<PAGE>
EV CLASSIC SENIOR FLOATING-RATE FUND
THE INVESTMENT OBJECTIVE OF EV CLASSIC SENIOR FLOATING-RATE FUND (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 THE SENIOR DEBT PORTFOLIO (THE "PORTFOLIO"). THE
PORTFOLIO HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND, A
CONTINUOUSLY OFFERED, CLOSED-END, NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY,
INVESTS DIRECTLY IN THE PORTFOLIO, A SEPARATE, CLOSED-END, NON-DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY, RATHER THAN, AS WITH AN HISTORICALLY STRUCTURED
INVESTMENT COMPANY, INVESTING DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF
LOANS AND SECURITIES. THE PORTFOLIO AND THE FUND MAY BORROW, PRIMARILY IN
CONNECTION WITH THE FUND'S TENDER OFFERS FOR ITS SHARES. SEE "USE OF LEVERAGE"
ON PAGE 8.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus sets forth information about the Fund that an investor
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information for the Fund dated February 22,
1995, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Table of
Contents of the Statement of Additional Information appears at the end of this
Prospectus. The Statement of Additional Information is available without charge
from the Fund's Principal Underwriter, Eaton Vance Distributors, Inc., 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 THECONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
PRICE TO PUBLIC SALES LOAD(2) PROCEEDS TO FUND(3)
--------------- ------------- -------------------
Per Share(1) ........ $10.00 None $ 10.00
Total ............... $69,000,000 None to be paid by the Fund $69,000,000
- -----------------
(1) The shares are offered on a best efforts basis at a price equal to the net
asset value, which initially is $10.00 per share. See "How to Buy Fund
Shares."
(2) Because Eaton Vance Distributors, Inc. and its affiliates will pay all sales
commissions to authorized firms from their own assets, the net proceeds of
the offering will be available to the Fund for investment in the Portfolio.
See "How to Buy Fund Shares."
(3) Assuming all shares currently registered are sold pursuant to the continuous
offering, and before deduction of organizational and initial offering
expenses payable by the Fund of $99,263 (which amount is being amortized
over the five year period commencing February 22, 1995 and charged against
the income of the Fund).
EATON VANCE DISTRIBUTORS, INC.
PROSPECTUS DATED FEBRUARY 22, 1995
<PAGE>
The Fund is engaged in a continuous public offering of its shares at net
asset value without an initial sales charge. An early withdrawal charge of up to
1% will be imposed on most shares held for less than one year which are accepted
for repurchase pursuant to a tender offer, as set forth below. See "How to Buy
Fund Shares" and "Early Withdrawal." The address of the Fund is 24 Federal
Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolio's investment adviser is Boston Management and Research (the
"Investment Adviser" or "BMR"), a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"), and Eaton Vance is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
NO MARKET PRESENTLY EXISTS FOR THE FUND'S SHARES AND IT IS NOT CURRENTLY
ANTICIPATED THAT A SECONDARY MARKET WILL DEVELOP FOR THE FUND'S SHARES. Fund
shares are not readily marketable. To provide investor liquidity, the Trustees
of the Fund presently intend each quarter to consider the making of a tender
offer to purchase all or a portion of the Fund's shares at net asset value.
See "Tender Offers to Purchase Shares."
TABLE OF CONTENTS
PAGE
Shareholder and Fund Expenses ............................................. 3
The Fund's Investment Objective ........................................... 4
How the Fund and the Portfolio Invest their Assets
(including "Risk Factors") ............................................. 4
Yield and Performance Information ......................................... 11
Organization of the Fund and the Portfolio ................................ 13
Management of the Fund and the Portfolio .................................. 16
Service Plan .............................................................. 17
Valuing Fund Shares ....................................................... 17
How to Buy Fund Shares .................................................... 19
Tender Offers to Purchase Shares .......................................... 20
Early Withdrawal .......................................................... 22
Reports to Shareholders ................................................... 23
The Lifetime Investing Account/Distribution Options ....................... 23
Eaton Vance Shareholder Services .......................................... 24
Distributions and Taxes ................................................... 25
Table of Contents of the Statement of Additional Information .............. 27
<PAGE>
SHAREHOLDER AND FUND EXPENSES(1)
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) ..................... None
Dividend Reinvestment Fees ......................................... None
Early Withdrawal Charge Imposed on Tender of Entire Account
During the First Year (as a percentage of tender
proceeds exclusive of all reinvestments and capital
appreciation in the account)(2) ................................ 1%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets attributable to shares of beneficial
interest)
Investment Advisory Fee(3) ......................................... 0.95%
Interest Payments on Borrowed Funds ................................ 0.20%
Other Expenses (including administration fees(3)
of .25% and service fees of .15%) .............................. 0.80%
Total Annual Expenses .............................................. 1.95%
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
An investor would pay the following early
withdrawal charge and expenses on a $1,000
investment, assuming (a) 5% annual return and (b)
tender at the end of each period: $30 $61
An investor would pay the following expenses on
the same investment, assuming (a) 5% annual return
and (b) no tenders: $20 $61
Notes:
(1) The purpose of the above table and the Example is to summarize the
aggregate expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund
will bear directly or indirectly. The Trustees of the Fund believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to the per share expenses which the Fund
would incur if the Fund retained the services of an investment adviser and
the assets of the Fund were invested directly in the type of securities
being held by the Portfolio. Because the Fund does not yet have an
operating history, the percentages indicated as Annual Fund and Allocated
Portfolio Operating Expenses and the amounts included in the Example are
based on both the Fund's and the Portfolio's projected fees and expenses
for the fiscal year ending December 31, 1995. The table and Example should
not be considered a representation of past or future expenses since future
expenses may be greater or less than those shown in the table and Example.
For further information regarding the expenses of both the Fund and the
Portfolio see "Organization of the Fund and the Portfolio", "Management of
the Fund and the Portfolio", "How to Buy Fund Shares" and "Tender Offers to
Purchase Shares".
(2) No early withdrawal charge is imposed on (a) shares purchased more than one
year prior to the acceptance for tender, (b) shares acquired through the
reinvestment of dividends and distributions and (c) any appreciation in
value of other shares in the account (see "Tender Offers to Purchase
Shares").
(3) The Investment Advisory and Administration Fees are based upon a percentage
of the Portfolio's average daily gross assets, which are estimated to be
approximately the same as its average daily net assets for the fiscal year
ending December 31, 1995.
(4) Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies may do so
in the future. See "Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
EV Classic Senior Floating-Rate Fund (the "Fund") is a closed-end,
non-diversified management investment company which continuously offers its
shares of beneficial interest ("shares") to the public. The Fund's investment
objective is to provide as high a level of current income as is consistent with
the preservation of capital, by investing in a portfolio primarily of senior
secured floating rate loans. The Fund currently seeks to achieve its objective
by investing its assets in the Senior Debt Portfolio (the "Portfolio"), a
separate closed-end, non-diversified management investment company with the same
investment objective as the Fund. There is no assurance that the Fund's
objective, or any specific yield on Fund shares, will be achieved. See "Yield
and Performance Information." An investment in shares of the Fund is not a
complete investment program.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
The Portfolio will invest primarily in senior secured floating rate loans,
and also in other institutionally traded senior secured floating rate debt
obligations (collectively, "Loans"). Under normal market conditions, the
Portfolio will invest at least 80% of its total assets in interests in Loans
("Loan Interests"). These Loans are made primarily to U.S. companies or their
affiliates or issuers of asset-backed interests (collectively, "Borrowers") and
have floating interest rates. Up to 20% of the Portfolio's total assets may be
held in cash, invested in investment grade short-term debt obligations, and
invested in interests in Loans that are unsecured ("Unsecured Loans"). See
"Other Investment Policies" below.
The Loans in which the Portfolio acquires Loan Interests will, in the
judgment of Boston Management and Research (the "Investment Adviser" or "BMR"),
be in the category of senior debt of the Borrower and will generally hold the
most senior position in the capitalization structure of the Borrower. Loans will
consist primarily of direct obligations of U.S. companies or their affiliates
undertaken to finance a capital restructuring or in connection with
recapitalizations, acquisitions, leveraged buy-outs, refinancings or other
financially leveraged transactions. Such Loans may include those made to a
Borrower for the purpose of acquiring ownership or control of a company, whether
as a purchase of equity or of assets, or for a leveraged recapitalization with
no change in ownership. Except for Unsecured Loans, each Loan will be secured by
collateral which BMR believes to have a market value, at the time of acquiring
the Loan Interest, which equals or exceeds the principal amount of the Loan.
Subsequent to purchase, the value of the collateral may decline, and the Loan
may no longer be as secured. The Loans will typically have a stated term of five
to eight years. However, since the Loans typically amortize principal over their
stated life and are frequently prepaid, their effective maturity is expected to
be two to three years. The Portfolio will maintain a segregated account with its
custodian of liquid, high grade debt obligations with a value equal to the
amount, if any, of the Loan which the Portfolio has obligated itself to make to
the Borrower, but which has not yet been requested from the Portfolio. The
Portfolio will attempt to maintain a portfolio of Loan Interests that will have
a dollar weighted average period to next interest rate adjustment of
approximately 90 days or less.
The Portfolio will purchase Loan Interests only if, in BMR's judgment, the
Borrower can meet debt service on the Loan. In addition, a Borrower must meet
other criteria established by BMR and deemed by it to be appropriate to the
analysis of the Borrower, the Loan and the Loan Interest. The Loan Interests in
which the Portfolio invests are not currently rated by any nationally recognized
rating service. The primary consideration in selecting such Loan Interests for
investment by the Portfolio is the creditworthiness of the Borrower. The quality
ratings assigned to other debt obligations of a Borrower are generally not a
material factor in evaluating Loans in which the Portfolio may acquire a Loan
Interest, since such obligations will typically be subordinated to the Loans and
be unsecured. Instead, BMR will perform its own independent credit analysis of
the Borrower in addition to utilizing information prepared and supplied by the
Agent (as defined below) or other participants in the Loans. Such analysis will
include an evaluation of the industry and business of the Borrower, the
management and financial statements of the Borrower, and the particular terms of
the Loan and the Loan Interest which the Portfolio may acquire. BMR's analysis
will continue on an ongoing basis for any Loan Interest purchased and held by
the Portfolio. No assurance can be given regarding the availability at
acceptable prices of Loan Interests that satisfy the Portfolio's investment
criteria.
A Loan in which the Portfolio may acquire a Loan Interest is typically
originated, negotiated and structured by a U.S. or foreign commercial bank,
insurance company, finance company or other financial institution (the "Agent")
for a lending syndicate of financial institutions. The Agent typically
administers and enforces the loan on behalf of the other lenders in the
syndicate. In addition, an institution, typically but not always the Agent (the
"Collateral Bank"), holds any collateral on behalf of the lenders. The
Collateral Bank must be a qualified custodian under the Investment Company Act
of 1940, as amended (the "1940 Act"). These Loan Interests generally take the
form of direct interests acquired during a primary distribution and may also
take the form of participation interests in, assignments of, or novations of a
Loan acquired in secondary markets. Such Loan Interests may be acquired from
U.S. or foreign commercial banks, insurance companies, finance companies or
other financial institutions who have made loans or are members of a lending
syndicate or from other holders of Loan Interests. The Portfolio may also
acquire Loan Interests under which the Portfolio derives its rights directly
from the Borrower. Such Loan Interests are separately enforceable by the
Portfolio against the Borrower and all payments of interest and principal are
typically made directly to the Portfolio from the Borrower. In the event that
the Portfolio and other lenders become entitled to take possession of shared
collateral, it is anticipated that such collateral would be held in the custody
of a Collateral Bank for their mutual benefit. The Portfolio may not act as an
Agent, a Collateral Bank, a guarantor or sole negotiator or structurer with
respect to a Loan.
BMR also analyzes and evaluates the financial condition of the Agent and, in
the case of Loan Interests in which the Portfolio does not have privity with the
Borrower, those institutions from or through whom the Portfolio derives its
rights in a Loan (the "Intermediate Participants"). The Portfolio will invest in
Loan Interests only if the outstanding debt obligations of the Agent and
Intermediate Participants, if any, are, at the time of investment, investment
grade, i.e., (a) rated BBB or better by Standard and Poor's Ratings Group
("S&P") or Baa or better by Moody's Investors Service, Inc. ("Moody's"); or (b)
rated A-2 by S&P or P-2 by Moody's; or (c) determined to be of comparable
quality by BMR.
The Portfolio may from time to time acquire Loan Interests in transactions
in which the current yield to the Portfolio exceeds the stated interest rate on
the Loan. These Loan Interests are referred to herein as "Discount Loan
Interests" because they are usually acquired at a discount from their nominal
value or with a facility fee that exceeds the fee traditionally received in
connection with the acquisition of Loan Interests. The Borrowers with respect to
such Loans may have experienced, or may be perceived to be likely to experience,
credit problems, including involvement in or recent emergence from bankruptcy
reorganization proceedings or other forms of credit restructuring. In addition,
Discount Loan Interests may become available as a result of an imbalance in the
supply of and demand for certain Loan Interests. The Portfolio may acquire
Discount Loan Interests in order to realize an enhanced yield or potential
capital appreciation when BMR believes that such Loan Interests are undervalued
by the market due to an excessively negative assessment of a Borrower's
creditworthiness or an imbalance between supply and demand. The Portfolio may
benefit from any appreciation in value of a Discount Loan Interest, even if the
Portfolio does not obtain 100% of the Loan Interest's face value or the Borrower
is not wholly successful in resolving its credit problems.
From time to time BMR and its affiliates may borrow money from various banks
in connection with their business activities. Such banks may also sell interests
in Loans to or acquire such interests from the Portfolio or may be Intermediate
Participants with respect to Loans in which the Portfolio owns interests. Such
banks may also act as Agents for Loans in which the Portfolio owns interests.
RISK FACTORS
BMR expects the Fund's net asset value to be relatively stable during normal
market conditions because the Portfolio's assets will consist primarily of
interests in floating rate Loans and of short-term instruments. Accordingly, the
value of the Portfolio's assets may fluctuate significantly less as a result of
interest rate changes than would a portfolio of fixed-rate obligations.
Nevertheless, a default in a Loan in which the Portfolio owns a Loan Interest, a
material deterioration of a Borrower's perceived or actual creditworthiness or a
sudden and extreme increase in prevailing interest rates may cause a decline in
the Fund's net asset value. Conversely, a sudden and extreme decline in interest
rates could result in an increase in the Fund's net asset value. The Fund is not
a money market fund and its net asset value will fluctuate, reflecting any
fluctuations in the Portfolio's net asset value.
Investments in Loan Interests by the Portfolio bear certain risks common to
investing in many secured debt instruments of nongovernmental issuers, including
the risk of nonpayment of principal and interest by the Borrower, that Loan
collateral may become impaired, that any losses will be proportionate to the
degree of Loan Interest diversification and Borrower industry concentration, and
that the Portfolio may obtain less than full value for Loan Interests sold
because they are illiquid.
CREDIT RISK. Loan Interests are primarily dependent upon the
creditworthiness of the Borrower for payment of interest and principal. The
nonreceipt of scheduled interest or principal on a Loan Interest may adversely
affect the income of the Portfolio or the value of its investments, which may in
turn reduce the amount of dividends or the net asset value of the shares of the
Fund. The Portfolio's ability to receive payment of principal of and interest on
a Loan Interest also depends upon the creditworthiness of any institution
interposed between the Portfolio and the Borrower. To reduce credit risk, BMR
actively manages the Portfolio as described above.
Loan Interests in Loans made in connection with leveraged buy-outs,
recapitalizations and other highly leveraged transactions are subject to greater
credit risks than many of the other Loan Interests in which the Portfolio may
invest. As of the date of this Prospectus, such Loan Interests constituted
substantially all of the Portfolio's Loan Interests. These credit risks include
the possibility of a default on the Loan or bankruptcy of the Borrower. The
value of such Loan Interests are subject to a greater degree of volatility in
response to interest rate fluctuations and may be less liquid than other Loan
Interests.
The Portfolio may acquire interests in Loans which are designed to provide
temporary or "bridge" financing to a Borrower pending the sale of identified
assets or the arrangement of longer-term loans or the issuance and sale of debt
obligations. The Portfolio may also invest in Loan Interests of Borrowers who
have obtained bridge loans from other parties. A Borrower's use of bridge loans
involves a risk that the Borrower may be unable to locate permanent financing to
replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.
Although Loans in which the Portfolio invests will generally hold the most
senior position in the capitalization structure of the Borrowers, the
capitalization of many Borrowers will include non-investment grade subordinated
debt. During periods of deteriorating economic conditions, a Borrower may
experience difficulty in meeting its payment obligations under such bonds and
other subordinated debt obligations. Such difficulties may detract from the
Borrower's perceived creditworthiness or its ability to obtain financing to
cover short-term cash flow needs and may force the Borrower into bankruptcy or
other forms of credit restructuring.
