<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1996
1933 ACT FILE NO. 33-63623
1940 ACT FILE NO. 811-05808
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 15 [X]
(CHECK APPROPRIATE BOX OR BOXES)
EATON VANCE PRIME RATE RESERVES
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
-----------------------------------------------------------------
H. DAY BRIGHAM, JR.
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
If any of the securities being registered on this Form will be offered on
a delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [X]
It is proposed that this filing will become effective when declared
effective pursuant to Section 8(c) of the Securities Act of 1933.
Senior Debt Portfolio has also executed this Registration Statement.
==============================================================================
<PAGE>
EATON VANCE PRIME RATE RESERVES
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-2
--------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ------------------
1. ............. Outside Front Cover Cover Page
2. ............. Inside Front and Outside Cover Pages
Back Cover Page
3. ............. Fee Table and Synopsis Shareholder and Fund Expenses
4. ............. Financial Highlights The Fund's Financial
Highlights
5. ............. Plan of Distribution How to Buy Fund Shares; The
Lifetime Investing Account/
Distribution Options
6. ............. Selling Shareholders Not Applicable
7. ............. Use of Proceeds Valuing Fund Shares;
Investment Policies and
Risks
8. ............. General Description of the Organization of the Fund and
Registrant the Portfolio
9. ............. Management Management of the Fund and the
Portfolio
10. ............. Capital Stock, Long-Term Organization of the Fund and
Debt, and Other the Portfolio; Valuing Fund
Securities Shares; Management of the
Fund and the Portfolio
11. ............. Defaults and Arrears on Not Applicable
Senior Securities
12. ............. Legal Proceedings How the Fund and the Portfolio
Invest their Assets
13. ............. Table of Contents of the Table of Contents of the
Statement of Additional Statement of Additional
Information Information
PART B STATEMENT OF
ITEM NO. ITEM CAPTION ADDITIONAL INFORMATION CAPTION
- -------- ------------ ------------------------------
14. ............. Cover Page Cover Page
15. ............. Table of Contents Table of Contents
16. ............. General Information and General Information and
History History; Other Information
17. ............. Investment Objective and Additional Information about
Policies Investment Policies;
Investment Restrictions
18. ............. Management Trustees and Officers;
Investment Advisory and
Other Services
19. ............. Control Persons and Control Persons and Principal
Principal Holders of Holders of Shares
Securities
20. ............. Investment Advisory and Investment Advisory and Other
Other Services Services
21. ............. Brokerage Allocation and Portfolio Trading
Other Practices
22. ............. Tax Status Taxes
23. ............. Financial Statements Financial Statements
<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 May 1, 1996, 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 by the Fund $4,003,000,000
- ----------
(1)The shares are offered on a best efforts basis at a price equal to the net
asset value, which, as of April , 1996, was $ 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 MAY 1, 1996
- -------------
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
- -------------------------------------------------------------------------------
PAGE
Shareholder and Fund Expenses ........................................ 3
The Fund's Financial Highlights ...................................... 4
The Fund's Investment Objective ...................................... 6
Investment Policies and Risks ........................................ 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 ............................................... 17
Tender Offers to Purchase Shares ..................................... 19
Early Withdrawal ..................................................... 20
Reports to Shareholders .............................................. 22
The Lifetime Investing Account/Distribution Options .................. 22
Eaton Vance Shareholder Services ..................................... 23
Distribution and Taxes ............................................... 23
Table of Contents of the Statement of Additional Information ......... 25
- -------------------------------------------------------------------------------
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------
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) 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 0.94%
Interest Payments on Borrowed Funds 0.16
Other Expenses (including administration fees of .25%) 0.51
-----
Total Annual Expenses 1.61%
====
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
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: $46 $71 $88 $191
An investor would pay the following
expenses on the same investment,
assuming (a) 5% annual return and
(b) no tenders: $16 $51 $88 $191
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear directly or indirectly by investing in the Fund. Information for
the Fund is based on its expenses for the most recent fiscal year.
The Fund invests exclusively in the Portfolio. The 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 the Fund would incur if
the Fund retained 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 Example should not be considered a representation of past or future expenses
since future expenses may be greater or less than those shown.
Federal regulations require the Example to assume a 5% annual return, but actual
return will vary. For further information regarding the expenses of 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".
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").
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 were approximately the same as its average daily net assets for the fiscal
year ended December 31, 1995.
