessarily representative of future results. Advertisements and
communications to present or prospective shareholders may also cite a total
return for any period. Total return will be calculated by subtracting the net
asset value of a single purchase of shares at a given date from the net asset
value of those shares (assuming reinvestment of distributions) on a subsequent
date. The difference divided by the original net asset value is the total
return. The calculation of the Fund's total return and effective yield reflects
the effect of compounding inasmuch as all dividends and disributions are assumed
to be reinvested in additional shares of the Fund at net asset value. In
addition, the calculation of total return, current yield and effective yield
does not reflect the imposition of any Early Withdrawal charges or the amount of
any shareholder income tax liability. If reflected, an Early Withdrawal Charge
would reduce the performance quoted. If the fees or expenses of the Fund or the
Portfolio are waived or reimbursed, the Fund's performance will be higher.
Information about the performance of the Fund or other investments should not be
considered a representation of future performance the Fund may earn or what an
investor's yield or total return may be in the future.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
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The Fund is organized as a business trust established under Massachusetts law
pursuant to a Declaration of Trust dated May 2, 1989, as amended, and is
registered under the 1940 Act. The Trustees of the Fund are responsible for the
overall management and supervision of its affairs. The Fund currently has one
class of shares of beneficial interest which may be issued in an unlimited
number by the Trustees. Each share represents an equal proportionate beneficial
interest in the Fund and, when issued and outstanding, the shares are fully paid
and nonassessable by the Fund and may be repurchased only as described under
"Tender Offers to Purchase Shares." Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted in proportion to the amount
of the Fund's net asset value which they represent. Shares have no preemptive or
conversion rights and are freely transferable. In the event of liquidation of
the Fund, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders.
The Fund's Declaration of Trust may not be amended without the affirmative vote
of a majority of the outstanding shares of the Fund (or such greater vote as is
described below under "Anti-Takeover Provisions"), except that the Declaration
of Trust may be amended by the Trustees to change the name of the Fund, to make
such other changes as do not have a materially adverse effect on the rights or
interests of shareholders and to conform the Declaration of Trust to applicable
federal laws or regulations. The Fund may be terminated (i) upon the merger or
consolidation with or sale of the Fund's assets to another company, if approved
by the holders of two-thirds of the outstanding shares of the Fund, except that
if the Trustees recommend such transaction, the approval by vote of the holders
of a majority of the outstanding shares will be sufficient, or (ii) upon
liquidation and distribution of the assets of the Fund, if approved by the
holders of two-thirds of the Fund's outstanding shares, except that if the
Trustees recommend such transaction, the approval by vote of the holders of a
majority of the outstanding shares will be sufficient. If not so terminated, the
Fund may continue indefinitely.
ANTI-TAKEOVER PROVISIONS. The Fund presently has certain anti-takeover
provisions in its Declaration of Trust which are intended to limit, and could
have the effect of limiting, the ability of other entities or persons to acquire
control of the Fund, to cause it to engage in certain transactions or to modify
its structure. As indicated above, a two-thirds vote is required for certain
transactions. The affirmative vote or consent of the holders of two-thirds of
the shares of the Fund (a greater vote than that required by the 1940 Act and,
in some cases, greater than the required vote applicable to business
corporations under state law) is required to authorize the conversion of the
Fund from a closed-end to an open-end investment company (except that if the
Trustees recommend such conversion, the approval by vote of the holders of a
majority of the outstanding shares will be sufficient) and the affirmative vote
or consent of the holders of three-quarters of the shares of the Fund is
required to authorize any of the following transactions (the "Transactions"):
(i) merger or consolidation of the Fund with or into any corporation; (ii)
issuance of any securities of the Fund to any person or entity for cash; (iii)
sale, lease or exchange of all or any substantial part of the assets of the Fund
to any entity or person (except assets having an aggregate fair market value of
less than $1,000,000 or assets sold in the ordinary course of business); or (iv)
sale, lease or exchange to the Fund, in exchange for securities of the Fund, of
any assets of any entity or person (except assets having an aggregate fair
market value of less than $1,000,000) if such corporation, person or entity is
directly, or indirectly through affiliates, the beneficial owner of 5% or more
of the outstanding shares of the Fund. However, such vote or consent will not be
required with respect to the Transactions if the Board of Trustees under certain
conditions approves the Transaction. Further, the provisions of the Fund's
Declaration of Trust relating to conversion of the Fund to an open-end
investment company, the Transactions, the merger or consolidation with or sale
of the Fund's assets, and the liquidation and distribution of the Fund's assets
may not be amended without the affirmative vote or consent of two-thirds of the
outstanding shares of the Fund. Reference is made to the Declaration of Trust of
the Fund, on file with the Securities and Exchange Commission, for the full text
of these provisions. See "Other Information" in the Fund's Statement of
Additional Information.
The foregoing provisions will make more difficult the conversion of the Fund to
an open-end investment company and the consummation of the Transactions without
the Trustees' approval, and could have the effect of depriving shareholders of
an opportunity to sell their shares at a premium over prevailing market prices,
in the event that a secondary market for the Fund shares does develop, by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. However, the Board of Trustees has
considered these anti-takeover provisions and believes that they are in the
shareholders' best interests and benefit shareholders by providing the advantage
of potentially requiring persons seeking control of the Fund to negotiate with
its management regarding the price to be paid.
SENIOR DEBT 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. The
Portfolio, as well as the Fund, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust, as amended,
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 Fund believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike other investment companies which
directly acquire and manage their own portfolios of securities, seeks to achieve
its investment objective by investing its assets in an interest in the
Portfolio, which is a separate investment company with an identical investment
objective (although the Fund may temporarily hold a de minimus amount of cash).
Therefore, the Fund's interest in the securities owned by the Portfolio is
indirect. In addition to selling an interest to the Fund, the Portfolio may sell
interests to other affiliated and non-affiliated investment companies or
institutional investors. Such investors will invest in the Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in the Portfolio are not
required to sell their shares at the same public offering price as the Fund due
to variations in sales commissions and other operating expenses. Therefore,
investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in the Portfolio. Such differences in returns are also present in other fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions, see
"The Fund's Investment Objective" and "How the Fund and the Portfolio Invest
their Assets." Further information regarding investment practices may be found
in the Statement of Additional Information.
The Trustees of the Fund 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 substantial growth in the assets of the Portfolio, and
affords economies of scale for the Fund, at least when the assets of the
Portfolio exceed $1 billion. The shareholders of the Fund have previously
approved the policy of investing the Fund's assets in an interest in the
Portfolio.
The Fund may withdraw (completely redeem) all or any part of its interest in the
Portfolio only pursuant to tender offers of the Portfolio. The Portfolio's Board
of Trustees presently intends each quarter to consider the making of such tender
offers. However, there can be no assurance that the Portfolio's Board of
Trustees will, in fact, decide to undertake the making of such a tender offer.
See "Tender Offers to Purchase Shares" below. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Fund and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. If a shareholder tenders shares because of a
change in the nonfundamental objective or policies of a Fund, those shares may
be subject to an early withdrawal charge, as described in "Early Withdrawal." In
the event the Fund withdraws all of its assets from the Portfolio, or the Board
of Trustees of the Fund determines that the investment objective of the
Portfolio is no longer consistent with the investment objective of the Fund,
such 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 of its assets from the Portfolio. Of course, a complete withdrawal of Fund
assets could be accomplished only pursuant to a Portfolio tender offer.
Information regarding other pooled investment entities or funds which invest in
the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in the Portfolio may be adversely affected by the
actions of a larger investor in the Portfolio. For example, if a large investor
withdraws a significant amount of assets from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns. Additionally, the Portfolio may hold fewer securities, resulting
in increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds which
have large or institutional investors.
Until recently, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the investment company industry and,
therefore, the Fund may be subject to additional regulations that are
inapplicable to historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes. See
"Distributions and Taxes" for further information. 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 Loans and noncash assets (as opposed to a cash distribution from
the Portfolio). If Loans and noncash assets are distributed, the Fund could
incur brokerage, tax or other charges in converting them to cash. In addition,
the distribution in kind may result in a less diversified portfolio of
investments and will adversely affect the liquidity of the Fund. Notwithstanding
the above, there are other means for meeting shareholder redemption requests,
such as borrowing.
The Trustees of the Fund, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Fund and
the Trustees of the Portfolio are the same. Such procedures require each Board
to take actions to resolve any conflict of interest between the Fund and the
Portfolio, and it is possible that the creation of separate Boards may be
considered. For further information concerning the Trustees and officers of the
Fund and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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The Portfolio engages BMR, a wholly-owned subsidiary of Eaton Vance, to act as
its investment adviser under an Investment Advisory Agreement (the "Advisory
Agreement"). Under the general supervision of the Portfolio's Board of Trustees,
BMR will carry out the investment and reinvestment of the assets of the
Portfolio, will furnish continuously an investment program with respect to the
Portfolio, will determine which securities should be purchased, sold or
exchanged, and will implement such determinations. BMR will furnish to the
Portfolio investment advice and office facilities, equipment and personnel for
servicing the investments of the Portfolio. BMR will compensate all Trustees and
officers of the Portfolio who are members of the BMR organization and who render
investment services to the Portfolio, and will also compensate all other BMR
personnel who provide research and investment services to the Portfolio. In
return for these services, facilities and payments, the Portfolio has agreed to
pay BMR as compensation under the Advisory Agreement a monthly fee in the amount
of 19/240 of 1% (equivalent to 0.95% annually) of the average daily gross assets
of the Portfolio. Gross assets of the Portfolio shall be calculated by deducting
all liabilities of the Portfolio except the principal amount of any indebtedness
for money borrowed, including debt securities issued by the Portfolio. While
this advisory fee is greater than that paid by most other funds, it is similar
to fees paid by other closed-end funds investing primarily in Loans and Loan
Interests.
On October 24, 1994, the Trustees of the Portfolio voted to accept a waiver of
BMR's compensation so that the aggregate advisory fees paid by the Portfolio
under the Advisory Agreement during any fiscal year or portion thereof after the
Fund begins to invest its assets in the Portfolio will not exceed on an annual
basis: (a) 0.95% of average daily gross assets of the Portfolio up to and
including $1 billion; (b) 0.90% of average daily gross assets in excess of $1
billion up to and including $2 billion; and (c) 0.85% of average daily gross
assets in excess of $2 billion. Prior to February 21, 1995 (when the Fund
transferred its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Eaton Vance as its investment adviser. The Fund
paid Eaton Vance advisory fees equivalent to 0.95% of the Fund's average daily
gross assets for the fiscal year ended December 31, 1994.
Eaton Vance, its affiliates and predecessor companies have been managing assets
of individuals and institutions since 1924 and managing investment companies
since 1931. BMR or Eaton Vance currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $16 billion, of which
approximately $14 billion is in investment companies, including approximately
$1,010 million in the Fund. Eaton Vance, through its subsidiaries and
affiliates, engages in investment management and marketing activities; fiduciary
and related banking services; oil and gas operations; real estate investment,
consulting and management; and development of precious metals properties.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement (the "Administration Agreement"). Under the
Administration Agreement, Eaton Vance is responsible for managing the business
affairs of the Fund, subject to the supervision of the Fund's Board of Trustees.
Eaton Vance will furnish to the Fund all office facilities, equipment and
personnel for administering the affairs of the Fund. Eaton Vance will compensate
all Trustees and officers of the Fund who are members of the Eaton Vance
organization and who render executive and administrative services to the Fund,
and will also compensate all other Eaton Vance personnel who perform management
and administrative services for the Fund. Eaton Vance's administrative services
include recordkeeping, preparation and filing of documents required to comply
with federal and state securities laws, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Trustees' and shareholders' meetings, providing services in connection with
contemplated quarterly tender offers and other administrative services necessary
to conduct the Fund's business. In return for these services, facilities and
payments, the Fund pays Eaton Vance as compensation under the Administration
Agreement a monthly fee in the amount of 1/48 of 1% (equivalent to 0.25%
annually) of the average daily gross assets of the Portfolio attributable to the
Fund. In calculating the gross assets of the Portfolio, all liabilities of the
Portfolio shall be deducted except the principal amount of any indebtedness for
money borrowed, including debt securities issued by the Portfolio. For the
fiscal year ended December 31, 1994, the amount of administration fees paid by
the Fund to Eaton Vance was equal to 0.25% annually of the Fund's average daily
gross assets.
As indicated under "How to Buy Fund Shares", the payments of compensation to
Authorized Firms (as defined below) at the time Fund shares are sold and
quarterly thereafter on outstanding Fund shares will be made from the assets of
BMR, Eaton Vance and EVD, which may include amounts received by BMR under its
Advisory Agreement with the Portfolio, by Eaton Vance under its Administration
Agreement with the Fund and by EVD as early withdrawal charges on the repurchase
of shares held for less than four years.
The Portfolio and the Fund, as the case may be, will each be responsible for all
of its respective costs and expenses not expressly stated to be payable by BMR
under the Advisory Agreement, by Eaton Vance under the Administration Agreement
or by EVD under its Distribution Agreement. See "Investment Advisory and Other
Services" in the Statement of Additional Information.
Jeffrey S. Garner, Vice President of Eaton Vance since January 1988 and Vice
President of the Portfolio and the Fund since their inception, is the Portfolio
Manager of the Portfolio.
VALUING FUND SHARES
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THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is detemined by IBT Fund Services (Canada) Inc. (as agent for the Fund) in
the manner authorized by the Trustees of the Fund. IBT Fund Services (Canada)
Inc. is a subsidiary of Investors Bank & Trust Company ("IBT"), the Fund's and
the Portfolio's custodian. The Fund will be closed for business and will not
price its shares on the following business holidays: New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value is computed by dividing the value of the
Fund's total assets, less its liabilities by the number of shares outstanding.
Because the Fund invests its assets in an interest in the Portfolio, the Fund's
net asset value will reflect the value of its interest in the Portfolio (which,
in turn, reflects the underlying value of the Portfolio's assets and
liabilities).
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT Fund Services (Canada) Inc. (as agent for the
Portfolio). The Portfolio's net asset value is computed by determining the value
of the Portfolio's total assets (the loans and securities it holds plus any cash
or other assets, including interest accrued but not yet received), and
subtracting all of the Portfolio's liabilities (including the outstanding
principal amount of any indebtedness issued and any unpaid interest thereon).
For further information regarding the valuation of each interest in the
Portfolio, see "Determination of Net Asset Value" in the Statement of Additional
Information.
Because Loan Interests are not actively traded in a public market, BMR,
following procedures established by the Portfolio's Trustees, will value the
Loan Interests held by the Portfolio at fair value. In valuing a Loan Interest,
BMR will consider relevant factors, data, and information, 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 Portfolio's rights, remedies and interests with
respect to the collateral; (iii) the creditworthiness of the Borrower, based on
an evaluation 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 (if considered reliable) for and trading in the Loan
Interest and interests in similar Loans and the market environment and investor
attitudes towards the Loan Interest and interests in similar Loans; (v) the
reputation and financial condition of the Agent and any Intermediate
Participants in the Loan; and (vi) general economic and market conditions
affecting the fair value of the Loan Interest.
Other Portfolio holdings (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-size 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 sale price on the exchange that is the
primary market for such securities, or the average of the last quoted bid price
and asked 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 60 days or less are valued at amortized
cost, if their original term to maturity when acquired by the Portfolio 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
Portfolio was more than 60 days, unless in each case this is determined not to
represent fair value. Repurchase agreements will be valued by the Portfolio at
cost plus accrued interest. Securities for which there exist no price quotations
or valuations and all other assets are valued at fair value as determined in
good faith by or on behalf of the Trustees of the Portfolio.
HOW TO BUY FUND SHARES
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The Fund is engaged in a continuous public offering of its shares at net asset
value without an initial sales charge. The Fund does not currently intend to
list its shares on any national securities exchange. The Principal Underwriter,
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110, will make
payments from its own assets to certain financial service firms who have sales
agreements with the Principal Underwriter ("Authorized Firms"). In addition, an
early withdrawal charge, which is paid to EVD, will be imposed on most shares
held for less than four years which are accepted for repurchase pursuant to a
tender offer, as set forth under "Early Withdrawal."
From time to time the Fund may suspend the continuous offering of its shares.
During any such suspension, shareholders who reinvest their distributions in
additional shares will be permitted to continue such reinvestments, and the Fund
may permit tax sheltered retirement plans which own shares to purchase
additional shares of the Fund.