COLLATERAL IMPAIRMENT. Loans (excluding Unsecured Loans) will be secured
unless (i) the value of the collateral declines below the amount of the Loans,
(ii) the Portfolio's security interest in the collateral is invalidated for any
reason by a court or (iii) the collateral is partially or fully released under
the terms of the Loan Agreement as the creditworthiness of the Borrower
improves. There is no assurance that the liquidation of collateral would satisfy
the Borrower's obligation in the event of nonpayment of scheduled interest or
principal, or that collateral could be readily liquidated. The value of
collateral generally will be determined by reference to financial statements of
the Borrower, an independent appraisal performed at the request of the Agent at
the time the Loan was initially made, the market value of such collateral (e.g.,
cash or securities) if it is readily ascertainable and/or by other customary
valuation techniques considered appropriate in the judgment of BMR. Collateral
is generally valued on the basis of the Borrower's status as a going concern and
such valuation may exceed the immediate liquidation value of the collateral.
Collateral may include (i) working capital assets, such as accounts
receivable and inventory; (ii) tangible fixed assets, such as real property,
buildings and equipment; (iii) intangible assets, such as trademarks and patent
rights (but excluding goodwill); and (iv) security interests in shares of stock
of subsidiaries or affiliates. To the extent that collateral consists of the
stock of the Borrower's subsidiaries or other affiliates, the Portfolio will be
subject to the risk that this stock will decline in value. Such a decline,
whether as a result of bankruptcy proceedings or otherwise, could cause the Loan
to be undercollateralized or unsecured. In most credit agreements there is no
formal requirement to pledge additional collateral. In the case of Loans made to
non-public companies, the company's shareholders or owners may provide
collateral in the form of secured guarantees and/or security interests in assets
that they own. In addition, the Portfolio may invest in Loans guaranteed by, or
fully secured by assets of, such shareholders or owners, even if the Loans are
not otherwise collateralized by assets of the Borrower; provided, however, that
such guarantees are fully secured. There may be temporary periods when the
principal asset held by a Borrower is the stock of a related company, which may
not legally be pledged to secure a Loan. On occasions when such stock cannot be
pledged, the Loan will be temporarily unsecured until the stock can be pledged
or is exchanged for or replaced by other assets, which will be pledged as
security for the Loan. However, the Borrower's ability to dispose of such
securities, other than in connection with such pledge or replacement, will be
strictly limited for the protection of the holders of Loans and, indirectly,
Loan Interests.
If a Borrower becomes involved in bankruptcy proceedings, a court may
invalidate the Portfolio's security interest in the Loan collateral or
subordinate the Portfolio's rights under the Loan to the interests of the
Borrower's unsecured creditors. Such action by a court could be based, for
example, on a "fraudulent conveyance" claim to the effect that the Borrower did
not receive fair consideration for granting the security interest in the Loan
collateral to the Portfolio. For Loans made in connection with a highly
leveraged transaction, consideration for granting a security interest may be
deemed inadequate if the proceeds of the Loan were not received or retained by
the Borrower, but were instead paid to other persons (such as shareholders of
the Borrower) in an amount which left the Borrower insolvent or without
sufficient working capital. There are also other events, such as the failure to
perfect a security interest due to faulty documentation or faulty official
filings, which could lead to the invalidation of the Portfolio's security
interest in Loan collateral. If the Portfolio's security interest in Loan
collateral is invalidated or the Loan is subordinated to other debt of a
Borrower in bankruptcy or other proceedings, it is unlikely that the Portfolio
would be able to recover the full amount of the principal and interest due on
the Loan.
DIVERSIFICATION AND INDUSTRY CONCENTRATION. The Fund and the Portfolio have each
registered with the U.S. Securities and Exchange Commission as a
"non-diversified" investment company. As a result, the Fund and the Portfolio
are required to comply only with the diversification requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended. See "Taxes" in the Statement
of Additional Information for a description of these requirements. Because the
Portfolio may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the value of the Portfolio's
investments will be more affected by any single adverse economic, political or
regulatory occurrence than will the value of the investments of a diversified
investment company. It is the Portfolio's current intention not to invest more
than 10% of its total assets in Loans of any single Borrower. The Portfolio may
invest more than 10% (but not more than 25%) of its total assets in Loan
Interests for which the same Intermediate Participant is interposed between the
Borrower and the Portfolio. The Portfolio may acquire Loan Interests in Loans
made to Borrowers in any industry. However, the Portfolio will not concentrate
in any one industry with respect to Borrowers in whose Loans the Portfolio
acquires Loan Interests or interpositioned persons that the Portfolio determines
to be issuers for the purpose of this policy. See "Investment Restrictions" in
the Statement of Additional Information.
ILLIQUID INSTRUMENTS. Loan Interests are, at present, not readily marketable and
may be subject to legal and contractual restrictions on resale. Although Loan
Interests are traded among certain financial institutions, some of the Loan
Interests acquired by the Portfolio will be considered illiquid. The Portfolio's
ability to dispose of a Loan Interest may be reduced to the extent that there
has been a perceived or actual deterioration in the creditworthiness of an
individual Borrower or the creditworthiness of Borrowers in general, or by
events that reduce the level of confidence in the market for Loan Interests. As
the market for Loan Interests becomes more seasoned, liquidity is expected to
improve. However, the Portfolio has no limitation on the amount of its
investments which can be not readily marketable or subject to restrictions on
resale. Such investments may affect the Portfolio's ability to realize its net
asset value in the event of a voluntary or involuntary liquidation of its
assets. To the extent that such investments are illiquid, the Portfolio may have
difficulty disposing of portfolio securities in order to make its tender offer
payment obligations, if any. The Trustees of the Portfolio will consider the
liquidity of the Portfolio's investments in determining whether a tender offer
should be effected by the Portfolio. Tender offer decisions of the Portfolio
directly affect the ability of the Fund to make its tender offers.
USE OF LEVERAGE
The Portfolio may from time to time (i) borrow money on a secured or
unsecured basis at variable or fixed rates, and (ii) issue indebtedness such as
commercial paper, bonds, debentures, notes or similar obligations or instruments
and invest the capital raised in additional portfolio investments and/or meet
its obligations pursuant to tender offers, if any. BMR currently expects that
the Portfolio may incur borrowings and issue such debt in order to remain fully
invested by managing anticipated cash infusions from the prepayment of Loans and
the sale of Fund shares and cash outflows from the repurchase of Fund shares in
connection with tender offers. For example, the Portfolio may use borrowed cash
to purchase Loan Interests and repay such borrowings from the proceeds of
expected sales of Fund shares. The Portfolio may also borrow and issue debt for
the purpose of acquiring additional income-producing investments when it
believes that the interest payments and other costs with respect to such
borrowings or indebtedness will be exceeded by the anticipated total return (a
combination of income and appreciation) on such investments. The amount of any
such borrowing or issuance will depend upon market or economic conditions
existing at that time.
However, as prescribed by the 1940 Act, the Portfolio will be required to
maintain specified asset coverages of at least 300% with respect to any bank
borrowing or issuance of indebtedness immediately following any such borrowing
or issuance and on an ongoing basis as a condition of declaring dividends. The
Portfolio's inability to make distributions as a result of these requirements
could cause the Fund to fail to qualify as a regulated investment company and/
or subject the Fund to income or excise taxes. The Portfolio may be required to
dispose of portfolio investments on unfavorable terms if market fluctuations or
other factors reduce the required asset coverage to less than the prescribed
amount.
Capital raised through leverage will be subject to interest costs which may
or may not exceed the interest earned on the assets purchased. The Portfolio may
also be required to maintain minimum average balances in connection with
borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate. The issuance of additional classes of debt involves offering
expenses and other costs and may limit the Portfolio's freedom to pay dividends
or to engage in other activities. Borrowings and the issuance of indebtedness
create an opportunity to be more fully invested and to earn greater income.
However, any such borrowing or issuance is a speculative technique in that it
will increase the Portfolio's exposure to capital risk. Such risks may be
mitigated through the use of borrowings and issuances of indebtedness that have
floating rates of interest. Unless the income and appreciation, if any, on
assets acquired with borrowed funds or offering proceeds exceeds the cost of
borrowing or issuing debt, the use of leverage will diminish the investment
performance of the Fund compared with what it would have been without leverage.
The Portfolio will not always borrow money or issue debt to finance
additional investments. The Portfolio may borrow money to finance its tender
offer payment obligations, if any, or for temporary, extraordinary or emergency
purposes. The Portfolio's willingness to borrow money and issue debt for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are the investment outlook, market conditions and
interest rates. To the extent that the Portfolio invests borrowed money in
short-term fixed-rate debt obligations, successful use of a leveraging strategy
depends on BMR's ability to correctly predict interest rates and market
movements over these short-term periods. There is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
The Portfolio has established a $245 million commercial paper program,
pursuant to which it may from time to time sell its unsecured notes ("commercial
paper") with short-term maturities of up to 270 days from the issuance thereof
to accredited investors. The Portfolio may use the proceeds from the sale of its
commercial paper to finance on a short-term basis the cash payments made for
tender offers and may repay such borrowings from principal and interest payments
made on the Loans. The Portfolio expects to continue to use commercial paper
borrowings to finance such payments in the future as well as for investment
purposes, and for paying interest or principal in respect of its obligations.
The Portfolio's commercial paper will be issued pursuant to an Issuing and
Paying Agency Agreement between the Portfolio and Citibank, N.A., and will be
entitled to the benefits of a commercial paper surety bond made by Capital
Markets Assurance Corporation in favor of Citibank, N.A. as a limited fiduciary
for the holders of the commercial paper. The Portfolio has entered into an
Insurance and Indemnity Agreement with Capital Markets Assurance Corporation,
pursuant to which the Portfolio has agreed that, in the event of default under
said Agreement, it will not declare dividends or other distributions on, or
repurchase or otherwise acquire, an interest of the Portfolio or pay fees to BMR
as compensation for the provision of managerial or administrative services. In
the event of such a default, the Portfolio's inability to declare dividends and
distributions as a result of these requirements could cause the Fund to fail to
qualify as a regulated investment company and/or subject it to income or excise
taxes. Although the Fund has no current intention to engage in borrowing,
because the Portfolio will borrow the Fund will be affected thereby.
OTHER INVESTMENT POLICIES
The Portfolio will, during normal market conditions, invest at least 80% of
its total assets in Loan Interests that conform to the requirements described
above. However, up to 20% of the Portfolio's total assets may be held in cash,
invested in short-term debt obligations, and invested in interests in Loans that
are unsecured. The Portfolio will invest in only those Unsecured Loans that have
been determined by BMR to have a credit quality at least equal to that of the
collateralized Loans in which the Portfolio primarily invests. Should the
Borrower of an Unsecured Loan default on its obligation there will be no
specific collateral on which the Portfolio can foreclose, although the Borrower
will typically have assets believed by BMR at the time of purchase of the
Unsecured Loans to exceed the amount of the Loan. The short-term debt
obligations in which the Portfolio may invest include, but are not limited to,
interests in senior Unsecured Loans with a remaining maturity of one year or
less ("Short-Term Loans"), certificates of deposit, commercial paper, short-term
and medium-term notes, bonds with remaining maturities of less than five years,
obligations issued by the U.S. Government or any of its agencies or
instrumentalities and repurchase agreements. The credit quality of Short-Term
Loans must be determined by BMR to be at least equal to that of the Portfolio's
investments in Loans. All of such other debt instruments will be investment
grade (i.e., rated Baa, P-3 or better by Moody's or BBB, A-3 or better by S&P
or, if unrated, determined by BMR to be of comparable quality). Securities rated
Baa, BBB, P-3 or A-3 are considered to have adequate capacity for payment of
principal and interest, but are more susceptible to adverse economic conditions.
Securities rated BBB or Baa (or comparable unrated securities) have speculative
characteristics. Also, the capacity of their issuers to make principal and
interest payments would be weakened by changes in economic conditions or other
circumstances to a greater extent than for issuers of higher grade bonds.
Pending investment of the proceeds of Fund sales by the Portfolio or when BMR
believes that investing for defensive purposes is appropriate, more than 20% of
the Portfolio's total assets may be temporarily held in cash or in the
short-term debt obligations described above.
Although the Portfolio currently holds Loan Interests only in Loans for
which the Agent and Intermediate Participants, if any, are banks, it may acquire
Loan Interests from non-bank financial institutions and in Loans originated,
negotiated and structured by non-bank financial institutions, if such Loan
Interests conform to the credit requirements described above. As these other
types of Loan Interests are developed and offered to investors, BMR will,
consistent with the Portfolio's investment objective, policies and quality
standards, and in accordance with applicable custody and other requirements of
the 1940 Act, consider making investments in such Loan Interests. Also, the
Portfolio has acquired and may continue to acquire warrants and other equity
securities as part of a unit combining Loan Interests and equity securities of
the Borrower or its affiliates. The acquisition of such equity securities will
only be incidental to the Portfolio's purchase of a Loan Interest. The Portfolio
may also acquire equity securities issued in exchange for a Loan or issued in
connection with the debt restructuring or reorganization of a Borrower, or if
such acquisition, in the judgment of BMR, may enhance the value of a Loan or
would otherwise be consistent with the Portfolio's investment policies.
The Portfolio will limit its investments to those which are eligible for
purchase by national banks for their own portfolios. The conditions and
restrictions governing the purchase of Fund shares by national banks are set
forth in the U.S. Comptroller of the Currency's Banking Circular 220. Subject to
such conditions and restrictions, national banks may acquire Fund shares for
their own investment portfolio.
FOREIGN INVESTMENTS. The Portfolio may also acquire U.S. dollar denominated Loan
Interests in Loans which are made to non-U.S. Borrowers in developed countries;
provided, however, that any such Borrower meets the credit standards established
by BMR for U.S. Borrowers, and no more than 35% of its net assets are invested
in Loan Interests of such Borrowers. Investing in Loan Interests of non-U.S.
Borrowers involves certain special considerations, which are not typically
associated with investing in U.S. Borrowers. Since foreign companies are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. Borrowers,
there may be less publicly available information about a foreign company than
about a domestic company. There is generally less government supervision and
regulation of financial markets and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions. As of the date of this Prospectus, none
of the Portfolio's assets were invested in Loan Interests of non-U.S. Borrowers.
Moreover, the Portfolio has no current intention to invest more than 5% of its
net assts in such Loan Interests.
INTEREST RATE TRANSACTIONS. In order to attempt to protect the value of the
Portfolio's assets from interest rate fluctuations and to maintain a dollar
weighted average period to next interest rate adjustment of approximately 90
days or less, the Portfolio may enter into interest rate swaps. The Portfolio
intends to use interest rate swaps as a hedge and not as a speculative
investment and will typically use interest rate swaps to shorten the average
time to interest rate reset of the Portfolio. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of fixed rate payments for floating
rate payments. The use of interest rate swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. BMR has not been involved in
the use of interest rate swaps but has utilized other types of hedging
techniques. If BMR is incorrect in its forecasts of market values, interest
rates and other applicable factors, the investment performance of the Fund would
be less favorable than what it would have been if this investment technique was
never used. The Portfolio has not engaged in such transactions and has no
current intention to invest more than 5% of its net assets in such transactions.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
respect to its permitted investments, but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same security
back to the seller at a higher price. The Portfolio's repurchase agreements will
provide that the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement, and will be marked to market daily.
The repurchase date is usually within seven days of the original purchase date.
Repurchase agreements are deemed to be loans under the 1940 Act. In all cases,
BMR must be satisfied with the creditworthiness of the other party to the
agreement before entering into a repurchase agreement. In the event of the
bankruptcy of the other party to a repurchase agreement, the Portfolio might
experience delays in recovering its cash. To the extent that, in the meantime,
the value of the securities the Portfolio purchased may have declined, the
Portfolio could experience a loss. To date, the Portfolio has not engaged in
repurchase agreements.
CERTAIN INVESTMENT RESTRICTIONS AND POLICIES. The Fund and the Portfolio have
adopted certain fundamental investment restrictions and policies which are
enumerated in detail in the Statement of Additional Information and which may
not be changed unless authorized by a shareholder or investor vote,
respectively. Among these fundamental restrictions, the Portfolio may not
purchase any security if, as a result of such purchase, 25% or more of the
Portfolio's total assets (taken at current value) would be invested in the
securities of Borrowers and other issuers having their principal business
activities in the same industry (the electric, gas, water and telephone utility
industries, commercial banks, thrift institutions and finance companies being
treated as separate industries for the purpose of this restriction); provided
that there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities. Except for the
fundamental restrictions and policies enumerated in the Fund's Statement of
Additional Information, the investment objective and policies of the Fund and
the Portfolio are not fundamental policies and accordingly may be changed by the
Trustees of the Fund and the Portfolio without obtaining the approval of the
Fund's shareholders or the investors in the Portfolio, as the case may be. If
any changes were made, the Fund might have an investment objective different
from the objective which an investor considered appropriate at the time the
investor became a shareholder of the Fund.
