<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
1933 ACT FILE NO. 333-25731
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. 2 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 18 [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
-----------------------------------------------------------------
ALAN R. DYNNER
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 (check appropriate box):
[ ] when declared effective pursuant to section 8(c)
[ ] immediately upon filing pursuant [ ] 60 days after filing
to paragraph(b) pursuant to paragraph (a)
[X] on April 1, 1998 pursuant to [ ] on (date) pursuant to
paragraph (b) paragraph (a)
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is ____________ .
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 Shares; The
Lifetime Investing Account/
Distribution Options
6. ............. Selling Shareholders Not Applicable
7. ............. Use of Proceeds How to Buy Shares; Investment
Policies and Risks
8. ............. General Description of the Organization of the Fund and
Registrant the Portfolio; Investment
Policies and Risks
9. ............. Management Management of the Fund and the
Portfolio; Organization of
the Fund and the Portfolio
10. ............. Capital Stock, Long-Term Organization of the Fund and
Debt, and Other the Portfolio; Distributions
Securities and Taxes; Reports to
Shareholders
11. ............. Defaults and Arrears on Not Applicable
Senior Securities
12. ............. Legal Proceedings Not Applicable
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 Other Information
History
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
[GRAPHIC OMITTED] Investing Prime Rate Reserves
EATON VANCE for the
- --------------- 21st
Mutual Funds Century
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"), which has the same investment
objective as the Fund, Rather than by investing directly in and managing its own
portfolio of loans and securities. The Fund, as well as the Portfolio, is a
continuously offered, closed-end, non-diversified investment company.
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 is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated April 1, 1998 for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission (the
"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) $9.99 None $9.99
Total $5,002,000,000 None to be paid by the Fund $5,002,000,000
- ------------
(1) The shares are offered on a best efforts basis at a price equal to the net
asset value, which, as of March 23, 1998, was $9.99 per share. See "How to
Buy 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 Shares".
NO MARKET PRESENTLY EXISTS FOR THE FUND'S SHARES AND IT IS NOT CURRENTLY
ANTICIPATED THAT A SECONDARY MARKET WILL DEVELOP FOR THEM. Fund shares are not
readily marketable. To provide investor liquidity, the Fund ordinarily will make
each February, May, August and November an offer to repurchase between 5% and
25% of the Fund's outstanding shares at net asset value. 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. See "Fund Repurchase Offers".
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page Page
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder and Fund Expenses 2 How to Buy Shares 13
The Fund's Financial Highlights 3 Fund Repurchase Offers 14
The Fund's Investment Objective 5 Reports to Shareholders 16
Investment Policies and Risks 5 The Lifetime Investing Account/Distribution Options 16
Yield and Performance Information 9 Eaton Vance Shareholder Services 16
Organization of the Fund and the Portfolio 10 Distribution and Taxes 17
Management of the Fund and the Portfolio 11 Table of Contents of the Statement of Additional
Valuing Shares 12 Information 18
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus dated April 1, 1998
<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 Repurchase of
Entire Account During the First Five Years (as a percentage
of repurchase 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 daily net assets attributable to shares of beneficial interest)
- -------------------------------------------------------------------------------
Investment Advisory Fee 0.89%
Interest Payments on Borrowed Funds 0.01
Other Expenses (including administration fees of .25%) 0.41
Total Annual Expenses 1.31
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following early withdrawal charge and expenses on a
$1,000 investment, assuming (a) 5% annual return and (b) repurchase of the end
of each period: $43 $62 $72 $158
An investor would pay the following expenses on the same investment, assuming (a)
5% annual return and (b) no repurchases: 13 42 72 158
</TABLE>
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 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", "Management of the Fund and
the Portfolio", "How to Buy Shares" and "Fund Repurchase Offers".
No early withdrawal charge is imposed on (a) shares purchased more than four
years prior to the acceptance for repurchase, (b) shares acquired through the
reinvestment of distributions and (c) any appreciation in value of other shares
in the account (see "Fund Repurchase Offers").
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, 1997.
The Fund invests exclusively in the Portfolio. Other investment companies and
investors with different distribution arrangements and fees are investing in the
Portfolio. 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 that appear in the Fund's annual report to shareholders.
The Fund's financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
The financial statements and the independent auditors' report are incorporated
by reference into the Statement of Additional Information. Further information
regarding the performance of the Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 9.9900 $ 10.0100 $ 10.0200 $10.0300 $10.0200 $ 9.9600 $ 9.9700 $ 10.0000 $ 10.0000
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) from operations:
Net investment
income(d) $ 0.6756 $ 0.6837 $ 0.7694 $ 0.5966 $ 0.4970 $ 0.5415 $ 0.7500 $ 0.9505 $ 0.3535
Net realized and
unrealized gain
(loss) on
investments -- + (0.0208) 0.0112 (0.0059) 0.0258 0.0575 (0.0035)(b) (0.0305) --
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Total income
from investment
operations $ 0.6756 $ 0.6629 $ 0.7806 $ 0.5907 $ 0.5228 $ 0.5990 $ 0.7465 $ 0.9200 $ 0.3535
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Less distributions:
From net investment
income $ (0.6756) $ (0.6829) $ (0.7695) $(0.5966) $(0.5110) $ (0.5296) $ (0.7522) $ (0.9500) $ (0.3535)
In excess of net
investment
income(i) -- -- -- (0.0041) -- -- -- -- --
From net realized
gain on
investments -- -- (0.0211) -- -- (0.0094) (0.0043) -- --
In excess of net
realized gain on
investments(i) -- -- -- -- (0.0018) -- -- -- --
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Total
distributions $ (0.6756) $ (0.6829) $ (0.7906) $(0.6007) $(0.5128) $ (0.5390) $ (0.7565) $ (0.9500) $ (0.3535)
---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ----------
Net asset value, end
of year $ 9.9900 $ 9.9900 $ 10.0100 $10.0200 $10.0300 $ 10.0200 $ 9.9600 $ 9.9700 $ 10.0000
========== ========== ========== ======== ======== ========== ========== ========== ==========
Total Return(c) 6.98% 6.84% 8.1% 6.1% 5.3% 6.2% 7.8% 9.6% 3.6%
Ratios/Supplemental Data(e):
Net assets,
end of year
(000 omitted) $1,909,266 $1,611,735 $1,092,186 $611,588 $683,393 $1,011,006 $1,694,332 $2,095,692 $1,751,363
Ratio of operating
expenses to
average daily
net assets(d) 1.31% 1.35% 1.45% 1.63% 1.55% 1.44% 1.37% 1.43% 1.30%(h)
Ratio of interest
expense to
average daily
net assets(d) 0.01% 0.04% 0.16% 0.21% 0.22% 0.18% 0.16% -- --
Ratio of net
investment
income to
average daily
net assets 6.76% 6.81% 7.57% 5.95% 4.98% 5.33% 7.42% 9.48% 8.52%(h)
Portfolio Turnover
of the Fund(f) -- -- 5% 60% 37% 26% 16% 43% 18%
Portfolio Turnover
of the Portfolio 81% 75% 39% -- -- -- -- -- --
<CAPTION>
LEVERAGE ANALYSIS
Average Daily Average Weekly
Borrowings by the Balance Balance
Fund from Issuance Amount of Debt of Debt of Shares Average Amount of
of Commercial Outstanding at Outstanding Outstanding Debt Per Share
Paper -- 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>
(footnotes on following page)
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS -- CONTINUED
+ Represents less than $0.0001 per share.