HOW TO BUY SHARES FOR CASH. Investors may purchase shares of the Fund through
Authorized Firms at the net asset value per share of the Fund next determined
after an order is effective, which, as of November 20, 1995, was $10.03.
Pursuant to its Distribution Agreement with EVD, the Fund has authorized EVD to
distribute its shares on a "best efforts" basis through Authorized Firms. EVD
will furnish the names of Authorized Firms to an investor upon request. An
Authorized Firm may charge its customers a fee in connection with transactions
executed by that Firm.
EVD compensates the Authorized Firms at the rate of 3.0% of the dollar amount of
the shares being purchased.
If the shares remain outstanding for at least one year from the date of their
original purchase, EVD will compensate the Authorized Firms at an annual rate,
paid quarterly, equal to .10% for the second year, .15% for the third year, .20%
for the fourth year, .25% for the fifth year and .30% for the sixth year and
subsequent years, of the value of Fund shares sold by such Authorized Firms and
remaining outstanding. Compensation paid to Authorized Firms at the time of
purchase and the quarterly payments mentioned above do not represent an
additional expense to shareholders since such payments will be made from BMR's,
EVD's and Eaton Vance's own assets, which may include amounts received by EVD as
early withdrawal charges, amounts received by BMR under its Advisory Agreement
with the Portfolio and amounts received by Eaton Vance under its Administration
Agreement with the Fund. As at the fiscal year ended December 31, 1994, EVD had
made compensation payments to Authorized Firms in the aggregate amount of
approximately $57,245,400 since inception of the Fund. (Prior to February 22,
1995, the rate of compensation was different.) See "Early Withdrawal." The
compensation paid to Authorized Firms and EVD, including the compensation paid
at the time of purchase, the quarterly payments mentioned above, any additional
incentives mentioned below, and the early withdrawal charge, if any, will not in
the aggregate exceed the applicable limit (currently 8%), unless the approval of
the National Association of Securities Dealers, Inc. ("NASD") has been received.
The Principal Underwriter may also, from time to time, at its own expense,
provide additional cash incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. Upon NASD
approval, the Principal Underwriter may provide non-cash incentives to
Authorized Firms.
An initial investment in the Fund must be at least $5,000 ($2,000 in the case of
Individual Retirement Accounts). Once an account has been established, the
investor may send investments of $50 or more at any time directly to the Fund's
Transfer Agent as follows: First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104. See "Eaton Vance Shareholder Services".
The Fund may suspend the offering of shares at any time and may refuse any order
for the purchase of shares.
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 at the then current net asset value. The minimum value of securities
(or securities and cash) accepted for deposit is $5,000. Securities accepted
will be sold by IBT as agent for the account of their owner on the day of their
receipt by IBT 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 net asset value per Fund share
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 EVD or an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from EVD or Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Eaton Vance Prime Rate Reserves
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Eaton Vance Prime Rate Reserves
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund 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 for Fund shares.
USE OF PROCEEDS. As of the date of this Prospectus, the net proceeds from the
sale of the Fund's shares currently outstanding were approximately
$1,010,000,000 substantially all of which is now invested in the Portfolio. The
Portfolio invests its assets in Loan Interests. Prior to its investment in the
Portfolio, sales of Fund shares were suspended between November 1, 1989 and July
30, 1990 and between October 19, 1990 to March 18, 1991 to allow the Fund to
more fully invest its assets in Loan Interests. The Fund may suspend sales of
its shares in the future to allow the Portfolio to more fully invest in Loan
Interests. Proceeds from the continuous offering of Fund shares will be used to
increase the Fund's interest in the Portfolio. The investment in interests in
Loans and Unsecured Loans of any additional net proceeds that the Portfolio
receives from the Fund may take one to three months, up to a maximum of six
months, from the date the Portfolio receives such proceeds. Pending such
investment, the proceeds will be held by the Portfolio in cash or invested in
investment grade short-term debt obligations.
TENDER OFFERS TO PURCHASE SHARES
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It is presently contemplated by the Board of Trustees, recognizing the
likelihood that a secondary market for the Fund's shares will not exist, that
the Fund may take actions which will provide liquidity to shareholders. The Fund
may from time to time 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. The Fund's Trustees presently
intend each quarter to consider the making of such tender offers. However, there
are no assurances that the Fund's Board of Trustees will, in fact, decide to
undertake the making of such a tender offer. The Fund's assets consist primarily
of its interest in the Portfolio. Therefore, in order to finance the repurchase
of Fund shares pursuant to such tender offers, the Fund will find it necessary
to liquidate all or a portion of its interest in the Portfolio. Because
interests in the Portfolio may not be transferred, the Fund may withdraw a
portion of its interest only pursuant to tender offers of the Portfolio. The
Fund will not conduct a tender offer for Fund shares unless the Portfolio
simultaneously conducts a tender offer for Portfolio interests. The Portfolio's
Trustees presently intend each quarter to consider the making of such tender
offers. However, there are no assurances that the Portfolio's Board of Trustees
will, in fact, decide to undertake the making of such a tender offer. The Fund
cannot make a tender offer larger than the Portfolio's. The Portfolio will make
tender offers, if any, to all of its investors, including the Fund, on the same
terms, which practice may affect the size of the Portfolio's offers. Subject to
the Portfolio's investment restriction with respect to borrowings, the Portfolio
may borrow money or issue debt obligations to finance its repurchase obligations
pursuant to any such tender offers.
The Fund expects that there will ordinarily be no secondary market for the
Fund's shares and that periodic tender offers will be the only source of
liquidity for Fund shareholders. Moreover, the Principal Underwriter is
prohibited under applicable law from making a market in Fund shares while the
Fund is making either a public offering of or a tender offer to purchase shares.
Similarly, the Principal Underwriter prohibits dealers that have signed sales
agreements to sell Fund shares from making a market in such shares.
Nevertheless, if a secondary market develops for shares of the Fund, the market
price of the shares may vary from net asset value from time to time. The market
price may be affected by, among other factors, relative demand and supply of
shares and the performance of the Fund, especially as it affects the yield on
and investment performance of the shares of the Fund. Should there be a
secondary market for Fund shares, it is expected that shares of the Fund will
not trade at a premium because the Fund intends to engage in a continuous
offering of its shares at net asset value. A tender offer for shares of the Fund
at net asset value, as contemplated and described above, is expected to reduce
any spread between net asset value and market price that may otherwise develop.
However, there are no assurances that tender offers would result in the Fund's
shares trading at a price which is equal to or approximates their net asset
value.
Although the Trustees believe that tender offers generally would be beneficial
to the Fund's shareholders, the acquisition of shares by the Fund will decrease
the total assets of the Fund and therefore have the possible effect of
increasing the Fund's expense ratio. Furthermore, if the Portfolio borrows to
finance the making of tender offers for the Portfolio's interests, interest on
such borrowing will reduce the Fund's net investment income.
There are circumstances under which the purchase of shares in a tender offer,
even if approved by the Board and made to shareholders, may not be effected by
the Fund. These circumstances would arise if, in the judgment of the Trustees,
(i) the Fund would not be able to liquidate the requisite portion of its
interest in the Portfolio and/or such liquidation would have an adverse effect
on the net asset value of the Fund to the detriment of the non-tendering Fund
shareholders; (ii) the Fund's income would be taxed at the Fund level in
addition to the taxation of shareholders who receive dividends and distributions
from the Fund (see "Distributions and Taxes") as a result of the Fund being
deemed a taxable entity occasioned by the impairment of the Fund's status as a
regulated investment company under the Code; or (iii) there exists (a) a
limitation imposed by federal or state authorities on the extension of credit by
lenders which affects the Fund, the Borrowers of Loans in which the Portfolio
holds Loan Interests or the Intermediate Participants, (b) a banking moratorium
declared by federal or state authorities or any suspension of payments by banks
in the United States, (c) a legal action or proceeding instituted or threatened
which materially adversely affects the Fund, (d) a legal action or proceeding
instituted or threatened which challenges such purchase, (e) an international or
national calamity, such as commencement of war or armed hostilities, which
directly or indirectly involves the United States, or (f) an event or condition
not listed herein which would materially adversely affect the Fund if the
tendered shares are purchased.
The Fund has obtained an exemption from the Securities and Exchange Commission
relating to tender offers which includes representations by the Fund that no
secondary market for Fund shares is expected to exist. This exemption is
conditioned on the absence of a secondary market. In the event that
circumstances arise under which the Fund does not conduct periodic tender
offers, the Board would consider alternative means of providing liquidity for
shareholders. Such action would include an evaluation of any secondary market
that then existed and a determination as to whether such market provided
liquidity for shareholders. If the Board determines that such market, if any,
fails to provide liquidity for Fund shareholders, the Board expects that it will
consider all then available alternatives to provide such liquidity. Among the
alternatives which the Board would consider is the listing of the Fund's shares
on a major domestic stock exchange or on the NASDAQ National Market System in
order to provide such liquidity. The Board may also consider causing the Fund to
repurchase its shares from time to time in open-market or private transactions
when it can do so on terms that represent a favorable investment opportunity. In
any event, the Board expects it will cause the Fund to take whatever action it
deems necessary or appropriate to provide liquidity for Fund shareholders in
light of the facts and circumstances existing at such time.
If the Portfolio must liquidate portfolio securities in order to meet its tender
obligations, the Portfolio, and therefore the Fund, may realize gains and
losses. Such gains may be realized on securities held for less than three
months. Because less than 30% of the Fund's annual gross income must be derived
from the sale or disposition of securities held less than three months (in order
to retain the Fund's tax status as a regulated investment company), such gains
could reduce the ability of the Portfolio to sell other securities held for less
than three months that the Portfolio may wish to sell in the ordinary course of
its portfolio management, which may adversely affect the Portfolio's yield.
Each tender offer will be made and shareholders notified in accordance with the
requirements of the Securities Exchange Act of 1934, as amended, and the 1940
Act, either by publication or mailing or both. Each offering document will
contain such information as is prescribed by such laws and the rules and
regulations promulgated thereunder. The repurchase of tendered shares by the
Fund is a taxable event. See "Distributions and Taxes." The Fund will pay all
costs and expenses associated with the making of any such tender offers by the
Fund. An Early Withdrawal Charge will be imposed on most shares accepted for
tender which have been held for less than four years. See "Early Withdrawal".
EARLY WITHDRAWAL
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An Early Withdrawal Charge to recover distribution expenses will be charged in
connection with most shares held for less than four years which are accepted by
the Fund for repurchase pursuant to tender offers. The Early Withdrawal Charge
will be imposed on those shares accepted for tender the amount 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, of 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. The Early Withdrawal Charge will be paid to EVD. In
determining whether an Early Withdrawal Charge is payable, it is assumed that
the acceptance of a repurchase offer would be made from the earliest purchase of
shares. Any Early Withdrawal Charge which is required to be imposed will be made
in accordance with the following schedule:
YEAR OF REPURCHASE
AFTER PURCHASE EARLY WITHDRAWAL CHARGE
----------------------------------------------------------
First 3.00%
Second 2.50%
Third 2.00%
Fourth 1.00%
Fifth and following 0%
No Early Withdrawal Charge will be imposed on shares purchased on or after
January 27, 1995 and tendered following the death of all beneficial owners of
such shares, provided the redemption is requested within one year of death (a
death certificate and other applicable documents may be required). At the time
of acceptance of the tender offer, the shareholder must notify the Transfer
Agent either directly or through EVD that the Early Withdrawal Charge should be
waived. Such waiver, subject to confirmation of the investor's entitlement, will
then be granted; otherwise, the waiver will be lost.
EXCHANGES: The Fund may make available to tendering shareholders the privilege
of exchanging Fund shares at net asset value for shares of certain open-end
investment companies managed by Eaton Vance or BMR which have a contingent
deferred sales charge identical to that of the Early Withdrawal Charge imposed
on tendering Fund shareholders pursuant to an order of the Securities and
Exchange Commission. The funds currently available for such exchange privilege
are: EV Marathon Strategic Income Fund and Class I shares of any EV Marathon
Limited Maturity Tax Free Fund. No Early Withdrawal Charge will be imposed on
shareholders choosing to exchange their Fund shares for shares of any such fund;
however, the exchanging shareholder will be subject to the applicable contingent
deferred sales charge imposed by such fund. For the purpose of calculating the
applicable contingent deferred sales charge, the purchase of shares of such fund
will be deemed to have occurred at the time of the purchase of the Fund shares.
Any such exchange will be made on the basis of the relative net asset value per
share of each fund at the time of exchange, provided that such exchange offers
are available only in states where shares of the fund acquired may legally be
sold.
The prospectus for each fund describes its investment objectives and policies,
and shareholders should obtain a prospectus and consider these objectives and
policies carefully before requesting an exchange. Each exchange must involve
shares which have a net asset value of at least $1,000. The exchange privilege
may be changed or discontinued without penalty. Shareholders will be given sixty
(60) days' notice prior to any termination or material amendment of the exchange
privilege. An exchange may result in a taxable gain or loss.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for shares of the Fund at net asset value per share, but subject to
any restrictions or qualifications set forth in the current prospectus of any
such fund.
THE FOLLOWING EXAMPLE WILL ILLUSTRATE THE OPERATION OF THE EARLY WITHDRAWAL
CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES FOR
CASH THROUGH AN AUTHORIZED FIRM AND THAT 21 MONTHS LATER THE VALUE OF THE
ACCOUNT HAS GROWN THROUGH THE REINVESTMENT OF DIVIDENDS AND CAPITAL
APPRECIATION TO $12,000. THE INVESTOR THEN MAY SUBMIT FOR REPURCHASE PURSUANT
TO A TENDER OFFER UP TO $2,000 OF SHARES WITHOUT INCURRING AN EARLY WITHDRAWAL
CHARGE. IF THE INVESTOR SHOULD SUBMIT FOR REPURCHASE PURSUANT TO A TENDER
OFFER $5,000 OF SHARES, AN EARLY WITHDRAWAL CHARGE WOULD BE IMPOSED ON $3,000
OF THE SHARES SUBMITTED. THE CHARGE WOULD BE IMPOSED AT THE RATE OF 2.5%
BECAUSE IT IS IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE
WOULD BE $75.
During the Fund's fiscal year ended December 31, 1994, EVD received $423,222 in
Early Withdrawal Charges.
REPORTS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish its shareholders with
information necessary for preparing federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. Shares are held in non- certificated form by
the Fund's Transfer Agent for the account of the shareholder. The Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES BY SENDING A CHECK FOR $50 OR MORE TO First Data Investor Services Group.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2 or in writing to First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under federal income tax laws.
If the Income Option or Cash Option has been selected, all dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $5,000 minimum
investment has been made, checks of $50 or more payable to the order of Eaton
Vance Prime Rate Reserves may be mailed directly to First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Once the $5,000
minimum investment has been made, cash investments of $50 or more may be made
automatically each month or quarter from the shareholder's bank account.
REINVESTMENT PRIVILEGE: A shareholder whose shares have been repurchased
pursuant to a tender offer may reinvest, with credit for any Early Withdrawal
Charge paid on the value of the repurchased shares, any portion or all of his or
her tender proceeds (plus that amount necessary to acquire a fractional share to
round off the purchase to the nearest full share) in shares of the Fund,
provided that the reinvestment is effected within 60 days after such repurchase.
For purposes of determining any Early Withdrawal Charge upon acceptance of a
subsequent tender offer, the shareholder's prior period of ownership will be
included in this calculation. Shares are sold to a reinvesting shareholder at
the next determined net asset value following timely receipt of a written
purchase order by the Principal Underwriter or by the Fund (or by the Fund's
Transfer Agent). The amount of any Early Withdrawal Charge related to the prior
purchase will be credited to the shareholder's account and also reinvested at
the then current net asset value. A reinvesting shareholder may realize a gain
or loss for federal tax purposes as a result of such prior sale in the tender
offer, but to the extent that the shareholder realizes a loss upon a repurchase
of shares by the Fund and the proceeds are reinvested in shares of the Fund (or
other shares of the Fund are purchased through reinvestment of dividends or
otherwise) within the period beginning 30 days before and ending 30 days after
the date of the repurchase by the Fund, some or all of the loss generally will
be disallowed under the "wash sale" rules of federal income tax law, depending
upon the relationship between the number of shares repurchased and the number of
shares sold by the Fund.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase
in connection with the following tax-sheltered retirement plans:
PENSION AND PROFIT SHARING PLANS for self-employed individuals,
corporations and non-profit organizations;
INDIVIDUAL RETIREMENT ACCOUNT PLANS for individuals and their non-employed
spouses; and
403(B) RETIREMENT PLANS for employees of public school systems, hospitals,
colleges and other non-profit organizations meeting certain requirements of
the Code.
