<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
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
P.O. Box 5123
Westborough, MA 01581-5123
BANKING COUNSEL
Mayer, Brown & Platt
787 Seventh Avenue
New York, NY 10019
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV CLASSIC
SENIOR FLOATING-RATE FUND
24 FEDERAL STREET
BOSTON, MA 02110 C-SFRSRC-1/97
[Logo]
[Graphic Omitted]
EV Classic
Senior Floating-Rate
Fund
Annual Shareholder Report
December 31, 1996
<PAGE>
Performance Highlights
A CONSISTENT YIELD ADVANTAGE
Month after month, the Fund has produced a yield advantage over 3-month
bank CDs.
Average Yield
Effective Yield Advantage
Spread Over during past
3-month 12 months
CD rates of 2.81%
Class SFR yields CD Rates Spreads
Dec. 1995 7.38 4.14 3.24
Jan. 7.26 4.1 3.16
Feb. 6.88 4.07 2.81
Mar. 6.89 4.18 2.71
Apr. 6.92 4.16 2.76
May. 6.96 4.12 2.84
Jun. 6.78 4.06 2.72
Jul. 6.9 4.09 2.81
Aug. 6.77 4.09 2.68
Sep. 6.71 4.11 2.6
Oct. 6.91 4.11 2.8
Nov. 6.8 4.11 2.69
Dec. 1996 6.81 4.06 2.75
All figures are as of 12/31/96. EV Classic Senior Floating-Rate Fund figure
represents effective yield (distribution for the latest 30-day period,
annualized, divided by the net asset value per share at the end of the period,
and then compounded over a 12-month period). The Fund is not insured nor does it
offer a fixed rate of return, like bank certificates of deposit or bank money
market funds, and does not attempt to maintain a constant net asset value per
share, as do money market funds. Past performance is no guarantee of future
results. Principal value and investment return will fluctuate with changes in
market conditions. Sources: Eaton Vance Management, The Wall Street Journal.
- --------------------------------------------------------------------------------
A RELATIVELY STABLE NET ASSET VALUE PER SHARE
Once again, in 1996, amid the volatility of the Treasury and corporate bond
markets the Fund maintained a relatively stable share Price.
Month-end
net asset value
per share
Classic FRF
Dec. 1995 9.99
Jan. 9.99
Feb. 9.99
Mar. 9.99
Apr. 9.98
May. 9.97
Jun. 9.97
Jul. 9.97
Aug. 9.97
Sep. 9.97
Oct. 9.97
Nov. 9.98
Dec. 1996 9.97
Sources: Eaton Vance Management
<PAGE>
To Shareholders
EV Classic Senior Floating-Rate Fund paid shareholders distributions from net
investment income totaling $0.666 during the year ended December 31, 1996. Based
on the Fund's closing net asset value of $9.97, the Fund had an effective yield
of 6.81% at December 31. The Fund's net asset value per share ended the year
only $0.02 changed from its $9.99 level on December 31, 1995.
EV Classic Senior Floating-Rate Fund once again met its objective of maintaining
a high level of current income with a relatively stable net asset value.
EV CLASSIC SENIOR FLOATING-RATE FUND ENJOYED A YIELD ADVANTAGE OVER OTHER
SHORT-TERM, FIXED-INCOME INVESTMENTS...
The nation's economy continued a pattern of slow growth in 1996. Consistent with
that pattern, inflation remained well under control, with most measures in the
3% range. As he has done consistently in recent years, Federal Reserve chairman
Alan Greenspan continued to emphasize controlling inflation as the Fed's primary
goal. The Federal funds rate, which was 5.50% at the beginning of the year,
stood at 5.25% at year-end, marking a relatively uneventful year for short-term
interest rates.
In this environment, the Fund's yield continued to represent a significant
advantage over money market mutual funds, 3-month certificates of deposit, and
bank money market accounts, which offered rates of 4.95%, 4.06%, and 3.47%,
respectively, as of December 31, 1996. Of course, unlike bank certificates of
deposit, the Fund is not insured and does not offer a fixed rate of return; and
unlike money market accounts, the Fund's principal value and return can
fluctuate with market conditions.
AGAIN IN 1996, THE FUND DEMONSTRATED ITS CHARACTERISTIC RELATIVE PRICE
STABILITY...
Once again, the Fund displayed very little price fluctuation during 1996. But,
as portfolio managers Scott Page and Payson Swaffield point out in the pages
that follow, that was not the case in some other fixed-income markets, such as
the Treasury and corporate bond markets.