(a) For the period from the start of business, August 4, 1989, to December 31,
1989.
(b) The per share amount is not in accord 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 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. Distributions, if any, are assumed to be reinvested at the
net asset value on the payable date. Total return is computed on a
non-annualized basis.
(d) Includes the Fund's share of the Portfolio's allocated expenses subsequent
to February 22, 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%(h)
Interest expense 0.16% --
Net investment income 7.39% 8.48%(h)
(f) Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities.
(g) The Leverage Analysis is for the period from January 1, 1995 to February 21,
1995, when the Fund transferred the Commercial Paper program to the
Portfolio.
(h) Computed on an annualized basis.
(i) 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 statement
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.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
Eaton Vance Prime Rate Reserves' 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
investment company with the same investment objective as the Fund. There is no
assurance that the Fund's objective will be achieved. An investment in shares of
the Fund is not a complete investment program.
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.
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 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, that equals or exceeds the principal amount of the Loan. 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 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 March 1, 1998, the Portfolio had a dollar
weighted average period to adjustment of approximately 46 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. Most 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. 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.
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 or actual 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. The Fund and the Portfolio have each registered with the
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").
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.
ILLIQUID INSTRUMENTS. Most Loan Interests are not readily marketable and may be
subject to legal and contractual restrictions on resale. 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. 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 liquidation
of its assets. The Trustees of the Fund will consider the liquidity of the
Portfolio's investments in determining the amount of quarterly repurchase
offers.
BORROWINGS AND 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. BMR
expects that the Portfolio will do so to remain fully invested, after accounting
for anticipated cash infusions from the prepayment of Loans and the sale of Fund
shares and cash outflows from the fulfillment of settlement obligations
(including the funding of revolving Loan Interests) and the repurchase 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. Successful use of a leveraging
strategy depends on BMR's ability to predict correctly interest rates and market
movements. There is no assurance that a leveraging strategy will be successful.
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 and repurchasing
shares. 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. The Portfolio may 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. Any such borrowing or
debt issuance is a speculative technique in that it will increase the
Portfolio's exposure to capital risk. The Portfolio may also borrow for
temporary, extraordinary or emergency purposes.
OTHER INVESTMENT POLICIES
As stated above, 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.
Downgraded securities may be retained by the Portfolio. Pending investment of
the proceeds of Fund sales by the Portfolio or when BMR believes that investing
for defensive purposes (such as during abnormal market or economic conditions)
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
10% 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 had limited experience 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 were 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.
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 and an interestholder 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; 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 interestholders in the Portfolio, as the case may be.
YIELD AND PERFORMANCE INFORMATION
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
London InterBank Offered Rate ("LIBOR"), the Prime Rate of a designated U.S.
bank, 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.
Under normal market conditions, the relationship between the Prime Rate and the
other possible base lending rates is reasonably stable, and Loans are structured
with appropriate spreads over the base rates so that the income earned by the
Portfolio is approximately the same no matter which alternative the Borrower
selects. During such periods when the Portfolio is fully invested, the 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 such a yield. 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 caused
the Fund's yield to be below the Prime Rate. BMR believes the present wide
differential is unusual and hopes that if the long-term relationship between the
Prime Rate and LIBOR is restored the Fund can achieve a yield approximating the
Prime Rate. However, there is not yet evidence that this will occur by the end
of 1998 or thereafter.
From time to time, the Fund may quote current yield based on a specific
one-month period. Current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. Yield will fluctuate from time to time and is 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 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 and
current yield may not reflect the imposition of any early withdrawal charges. 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 Fund
performance.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
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
"Fund Repurchase Offers". There are no annual meetings of shareholders, but
special meetings may be held as required by law to elect or remove Trustees and
consider certain other matters. Shareholders are entitled to one vote for each
full share held. Fractional shares may be voted proportionately. 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 Commission, for the full text of these provisions.
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.
MASTER-FEEDER STRUCTURE. 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 may offer opportunities for growth in the assets of the
Portfolio, and may afford the potential for economies of scale for the Fund.The
other investors in the Portfolio will affect its liqudity, and therefore, could
reduce the amount of the Fund's repurchase offers.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. In 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, these differences may
result in differences in returns experienced by investors in the various funds
that may invest in the Portfolio. Such differences in returns are also present
in other fund structures, including mutual funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting the Principal Underwriter.
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.
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, the
Trustees would consider what action might be taken, including investing the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all of its assets (or the assets of another investor in the Portfolio) from the
Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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.
The Trustees of the Portfolio have 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. The Portfolio paid BMR advisory fees equivalent to 0.89% of the
Portfolio's average daily gross assets for the fiscal year ended December 31,
1997.
Eaton Vance, its affiliates and predecessor companies have been managing assets
of individuals and institutions since 1924 and managing investment companies
since 1931. BMR or Eaton Vance currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $22 billion, of which
approximately $18 billion is in investment companies, including over $4 billion
in the Portfolio. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Scott H. Page and Payson F. Swaffield have acted as co-portfolio managers of
the Portfolio since August 1, 1996. Mr. Page has been a Vice President of
Eaton Vance and BMR since 1992 and an employee of Eaton Vance since 1989. Mr.