YIELD AND PERFORMANCE INFORMATION
The rate of interest payable on Loans is established as the sum of a base
lending rate plus a specified spread. These base lending rates are generally the
Prime Rate of a designated U.S. bank, the London InterBank Offered Rate
("LIBOR"), the Certificate of Deposit ("CD") rate of a designated U.S. bank or
another base lending rate used by commercial lenders. The Prime Rate is the rate
banks typically use as a base for a wide range of loans to individuals and
midsize and small businesses. LIBOR is the rate typically used by banks
worldwide as a base for loans to large commercial and industrial companies. A
Borrower usually has the right to select the base lending rate and to change the
base lending rate at specified intervals. The interest rate on Prime Rate-based
Loans floats daily as the Prime Rate changes, while the interest rate on
LIBOR-based and CD-based Loans is periodically reset with reset periods
typically ranging from 30 to 180 days. At the time of acquisition of a Loan
Interest, the Portfolio may also receive an upfront facility fee.
The yield on a Loan Interest held by the Portfolio will primarily depend on
the terms of the underlying Loan and the base lending rate chosen by the
Borrower initially and on subsequent dates specified in the applicable loan
agreement. The relationship between the Prime Rate, the CD rate and LIBOR will
vary as market conditions change. In the past, the relationship between the
Prime Rate and the other possible base lending rates was reasonably stable, and
Loans were structured with appropriate spreads over the base rates so that the
income that could have been earned by the Portfolio was approximately the same
no matter which alternative the Borrower would have selected. Since Borrowers
tend to select the base lending rate which results in the lowest interest cost,
the distribution of the Portfolio's investments among Prime Rate, CD rate and
LIBOR based Loans is likely to shift in favor of Loans with the base lending
rate that generates the lowest rate of return to the Portfolio. BMR anticipates
that, during normal market conditions, the effective yield of the Fund may
approximate the average Prime Rate of leading U.S. banks as published in The
Wall Street Journal. When the traditional spread between the Prime Rate and
other base lending rates widens, the Fund will be unable to achieve an effective
yield approximating the average published Prime Rate of leading U.S. banks.
Currently, the Borrowers with respect to over 90% of the value of Loans held by
the Portfolio have selected LIBOR as the base lending rate for such Loans, which
has lowered their interest cost and will cause the level of the Fund's effective
yield to be below the Prime Rate. Although BMR believes the present wide
differential between the Prime Rate and LIBOR is unusual, it has occurred before
at low points in the economic cycle. BMR hopes that, as the economy continues to
improve, the long-term relationship between the Prime Rate and LIBOR may be
restored and the Fund should be able to achieve an effective yield approximating
the Prime Rate. However, there is not yet evidence that this will occur in 1995
or thereafter.
From time to time, the Fund may quote a current and/or effective yield based
on a specific one-month period. The current yield is calculated by annualizing
the most recent monthly distribution (i.e., multiplying by 365/31 for a 31 day
month) and dividing the product by the current maximum offering price. The
effective yield is calculated by dividing the current yield by 36531 and adding
1. The resulting quotient is then taken to the 36531st power and reduced by 1.
The result is the effective yield. Yields will fluctuate from time to time and
are not necessarily representative of future results. Advertisements and
communications to present or prospective shareholders may also cite a total
return for any period. Total return will be calculated by subtracting the net
asset value of a single purchase of shares at a given date from the net asset
value of those shares (assuming reinvestment of distributions) on a subsequent
date. The difference divided by the original net asset value is the total
return. The calculation of the Fund's total return and effective yield reflects
the effect of compounding inasmuch as all dividends and distributions are
assumed to be reinvested in additional shares of the Fund at net asset value. In
addition, the calculation of total return, current yield and effective yield
does not reflect the imposition of any Early Withdrawal Charges or the amount of
any shareholder income tax liability. If reflected, an Early Withdrawal Charge
would reduce the performance quoted. If the fees or expenses of the Fund or the
Portfolio are waived or reimbursed, the Fund's performance will be higher.
Information about the performance of the Fund or other investments should not be
considered a representation of future performance the Fund may earn or what an
investor's yield or total return may be in the future.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
The Fund is organized as a business trust established under Massachusetts
law pursuant to a Declaration of Trust dated August 5, 1993, as amended, and is
registered under the 1940 Act. The Trustees of the Fund are responsible for the
overall management and supervision of its affairs. The Fund currently has one
class of shares of beneficial interest which may be issued in an unlimited
number by the Trustees. Each share represents an equal proportionate beneficial
interest in the Fund and, when issued and outstanding, the shares are fully paid
and nonassessable by the Fund and may be repurchased only as described under
"Tender Offers to Purchase Shares." Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted in proportion to the amount
of the Fund's net asset value which they represent. Shares have no preemptive or
conversion rights and are freely transferable. In the event of liquidation of
the Fund, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders.
The Fund's Declaration of Trust may not be amended without the affirmative
vote of a majority of the outstanding shares of the Fund (or such greater vote
as is described below under "Anti-Takeover Provisions"), except that the
Declaration of Trust may be amended by the Trustees to change the name of the
Fund, to make such other changes as do not have a materially adverse effect on
the rights or interests of shareholders and to conform the Declaration of Trust
to applicable Federal laws or regulations. The Fund may be terminated (i) upon
the merger or consolidation with or sale of the Fund's assets to another
company, if approved by the holders of two-thirds of the outstanding shares of
the Fund, except that if the Trustees recommend such transaction, the approval
by vote of the holders of a majority of the outstanding shares will be
sufficient, or (ii) upon liquidation and distribution of the assets of the Fund,
if approved by the holders of two-thirds of the Fund's outstanding shares,
except that if the Trustees recommend such transaction, the approval by vote of
the holders of a majority of the outstanding shares will be sufficient. If not
so terminated, the Fund may continue indefinitely.
ANTI-TAKEOVER PROVISIONS. The Fund presently has certain anti-takeover
provisions in its Declaration of Trust which are intended to limit, and could
have the effect of limiting, the ability of other entities or persons to acquire
control of the Fund, to cause it to engage in certain transactions or to modify
its structure. As indicated above, a two-thirds vote is required for certain
transactions. The affirmative vote or consent of the holders of two-thirds of
the shares of the Fund (a greater vote than that required by the 1940 Act and,
in some cases, greater than the required vote applicable to business
corporations under state law) is required to authorize the conversion of the
Fund from a closed-end to an open-end investment company (except that if the
Trustees recommend such conversion, the approval by vote of the holders of a
majority of the outstanding shares will be sufficient) and the affirmative vote
or consent of the holders of three-quarters of the shares of the Fund is
required to authorize any of the following transactions (the "Transactions"):
(i) merger or consolidation of the Fund with or into any corporation; (ii)
issuance of any securities of the Fund to any person or entity for cash; (iii)
sale, lease or exchange of all or any substantial part of the assets of the Fund
to any entity or person (except assets having an aggregate fair market value of
less than $1,000,000 or assets sold in the ordinary course of business); or (iv)
sale, lease or exchange to the Fund, in exchange for securities of the Fund, of
any assets of any entity or person (except assets having an aggregate fair
market value of less than $1,000,000) if such corporation, person or entity is
directly, or indirectly through affiliates, the beneficial owner of 5% or more
of the outstanding shares of the Fund. However, such vote or consent will not be
required with respect to the Transactions if the Board of Trustees under certain
conditions approves the Transaction. Further, the provisions of the Fund's
Declaration of Trust relating to conversion of the Fund to an open-end
investment company, the Transactions, the merger or consolidation with or sale
of the Fund's assets, and the liquidation and distribution of the Fund's assets
may not be amended without the affirmative vote or consent of two-thirds of the
outstanding shares of the Fund. Reference is made to the Declaration of Trust of
the Fund, on file with the Securities and Exchange Commission, for the full text
of these provisions. See "Other Information" in the Fund's Statement of
Additional Information.
The foregoing provisions will make more difficult the conversion of the Fund
to an open-end investment company and the consummation of the Transactions
without the Trustees' approval, and could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices, in the event that a secondary market for the Fund shares does
develop, by discouraging a third party from seeking to obtain control of the
Fund in a tender offer or similar transaction. However, the Board of Trustees
has considered these anti-takeover provisions and believes that they are in the
shareholders' best interests and benefit shareholders by providing the advantage
of potentially requiring persons seeking control of the Fund to negotiate with
its management regarding the price to be paid.
SENIOR DEBT PORTFOLIO (THE "PORTFOLIO"), IN WHICH THE ASSETS OF THE FUND
WILL BE INVESTED, WAS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND WILL BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Fund, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust, as amended,
provides that the Fund and other entities permitted to invest in the Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Fund believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike other investment companies which
directly acquire and manage their own portfolios of securities, seeks to achieve
its investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimis amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated investment companies or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other fund structures, including
funds that have multiple classes of shares. For information regarding the
investment objective, policies and restrictions, see "The Fund's Investment
Objective" and "How the Fund and the Portfolio Invest their Assets." Further
information regarding investment practices may be found in the Statement of
Additional Information.
The Trustees of the Fund have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages and
disadvantages of the two-tier format. The Trustees believe that the structure
offers opportunities for substantial growth in the assets of the Portfolio, and
affords the potential for economies of scale for the Fund, at least when the
assets of the Portfolio exceed $1 billion.
The Fund may withdraw (completely redeem) all or any part of its interest in
the Portfolio only pursuant to tender offers of the Portfolio. The Portfolio's
Board of Trustees presently intends each quarter to consider the making of such
tender offers. However, there can be no assurance that the Portfolio's Board of
Trustees will, in fact, decide to undertake the making of such a tender offer.
See "Tender Offers to Purchase Shares" below. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Fund and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. If a shareholder tenders shares because of a
change in the nonfundamental objective or policies of a Fund, those shares may
be subject to an early withdrawal charge, as described in "Early Withdrawal." In
the event the Fund withdraws all of its assets from the Portfolio, or the Board
of Trustees of the Fund determines that the investment objective of the
Portfolio is no longer consistent with the investment objective of the Fund,
such Trustees would consider what action might be taken, including investing the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all of its assets from the Portfolio. Of course, a complete withdrawal of Fund
assets could be accomplished only pursuant to a Portfolio tender offer.
Information regarding other pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws a significant amount of assets from the Portfolio, the
remaining funds may experience higher pro rata operating expenses, thereby
producing lower returns. Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk, and experience decreasing economies of
scale. However, this possibility exists as well for historically structured
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest their assets in interests in a separate
investment company are a relatively new development in the investment company
industry and, therefore, the Fund may be subject to additional regulations that
are inapplicable to historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio Loans and noncash assets (as opposed to a cash distribution from
the Portfolio). If Loans and noncash assets are distributed, the Fund could
incur brokerage, tax or other charges in converting them to cash. In addition,
the distribution in kind may result in a less diversified portfolio of
investments and will adversely affect the liquidity of the Fund. Notwithstanding
the above, there are other means for meeting shareholder redemption requests,
such as borrowing.
The Trustees of the Fund, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Fund and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate boards may
be considered. For further information concerning the Trustees and officers of
the Fund and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
The Portfolio engages BMR, a wholly-owned subsidiary of Eaton Vance, to act
as its investment adviser under an Investment Advisory Agreement (the "Advisory
Agreement"). Under the general supervision of the Portfolio's Board of Trustees,
BMR will carry out the investment and reinvestment of the assets of the
Portfolio, will furnish continuously an investment program with respect to the
Portfolio, will determine which securities should be purchased, sold or
exchanged, and will implement such determinations. BMR will furnish to the
Portfolio investment advice and office facilities, equipment and personnel for
servicing the investments of the Portfolio. BMR will compensate all Trustees and
officers of the Portfolio who are members of the BMR organization and who render
investment services to the Portfolio, and will also compensate all other BMR
personnel who provide research and investment services to the Portfolio. In
return for these services, facilities and payments, the Portfolio has agreed to
pay BMR as compensation under the Advisory Agreement a monthly fee in the amount
of 19/240 of 1% (equivalent to 0.95% annually) of the average daily gross assets
of the Portfolio. Gross assets of the Portfolio shall be calculated by deducting
all liabilities of the Portfolio except the principal amount of any indebtedness
for money borrowed, including debt securities issued by the Portfolio. While
this advisory fee is greater than that paid by most other funds, it is similar
to fees paid by other closed-end funds investing primarily in Loans and Loan
Interests.
On October 24, 1994, the Trustees of the Portfolio voted to accept a waiver
of BMR's compensation so that the aggregate advisory fees paid by the Portfolio
under the Advisory Agreement during any fiscal year or portion thereof after the
Fund begins to invest its assets in the Portfolio will not exceed on an annual
basis: (a) 0.95% of average daily gross assets of the Portfolio up to and
including $1 billion; (b) 0.90% of average daily gross assets in excess of $1
billion up to and including $2 billion; and (c) 0.85% of average daily gross
assets in excess of $2 billion.
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 $15 billion, of which
approximately $13 billion is in investment companies, including approximately
$650 million in the Fund. Eaton Vance, through its subsidiaries and affiliates,
engages in investment management and marketing activities; fiduciary and related
banking services; oil and gas operations; real estate investment, consulting and
management; and development of precious metals properties.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement (the "Administration Agreement"). Under the
Administration Agreement, Eaton Vance is responsible for managing the business
affairs of the Fund, subject to the supervision of the Fund's Board of Trustees.
Eaton Vance will furnish to the Fund all office facilities, equipment and
personnel for administering the affairs of the Fund. Eaton Vance will compensate
all Trustees and officers of the Fund who are members of the Eaton Vance
organization and who render executive and administrative services to the Fund,
and will also compensate all other Eaton Vance personnel who perform management
and administrative services for the Fund. Eaton Vance's administrative services
include recordkeeping, preparation and filing of documents required to comply
with Federal and state securities laws, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Trustees' and shareholders' meetings, providing services in connection with
contemplated quarterly tender offers and other administrative services necessary
to conduct the Fund's business. In return for these services, facilities and
payments, the Fund pays Eaton Vance as compensation under the Administration
Agreement a monthly fee in the amount of 1/48 of 1% (equivalent to 0.25%
annually) of the average daily gross assets of the Portfolio attributable to the
Fund. In calculating the gross assets of the Portfolio, all liabilities of the
Portfolio shall be deducted except the principal amount of any indebtedness for
money borrowed, including debt securities issued by the Portfolio.
As indicated under "How to Buy Fund Shares", the payments of compensation
to Authorized Firms (as defined below) at the time Fund shares are sold and
quarterly thereafter on outstanding Fund shares will be made from the assets of
BMR, Eaton Vance and EVD, which may include amounts received by BMR under its
Advisory Agreement with the Portfolio, by Eaton Vance under its Administration
Agreement with the Fund and by EVD as early withdrawal charges on the repurchase
of shares held for less than one year.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the Advisory Agreement, by Eaton Vance under the Administration
Agreement or by EVD under its Distribution Agreement. See "Investment Advisory
and Other Services" in the Statement of Additional Information.
Jeffrey S. Garner, Vice President of Eaton Vance since January 1988 and Vice
President of the Portfolio and the Fund since their inception, is the Portfolio
Manager of the Portfolio.
SERVICE PLAN
In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc., as if such rule were applicable. The Plan is further described in
the Statement of Additional Information, and the following is a description of
the salient features of the Plan.
THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE PAYMENTS FOR PERSONAL
SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE PRINCIPAL
UNDERWRITER AND AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25%
OF THE FUND'S AVERAGE DAILY NET ASSETS FOR ANY FISCAL YEAR. The Trustees of the
Fund have initially implemented the Plan by authorizing the Fund to make
quarterly service fee payments to the Principal Underwriter and Authorized Firms
in amounts not expected to exceed .15% of the Fund's average daily net assets
for each fiscal year. The Principal Underwriter, will retain the service fee in
the first year (as reimbursement for an initial service fee payment of .15% to
Authorized Firms at the time of sale) and each quarter thereafter only with
respect to shares that are tendered. However, the Plan authorizes the Trustees
of the Fund to increase payments without further action by shareholders of the
Fund, provided that the aggregate amount of payments made to such persons under
the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets.
VALUING FUND 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., a subsidiary of Investors
Bank & Trust Company ("IBT"), the Fund's and the Portfolio's custodian, (as
agent for the Fund) in the manner authorized by the Trustees of the Fund. The
Fund will be closed for business and will not price its shares on the following
business holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
is computed by dividing the value of the Fund's total assets, less its
liabilities by the number of shares outstanding. Because the Fund invests its
assets in an interest in the Portfolio, the Fund's net asset value will reflect
the value of its interest in the Portfolio (which, in turn, reflects the
underlying value of the Portfolio's assets and liabilities).