As always, relative stability remains one of the Fund's main objectives. In a
period of uncertain economic trends and fully valued equity markets, many
investors now seek the relative calm of a short-term instrument. EVClassic
Senior Floating-Rate Fund will continue to pursue that relative stability while
seeking to deliver highly competitive current yields.
- -------------------------- Sincerely,
[Photo of James B. Hawkes] /s/ James B. Hawkes
James B. Hawkes
President
- -------------------------- February 20, 1997
<PAGE>
--------------------
Management Discussion
An interview with Scott H. Page and
Payson F. Swaffield, Vice Presidents and
Co-Portfolio Managers, Senior Debt Portfolio.
- ---------------------------
[Photo of Payson Swaffield]
- ---------------------------
PAYSON SWAFFIELD
Q: HOW WOULD YOU CHARACTERIZE THE LOAN MARKET IN 1996?
Mr. Swaffield: This was a very active year in the loan market. Loan supply
remained strong, boosted by a surge in new paper. As a measure of the growth
in supply, loan volume totalled $104 billion through the third quarter of
1996 alone, topping the $101 billion for all of 1995. The jump in volume was
due in part to a jump in merger and acquisition activity, a rise in initial
public offerings, and many restructurings aimed at increasing shareholder
values. In addition, leveraged buyouts, a popular takeover option in the
1980s, returned to favor in 1996, prompting a further rise in loan volume.
Finally, the number of participants in the loan market continued to grow as
competition rose among commercial banks, investment banks, pension funds and
mutual funds. So, all in all, it was a very busy year for this market.
Q: HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO?
Mr. Page: There hasn't been a significant shift in the makeup of the Portfolio.
We remain well diversified, with 137 issues spanning a wide range of
industries. The Portfolio maintained its exposure to economically-sensitive,
cyclical industries - including paper, building materials, capital goods, and
energy - as well as to consumer-based sectors such as food retailers, health
care, and cable television.
This broad diversification is important for several reasons. First, it
provides a measure of protection against a reversal at an individual company;
second, it insulates the Portfolio somewhat from a sudden shift in the
direction of the overall economy; and finally, thanks to the periodic reset
provisions of floating-rate loans, it improves our responsiveness to changes
in interest rates.
- ---------------------------
[Photo of Scott H. Page]
- ---------------------------
SCOTT H. PAGE
Q: COULD WE FOCUS ON SOME OF THE PORTFOLIO'S LARGER HOLDINGS?
Mr. Swaffield: Yes. As Scott indicated, we continue to have a strong exposure to
cyclical industries. Among those holdings at December 31 were Fort Howard
Paper, Stone Container, and Jefferson Smurfit. New industry capacity
contributed to a downturn in packaging prices in the last year. However, with
declining containerboard inventories, strong export demand and signs of a
stronger-than-expected U.S. economy, earnings for these companies could trend
upward in 1997. Also, as a senior, secured creditor, we have a first priority
stake in the collateral ahead of unsecured bond holders.
Additionally, we owned a loan of National Gypsum Co., the second leading U.S.
producer of gypsum wallboard. The wallboard industry has enjoyed a
rejuvenation in recent years due to recovering housing starts, high levels of
residential and commercial remodelling, and improved industry pricing
discipline.
In the consumer area, the Portfolio held a loan of Marcus Cable Operating Co.
The cable industry continues to enjoy subscriber growth and increasing
pricing flexibility.
- --------------------------------------------------------------------------------
EV CLASSIC SENIOR FLOATING-RATE FUND
MAINTAINED A SIZABLE YIELD ADVANTAGE
OVER OTHER POPULAR SHORT-TERM INVESTMENT VEHICLES.
All figures are as of 12/31/96. EV Classic Senior Floating-Rate Fund figure
represents effective yields (distribution for the latest 30-day period,
annualized, divided by the net asset value per share at the end of the period,
and then compounded over a 12-month period). The Fund is not insured by the
FDIC, nor does it offer a fixed rate of return like bank certificates of deposit
or bank money market funds, and does not attempt to maintain a constant net
asset value per share, as do money market funds. Past performance is no
guarantee of future results. Principal value and investment return will
fluctuate with changes in market conditions.
Sources: Eaton Vance Management, The Wall Street Journal
EV Classic Senior Floating-Rate Fund ................... 6.81%
Money Markets .......................................... 4.95%
3-month CDs ............................................ 4.06%
Bank noney market accounts ............................. 3.47%
- --------------------------------------------------------------------------------
Q: HOW DID THE FUND PERFORM RELATIVE TO OTHER FIXED-INCOME ALTERNATIVES?