Swaffield has been a Vice President of Eaton Vance and BMR since 1992 and an
employee of Eaton Vance since 1990.
The Fund, the Portfolio and BMR have adopted Codes of Ethics relating to
personal securities transactions. The Codes permit Eaton Vance personnel to
invest in securities (including securities that may be purchased or held by the
Portfolio) for their own accounts, subject to certain pre-clearance, reporting
and other restrictions and procedures contained in such Codes.
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
quarterly repurchase 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, 1997, the amount of administration fees paid by
the Fund to Eaton Vance was equal to 0.25% (annually) of the average daily gross
assets of the Portfolio attributable to the Fund.
Like most investment companies, the Fund and the Portfolio rely on computers in
conducting daily business and processing information. There is a concern that on
January 1, 2000 some computer programs will be unable to recognize the new year
and as a consequence computer malfunctions will occur. The Administrator is
taking steps that it believes are reasonably designed to address this potential
problem and to obtain satisfactory assurance from other service providers to the
Fund and Portfolio that they are also taking steps to address the issue. There
can, however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund, the Portfolio or shareholders.
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 the Principal Underwriter under its Distribution Agreement.
VALUING SHARES
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, Martin
Luther King, Jr. 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) in the manner authorized by the Trustees of the Portfolio. 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).
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 SHARES
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
will make payments from its own assets at the rate of 3.0% of the dollar amount
of the shares being purchased to certain financial service firms who have sales
agreements with the Principal Underwriter ("Authorized Firms").
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. The Fund may also refuse any order for the
purchase of shares.
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. Pursuant to its Distribution Agreement with the
Principal Underwriter, the Fund has authorized the Principal Underwriter to
distribute its shares on a "best efforts" basis through Authorized Firms. An
Authorized Firm may charge its customers a fee in connection with transactions
executed by that Firm.
An initial investment in the Fund must be at least $5,000 ($2,000 in the case of
Individual Retirement Accounts). Once an account has been established, the
investor may send investments of $50 or more at any time directly to the Fund's
Transfer Agent as follows: First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. See "Eaton Vance Shareholder Services".
If the shares remain outstanding for at least one year from the date of their
original purchase, the Principal Underwriter 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, the Principal Underwriter's and Eaton Vance's own assets, which may
include amounts received by the Principal Underwriter 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, 1997, the Principal Underwriter
made compensation payments to Authorized Firms in the aggregate amount of
approximately $13,283,130. The compensation paid to Authorized Firms and the
Principal Underwriter, 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.
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 their net asset value as determined above. 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 the Principal
Underwriter or an Authorized Firm, together with a completed and signed Letter
of Transmittal in approved form (available from the Principal Underwriter or
Authorized Firms), as follows:
<TABLE>
<CAPTION>
IN THE CASE OF BOOK ENTRY: IN THE CASE OF PHYSICAL DELIVERY:
<S> <C> <C> <C> <C> <C> <C>
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance Prime Rate Reserves
Investors Bank & Trust Company Physical Securities Processing Settlement Area
For A/C Eaton Vance Prime Rate Reserves 200 Clarendon Street
Boston, MA 02116
</TABLE>
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the right
to reject any securities. Exchanging securities for shares may create a taxable
gain or loss. Each investor should consult his or her tax adviser with respect
to the particular federal, state and local tax consequences of exchanging
securities.
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 $2 billion,
all of which was invested in the Portfolio. Proceeds from the continuous
offering of Fund shares will be used to increase the Fund's interest in the
Portfolio. Pending investment in Loan Interests, the proceeds will be held by
the Portfolio in cash or invested in investment grade short-term debt
obligations.
FUND REPURCHASE OFFERS
As a matter of fundamental policy which cannot be changed without shareholder
approval, the Fund is required in the months of FEBRUARY, MAY, AUGUST and
NOVEMBER, to offer to repurchase at least 5% and up to 25% of its shares. Under
normal market conditions, the Trustees expect to authorize a 25% offer. (The
Fund may also make a discretionary repurchase offer once every two years but has
no current intention to do so.) The repurchase price will be the net asset value
determined not more than 14 days following the repurchase request deadline and
payment for all shares repurchased pursuant to these offers will be made not
later than 7 days after the repurchase pricing date. Under normal circumstances,
it is expected that net asset value will be determined on the repurchase request
deadline and payment for shares tendered will be made within 3 business days
after such deadline. During the period the offer to repurchase is open
shareholders may obtain the current net asset value by calling 1-800-225-6265,
option 2 (fund #32).
At least 21 days prior to the repurchase request deadline the Fund will mail
written notice to each shareholder setting forth the number of shares the Fund
will repurchase, the repurchase request deadline and other terms of the offer to
repurchase, and the procedures for shareholders to follow to request a
repurchase. THE REPURCHASE REQUEST DEADLINE WILL BE STRICTLY OBSERVED.
Shareholders and financial intermediaries failing to submit repurchase requests
in good order by such deadline will be unable to liquidate shares until a
subsequent repurchase offer.
If more shares are tendered for repurchase than the Fund has offered to
repurchase, the Board may, but is not obligated, to increase the number of
shares to be repurchased by 2% of the Fund shares outstanding; if there are
still more shares tendered than are offered for repurchase, shares will be
repurchased on a pro-rata basis. Thus, shareholders may be unable to liquidate
all or a given percentage of their shares and some shareholders may tender more
shares than they wish to have repurchased in order to ensure repurchase of at
least a specific number of shares. Shareholders may withdraw shares tendered for
repurchase at any time prior to the repurchase request deadline.
Repurchase offers and the need to fund repurchase obligations may affect the
ability of the Portfolio to be fully invested, which may reduce returns.
Moreover, diminution in the size of the Portfolio through repurchases without
offsetting new sales may result in untimely sales of portfolio securities and a
higher expense ratio, and may limit the ability of the Portfolio to participate
in new investment opportunities. Repurchases resulting in portfolio turnover
will result in additional expenses being borne by the Portfolio. The Portfolio
may borrow to meet repurchase obligations which entails certain risks and costs.
See "Borrowings and Leverage". The Portfolio may also sell portfolio securities
to meet repurchase obligations which, in certain circumstances, may adversely
affect the market for Loan Interests and reduce the Fund's value.