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT Fund Services (Canada) Inc. (as agent for
the Portfolio). The Portfolio's net asset value is computed by determining the
value of the Portfolio's total assets (the loans and securities it holds plus
any cash or other assets, including interest accrued but not yet received), and
subtracting all of the Portfolio's liabilities (including the outstanding
principal amount of any indebtedness issued and any unpaid interest thereon).
For further information regarding the valuation of each interest in the
Portfolio, see "Determination of Net Asset Value" in the Statement of Additional
Information.
Because Loan Interests are not actively traded in a public market, BMR,
following procedures established by the Portfolio's Trustees, will value the
Loan Interests held by the Portfolio at fair value. In valuing a Loan Interest,
BMR will consider relevant factors, data, and information, including: (i) the
characteristics of and fundamental analytical data relating to the Loan
Interest, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate of the Loan Interest, the
terms and conditions of the Loan and any related agreements, and the position of
the Loan in the Borrower's debt structure; (ii) the nature, adequacy and value
of the collateral, including the Portfolio's rights, remedies and interests with
respect to the collateral; (iii) the creditworthiness of the Borrower, based on
an evaluation of its financial condition, financial statements and information
about the Borrower's business, cash flows, capital structure and future
prospects; (iv) information relating to the market for the Loan Interest,
including price quotations (if considered reliable) for and trading in the Loan
Interest and interests in similar Loans and the market environment and investor
attitudes towards the Loan Interest and interests in similar Loans; (v) the
reputation and financial condition of the Agent and any Intermediate
Participants in the Loan; and (vi) general economic and market conditions
affecting the fair value of the Loan Interest.
Other Portfolio holdings (other than short term obligations, but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities will be valued at the last sale price on the exchange that is the
primary market for such securities, or the average of the last quoted bid price
and asked price for those securities for which the over-the-counter market is
the primary market or for listed securities in which there were no sales during
the day. The value of interest rate swaps will be determined in accordance with
a discounted present value formula and then confirmed by obtaining a bank
quotation.
Short-term obligations which mature in 60 days or less are valued at
amortized cost, if their original term to maturity when acquired by the
Portfolio was 60 days or less, or are valued at amortized cost using their value
on the 61st day prior to maturity, if their original term to maturity when
acquired by the Portfolio was more than 60 days, unless in each case this is
determined not to represent fair value. Repurchase agreements will be valued by
the Portfolio at cost plus accrued interest. Securities for which there exist no
price quotations or valuations and all other assets are valued at fair value as
determined in good faith by or on behalf of the Trustees of the Portfolio.
HOW TO BUY FUND SHARES
The Fund is engaged in a continuous public offering of its shares at net
asset value without an initial sales charge. The Fund does not currently intend
to list its shares on any national securities exchange. The Principal
Underwriter, Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA
02110, will make payments from its own assets to certain financial service firms
who have sales agreements with the Principal Underwriter ("Authorized Firms").
In addition, an early withdrawal charge, which is paid to EVD, will be imposed
on most shares held for less than one year which are accepted for repurchase
pursuant to a tender offer, as set forth under "Early Withdrawal."
From time to time the Fund may suspend the continuous offering of its
shares. During any such suspension, shareholders who reinvest their
distributions in additional shares will be permitted to continue such
reinvestments, and the Fund may permit tax sheltered retirement plans which own
shares to purchase additional shares of the Fund.
HOW TO BUY SHARES FOR CASH
Investors may purchase shares of the Fund through Authorized Firms at the
net asset value per share of the Fund next determined after an order is
effective, which, as of the date of this Prospectus is $10.00 per share.
Pursuant to its Distribution Agreement with EVD, the Fund has authorized EVD to
distribute its shares on a "best efforts" basis through Authorized Firms. EVD
will furnish the names of Authorized Firms to an investor upon request.
EVD compensates the Authorized Firms at the rate of 1.0% of the dollar
amount of the shares being purchased, consisting of .85% of sales commission and
.15% of service fee (for the first year's services).
If the shares remain outstanding for a specified period from the date of
their original purchase, EVD will compensate the Authorized Firms at an annual
rate, paid quarterly, equal to .60% of the value of Fund shares sold by such
Authorized Firms and remaining outstanding for at least one year. Compensation
paid to Authorized Firms at the time of purchase and the quarterly payments
mentioned above do not represent an additional expense to shareholders since
such payments will be made from BMR's, EVD's and Eaton Vance's own assets, which
may include amounts received by EVD as early withdrawal charges, amounts
received by BMR under its Advisory Agreement with the Portfolio and amounts
received by Eaton Vance under its Administration Agreement with the Fund. The
compensation paid to Authorized Firms and EVD, including the compensation paid
at the time of purchase, the quarterly payments mentioned above, any additional
incentives mentioned below, and the early withdrawal charge, if any, will not in
the aggregate exceed any applicable limit, unless the approval of the National
Association of Securities Dealers, Inc. ("NASD") has been received.
The Principal Underwriter may also, from time to time, at its own expense,
provide additional cash incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. Upon NASD
approval, the Principal Underwriter may provide non-cash incentives to
Authorized Firms.
An initial investment in the Fund must be at least $5,000 ($2,000 in the
case of Individual Retirement Accounts). Once an account has been established,
the investor may send investments of $50 or more at any time directly to the
Fund's Transfer Agent as follows: The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA 02104. See "Eaton Vance Shareholder Services".
The Fund may suspend the offering of shares at any time and may refuse any
order for the purchase of shares.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent,
will receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at the then current net asset value. The minimum value of
securities or securities and cash accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the current market price for such securities but
does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through EVD or an
Authorized Firm, together with a completed and signed Letter of Transmittal in
approved form (available from EVD or Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker 2212
Investors Bank & Trust Company
For A/C EV Classic Senior Floating-Rate Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic Senior Floating-Rate Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, state and local tax
consequences of exchanging securities for Fund shares.
USE OF PROCEEDS. The Portfolio invests its assets in Loan Interests. The
Fund may suspend sales of its shares to allow the Portfolio to more fully invest
in Loan Interests. Proceeds from the continuous offering of Fund shares will be
used to increase the Fund's interest in the Portfolio. The investment in
interests in Loans and Unsecured Loans of any additional net proceeds that the
Portfolio receives from the Fund may take one to three months, up to a maximum
of six months, from the date the Portfolio receives such proceeds. Pending such
investment, the proceeds will be held in cash or invested in investment grade
short-term debt obligations.
TENDER OFFERS TO PURCHASE SHARES
It is presently contemplated by the Board of Trustees, recognizing the
likelihood that a secondary market for the Fund's shares will not exist, that
the Fund may take actions which will provide liquidity to shareholders. The Fund
may from time to time make tender offers at net asset value for the purchase of
all or a portion of its shares. The price will be established at the close of
business on the last day the tender offer is open. The Fund's Trustees presently
intend each quarter to consider the making of such tender offers. However, there
are no assurances that the Fund's Board of Trustees will, in fact, decide to
undertake the making of such a tender offer. The Fund's assets consist primarily
of its interest in the Portfolio. Therefore, in order to finance the repurchase
of Fund shares pursuant to such tender offers, the Fund will find it necessary
to liquidate all or a portion of its interest in the Portfolio. Because
interests in the Portfolio may not be transferred, the Fund may withdraw a
portion of its interest only pursuant to tender offers of the Portfolio. The
Fund will not conduct a tender offer for Fund shares unless the Portfolio
simultaneously conducts a tender offer for Portfolio interests. The Portfolio's
Trustees presently intend each quarter to consider the making of such tender
offers. However, there are no assurances that the Portfolio's Board of Trustees
will, in fact, decide to undertake the making of such a tender offer. The Fund
cannot make a tender offer larger than the Portfolio's. The Portfolio will make
tender offers, if any, to all of its investors, including the Fund, on the same
terms, which practice may affect the size of the Portfolio's offers. Subject to
the Portfolio's investment restriction with respect to borrowings, the Portfolio
may borrow money or issue debt obligations to finance its repurchase obligations
pursuant to any such tender offers.
The Fund expects that there will ordinarily be no secondary market for the
Fund's shares and that periodic tender offers will be the only source of
liquidity for Fund shareholders. Moreover, the Principal Underwriter is
prohibited under applicable law from making a market in Fund shares while the
Fund is making either a public offering of or a tender offer to purchase shares.
Similarly, the Principal Underwriter prohibits dealers that have signed sales
agreements to sell Fund shares from making a market in such shares.
Nevertheless, if a secondary market develops for shares of the Fund, the market
price of the shares may vary from net asset value from time to time. The market
price may be affected by, among other factors, relative demand and supply of
shares and the performance of the Fund, especially as it affects the yield on
and investment performance of the shares of the Fund. Should there be a
secondary market for Fund shares, it is expected that shares of the Fund will
not trade at a premium because the Fund intends to engage in a continuous
offering of its shares at net asset value. A tender offer for shares of the Fund
at net asset value, as contemplated and described above, is expected to reduce
any spread between net asset value and market price that may otherwise develop.
However, there are no assurances that tender offers would result in the Fund's
shares trading at a price which is equal to or approximates their net asset
value.
Although the Trustees believe that tender offers generally would be
beneficial to the Fund's shareholders, the acquisition of shares by the Fund
will decrease the total assets of the Fund and therefore have the possible
effect of increasing the Fund's expense ratio. Furthermore, if the Portfolio
borrows to finance the making of tender offers for the Portfolio's interests,
interest on such borrowing will reduce the Fund's net investment income.
There are circumstances under which the purchase of shares in a tender
offer, even if approved by the Board and made to shareholders, may not be
effected by the Fund. These circumstances would arise if, in the judgment of the
Trustees, (i) the Fund would not be able to liquidate the requisite portion of
its interest in the Portfolio and/or such liquidation would have an adverse
effect on the net asset value of the Fund to the detriment of the non- tendering
Fund shareholders; (ii) the Fund's income would be taxed at the Fund level in
addition to the taxation of shareholders who receive dividends and distributions
from the Fund (see "Distributions and Taxes") as a result of the Fund being
deemed a taxable entity occasioned by the impairment of the Fund's status as a
regulated investment company under the Internal Revenue Code of 1986, as
amended; or (iii) there exists (a) a limitation imposed by Federal or state
authorities on the extension of credit by lenders which affects the Fund, the
Borrowers of Loans in which the Portfolio holds Loan Interests or the
Intermediate Participants, (b) a banking moratorium declared by Federal or state
authorities or any suspension of payments by banks in the United States, (c) a
legal action or proceeding instituted or threatened which materially adversely
affects the Fund, (d) a legal action or proceeding instituted or threatened
which challenges such purchase, (e) an international or national calamity, such
as commencement of war or armed hostilities, which directly or indirectly
involves the United States, or (f) an event or condition not listed herein which
would materially adversely affect the Fund if the tendered shares are purchased.
The Fund has applied for an exemption from the Securities and Exchange
Commission relating to tender offers which includes representations by the Fund
that no secondary market for Fund shares is expected to exist. This exemption is
conditioned on the absence of a secondary market. If the exemption is not
granted, the Fund will suspend the sale of its shares during a tender offer or
will not make tender offers. In the event that circumstances arise under which
the Fund does not conduct periodic tender offers, the Board would consider
alternative means of providing liquidity for shareholders. Such action would
include an evaluation of any secondary market that then existed and a
determination as to whether such market provided liquidity for shareholders. If
the Board determines that such market, if any, fails to provide liquidity for
Fund shareholders, the Board expects that it will consider all then available
alternatives to provide such liquidity. Among the alternatives which the Board
would consider is the listing of the Fund's shares on a major domestic stock
exchange or on the NASDAQ National Market System in order to provide such
liquidity. The Board may also consider causing the Fund to repurchase its shares
from time to time in open-market or private transactions when it can do so on
terms that represent a favorable investment opportunity. In any event, the Board
expects it will cause the Fund to take whatever action it deems necessary or
appropriate to provide liquidity for Fund shareholders in light of the facts and
circumstances existing at such time.
If the Portfolio must liquidate portfolio securities in order to meet its
tender obligations, the Portfolio, and therefore the Fund, may realize gains and
losses. Such gains may be realized on securities held for less than three
months. Because less than 30% of the Fund's annual gross income must be derived
from the sale or disposition of securities held less than three months (in order
to retain the Fund's tax status as a regulated investment company), such gains
could reduce the ability of the Portfolio to sell other securities held for less
than three months that the Portfolio may wish to sell in the ordinary course of
its portfolio management, which may adversely affect the Portfolio's yield.
Each tender offer will be made and shareholders notified in accordance with
the requirements of the Securities Exchange Act of 1934, as amended, and the
1940 Act, either by publication or mailing or both. Each offering document will
contain such information as is prescribed by such laws and the rules and
regulations promulgated thereunder. The repurchase of tendered shares by the
Fund is a taxable event. See "Distributions and Taxes." The Fund will pay all
costs and expenses associated with the making of any such tender offers by the
Fund. An Early Withdrawal Charge will be imposed on most shares accepted for
tender which have been held for less than one year. See "Early Withdrawal".
EARLY WITHDRAWAL
An Early Withdrawal Charge to recover distribution expenses will be charged
in connection with most shares held for less than one year which are accepted by
the Fund for repurchase pursuant to tender offers. The Early Withdrawal Charge
will be imposed on those shares accepted for tender the amount of which exceeds
the aggregate value at the time the tender is accepted of (a) all shares in the
account purchased more than one year prior to such acceptance, (b) all shares in
the account acquired through reinvestment of distributions, and (c) the
increase, if any, of value of all other shares in the account (namely those
purchased within the one year preceding the acceptance) over the purchase price
of such shares. The Early Withdrawal Charge will be paid to EVD. In determining
whether an Early Withdrawal Charge is payable, it is assumed that the acceptance
of a repurchase offer would be made from the earliest purchase of shares. The
Early Withdrawal Charge will be equal to 1% of the value of shares accepted for
repurchase pursuant to a tender offer.
EXCHANGES: The Fund may make available to tendering shareholders the
privilege of exchanging Fund shares at net asset value for shares of certain
open-end investment companies managed by Eaton Vance or BMR which have a
contingent deferred sales charge identical to that of the Early Withdrawal
Charge imposed on tendering Fund shareholders. The funds which may be available
for such exchange privilege are the funds in the Eaton Vance Classic Group of
Funds. This exchange privilege will not be available until an exemptive order is
obtained from the Securities and Exchange Commission. No Early Withdrawal Charge
will be imposed on shareholders choosing to exchange their Fund shares for
shares of any such fund; however, the exchanging shareholder will be subject to
the applicable contingent deferred sales charge imposed by such fund. For the
purpose of calculating the applicable contingent deferred sales charge, the
purchase of shares of such fund will be deemed to have occurred at the time of
the purchase of the Fund shares. Any such exchange will be made on the basis of
the relative net asset value per share of each fund at the time of exchange,
provided that such exchange offers are available only in states where shares of
the fund acquired may legally be sold.
The prospectus for each fund describes its investment objectives and
policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange. Each exchange
must involve shares which have a net asset value of at least $1,000. The
exchange privilege may be changed or discontinued without penalty. Shareholders
will be given sixty (60) days' notice prior to any termination or material
amendment of the exchange privilege. An exchange may result in a taxable gain or
loss.
Shares of other funds in the Eaton Vance Classic Group of Funds and Eaton
Vance Money Market Fund (when available) may be exchanged for Fund shares at net
asset value per share, but subject to any restrictions or qualifications set
forth in the current prospectus of any such fund.
REPORTS TO SHAREHOLDERS
The Fund will send audited semi-annual and annual reports to shareholders,
including a list of the investments held by the Portfolio.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S
TRANSFER AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. Shares are held in non-
certificated form by the Fund's Transfer Agent for the account of the
shareholder. The Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of the 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 Shareholder
Services Group, Inc.
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 Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
SHARE OPTION -- Dividends and capital gains will be reinvested in additional
shares.
INCOME OPTION -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
CASH OPTION -- Dividends and capital gains will be paid in cash.
The SHARE OPTION will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the INCOME OPTION or CASH OPTION has been selected, all dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the SHARE OPTION until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
EATON VANCE SHAREHOLDER SERVICES
THE FUND OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO
EXTRA CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME.
Full information on each of the services described below and an application,
where required, are available from Authorized Firms or the Principal
Underwriter. The cost of administering such services for the benefit of
shareholders who participate in them is borne by the Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION. Once the $5,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time -- whether or not distributions are
reinvested. The name of the shareholder, the Fund and the account number should
accompany each investment.
BANK DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION. Once the $5,000
minimum investment has been made, cash investments of $50 or more may be made
through the shareholder's checking account via bank draft each month or quarter.