Mr. Page: Very well. For the bond market, especially, this was a period of
fairly high volatility. Yields on 30-year Treasury bonds started the year at
5.95%, and despite a January, 1996 cut in the federal funds rate, rose as
high as 7.2% by July, before finishing the year around 6.64%. That's a real
rollercoaster ride for bond investors, who saw their underlying bond prices
rise and fall dramatically over the course of the year. In contrast, the Fund
had a total return of 6.7% (not including the early redemption charge) and
maintained a net asset value per share between $9.97 and $10.00. Thus, the
Fund not only again achieved positive returns but maintained a relatively
stable share price.
Q. YOU MENTIONED EARLIER THE GROWTH IN THE LOAN PARTICIPATION MARKET. WHAT IS
DRIVING THAT GROWTH?
Mr. Swaffield: Several factors. Corporate and industrial borrowers are
increasingly attracted to the loan market as an alternative to the high-yield
bond market. Interestingly, a recent survey by the Loan Pricing Corp.'s Gold
Sheet - a weekly monitor of the loan market - indicated that, for borrowers
utilizing both the loan syndication market and high-yield bond issuance,
yield spreads over benchmarks were narrower - in some cases dramatically so -
for loans. That represents a very compelling argument for corporate borrowers
in favor of the loan market.
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
December 31, 1996
GENERAL PORTFOLIO INFORMATION
Total net assets .............................................. $3,010 million
Asset invested in loan interests .............................. $2,454 million
Number of borrowers ........................................... 137
Industries represented ........................................ 39
FUNDAMENTAL CHARACTERISTICS OF PORTFOLIO LOANS
Senior ........................................................ 100%
Secured ....................................................... 99%
Floating rate ................................................. 100%
Commercial & industrial ....................................... 100%
AVERAGE PORTFOLIO STATISTICS
(DOLLAR-WEIGHTED)
Collateral coverage ratio ..................................... 1.5 to 1*
Days to interest-rate reset ................................... 53
Maturity ...................................................... 5.5 years
Size per borrower ............................................. $17.4 million
Average size as percent of total net assets ................... 0.6%
*At time of purchase
Source: Eaton Vance Management
- --------------------------------------------------------------------------------
Another clear sign that the loan market will continue to grow is the
increasing demand among institutional investors for a relatively stable,
short-term investment that can produce above-average returns. Investment
banks and commercial banks have been scrambling to meet their demands.
Q: IS THE GROWTH IN THE MARKET A POSITIVE DEVELOPMENT FOR THE FUND'S
SHAREHOLDERS?
Mr. Page: Yes, it is. Typically, loan cash flows may be highly irregular due to
the unpredictability of loan prepayments. The average life of a loan, after
all, is just two to three years, and, at times, cash flows may rise
dramatically. Ordinarily, cash has a dilutive effect upon a portfolio's
returns, and therefore, it's desirable to quickly redeploy these loan
prepayments.
As an example, the Portfolio owned a loan of Thrifty Payless, a drug
retailer, which was purchased in 1996 by Rite Aid for $1.4 billion. The
transaction created a significant cash infusion for the Portfolio when the
Thrifty Payless loan was paid ahead of schedule. However, because of growing
loan supply in the market, we had little difficulty in finding attractive
situations that met our investment criteria. As a result, we were able to put
the cash reserves to work again.
- ------------------------------------------------------------
THE GROWING LOAN MARKET
WITH VOLUME WELL OVER
$100 BILLION IN 1996,
THE LOAN MARKET IS
INCREASINGLY POPULAR
AMONG CORPORATE BORROWERS . . .
CORPORATE FINANCING
800 COMPANIES 12,000 COMPANIES
- ------------------------- -------------------------
COMMERCIAL PAPER SENIOR SECURED BANK LOANS
- ------------------------- -------------------------
- ------------------------- -------------------------
INVESTMENT GRADE BONDS HIGH YIELD BONDS
- ------------------------- -------------------------
- ------------------------- -------------------------
EQUITIES EQUITIES
- ------------------------- -------------------------
Sources: Standard & Poor's; Loan Pricing Corp.
- ------------------------------------------------------------
Q: YOU INDICATED THAT THE LOAN MARKET IS DOMINATED BY INSTITUTIONAL INVESTORS.
DOESN'T THAT MAKE EV CLASSIC SENIOR FLOATING-RATE FUND ONE OF THE FEW RETAIL
FUND PARTICIPANTS?