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".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual reports
to shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989(a)
---- ---- ---- ---- ---- ---- ----
<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(d) $ 0.7694 $ 0.5966 $ 0.4970 $ 0.5415 $ 0.7500 $ 0.9505 $ 0.3535
Net realized and unrealized gain
(loss) on investments 0.0112 (0.0059) 0.0258 0.0575 (0.0035)(b) (0.0305) --
-------- -------- -------- -------- -------- -------- ---------
Total income from investment
operations $ 0.7806 $ 0.5907 $ 0.5228 $ 0.5990 $ 0.7465 $ 0.9200 $ 0.3535
-------- -------- -------- -------- -------- -------- ---------
Less Distributions:
From net investment income $(0.7695) $(0.5966) $(0.5110) $(0.5296) $(0.7522) $(0.9500) $(0.3535)
In excess of net investment income(j) -- (0.0041) -- -- -- -- --
From net realized gain on investments (0.0211) -- -- (0.0094) (0.0043) -- --
In excess of net realized gain on
investment transactions(j) -- -- (0.0018) -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Total distributions $(0.7906) $(0.6007) $(0.5128) $(0.5390) $(0.7565) $(0.9500) $(0.3535)
-------- -------- -------- -------- -------- -------- --------
Net asset value and market value--
End of year $ 10.01 $ 10.02 $ 10.03 $ 10.02 $ 9.96 $ 9.97 $ 10.00
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(c) 8.1% 6.1% 5.3% 6.2% 7.8% 9.6% 3.6%
RATIOS (as a percentage of average
daily net assets)(e):
Operating expenses(d) 1.58% 1.63% 1.55% 1.44% 1.37% 1.43% 1.30%(i)
Interest expense(d) 0.03%(h) 0.21% 0.22% 0.18% 0.16% -- --
Net investment income 7.57% 5.95% 4.98% 5.33% 7.42% 9.48% 8.52%(i)
SUPPLEMENTAL DATA:
Net Assets, End of Year
(000 omitted) $1,092,186 $611,588 $683,393 $1,011,006 $1,694,332 $2,095,692 $1,751,363
Portfolio turnover(f) 5% 60% 37% 26% 16% 43% 18%
Number of Shares Outstanding at
End of Year (000 omitted) 109,108 61,040 68,165 100,877 170,032 210,285 175,136
</TABLE>
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------
LEVERAGE ANALYSIS:
Borrowings by the Fund from issuance of commercial paper:
<TABLE>
<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
December 31, 1995(g) $ -- $ 9,688,000 62,118,000 $0.1560
</TABLE>
(a) For the period from the start of business, August 4, 1989, to December 31,
1989.
(b) 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.
(c) 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.
(d) Includes the Fund's share of the Portfolio's allocated expenses for the
period from February 22, 1995 to December 31, 1995.
(e) 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:
YEAR ENDED DECEMBER 31,
----------------------------
1991 1989(A)
---- -------
RATIOS (as a percentage of average daily net assets):
Operating expenses 1.40% 1.34%(i)
Interest expense 0.16% --
Net investment income 7.39% 8.48%(i)
(f) 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 annual report to shareholders.
(g) 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.
(h) Interest expense is for the period from January 1, 1995 to February 21,
1995.
(i) Computed on an annualized basis.
(j) 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.
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.
<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. This investment structure is commonly referred to as a
"master/feeder" structure. 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.
INVESTMENT POLICIES AND RISKS
- ------------------------------------------------------------------------------
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 April , 1996, the Portfolio had a dollar weighted average period to
adjustment of approximately 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. The Portfolio did not have any
commercial paper outstanding during the fiscal year ended December 31, 1995. 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 generally 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,
approximately 1% of the Portfolio's assets were invested in Loan Interests of
non-U.S. Borrowers. The Portfolio has no current intention to invest more than
5% of its net assets in such Loan Interests.
INTEREST RATE SWAPS. 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 1996 or thereafter.
From time to time, the Fund may quote a current and/or effective yield based on
a specific one-month period. The Fund seeks to provide an effective yield that
is higher than short-term instrument alternatives. 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 minimis 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 mutual
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 "Investment Policies and Risks". 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 the potential for 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 mutual
funds which have large or institutional investors.
Until 1992, 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 than 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 period from January 1, 1995 to February 21, 1995. The
Portfolio paid BMR advisory fees equivalent to 0.94% of the Portfolio's average
daily gross assets for the period from the start of business, February 22, 1995,
to the fiscal year ended December 31, 1995.
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 over $16 billion, of which approximately $14
billion is in investment companies, including approximately $2 billion in the
Portfolio. Eaton Vance, through its subsidiaries and affiliates, engages
primarily in investment management, administration and marketing activities.