The Fund may suspend or postpone a repurchase offer only: (A) if making or
effecting the repurchase offer would cause the Fund to lose its status as a
regulated investment company under the Internal Revenue Code; (B) for any period
during which the Exchange or any market in which the securities owned by the
Portfolio are principally traded is closed, other than customary weekend and
holiday closings, or during which trading in such market is restricted; (C) for
any period during which an emergency exists as a result of which disposal by the
Portfolio of securities owned by it is not reasonably practicable, or during
which it is not reasonably practicable for the Portfolio or Fund fairly to
determine the value of its net assets; or (D) for such other periods as the
Commission may by order permit for the protection of shareholders of the Fund.
EARLY WITHDRAWAL CHARGE. 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 repurchase
offers. The early withdrawal charge will be imposed on those shares accepted for
repurchase the amount of which exceeds the aggregate value at the time the
repurchase is accepted of (a) all shares in the account purchased more than four
years prior to such acceptance, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, in the 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 the Principal Underwriter. In determining
whether an early withdrawal charge is payable, it is assumed that the acceptance
of a repurchase offer would be made from the earliest purchase of shares. Any
early withdrawal charge which is required to be imposed will be made in
accordance with the following schedule:
Year of Repurchase
After Purchase Early Withdrawal Charge
- ------------------------------------------------------------------------
First 3.00%
Second 2.50%
Third 2.00%
Fourth 1.00%
Fifth and following 0%
No early withdrawal charge will be imposed on shares purchased on or after
January 27, 1995 and repurchased 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 repurchase offer, the shareholder must notify the Transfer
Agent either directly or through the Principal Underwriter 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. No early withdrawal charge will be imposed on Fund shares sold to Eaton
Vance, or its affiliates, or to their respective employees or clients. The early
withdrawal charge will also be waived for shares repurchased as part of a
required distribution from a tax-sheltered retirement plan, provided that the
aggregate amount of such repurchase does not exceed 12% of the account balance.
During the fiscal year ended December 31, 1997, the Principal Underwriter
received approximately $2,929,000 in early withdrawal charges.
EXCHANGES: The Fund makes available to shareholders who are submitting shares
for repurchase the privilege of exchanging Fund shares at net asset value for
Class B shares of one or more open-end investment companies in the Eaton Vance
Group of Funds or Eaton Vance Money Market Fund, which are subject to a
contingent deferred sales charge, and shares of a money market fund sponsored by
an Authorized Firm and approved by the Principal Underwriter (an "Authorized
Firm fund"). Any such exchange will be made on the basis of the net asset value
per share of each fund at the time of exchange. 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 a charge in the event of a redemption of the
shares acquired in the exchange. 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. For purposes of calculating the early
withdrawal or contingent deferred sales charge applicable to shares acquired in
an exchange, the schedule of charges 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, except that time
during which shares are held in an Authorized Firm fund will not be credited
toward completion of the early withdrawal or contingent deferred sales charge
period.
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.
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 independent accountants. Shortly after the end of each
calendar year, shareholders will be furnished with information necessary for
preparing federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This
account is a complete record of all transactions 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 share 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 the Transfer Agent.
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 the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (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, P.O. Box 5123,
Westborough, MA 01581-5123. 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 shareholder communications are
returned by the United States Postal Service or other delivery service as not
deliverable, the distribution option on the account will be automatically
changed to the SHARE OPTION until such time as the shareholder selects a
different option. No interest will accrue on amounts represented by uncashed
distribution or repurchase checks.
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, is available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $5,000 minimum
investment has been made, checks of $50 or more payable to the order of Eaton
Vance Prime Rate Reserves may be mailed directly to the Transfer Agent, First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 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 repurchase offer may reinvest, with credit for any early
withdrawal charge paid on the value of the repurchased shares, any portion or
all of the repurchase 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 repurchase 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
repurchase 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 not be allowed as a tax deduction. Shareholders should consult
their tax advisers.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase in
connection with certain tax-sheltered retirement plans. Detailed information
concerning these plans, including certain exceptions to minimum investment
requirements, and copies of the plans are available from the Principal
Underwriter. This information should be read carefully and consultation with an
attorney or tax adviser may be advisable. The information sets forth the service
fee charged for retirement plans and describes the federal income tax
consequences of establishing a plan. Participant accounting services (including
trust fund reconciliation services) will be offered only through third party
recordkeepers and not by the Principal Underwriter. Under all plans,
distributions will be automatically reinvested in additional shares.
DISTRIBUTIONS AND TAXES
The Fund declares daily and distributes monthly substantially all of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain, if any) and distributes
annually net capital gain, if any (usually in December). Daily distribution
crediting will commence on the business 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. Investors who purchase
shares shortly before the record date of a capital gain distribution will pay
the full price for the shares and then receive some portion of the price back as
a taxable distribution. The Fund's distributions will not qualify for the
dividends-received deduction for corporations. The Fund expects distributions to
consist primarily of investment company taxable income which is taxable to
shareholders as ordinary income, whether paid in cash or additional shares of
the Fund. Certain distributions paid in January will be taxable to shareholders
as if received on December 31 of the prior year.
The repurchase of Fund shares may result in a taxable gain or loss to the
redeeming shareholder, depending on whether the amount received is greater or
less than such shareholder's adjusted tax basis in the shares. An exchange of
shares of the Fund for shares of another Eaton Vance fund generally will have
similar tax consequences. Different tax consequences may apply for tendering and
nontendering shareholders in connection with a repurchase offer, and these
consequences will be disclosed in the related offering documents. For example,
it is possible that repurchases 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.
Taxable distributions to certain shareholders, including those who have not
provided the Fund with their correct taxpayer identification number and other
required certifications, may be subject to "backup" federal tax withholding of
31%.
The foregoing only summarizes some of the federal tax consequences to
shareholders of investing in shares of the Fund, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors, individual retirement accounts and other retirement plans.