Mr. Swaffield: Yes, and I think that's especially noteworthy. The Fund remains
one of the few mutual funds offering individual investors access to a
powerful hedge against inflation. Even at today's relatively low levels,
inflation is a silent tax that gradually reduces investor's buying power.
Unlike fixed-income investments, returns on floating-rate loans tend to
increase in response to higher inflation.
As most investors know, inflation usually leads to higher interest rates,
which in turn reduce the value of financial assets. Floating rate loans are
unique because, due to their periodic reset provisions, their interest rates
are adjusted to reflect changes in prevailing interest rate levels. Thus,
investors may actually benefit from a rise in rates while preserving more of
their purchasing power.
Q: WHAT IS YOUR OUTLOOK FOR 1997?
Mr. Page: The economy registered steady but unspectacular growth in the past
year, and many signs point to a similar trend in 1997. With that in mind, the
Federal Reserve has indicated recently a slight bias toward higher rates. If
that proves the case, the Fund's yield should, over time, reflect the rise in
rates.
If, on the other hand, the economy continues to plod along as it has for some
months, the Fund's portfolio of floating-rate notes should maintain its
relative stability, an attractive characteristic in an uncertain economy.
Naturally, past performance is no guarantee of future results. But we are
confident that the Fund should remain well-positioned to provide competitive
short-term returns and a hedge against inflation.
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC SENIOR
FLOATING-RATE FUND AND THE FEDERAL RESERVE 90-DAY COMMERCIAL PAPER INDEX
From February 28, 1995, through December 31, 1996
- --------------------------------------------------------------------
AVERAGE ANNUAL 1 Life Value at
RETURNS Year of Fund* 12/31/96
- --------------------------------------------------------------------
With Early Withdrawal Charge 5.7% 7.1% $11.352
- --------------------------------------------------------------------
Without Early Withdrawal Chg. 6.7% 7.1% $11.352
- --------------------------------------------------------------------
EV CLASSIC 90-DAY
SENIOR COMMERCIAL
FLOATING-RATE PAPER
DATE FUND INDEX
2/28/95 $10,000 $10,000
3/31/95 $10,079 $10,052
4/30/95 $10,132 $10,104
5/31/95 $10,197 $10,156
6/30/95 $10,261 $10,207
7/31/95 $10,326 $10,257
8/31/95 $10,389 $10,307
9/30/95 $10,450 $10,358
10/31/95 $10,516 $10,409
11/30/95 $10,578 $10,459
12/31/95 $10,642 $10,509
1/31/96 $10,706 $10,555
2/28/96 $10,762 $10,602
3/31/96 $10,812 $10,650
4/30/96 $10,861 $10,698
5/31/96 $10,923 $10,747
6/30/96 $10,982 $10,797
7/31/96 $11,044 $10,848
8/31/96 $11,105 $10,898
9/30/96 $11,165 $10,948
10/31/96 $11,228 $10,998
11/30/96 $11,300 $11,049
12/31/96 $11,352 $11,102
Past performance is not indicative of future results. Investment returns and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD. *Investment operations commenced on 2/24/95. +Index information is
available only at month-end; therefore, the line comparison begins at the next
month-end following the commencement of the Fund's investment operations.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
we are including a performance chart that compares your Fund's total return with
that of a broad-based market index. The lines on the chart represent the total
returns of $10,000 hypothetical investments in the Fund and the unmanaged
Federal Reserve 90-Day Commercial Paper Index.
THE TOTAL RETURN FIGURES
The purple line on the chart represents the Fund's performance. The Fund's total
return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The black line represents the performance of the Federal Reserve 90-Day
Commercial Paper Index. The unmanaged Index is composed of corporate commercial
paper rated A1 and P1 by Moody's and Standard & Poor's, respectively, two major
ratings agencies.Commercial paper represents short-term obligations of corporate
borrowers, which are usually backed by bank lines of credit. The Index's total
return does not reflect any commissions or expenses that would be incurred if an
investor individually purchased or sold the securities represented in the Index.
It is not possible to invest directly in the Index.