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, 1995, 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, Presidents'
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.
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 April , 1996, was $ . 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. For the fiscal year ended December 31, 1995, EVD had
made compensation payments to Authorized Firms in the aggregate amount of
approximately $72,694,908 since inception of the Fund. (Prior to February 22,
1995, the rate of compensation was different.) 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 $500 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 on the day of their receipt or as soon thereafter as possible. The
number of Fund shares to be issued in exchange for securities will be the
aggregate proceeds from the sale of such securities divided by the applicable
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. 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 $ billion,
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
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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.
During the Fund's fiscal year ended December 31, 1995, EVD received $365,300 in
early withdrawal charges.
EXCHANGES: The Fund makes available to tendering shareholders the privilege of
exchanging Fund shares at net asset value for shares of one or more open-end
investment companies in the Eaton Vance Marathon Group of Funds (including Class
I shares of any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market
Fund, which are distributed subject to a contingent deferred sales charge. 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. 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 continue to be subject to such charge in the event of a
redemption of the shares acquired in the exchange. Shares of other funds in the
Eaton Vance Marathon Group of Funds and shares of Eaton Vance Money Market Fund
may be exchanged for Fund shares on the basis of the net asset value per share
of each fund at the time of the exchange, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
For purposes of calculating the early withdrawal charge or contingent deferred
sales charge applicable to shares acquired in an exchange, the early withdrawal
charge or the contingent deferred sales charge schedule applicable to the shares
at the time of purchase will apply and, the purchase of shares is deemed to have
occurred at the time of the original purchase of the exchanged shares. For the
early withdrawal charge or contingent deferred sales charge schedule applicable
to the Fund, Class I shares of any EV Marathon Limited Maturity Fund and EV
Marathon Strategic Income Fund, see the schedule above. The contingent deferred
sales charge schedule applicable to the other funds in the Eaton Vance Marathon
Group of Funds is 5%, 5%, 4%, 3%, 2%, or 1% in the event of a redemption
occurring in the first, second, third, fourth, fifth or sixth year,
respectively, after the original share purchase.
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.
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 $500 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 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, local or other 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 ....................... 8
Investment Advisory and Other Services ................................ 8
Determination of Net Asset Value ...................................... 9
Portfolio Trading ..................................................... 10
Taxes ................................................................. 11
Custodian ............................................................. 13
Transfer and Dividend Paying Agent and Registrar ...................... 13
Performance Information ............................................... 13
Other Information ..................................................... 16
Auditors .............................................................. 16
Financial Statements .................................................. 16
<PAGE>
EATON VANCE
PRIME RATE
RESERVES
PROSPECTUS
MAY 1, 1996
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
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
PRP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1996
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 ........................ 8
Investment Advisory and Other Services ................................. 8
Determination of Net Asset Value ....................................... 9
Portfolio Trading ...................................................... 10
Taxes .................................................................. 11
Custodian .............................................................. 13
Transfer and Dividend Paying Agent and Registrar ....................... 13
Performance Information ................................................ 13
Other Information ...................................................... 16
Auditors ............................................................... 16
Financial Statements ................................................... 16
- ------------------------------------------------------------------------------
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 MAY 1, 1996, 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).
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 Swaps. The Portfolio may enter into interest rate swaps on either
an asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. For example, if the Portfolio holds a 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 March 19, 1996, the Portfolio had a Loan Interest in a Term
Loan to Camelot Music, Inc. and pursuant to the closing of a recapitalization
effective May 31, 1995, the Portfolio had Loan Interests in London Fog
Industries, Inc. (collectively referred to as the "Companies") which were
carried on the books at less than par, although the Companies have 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 following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this 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 of 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"), 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 (54), 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 (65), 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 and Chief Executive Officer 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 (61), 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 (66), 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 (39), 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 (34), 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 (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), 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
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 (60), 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 (33), 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.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Fund and of the Portfolio. The Special
Committee's functions include a continuous review of the Fund's contractual
relationship with the Administrator and the Portfolio's contractual relationship
with the Investment Adviser, making recommendations to the Trustees regarding
the compensation of those Trustees who are not members of the Eaton Vance
organization, and making recommendations to the Trustees regarding candidates to
fill vacancies, as and when they occur, in the ranks of those Trustees who are
not "interested persons" of the Fund, the Portfolio, or the Eaton Vance
organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Fund and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Fund and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
The fees and expenses of those Trustees of the Fund and of the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund and the Portfolio respectively. (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, 1995 for the Fund, and for the period from the start of business,
February 22, 1995, to the fiscal year ended December 31, 1995 for the Portfolio,
the noninterested Trustees of the Fund and the Portfolio earned the following
compensation in their capacities as Trustees of the Fund and the Portfolio and
for the year ended December 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM FUND AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $1,537 $3,263(2) $135,000(4)
Samuel L. Hayes, III ..... 1,505 4,222(3) 150,000(5)
Norton H. Reamer ......... 1,487 4,203 135,000
John L. Thorndike ........ 1,525 4,325 140,000
Jack L. Treynor .......... 1,582 4,452 140,000
- -------------
(1) The Eaton Vance fund complex consists of 219 registered investment
companies or series thereof.