Detailed information concerning these plans 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. Under each
tax-sheltered retirement plan, all distributions will be automatically
reinvested in additional shares.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
DISTRIBUTIONS
Distributions will be declared daily and paid monthly. Realized net capital
gains (the Fund's realized net capital gains generally consist of the realized
net capital gains from the sale of portfolio assets allocated to the Fund by the
Portfolio), if any, will be distributed at least annually. Substantially all of
the investment income allocated to the Fund by the Portfolio, less its expenses,
will be declared daily as a distribution to shareholders of record at the time
of declaration. Daily distribution crediting will commence on the day after
collected funds for the purchase of Fund shares are available at the Transfer
Agent, even if orders to purchase shares had been placed with Authorized Firms.
Such distributions, whether received in cash or reinvested in additional shares,
will ordinarily be paid at the end of each month. Realized capital gains, if
any, will usually be distributed in December after offset by any capital loss
carryovers.
TAXES
In order to qualify as a regulated investment company under the Internal Revenue
Code, the Fund must satisfy certain requirements relating to the sources of its
income, the distribution of its income, and the diversification of its assets.
In satisfying these requirements, the Fund will treat itself as owning its
proportionate share of each of the Portfolio's assets and as entitled to the
income of the Portfolio properly attributable to such share.
As a regulated investment company under the Code, the Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As a partnership under the Code, the Portfolio
does not pay federal income or excise taxes. Further, under current law,
provided that the Fund qualifies as a regulated investment company for federal
tax purposes and the Portfolio is treated as a partnership for Massachusetts and
federal tax purposes, neither the Fund nor the Portfolio is liable for any
income, corporate excise or franchise tax in the Commonwealth of Massachusetts.
Certain distributions of the Fund which are paid in January of a given year but
are declared in the prior October, November or December to shareholders of
record on a date in such a month will be taxable to shareholders as if received
on December 31.
Distributions of ordinary income and the excess of net short-term capital gain
over net long-term capital loss will be treated as ordinary income in the hands
of shareholders. Distributions of the excess of net long-term capital gain over
net short-term capital loss are taxable to shareholders as long-term capital
gain, regardless of the length of time the shares of the Fund have been held by
such shareholders. Distributions will be taxed as described above, whether
received in shares or in cash. It is not expected that any portion of such
distributions will be eligible for the corporate dividends-received deduction.
Distributions that are treated for federal income tax purposes as a return of
capital will reduce each shareholder's basis in his shares and, to the extent
the return of capital exceeds such basis, will be treated as gain to the
shareholder from a sale of shares.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund held by a shareholder as a capital asset will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as short-term capital gain or loss. Different tax consequences may
apply for tendering and nontendering shareholders in connection with a tender
offer, and these consequences will be disclosed in the related offering
documents. For example, it is possible that tenders not treated as an exchange
for federal income tax purposes might result in different tax characterizations
of the distributions to tendering shareholders and in deemed distributions to
non-tendering shareholders. Shareholders may wish to consult their tax advisers
prior to tendering.
The Fund will send written notices to shareholders regarding the federal income
tax status of all distributions made during each calendar year.
Shareholders should consult their tax advisers regarding the applicability of
state or local taxes with respect to an investment in the Fund.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
PAGE
General Information and History ........................................... 2
Additional Information about Investment Policies .......................... 2
Investment Restrictions ................................................... 4
Trustees and Officers ..................................................... 5
Control Persons and Principal Holders of
Shares .................................................................... 7
Investment Advisory and Other Services .................................... 7
Determination of Net Asset Value .......................................... 10
Portfolio Trading ......................................................... 10
Taxes ..................................................................... 11
Custodian ................................................................. 12
Transfer and Dividend Paying Agent and Registrar .......................... 13
Auditors .................................................................. 13
Performance Information ................................................... 13
Other Information ......................................................... 15
Financial Statements ...................................................... 17
Appendix A ............................................................... A-1
<PAGE>
[LOGO]
EATON VANCE
MUTUAL FUND
EATON VANCE
PRIME RATE
RESERVES
PROSPECTUS
NOVEMBER 28, 1995
EATON VANCE
PRIME RATE RESERVES
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF SENIOR DEBT PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EATON VANCE PRIME RATE RESERVES
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER Eaton Vance Distributors, Inc., 24 Federal Street, Boston,
MA 023110 (800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
BANKING COUNSEL
Mayer, Brown & Platt, 787 Seventh Avenue, New York, NY 10019
STATEMENT OF
ADDITIONAL INFORMATION
November 28, 1995
EATON VANCE PRIME RATE RESERVES
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
TABLE OF CONTENTS
Page
General Information and History ........................................ 2
Additional Information about Investment Policies ....................... 2
Investment Restrictions ................................................ 4
Trustees and Officers .................................................. 5
Control Persons and Principal Holders of Shares ........................ 7
Investment Advisory and Other Services ................................. 7
Determination of Net Asset Value ....................................... 10
Portfolio Trading ...................................................... 10
Taxes .................................................................. 11
Custodian .............................................................. 12
Transfer and Dividend Paying Agent and Registrar ....................... 13
Auditors ............................................................... 13
Performance Information ................................................ 13
Other Information ...................................................... 15
Financial Statements ................................................... 17
Appendix A ............................................................. a-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE PRIME RATE RESERVES (THE "FUND")
DATED NOVEMBER 28, 1995, AS SUPPLEMENTED FROM TIME TO TIME. THIS STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE FUND'S
PRINCIPAL UNDERWRITER, EATON VANCE DISTRIBUTORS, INC. (SEE BACK COVER FOR
ADDRESS AND PHONE NUMBER).
<PAGE>
GENERAL INFORMATION AND HISTORY
Eaton Vance Prime Rate Reserves (the "Fund") is a closed-end, non-
diversified management investment company which continuously offers its shares
of beneficial interest to the public. The Fund was organized as a business
trust under the laws of the Commonwealth of Massachusetts on May 2, 1989, and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund's principal office is located at 24 Federal Street, Boston,
Massachusetts 02110.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
The Fund's investment objective is to provide as high a level of current
income as is consistent with the preservation of capital, by investing in a
portfolio primarily of senior secured floating rate loans. The Fund currently
seeks to achieve its investment objective by investing its assets in Senior
Debt Portfolio (the "Portfolio"), which has the same investment objective as
the Fund. The Fund is subject to the same investment policies as those of the
Portfolio. Capitalized terms used in this Statement of Additional Information
and not otherwise defined have the meanings given them in the Fund's
Prospectus.
Lending Fees. In the process of buying, selling and holding Loan Interests 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 Loan
Interest it may receive a facility fee and when it sells a Loan Interest 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 Loan. In certain circumstances, the Portfolio may receive a
prepayment penalty fee upon the prepayment of a 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
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 Loan Interest in the form of a participation
interest, the agreement between the buyer and seller may limit the rights of
the holder of the Loan Interest 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 a Loan Interest 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 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 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 Loan Interest usually does, but is
often not obligated to, notify holders of Loan Interests 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 Loan, may give the
Borrower an opportunity to provide additional collateral or may seek other
protection for the benefit of the participants in the 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 Loan and other fees paid on a continuing basis.
With respect to Loan Interests 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 Loan Interests. 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 Loan Interest, or suffer a loss of principal and/or
interest. In situations involving Intermediate Participants similar risks may
arise.
Prepayments. The Loans in which the Portfolio acquires Loan Interests will
usually require, in addition to scheduled payments of interest and principal,
the prepayment of the Loan from free cash flow, as defined above. The degree
to which Borrowers prepay 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 Loan Interest 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 Loan Interests in floating rate Loans that have similar
or identical yields and because receipt of such fees may mitigate any adverse
impact on the Fund's yield.
Interest Rate Transactions. 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
Loan Interest 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 Loan Interest because of subsequent changes in
interest rates. This would protect the Portfolio from a decline in the value
of the Loan Interest 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 high grade debt 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 BMR. 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 Loan Interests and its rights and obligations to
receive and pay interest pursuant to interest rate swaps.
Credit Risks. As of August 31, 1995 and pursuant to the closing of a
recapitalization effective May 31, 1995 of London Fog Industries, Inc. (the
"Company"), the Portfolio had Loan Interests in Loans to the Company which
were carried on the books at less than par, although the Company has not
defaulted on these Loans.
On December 23, 1993 (prior to the Fund's investment in the Portfolio),
the Fund sold its Best Products Co., Inc. ("Best") Loan Interest, and the
purchaser thereof assumed all of the Fund's obligations and liabilities
(including costs, expenses and damage awards relating to litigation matters)
with respect to the Loan Interest pursuant to the contract transferring
ownership thereof. Best had previously petitioned for relief under Chaper 11
of the Bankruptcy Code. The Resolution Trust Corporation ("RTC") initiated
litigation in the U.S. Bankruptcy Court for the Southern District of New York
(the "Court") against various entities, including the Fund. Best's Plan of
Reorganization (the "Plan") was confirmed effective as of June 14, 1994. On
January 20, 1995, the Court dismissed as moot an appeal of the RTC from the
order confirming the Plan. The RTC has appealed the dismissal order and the
appeal is currently pending before the U.S. Court of Appeals for the Second
Circuit.
In the last decade, the federal agencies that regulate banking
institutions subjected certain loans made in connection with highly leveraged
transactions to increased scrutiny during bank examinations. Such regulatory
action resulted in certain banks disposing of Loan Interests at low prices. If
such regulatory action became likely again, banks might decide to reduce the
amount of Loans to highly leveraged Borrowers, which might reduce the
availability of Loans suitable for the Portfolio's ownership. As of the date
of this Statement of Additional Information, such Loan Interests constituted
substantially all of the Portfolio's Loan Interests.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions 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
Statement of Additional Information 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 shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. As a matter of fundamental policy the
Fund may not:
(1) Borrow money, except as permitted by the Investment Company Act of
1940;
(2) Issue senior securities, as defined in the Investment Company Act of
1940, other than (i) preferred shares which immediately after issuance will
have asset coverage of at least 200%, (ii) indebtedness which immediately
after issuance will have asset coverage of at least 300%, or (iii) the
borrowings permitted by investment restriction (1) above;
(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 purchase of Loan Interests, securities or other investment
assets with the proceeds of a permitted borrowing or securities offering will
not be deemed to be the purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as it
may technically be deemed to be an underwriter under the Securities Act of
1933 in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of Loan
Interests, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and policies,
(b) entering into repurchase agreements, and (c) lending its portfolio
securities;
(6) Purchase any security if, as a result of such purchase, more than 25%
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;
(7) Purchase or sell real estate, although it may purchase and sell
securities which are secured by interests in real estate and securities of
issuers which invest or deal in real estate. The Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the ownership
of securities; or
(8) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices or other financial
instruments.
For the purpose of investment restrictions (1), (2) and (3) above and
nonfundamental investment policy (a) below, the arrangements (including
escrow, margin and collateral arrangements) made by the Fund with respect to
transactions in all types of options and futures contract transactions shall
not be considered to be (i) a borrowing of money or the issuance of securities
(including senior securities) by the Fund, (ii) a pledge of its assets, (iii)
the purchase of a security on margin, or (iv) a short sale or position. The
Fund has no present intention of engaging in options or futures transactions.
Although permitted pursuant to investment restriction (2), the Fund has no
present intention of issuing preferred shares.
For the purpose of investment restriction (6), 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. In addition, with
respect to restriction (6), the Fund will construe the phrase "more than 25%"
to be "25% or more".
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in a management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing numbered investment restrictions adopted by the
Fund; such restrictions cannot be changed without the approval of a "majority
of the outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act. Whenever the Fund is requested to vote on a change in the investment
restrictions of the Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its vote as instructed by the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Fund without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio without
the approval of the Fund or the Portfolio's other investors. As a matter of
nonfundamental policy, neither the Fund nor the Portfolio may: (a) make short
sales of securities or maintain a short position, unless at all times when a
short position is open it either owns an equal amount of such securities or
owns 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; (b) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; or (c) invest more than 10% of its total
assets (taken at current value) in the securities of issuers which together
with any predecessors have a record of less than three years continuous
operation, except U.S. Government securities, securities of issuers which are
rated by at least one nationally recognized statistical rating organization,
municipal obligations and obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities.
In addition, neither the Fund nor the Portfolio currently intends to
invest more than 10% of its total assets in Loans to any single Borrower.
Whenever an investment policy or investment restriction set forth in this
Statement of Additional Information states a maximum percentage of the Fund's
or the Portfolio's 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 its
acquisition of such security or other asset. Accordingly, any later increase
or decrease resulting from a change in values, assets or other circumstances
will not compel the Fund or the Portfolio to dispose of such security or other
asset.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund 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 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Fund,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Fund, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE FUND AND THE PORTFOLIO
JAMES B. HAWKES (53), President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and Director of EVC
and EV. Director or Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
M. DOZIER GARDNER (62), Vice President and Trustee*
President of BMR, Eaton Vance and EV, and Director of EVC and EV. Director or
Trustee and officer of various investment companies managed by Eaton Vance
or BMR. Mr. Gardner was elected Vice President and Trustee of the Fund on
December 16, 1991.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University, Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University, Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director of UAM Funds (mutual funds). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE FUND AND THE PORTFOLIO
JEFFREY S. GARNER (38), Vice President and Portfolio Manager
Vice President of BMR, Eaton Vance and EV.
WILLIAM CHISHOLM (35), Vice President of the Portfolio
Senior Trust Officer of the Bank of Nova Scotia Trust Company (Cayman)
Limited. Officer of various investment companies managed by Eaton Vance or
BMR. Mr. Chisholm was elected Vice President of the Portfolio on June 19,
1995.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
MICHEL NORMANDEAU (44), Vice President of the Portfolio
Assistant Manager -- Trust Services, The Bank of Nova Scotia Trust Company
(Cayman) Limited. Officer of various investment companies managed by Eaton
Vance or BMR. Mr. Normandeau was elected Vice President of the Portfolio on
June 19, 1995.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
RAYMOND O'NEILL (33), Vice President of the Portfolio
Managing Director of IBT Trust and Custodian Services (Ireland) Limited since
January, 1995. Vice President, Atlantic Corporate Management Limited,
Warwick, Bermuda (1991-1994). Officer, The Bank of Bermuda Limited,
Hamilton, Bermuda (1987-1991). Officer of various investment companies
managed by Eaton Vance or BMR.
Address: Earlsfort Terrace, Dublin 2, Ireland.
JAMES L. O'CONNOR (49), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
BARBARA E. CAMPBELL (38), Assistant Treasurer
Assistant Vice President of BMR, Eaton Vance and EV since January 17, 1992;
employee of Eaton Vance since October 23, 1991. Audit Manager -- Financial
Services Industry Practice, Deloitte & Touche (1987-1991). Officer of
various investment companies managed by Eaton Vance or BMR. Ms. Campbell was
elected Assistant Treasurer of the Fund on December 16, 1991.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary of the
Fund on March 27, 1995 and of the Portfolio on June 19, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Mr.
Woodbury was elected Assistant Secretary on June 19, 1995.
The fees and expenses of those Trustees of the Fund who are not members of
the Eaton Vance organization (the noninterested Trustees) are paid by the
Fund. (The Trustees of the Fund and the Portfolio who are members of the Eaton
Vance organization receive no compensation from the Fund or the Portfolio).
During the fiscal year ended December 31, 1994, the Trustees of the Fund
earned the following compensation in their capacities as Trustees of the Fund
and the other funds in the Eaton Vance fund complex(1):
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND
NAME FROM FUND FUND COMPLEX
- ---- --------- ------------
Donald R. Dwight ....................... $4,119(2) $135,000(4)
Samuel L. Hayes, III ................... 4,079(3) 142,500(5)
Norton H. Reamer ....................... 4,002 135,000
John L. Thorndike ...................... 4,140 140,000
Jack L. Treynor ........................ 4,247 140,000
- ----------
(1)The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
(2)Includes $331 of deferred compensation.
(3)Includes $334 of deferred compensation.