<PAGE>
EV CLASSIC SENIOR FLOATING-RATE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investment in Senior Debt Portfolio, at value (Note 1A)
(identified cost, $1,311,749,926) $1,310,863,803
Receivable for Trust shares sold 7,614,955
Deferred organization expenses (Note 1D) 188,570
Prepaid expenses 292,412
--------------
Total assets $1,318,959,740
LIABILITIES:
Dividends payable $2,002,134
Payable for Trust shares redeemed 9,030
Payable to affiliate -
Trustees' fees 834
Accrued expenses 98,799
----------
Total liabilities 2,110,797
--------------
NET ASSETS for 132,048,022 shares of beneficial
interest outstanding $1,316,848,943
==============
SOURCES OF NET ASSETS:
Paid-in capital $1,318,160,582
Accumulated net realized loss on investment
transactions from Portfolio (computed on the
basis of identified cost) (588,207)
Unrealized depreciation of investments from
Portfolio (computed on the basis of
identified cost) (886,123)
Accumulated undistributed net investment
income 162,691
--------------
Total $1,316,848,943
==============
NET ASSET VALUE PER SHARE (NOTE 6)
($1,316,848,943 / 132,048,022 shares of
beneficial interest) $9.97
=====
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Income allocated from Portfolio $77,078,197
Expenses allocated from Portfolio (9,564,566)
-----------
Total investment income $67,513,631
Expenses -
Administration fee (Note 4) $2,348,205
Compensation of Trustees not members of the
Administrator's organization (Note 4) 4,038
Custodian fees 25,314
Service fee (Note 5) 1,415,273
Transfer and dividend disbursing agent fees 369,881
Printing and postage 146,035
Legal and accounting services 53,298
Registration fees 316,241
Amortization of organization expense (Note 1D) 60,013
Miscellaneous 190,112
----------
Total expenses 4,928,410
-----------
Net investment income $62,585,221
REALIZED AND UNREALIZED LOSS FROM PORTFOLIO:
Net realized loss from Portfolio on investment
transactions (identified cost) $ (588,207)
Change in unrealized depreciation of investments (835,519)
----------
Net realized and unrealized loss on
investments (1,423,726)
-----------
Net increase in net assets from
operations $61,161,495
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995*
-------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 62,585,221 $ 12,703,961
Net realized gain (loss) on investments (588,207) 66,856
Change in unrealized depreciation from Portfolio (835,519) (50,604)
-------------- ------------
Net increase in net assets from operations $ 61,161,495 $ 12,720,213
-------------- ------------
Distributions to shareholders (Note 2) -
From net investment income $ (62,452,734) $(12,673,757)
From net realized gain on investment transactions -- (66,856)
-------------- ------------
Total distributions to shareholders $ (62,452,734) $(12,740,613)
-------------- ------------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sale of shares $ 923,005,210 $501,932,098
Net asset value of shares issued to shareholders in payment of
distributions declared 39,529,106 9,236,474
Cost of shares reacquired in tender offers (145,424,754) (10,217,552)
-------------- ------------
Net increase in net assets from Trust share transactions $ 817,109,562 $500,951,020
-------------- ------------
Net increase in net assets $ 815,818,323 $500,930,620
NET ASSETS:
At beginning of year 501,030,620 100,000
-------------- ------------
At end of year (including accumulated undistributed net investment
income of $162,691 and $30,204, respectively) $1,316,848,943 $501,030,620
============== ============
*For the period from the start of business, February 24, 1995, to December 31, 1995.
</TABLE>
See notes to financial statements
<PAGE>
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES --
Purchase of Interests in Senior Debt Portfolio $(922,447,419)
Withdrawal of interests in Senior Debt Portfolio 172,131,935
Operating expenses paid (4,872,241)
-------------
Net cash used for operating activities $(755,187,725)
-------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES -
Proceeds from shares sold $ 961,885,750
Payments for shares reacquired in tender offers (145,447,734)
Cash distributions paid (excluding reinvestments of
distributions of $39,529,106) (61,250,291)
-------------
Net cash provided from financing activities $ 755,187,725
-------------
Net increase in cash $ --
CASH AT BEGINNING OF YEAR --
-------------
CASH AT END OF YEAR $ --
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FROM OPERATING ACTIVITIES:
Net increase in net assets from operations $ 61,161,495
Decrease in prepaid expenses 75,202
Decrease in deferred organization expenses 60,013
Increase in payable to affiliates 694
Decrease in accrued expenses and other liabilities (80,680)
Net increase in investments (816,404,449)
-------------
Net cash used for operating activities $(755,187,725)
=============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995*
---------- --------
<S> <C> <C>
NET ASSET VALUE -- Beginning of year $ 9.990 $ 10.000
---------- --------
Income from operations -
Net investment income $ 0.667 $ 0.634
Net realized and unrealized gain (loss) on investments (0.021) (0.008)++
---------- --------
Total income (loss) from operations $ 0.646 $ 0.626
---------- --------
Less distributions:
From net investment income $ (0.666) $ (0.633)
From net realized gain on investment transactions -- (0.003)
---------- --------
Total distributions $ (0.666) $ (0.636)
---------- --------
NET ASSET VALUE -- End of year $ 9.970 $ 9.990
========== ========
TOTAL RETURN(2) 6.67% 6.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (000's omitted) $1,316,849 $501,031
Ratio of net expenses to average daily net assets(1) 1.49% 1.53%+
Ratio of interest expense to average daily net assets(1) 0.04% 0.13%+
Ratio of net investment income to average daily net assets 6.61% 7.04%+
(1) Includes the Fund's share of Senior Debt Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date.