(2) Includes $1,103 of deferred compensation.
(3) Includes $1,141 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
Trustees of the Portfolio who 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 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. Neither the Portfolio nor
the Fund has a retirement plan for its Trustees.
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 March 15, 1996, 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
March 15, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc. of Jacksonville, FL,
was the record owner of approximately 37.9% 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
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. 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, 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. For the period January 1, 1995 to February
21, 1995, the Fund paid Eaton Vance advisory fees aggregating $877,603, which
was equal to 0.95% (annualized) of the Fund's average daily gross assets for
such period. For the period from the start of business, February 22, 1995, to
the fiscal year ended December 31, 1995, the Portfolio paid BMR advisory fees
aggregating $8,544,646 which was equal to 0.94% (annualized) of the Portfolio's
average daily gross assets for such period. As at December 31, 1995, the gross
assets of the Portfolio were $1,621,338,852. BMR's fee waiver described in the
Prospectus is indefinite, but could be removed or changed upon agreement of BMR
and the Portfolio's Board of Trustees at any time.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement. For a description of the compensation the Fund pays
Eaton Vance under its Administration Agreement, see the Fund's current
Prospectus. For the fiscal years ended December 31, 1995, 1994 and 1993, the
Fund paid Eaton Vance administration fees of $2,020,807, $1,609,703 and
$2,253,980, 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.
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, 1997. The Portfolio's Advisory Agreement may be continued
from year to year thereafter so long as such continuance after February 28, 1997
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, 1997 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 March 31, 1996, 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 Corporation, which engages in
oil and gas exploration and development. Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment. EVC also
owns 24% 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 precious metal mining venture
investment and management. 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. Each 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.
Non-Loan 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.
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 and for the period January
1, 1995 to February 21, 1995 (prior to the Fund's investment in the Portfolio).
For the period from the start of business, February 22, 1995, to the fiscal
year ended December 31, 1995, the Portfolio paid no brokerage commissions.
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 elected to be treated and intends to continue to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute 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. The Fund so qualified for its taxable year ended December 31, 1995 (see
the Notes to the Financial Statements incorporated by reference in this
Statement of Additional Information). Because the Fund invests 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 (provided that any Portfolio
tender offers are 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 RIC, 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 RIC 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 enable the Fund to maintain its qualification as a RIC.
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, generally computed on the basis of the one-year period
ending on October 31 of such year or, by election, December 31 of such year,
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 may be disallowed under "wash sale" rules 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. The Portfolio may have to
dispose of investments that it would otherwise have continued to hold in order
to provide cash to enable the Fund 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 their 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 of federal income tax from the
Fund's dividends and other distributions (including the proceeds received upon
acceptance of any tender offer) at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Nonresident alien individuals, foreign corporations and certain other
foreign 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 amount treated as 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
include in income, and 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
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
Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or the 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.
PERFORMANCE INFORMATION
The Fund's current yield for the one-month period ended December 31, 1995
was 7.35%. The Fund's effective yield for the one-month period ended December
31, 1995 was 7.60%. Yields will fluctuate from time to time and are not
necessarily representative of future results.
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
through December 31, 1995 and for the one- and five-year periods ended December
31, 1995 and for the one- and five-year periods ended December 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT TOTAL RETURN
PERIOD DATE INVESTMENT ON 12/31/95 CUMULATIVE ANNUALIZED
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life of the Fund* 8/4/89 $1,000 $1,568.59 56.86% 7.28%
5 Years Ended 12/31/95 12/31/90 $1,000 $1,381.64 38.16% 6.67%
1 Year Ended 12/31/95 12/31/94 $1,000 $1,080.66 8.07% 8.07%
- ----------
<FN>
*Investment operations began August 4, 1989.
</TABLE>
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 $156,854 on December 31, 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
7/95 152055
8/95 153004
9/95 153934
10/95 154931
11/95 155867
12/95 156854
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.