(4)Includes $8,750 of deferred compensation.
(5)Includes $8,864 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR 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 "Plan"). Under the
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 Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the 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.
Each interested Trustee and officer holds comparable positions with
certain affiliates of BMR or with certain other funds of which BMR or Eaton
Vance is the investment adviser or distributor.
Messrs. Chisholm, Normandeau and O'Neill are not U.S. residents. It may be
difficult to effect service of process within the U.S. or to realize judgments
of U.S. courts upon them. It is uncertain whether courts in other countries
would entertain original actions against them.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of September 29, 1995, the Trustees and officers of the Fund, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of September 29, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc. of
New Brunswick, New Jersey, was the record owner of approximately 42.7% of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. To the knowledge of the Fund, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
INVESTMENT ADVISORY AND OTHER SERVICES
The Portfolio has engaged BMR to act as its investment adviser under an
Investment Advisory Agreement (the "Advisory Agreement"). Under the general
supervision of the Portfolio's Board of Trustees, BMR will carry out the
investment and reinvestment of the assets of the Portfolio, will furnish
continuously an investment program with respect to the Portfolio, will
determine which securities and loans should be purchased, sold or exchanged,
and will implement such determinations. BMR will furnish to the Portfolio
investment advice and office facilities, equipment and personnel for servicing
the investments of the Portfolio. BMR will compensate all Trustees and
officers of the Portfolio who are members of the BMR organization and who
render investment services to the Portfolio, and will also compensate all
other BMR personnel who provide research and investment services to the
Portfolio. In return for these services, facilities and payments, the
Portfolio has agreed to pay BMR as compensation under the Advisory Agreement a
monthly fee in the amount of 19/240 of 1% (equivalent to 0.95% annually) of
the average daily gross assets of the Portfolio. In calculating the gross
assets of the Portfolio for this purpose, there will be deducted all
liabilities of the Portfolio except the principal amount of any indebtedness
for money borrowed, including debt securities issued by the Portfolio. While
this advisory fee is greater than that paid by most other funds, it is similar
to fees paid by other closed-end funds investing primarily in Loans and Loan
Interests. On October 24, 1994, the Trustees of the Portfolio voted to accept
a waiver of BMR compensation so that the aggregate advisory fees paid by the
Portfolio under the Advisory Agreement during any fiscal year or portion
thereof after the Fund begins to invest its assets in the Portfolio, will on
an annual basis not exceed: (a) 0.95% of average daily gross assets of the
Portfolio up to and including $1 billion; (b) 0.90% of average daily gross
assets in excess of $1 billion up to and including $2 billion; and (c) 0.85%
of average daily gross assets in excess of $2 billion. The fee waiver is
indefinite, but could be removed or changed upon agreement of BMR and the
Portfolio's Board of Trustees at any time.
Prior to the close of business on February 21, 1995 (when the Fund
transferred substantially all of its assets to the Portfolio in exchange for
an interest in the Portfolio), the Fund retained Eaton Vance as its investment
adviser. For the fiscal year ended December 31, 1992, the Fund paid Eaton
Vance advisory fees aggregating $12,845,317, which was equal to 0.94% of the
Fund's average daily gross assets. For the fiscal year ended December 31,
1993, the Fund paid Eaton Vance advisory fees aggregating $8,562,326, which
was equal to 0.95% of the Fund's average daily gross assets. For the fiscal
year ended December 31, 1994, the Fund paid Eaton Vance advisory fees
aggregating $6,116,870, which was equal to 0.95% of the Fund's average daily
gross assets. As at December 31, 1994, the gross assets of the Fund were
$631,990,687.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement. Under the Administration Agreement, Eaton Vance is
responsible for managing the business affairs of the Fund, subject to the
supervision of the Fund's Board of Trustees. Eaton Vance will furnish to the
Fund all office facilities, equipment and personnel for administering the
affairs of the Fund. Eaton Vance will compensate all Trustees and officers of
the Fund who are members of the Eaton Vance organization and who render
executive and administrative services to the Fund, and will also compensate
all other Eaton Vance personnel who perform management and administrative
services for the Fund. Eaton Vance's administrative services include
recordkeeping, preparation and filing of documents required to comply with
federal and state securities laws, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Trustees' and shareholders' meetings, providing services in connection with
contemplated quarterly tender offers and other administrative services
necessary to conduct the Fund's business. In return for these services,
facilities and payments, the Fund pays Eaton Vance as compensation under the
Administration Agreement a monthly fee in the amount of 1/48 of 1%
(equivalent to 0.25% annually) of the average daily gross assets of the
Portfolio attributable to the Fund. In calculating the gross assets of the
Portfolio for this purpose, there will be deducted all liabilities of the
Portfolio except the principal amount of any indebtedness for money borrowed,
including debt securities issued by the Portfolio. For the fiscal years ended
December 31, 1994, 1993 and 1992, the Fund paid Eaton Vance administration
fees of $1,609,703, $2,253,980 and $3,429,255, respectively, which was equal
to 0.25% of the Fund's average daily gross assets for each fiscal year.
IBT Trust Company (Cayman), Ltd. maintains the Portfolio's principal
office and certain of its records and provides administrative assistance in
connection with meetings of the Portfolio's Trustees and interestholders, for
which services the Portfolio pays $1,500 per annum.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be
payable by BMR under the Advisory Agreement with the Portfolio, by Eaton Vance
under the Administration Agreement with the Fund or by EVD under its
Distribution Agreement with the Fund. Such costs and expenses to be borne by
the Portfolio and the Fund, as the case may be, include, without limitation:
custody and transfer agency fees and expenses, including those incurred for
determining net asset value and keeping accounting books and records; expenses
of pricing and valuation services; the cost of share certificates; membership
dues in investment company organizations; expenses of acquiring, holding and
disposing of securities and other investments; fees and expenses of
registering under the securities laws and governmental fees; expenses of
reports to shareholders and investors, proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
expenses of conducting tender offers for the purpose of repurchasing Portfolio
interests or Fund shares; and investment advisory and administration fees.
The Portfolio and the Fund will also each bear expenses incurred in connection
with litigation in which the Portfolio or the Fund, as the case may be, is a
party and any legal obligation to indemnify its respective officers and
Trustees with respect thereto.
Commitments have been made to certain state securities authorities that
Eaton Vance will reimburse the Fund for certain expenses paid or incurred by
the Fund in any fiscal year of the Fund that exceeds the expense limitation
requirements of such states. These commitments may be amended or rescinded by
Eaton Vance in response to changes in the requirements of the various states
or for other reasons.
The Advisory Agreement and Administration Agreement will remain in effect
until February 28, 1996. The Portfolio's Advisory Agreement may be continued
from year to year thereafter so long as such continuance after February 28,
1996 is approved at least annually (i) by the vote of a majority of the
Trustees of the Portfolio who are not "interested persons" of the Portfolio or
BMR cast in person at a meeting specifically called for the purpose of voting
on such approval and (ii) by the Trustees of the Portfolio or by vote of a
majority of the outstanding interests of the Portfolio. The Fund's
Administration Agreement may be continued from year to year after February 28,
1996 so long as such continuance is approved annually by the vote of a
majority of the Fund's Trustees. Each agreement may be terminated at any time
without penalty on sixty (60) days' written notice by the Trustees of the Fund
or the Portfolio, as the case may be, BMR or Eaton Vance, as applicable, or by
vote of the majority of the outstanding shares of the Fund or interests of the
Portfolio, as the case may be. Each agreement will terminate automatically in
the event of its assignment. Each agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Fund or the Portfolio under such agreements on
the part of Eaton Vance or BMR, as applicable, Eaton Vance or BMR will not be
liable to the Fund or the Portfolio, as applicable, for any loss incurred.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV 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 which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. 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 and Directors of EV and EVC. As of September
29, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Gardner, Hawkes and Otis are officers or
Trustees of the Fund and the Portfolio and are members of the EVC, BMR, Eaton
Vance and EV organizations. Messrs. Garner, Murphy, O'Connor and Woodbury and
Ms. Campbell and Ms. Sanders are officers of the Fund and the Portfolio and
are members of the BMR, Eaton Vance and EV organizations. BMR will receive the
fees paid under the Advisory Agreement and Eaton Vance will receive the fees
paid under the Administration Agreement, and its wholly-owned subsidiary,
Eaton Vance Distributors, Inc., as Principal Underwriter, will receive the
Early Withdrawal Charges payable upon the repurchase of shares of the Fund.
EVC owns all of the stock of Energex Energy Corp., which engages in oil
and gas operations. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC also owns 21% of the Class A shares of Lloyd
George Management (B.V.I.) Limited, a registered investment adviser. EVC owns
all of the stock of Fulcrum Management, Inc. and MinVen Inc., which are
engaged in the development of precious metal properties. EVC, Eaton Vance, BMR
and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
DETERMINATION OF NET ASSET VALUE
Each investor in the Portfolio, including the Fund, may add to 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 (which would be made pursuant to Portfolio tender offers) for the
current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed
as a percentage equal to the 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 the
Portfolio for the current Portfolio Business Day.
PORTFOLIO TRADING
Specific decisions to purchase or sell securities for the Portfolio are
made by employees of BMR who are appointed and supervised by its senior
officers. Such employees may serve other clients of BMR in a similar capacity.
Changes in the Portfolio's investments are reviewed by the Board.
The Portfolio will acquire Loan Interests from major international banks,
selected domestic regional banks, insurance companies, finance companies and
other financial institutions. In selecting financial institutions from which
Loan Interests 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 Loan Interests which they have sold, they
may act as principal or on an agency basis in connection with the Portfolio's
disposition of Loan Interests.
Other fixed-income obligations which may be purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net basis
(i.e., without commission) through broker-dealers or banks acting for their
own account rather than as brokers, or otherwise involve transactions directly
with the issuers of such obligations. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price
of the market for such obligations, and the difference between the bid and
asked price is customarily referred to as the spread. The Portfolio may also
purchase fixed-income and other securities from underwriters, the cost of
which may include undisclosed fees and concessions to the underwriters. While
it is anticipated that the Portfolio will not pay significant brokerage
commissions, on occasion it may be necessary or desirable to purchase or sell
a security through a broker on an agency basis, in which case the Portfolio
will incur a brokerage commission. Although spreads or commissions on
portfolio transactions will, in the judgment of BMR, be reasonable in relation
to the value of the services provided, spreads or commissions exceeding those
which another firm might charge may be paid to firms who were selected to
execute transactions on behalf of the Portfolio and BMR's other clients for
providing brokerage and research services to BMR. The Portfolio will not
purchase securities from its affiliates in principal transactions. The Fund
paid no brokerage commissions during the three year period ended December 31,
1994.
The frequency of portfolio purchases and sales, known as the "turnover
rate," will vary from year to year. It is anticipated that the Portfolio's
turnover rate will be between 50% and 100%.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Subject to applicable laws and regulations, BMR will attempt to allocate
equitably portfolio transactions among the Portfolio and the portfolios of its
other investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio
and such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure 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
Fund and the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise in simultaneous transactions.
TAXES
The Fund has qualified and elected to be treated and intends to continue
to qualify each year as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund intends
to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income and
net realized capital gains in accordance with the timing requirements imposed
by the Code, so as to avoid any federal income or excise tax on the Fund.
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 satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net investment
income, net realized capital gains, and any other items of income, gain, loss,
deduction or credit. The Portfolio will make allocations to the Fund in
accordance with the Code and applicable regulations and will make monies
available for withdrawal at appropriate times (consistent with any Fund tender
offers) and in sufficient amounts to enable the Fund to satisfy the tax
distribution requirements that apply to the Fund and that must be satisfied in
order to avoid federal income and/or excise tax on the Fund. For purposes of
applying the requirements of the Code regarding qualification as a regulated
investment company, the Fund will be deemed (i) to own its proportionate share
of each of the assets of the Portfolio and (ii) to be entitled to the gross
income of the Portfolio attributable to such share.
In order to qualify as a regulated investment company for any taxable
year, the Fund must, among other things, (i) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of securities, and certain other
related income; (ii) derive less than 30% of its gross income from gains from
the sale or other disposition of securities held less than three months; and
(iii) diversify its investments so that at the close of each quarter of its
taxable year (x) at least 50% of the market value of the Fund's total assets
is represented by cash and cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in
respect of any one issuer to not more than 5% of the value of the Fund's total
assets and not more than 10% of the voting securities of such issuer, and (y)
not more than 25% of the value of the Fund's total assets is invested in the
securities (other than U.S. Government securities and securities of other
regulated investment companies) of any one issuer, or of two or more issuers
controlled by the Fund and engaged in the same, similar or related trades or
businesses. For purposes of these requirements, Loan Interests will be treated
as securities, and the issuer will be identified on the basis of market risk
and credit risk associated with any particular interest. Certain payments
received by the Portfolio, such as commitment fees, may not be treated as
qualifying income under the 90% requirement described above.
The federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat 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 in order to maintain its qualification as a regulated investment
company.
In order to avoid federal excise tax, 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 (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, after reduction by any available capital loss
carryforwards, and 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.
As of the close of business, February 21, 1995, the Fund contributed
substantially all of its assets to the Portfolio in exchange for an interest
in the Portfolio. The Fund has obtained an opinion of tax counsel to the
effect that, although there is no judicial authority directly on point, this
contribution will not result in the recognition of gain or loss by the Fund
for federal income tax purposes. If it were determined that this contribution
by the Fund was a taxable transaction, the Fund could be required to recognize
gain on the transfer of its assets to the Portfolio and to make additional
distributions to its shareholders in order to avoid Fund-level federal income
taxes, and any such distributions would be taxable to the shareholders who
receive them; and in such case, the Fund might also be required to pay
penalties and/or interest to the Internal Revenue Service.
Any loss realized upon a taxable disposition of shares with a tax holding
period of six months or less will be treated as a long-term capital loss to
the extent of any amounts treated by shareholders as long-term capital gains
with respect to such shares. All or a portion of any loss realized upon a
taxable disposition of Fund shares will be disallowed if other Fund shares are
purchased within 30 days before or after such disposition.
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, and may have to
dispose of investments that it would otherwise have continued to hold in order
to satisfy its distribution requirements with respect to such income.
Distributions by the Fund may result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or capital gain, even though,
from an investment standpoint, it may constitute a partial return of the
purchase price. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of any forthcoming
distribution, and such investors will then receive a distribution representing
a return of a portion of their investment which will nevertheless be taxable
to them.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with a correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding at a rate of 31%. An
individual's taxpayer identification number is generally his social security
number.
Nonresident alien individuals and certain foreign corporations and other
entities generally will be subject to a U.S. withholding tax at a rate of 30%
on distributions from ordinary income and the excess of net short-term capital
gain over net long-term capital loss unless the tax is reduced or eliminated
by an applicable tax treaty. Distributions from the excess of net long-term
capital gain over net short-term capital loss received by such shareholders
and any gain from the sale or other disposition of shares of the Fund
generally will not be subject to U.S. taxation, provided that nonresident
alien status has been certified by the shareholder. Different U.S. tax
consequences may result if the shareholder is engaged in a trade or business
in the United States or is present in the United States for a sufficient
period of time during a taxable year to be treated as a U.S. resident. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in the Fund.
The Portfolio may be subject to foreign withholding taxes with respect to
income on certain loans to foreign Borrowers. As not more than 50% of the
value of the Fund's total assets taking into account its allocable share of
the Portfolio's total assets at the close of any taxable year of the Fund will
consist of loans to foreign borrowers, the Fund will not be eligible to pass
through to shareholders their proportionate share of foreign taxes paid by the
Portfolio and allocated to the Fund, with the result that shareholders will
not be entitled to take any foreign tax credits or deductions for foreign
taxes paid by the Portfolio and allocated to the Fund. However, the Fund may
deduct such taxes in calculating its distributable income earned by the
Portfolio and allocated to the Fund. These taxes may be reduced or eliminated
under the terms of an applicable U.S. income tax treaty.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as 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 or foreign
tax consequences of investing in the Fund.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 89 South Street, Boston,
Massachusetts, acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, and its subsidiary, IBT
Fund Services (Canada) Inc., 1 First Canadian Place, King Street West,
Toronto, Ontario, Canada, maintains the general ledgers 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 its capacity as custodian,
IBT 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 Fund and the Portfolio. IBT charges custody
fees based on a percentage of Fund and Portfolio assets which are competitive
within the industry. These fees are then reduced by a credit for cash balances
of the particular investment company at the custodian equal to 75% of the 91-
day, U.S. Treasury Bill auction rate applied to the particular investment
company's average daily collected balances for the week. Landon T. Clay, a
Director of EVC and an officer, Trustee or Director of other entities in the
Eaton Vance organization, owns approximately 13% of the voting stock of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or Portfolio and IBT under the 1940 Act.