* For the period from the start of business, February 24, 1995, to December
31, 1995.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized
gain for the period because of the timing of sales of Trust shares and the
amount of per share realized and unrealized gains and losses at such time.
</TABLE>
See notes to financial statements
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Classic Senior Floating-Rate Fund (the Trust) was formed under a
Declaration of Trust dated August 5, 1993, amended and restated December 7,
1994. The Trust is an entity of the type commonly known as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a non-diversified closed-end management investment company. The
Trust invests all of its investable assets in interests in the Senior Debt
Portfolio (the Portfolio), a New York Trust, having the same investment
objective as the Trust. The value of the Trust's investment in the Portfolio
reflects the Trust's proportionate interest in the net assets of the Portfolio
(43.5% at December 31, 1996). The performance of the Trust is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Trust's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATION -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B. INCOME -- The Trust's net investment income consists of the Trust's pro
rata share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Trust determined in accordance with generally accepted
accounting principles.
C. FEDERAL TAXES -- The Trust's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments. Accordingly, no provision for federal income
or excise tax is necessary. At December 31, 1996, the Fund, for federal income
tax purposes had capital loss carryovers of $588,207 which will expire on
December 31, 2004. These amounts will reduce taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Trust in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
E. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
F. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash
balances the Fund maintains with IBT. All significant credit balances used to
reduce the Fund's custodian fee are reported as a reduction of expenses in the
statement of operations.
- -----------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net investment income of the Trust is determined daily, and substantially
all of the net investment income so determined is declared daily as a dividend
to shareholders of record at the time of declaration. Such daily dividends
will be paid monthly. Distributions of realized capital gains, if any, are
made at least annually. Shareholders may reinvest capital gain distributions
in additional shares of the Trust at the net asset value as of the ex-dividend
date. Distributions are paid in the form of additional shares of the Trust or,
at the election of the shareholder, in cash. The Trust distinguishes between
distributions on a tax basis and a financial reporting basis. Generally
accepted accounting principles require that only distributions in excess of
tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
over-distributions for financial statement purposes only are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
- ------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). The
Trust may from time to time, at its discretion, make tender offers at net
asset value for the purchase of all or a portion of its shares. The price will
be established at the close of business on the last day the tender offer is
open. An early withdrawal charge will be imposed on most shares accepted for
tender which have been held less than one year (See Note 6). The Trustees
approved a tender offer for the periods from January 22, 1996 to February 16,
1996, from April 22, 1996 to May 17, 1996, from July 22, 1996 to August 16,
1996, from October 21, 1996 to November 15, 1996 and from January 20, 1997 to
February 14, 1997. Transactions in Trust shares were as follows:
YEAR ENDED YEAR
DECEMBER 31, DECEMBER 31,
1996 1995*
------------ ------------
Sales 92,516,066 50,240,529
Issued to shareholders electing to receive
payments of distributions in Trust shares 4,476,151 924,567
Reacquired in tender offers (15,096,513) (1,022,778)
---------- ----------
Net increase 81,895,704 50,142,318
========== ==========
*For the period from the start of business, February 24, 1995, to December 31,
1995.
- ------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
The administration fee was earned by Eaton Vance Management (EVM) as
compensation for administrative services necessary to conduct the Trust's
business. The fee is computed monthly 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 Trust. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services
(See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.)
Except as to Trustees of the Trust and the Portfolio who are not members of
EVM's or BMR's organization, officers and Trustees receive remuneration for
their services to the Trust out of such investment adviser fee. Certain of the
officers and Trustees of the Trust and Portfolio are officers and/or
directors/trustees of the above organizations.
- ------------------------------------------------------------------------------
(5) SERVICE PLAN
The Trust has adopted a service plan (the Plan) designed to meet the
requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. as if such rule were applicable.
The Service Plan provides that the Trust may make service fee payments to
the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), a subsidiary
of Eaton Vance Management, Authorized Firms or other persons in amounts not
exceeding 0.25% of the Trust's average daily net assets for any fiscal year.