Investors should consult their tax advisers.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
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Page Page
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<S> <C> <C> <C>
Additional Information about Investment Policies 2 Taxes 10
Investment Restrictions 3 Custodian 11
Trustees and Officers 5 Transfer and Dividend Paying Agent and Registrar 11
Control Persons and Principal Holders of Shares 7 Performance Information 12
Investment Advisory and Other Services 7 Other Information 13
Determination of Net Asset Value 9 Auditors 14
Portfolio Trading 10 Financial Statements 15
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[GRAPHIC OMITTED] Investing
EATON VANCE for the
- --------------- 21st
Mutual Funds Century
- ------------------------------------------------------------------------------
Eaton Vance
Prime Rate Reserves
PROSPECTUS
APRIL 1, 1998
- ------------------------------------------------------------------------------
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, 200 Clarendon Street, Boston, MA 02116
Transfer Agent
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
Auditors
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
PRP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
April 1, 1998
EATON VANCE PRIME RATE RESERVES
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- ----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Additional Information about Investment Policies ...................... 2
Investment Restrictions ............................................... 3
Trustees and Officers ................................................. 5
Control Persons and Principal Holders of Shares ....................... 7
Investment Advisory and Other Services ................................ 7
Determination of Net Asset Value ...................................... 9
Portfolio Trading ..................................................... 10
Taxes ................................................................. 10
Custodian ............................................................. 11
Transfer and Dividend Paying Agent and Registrar ...................... 11
Performance Information ............................................... 12
Other Information ..................................................... 13
Auditors .............................................................. 14
Financial Statements .................................................. 15
- ----------------------------------------------------------------------------
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 APRIL 1, 1998, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING THE FUND'S PRINCIPAL UNDERWRITER, EATON VANCE DISTRIBUTORS, INC.
(SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
Capitalized terms used in this Statement of Additional Information and not
otherwise defined have the meanings given them in the Fund's Prospectus.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
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 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.
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.
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.
The Fund has no present intention of engaging in options or futures
transactions or 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".
The Fund, as a matter of fundamental policy which may not be changed without
a vote of a majority of its outstanding voting securities and in accord with the
provisions of Rule 23c-3 (as amended from time to time) under the 1940 Act,
shall make repurchase offers for its common shares of beneficial interest at
periodic intervals of three months between repurchase request deadlines, such
deadlines to be dates in the months of February, May, August and November
determined by the Board of Trustees with the repurchase pricing date and time
being not later than the close of business fourteen days after the repurchase
request deadline (or the next business day if the 14th day is not a business
day).
The Portfolio, as a matter of fundamental policy which may not be changed
without a vote of a majority of its outstanding voting securities and in accord
with the provisions of Rule 23c-3 (as amended from time to time) under the 1940
Act, shall make repurchase offers for its interests at periodic intervals of
three months to each holder of its interests between repurchase request
deadlines, such deadlines to be dates determined by the Board of Trustees in the
months when each such holder conducts its periodic repurchases with the
repurchase pricing date and time being not later than the close of business
fourteen days after the repurchase request deadline (or the next business day if
the 14th day is not a business day).
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 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.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policy 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 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.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this Statement of Additional Information states a maximum
percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall be determined immediately after and as a result of the Fund's or
the Portfolio's acquisition of such security or asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances will not compel the Fund or the Portfolio, as the case may be, to
dispose of such security or other asset. Notwithstanding the foregoing, under
normal market conditions the Fund and the Portfolio must take actions necessary
to comply with the policy of investing at least 80% of total assets in interests
in Loans. Moreover, the Fund and the Portfolio must always be in compliance with
the borrowing policies set forth above.
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 BMR, a wholly-owned subsidiary
of Eaton Vance; 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 or the Portfolio as defined in the 1940 Act by virtue of their
affiliation with BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE FUND AND THE PORTFOLIO
JAMES B. HAWKES (56), President and Trustee*
Chairman, President and Chief Executive Officer 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 (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
M. DOZIER GARDNER (64), Vice President and Trustee*
Vice Chairman 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. Mr. Gardner was elected Vice President and Trustee of the
Fund on December 16, 1991.
SAMUEL L. HAYES, III (63), 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 02163
NORTON H. REAMER (62), Trustee
Chairman of the Board and Chief Executive Officer, 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 (71), Trustee
Formerly Director of 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 (68), 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
MICHEL NORMANDEAU (46), 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 (35), 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 of various investment companies managed by Eaton
Vance or BMR.
Address: Earlsfort Terrace, Dublin 2, Ireland.
SCOTT H. PAGE (38), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Mr. Page was elected Vice President
of the Portfolio on October 18, 1996.
PAYSON F. SWAFFIELD (41), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Mr. Swaffield was elected Vice
President of the Portfolio on October 18, 1996.
JAMES L. O'CONNOR (52), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (57), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (62), 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 (35), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. 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 (40), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodbury was
elected Assistant Secretary on June 19, 1995.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Fund and of the Portfolio. The purpose
of the Special Committee is to consider, evaluate and make recommendations to
the full Board of Trustees concerning (i) all contractual arrangements with
service providers to the Fund and the Portfolio, including investment advisory
(Portfolio only), administrative, transfer agency, custodial and fund accounting
and distribution services, and (ii) all other matters in which Eaton Vance or
its affiliates has any actual or potential conflict of interest with the Fund,
the Portfolio or investors therein.
The Nominating Committee of the Board of Trustees of the Fund and the
Portfolio is comprised of four Trustees who are not "interested persons" as that
term is defined under the 1940 Act ("noninterested Trustees"). The Committee has
four-year staggered terms, with one member rotating off the Committee to be
replaced by another noninterested Trustee. The purpose of the Committee is to
recommend to the Board nominees for the position of noninterested Trustee and to
assure that at least a majority of the Board of Trustees is independent of Eaton
Vance and its affiliates.
Messrs. 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 matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, transfer agent and dividend disbursing
agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by the Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services of
any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the 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. 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.
The fees and expenses of the noninterested Trustees of the Fund and of the
Portfolio 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, 1997, the noninterested Trustees of the Fund and the
Portfolio earned the following compensation in their capacities as Trustees of
the Fund, the Portfolio and the 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 ....... $701 $5,994(2) $145,000(5)
Samuel L. Hayes, III ... 645 5,963(3) 155,000(6)
Norton H. Reamer ....... 628 5,684 145,000
John L. Thorndike ...... 657 5,910(4) 145,000(7)
Jack L. Treynor ........ 705 6,277 150,000
- ------------
(1) As of January 1, 1998, the Eaton Vance fund complex consists of 159
registered investment companies or series thereof.
(2) Includes $2,651 of deferred compensation.
(3) Includes $2,051 of deferred compensation.
(4) Includes $5,910 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $38,750 of deferred compensation.