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
First Data Investor Services Group, serves with respect to the shares as
transfer and dividend paying agent and as registrar. The principal business
address of First Data Investor Services Group is One Exchange Place, Boston,
Massachusetts 02104.
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent accountants for the Fund, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation
of filings with the Securities and Exchange Commission. Deloitte & Touche,
Grand Cayman, Cayman Islands, British West Indies, are the independent
accountants for the Portfolio.
PERFORMANCE INFORMATION
The Fund's current yield for the one-month period ended December 31, 1993
was 5.37%. The Fund's effective yield for the one-month period ended December
31, 1993 was 5.50%. The Fund's current yield for the one-month period ended
December 31, 1994 and for the one-month period ended June 30, 1995 was 7.72%.
The Fund's effective yield for the one-month period ended December 31, 1994
and for the one-month period ended June 30, 1995 was 8.00%. Yields will
fluctuate from time to time and are not necessarily representative of future
results.
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund through June 30, 1995.
VALUE OF A $1,000 INVESTMENT
INVESTMENT INVESTMENT AMOUNT OF VALUE OF TOTAL RETURN
PERIOD DATE INVESTMENT INVESTMENT CUMULATIVE ANNUALIZED
- -------------------------------------------------------------------------------
Life of the
Fund* 8/4/89 $1,000 $1,510.86 51.09% 7.24%
5 Years Ended
6/30/95 6/30/90 $1,000 $1,391.91 39.19% 6.84%
1 Year Ended
6/30/95 6/30/94 $1,000 $1,078.98 7.90% 7.90%
- ----------
*Investment operations began August 4, 1989.
Past performance is not indicative of future results. Investment return
and principal value will fluctuate and shares, when redeemed, may be worth
more or less than their original cost.
The calculation of total return, current yield and effective yield does
not reflect the imposition of any Early Withdrawal Charges or the amount of
any shareholder income tax liability. If reflected, an Early Withdrawal Charge
would reduce the performance quoted. Information about the performance of the
Fund or other investments should not be considered a representation of future
performance the Fund may earn or what an investor's yield or total return may
be in the future.
TOTAL RETURN PERFORMANCE...
A $100,000 investment in Eaton Vance Prime Rate Reserves at the Fund's
inception, Aug. 4, 1989, would have grown to $151,082 on June 30, 1995.
prime rate
reserves
start $100000
8/89 100614
9/89 100614
10/89 102039
11/89 102786
12/89 103586
1/90 104406
2/90 105158
3/90 105997
4/90 106823
5/90 107691
6/90 108541
7/90 109425
8/90 110317
9/90 111185
10/90 112088
11/90 112858
12/90 113528
1/91 114292
2/91 115029
3/91 115852
4/91 116631
5/91 117396
6/91 118114
7/91 118851
8/91 119593
9/91 120293
10/91 120997
11/91 121663
12/91 122335
1/92 122823
2/92 123378
3/92 123973
4/92 124553
5/92 125134
6/92 125758
7/92 126319
8/92 127001
9/92 127899
10/92 128305
11/92 129077
12/92 129897
1/93 130463
2/93 130560
3/93 130840
4/93 131761
5/93 132572
6/93 133262
7/93 133693
8/93 134532
9/93 135234
10/93 135580
11/93 136178
12/93 136834
1/94 137407
2/94 137943
3/94 138124
4/94 138568
5/94 139227
6/94 140025
7/94 140719
8/94 140897
9/94 141645
10/94 142631
11/94 143481
12/94 145146
1/95 146135
2/95 147349
3/95 148359
4/95 149152
5/95 150130
6/95 151082
The chart reflects total return (change in net asset value with all
distributions reinvested) in a hypothetical investment of $100,000 at 8/4/89.
Results do not include the Fund's early withdrawal charge. Past performance is
not indicative of future results. Investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost. Sources: Eaton Vance Management, The Wall Street Journal.
The rates for the Fund shown in the table below are effective yields, and
assume that all interest and dividends are reinvested.
The Fund has delivered a consistent yield advantage over short-term interest
rates
3-month Federal Prime Rate
London Interbank Funds Reserves
Offered Rate Rate Effective Yield
Month-end (%) (%) (%)
Aug. 1989 9.00 8.99 8.30
Sept. 1989 9.19 9.02 8.58
Oct. 1989 8.69 8.84 9.01
Nov. 1989 8.50 8.55 9.28
Dec. 1989 8.38 8.45 9.55
Jan. 1990 8.38 8.23 9.74
Feb. 1990 8.38 8.24 9.80
March 1990 8.50 8.28 9.82
April 1990 8.69 8.26 9.90
May 1990 8.38 8.18 10.00
June 1990 8.38 8.29 10.03
July 1990 7.94 8.15 10.03
Aug. 1990 8.13 8.13 10.03
Sept. 1990 8.31 8.20 10.00
Oct. 1990 8.06 8.11 10.00
Nov. 1990 8.44 7.81 10.01
Dec. 1990 7.56 7.31 9.78
Jan. 1991 7.06 6.91 9.50
Feb. 1991 6.88 6.25 8.75
March 1991 6.38 6.12 8.75
April 1991 6.19 5.91 8.50
May 1991 6.06 5.78 8.00
June 1991 6.19 5.90 7.70
July 1991 6.06 5.82 7.60
Aug. 1991 5.69 5.66 7.60
Sept. 1991 5.63 5.45 7.35
Oct. 1991 5.25 5.21 7.12
Nov. 1991 4.94 4.81 6.90
Dec. 1991 4.25 4.43 6.70
Jan. 1992 4.19 4.03 6.07
Feb. 1992 4.25 4.06 5.85
March 1992 4.38 3.98 5.85
April 1992 4.06 3.73 5.85
May 1992 4.06 3.82 5.65
June 1992 3.94 3.76 5.65
July 1992 3.44 3.25 5.40
Aug. 1992 3.56 3.30 5.30
Sept. 1992 3.25 3.22 5.05
Oct. 1992 3.56 3.10 5.05
Nov. 1992 4.00 3.09 5.00
Dec. 1992 3.44 2.92 5.25
Jan. 1993 3.25 3.02 5.25
Feb. 1993 3.25 3.03 5.00
March 1993 3.25 3.07 5.00
April 1993 3.19 2.96 5.00
May 1993 3.38 3.00 5.00
June 1993 3.31 3.04 5.00
July 1993 3.31 3.06 5.10
Aug. 1993 3.25 3.03 5.15
Sept. 1993 3.38 3.09 5.25
Oct. 1993 3.44 2.99 5.50
Nov. 1993 3.50 3.02 5.50
Dec. 1993 3.38 2.96 5.82
Jan. 1994 3.25 3.05 5.41
Feb. 1994 3.75 3.25 5.20
March 1994 3.94 3.34 5.20
April 1994 4.31 3.56 5.26
May 1994 4.63 4.01 5.75
June 1994 4.88 4.25 5.90
July 1994 4.88 4.26 6.00
Aug. 1994 5.00 4.47 6.40
Sept. 1994 5.50 4.73 6.66
Oct. 1994 5.63 4.76 7.24
Nov. 1994 6.19 5.29 7.50
Dec. 1994 6.50 5.45 8.00
Jan. 1995 6.31 5.86 8.32
Feb 1995 6.25 6.1 8.53
March 1995 6.25 6.3 8.38
April 1995 6.19 6.06 8.00
May 1995 6.06 6.17 8.00
June 1995 6.06 6.11 8.00
EV Prime Rate
Reserves: 8.00%
3-Month London
Interbank Offered
Rate: 6.06%
Federal Funds
Rate: 6.11%
Chart shows month-end effective yields over the life of the Fund (August 4,
1989, to June 30, 1995). The value and return of an investment in the Fund will
fluctuate with changes in market conditions so that shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
indicative of future results. Sources: Eaton Vance Management, Bloomberg, L.P.
Comparative information about the Fund's yield and total return, about the
Prime Rate and about average rates of return on certificates of deposit, bank
money market deposit accounts, money market mutual funds and other short-term
investments may also be included in advertisements and communications of the
Fund. A bank certificate of deposit, unlike the Fund's shares, pays a fixed rate
of interest and entitles the depositor to receive the face amount of the
certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are ordinarily insured by the Federal Deposit Insurance Corporation. A
money market mutual fund is designed to maintain a constant value of $1.00 per
share and, thus, a money market fund's shares are ordinarily subject to less
price fluctuation than the Fund's shares.
For the period January 1, 1980 through June 30, 1995 the national average
prime rate exceeded the average yield of money market mutual funds and the
average yield of 3-month bank CDs. Such amounts for each year are as follows:
Average prime rate over Average prime rate over
money market funds: 3-month bank CDs:
1980 2.46% 1988 2.20% 1980 3.80% 1988 1.21%
1981 1.99 1989 2.01 1981 5.09 1989 3.06
1982 2.63 1990 2.17 1982 3.53 1990 2.60
1983 2.22 1991 2.62 1983 1.58 1991 2.91
1984 2.00 1992 2.91 1984 3.15 1992 3.17
1985 1.68 1993 3.30 1985 2.05 1993 3.51
1986 1.89 1994 3.43 1986 2.41 1994 4.03
1987 2.08 1995* 3.31 1987 0.95 1995* 4.61
*As of June 30, 1995.
Sources: Federal Reserve Bank, Donoghue's Money Fund Averages, and Rate Gram
and The Wall Street Journal.
From time to time, advertisements and other material furnished to present and
prospective shareholders may include information on the history of the Fund's
net asset value per share. From inception through June 30, 1995, the high was
$10.07 (on October 18, 1993) and the low was $9.95 (from January 28 through
August 26, 1992). Such materials may include illustrations such as the following
chart:
PRINCIPAL PERFORMANCE
MONTH-END SHARE VALUE HISTORY
aug 89 10.00
s 10.00
o 10.00
n 10.00
dec 89 10.00
j 10.00
f 10.00
m 10.00
a 10.00
m 10.00
j 10.00
j 10.00
a 10.00
s 10.00
o 10.00
n 9.99
dec 90 9.97
j 9.96
f 9.96
m 9.96
a 9.96
m 9.96
j 9.96
j 9.96
a 9.96
s 9.96
o 9.96
n 9.96
dec 91 9.96
j 9.95
f 9.95
m 9.95
a 9.95
m 9.95
j 9.95
j 9.95
a 9.96
s 9.99
o 9.98
n 10.00
dec 92 10.02
j 10.02
f 9.99
m 9.97
a 10.00
m 10.02
j 10.03
j 10.02
a 10.04
s 10.05
o 10.03
n 10.03
dec 93 10.03
j 10.03
f 10.03
m 10.00
a 9.99
m 9.99
j 10.00
j 10
a 9.96
s 9.96
o 9.97
n 9.97
d94 10.02
jan 10.02
feb 10.04
march 10.04
april 10.03
may 10.03
june 95 10.03
Low $9.98
High $10.07
Chart shows the Funds month-end net asset value per share for the life of the
Fund since its inception (8/4/89 to 6/30/95). Past performance is not indicative
of future results.
OTHER INFORMATION
The Fund is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Fund's Declaration of Trust, as amended, contains
an express disclaimer of shareholder liability in connection with the Fund
property or the acts, obligations or affairs of the Fund. The Declaration of
Trust also provides for indemnification out of the Fund property of any
shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself is
unable to meet its obligations. The Fund has been advised by its counsel that
the risk of any shareholder incurring any liability for the obligations of the
Fund is extremely remote.
The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to the Fund or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Voting rights are not cumulative, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees and, in such event, the holders of the
remaining less than 50% of the shares voting on the matter will not be able to
elect any Trustees. As permitted by Massachusetts law, there will normally be no
meetings of Fund shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders. In such an event, the Trustees of the Fund then in
office will call a shareholders' meeting for the election of Trustees. Except
for the foregoing circumstances, the Trustees shall continue to hold office and
may appoint successor Trustees.
The Fund'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 Fund's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that the Trustees of the Fund shall promptly call a meeting of the shareholders
for the purpose of voting upon a question of removal of any such Trustee or
Trustees when requested in writing so to do by the record holders of not less
than 10 per centum of the outstanding shares.
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 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 interests
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 Fund's Prospectus and Statement of Additional Information do not contain
all of the information set forth in the Registration Statement that the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by its Rules and Regulations.
<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.
</FN>
</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>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
ASSETS:
Investment in Senior Debt Portfolio, at value
(Note 1A) (identified cost, $806,396,256) $801,958,921
Receivable for Trust shares sold 10,246,004
------------
Total assets $812,204,925
LIABILITIES:
Distributions payable $3,283,792
Payable for Trust shares reacquired 10,031
Payable to affiliates --
Trustees' fees 5,193
Custodian fee 1,000
Accrued expenses 126,084
----------
Total liabilities 3,426,100
------------
NET ASSETS for 80,629,830 shares of beneficial
interest outstanding $808,778,825
============
SOURCES OF NET ASSETS:
Paid-in capital $811,020,583
Accumulated undistributed net realized gain
(loss) on investment transactions
(computed on the basis of identified cost) 2,155,850
Unrealized depreciation of investments (computed
on the basis of identified cost) (4,437,335)
Undistributed net investment income 39,727
------------
Total $808,778,825
============
NET ASSET VALUE PER SHARE (NOTE 6)
($808,778,825 / 80,629,830 shares of beneficial
interest) $10.03
======
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Interest income $ 8,328,788
Facility fees earned 455,096
Income allocated from Portfolio 23,555,684
Expenses allocated from Portfolio (2,969,671)
-----------
Total income $29,369,897
Expenses --
Investment advisory fee (Note 4) $ 877,603
Administration fee (Note 4) 846,202
Compensation of Trustees not members of the
Investment Adviser's/Administrator's
organization 10,384
Custodian fee (Note 4) 74,119
Interest expense 273,901
Legal and accounting services 256,626
Transfer and dividend disbursing agent fees 132,170
Printing and postage 56,029
Registration costs 41,688
Miscellaneous 389,374
-----------
Total expenses 2,958,096
-----------
Net investment income $26,411,801
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) --
From investment transactions, computed on the
basis of identified cost $ 6,993,137
From investment transactions allocated from
Portfolio, computed on the basis of
identified cost 1,055,997
-----------
Net realized gain $ 8,049,134
Change in unrealized appreciation of investments (7,406,535)
-----------
Net realized and unrealized gain on
investments 642,599
-----------
Net increase in net assets from
operations $27,054,400
===========
See notes to financial statements
<PAGE>
STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
For the six months ended June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES --
Purchase of Loan Interests $ (30,002,538)
Proceeds from sales and principal repayments 70,114,416
Net purchases of short-term investments (46,908,338)
Purchases of interests in Senior Debt Portfolio (201,017,951)
Withdrawal of interests in Senior Debt Portfolio 53,021,511
Interest received 6,204,445
Interest paid (373,470)
Operating expenses paid (2,815,364)
--------------
Net cash used for operating activities $(151,777,289)
--------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES --
Proceeds from shares sold $ 218,599,826
Payments for shares reacquired in tender offers (44,106,043)
Cash distributions paid (excluding reinvestments of
distributions of $14,231,913) (11,711,145)
Payments made upon maturity of commercial paper (37,458,370)
Proceeds from issuance of commercial paper 17,055,201
--------------
Net cash provided from financing activities $ 142,379,469
--------------
Net decrease in cash $ (9,397,820)
CASH AT BEGINNING OF PERIOD 9,397,820
--------------
CASH AT END OF PERIOD $ --
==============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FROM OPERATING ACTIVITIES:
Net increase in net assets from operations $ 27,054,400
Decrease in receivable for investments sold 2,937,034
Decrease in interest receivable 4,598,880
Decrease in prepaid expenses 658,407
Decrease in deferred facility fee income (4,243,777)
Decrease in accrued interest expense (123,649)
Decrease in payable to affiliates (8,866)
Increase in accrued expenses and other liabilities 11,494
Net increase in investments (182,661,212)
--------------
Net cash used for operating activities $(151,777,289)
==============
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------- ------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 26,411,801 $ 37,695,894
Net realized gain on investment
transactions and amounts
allocated from Portfolio 8,049,134 6,890,227
Change in unrealized appreciation
(depreciation) of investments (7,406,535) (7,115,207)
------------ ------------
Net increase in net assets
from operations $ 27,054,400 $ 37,470,914
------------ ------------
Distributions to shareholders
(Note 2) --
From net investment income $(26,393,774) $(37,695,894)
In excess of net investment income -- (281,944)
------------ ------------
Total distributions to shareholders $(26,393,774) $(37,977,838)
------------ ------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sales of shares $226,414,842 $ 59,869,598
Net asset value of shares issued
to shareholders in payment of
distributions declared 14,231,913 18,665,751
Cost of shares reacquired in
tender offers (44,116,074) (149,834,588)
------------ ------------
Increase (decrease) in net
assets from Trust share
transactions $196,530,681 $(71,299,239)
------------ ------------
Net increase (decrease) in
net assets $197,191,307 $(71,806,163)
NET ASSETS:
At beginning of period 611,587,518 683,393,681
------------ ------------
At end of period (including
undistributed net investment income
of $39,727 and $21,700, respectively) $808,778,825 $611,587,518
============ ============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 -----------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
------------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value and market value -- $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97 $ 10.00
Beginning of year -------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income <F3> $ 0.3935 $ 0.5966 $ 0.4970 $ 0.5415 $ 0.7500 $ 0.9505
Net realized and unrealized gain (loss) on investments 0.0099 (0.0059) 0.0258 0.0575 (0.0035)<F1> (0.0305)
-------- -------- -------- -------- -------- --------
Total income from investment operations $ 0.4034 $ 0.5907 $ 0.5228 $ 0.5990 $ 0.7465 $ 0.9200
-------- -------- -------- -------- -------- --------
Less Distributions:
From net investment income $(0.3934) $(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 $(0.3934) $(0.6007) $(0.5128) $(0.5390) $(0.7565) $(0.9500)
-------- -------- -------- -------- -------- --------
Net asset value and market value --
End of year $ 10.03 $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN<F2> 4.1% 6.1% 5.3% 6.2% 7.8% 9.6%
======== ======== ======== ======== ======== ========
RATIOS(as a percentage of average daily net assets)<F4>:
Operating expenses<F3> 1.68%<F8> 1.63% 1.55% 1.44% 1.37% 1.43%
Interest expense<F3> 0.08%<F8><F7> 0.21% 0.22% 0.18% 0.16% --
Net investment income 7.84%<F8> 5.95% 4.98% 5.33% 7.42% 9.48%
SUPPLEMENTAL DATA:
Net Assets, End of Year (000 omitted) $808,779 $611,588 $683,393 $1,011,006 $1,694,332 $2,095,692
Portfolio Turnover <F5> 5% 60% 37% 26% 16% 43%
Number of Shares Outstanding at End of Year
(000 omitted) 80,630 61,040 68,165 100,877 170,032 210,285
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
LEVERAGE ANALYSIS:
<CAPTION>
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
June 30, 1995<F6> $ -- $ 9,688,000 62,118,000 $0.1560
<FN>
- ------------
<F1> 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.