The Trustees have initially implemented the Plan by authorizing the Trust to
make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not exceeding 0.15% of the Trust's average daily
net assets for each fiscal year. The Trust paid or accrued service fees to or
payable to EVD for the year ended December 31, 1996 in the amount of
$1,415,273. Service fee payments are made for personal services and/or the
maintenance of shareholder accounts.
Certain of the officers and Trustees of the Trust are officers or directors
of EVD.
- ------------------------------------------------------------------------------
(6) EARLY WITHDRAWAL CHARGE
EVD serves as the Trust's principal underwriter. EVD compensates authorized
firms at a rate of 1% of the purchase price of shares purchased through such
firms consisting of 0.85% of sales commissions and 0.15% service fee (for the
first year's service). EVD also pays additional compensation to each firm equal
to 0.60% per annum of the value of Trust shares sold by such firm that are
outstanding for more than one year. A 1% early withdrawal charge to recover
distribution expenses will be charged to tendering shareholders and paid to EVD
in connection with most shares held for less than one year which are accepted by
the Trust for repurchase pursuant to tender offers. The early withdrawal charge
will be imposed on those shares accepted for tender, the value of which exceeds
the aggregate value at the time the tender is accepted of: (a) all shares in the
account purchased more than one year prior to such acceptance, (b) all shares in
the account acquired through reinvestment of distributions, and (c) the
increase, if any, in value of all other shares in the account (namely those
purchased within the one year preceding the acceptance) over the purchase price
of such shares. In determining whether an early withdrawal charge is payable, it
is assumed that the acceptance of a repurchase offer would be made from the
earliest purchase of shares. The total early withdrawal charges received by EVD
for the year ended December 31, 1996 amounted to approximately $646,100.
- ------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Trust's investment in the Portfolio for the
year ended December 31, 1996 aggregated $922,447,419 and $172,131,935,
respectively.
<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 as of December 31, 1996, and the related
statements of operations, cash flows for the year then ended, the statements
of changes in net assets for the years ended December 31, 1996 and 1995, and
the financial highlights for the year ended December 31, 1996 and for the
period from the start of business, February 24, 1995, to December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the EV Classic
Senior Floating-Rate Fund at December 31, 1996, the results of its operations
and cash flows, the changes in its net assets, and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
FEBRUARY 7, 1997
<PAGE>
--------------------------
SENIOR DEBT PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------
SENIOR, SECURED, FLOATING-RATE INTERESTS - 81.5%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT BORROWER/BUSINESS DESCRIPTION VALUE
- -----------------------------------------------------------------------------------
<C> <C> <C>
AEROSPACE/DEFENSE - 2.2%
AEROSTRUCTURES CORPORATION
$ 8,674,286 Term loan, maturing September 30, 2003 $ 8,674,286
3,154,286 Term loan, maturing September 30, 2004 3,154,286
Designs, manufactures, and assembles structural
aircraft components
FIBERITE, INC.
9,364,286 Term loan, maturing December 31, 2001 9,364,286
Manufactures composite materials for the aerospace
industry
MAG AEROSPACE INDUSTRIES, INC.
5,000,000 Term loan, maturing December 6, 2003 5,000,000
Manufactures toilet systems for the aerospace
industry
SHARED TECHNOLOGIES FAIRCHILD COMMUNICATIONS, INC.
4,475,000 Term loan, maturing March 30, 2001 4,475,000
Aerospace and specialty fasteners, and plastics
industry tooling systems
TRACOR, INC.
10,912,000 Term loan, maturing October 31, 2000 10,912,000
10,913,158 Term loan, maturing April 30, 2001 10,913,158
Technical services to defense companies
TRANSTECHNOLOGY CORPORATION
7,350,000 Term loan, maturing June 30, 2002 7,350,000
Aerospace and specialty fasteners, rescue winches,
and hoists
TRI-STAR INC.
5,000,000 Term loan, maturing September 30, 2003 5,000,000
Distributor of aerospace fasteners --------------
$ 64,843,016
--------------
AUTOMOTIVE - 2.5%
CAMBRIDGE INDUSTRIES, INC.
$ 7,545,643 Term loan, maturing May 17, 2002 $ 7,545,643
8,488,500 Term loan, maturing May 17, 2003 8,488,500
3,772,742 Term loan, maturing May 17, 2004 3,772,742
Original equipment manufacturer of plastic auto
parts
CSK AUTO, INC.
10,000,000 Term loan, maturing October 31, 2003 10,000,000
Retailer of automotive parts and accessories
HAYES WHEELS INTERNATIONAL, INC.