<PAGE>
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
July 1995 5.88 5.85 7.85
August 1995 5.88 5.74 7.60
September 1995 5.94 5.80 7.65
October 1995 5.94 5.76 7.90
November 1995 5.88 5.91 7.60
December 1995 5.63 5.48 7.60
EV Prime Rate
Reserves: 7.60%
3-Month London
Interbank Offered
Rate: 5.63%
Federal Funds
Rate: 5.48%
Chart shows month-end effective yields over the life of the Fund (August 4,
1989, to December 31, 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 December 31, 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 money market Average prime rate over 3-month CDs:
bank funds:
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 1987 0.95 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 December 31, 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:
<PAGE>
Principal performance....
Month-end share value history
August 89 10.00
September 10.00
October 10.00
November 10.00
December 89 10.00
January 10.00
February 10.00
March 10.00
April 10.00
May 10.00
June 10.00
July 10.00
August 10.00
September 10.00
October 10.00
November 9.99
December 90 9.97
January 9.96
February 9.96
March 9.96
April 9.96
May 9.96
June 9.96
July 9.96
August 9.96
September 9.96
October 9.96
November 9.96
December 91 9.96
January 9.95
February 9.95
March 9.95
April 9.95
May 9.95
June 9.95
July 9.95
August 9.96
September 9.99
October 9.98
November 10.00
December 92 10.02
January 10.02
February 9.99
March 9.97
April 10.00
May 10.02
June 10.03
July 10.02
August 10.04
September 10.05
October 10.03
November 10.03
December 93 10.03
January 10.03
February 10.03
March 10.00
April 9.99
May 9.99
June 10.00
July 10.00
August 9.96
September 9.96
October 9.97
November 9.97
December 94 10.02
January 10.02
February 10.04
March 10.04
April 10.03
May 10.03
June 10.03
July 10.03
August 10.03
September 10.03
October 10.03
November 10.03
December 95 10.01
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 12/31/95). Past performance is not
indicative of future results.
Advertisements about the Fund may include a comparison of loan interests and
other corporate debt instruments. These may describe the credit agreements used
in connection with loan interests. Moreover, the markets for loan interests may
be described.
BMR was one of the first investment management firms to manage a portfolio
of loan interests. BMR has former commercial bank lending officers and
investment bank corporate finance officers dedicated to this investment
discipline. The services of leading law and accounting firms are used in the
research, analysis and management process.
The Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
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.
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.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statment of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touch LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Fund's most
recent Annual Report accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended December 31, 1995 as
previously filed electronically with the Securities and Exchange Commission
(Accession No. 0000950156-96-000301.
<PAGE>
[logo]
EATON VANCE
PRIME RATE
RESERVES
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1996
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
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
PRSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
INCLUDED IN PART A:
Financial Highlights for each of the six years in the
period ended December 31, 1994, and for the period from
the start of business, August 4, 1989, to December 31,
1989
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORT DATED DECEMBER 31,
1995 (ACCESSION NO. 0000950156-96-000301) FILED ELECTRONICALLY
PURSUANT TO SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT OF 1940.
Financial Statements for EATON VANCE PRIME RATE RESERVES:
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Cash Flows for the year ended December 31, 1995
Statement of Changes in Net Assets for each of the two
years ended December 31, 1995
Financial Highlights for the five years ended December 31, 1995
Notes to Financial Statements
Independent Auditors' Report
Financial Statements for SENIOR DEBT PORTFOLIO:
Portfolio of Investments as of December 31, 1995
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the period from the start of
business, February 22, 1995, to December 31, 1995
Statement of Cash Flows for the period from the start of
business, February 22, 1995, to December 31, 1995
Statement of Changes in Net Assets for the period from
the start of business, February 22, 1995, to December
31, 1995
Supplementary Data for the period from the start of
business, February 22, 1995, to December 31, 1995
Notes to Financial Statements
Independent Auditors' Report
(2) EXHIBITS:
(a) (a) Declaration of Trust dated May 2, 1989, as amended and restated
June 30, 1989, filed as Exhibit (a)(a) to the Registration
Statement under the Securities Act of 1933 (1933 Act File No.
33-63623) and Amendment No. 14 to the Registration Statement
under the Investment Company Act of 1940 (1940 Act File No.
811-05808) filed with the Commission on October 24, 1995
(Amendment No. 14) and incorporated herein by reference.
(b) (a) By-Laws (as amended June 12, 1989) filed as Exhibit (b)(a) to
Amendment No. 14 and incorporated herein by reference.