<F2> 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.
<F3> Includes the Trust's share of Senior Debt Portfolio's allocated expenses
for the period from February 22, 1995 to June 30, 1995.
<F4> 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:
</TABLE>
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%
<F5> Portfolio Turnover represents the rate of portfolio activity for the period
while the Trust was making investments directly in securities. The
portfolio turnover for the period since the Trust transferred substantially
all of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included elsewhere in this report.
<F6> The Leverage Analysis is for the period January 1, 1995 to February 21,
1995 when the Trust transferred the Commercial Paper program to the
Portfolio.
<F7> Interest expense is for the period from January 1, 1995 to February 21,
1995.
<F8> Computed on an annualized basis.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Prime Rate Reserves (the Trust) is a non-diversified closed-end
management investment company. 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. On February 22, 1995, the Trust transferred
substantially all of its investable assets to the Senior Debt Portfolio (the
Portfolio) in exchange for an interest in the Portfolio. The Trust invests all
of its investable assets in interests in the Portfolio, a New York Trust,
having the same investment objective as the Trust. The value of the Trust's
investment in the Portfolio reflects the Trust's proportionate interest in the
net assets of the Portfolio (84.0% at June 30, 1995). The performance of the
Trust is directly affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the portfolio of investments, are
included elsewhere in this report and should be read in conjunction with the
Trust's financial statements. 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 -- Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Trust's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Trust determined in accordance with generally accepted
accounting principles. Prior to the Trust's investment in the Portfolio, the
Trust held its investments directly. For investments held directly, interest
income from Loan Interests was recorded on the accrual basis at the then-
current interest rate while all other interest income was determined on the
basis of interest accrued, adjusted for amortization of premium or discount
when required for federal income tax purposes. Facility fees received were
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
Trust's taxable income arising from future net realized gain on investments,
if any, to the extent permitted by the Internal Revenue Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Trust of any liability for federal income or
excise tax. Such capital loss carryovers will expire on December 31, 2001.
D. OTHER -- Investment transactions are accounted for
on a trade date basis.
E. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating
to June 30, 1995 and for the period then ended have not been audited by
independent certified public accountants, but in the opinion of the Trust's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necesssary for the fair presentation of the financial statements.
- ------------------------------------------------------------------------------
(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, 1996 and will be based on tax accounting methods which may differ
from amounts determined for financial statement purposes.
- ------------------------------------------------------------------------------
(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 23, 1995 to February 17,
1995; from April 24, 1995 to May 19, 1995, and from July 24, 1995 to August
18, 1995. Transactions in Trust shares were as follows:
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------- ------------
Sales 22,567,021 5,996,851
Issued to shareholders
electing to receive
payments of distributions
in Trust shares 1,418,638 1,868,329
Reacquired in tender offers (4,395,886) (14,990,693)
-------- ---------
Net increase (decrease) 19,589,773 (7,125,513)
========== ==========
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to February 22, 1995 (when the Trust transferred substantially all of
its investable assets to the Portfolio in exchange for an interest in the
Portfolio), the Trust retained Eaton Vance Management (EVM) as its investment
adviser. The investment adviser fee was earned by EVM as compensation for
management and investment advisory services rendered to the Trust. The fee was
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 period from January 1, 1995
to February 21, 1995, 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 average daily gross assets of the
Portfolio attributable to the Trust, is also paid to EVM for managing and
administering business affairs of the Trust. The Portfolio has engaged Boston
Management and Research (BMR), a subsidiary of EVM, to render investment
advisory services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. Except as to Trustees of the
Trust and the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the Trust out
of such investment adviser fee. Investors Bank & Trust Company (IBT), an
affiliate of EVM, serves as custodian of the Trust and the Portfolio. Pursuant
to the respective custodian agreements, IBT receives a fee reduced by credits
which are determined based on the average cash balances the Trust or the
Portfolio maintains with IBT. Certain of the officers and Trustees of the
Trust and Portfolio are officers and directors/trustees of the above
organizations (Note 5).
- ------------------------------------------------------------------------------
(5) 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 3% of the purchase price of shares purchased through
such dealers. EVD also pays additional compensation to each dealer ranging
from 0.10% to 0.30% per annum of the value of Trust shares sold by such dealer
that are outstanding for specified periods of time. 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 six months
ended June 30, 1995 amounted to $104,934.
- ------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
On February 22, 1995, the Trust transferred substantially all of its assets to
the Portfolio in exchange for an interest in the Portfolio. Increases and
decreases in the Trust's investment in the Portfolio for the period from
February 22, 1995 to June 30, 1995 aggregated $201,017,951 and $53,021,511,
respectively. The cost of purchases and the proceeds from principal repayments
and sales of Loan Interests, during the period from January 1, 1995 to February
21, 1995, aggregated $30,002,538 and $67,177,382, respectively.
<PAGE>
SENIOR DEBT PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS - 88.2%
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 2.3%
TRACOR, INC.
$ 1,596,609 Term loan, maturing October 31, 1998 $ 1,596,609
9,950,000 Term loan, maturing February 28, 2001 9,950,000
Technical services to defense companies
VSI INDUSTRIES, INC.
10,502,130 Term loan, maturing March 31, 1997 10,502,130
Aerospace and specialty fasteners, and
plastics industry tooling systems
------------
$ 22,048,739
------------
AIRLINES - 3.3%
NORTHWEST AIRLINES CORPORATION
$12,443,942 Term loan, maturing December 15, 1998 $ 12,443,942
13,949,160 Term loan, maturing December 15, 1999 13,949,160
5,303,423 Term loan, maturing December 15, 2000 5,303,423
Passenger airline carrier
------------
$ 31,696,525
------------
AUTO PARTS - 1.3%
EXIDE CORPORATION
$ 4,987,437 Term loan, maturing September 30, 2001 $ 4,987,437
Automobile batteries
STANADYNE AUTOMOTIVE CORP.
7,500,000 Term loan, maturing December 31, 2001 7,500,000
Auto and light truck fuel injection
equipment
------------
$ 12,487,437
------------
BROADCAST MEDIA - 4.4%
CLASSIC CABLE, INC.
$ 4,000,000 Term loan, maturing March 31, 2003 $ 4,000,000
7,000,000 Term loan, maturing March 31, 2004 7,000,000
Cable television provider
COAXIAL COMMUNICATIONS, INC.
9,966,667 Term loan, maturing December 31, 1999 9,966,667
Midwest cable television provider
ELLIS COMMUNICATIONS, INC.
10,365,333 Term loan, maturing March 31, 2003 10,365,333
Broadcast television operator
NORTHLAND CABLE TELEVISION, INC.
7,500,000 Term loan, maturing March 31, 2002 7,500,000
3,500,000 Term loan, maturing September 30, 2003 3,500,000
Cable television provider
------------
$ 42,332,000
------------
CHEMICALS - 3.0%
FREEDOM CHEMICAL COMPANY
$13,200,000 Term loan, maturing June 30, 2002 $ 13,200,000
Organic dyes, pigments, textile chemicals,
and other specialty chemicals
HARRIS SPECIALTY CHEMICALS, INC.
1,531,067 Term loan, maturing December 31, 1999 1,531,067
5,702,847 Term loan, maturing December 31, 2001 5,702,847
Construction chemicals
INDSPEC CHEMICAL CORP.
8,622,653 Term loan, maturing December 2, 2000 8,622,653
Resorcinol and other specialty chemical
products
------------
$ 29,056,567
------------
COMMERCIAL SERVICES - 3.8%
AVIALL, INC.
$ 5,000,000 Term loan, maturing November 30, 2000 $ 5,000,000
Turbine engine repair and parts
distribution
HOSIERY CORP. OF AMERICA
3,433,544 Term loan, maturing October 17, 1999 3,433,544
4,937,500 Term loan, maturing July 31, 2001 4,937,500
Women's hosiery
IRON MOUNTAIN INFORMATION SERVICES
4,488,750 Term loan, maturing October 31, 2002 4,488,750
Document archive services
PSI ACQUISITION CORPORATION
3,149,177 Term loan, maturing December 31, 1998 3,149,177
5,000,000 Term loan, maturing December 31, 2000 5,000,000
Diversified consulting services
SELECT BEVERAGES, INC.
4,000,000 Term loan, maturing June 30, 2001 4,000,000
6,000,000 Term loan, maturing June 30, 2002 6,000,000
Soft drink bottler
------------
$ 36,008,971
------------
CONGLOMERATES - 1.3%
SPALDING & EVENFLO COMPANIES, INC.
$12,395,833 Term loan, maturing October 13, 2002 $ 12,395,833
Sporting goods and infant products ------------
CONTAINERS - METAL & GLASS - 0.8%
SILGAN CORP.
$ 7,480,213 Term loan, maturing September 15, 1996 $ 7,480,213
Metal and plastic packaging products ------------
CONTAINERS - PAPER - 9.5%
IVEX PACKAGING CORP.
$ 9,631,266 Term loan, maturing December 31, 1999 $ 9,631,266
Plastic and paper packaging products
JEFFERSON SMURFIT CORP.
19,107,296 Term loan, maturing April 30, 2001 19,107,296
22,120,676 Term loan, maturing April 30, 2002 22,120,676
Liner board and other paper board product
STONE CONTAINER CORP.
39,885,000 Term loan, maturing April 1, 2000 39,885,000
Commodity pulp, paper and packaging
products
------------
$ 90,744,238
------------
COSMETICS - 0.8%
MARY KAY COSMETICS, INC.
$ 7,500,000 Term loan, maturing June 6, 2001 $ 7,500,000
Cosmetics, skin and hair care, and perfume
products
ELECTRONICS - INSTRUMENTATION - 3.3%
BERG ELECTRONICS, INC.
$11,850,000 Term loan, maturing March 31, 2001 $ 11,850,000
Electronic connectors
ELSAG BAILEY, INC
12,891,667 Term loan, maturing June 25, 2002 12,891,667
Electronic process control systems
SPERRY MARINE, INC.
6,541,487 Term loan, maturing December 31, 2000 6,541,487
Marine navigational equipment
------------
$ 31,283,154
------------
FOOD WHOLESALERS - 3.4%
CATERAIR HOLDINGS CORP.
$12,496,766 Term loan, maturing December 31, 1996 $ 12,496,766
Food service to airlines
KRAFT FOODSERVICE, INC.
5,000,000 Term loan, maturing March 31, 2002 5,000,000
Food producer and distributor
U.S. FOODSERVICE, INC.
14,679,787 Term loan, maturing June 30, 2000 14,679,787
Food distributor to business
------------
$ 32,176,553
------------
FOODS - 2.3%
SPECIALTY FOODS CORP.
$21,774,760 Term loan, maturing August 31, 1999 $ 21,774,760
Bread and cheese products ------------
LEISURE - 1.4%
SIX FLAGS THEME PARKS, INC.
$12,950,000 Term loan, maturing June 23, 2003 $ 12,950,000
Amusement parks ------------
MANUFACTURING - DIVERSIFIED - 6.2%
INTERLAKE CORP.
$ 8,235,788 Term loan, maturing September 27, 1996 $ 8,235,788
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
INTERNATIONAL WIRE GROUP, INC.
10,000,000 Term loan, maturing September 30, 2002 10,000,000
Manufactures and markets copper wire and
harnesses
INTESYS TECHNOLOGIES, INC.
5,000,000 Term loan, maturing December 31, 2001 5,000,000
Plastic injection molding and fabricated
battery packs
MOSLER, INC.
1,817,964 Term loan, maturing June 1, 1998 1,817,964
Safes, vaults, electronic security systems
THERMADYNE HOLDINGS CORP.
14,459,063 Term loan, maturing February 1, 2001 14,459,063
Cutting and welding products and floor
cleaning equipment
WATERS CORP.
6,218,750 Term loan, maturing November 30, 2001 6,218,750
4,353,125 Term loan, maturing November 30, 2002 4,353,125
Manufacturer of high performance liquid
chromatography instruments
------------
$ 58,767,673
------------
PAPER AND FOREST PRODUCTS - 7.3%
FORT HOWARD CORP.
$15,000,000 Term loan, maturing March 8, 2002 $ 15,000,000
15,000,000 Term loan, maturing December 31, 2002 15,000,000
Sanitary tissue paper products
SDW ACQUISITION CORP.
40,000,000 Term loan, maturing December 20, 2002 40,000,000
Major U.S. producer of coated free paper
------------
$ 70,000,000
------------
PUBLISHING - 4.7%
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
15,367,647 Term loan, maturing December 31, 2001 15,367,647
14,632,353 Term loan, maturing December 31, 2002 14,632,353
Computer publications publisher
------------
$ 45,149,355
------------
PUBLISHING - NEWSPAPERS - 2.6%
AMERICAN MEDIA OPERATIONS, INC.
$ 4,477,500 Term loan, maturing September 30, 2002 $ 4,477,500
Weekly periodical publisher
JOURNAL NEWS, INC.
20,000,000 Term loan, maturing December 31, 2001 20,000,000
Suburban newspaper
------------
$ 24,477,500
------------
RESTAURANTS - 4.0%
AMERICA'S FAVORITE CHICKEN COMPANY
$21,906,050 Term loan, maturing November 5, 1998 $ 21,906,050
Church's Fried Chicken and Popeye's
restaurants
LONG JOHN SILVER'S RESTAURANTS, INC.