REINVESTMENT PRIVILEGE -- A shareholder whose shares have been purchased
pursuant to a tender offer may reinvest, with credit for any Early Withdrawal
Charge paid on the value of the repurchased shares, any portion or all of his or
her tender proceeds (plus that amount necessary to acquire a fractional share to
round off the purchase to the nearest full share) in shares of the Fund,
provided that the reinvestment is effected within 30 days after such repurchase.
For purposes of determining any Early Withdrawal Charge upon acceptance of a
subsequent tender offer, the shareholder's prior period of ownership will be
included in this calculation. Shares are sold to a reinvesting shareholder at
the net asset value next determined following timely receipt of a written
purchase order by the Principal Underwriter or by the Fund (or by the Fund's
Transfer Agent). The amount of any Early Withdrawal Charge related to the prior
purchase will be credited to the shareholder's account and also reinvested at
the then current net asset value. A reinvesting shareholder may realize a gain
or loss for Federal tax purposes as a result of such prior sale in the tender
offer, but to the extent that the shareholder realizes a loss upon a repurchase
of shares by the Fund and the proceeds are reinvested in shares of the Fund (or
other shares of the Fund are purchased through reinvestment of dividends or
otherwise) within the period beginning 30 days before and ending 30 days after
the date of the repurchase by the Fund, some or all of the loss generally will
be disallowed under the "wash sale" rules of Federal income tax law, depending
upon the relationship between the number of shares repurchased and the number of
shares sold by the Fund.
TAX-SHELTERED RETIREMENT PLANS -- Shares of the Fund are available for
purchase in connection with the following tax-sheltered retirement plans:
--PENSION AND PROFIT SHARING PLANS for self-employed individuals,
corporations and non-profit organizations;
--INDIVIDUAL RETIREMENT ACCOUNT PLANS for individuals and their non-employed
spouses; and
--403(b) RETIREMENT PLANS for employees of public school systems, hospitals,
colleges and other non-profit organizations meeting certain requirements
of the Internal Revenue Code.
Detailed information concerning these plans and copies of the plans are
available from the Principal Underwriter. This information should be read
carefully and consultation with an attorney or tax adviser may be advisable. The
information sets forth the service fee charged for retirement plans and
describes the Federal income tax consequences of establishing a plan. Under each
tax-sheltered retirement plan, all distributions will be automatically
reinvested in additional shares.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Distributions will be declared daily and paid monthly. Realized net capital
gains (the Fund's realized net capital gains generally consist of the realized
net capital gains from the sale of portfolio assets allocated to the Fund by the
Portfolio), if any, will be distributed at least annually. Substantially all of
the investment income allocated to the Fund by the Portfolio, less its expenses,
will be declared daily as a distribution to shareholders of record at the time
of declaration. Daily distribution crediting will commence on the day after
collected funds for the purchase of Fund shares are available at the Transfer
Agent, even if orders to purchase shares had been placed with Authorized Firms.
Such distributions, whether received in cash or reinvested in additional shares,
will ordinarily be paid at the end of each month. Realized capital gains, if
any, will usually be distributed in December after offset by any capital loss
carryovers.
TAXES
In order to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), the Fund must satisfy certain
requirements relating to the sources of its income, the distribution of its
income, and the diversification of its assets. In satisfying these requirements,
the Fund will treat itself as owning its proportionate share of each of the
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
As a regulated investment company under the Code, the Fund does not pay
Federal income or excise taxes to the extent that it distributes to shareholders
its net investment income and net realized capital gains in accordance with the
timing requirements imposed by the Code. As a partnership under the Code, the
Portfolio also does not pay Federal income or excise taxes. Further, under
current law, provided that the Fund qualifies as a regulated investment company
for Federal tax purposes and the Portfolio is treated as a partnership for
Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, corporate excise or franchise tax in the Commonwealth of
Massachusetts.
Certain distributions of the Fund which are paid in January of a given year
but are declared in the prior October, November or December to shareholders of
record on a date in such a month will be taxable to shareholders as if received
on December 31.
Distributions of ordinary income and the excess of net short-term capital
gain over net long-term capital loss will be treated as ordinary income in the
hands of shareholders. Distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the Fund have been
held by such shareholders. Distributions will be taxed as described above,
whether received in shares or in cash. It is not expected that any portion of
such distributions will be eligible for the corporate dividends-received
deduction. Distributions that are treated for Federal income tax purposes as a
return of capital will reduce each shareholder's basis in his shares and, to the
extent the return of capital exceeds such basis, will be treated as gain to the
shareholder from a sale of shares.
In general, any gain or loss realized upon a taxable disposition of shares
of the Fund held by a shareholder as a capital asset will be treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. Different tax
consequences may apply for tendering and nontendering shareholders in connection
with a tender offer, and these consequences will be disclosed in the related
offering documents. For example, it is possible that tenders not treated as an
exchange for Federal income tax purposes might result in different tax
characterizations of the distributions to tendering shareholders and in deemed
distributions to non-tendering shareholders. Shareholders may wish to consult
their tax advisers prior to tendering.
The Fund will send written notices to shareholders regarding the Federal
income tax status of all distributions made during each calendar year.
Shareholders should consult their tax advisers regarding the applicability
of state or local taxes with respect to an investment in the Fund.
<PAGE>
TABLE OF CONTENTS
OF THE
STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information and History ........................................... 2
Additional Information about Investment Policies .......................... 2
Investment Restrictions ................................................... 4
Trustees and Officers ..................................................... 5
Control Persons and Principal Holders of Shares ........................... 7
Investment Advisory and Other Services .................................... 7
Determination of Net Asset Value .......................................... 9
Portfolio Trading ......................................................... 10
Taxes ..................................................................... 10
Service Plan .............................................................. 12
Custodian ................................................................. 13
Transfer and Dividend Paying Agent and Registrar .......................... 13
Auditors .................................................................. 13
Performance Information ................................................... 13
Other Information ......................................................... 14
Financial Statements ...................................................... 15
Appendix A ................................................................ a-1
<PAGE>
INVESTMENT ADVISER OF
SENIOR DEBT PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC
SENIOR FLOATING-RATE FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
BANKING COUNSEL
Mayer, Brown & Platt
787 Seventh Avenue
New York, NY 10019
EV CLASSIC
SENIOR FLOATING-RATE FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-SFRP
EV Classic
Senior Floating-Rate
Fund
PROSPECTUS
FEBRUARY 22, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 22, 1995
EV CLASSIC SENIOR FLOATING-RATE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
TABLE OF CONTENTS Page
General Information and History ........................................... 2
Additional Information about Investment Policies .......................... 2
Investment Restrictions ................................................... 4
Trustees and Officers ..................................................... 5
Control Persons and Principal Holders of Shares ........................... 7
Investment Advisory and Other Services .................................... 7
Determination of Net Asset Value .......................................... 9
Portfolio Trading ......................................................... 10
Taxes ..................................................................... 10
Service Plan .............................................................. 12
Custodian ................................................................. 13
Transfer and Dividend Paying Agent and Registrar .......................... 13
Auditors .................................................................. 13
Performance Information ................................................... 13
Other Information ......................................................... 14
Financial Statements ...................................................... 15
Appendix A ................................................................ a-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EV CLASSIC SENIOR FLOATING-RATE FUND (THE
"FUND") DATED FEBRUARY 22, 1995, AS SUPPLEMENTED FROM TIME TO TIME. THIS
STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE
FUND'S PRINCIPAL UNDERWRITER, EATON VANCE DISTRIBUTORS, INC. (SEE BACK COVER FOR
ADDRESS AND PHONE NUMBER).
<PAGE>
GENERAL INFORMATION AND HISTORY
EV Classic Senior Floating-Rate Fund (the "Fund") is a closed-end,
non-diversified management investment company which continuously offers its
shares of beneficial interest to the public. The Fund was organized as a
business trust under the laws of the Commonwealth of Massachusetts on August 5,
1993, as amended, and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund was originally called Eaton Vance Senior
Short-Term Trust and changed its name to EV Classic Senior Floating-Rate Fund on
December 7, 1994. The Fund's principal office is located at 24 Federal Street,
Boston, Massachusetts 02110.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
The Fund's investment objective is to provide as high a level of current
income as is consistent with the preservation of capital, by investing in a
portfolio primarily of senior secured floating rate loans. The Fund currently
seeks to achieve its investment objective by investing all of its assets in the
Senior Debt Portfolio (the "Portfolio"), which has the same investment objective
as the Fund. Capitalized terms used in this Statement of Additional Information
and not otherwise defined have the meanings given them in the Fund's Prospectus.
LENDING FEES. In the process of buying, selling and holding Loan Interests the
Portfolio may receive and/or pay certain fees. These fees are in addition to
interest payments received and may include facility fees, commitment fees,
commissions and prepayment penalty fees. When the Portfolio buys a Loan Interest
it may receive a facility fee and when it sells a Loan Interest it may pay a
facility fee. On an ongoing basis, the Portfolio may receive a commitment fee
based on the undrawn portion of the underlying line of credit portion of a Loan.
In certain circumstances, the Portfolio may receive a prepayment penalty fee
upon the prepayment of a Loan by a Borrower. Other fees received by the
Portfolio may include covenant waiver fees and covenant modification fees.
BORROWER COVENANTS. A Borrower must comply with various restrictive covenants
contained in a loan agreement or note purchase agreement between the Borrower
and the lender or lending syndicate (the "Loan Agreement"). Such covenants, in
addition to requiring the scheduled payment of interest and principal, may
include restrictions on dividend payments and other distributions to
stockholders, provisions requiring the Borrower to maintain specific minimum
financial ratios, and limits on total debt. In addition, the Loan Agreement may
contain a covenant requiring the Borrower to prepay the Loan with any free cash
flow. Free cash flow is generally defined as net cash flow after scheduled debt
service payments and permitted capital expenditures, and includes the proceeds
from asset dispositions or sales of securities. A breach of a covenant which is
not waived by the Agent, or by the lenders directly, as the case may be, is
normally an event of acceleration; i.e., the Agent, or the lenders directly, as
the case may be, has the right to call the outstanding Loan. The typical
practice of an Agent or a lender in relying exclusively or primarily on reports
from the Borrower may involve a risk of fraud by the Borrower. In the case of a
Loan Interest in the form of a participation interest, the agreement between the
buyer and seller may limit the rights of the holder of the Loan Interest to vote
on certain changes which may be made to the Loan Agreement, such as waiving a
breach of a covenant. However, the holder of a Loan Interest will, in almost all
cases, have the right to vote on certain fundamental issues such as changes in
principal amount, payment dates and interest rate.
ADMINISTRATION OF LOANS. In a typical Loan the Agent administers the terms of
the Loan Agreement. In such cases, the Agent is normally responsible for the
collection of principal and interest payments from the Borrower and the
apportionment of these payments to the credit of all institutions which are
parties to the Loan Agreement. The Portfolio will generally rely upon the Agent
or an Intermediate Participant to receive and forward to the Portfolio its
portion of the principal and interest payments on the Loan. Furthermore, unless
under the terms of a Participation Agreement the Portfolio has direct recourse
against the Borrower, the Portfolio will rely on the Agent and the other members
of the lending syndicate to use appropriate credit remedies against the
Borrower. The Agent is typically responsible for monitoring compliance with
covenants contained in the Loan Agreement based upon reports prepared by the
Borrower. The seller of the Loan Interest usually does, but is often not
obligated to, notify holders of Loan Interests of any failures of compliance.
The Agent may monitor the value of the collateral and, if the value of the
collateral declines, may accelerate the Loan, may give the Borrower an
opportunity to provide additional collateral or may seek other protection for
the benefit of the participants in the Loan. The Agent is compensated by the
Borrower for providing these services under a Loan Agreement, and such
compensation may include special fees paid upon structuring and funding the Loan
and other fees paid on a continuing basis. With respect to Loan Interests for
which the Agent does not perform such administrative and enforcement functions,
the Portfolio will perform such tasks on its own behalf, although a Collateral
Bank will typically hold any collateral on behalf of the Portfolio and the other
lenders pursuant to the applicable Loan Agreement.
A financial institution's appointment as Agent may usually be terminated in
the event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement should remain available to holders of Loan
Interests. However, if assets held by the Agent for the benefit of the Portfolio
were determined to be subject to the claims of the Agent's general creditors,
the Portfolio might incur certain costs and delays in realizing payment on a
Loan Interest, or suffer a loss of principal and/or interest. In situations
involving Intermediate Participants similar risks may arise.
PREPAYMENTS. The Loans in which the Portfolio acquires Loan Interests will
usually require, in addition to scheduled payments of interest and principal,
the prepayment of the Loan from free cash flow, as defined above. The degree to
which Borrowers prepay Loans, whether as a contractual requirement or at their
election, may be affected by general business conditions, the financial
condition of the Borrower and competitive conditions among lenders, among
others. As such, prepayments cannot be predicted with accuracy. Upon a
prepayment, either in part or in full, the actual outstanding debt on which the
Portfolio derives interest income will be reduced. However, the Portfolio may
receive both a prepayment penalty fee from the prepaying Borrower and a facility
fee upon the purchase of a new Loan Interest with the proceeds from the
prepayment of the former. Prepayments generally will not materially affect the
Fund's performance because the Portfolio should be able to reinvest prepayments
in other Loan Interests in floating rate Loans that have similar or identical
yields and because receipt of such fees may mitigate any adverse impact on the
Fund's yield.
INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest rate swaps on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities. For example, if the Portfolio holds a
Loan Interest with an interest rate that is reset only once each year, it may
swap the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset daily. Such a swap position would offset
changes in the value of the Loan Interest because of subsequent changes in
interest rates. This would protect the Portfolio from a decline in the value of
the Loan Interest due to rising interest rates, but would also limit its ability
to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis, i.e.,
the two payment streams are netted out, with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. Inasmuch as these
transactions are entered into for good faith hedging purposes and because a
segregated account will be used, the Portfolio will not treat them as being
subject to the Portfolio's borrowing restrictions. The net amount of the excess,
if any, of the Portfolio's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis and an amount of cash
or liquid high grade debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Portfolio's custodian. The Portfolio will not enter into any interest rate
swap unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by BMR.
If there is a default by the other party to such a transaction, the Portfolio
will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market.
The Portfolio may enter into interest rate swaps only with respect to
positions held in its portfolio. Interest rate swaps do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Portfolio is contractually obligated to make or
receive. Since interest rate swaps are individually negotiated, the Portfolio
expects to achieve an acceptable degree of correlation between its rights to
receive interest on Loan Interests and its rights and obligations to receive and
pay interest pursuant to interest rate swaps.
CREDIT RISKS. As of the date of this Statement of Additional Information, the
Portfolio has a Loan Interest in a Loan to London Fog Industries, Inc. which was
carried on its books at less than par. To date, this Borrower has not defaulted
on its Loan although the creditworthiness of the Borrower has been impaired as a
result of operational difficulties.
As of the date of this Statement of Additional Information, the Portfolio
had a receivable from the Estate of Spirit Holdings Co., Inc. ("Spirit"),
representing 0.3% of the current value of the Portfolio). Spirit filed for
bankruptcy on March 23, 1993. On August 22, 1994, the Honorable David P.
McDonald entered an Order confirming the Third Amended Joint Chapter 11 Plan of
the Debtors, the Official Committee and the Bank Group in the United States
Bankruptcy Court for the Eastern District of Missouri Eastern Division.
In the last decade, the Federal agencies that regulate banking institutions
subjected certain loans made in connection with highly leveraged transactions to
increased scrutiny during bank examinations. Such regulatory action resulted in
certain banks disposing of Loan Interests at low prices. If such regulatory
action became likely again, banks might decide to reduce the amount of Loans to
highly leveraged Borrowers, which might reduce the availability of Loans
suitable for the Portfolio's ownership. As of the date of this Statement of
Additional Information, such Loan Interests constituted substantially all of the
Portfolio's Loan Interests.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions are designated as fundamental policies
and as such cannot be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities, which as used in this Statement of
Additional Information means the lesser of (a) 67% of the shares of the Fund
present or represented by proxy at a meeting if the holders of more than 50% of
the shares are present or represented at the meeting or (b) more than 50% of the
shares of the Fund. As a matter of fundamental policy the Fund may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940;
(2) Issue senior securities, as defined in the Investment Company Act of
1940, other than (i) preferred shares which immediately after issuance will have
asset coverage of at least 200%, (ii) indebtedness which immediately after
issuance will have asset coverage of at least 300%, or (iii) the borrowings
permitted by investment restriction (1) above;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of Loan Interests, securities or other investment
assets with the proceeds of a permitted borrowing or securities offering will
not be deemed to be the purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as it may
technically be deemed to be an underwriter under the Securities Act of 1933 in
selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of Loan
Interests, debt securities and other obligations in which the Fund is authorized
to invest in accordance with its investment objective and policies, (b) entering
into repurchase agreements, and (c) lending its portfolio securities;
(6) Purchase any security if, as a result of such purchase, more than 25% of
the Fund's total assets (taken at current value) would be invested in the
securities of Borrowers and other issuers having their principal business
activities in the same industry (the electric, gas, water and telephone utility
industries, commercial banks, thrift institutions and finance companies being
treated as separate industries for the purpose of this restriction); provided
that there is no limitation with respect to obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities;
(7) Purchase or sell real estate, although it may purchase and sell
securities which are secured by interests in real estate and securities of
issuers which invest or deal in real estate. The Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities; or
(8) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices or other financial
instruments.