(b) By-Laws Amendment dated December 13, 1993 filed as Exhibit
(b)(b) to Amendment No. 14 and incorporated herein by reference.
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) (a) Distribution Agreement dated July 14, 1989 filed as Exhibit
(h)(a) to Amendment No. 14 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors, Inc.
and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 61 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019 and 811-1241)
and incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as Exhibit
(6)(c) to Post- Effective Amendment No. 59 to the Registration
Statement of Eaton Vance Growth Trust (file Nos. 2022019 and
811-1241) and incorporated herein by reference.
(i) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant
to enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(j) (a) Custodian Agreement dated December 17, 1990 filed as Exhibit (j)
to Amendment No. 14 and incorporated herein by reference.
(b) Amendment to Custodian Agreement dated October 23, 1995 filed
herewith.
(k) (a) Administration Agreement dated July 14, 1989 filed as Exhibit
(k)(a) to Amendment No. 14 and incorporated herein by reference.
(b) Administration Agreement Amendment dated October 24, 1994 filed
as Exhibit (k)(b) to Amendment No. 14 and incorporated herein
by reference.
(l) Opinion and Consent of Counsel dated October 24, 1995 filed as
Exhibit (l) to Amendment No. 14 and incorporated herein by
reference.
(m) (a) Consent of Independent Auditors for Eaton Vance Prime Rate
Reserves filed herewith.
(b) Consent of Independent Auditors for Senior Debt Porfolio filed
herewith.
(n) Not applicable
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Power of Attorney filed as Exhibit (16) to Post-Effective Amendment
No. 2 (1933 Act File No. 33-34922) and Amendment No. 9 (1940 Act
File No. 811-05808) filed with the Commission on March 13, 1992 and
incorporated herein by reference.
(s) Power of Attorney for Senior Debt Portfolio filed as Exhibit (s) to
Post-Effective Amendment No. 5 (1933 Act File No. 33-34922) filed
with the Commission on November 25, 1994 and incorporated herein
by reference.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the approximate expenses incurred in
connection with the offerings of Registrant:
Registration fees ...................................... $995,862\1/
National Association of Securities Dealers, Inc. ....... $ 46,000\1/
Printing (other than stock certificates) ............... $ 168,300
Engraving and printing stock certificates .............. $ 4,800
Fees and expenses of qualification under state
securities laws (excluding fees of counsel) ......... $ 269,225
Accounting fees and expenses ........................... $ 13,500
Legal fees and expenses ................................ $ 230,000
----------
Total .......................................... $1,727,687
==========
- ----------------
\1/ These amounts reflect expenses incurred in connection with separate
Registration Statements filed with the Commission of 100 million shares
each as follows: (a) (File No. 33-63623) on October 24, 1995 and declared
effective on November 28, 1995, (b) (File No. 33- 34922) on May 16, 1990
and declared effective on July 3, 1990, (c) (File No. 33-30268) on August
2, 1989 and declared effective August 9, 1989, and (d) (File No. 33- 28516)
on May 3, 1989 and declared effective on July 14, 1989, and which are
incorporated herein by reference.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest 32,011
as of
March 15, 1996
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws filed as Exhibit (b)(a) to Amendment No. 14 contain
provisions limiting the liability, and providing for indemnification, of the
Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their capacities as such.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Reference is made to the information set forth under the captions
"Management of the Fund and the Portfolio" in the Prospectus and "Investment
Advisory and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement, which
summary is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111, and its transfer agent, First Data Investor Services Group, 53 State
Street, Boston, MA 02104, with the exception of certain corporate documents and
portfolio trading documents which are in the possession and custody of Eaton
Vance Management, 24 Federal Street, Boston, MA 02110. Certain corporate
documents of Senior Debt Portfolio (the "Portfolio") are also maintained by IBT
Trust Company (Cayman), Ltd., The Bank of Nova Scotia Building, P.O. Box 501,
George Town, Grand Cayman, Cayman Islands, British West Indies, and certain
investor account, Portfolio and the Registrant's accounting records are held by
IBT Fund Services (Canada) Inc., 1 First Canadian Place, King Street West, Suite
2800, P.O. Box 231, Toronto, Ontario, Canada M5X 1C8. Registrant is informed
that all applicable accounts, books and documents required to be maintained by
registered investment advisers are in the custody and possession of Eaton Vance
Management and Boston Management and Research.
ITEM 32. MANAGEMENT SERVICES
None.
ITEM 33. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts, on the 29th day of March, 1996.