16,718,464 Term loan, maturing December 31, 1996 16,718,464
Fish restaurants
------------
$ 38,624,514
------------
RETAIL - SPECIALTY - 3.2%
CAMELOT MUSIC, INC.
$ 4,987,186 Term loan, maturing February 28, 2001 $ 4,987,186
Music stores
GRIFFITH CONSUMERS COMPANY
10,847,222 Term loan, maturing December 31, 2002 10,847,222
Retail petroleum distributor
QVC, INC.
15,000,000 Term loan, maturing January 31, 2004 15,000,000
Home shopping retailer
------------
$ 30,834,408
------------
RETAIL STORES - DRUG STORES - 1.7%
DUANE READE, INC.
$ 5,016,667 Term loan, maturing December 31, 1997 $ 5,016,667
Retail drug stores
THRIFTY PAYLESS, INC.
11,562,509 Term loan, maturing March 31, 2000 11,562,509
Retail drug stores
------------
$ 16,579,176
------------
RETAIL STORES - FOOD CHAINS - 12.5%
DOMINICK'S FINER FOODS, INC.
$ 3,325,574 Term loan, maturing March 31, 2002 $ 3,325,574
8,255,854 Term loan, maturing March 31, 2003 8,255,854
9,255,854 Term loan, maturing September 30, 2003 9,255,854
Supermarket chain in Chicago
GRAND UNION COMPANY
26,628,890 Term loan, maturing June 15, 2002 26,628,890
Supermarket chain in the Northeast
PATHMARK STORES, INC.
34,650,000 Term loan, maturing October 31, 1999 34,650,000
Supermarket chain in mid-Atlantic states
RALPHS GROCERY COMPANY
7,666,667 Term loan, maturing June 15, 2002 7,666,667
7,666,667 Term loan, maturing June 15, 2003 7,666,667
7,666,667 Term loan, maturing June 15, 2004 7,666,667
Third largest supermarket chain in Southern
California
STAR MARKET COMPANY, INC.
10,105,263 Term loan, maturing December 31, 2001 10,105,263
4,421,053 Term loan, maturing December 31, 2002 4,421,053
Supermarket chain in Massachusetts
------------
$119,642,489
------------
STEEL - 1.3%
UCAR INTERNATIONAL, INC.
$ 6,090,848 Term loan, maturing January 31, 2003 $ 6,090,848
3,201,600 Term loan, maturing July 31, 2003 3,201,600
3,201,600 Term loan, maturing January 31, 2004 3,201,600
Processing materials for steel industry
------------
$ 12,494,048
------------
TELECOMMUNICATIONS - 1.6%
PAGING NETWORK, INC.
$15,000,000 Term loan, maturing March 31, 2002 $ 15,000,000
Paging service provider ------------
TEXTILES - 2.2%
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
LONDON FOG INDUSTRIES, INC.
9,582,314 Term loan, maturing May 31, 2002 8,911,552
1,971,219 Term loan, maturing May 31, 2002 * 1,655,824
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
------------
$ 20,567,376
------------
TOTAL LOAN INTERESTS (IDENTIFIED COST,
$843,764,660) $842,071,529
------------
- --------------------------------------------------------------------------------
PREFERRED STOCKS - 0.8%
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
54,895 America's Favorite Chicken Company, 8% $ 4,035,880
Preferred Stock
5,845,956 London Fog Industries, Inc., 17.5% Preferred
Stock* 3,178,220
------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST,
$10,014,473) $ 7,214,100
------------
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 10.5%
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT DESCRIPTION
- --------------------------------------------------------------------------------
$23,000,000 CXC,Inc., 6.25%, 7/3/95 $ 22,992,014
39,347,000 Corporate Receivables Corp., 6.20%, 7/3/95 39,333,447
2,824,000 Melville Corp., 6.23%, 7/3/95 2,823,023
35,373,000 Prudential Funding Corp., 5.97%, 7/6/95 35,343,670
------------
TOTAL SHORT-TERM INVESTMENTS, AT AMORTIZED
COST $100,492,154
------------
TOTAL INVESTMENTS (IDENTIFIED COST,
$954,271,287) - 99.5% $949,777,783
OTHER ASSETS, LESS LIABILITIES - 0.5% 4,809,543
------------
TOTAL NET ASSETS - 100% $954,587,326
============
*Non-income producing security.
Note: The description of the principal business for each security set forth
above is unaudited.
See notes to financial statements
<PAGE>
SENIOR DEBT PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1995
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$954,271,287) $949,777,783
Cash 3,184,749
Receivable for investments sold 398,047
Interest receivable 5,371,248
Deferred organization expenses (Note 1D) 38,948
Prepaid expenses 798,758
------------
Total assets $959,569,533
LIABILITIES:
Deferred facility fee income (Note 1B) $4,869,498
Payable to affiliate -- Custodian fee 8,907
Accrued expenses 103,802
----------
Total liabilities 4,982,207
------------
NET ASSETS applicable to investors' interest in Portfolio $954,587,326
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $959,080,830
Unrealized depreciation of investments (computed
on the basis of identified cost) (4,493,504)
------------
Total $954,587,326
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period from the start of business, February 22, 1995, to June 30, 1995
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Interest income $24,104,032
Facility fees earned 1,323,580
-----------
Total income $25,427,612
Expenses --
Investment adviser fee (Note 2) $2,523,771
Custodian fee (Note 2) 105,144
Interest expense 373,538
Legal and accounting services 14,716
Amortization of organization expenses (Note 1D) 2,282
Miscellaneous 182,242
----------
Total expenses 3,201,693
-----------
Net investment income $22,225,919
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions $1,095,155
Change in unrealized depreciation of investments (1,768,577)
----------
Net realized and unrealized loss on
investments (673,422)
-----------
Net increase in net assets from operations $21,552,497
===========
See notes to financial statements
<PAGE>
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
For the period from the start of business, February 22, 1995, to June 30, 1995
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES --
Purchase of Loan Interests and investments $(401,348,374)
Proceeds from sales and principal repayments 134,261,432
Interest received 25,307,620
Facility fees received 2,569,699
Interest paid (284,791)
Operating expenses paid (2,738,970)
Net increase in short-term investments (53,583,815)
-------------
Net cash used for operating activities $(295,817,199)
-------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES --
Proceeds from capital contributions $ 353,435,714
Payments for capital withdrawals (54,633,766)
-------------
Net cash provided by financing activities $ 298,801,948
-------------
Net increase in cash $ 2,984,749
CASH AT BEGINNING OF PERIOD 200,000
-------------
CASH AT END OF PERIOD $ 3,184,749
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets from operations $ 21,552,497
Increase in receivable for investments sold (245,089)
Decrease in interest receivable 1,504,933
Increase in prepaid expenses (219,142)
Increase in deferred organization expenses (38,948)
Increase in deferred facility fee income 1,164,165
Increase in payable to affiliate -- custodian fee 8,907
Increase in accrued expenses 84,403
Net increase in investments (319,628,925)
-------------
Net cash used for operating activities $(295,817,199)
=============
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period from the start of business, February 22, 1995, to June 30, 1995
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 22,225,919
Net realized gain on investment transactions 1,095,155
Change in unrealized depreciation of investments (1,768,577)
-------------
Net increase in net assets from operations $ 21,552,497
-------------
Capital transactions --
Contributions $987,468,595
Withdrawals (54,633,766)
-------------
Increase in net assets resulting from capital
transactions $932,834,829
-------------
Total increase in net assets $954,387,326
NET ASSETS:
At beginning of period 200,000
-------------
At end of period $954,587,326
============
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
For the period from the start of business,
February 22, 1995, to June 30, 1995
- --------------------------------------------------------------------------------
RATIOS (As a percentage of average daily net assets):
Operating expenses 1.06%+
Interest expense 0.14%+
Net investment income 8.35%+
PORTFOLIO TURNOVER 21%
+Annualized.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Senior Debt Portfolio (the Portfolio) is registered under the Investment Company
Act of 1940 as a non-diversified closed-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on February 22, 1995, with the acquisition of
securities with a value of $583,240,521, including unrealized depreciation of
$2,724,927, in exchange for an interest in the Portfolio by one of the
Portfolio's investors. The following is a summary of significant accounting
policies of the Portfolio. The policies are in conformity with accounting
principles generally accepted in the United States of America.
A. INVESTMENT VALUATION -- The Portfolio's investments in interests in loans
(Loan Interests) are valued at fair value by the Portfolio's investment adviser,
Boston Management and Research, 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 Portfolio'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 Interest and interests in similar loans and the market environment and
investor attitudes towards the Loan Interest 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 Portfolio 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 Portfolio 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.
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. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deductions or credit.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is earned by Boston Management and Research (BMR) as
compensation for investment advisory services rendered to the Portfolio. The fee
is computed at the monthly rate of 19/240 of 1% (0.95% per annum) of the
Portfolio's average daily gross assets up to and including $1 billion and at
reduced rates as daily gross assets exceed that level. For the period from the
start of business, February 22, 1995, to June 30, 1995, the effective annual
rate, based on average daily gross assets, was 0.95% (annualized) and amounted
to $2,523,771. Except as to Trustees of the Portfolio who are not members of
BMR's organization, officers and Trustees receive remuneration for their
services to the Portfolio out of such investment advisory fee. Investors Bank &
Trust Company (IBT), an affiliate of BMR, serves as custodian of the Portfolio.
Pursuant to the custodian agreement, IBT receives a fee reduced by credits which
are determined based on average daily cash balances the Portfolio maintains with
IBT. Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Advisor may elect to defer receipt of all
or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the period from the start of business,
February 22, 1995, to June 30, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
The Portfolio 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 period from the start
of business, February 22, 1995, to June 30, 1995, aggregated $401,348,374 and
$134,506,521, respectively.
- --------------------------------------------------------------------------------
(4) SHORT-TERM DEBT AND CREDIT AGREEMENTS
The Portfolio participates with other funds and portfolios managed by BMR and
Eaton Vance Management (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 Portfolio solely to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Interest is charged to each portfolio 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 and
portfolios at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees under this agreement during the period.
The Portfolio has also entered into a revolving credit agreement, that will
allow the Portfolio to borrow an additional $245 million to support the issuance
of commercial paper and to permit the Portfolio 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 $210,512 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 June 30, 1995, the
Portfolio had no commercial paper outstanding.
- ------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost and unrealized appreciation/depreciation in the value of investments
owned at June 30, 1995, as computed on a federal income tax basis, were as
follows:
Aggregate cost $954,271,287
============
Gross unrealized depreciation $ 4,493,504
Gross unrealized appreciation --
-----------
Net unrealized depreciation $ 4,493,504
============
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Investors of
Senior Debt Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Senior Debt Portfolio as of June 30, 1995, and
the related statement of operations, the statement of cash flows, the statement
of changes in net assets and the supplementary data for the period from the
start of business, February 22, 1995, to June 30, 1995 (all expressed in United
States dollars). These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data 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
statements and supplementary data 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 June 30, 1995 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 audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Senior Debt Portfolio as of
June 30, 1995, the results of its operations and its cash flows, the changes in
its net assets, and its supplementary data for the period from the start of
business, February 22, 1995, to June 30, 1995, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1A, the financial statements include Loan Interests and
certain other securities held by Senior Debt Portfolio valued at $849,285,629
(89% of net assets of the Portfolio), which values are fair values determined by
the Portfolio's investment adviser 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 Portfolio's investment
adviser 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
Grand Cayman, Cayman Islands
British West Indies
August 11, 1995
<PAGE>
APPENDIX A
[LOGO]
EATON VANCE
MUTUAL FUNDS
* EATON VANCE
PRIME RATE RESERVES
* EV CLASSIC SENIOR
FLOATING-RATE FUND
[Photo of a fountain pen, pair of eyeglasses
and a laptop computer resting on the financial
pages of a newspaper.]
<PAGE>
THE EATON VANCE SENIOR FLOATING-RATE FUNDS
- ------------------------ - EATON VANCE PRIME RATE RESERVES
EATON VANCE NOW OFFERS
TWO FUNDS INVESTING IN A - EATON CLASSIC SENIOR FLOATING-RATE FUND
PORTFOLIO OF SENIOR
FLOATING-RATE LOANS... Using the patented Hub & Spoke Registration Mark
structure, Eaton Vance is able to offer a wide
variety of investors efficient access to a single
portfolio of senior floating-rate loans made by
major U.S. banks and other financial
institutions to large corporate customers.
DESIGNED FOR INVESTORS SEEKING...
- ------------------------
OBJECTIVE: TO PROVIDE - HIGH CURRENT MONTHLY INCOME
AS HIGH A LEVEL OF
CURRENT INCOME AS Each Fund's goal is to provide investors with
IS CONSISTENT WITH an effective (compound) yield that maintains a
CAPITAL PRESERVATION... favorable spread over other short-term
alternatives. The Portfolio invests primarily
in floating-rate loans, with rates that keep a
fixed spread over widely accepted base rates,
such as the London Interbank Offered Rate or
the U.S. average prime rate. Please see a Fund
prospectus and page 8 of this brochure for
more information.
- CAPITAL PRESERVATION
A portfolio of senior, floating-rate loans can
help protect an investor's purchasing power
against the eroding effects of inflation.
Higher inflation rates usually result in
higher interest rates. Unlike investments that
pay a fixed income, the Portfolio's
floating-rate loans generate income that
resets as interest rates change.
- RELATIVELY STABLE NET ASSET VALUE
The Portfolio invests primarily in senior,
floating-rate loans made to corporations,
whose interest rates are adjusted regularly to
move with current rates. While the Funds' net
asset values will fluctuate, this investment
strategy is expected to minimize such
fluctuations in response to changes in
interest rates. However, a default in a loan
in which the Portfolio owns an interest, a
material deterioration of a borrower's
creditworthiness, or a sudden or extreme
increase in prevailing interest rates may
cause a decline in each Fund's share value.
- 2 -
<PAGE>
- ----------------------
TENDER OFFERS ARE MADE - LIQUIDITY THROUGH TENDER OFFERS
AT NET ASSET VALUE...
To accommodate shareholders' liquidity needs,
the Funds' Trustees intend to consider
quarterly the making of a tender offer for all
or a portion of outstanding shares at net
asset value. Although there can be no
assurance that the Funds will tender for their
shares every quarter, such offers have been
made in each quarter since Eaton Vance Prime
Rate Reserves began operations on August 4,
1989. EV Classic Senior Floating-Rate Fund,
introduced in 1995, will follow the same
[PHOTO] tender offer procedures.*
- NO INITIAL SALES CHARGE
Every dollar invested starts earning dividends
as soon as the account is opened. The minimum
initial investment in Eaton Vance Prime Rate
Reserves or EV Classic Senior Floating-Rate
Fund is only $5,000 ($2,000 for Individual
Retirement Accounts). Additions to the account
($50 or more) may be made at any time.*
Eaton Vance Prime Rate Reserves and EV Classic
Senior Floating-Rate Fund are continuously
offered, closed-end funds, registered under the
Investment Company Act of 1940. Using the Hub
("Portfolio") & Spoke ("Funds") structure, both
invest in the Senior Debt Portfolio, a separate
investment company with an identical investment
objective to that of the Funds. The Portfolio
invests primarily in "loan interests" - portions
of senior, floating-rate loans made by U.S.
banks and other financial institutions to large
corporate customers.
* Shares repurchased by the Fund may be subject
to an early withdrawal charge (please see a
prospectus for details).
----------------------------------------------
Fund shares are not insured by the FDIC and are
not deposits or other obligations of, or
guaranteed by, any depository institution.
Shares are subject to investment risks, including
possible loss of principal invested.
----------------------------------------------
- 3 -
<PAGE>
COMMONLY ASKED QUESTIONS
ABOUT THE FUNDS' STRUCTURE
- -------------------- WHY AREN'T THE FUNDS 'OPEN-END' FUNDS?
'CONTINUOUSLY
OFFERED, CLOSED- Loans, in which the Funds' Portfolio invests, are not
END' FUNDS... considered "liquid securities," and an open-end fund,
by law, must invest at least 85 percent of its assets
in liquid securities. The Funds are designed,
therefore, as continuously offered, closed-end funds.
HOW DOES A CONTINUOUSLY OFFERED,
CLOSED-END FUND OPERATE?