For the purpose of investment restrictions (1), (2) and (3) above and
nonfundamental investment policy (a) below, the arrangements (including escrow,
margin and collateral arrangements) made by the Fund with respect to
transactions in all types of options and futures contract transactions shall not
be considered to be (i) a borrowing of money or the issuance of securities
(including senior securities) by the Fund, (ii) a pledge of its assets, (iii)
the purchase of a security on margin, or (iv) a short sale or position. The Fund
has no present intention of engaging in options or futures transactions.
Although permitted pursuant to investment restriction (2), the Fund has no
present intention of issuing preferred shares.
For the purpose of investment restriction (6), the Fund will consider all
relevant factors in determining who is the issuer of the Loan Interest,
including: the credit quality of the Borrower, the amount and quality of the
collateral, the terms of the Loan Agreement and other relevant agreements
(including inter-creditor agreements), the degree to which the credit of such
interpositioned person was deemed material to the decision to purchase the Loan
Interest, the interest rate environment, and general economic conditions
applicable to the Borrower and such interpositioned person. In addition, with
respect to restriction (6) above, the Fund will construe the phrase "more than
25%" to be "25% or more".
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in a management investment
company with substantially the same investment objective, policies and
restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing numbered investment restrictions adopted by the
Fund; such restrictions cannot be changed without the approval of a "majority of
the outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act. Whenever the Fund is requested to vote on a change in the investment
restrictions of the Portfolio, the Fund will hold a meeting of Fund shareholders
and will cast its vote as instructed by the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Fund without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio without
the approval of the Fund or the Portfolio's other investors. As a matter of
nonfundamental policy, neither the Fund nor the Portfolio may: (a) make short
sales of securities or maintain a short position, unless at all times when a
short position is open it either owns an equal amount of such securities or owns
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short; (b) purchase oil, gas or other mineral leases or purchase
partnership interests in oil, gas or other mineral exploration or development
programs; or (c) invest more than 10% of its total assets (taken at current
value) in the securities of issuers which together with any predecessors have a
record of less than three years continuous operation, except U.S. Government
securities, securities of issuers which are rated by at least one nationally
recognized statistical rating organization, municipal obligations and
obligations issued or guaranteed by any foreign government or its agencies or
instrumentalities.
In addition, neither the Fund nor the Portfolio intends to invest more than
10% of its total assets in Loans to any single Borrower.
Whenever an investment policy or investment restriction set forth in this
Statement of Additional Information states a maximum percentage of the Fund's or
the Portfolio's assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall be determined immediately after and as a result of its
acquisition of such security or other asset. Accordingly, any later increase or
decrease resulting from a change in values, assets or other circumstances will
not compel the Fund or the Portfolio to dispose of such security or other asset.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), which is a wholly-owned
subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent,
Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance,
Inc. ("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees and officers who are "interested persons" of the Fund, the Portfolio,
BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act by virtue of their
affiliation with any one or more of the Fund, the Portfolio, BMR, Eaton Vance,
EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE FUND AND THE PORTFOLIO
JAMES B. HAWKES (53), PRESIDENT AND TRUSTEE*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and Director of EVC
and EV. Director, Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
DONALD R. DWIGHT (63), TRUSTEE
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
M. DOZIER GARDNER (61), VICE PRESIDENT AND TRUSTEE*
President of BMR, Eaton Vance and EV, and Director of EVC and EV. Director or
Trustee and officer of various investment companies managed by Eaton Vance or
BMR.
SAMUEL L. HAYES, III (59), TRUSTEE
Jacob H. Schiff Professor of Investment Banking, Harvard University, Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University, Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), TRUSTEE
President and Director -- United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director of The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), TRUSTEE
Director -- Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (64), TRUSTEE
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE FUND AND THE PORTFOLIO
JEFFREY S. GARNER (38), VICE PRESIDENT AND PORTFOLIO MANAGER*
Vice President of BMR, Eaton Vance and EV.
JAMES L. O'CONNOR (49), TREASURER*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), SECRETARY*
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
BARBARA E. CAMPBELL (37), ASSISTANT TREASURER*
Assistant Vice President of BMR, Eaton Vance and EV since January 17, 1992,
employee of Eaton Vance (since October 23, 1991). Audit Manager -- Financial
Services Industry Practice, Deloitte & Touche (1987-1991). Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), ASSISTANT TREASURER AND ASSISTANT SECRETARY*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
CARMEN THOMPSON (41), VICE PRESIDENT OF THE PORTFOLIO
Trust Officer of The Bank of Nova Scotia Trust Company (Cayman) Limited.
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.
PAUL LAURET (53), VICE PRESIDENT OF THE PORTFOLIO
Senior Trust Officer of The Bank of Nova Scotia Trust Company (Cayman) Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
RAYMOND O'NEILL (33), VICE PRESIDENT OF THE PORTFOLIO
Managing Director of IBT Trust and Custodian Services (Ireland) Limited.
Address: Earlsfort Terrace, Dublin 2, Ireland.
The fees and expenses of those Trustees of the Fund who are not members of
the Eaton Vance organization are paid by the Fund. During the fiscal year ended
December 31, 1994, the Trustees of the Fund earned the following compensation in
their capacities as Trustees of the other funds in the Eaton Vance fund complex
(1):
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM FUND COMPLEX FUND COMPLEX
Donald R.Dwight(2) $-- 0 -- $8,750 $135,000
Samuel L. Hayes, III(3) -- 0 -- 8,864 142,500
Norton H. Reamer -- 0 -- -- 0 -- 135,000
John L. Thorndike -- 0 -- -- 0 -- 140,000
Jack L. Treynor -- 0 -- -- 0 -- 140,000
- -----------
(1) The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
(2) Includes $331 of deferred compensation.
(3) Includes $334 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR may elect to defer
receipt of all or a percentage of their annual fees in accordance with the terms
of a Trustees Deferred Compensation Plan (the "Plan"). Under the Plan, an
eligible Trustee may elect to have his deferred fees invested by the Portfolio
in the shares of one or more funds in the Eaton Vance Family of Funds, and the
amount paid to the Trustees under the Plan will be determined based upon the
performance of such investments. Deferral of Trustees' fees in accordance with
the Plan will have a negligible effect on the Portfolio's assets, liabilities,
and net income per share, and will not obligate the Portfolio to retain the
services of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee.
Each interested Trustee and officer holds comparable positions with certain
affiliates of BMR or with certain other funds of which BMR or Eaton Vance is the
investment adviser or distributor.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of January 31, 1995, Eaton Vance controlled the Fund by virtue of owning
directly and indirectly 100% of the outstanding voting shares of the Fund. Eaton
Vance is a Massachusetts business trust and a wholly-owned subsidiary of Eaton
Vance Corp.
INVESTMENT ADVISORY AND OTHER SERVICES
The Portfolio has engaged BMR to act as its investment adviser under an
Investment Advisory Agreement (the "Advisory Agreement"). Under the general
supervision of the Portfolio's Board of Trustees, BMR will carry out the
investment and reinvestment of the assets of the Portfolio, will furnish
continuously an investment program with respect to the Portfolio, will determine
which securities and loans should be purchased, sold or exchanged, and will
implement such determinations. BMR will furnish to the Portfolio investment
advice and office facilities, equipment and personnel for servicing the
investments of the Portfolio. BMR will compensate all Trustees and officers of
the Portfolio who are members of the BMR organization and who render investment
services to the Portfolio, and will also compensate all other BMR personnel who
provide research and investment services to the Portfolio. In return for these
services, facilities and payments, the Portfolio has agreed to pay BMR as
compensation under the Advisory Agreement a monthly fee in the amount of 19/240
of 1% (equivalent to 0.95% annually) of the average daily gross assets of the
Portfolio. In calculating the gross assets of the Portfolio for this purpose,
there will be deducted all liabilities of the Portfolio except the principal
amount of any indebtedness for money borrowed, including debt securities issued
by the Portfolio. While this advisory fee is greater than that paid by most
other funds, it is similar to fees paid by other closed-end funds investing
primarily in Loans and Loan Interests. On October 24, 1994, the Trustees of the
Portfolio voted to accept a waiver of BMR compensation so that the aggregate
advisory fees paid by the Portfolio under the Advisory Agreement during any
fiscal year or portion thereof after the Fund begins to invest its assets in the
Portfolio, will on an annual basis not exceed: (a) 0.95% of average daily gross
assets of the Portfolio up to and including $1 billion; (b) 0.90% of average
daily gross assets in excess of $1 billion up to and including $2 billion; and
(c) 0.85% of average daily gross assets in excess of $2 billion. The fee waiver
is indefinite, but could be removed or changed upon agreement of BMR and the
Portfolio's Board of Trustees at any time.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement. Under the Administration Agreement, Eaton Vance is
responsible for managing the business affairs of the Fund, subject to the
supervision of the Fund's Board of Trustees. Eaton Vance will furnish to the
Fund all office facilities, equipment and personnel for administering the
affairs of the Fund. Eaton Vance will compensate all Trustees and officers of
the Fund who are members of the Eaton Vance organization and who render
executive and administrative services to the Fund, and will also compensate all
other Eaton Vance personnel who perform management and administrative services
for the Fund. Eaton Vance's administrative services include recordkeeping,
preparation and filing of documents required to comply with Federal and state
securities laws, supervising the activities of the Fund's custodian and transfer
agent, providing assistance in connection with the Trustees' and shareholders'
meetings, providing services in connection with contemplated quarterly tender
offers and other administrative services necessary to conduct the Fund's
business. In return for these services, facilities and payments, the Fund pays
Eaton Vance as compensation under the Administration Agreement a monthly fee in
the amount of 1/48 of 1% (equivalent to 0.25% annually) of the average daily
gross assets of the Portfolio attributable to the Fund. In calculating the gross
assets of the Portfolio for this purpose, there will be deducted all liabilities
of the Portfolio except the principal amount of any indebtedness for money
borrowed, including debt securities issued by the Portfolio.
The Bank of Nova Scotia Trust Company (Cayman) Ltd. maintains the
Portfolio's principal office and certain of its records and provides
administrative assistance in connection with meetings of the Portfolio's
Trustees and interestholders, for which services the Portfolio pays $1,500 per
annum.
The Portfolio and the Fund, as the case may be, will each be responsible for
all of its respective costs and expenses not expressly stated to be payable by
BMR under the Advisory Agreement with the Portfolio, by Eaton Vance under the
Administration Agreement with the Fund or by EVD under its Distribution
Agreement with the Fund. Such costs and expenses to be borne by the Portfolio
and the Fund, as the case may be, include, without limitation: custody and
transfer agency fees and expenses, including those incurred for determining net
asset value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; expenses of acquiring, holding and disposing
of securities and other investments; fees and expenses of registering under the
securities laws and governmental fees; expenses of reports to shareholders and
investors, proxy statements and other expenses of shareholders' or investors'
meetings; insurance premiums; printing and mailing expenses; interest, taxes and
corporate fees; legal and accounting expenses; compensation and expenses of
Trustees not affiliated with BMR or Eaton Vance; expenses of conducting tender
offers for the purpose of repurchasing Portfolio interests or Fund shares; and
investment advisory and administration fees. The Portfolio and the Fund will
also each bear expenses incurred in connection with litigation in which the
Portfolio or the Fund, as the case may be, is a party and any legal obligation
to indemnify its respective officers and Trustees with respect thereto.
Commitments have been made to certain state securities authorities that
Eaton Vance will reimburse the Fund for certain expenses paid or incurred by the
Fund in any fiscal year of the Fund that exceeds the expense limitation
requirements of such states. These commitments may be amended or rescinded by
Eaton Vance in response to changes in the requirements of the various states or
for other reasons.
The Advisory Agreement and Administration Agreement will remain in effect
until February 28, 1996. The Portfolio's Advisory Agreement may be continued
from year to year thereafter so long as such continuance after February 28, 1996
is approved at least annually (i) by the vote of a majority of the Trustees of
the Portfolio who are not "interested persons" of the Portfolio or BMR cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Trustees of the Portfolio or by vote of a majority of
the outstanding interests of the Portfolio. The Fund's Administration Agreement
may be continued from year to year after February 28, 1996 so long as such
continuance is approved annually by the vote of a majority of the Fund's
Trustees. Each agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Trustees of the Fund or the Portfolio, as the
case may be, BMR or Eaton Vance, as applicable, or by vote of the majority of
the outstanding shares of the Fund or interests of the Portfolio, as the case
may be. Each agreement will terminate automatically in the event of its
assignment. Each agreement provides that, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
to the Fund or the Portfolio under such agreements on the part of Eaton Vance or
BMR, as applicable, Eaton Vance or BMR will not be liable to the Fund or the
Portfolio, as applicable, for any loss incurred.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV are owned by EVC. All of
the issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. The Voting Trustees have unrestricted
voting rights for the election of Directors of EVC. All of the outstanding
voting trust receipts issued under said Voting Trust are owned by certain of the
officers of BMR and Eaton Vance who are also officers and Directors of EV and
EVC. As of January 31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of
such voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Gardner, Hawkes and Otis
are officers or Trustees of the Fund and the Portfolio and are members of the
EVC, BMR, Eaton Vance and EV organizations. Messrs. Garner and O'Connor and Ms.
Campbell and Ms. Sanders are officers of the Fund and the Portfolio and are
members of the BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Advisory Agreement and Eaton Vance will receive the fees paid
under the Administration Agreement, and its wholly-owned subsidiary, Eaton Vance
Distributors, Inc., as Principal Underwriter, will receive the early withdrawal
charges payable upon the repurchase of shares of the Fund.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in the development of precious metal
properties. EVC, Eaton Vance, BMR and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Fund or the Portfolio and such banks.
DETERMINATION OF NET ASSET VALUE
Each investor in the Portfolio, including the Fund, may add to its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals
(which would be made pursuant to Portfolio tender offers) for the current
Portfolio Business Day will then be recorded. The investor's percentage of the
aggregate interest in the Portfolio will then be recomputed as a percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the Portfolio Valuation Time on the prior
Portfolio Business Day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio on
the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
PORTFOLIO TRADING
Specific decisions to purchase or sell securities for the Portfolio are made
by employees of BMR who are appointed and supervised by its senior officers.
Such employees may serve other clients of BMR in a similar capacity. Changes in
the Portfolio's investments are reviewed by the Board.
The Portfolio will acquire Loan Interests from major international banks,
selected domestic regional banks, insurance companies, finance companies and
other financial institutions. In selecting financial institutions from which
Loan Interests may be acquired, BMR will consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. While these financial institutions are generally
not required to repurchase Loan Interests which they have sold, they may act as
principal or on an agency basis in connection with the Portfolio's disposition
of Loan Interests.
Other fixed-income obligations which may be purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net basis
(i.e., without commission) through broker-dealers or banks acting for their own
account rather than as brokers, or otherwise involve transactions directly with
the issuers of such obligations. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market for such obligations, and the difference between the bid and asked
price is customarily referred to as the spread. The Portfolio may also purchase
fixed-income and other securities from underwriters, the cost of which may
include undisclosed fees and concessions to the underwriters. While it is
anticipated that the Portfolio will not pay significant brokerage commissions,
on occasion it may be necessary or desirable to purchase or sell a security
through a broker on an agency basis, in which case the Portfolio will incur a
brokerage commission. Although spreads or commissions on portfolio transactions
will, in the judgment of BMR, be reasonable in relation to the value of the
services provided, spreads or commissions exceeding those which another firm
might charge may be paid to firms who were selected to execute transactions on
behalf of the Portfolio and BMR's other clients for providing brokerage and
research services to BMR. The Portfolio will not purchase securities from its
affiliates in principal transactions.
The frequency of portfolio purchases and sales, known as the "turnover
rate," will vary from year to year. It is anticipated that the Portfolio's
turnover rate will be between 50% and 100%.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Subject to applicable laws and regulations, BMR will attempt to allocate
equitably portfolio transactions among the Portfolio and the portfolios of its
other investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio and
such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could have
a detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Fund and
the Portfolio that the benefits available from the BMR organization outweigh any
disadvantage that may arise in simultaneous transactions.