(7) Includes $107,925 of deferred compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of February 27, 1998, 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
February 27, 1998, Merrill Lynch, Pierce, Fenner & Smith, Inc. of Jacksonville,
FL, was the record owner of approximately 27.4% 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
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George manage over
$22 billion in assets. Eaton Vance mutual funds are distributed by the Principal
Underwriter both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
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 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 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. For the fiscal year ended December 31, 1996, the Portfolio paid BMR
advisory fees aggregating $21,643,760 which was equal to 0.91% of the
Portfolio's average daily gross assets. For the fiscal year ended December 31,
1997, the Portfolio paid BMR advisory fees aggregating $31,751,900 which was
equal to 0.89% of the Portfolio's average daily gross assets. As at December 31,
1997, the gross assets of the Portfolio were $4,035,071,925. 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.
For the fiscal years ended December 31, 1997, 1996 and 1995, the Fund paid
Eaton Vance administration fees of $4,386,074, $3,457,475 and $2,020,807,
respectively, which was equal to 0.25% of the average daily gross assets of the
Portfolio attributable to the Fund 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 the Principal Underwriter 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
repurchase 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 any 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, to the extent not covered by insurance.
The Portfolio's Advisory Agreement continues in effect from year to year so
long as such continuance is approved at least annually (i) by the vote of a
majority of the noninterested Trustees of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and (ii)
by the Trustees of the Portfolio or by vote of a majority of the outstanding
interests of the Portfolio. The Fund's Administration Agreement continues in
effect from year to year so long as such continuance is approved at least
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, to the extent not covered by insurance.
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 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, John M. Nelson and Ralph Z. Sorenson. Mr. Hawkes is chairman, president
and chief executive officer and Mr. Gardner is vice chairman 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, the Voting Trustees of which are Messrs.
Gardner, Hawkes, Rowland and Alan R. Dynner, Thomas E. Faust, Jr., William M.
Steul and Wharton P. Whitaker. The Voting Trustees have unrestricted voting
rights for the election of Directors of EVC. All of the outstanding voting
trust receipts issued under said Voting Trust are owned by certain of the
officers of BMR and Eaton Vance who are also officers or officers and
Directors of EV and EVC. As of March 31, 1998, Messrs. Gardner and Hawkes each
owned 24% of such voting trust receipts, Messrs. Rowland and Faust owned 15%
and 13%, respectively, and Messrs. Dynner, Steul and Whitaker owned 8% of such
voting trust receipts. Messrs. Gardner, Hawkes and Dynner are officers or
Trustees of the Fund and/or the Portfolio and are members of the EVC, BMR,
Eaton Vance and EV organizations. Messrs. Murphy, O'Connor, Page, Swaffield
and Woodbury and Ms. Sanders are officers of the Fund and/or the Portfolio and
are members of the BMR, Eaton Vance and EV organizations.
Eaton Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment. 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 also owns approximately 21% of the Class
A shares of Lloyd George Management (B.V.I.) Limited, a registered investment
adviser. 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, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
DETERMINATION OF NET ASSET VALUE
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day 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 repurchase 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. 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 paid no brokerage commissions during its last three fiscal
years.
The frequency of portfolio purchases and sales, known as the "turnover
rate," will vary from year to year. The Portfolio's turnover rate for the fiscal
years ended December 31, 1996 and 1997 were 75% and 81%, respectively.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust and
the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
TAXES
The Fund is treated as a separate corporation, and intends to qualify each
year as a Regulated Investment Company ("RIC"), under the Code to avoid federal
income tax. Accordingly, the Fund intends to satisfy certain requirements
relating to sources of its income and diversification of its assets and to
distribute a sufficient amount of its investment company taxable income so as to
effect such qualification. The Fund may also distribute part or all of its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to reduce or avoid any federal income or
excise tax to the Fund.
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, and the Portfolio intends to do so. For
federal income tax purposes, the Portfolio intends to be treated as a
partnership that is not a "publicly traded partnership" and, as a result, will
not be subject to federal income tax. The Fund, as an investor in the Portfolio,
will be required to take into account in determining its federal income tax
liability its share of the Portfolio's income, gains, losses, deductions, and
credits, without regard to whether it has received any cash distributions from
the Portfolio.
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. For purposes of applying the requirements of the Code
regarding qualification as a RIC, the Fund (i) will be deemed to own its
proportionate share of each of the assets of the Portfolio and (ii) will be
entitled to the gross income of the Portfolio attributable to such share.
In order to avoid federal excise tax, the Code requires the Fund to
distribute by the end of each calendar year substantially all of its ordinary
income for such year and capital gain net income for the one-year period ending
on October 31 of such year, plus certain other amounts. Under current law,
provided that the Fund qualifies as a RIC and the Portfolio is treated as a
partnership for Massachusetts and federal tax purposes, neither the Fund nor the
Portfolio should be liable for any income, corporate excise or franchise tax in
the Commonwealth of Massachusetts.
The federal income tax rules governing the taxation of interest rate swaps
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.
Certain investments of the Portfolio may bear original issue discount or
market discount for tax purposes. The Fund will be required to include in income
each year a portion of such original issue discount and may elect to include in
income each year a portion of such market discount. The Portfolio may have to
dispose of investments that it would otherwise have continued to hold to provide
cash to enable the Fund to satisfy its distribution requirements with respect to
such income.
Distributions of net capital gain are taxable to shareholders as long-term
capital gain, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the shareholder.
Long-term capital gain is separated into different tax rate groups depending on
the length of time the asset is held by the Fund prior to sale. Current IRS
rules permit the Fund to designate net capital gain distributions as "28% rate
gain distributions" or "20% rate gain distributions," and require shareholders
to treat such distributions accordingly.
CUSTODIAN
IBT 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 also provides services in connection with the
preparation of shareholder reports and the electronic filing of such reports
with the Commission.
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, 4400 Computer Drive, Westborough,
MA 01581-5120.
PERFORMANCE INFORMATION
The Fund's current yield for the one-month period ended December 31, 1997
was 6.92%. Yields will fluctuate from time to time and are not necessarily
representative of future results.