EATON VANCE PRIME RATE RESERVES
By /s/JAMES B. HAWKES
-------------------------------
JAMES B. HAWKES, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Trustee, President and
/s/ JAMES B. HAWKES Principal Executive Officer March 29, 1996
- ------------------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer March 29, 1996
- ------------------------------------
JAMES L. O'CONNOR
Trustee and Vice
M. DOZIER GARDNER* President March 29, 1996
- ------------------------------------
M. DOZIER GARDNER
DONALD R. DWIGHT* Trustee March 29, 1996
- ------------------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee March 29, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee March 29, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee March 29, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee March 29, 1996
- ------------------------------------
JACK L. TREYNOR
*By /s/ H. DAY BRIGHAM, JR.
--------------------------------------------------------------------------
H. DAY BRIGHAM, JR.
Attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Senior Debt Portfolio has duly caused this Amendment to the Registration
Statement on Form N-2 of Eaton Vance Prime Rate Reserves to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tijuana,
Mexico on the 26th day of March, 1996.
SENIOR DEBT PORTFOLIO
By /s/ JAMES B. HAWKES
-------------------------------
JAMES B. HAWKES, President
This Amendment to the Registration Statement on Form N-2 Eaton Vance Prime
Rate Reserves has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Trustee, President and
/s/ JAMES B. HAWKES Principal Executive Officer March 26, 1996
- ------------------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
JAMES L. O'CONNOR* Accounting Officer March 26, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee March 26, 1996
- ------------------------------------
DONALD R. DWIGHT
M. DOZIER GARDNER* Trustee March 26, 1996
- ------------------------------------
M. DOZIER GARDNER
SAMUEL L. HAYES, III* Trustee March 26, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee March 26, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee March 26, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee March 26, 1996
- ------------------------------------
JACK L. TREYNOR
*By /s/ JAMES B. HAWKES
-----------------------------
JAMES B. HAWKES
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
<C> <S> <C>
(j)(b) Amendment to Custodian Agreement dated October 23, 1995
(m)(a) Consent of Independent Auditors for Eaton Vance Prime Rate
Reserves
(m)(b) Consent of Independent Auditors for Senior Debt Portfolio
</TABLE>
EXHIBIT (j)(b)
AMENDMENT TO
MASTER CUSTODIAN AGREEMENT
BETWEEN
EATON VANCE GROUP OF FUNDS
AND
INVESTORS BANK & TRUST COMPANY
This Amendment, dated as of October 23, 1995, is made to the MASTER
CUSTODIAN AGREEMENT (the "Agreement") between each investment company for which
Eaton Vance Management acts as investment adviser or administrator which has
adopted the Agreement (the "Funds") and Investors Bank & Trust Company (the
"Custodian") pursuant to Section 10 of the Agreement.
The Funds and the Custodian agree that Section 10 of the Agreement
shall, as of October 23, 1995, be amended to read as follows:
Unless otherwise defined herein, terms which are defined in the
Agreement and used herein are so used as so defined.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated by either party after August
31, 2000 by an instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, that the Fund may at any
time by action of its Board, (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian in the event
the Custodian assigns this Agreement to another party without consent of the
noninterested Trustees of the Funds, or (ii) immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Custodian by the Federal Deposit Insurance Corporation or by the Banking
Commissioner of The Commonwealth of Massachusetts or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to
the Custodian such compensation as may be due as of the date of such termination
(and shall likewise reimburse the Custodian for its costs, expenses and
disbursements).
This Agreement may be amended at any time by the written agreement of
the parties hereto. If a majority of the non-interested trustees of any of the
Funds determines that the performance of the Custodian has been unsatisfactory
or adverse to the interests of shareholders of any Fund or Funds or that the
terms of the Agreement are no longer consistent with publicly available industry
standards, then the Fund or Funds shall give written notice to the Custodian of
such determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of the
Funds. If the conditions of the preceding sentence are not met then the Fund or
Funds may terminate this Agreement on sixty (60) days written notice.
The Board of the Fund shall, forthwith, upon giving or receiving notice
of termination of this Agreement, appoint as successor custodian, a bank or
trust company having the qualifications required by the Investment Company Act
of 1940 and the Rules thereunder. The Bank, as Custodian, Agent or otherwise,
shall, upon termination of the Agreement, deliver to such successor custodian,
all securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no written order designating a
successor custodian shall have been delivered to the Bank on or before the date
when such termination shall become effective, then the Bank shall not deliver
the securities, funds and other properties of the Fund to the Fund but shall
have the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection meeting the above required qualifications,
all funds, securities and properties of the Fund held by or deposited with the
Bank, and all books of account and records kept by the Bank pursuant to this
Agreement, and all documents held by the Bank relative thereto. Thereafter such
bank or trust company shall be the successor of the Custodian under this
Agreement.