TAXES
The Fund will elect to be treated and intends to qualify each year as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). Accordingly, the Fund intends to satisfy certain requirements
relating to sources of its income and diversification of its assets and to
distribute its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code, so as to avoid any
Federal income or excise tax on the Fund. Because the Fund invests substantially
all of its assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to satisfy them. The Portfolio will allocate at least annually among its
investors, including the Fund, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. The Portfolio will make
allocations to the Fund in accordance with the Code and applicable regulations
and will make monies available for withdrawal at appropriate times (consistent
with any Fund tender offers) and in sufficient amounts to enable the Fund to
satisfy the tax distribution requirements that apply to the Fund and that must
be satisfied in order to avoid Federal income and/or excise tax on the Fund. For
purposes of applying the requirements of the Code regarding qualification as a
regulated investment company, the Fund will be deemed (i) to own its
proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.
In order to qualify as a regulated investment company for any taxable year,
the Fund must, among other things, (i) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities, and certain other related income;
(ii) derive less than 30% of its gross income from gains from the sale or other
disposition of securities held less than three months; and (iii) diversify its
investments so that at the close of each quarter of its taxable year (x) at
least 50% of the market value of the Fund's total assets is represented by cash
and cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to not more than 5% of the value of the Fund's total assets and not more than
10% of the voting securities of such issuer, and (y) not more than 25% of the
value of the Fund's total assets is invested in the securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one issuer, or of two or more issuers controlled by the Fund and engaged in
the same, similar or related trades or businesses. For purposes of these
requirements, Loan Interests will be treated as securities, and the issuer will
be identified on the basis of market risk and credit risk associated with any
particular interest. Certain payments received by the Portfolio, such as
commitment fees, may not be treated as qualifying income under the 90%
requirement described above.
The Federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received by
the Portfolio under such arrangements as ordinary income and to amortize such
payments under certain circumstances. The Portfolio will limit its activity in
this regard in order to maintain its qualification as a regulated investment
company.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
Federal income tax.
Any loss realized upon a taxable disposition of shares with a tax holding
period of six months or less will be treated as a long-term capital loss to the
extent of any amounts treated by shareholders as long-term capital gains with
respect to such shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund shares are purchased
within 30 days before or after such disposition.
Certain investments of the Portfolio may bear original issue discount or
market discount for tax purposes. The Fund will be required to include in income
each year a portion of such original issue discount and may elect to include in
income each year a portion of such market discount, and may have to dispose of
investments that it would otherwise have continued to hold in order to satisfy
its distribution requirements with respect to such income.
Distributions by the Fund may result in a reduction in the fair market value
of the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or capital gain, even though, from an investment
standpoint, it may constitute a partial return of the purchase price. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of any forthcoming distribution, and such
investors will then receive a distribution representing a return of a portion of
their investment which will nevertheless be taxable to them.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with a correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding at a rate of 31%. An individual's
taxpayer identification number is generally his social security number.
Nonresident alien individuals and certain foreign corporations and other
entities generally will be subject to a U.S. withholding tax at a rate of 30% on
distributions from ordinary income and the excess of net short-term capital gain
over net long-term capital loss unless the tax is reduced or eliminated by an
applicable tax treaty. Distributions from the excess of net long-term capital
gain over net short-term capital loss received by such shareholders and any gain
from the sale or other disposition of shares of the Fund generally will not be
subject to U.S. taxation, provided that nonresident alien status has been
certified by the shareholder. Different U.S. tax consequences may result if the
shareholder is engaged in a trade or business in the United States or is present
in the United States for a sufficient period of time during a taxable year to be
treated as a U.S. resident. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The Portfolio may be subject to foreign withholding taxes with respect to
income on certain loans to foreign Borrowers. As not more than 50% of the value
of the Fund's total assets taking into account its allocable share of the
Portfolio's total assets at the close of any taxable year of the Fund will
consist of loans to foreign borrowers, the Fund will not be eligible to pass
through to shareholders their proportionate share of foreign taxes paid by the
Portfolio and allocated to the Fund, with the result that shareholders will not
be entitled to take any foreign tax credits or deductions for foreign taxes paid
by the Portfolio and allocated to the Fund. However, the Fund may deduct such
taxes in calculating its distributable income earned by the Portfolio and
allocated to the Fund. These taxes may be reduced or eliminated under the terms
of an applicable U.S. income tax treaty.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt entities,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
SERVICE PLAN
In addition to the fees and expenses described herein under "Investment
Advisory and Other Services," the Fund has adopted a Service Plan (the "Plan")
designed to meet the service fee requirements of the sales charge rule of the
National Association of Securities Dealers, Inc., as if such rule were
applicable. The Plan has been approved by the Independent Trustees of the Fund,
who have no direct or indirect financial interest in the Plan, and by all of the
Trustees of the Fund.
The Plan provides that the Fund may make payments of service fees for
personal services and/or the maintenance of shareholder accounts to the
Principal Underwriter and Authorized Firms and other persons in amounts not
exceeding .25% of the Fund's average daily net assets for any fiscal year. The
Trustees of the Fund have initially implemented the Plan by authorizing the Fund
to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .15% of the Fund's average
daily net assets for each fiscal year.
The Plan remains in effect through and including April 28, 1995, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Fund who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Plan Trustees") and (ii) all of the Trustees then in
office cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan. The Plan may not be amended to increase materially the
payments described herein without approval of the shareholders of the Fund, and
all material amendments of the Plan must also be approved by the Trustees of the
Fund in the manner described above. The Plan may be terminated any time by vote
of a majority of the Plan Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. Under the Plan, the President or a Vice President
of the Fund shall provide to the Trustees for their review, and the Trustees
shall review at least quarterly, a written report of the amounts expended under
the Plan and the purposes for which such expenditures were made.
So long as the Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Fund shall be committed to the discretion
of the Trustees who are not such interested persons. The Trustees have
determined that in their judgment there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, a 77.3% owned subsidiary of EVC, acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
and its subsidiary, IBT Fund Services (Canada) Inc., 1 First Canadian Place,
King Street West, Toronto, Ontario, Canada, maintains the general ledgers of the
Portfolio and the Fund and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In its capacity as
custodian, IBT attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
custody fees based on a percentage of Fund and Portfolio assets which are
competitive within the industry. These fees are then reduced by a credit for
cash balances of the particular investment company at the custodian equal to 75%
of the 91-day, U.S. Treasury Bill auction rate applied to the particular
investment company's average daily collected balances for the week. In view of
the ownership of EVC in IBT, the Portfolio is treated as a self-custodian
pursuant to Rule 17f-2 under the 1940 Act, and the Portfolio's investments held
by IBT as custodian are thus subject to the additional examinations by the
Portfolio's independent certified public accountants as called for by such Rule.
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
The Shareholder Services Group, Inc. serves with respect to the shares as
transfer and dividend paying agent and as registrar. The principal business
address of The Shareholder Services Group, Inc. is One Exchange Place, Boston,
Massachusetts 02104.
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent accountants for the Fund, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission. Deloitte & Touche, Grand
Cayman, Cayman Islands, British West Indies, are the independent accountants for
the Portfolio.
PERFORMANCE INFORMATION
Comparative information about the Fund's yield and total return, about the
Prime Rate and about average rates of return on certificates of deposit, bank
money market deposit accounts, money market mutual funds and other short-term
investments may also be included in advertisements and communications of the
Fund. A bank certificate of deposit, unlike the Fund's shares, pays a fixed rate
of interest and entitles the depositor to receive the face amount of the
certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are ordinarily insured by the Federal Deposit Insurance Corporation. A
money market mutual fund is designed to maintain a constant value of $1.00 per
share and, thus, a money market fund's shares are ordinarily subject to less
price fluctuation than the Fund's shares.
The calculation of total return, current yield and effective yield does not
reflect the imposition of any Early Withdrawal Charges or the amount of any
shareholder income tax liability. If reflected, an Early Withdrawal Charge would
reduce the performance quoted. Information about the performance of the Fund or
other investments should not be considered a representation of future
performance the Fund may earn or what an investor's yield or total return may be
in the future.
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.
OTHER INFORMATION
The Fund is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Fund's Declaration of Trust, as amended, contains
an express disclaimer of shareholder liability in connection with the Fund
property or the acts, obligations or affairs of the Fund. The Declaration of
Trust also provides for indemnification out of the Fund property of any
shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself is
unable to meet its obligations. The Fund has been advised by its counsel that
the risk of any shareholder incurring any liability for the obligations of the
Fund is extremely remote.
The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to the Fund or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Voting rights are not cumulative, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees and, in such event, the holders of the
remaining less than 50% of the shares voting on the matter will not be able to
elect any Trustees. As permitted by Massachusetts law, there will normally be no
meetings of Fund shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders. In such an event, the Trustees of the Fund then in
office will call a shareholders' meeting for the election of Trustees. Except
for the foregoing circumstances, the Trustees shall continue to hold office and
may appoint successor Trustees.
The Fund's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Fund's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that the Trustees of the Fund shall promptly call a meeting of the shareholders
for the purpose of voting upon a question of removal of any such Trustee or
Trustees when requested in writing so to do by the record holders of not less
than 10 per centum of the outstanding shares.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Fund's Prospectus and Statement of Additional Information do not contain
all of the information set forth in the Registration Statement that the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by its Rules and Regulations.
<PAGE>
FINANCIAL STATEMENTS
EV CLASSIC SENIOR FLOATING-RATE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 7, 1994
ASSETS:
Cash .................................................... $100,000
Deferred organization expenses .......................... 99,263
--------
Total assets ........................................ $199,263
LIABILITIES:
Organization expenses accrued ........................... $ 20,000
Initial offering expenses accrued ....................... 79,263
--------
Total liabilities ................................... $ 99,263
========
NET ASSETS applicable to 10,000 common shares of beneficial
interest issued and outstanding .................................. $100,000
========
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE (see page 22 of
prospectus for early withdrawal charges) ....................... $10.00
========
NOTE 1 -- Organization:
EV Classic Senior Floating-Rate Fund (formerly Eaton Vance Senior Short-Term
Trust) was formed under a Declaration of Trust dated August 5, 1993, amended and
restated December 7, 1994, and has been inactive since August 5, 1993 except for
matters relating to its organization and registration as an investment company
under the Investment Company Act of 1940 and the sale of 10,000 common shares of
its beneficial interest to Eaton Vance Management, the Fund's administrator. The
deferred organization and initial offering expenses, including Federal and state
registration and qualification fees, are estimated to amount to $99,263. These
expenses will be deferred and amortized over a period not to exceed five years
beginning on the date of the Fund's initial public offering of its shares. The
amount paid by the Fund on any repurchase during the amortization period of any
of the initial 10,000 common shares will be reduced by a pro rata portion of any
unamortized organization and initial offering expenses. Such proration is to be
calculated by dividing the number of initial shares repurchased by the number of
initial shares outstanding at the time of repurchase.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
EV Classic Senior Floating-Rate Fund:
We have audited the accompanying statement of assets and liabilities of EV
Classic Senior Floating-Rate Fund (formerly Eaton Vance Senior Short-Term Trust)
as of December 7, 1994. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of EV Classic
Senior Floating-Rate Fund as of December 7, 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 8, 1994
<PAGE>
FINANCIAL STATEMENTS
SENIOR DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 25, 1994
ASSETS:
Cash .................................................... $100,010
Deferred organization expenses .......................... 26,207
--------
Total Assets ........................................ $126,217
LIABILITIES:
Accrued organization expenses ........................... 26,207
--------
Net assets .................................................. $100,010
========
NOTES:
(1) Senior Debt Portfolio (the "Portfolio") was organized as a New York Trust on
May 1, 1992 and has been inactive since that date, except as to matters
relating to its organization and registration as an investment company under
the Investment Company Act of 1940 and the sale of its interests therein at
the purchase price of $100,000 to Boston Management and Research and the
sale of interests therein at the purchase price of $10 to Eaton Vance
Management (the "Initial Interests").
(2) Organization expenses are being deferred and will be amortized on a straight
line basis over a period not exceeding five years, commencing on the
effective date of the Portfolio's initial offering of its interests. The
amount paid by the Portfolio on any withdrawal by the holders of the initial
interests of any of the respective Initial Interests will be reduced by a
portion of any unamortized organization expenses, determined by the
proportion of the amount of the initial interests withdrawn to the Initial
Interest then outstanding.
(3) At 4:00 p.m., New York City time, on each business day of the Portfolio, the
value of an investor's interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio multiplied by (ii) the
percentage representing that investor's share of the aggregate interest in
the Portfolio effective for that day.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of
Senior Debt Portfolio:
We have audited the accompanying statement of assets and liabilities of
Senior Debt Portfolio (a New York trust) as of October 25, 1994. This financial
statement is the responsibility of the Trust's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of Senior Debt Portfolio as of
October 25, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 26, 1994
<PAGE>
APPENDIX A
EATON VANCE
MUTUAL FUNDS
* EATON VANCE
PRIME RATE RESERVES
* EV CLASSIC SENIOR
FLOATING-RATE FUND
[Photo of a fountain pen, pair of eyeglasses
and a laptop computer resting on the financial
pages of a newspaper.]
<PAGE>
THE EATON VANCE SENIOR FLOATING-RATE FUNDS
- ------------------------ - EATON VANCE PRIME RATE RESERVES
EATON VANCE NOW OFFERS
TWO FUNDS INVESTING IN A - EATON CLASSIC SENIOR FLOATING-RATE FUND
PORTFOLIO OF SENIOR
FLOATING-RATE LOANS... Using the patented Hub & Spoke Registration Mark
structure, Eaton Vance is able to offer a wide
variety of investors efficient access to a single
portfolio of senior floating-rate loans made by
major U.S. banks and other financial
institutions to large corporate customers.
DESIGNED FOR INVESTORS SEEKING...
- ------------------------
OBJECTIVE: TO PROVIDE - HIGH CURRENT MONTHLY INCOME
AS HIGH A LEVEL OF
CURRENT INCOME AS Each Fund's goal is to provide investors with
IS CONSISTENT WITH an effective (compound) yield that maintains a
CAPITAL PRESERVATION... favorable spread over other short-term
alternatives. The Portfolio invests primarily
in floating-rate loans, with rates that keep a
fixed spread over widely accepted base rates,
such as the London Interbank Offered Rate or
the U.S. average prime rate. Please see a Fund
prospectus and page 8 of this brochure for
more information.
- CAPITAL PRESERVATION
A portfolio of senior, floating-rate loans can
help protect an investor's purchasing power
against the eroding effects of inflation.
Higher inflation rates usually result in
higher interest rates. Unlike investments that
pay a fixed income, the Portfolio's
floating-rate loans generate income that
resets as interest rates change.
- RELATIVELY STABLE NET ASSET VALUE
The Portfolio invests primarily in senior,
floating-rate loans made to corporations,
whose interest rates are adjusted regularly to
move with current rates. While the Funds' net
asset values will fluctuate, this investment
strategy is expected to minimize such
fluctuations in response to changes in
interest rates. However, a default in a loan
in which the Portfolio owns an interest, a
material deterioration of a borrower's
creditworthiness, or a sudden or extreme
increase in prevailing interest rates may
cause a decline in each Fund's share value.
- 2 -
<PAGE>
- ----------------------
TENDER OFFERS ARE MADE - LIQUIDITY THROUGH TENDER OFFERS
AT NET ASSET VALUE...
To accommodate shareholders' liquidity needs,
the Funds' Trustees intend to consider
quarterly the making of a tender offer for all
or a portion of outstanding shares at net
asset value. Although there can be no
assurance that the Funds will tender for their
shares every quarter, such offers have been
made in each quarter since Eaton Vance Prime
Rate Reserves began operations on August 4,
1989. EV Classic Senior Floating-Rate Fund,
introduced in 1995, will follow the same
[PHOTO] tender offer procedures.*
- NO INITIAL SALES CHARGE
Every dollar invested starts earning dividends
as soon as the account is opened. The minimum
initial investment in Eaton Vance Prime Rate
Reserves or EV Classic Senior Floating-Rate
Fund is only $5,000 ($2,000 for Individual
Retirement Accounts). Additions to the account
($50 or more) may be made at any time.*
Eaton Vance Prime Rate Reserves and EV Classic
Senior Floating-Rate Fund are continuously
offered, closed-end funds, registered under the
Investment Company Act of 1940. Using the Hub
("Portfolio") & Spoke ("Funds") structure, both
invest in the Senior Debt Portfolio, a separate
investment company with an identical investment
objective to that of the Funds. The Portfolio
invests primarily in "loan interests" - portions
of senior, floating-rate loans made by U.S.
banks and other financial institutions to large
corporate customers.
* Shares repurchased by the Fund may be subject
to an early withdrawal charge (please see a
prospectus for details).
----------------------------------------------
Fund shares are not insured by the FDIC and are
not deposits or other obligations of, or
guaranteed by, any depository institution.
Shares are subject to investment risks, including
possible loss of principal invested.
- 3 -
<PAGE>
COMMONLY ASKED QUESTIONS
ABOUT THE FUNDS' STRUCTURE
- -------------------- WHY AREN'T THE FUNDS 'OPEN-END' FUNDS?