The calculation of total return and current yield do 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
performance. 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 table below indicates the cumulative and average annual total return on
a hypothetical investment in shares of $1,000 covering the life of the Fund
through December 31, 1997 and for the one- and five-year periods ended December
31, 1997.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT TOTAL RETURN
PERIOD DATE INVESTMENT ON 12/31/97 CUMULATIVE ANNUALIZED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life of the Fund* 8/4/89 $1,000 $1,792.77 79.28% 7.19%
5 Years Ended 12/31/97 12/31/92 $1,000 $1,380.19 38.02% 6.66%
1 Year Ended 12/31/97 12/31/96 $1,000 $1,069.81 6.98% 6.98%
- ------------
</TABLE>
*Investment operations began August 4, 1989.
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 $179,270 on December 31, 1997.
Period Total Value
8/4/89 100,000
12/31/89 103,586
12/31/90 113,528
12/31/91 122,335
12/31/92 129,897
12/31/93 136,834
12/31/94 145,146
12/31/95 156,854
12/31/96 167,578
12/31/97 179,270
*Past performance is no guarantee 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. Total return is calculated by determining
the percentage change in net asset value with all distributions reinvested.
Early withdrawal charge starts at 3.0% during the first year and decreases
annually to rates of 2.5%, 2.0%, 1.0% and 0%. The chart reflects total return
(change in net asset value with all distributions reinvested) of a hypothetical
investment of $100,000 at 8/4/89. Results do not include the Fund's early
withdrawal charge. Redemptions may be made via mandatory quarterly repurchase
offers.
Comparative information about the Fund's current yield, net asset value and
total return, about the Prime Rate and LIBOR may also be included in
advertisements and communications of the Fund.
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, 1997, the
high was $10.07 (on October 18, 1993) and the low was $9.95 (from January 28
through August 26, 1992). Such materials may include illustrations such as the
following chart:
Principal Performance
as of December 31, 1997
Period Net Asset Value
8/31/89 $10.00
10/2/89 10.00
10/31/89 10.00
11/30/89 10.00
12/31/89 10.00
1/31/90 10.00
2/28/90 10.00
3/31/90 10.00
4/30/90 10.00
5/31/90 10.00
6/30/90 10.00
7/31/90 10.00
8/31/90 10.00
9/30/90 10.00
10/31/90 10.00
11/30/90 9.99
12/31/90 9.97
1/31/91 9.96
2/28/91 9.96
3/31/91 9.96
4/30/91 9.96
5/31/91 9.96
6/30/91 9.96
7/31/91 9.96
8/31/91 9.96
9/30/91 9.96
10/31/91 9.96
11/30/91 9.96
12/31/91 9.96
1/31/92 9.95
2/29/92 9.95
3/31/92 9.95
4/30/92 9.95
5/31/92 9.95
6/30/92 9.95
7/31/92 9.95
8/31/92 9.96
9/30/92 9.99
10/31/92 9.98
11/30/92 10.00
12/31/92 10.02
1/31/93 10.02
2/28/93 9.99
3/31/93 9.97
4/30/93 10.00
5/31/93 10.02
6/30/93 10.03
7/31/93 10.02
8/31/93 10.04
9/30/93 10.05
10/31/93 10.03
11/30/93 10.03
12/31/93 10.03
1/31/94 10.03
2/28/94 10.03
3/31/94 10.00
4/30/94 9.99
5/31/94 9.99
6/30/94 10.00
7/31/94 10.00
8/31/94 9.96
9/30/94 9.96
10/31/94 9.97
11/30/94 9.97
12/31/94 10.02
1/31/95 10.02
2/28/95 10.04
3/31/95 10.04
4/30/95 10.03
5/31/95 10.03
6/30/95 10.03
7/31/95 10.03
8/31/95 10.03
9/30/95 10.03
10/31/95 10.03
11/30/95 10.03
12/31/95 10.01+
1/31/96 10.01
2/29/96 10.01
3/31/96 10.00
4/30/96 9.99
5/31/96 9.99
6/30/96 9.99
7/31/96 9.99
8/31/96 9.99
9/30/96 9.99
10/31/96 9.99
11/30/96 9.99
12/31/96 9.99
1/31/97 9.99
2/28/97 9.99
3/31/97 9.99
4/30/97 9.99
5/31/97 9.99
6/30/97 9.99
7/31/97 9.99
8/31/97 9.99
9/30/97 9.99
10/31/97 9.99
11/30/97 9.99
12/31/97 9.99
Chart shows the Fund's month-end net asset value per share for the life of the
Fund since its inception (8/4/89 to 12/31/97). Past performance is no guarantee
of future results.
Advertisements and communications 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. The comparison may also be made to relevant
indices.
Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific financial goals. Information in advertisements
and materials furnished to present and prospective investors may also include
quotations (including editorial comments) and statistics concerning investing in
securities, as well as investing in particular types of securities and the
performance of such securities.
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 (or the Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
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 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 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.
The Portfolio's Declaration of Trust 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.
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 Commission. The complete Registration Statement may be obtained
from the 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 Commission. Deloitte & Touche, Grand Cayman, Cayman Islands,
British West Indies, are the independent accountants for the Portfolio.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for, the Fund and the Portfolio appear in the Fund's most recent annual report
to shareholders and are incorporated by reference into this Statment of
Additional Information. A copy of the 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, 1997 as
previously filed electronically with the Commission (Accession No.
0000950156-98-000174).
<PAGE>
[GRAPHIC OMITTED] Investing
EATON VANCE for the
- --------------- 21st
Mutual Funds Century
- -------------------------------------------------------------------------------
Eaton Vance Prime Rate
Reserves
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
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, 200 Clarendon Street, Boston, MA 02116
Transfer Agent
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
Independent Accountants
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
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 eight years ended December 31,
1997, 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,
1997 (ACCESSION NO. 0000950156-98-000000174) 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, 1997
Statement of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for each of the two years
ended December 31, 1997
Statement of Cash Flows for the year ended December 31, 1997
Financial Highlights for the five years ended December 31, 1997
Notes to Financial Statements
Independent Auditors' Report
Financial Statements for SENIOR DEBT PORTFOLIO:
Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for each of the two years
ended December 31, 1997
Statement of Cash Flows for the year ended December 31, 1997
Supplementary Data for each of the two years ended December 31,
1997 and 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 November 1, 1996 as Exhibit (h)(a)
to Post-Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (1933 Act File No. 333-25731)
and Amendment No. 17 to the Registration Statement under the
Investment Company Act of 1940 (1940 Act File No. 811-05808)
filed with the Commission on July 2, 1997 (Amendment No. 17)
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.