Except as expressly provided herein, the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
CAPITAL EXCHANGE FUND, INC. EATON VANCE MUNICIPALS TRUST II
DEPOSITORS FUND OF BOSTON, INC. EATON VANCE MUTUAL FUNDS TRUST
DIVERSIFICATION FUND, INC. EATON VANCE PRIME RATE RESERVES
EATON VANCE EQUITY-INCOME TRUST EATON VANCE SPECIAL INVESTMENT TRUST
EATON VANCE GROWTH TRUST EV CLASSIC SENIOR FLOATING-RATE FUND
EATON VANCE INVESTMENT FUND, INC. FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE INVESTMENT TRUST SECOND FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE MUNICIPAL BOND FUND L.P. THE EXCHANGE FUND OF BOSTON, INC.
EATON VANCE MUNICIPALS TRUST VANCE, SANDERS EXCHANGE FUND
By: /s/ James L. O'Connor
-----------------------------
Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael Rogers
-----------------------------
-2- a:\custamend.fnd
EXHIBIT (M)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment to the
Registration Statement of Eaton Vance Prime Rate Reserves of our report relating
to Eaton Vance Prime Rate Reserves dated February 20, 1996, which report is
included in the Annual Report to Shareholders for the year ended December 31,
1995 which is incorporated by reference in the Statement of Additional
Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" appearing in the Prospectus and under the captions
"Auditors" and "Financial Statements" in the Statement of Additional Information
of the Registration Statement, which is part of such Registration Statement.
Deloitte & Touche LLP
Boston, Massachusetts
March 29, 1996
EXHIBIT (M)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Eaton Vance Prime Rate Reserves of our report relating to Senior Debt Portfolio
dated February 20, 1996, in the Statement of Additional Information, which is
part of such Registration Statement.
Deloitte & Touche
Grand Cayman, Cayman Islands
British West Indies
March 29, 1996
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<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1093149
<INVESTMENTS-AT-VALUE> 1088714
<RECEIVABLES> 8311
<ASSETS-OTHER> 332
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1097358
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5171
<TOTAL-LIABILITIES> 5171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1096599
<SHARES-COMMON-STOCK> 109108
<SHARES-COMMON-PRIOR> 61040
<ACCUMULATED-NII-CURRENT> 25
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3
<ACCUM-APPREC-OR-DEPREC> (4435)
<NET-ASSETS> 1092186
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8329
<OTHER-INCOME> 58048
<EXPENSES-NET> 4743
<NET-INVESTMENT-INCOME> 61634
<REALIZED-GAINS-CURRENT> 8139
<APPREC-INCREASE-CURRENT> (7404)
<NET-CHANGE-FROM-OPS> 62368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 61630
<DISTRIBUTIONS-OF-GAINS> 2248
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53157
<NUMBER-OF-SHARES-REDEEMED> 8547
<SHARES-REINVESTED> 3458
<NET-CHANGE-IN-ASSETS> 480599
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 282
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 878
<INTEREST-EXPENSE> 274
<GROSS-EXPENSE> 4743
<AVERAGE-NET-ASSETS> 814051
<PER-SHARE-NAV-BEGIN> 10.02
<PER-SHARE-NII> .769
<PER-SHARE-GAIN-APPREC> 0.011
<PER-SHARE-DIVIDEND> 0.770
<PER-SHARE-DISTRIBUTIONS> 0.021
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1614038
<INVESTMENTS-AT-VALUE> 1609553
<RECEIVABLES> 11390
<ASSETS-OTHER> 7059
<OTHER-ITEMS-ASSETS> 699
<TOTAL-ASSETS> 1628701
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7362
<TOTAL-LIABILITIES> 7362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1625824
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4485)
<NET-ASSETS> 1621339
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79410
<OTHER-INCOME> 3167
<EXPENSES-NET> 10457
<NET-INVESTMENT-INCOME> 72120
<REALIZED-GAINS-CURRENT> 1214
<APPREC-INCREASE-CURRENT> (1760)
<NET-CHANGE-FROM-OPS> 71574
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1621239
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8545
<INTEREST-EXPENSE> 1287
<GROSS-EXPENSE> 10457
<AVERAGE-NET-ASSETS> 1058138
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