[Photo] "Continuously offered" means that shares of either
Fund may be purchased at 100 percent of their net
asset value on any business day. Because the Funds
are "closed-end," however, withdrawals are handled
differently than in a traditional, open-end fund.
Shares may be redeemed quarterly, by means of a
"tender offer," in which the Funds repurchase shares
from shareholders at 100 percent of net asset value.
(Shares repurchased by the Funds may be subject to an
early withdrawal charge. See a prospectus for details.)
WHY DON'T FUND SHARES TRADE ON A NATIONAL
EXCHANGE, LIKE OTHER CLOSED-END FUNDS?
Eaton Vance believes that the Funds better meet
shareholders' needs for liquidity by having
non-listed shares. These can be redeemed at 100 percent
of net asset value on a quarterly basis, rather than
listed shares that may be sold daily, but at a
fluctuating discount or premium to net asset value.
- -------------------- HOW ARE TENDER OFFERS MADE?
Tender offers
provide liquidity... The Trustees intend to consider quarterly the making
of a tender offer for all or a portion of outstanding
shares at net asset value. Although there can be no
assurance that the Funds will tender for their shares
every quarter, it has been and continues to be the
policy of the Trustees to do so.
Eaton Vance Prime Rate Reserves began operations on
August 4, 1989. Tender offers have been made in every
quarter since that Fund's inception, and all shares
tendered by shareholders were redeemed.
- 4 -
<PAGE>
HOW DO THE FUNDS MEET TENDER OFFERS WITHOUT
DISADVANTAGING EXISTING SHAREHOLDERS?
The Portfolio has five sources of liquidity which
generate cash to meet redemptions:
- Ordinary cash on hand
- Scheduled quarterly interest income on loans
- Scheduled quarterly principal payments on loans
- Contractually required principal prepayments on
loans
- A borrowing program that allows the Portfolio to
issue over $100 million of short-term,
investment-grade commercial paper.
Therefore, the Portfolio can remain fully invested on a
consistent basis, despite quarterly tender offers.
ARE THERE EXCHANGE OPTIONS?
In the case of Eaton Vance Prime Rate Reserves,
shareholders may elect to exchange tendered shares for
shares of certain EV Marathon Funds. An exchange option
may be available for EV Classic Senior Floating-Rate
Fund. Please ask your financial adviser or see a
prospectus for more information.
CAN THE FUNDS BE USED FOR QUALIFIED RETIREMENT PLANS?
Shares of both Funds may be purchased in connection
with pension and profit-sharing plans, Individual
Retirement Accounts (IRAs), and 403(b) retirement
plans. Please see a prospectus for more information
about any of these services.
WHAT ARE THE FUNDS' MINIMUM INVESTMENTS?
- The minimum initial investment in either Fund is
$5,000 ($2,000 for IRAs). Shareholders can add to
their accounts on any business day, in amounts of $50
or more.
[Photo]
- Dividends are paid monthly and may be taken in cash
or reinvested in additional shares at net asset value.
- The Funds also offer bank draft investing, where
regular additional investments may be made directly
from a bank checking account (minimum $50 per month
or quarter).
- 5 -
<PAGE>
COMMERCIAL LOANS ARE AN IMPORTANT
PART OF THE U.S. DEBT MARKETS
- -----------------------
LOANS REPRESENT A The $5.1 trillion U.S. debt market is composed
$300 BILLION MARKET... of several types of instruments, including:
Treasury obligations, corporate debt and
mortgages. Loans made by banks to commercial
and industrial borrowers represent a $300
billion slice of this market.
----------------------------------------------
<TABLE>
THE U.S. DEBT MARKET ($ billions)
<CAPTION>
Instrument Percentages Amount
---------- ----------- ------
<S> <C> <C>
U.S. Treasuries 44% $2,250
Corporate bonds 29% $1,480
Mortgages 21% $1,100
Senior secured loans 6% $ 300
<FN>
Data as of 9/30/94. Sources: Bloomberg, L.P.,
and Eaton Vance Management.
</TABLE>
----------------------------------------------
- ----------------------- According to Standard & Poor's, there are fewer
BANK LOANS ARE A WIDELY than 800 companies in the U.S. that issue
USED METHOD OF RAISING investment-grade bonds. These usually issue
CORPORATE CASH... short-term commercial paper as well. Generally,
high-grade issuers have higher creditworthiness
than high-yield issuers, and their obligations
have a lower risk of default. Thousands of
other U.S. companies - which have unrated or
non-investment-grade bonds - turn to the banks
for loans.
----------------------------------------------
<TABLE>
HOW CORPORATIONS RAISE CAPITAL
<CAPTION>
High-grade High-yield
---------- ----------
<S> <C>
Senior
Commercial floating-rate
paper loans
High-grade High-yield
bonds bonds
Equities Equities
</TABLE>
----------------------------------------------
Over the past five years, commercial banks, in
turn, have increasingly permitted large,
sophisticated institutional investors, such as
Eaton Vance's Senior Debt Portfolio, to acquire
interests in loans banks have made. Selling
pieces of loans allows banks to originate new
loans, and to maintain a more diversified loan
portfolio. Today, the making and selling of
large corporate loans can be compared to the
underwriting and syndication of bonds, despite
the sharp differences between loans and bonds.
- 6 -
<PAGE>
FLOATING-RATE LOANS MAY OFFER
MANY ADVANTAGES TO INVESTORS
<TABLE>
-----------------------------------------------------------------------
HOW FLOATING-RATE LOANS DIFFER FROM FIXED-RATE BONDS
FLOATING-RATE LOANS FIXED-RATE BONDS
------------------- ----------------
<S> <C> <C>
Claim on assets Senior Subordinated
Collateral Secured Unsecured or secured
Rate paid Floating Fixed
Principal repayment Amortizing At call or maturity
-----------------------------------------------------------------------
</TABLE>
- ------------------- BORROWERS SIGN BINDING CONTRACTS CALLED
LOANS ARE SENIOR... CREDIT AGREEMENTS
Loans are typically the most senior source of
capital in a borrower's capital structure. By a
contract, called the "Credit Agreement," senior
loans have the highest priority of claim on a
borrower's cash flow. Although a borrower may
have other debt obligations, these may be
junior, unsecured and/or subordinated debts. In
addition, a Credit Agreement may contain legal
covenants governing how the borrower must
operate. Tough covenants can include
prohibitions on additional debt, mergers, or
sales of assets.
- ------------------- BORROWERS PLEDGE COLLATERAL
...SECURED...
<TABLE>
-------------------------------------------------------------------------------------
<CAPTION>
LOAN COLLATERAL CAN INCLUDE...
<S> <C> <C> <C>
Working capital Tangible fixed Intangible Security
assets... assets... assets... interests...
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
...Accounts ...Real property ...Trademarks ...Stock in
receivable and buildings and and patents company and
inventory equipment subsidiaries
-------------------------------------------------------------------------------------
</TABLE>
Loans also typically have all of the borrower's
assets pledged as collateral to secure the
debt, an additional incentive for the borrower
to meet its obligations. Nonetheless, a decline
in the value of collateral could cause a loan
to be substantially unsecured. When collateral
consists of stock alone, the Portfolio will be
subject to the risk of decline in the stock's
value, and to other risks associated with
investments in equity securities. (The
Portfolio can invest up to 20 percent of its
assets in other short-term debt obligations and
unsecured loans.)
-7-
<PAGE>
- ----------------------- LOAN RATES ADJUST AS INTEREST RATES CHANGE
...FLOATING-RATE...
The value of floating-rate loans is generally
not affected by changes in interest rates.
Under a Credit Agreement, the corporate
borrower agrees to borrow at a rate that
"floats," keeping a fixed spread over a widely
accepted benchmark, and fluctuating as the base
rate moves. Two frequently used base rates are:
- The LONDON INTERBANK OFFERED RATE (LIBOR),
used by banks worldwide as a base for loans
to large commercial and industrial companies.
Most of the Portfolio's loans have interest
rates based on LIBOR.
- The PRIME RATE, the rate U.S. banks use as a
base for a wide range of loans to individuals
and mid-size and small businesses. This base
rate is infrequently used for loans to
multi-million-dollar corporations.
LIBOR is generally quoted for 30-, 60- and
90-day periods, whereas the prime rate is
quoted for an overnight period.
- ----------------------- REPAYMENT FEATURE REDUCES INVESTOR'S CREDIT
...AND AMORTIZING... EXPOSURE
Loans generally require that principal be
repaid over the life of the loan. The
self-amortizing schedule of loans is an
important reason that a loan investor quickly
builds a growing cash balance. By comparison,
bonds have subordinated claims on a borrower's
cash flow, and the principal is only repaid at
or near maturity. The cash flow provided by the
loans reduces the overall level of credit
exposure to the borrower and allows the
investor to reinvest the cash in another loan.
- ----------------------- SECONDARY MARKET FOR LOANS HAS GROWN RAPIDLY
LIKE BONDS, LOANS Another important element of liquidity is the
ARE NOW TRADED IN fast-growing secondary market trading of loans
THE SECONDARY MARKET... among commercial banks, investment banks, loan
funds and other institutional investors.
Trading volume in 1994 exceeded $20 billion,
according to Loan Pricing Corporation.
All of the largest commercial banks and many of
the largest investment banks have fully staffed
trading desks focused exclusively on loans.
These include such banks as Chase Manhattan,
Chemical Bank, Bankers Trust and Citibank, and
such investment banks as Goldman Sachs, Lehman
Bros., Merrill Lynch and C.S. First Boston.
-8-
<PAGE>
MANAGING RISKS
Like any investment, floating-
rate loans do carry specific [PHOTO]
risks. The features of floating-
rate loans and Eaton Vance's
active management are designed to
minimize credit, interest rate and
foreign exchange risks.
- -------------------
CREDIT RISK. . . 'DEFAULT' DOESN'T ALWAYS RESULT IN A LOSS
When difficulties arise in a borrower's
operations, provisions of the Credit Agreement may
be broken, commonly called a "default." A default
often can be remedied quickly - without loss of
principal or delay of interest payments - or may
lead to a worsened situation for a borrower. If a
borrower defaults on the Credit Agreement governing
its loans, usually it also has defaulted on its
bonds.The frequency of defaults relates to the
creditworthiness of the borrower and to the general
level of economic activity - in recessions, the
frequency of defaults rises across all parts of the
capital market.
WHAT'S MORE, COLLATERAL CAN REDUCE SEVERITY OF
LOSSES
Once a situation has worsened to the
point at which the lender, such as the Portfolio,
feels the loan's value is impaired or has not been
paid as agreed, a loss is recognized. The severity
of the loss is generally lower for loans than
bonds, because loans are senior to bonds and are
normally secured by collateral.
- -----------------------
INTEREST RATE RISK. . . 'FLOATING RATES' MEAN MINIMAL INTEREST RATE RISK
Unlike fixed-rate bonds, the value of
floating-rate loans is generally not affected by
changes in interest rates because loans' rates
reset regularly to maintain a fixed spread over
LIBOR or another specific base rate. The interest
rate sensitivity of the Portfolio is normally less
than 60 days. In contrast, while long-term bond
funds may offer higher yields than a portfolio of
floating-rate loans, they generally measure their
duration in terms of years.
- ------------------------
FOREIGN EXCHANGE RISK. . U.S. DOLLAR-DENOMINATED MEANS NO FOREIGN EXCHANGE
RISK
By investing exclusively in dollar-denominated
debt obligations of U.S.-based companies, an
investor in loans can be fully insulated from moves
in the foreign currency market. Although permitted
by prospectus to invest up to 5 percent of its
asset in foreign loans, the Portfolio's management
has not done so, and does not anticipate buying
foreign loans in the foreseeable future.
-9-
<PAGE>
THE EATON VANCE PORTFOLIO
- ---------------------------
BOTH EATON VANCE FUNDS To manage the Senior Debt Portfolio, Eaton
INVEST IN THE Vance has established a clearly articulated
SENIOR DEBT PORTFOLIO. . . process for investing in loans, working down
from a $300 billion universe of loans to an
approximately $600 million portfolio (as
of December 31, 1994).
<TABLE>
<CAPTION>
------------------------------------------------------------------------
EATON VANCE SCREENS, ANALYZES, SELECTS AND CONSTRUCTS
<S> <C>
SCREEN . . . Loan universe: $300 billion
REVIEW AND EXCLUDE
ANALYZE . . . Generally acceptable: $150 billion
FUNDAMENTAL RESEARCH
SELECT . . . Meets criteria: $6 billion
RISK/RETURN ASSESSMENT
CONSTRUCT . . . Purchase: $0.6 billion
BROAD SPECTRUM OF CREDITS
------------------------------------------------------------------------
</TABLE>
- -------------------------
PORTFOLIO EXAMPLES . . . The following are examples of borrowers whose
loans were in the Senior Debt Portfolio as of
January 31, 1995, including percentage of the
Portfolio's total net assets that each represented.
- American Standard, Inc. - One of the largest
manufacturers of plumbing products and of air
conditioning systems, with American Standard and
Trane brand names (4.0%).
- Formica Corp. - A major manufacturer of
laminates, under the Formica brand name (2.2%).
- Jerrico, Inc. - Operates the popular-priced
Long John Silver's seafood restaurants (2.8%).
- Pathmark Stores - A leading supermarket chain
in the metropolitan New York and Philadelphia
areas (5.6%).
- Silgan Corp. - Primary food packager for
companies such as DelMonte and Nestle (1.2%).
- Spalding and Evenflo Companies - Manufacturer
of Spalding sports equipment and Evenflo baby and
juvenile products (2.0%).
- Specialty Foods Corp. - Produces and
distributes food products such as Mother's
cookies, Stella bread products and Guggenheimer
pickles (1.8%).
- Stone Container Corp. - An industry leader in
the production of container board, corrugated
containers, kraft paper and paper bags (5.1%).
PLEASE SEE YOUR
FINANCIAL ADVISER
FOR INFORMATION ON
THE PORTFOLIO'S
CURRENT HOLDINGS.
- 10 -
<PAGE>
WHY INVEST WITH EATON VANCE?
- ----------------------
A BOSTON TRADITION Eaton Vance Management and its predecessor companies
SINCE 1924... - Eaton & Howard, and Vance Sanders - have been
managing assets ofindividuals and institutions
since 1924. Eaton Vance currently manages over $15
billion in assets for more than 150 mutual funds,
whose investment objectives range from tax free
and taxable income to maximum capital
appreciation, as well as individual and
institutional accounts for retirement plans,
pension funds and endowments.
As the investment picture has changed over the past
seven decades, Eaton Vance has remained focused on
fundamental research.
- ---------------------- Eaton Vance is one of the pioneers in
A SUCCESSFUL TRACK professionally managing portfolios of senior,
RECORD IN LOANS SINCE floating-rate loans, with over $600 million under
1989. . . management at December 31, 1994.
[Photo]
Jeffrey S. Garner
Portfolio Manager
The tradition of fundamental research led the
firm to establish and build one of the country's
largest teams of investment professionals
exclusively dedicated to the management of senior,
floating-rate loans. Eaton Vance's unique team
includes former commercial bank lending officers and
investment bank corporate finance officers.
Complementing their years of experience, the Senior
Debt Portfolio also uses the services of leading
law and accounting firms in the research, analysis
and management process.
- ----------------------
ASK YOUR INVESTMENT FOR MORE COMPLETE INFORMATION ABOUT EATON VANCE
ADVISER IF EATON PRIME RATE RESERVES, EV CLASSIC SENIOR
VANCE'S SENIOR FLOATING-RATE FUND, OR ANY OTHER EATON VANCE FUND,
FLOATING-RATE FUNDS INCLUDING DISTRIBUTION PLANS, CHARGES AND EXPENSES,
ARE RIGHT FOR YOU! PLEASE WRITE OR CALL YOUR FINANCIAL ADVISER FOR A
PROSPECTUS. READ THE PROSPECTUS(ES) CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
-11-
<PAGE>
[LOGO] Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
30903 - 2/95 SF/PRCB
[LOGO]
EATON VANCE
MUTUAL FUNDS
EATON VANCE
PRIME RATE
RESERVES
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 28, 1995
EATON VANCE
PRIME RATE RESERVES
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF SENIOR DEBT PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EATON VANCE PRIME RATE RESERVES
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
Mayer, Brown & Platt, 787 Seventh Avenue, New York, NY 10019
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
BANKING COUNSEL
Mayer, Brown & Platt, 787 Seventh Avenue, New York, NY 10019
PRSAI