(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
as Exhibit (j)(b) to the Post-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 (1933
Act File No. 33-63623) and Amendment No. 15 to the Registration
Statement under the Investment Company Act of 1940 (1940 Act
File No. 811-05808) filed with the Commission on April 1, 1996
(Amendment No. 15) and incorporated herein by reference.
(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.
(c) Transfer Agency Agreement as of January 1, 1998 filed as
Exhibit (k)(b) to the Registration Statement on Form N-2 of
Eaton Vance Advisers Senior Floating-Rate Fund (File Nos.
333-46853, 811-08671) (Accession No. 0000950156-98-000172) and
incorporated herein by reference.
(l) Opinion and Consent of Counsel dated April 23, 1997 filed as
Exhibit (l) to Amendment No. 16 and incorporated herein by
reference.
(m) Not applicable
(n) (a) Consent of Independent Auditors for Eaton Vance Prime Rate
Reserves filed herewith.
(b) Consent of Independent Auditors for Senior Debt Portfolio filed
herewith.
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Power of Attorney for Eaton Vance Prime Rate Reserves dated
February 14, 1997 filed as Exhibit (r) to Amendment No. 17 and
incorporated herein by reference.
(s) Power of Attorney for Senior Debt Portfolio dated February 14, 1997
filed as Exhibit (s) to Amendment No. 17 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 ............................................. $1,298,589(1)
National Association of Securities Dealers, Inc. .............. $ 76,500(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) ................................... $ 275,550
Accounting fees and expenses .................................. $ 13,500
Legal fees and expenses ....................................... $ 230,000
----------
Total ................................................. $2,067,239
==========
- ------------------
(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. 333-25731) on April 24, 1997 and declared
effective on May 1, 1997; (b) (File No. 33-63623) on October 24, 1995 and
declared effective on November 28, 1995; (c) (File No. 33-34922) on May 16,
1990 and declared effective on July 3, 1990; (d) (File No. 33-30268) on
August 2, 1989 and declared effective August 9, 1989; and (e) (File No.
33-28516) on May 3, 1989; and which are incorporated herein by reference.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest 46,813
as of
February 28, 1998
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws contains indemnification provisions. 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.
The distribution agreement of the Registrant also provides for reciprocal
indemnity of the principal underwriter on the one hand, and the Trustees and
officers, on the other.
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, 200 Clarendon Street,
Boston, MA 02116, and its transfer agent, First Data Investor Services Group,
4400 Computer Drive, Westborough, MA 01581-5120, 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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the continuous offering of the shares; and
(4) To send by first class mail or other means designed to ensure
equally prompt delivery, within two business days of receipt of a written or
oral request, any Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 486(b) under the Securities Act of 1933 and has duly
caused this Amendment to the 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 26th day of March, 1998.
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.
SIGNATURE TITLE DATE
--------- ----- -----
Trustee, President and
/s/ JAMES B. HAWKES Principal Executive Officer March 26, 1998
- --------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer March 26, 1998
- --------------------------
JAMES L. O'CONNOR
Trustee and Vice
/s/ M. DOZIER GARDNER President March 26, 1998
- --------------------------
M. DOZIER GARDNER
DONALD R. DWIGHT* Trustee March 26, 1998
- --------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee March 26, 1998
- --------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee March 26, 1998
- --------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee March 26, 1998
- --------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee March 26, 1998
- --------------------------
JACK L. TREYNOR
*By /s/ ALAN R. DYNNER
----------------------
ALAN R. DYNNER
Attorney-in-fact
<PAGE>
SIGNATURES
Senior Debt Portfolio has duly caused this Amendment to the Registration
Statement on Form N-2 of Eaton Vance Prime Rate Reserves (File No. 333-25731) to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Hamilton, Bermuda on the 20th day of February, 1998.
SENIOR DEBT PORTFOLIO
By /s/ JAMES B. HAWKES
---------------------------------
JAMES B. HAWKES, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, Principal
Executive Officer and
/s/ JAMES B. HAWKES Trustee February 20, 1998
- --------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
JAMES L. O'CONNOR* Accounting Officer February 20, 1998
- --------------------------
JAMES L. O'CONNOR
/s/ DONALD R. DWIGHT Trustee February 20, 1998
- --------------------------
DONALD R. DWIGHT
/s/ M. DOZIER GARDNER Trustee February 20, 1998
- --------------------------
M. DOZIER GARDNER
/s/ SAMUEL L. HAYES, III Trustee February 20, 1998
- --------------------------
SAMUEL L. HAYES, III
/s/ NORTON H. REAMER Trustee February 20, 1998
- --------------------------
NORTON H. REAMER
/s/ JOHN L. THORNDIKE Trustee February 20, 1998
- --------------------------
JOHN L. THORNDIKE
/s/ JACK L. TREYNOR Trustee February 20, 1998
- --------------------------
JACK L. TREYNOR
*By /s/ JAMES B. HAWKES
------------------
JAMES B. HAWKES
Attorney-in-fact
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE
<C> <S> <C>
(n)(a) Consent of Independent Auditors for Eaton Vance Prime Rate
Reserves
(n)(b) Consent of Independent Auditors for Senior Debt Portfolio
</TABLE>
<PAGE>
EXHIBIT (n)(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 2
to the Registration Statement of Eaton Vance Prime Rate Reserves of our report
relating to Eaton Vance Prime Rate Reserves dated February 13, 1998, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1997.
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, which is part of the Registration Statement.
/s/ Deloitte & Touche LLP
- ----------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 26, 1998
<PAGE>
EXHIBIT (n)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 2
to the Registration Statement of Eaton Vance Prime Rate Reserves of our report
relating to Senior Debt Portfolio dated February 13, 1998, in the Statement of
Additional Information, which is part of such Registration Statement.
We also consent to the reference to our firm under the captions "Auditors" and
"Financial Statements" in the Statement of Additional Information, which is part
of such Registration Statement.
/s/ Deloitte & Touche
- -------------------------
Deloitte & Touche
Grand Cayman, Cayman Islands
British West Indies
March 26, 1998
<TABLE> <S> <C>
<PAGE>
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<ACCUMULATED-NII-PRIOR> 163
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<NET-INVESTMENT-INCOME> 254014
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<APPREC-INCREASE-CURRENT> 8549
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<DISTRIBUTIONS-OF-GAINS> 0
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<NET-CHANGE-IN-ASSETS> 1024997
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 34217
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