'CONTINUOUSLY
OFFERED, CLOSED- Loans, in which the Funds' Portfolio invests, are not
END' FUNDS... considered "liquid securities," and an open-end fund,
by law, must invest at least 85 percent of its assets
in liquid securities. The Funds are designed,
therefore, as continuously offered, closed-end funds.
HOW DOES A CONTINUOUSLY OFFERED,
CLOSED-END FUND OPERATE?
[Photo] "Continuously offered" means that shares of either
Fund may be purchased at 100 percent of their net
asset value on any business day. Because the Funds
are "closed-end," however, withdrawals are handled
differently than in a traditional, open-end fund.
Shares may be redeemed quarterly, by means of a
"tender offer," in which the Funds repurchase shares
from shareholders at 100 percent of net asset value.
(Shares repurchased by the Funds may be subject to an
early withdrawal charge. See a prospectus for details.)
WHY DON'T FUND SHARES TRADE ON A NATIONAL
EXCHANGE, LIKE OTHER CLOSED-END FUNDS?
Eaton Vance believes that the Funds better meet
shareholders' needs for liquidity by having
non-listed shares. These can be redeemed at 100 percent
of net asset value on a quarterly basis, rather than
listed shares that may be sold daily, but at a
fluctuating discount or premium to net asset value.
- -------------------- HOW ARE TENDER OFFERS MADE?
Tender offers
provide liquidity... The Trustees intend to consider quarterly the making
of a tender offer for all or a portion of outstanding
shares at net asset value. Although there can be no
assurance that the Funds will tender for their shares
every quarter, it has been and continues to be the
policy of the Trustees to do so. Eaton Vance Prime
Rate Reserves began operations on August 4, 1989.
Tender offers have been made in every quarter since
that Fund's inception, and all shares tendered by
shareholders were redeemed.
- 4 -
<PAGE>
HOW DO THE FUNDS MEET TENDER OFFERS WITHOUT
DISADVANTAGING EXISTING SHAREHOLDERS?
The Portfolio has five sources of liquidity which
generate cash to meet redemptions:
- Ordinary cash on hand
- Scheduled quarterly interest income on loans
- Scheduled quarterly principal payments on loans
- Contractually required principal prepayments on
loans
- A borrowing program that allows the Portfolio to
issue over $100 million of short-term,
investment-grade commercial paper.
Therefore, the Portfolio can remain fully invested on a
consistent basis, despite quarterly tender offers.
ARE THERE EXCHANGE OPTIONS?
In the case of Eaton Vance Prime Rate Reserves,
shareholders may elect to exchange tendered shares for
shares of certain EV Marathon Funds. An exchange option
may be available for EV Classic Senior Floating-Rate
Fund. Please ask your financial adviser or see a
prospectus for more information.
CAN THE FUNDS BE USED FOR QUALIFIED RETIREMENT PLANS?
Shares of both Funds may be purchased in connection
with pension and profit-sharing plans, Individual
Retirement Accounts (IRAs), and 403(b) retirement
plans. Please see a prospectus for more information
about any of these services.
WHAT ARE THE FUNDS' MINIMUM INVESTMENTS?
- The minimum initial investment in either Fund is
$5,000 ($2,000 for IRAs). Shareholders can add to
their accounts on any business day, in amounts of $50
or more.
[Photo]
- Dividends are paid monthly and may be taken in cash
or reinvested in additional shares at net asset value.
- The Funds also offer bank draft investing, where
regular additional investments may be made directly
from a bank checking account (minimum $50 per month
or quarter).
- 5 -
<PAGE>
COMMERCIAL LOANS ARE AN IMPORTANT
PART OF THE U.S. DEBT MARKETS
- -----------------------
LOANS REPRESENT A The $5.1 trillion U.S. debt market is composed
$300 BILLION MARKET... of several types of instruments, including:
Treasury obligations, corporate debt and
mortgages. Loans made by banks to commercial
and industrial borrowers represent a $300
billion slice of this market.
----------------------------------------------
<TABLE>
THE U.S. DEBT MARKET ($ billions)
<CAPTION>
Instrument Percentages Amount
---------- ----------- ------
<S> <C> <C>
U.S. Treasuries 44% $2,250
Corporate bonds 29% $1,480
Mortgages 21% $1,100
Senior secured loans 6% $ 300
<FN>
Data as of 9/30/94. Sources: Bloomberg, L.P.,
and Eaton Vance Management.
</TABLE>
----------------------------------------------
- ----------------------- According to Standard & Poor's, there are fewer
BANK LOANS ARE A WIDELY than 800 companies in the U.S. that issue
USED METHOD OF RAISING investment-grade bonds. These usually issue
CORPORATE CASH... short-term commercial paper as well. Generally,
high-grade issuers have higher creditworthiness
than high-yield issuers, and their obligations
have a lower risk of default. Thousands of
other U.S. companies - which have unrated or
non-investment-grade bonds - turn to the banks
for loans.
----------------------------------------------
<TABLE>
HOW CORPORATIONS RAISE CAPITAL
<CAPTION>
High-grade High-yield
---------- ----------
<S> <C>
Senior
Commercial floating-rate
paper loans
High-grade High-yield
bonds bonds
Equities Equities
</TABLE>
----------------------------------------------
Over the past five years, commercial banks, in
turn, have increasingly permitted large,
sophisticated institutional investors, such as
Eaton Vance's Senior Debt Portfolio, to acquire
interests in loans banks have made. Selling
pieces of loans allows banks to originate new
loans, and to maintain a more diversified loan
portfolio. Today, the making and selling of
large corporate loans can be compared to the
underwriting and syndication of bonds, despite
the sharp differences between loans and bonds.
- 6 -
<PAGE>
FLOATING-RATE LOANS MAY OFFER
MANY ADVANTAGES TO INVESTORS
<TABLE>
-----------------------------------------------------------------------
HOW FLOATING-RATE LOANS DIFFER FROM FIXED-RATE BONDS
FLOATING-RATE LOANS FIXED-RATE BONDS
------------------- ----------------
<S> <C> <C>
Claim on assets Senior Subordinated
Collateral Secured Unsecured or secured
Rate paid Floating Fixed
Principal repayment Amortizing At call or maturity
-----------------------------------------------------------------------
</TABLE>
- ------------------- BORROWERS SIGN BINDING CONTRACTS CALLED
LOANS ARE SENIOR... CREDIT AGREEMENTS
Loans are typically the most senior source of
capital in a borrower's capital structure. By a
contract, called the "Credit Agreement," senior
loans have the highest priority of claim on a
borrower's cash flow. Although a borrower may
have other debt obligations, these may be
junior, unsecured and/or subordinated debts. In
addition, a Credit Agreement may contain legal
covenants governing how the borrower must
operate. Tough covenants can include
prohibitions on additional debt, mergers, or
sales of assets.
- ------------------- BORROWERS PLEDGE COLLATERAL
...SECURED...
<TABLE>
-------------------------------------------------------------------------------------
<CAPTION>
LOAN COLLATERAL CAN INCLUDE...
<S> <C> <C> <C>
Working capital Tangible fixed Intangible Security
assets... assets... assets... interests...
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
...Accounts ...Real property ...Trademarks ...Stock in
receivable and buildings and and patents company and
inventory equipment subsidiaries
-------------------------------------------------------------------------------------
</TABLE>
Loans also typically have all of the borrower's
assets pledged as collateral to secure the
debt, an additional incentive for the borrower
to meet its obligations. Nonetheless, a decline
in the value of collateral could cause a loan
to be substantially unsecured. When collateral
consists of stock alone, the Portfolio will be
subject to the risk of decline in the stock's
value, and to other risks associated with
investments in equity securities. (The
Portfolio can invest up to 20 percent of its
assets in other short-term debt obligations and
unsecured loans.)
-7-
<PAGE>
- ----------------------- LOAN RATES ADJUST AS INTEREST RATES CHANGE
...FLOATING-RATE...
The value of floating-rate loans is generally
not affected by changes in interest rates.
Under a Credit Agreement, the corporate
borrower agrees to borrow at a rate that
"floats," keeping a fixed spread over a widely
accepted benchmark, and fluctuating as the base
rate moves. Two frequently used base rates are:
- The LONDON INTERBANK OFFERED RATE (LIBOR),
used by banks worldwide as a base for loans
to large commercial and industrial companies.
Most of the Portfolio's loans have interest
rates based on LIBOR.
- The PRIME RATE, the rate U.S. banks use as a
base for a wide range of loans to individuals
and mid-size and small businesses. This base
rate is infrequently used for loans to
multi-million-dollar corporations.
LIBOR is generally quoted for 30-, 60- and
90-day periods, whereas the prime rate is
quoted for an overnight period.
- ----------------------- REPAYMENT FEATURE REDUCES INVESTOR'S CREDIT
...AND AMORTIZING... EXPOSURE
Loans generally require that principal be
repaid over the life of the loan. The
self-amortizing schedule of loans is an
important reason that a loan investor quickly
builds a growing cash balance. By comparison,
bonds have subordinated claims on a borrower's
cash flow, and the principal is only repaid at
or near maturity. The cash flow provided by the
loans reduces the overall level of credit
exposure to the borrower and allows the
investor to reinvest the cash in another loan.
- ----------------------- SECONDARY MARKET FOR LOANS HAS GROWN RAPIDLY
LIKE BONDS, LOANS Another important element of liquidity is the
ARE NOW TRADED IN fast-growing secondary market trading of loans
THE SECONDARY MARKET... among commercial banks, investment banks, loan
funds and other institutional investors.
Trading volume in 1994 exceeded $20 billion,
according to Loan Pricing Corporation.
All of the largest commercial banks and many of
the largest investment banks have fully staffed
trading desks focused exclusively on loans.
These include such banks as Chase Manhattan,
Chemical Bank, Bankers Trust and Citibank, and
such investment banks as Goldman Sachs, Lehman
Bros., Merrill Lynch and C.S. First Boston.
-8-
<PAGE>
MANAGING RISKS
Like any investment, floating-
rate loans do carry specific [PHOTO]
risks. The features of floating-
rate loans and Eaton Vance's
active management are designed to
minimize credit, interest rate and
foreign exchange risks.
- -------------------
CREDIT RISK. . . 'DEFAULT' DOESN'T ALWAYS RESULT IN A LOSS
When difficulties arise in a borrower's
operations, provisions of the Credit Agreement may
be broken, commonly called a "default." A default
often can be remedied quickly - without loss of
principal or delay of interest payments - or may
lead to a worsened situation for a borrower. If a
borrower defaults on the Credit Agreement governing
its loans, usually it also has defaulted on its
bonds.The frequency of defaults relates to the
creditworthiness of the borrower and to the general
level of economic activity - in recessions, the
frequency of defaults rises across all parts of the
capital market.
WHAT'S MORE, COLLATERAL CAN REDUCE SEVERITY OF
LOSSES
Once a situation has worsened to the
point at which the lender, such as the Portfolio,
feels the loan's value is impaired or has not been
paid as agreed, a loss is recognized. The severity
of the loss is generally lower for loans than
bonds, because loans are senior to bonds and are
normally secured by collateral.
- -----------------------
INTEREST RATE RISK. . . 'FLOATING RATES' MEAN MINIMAL INTEREST RATE RISK
Unlike fixed-rate bonds, the value of
floating-rate loans is generally not affected by
changes in interest rates because loans' rates
reset regularly to maintain a fixed spread over
LIBOR or another specific base rate. The interest
rate sensitivity of the Portfolio is normally less
than 60 days. In contrast, while long-term bond
funds may offer higher yields than a portfolio of
floating-rate loans, they generally measure their
duration in terms of years.
- ------------------------
FOREIGN EXCHANGE RISK. . U.S. DOLLAR-DENOMINATED MEANS NO FOREIGN EXCHANGE
RISK
By investing exclusively in dollar-denominated
debt obligations of U.S.-based companies, an
investor in loans can be fully insulated from moves
in the foreign currency market. Although permitted
by prospectus to invest up to 5 percent of its
asset in foreign loans, the Portfolio's management
has not done so, and does not anticipate buying
foreign loans in the foreseeable future.
-9-
<PAGE>
THE EATON VANCE PORTFOLIO
- ---------------------------
BOTH EATON VANCE FUNDS To manage the Senior Debt Portfolio, Eaton
INVEST IN THE Vance has established a clearly articulated
SENIOR DEBT PORTFOLIO. . . process for investing in loans, working down
from a $300 billion universe of loans to an
approximately $600 million portfolio (as
of December 31, 1994).
<TABLE>
<CAPTION>
------------------------------------------------------------------------
EATON VANCE SCREENS, ANALYZES, SELECTS AND
CONSTRUCTS
<S> <C>
SCREEN . . . Loan universe: $300 billion
REVIEW AND EXCLUDE
ANALYZE . . . Generally acceptable: $150 billion
FUNDAMENTAL RESEARCH
SELECT . . . Meets criteria: $6 billion
RISK/RETURN ASSESSMENT
CONSTRUCT . . . Purchase: $0.6 billion
BROAD SPECTRUM OF CREDITS
------------------------------------------------------------------------
</TABLE>
- -------------------------
PORTFOLIO EXAMPLES . . . The following are examples of borrowers whose
loans were in the Senior Debt Portfolio as of
January 31, 1995, including percentage of the
Portfolio's total net assets that each represented.
- American Standard, Inc. - One of the largest
manufacturers of plumbing products and of air
conditioning systems, with American Standard and
Trane brand names (4.0%).
- Formica Corp. - A major manufacturer of
laminates, under the Formica brand name (2.2%).
- Jerrico, Inc. - Operates the popular-priced
Long John Silver's seafood restaurants (2.8%).
- Pathmark Stores - A leading supermarket chain
in the metropolitan New York and Philadelphia
areas (5.6%).
- Silgan Corp. - Primary food packager for
companies such as DelMonte and Nestle (1.2%).
- Spalding and Evenflo Companies - Manufacturer
of Spalding sports equipment and Evenflo baby and
juvenile products (2.0%).
- Specialty Foods Corp. - Produces and
distributes food products such as Mother's
cookies, Stella bread products and Guggenheimer
pickles (1.8%).
- Stone Container Corp. - An industry leader in
the production of container board, corrugated
containers, kraft paper and paper bags (5.1%).
PLEASE SEE YOUR
FINANCIAL ADVISER
FOR INFORMATION ON
THE PORTFOLIO'S
CURRENT HOLDINGS.
- 10 -
<PAGE>
WHY INVEST WITH EATON VANCE?
- ----------------------
A BOSTON TRADITION Eaton Vance Management and its
SINCE 1924... predecessor companies - Eaton & Howard,
and Vance Sanders - have been managing
assets ofindividuals and institutions
since 1924. Eaton Vance currently
manages over $15 billion in assets
for more than 150 mutual funds, whose
investment objectives range
from tax free and taxable income to
maximum capital appreciation, as well
as individual and institutional accounts for
retirement plans, pension funds and endowments.
As the investment picture has changed over the past
seven decades, Eaton Vance has remained focused on
fundamental research. Eaton Vance is one of the
pioneers in professionally managing portfolios of
senior, floating-rate loans, with over $600 million
under management at December 31, 1994.
[Photo]
Jeffrey S. Garner
Portfolio Manager
- ----------------------
A SUCCESSFUL TRACK The tradition of fundamental research led the
RECORD IN LOANS SINCE firm to establish and build one of the country's
1989. . . largest teams of investment professionals
exclusively dedicated to the management of senior,
floating-rate loans. Eaton Vance's unique team
includes former commercial bank lending officers and
investment bank corporate finance officers.
Complementing their years of experience, the Senior
Debt Portfolio also uses the services of leading
law and accounting firms in the research, analysis
and management process.
- ----------------------
ASK YOUR INVESTMENT FOR MORE COMPLETE INFORMATION ABOUT EATON VANCE
ADVISER IF EATON PRIME RATE RESERVES, EV CLASSIC SENIOR
VANCE'S SENIOR FLOATING-RATE FUND, OR ANY OTHER EATON VANCE FUND,
FLOATING-RATE FUNDS INCLUDING DISTRIBUTION PLANS, CHARGES AND EXPENSES,
ARE RIGHT FOR YOU! PLEASE WRITE OR CALL YOUR FINANCIAL ADVISER FOR A
PROSPECTUS. READ THE PROSPECTUS(ES) CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
-11-
<PAGE>
[PHOTO] Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
30903 - 2/95 SF/PRCB
<PAGE>
INVESTMENT ADVISER OF
SENIOR DEBT PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC
SENIOR FLOATING-RATE FUND
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
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
BANKING COUNSEL
Mayer, Brown & Platt
787 Seventh Avenue
New York, NY 10019
EV CLASSIC
SENIOR FLOATING-RATE FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-SFRSAI
[LOGO]
EV Classic
Senior Floating-Rate
Fund
STATEMENT OF
ADDITIONAL
INFORMATION
FEBRUARY 22, 1995