9,444,444 Term loan, maturing July 31, 2003 9,444,444
7,555,556 Term loan, maturing July 31, 2004 7,555,556
Producer of automotive brakes and wheels
SAFELITE GLASS CORPORATION
10,000,000 Term loan, maturing December 20, 2002 10,000,000
5,000,000 Term loan, maturing December 20, 2004 5,000,000
Auto glass replacement and repair service provider
SCHRADER, INC.
3,269,542 Term loan, maturing February 28, 2001 3,269,542
3,965,039 Term loan, maturing November 30, 2002 3,965,039
Produces tire valves and accesories, and pneumatic
connectors
STANADYNE AUTOMOTIVE CORP.
7,312,500 Term loan, maturing December 31, 2001 7,312,500
Auto and light truck fuel injection equipment --------------
$ 76,353,966
--------------
BROADCAST MEDIA - 9.7%
BENEDEK BROADCASTING CORPORATION
$ 7,962,207 Term loan, maturing May 1, 2001 $ 7,962,207
7,972,276 Term loan, maturing November 1, 2002 7,972,276
Broadcast television operator
CABLEVISION OF CLEVELAND, G.P., INC.
12,000,000 Term loan, maturing December 31, 2005 12,000,000
Cable television provider
CHANCELLOR RADIO BROADCASTING COMPANY
5,948,571 Term loan, maturing September 1, 2003 5,948,571
Radio broadcasting
CHARTER COMMUNICATIONS ENTERPRISES I, L.P.
5,000,000 Term loan, maturing December 31, 2003 5,000,000
Cable television provider
CHARTER COMMUNICATIONS ENTERPRISES II, L.P.
10,000,000 Term loan, maturing September 30, 2004 10,000,000
Cable television provider
CHELSEA COMMUNICATIONS, INC.
10,000,000 Term loan, maturing December 31, 2004 10,000,000
Cable television provider
CITICASTERS, INC.
10,000,000 Term loan, maturing February 15, 2004 10,000,000
Radio broadcasting
CLASSIC CABLE, INC.
3,080,969 Term loan, maturing June 30, 2004 3,080,969
10,013,149 Term loan, maturing June 30, 2005 10,013,149
Cable television provider
COAXIAL COMMUNICATIONS, INC.
16,808,060 Term loan, maturing December 31, 1999 16,808,060
Midwest cable television provider
FALCON CABLE MEDIA
3,776,923 Revolving loan, maturing March 31, 2003 3,776,923
22,000,000 Term loan, maturing July 11, 2005 22,000,000
Cable television provider
INTERMEDIA PARTNERS IV, L.P.
15,500,000 Term loan, maturing January 1, 2005 15,500,000
Cable television provider
MARCUS CABLE OPERATING COMPANY, L.P.
37,708,500 Term loan, maturing December 31, 2002 37,708,500
23,000,000 Term loan, maturing April 30, 2004 23,000,000
406,250 Revolving loan, maturing December 31, 2002 406,250
Cable television provider
SINCLAIR BROADCASTING GROUP, INC.
19,850,000 Term loan, maturing November 30, 2003 19,850,000
Broadcast television operator
SULLIVAN BROADCASTING COMPANY, INC.
17,563,829 Term loan, maturing December 31, 2003 17,563,829
Broadcast television operator
TCI PACIFIC, INC.
37,500,000 Term loan, maturing December 31, 2004 37,500,000
Cable television provider
YOUNG BROADCASTING, INC.
106,000 Revolving loan, maturing September 30, 2003 106,000
15,900,000 Term loan, maturing September 30, 2003 15,900,000
Owner and operator of network affiliated television
stations --------------
$ 292,096,734
--------------
BUILDING MATERIALS - 1.7%
NATIONAL GYPSUM COMPANY
$49,874,791 Term loan, maturing September 30, 2003 $ 49,874,791
Produces gypsum wallboard --------------
CHEMICALS - 2.9%
HARRIS SPECIALTY CHEMICALS, INC.
$ 1,450,787 Term loan, maturing December 31, 1999 $ 1,450,787
5,595,027 Term loan, maturing December 31, 2001 5,595,027
5,233,370 Term loan, maturing December 31, 2002 5,233,370
Construction chemicals
HUNTSMAN CORPORATION
21,250,000 Term loan, maturing December 31, 2004 21,250,000
Diversified chemical producer
LILLY INDUSTRIES, INC.
19,900,000 Term loan, maturing November 30, 2003 19,900,000
Housing paints and industrial and specialty coatings
POLYMER GROUP, INC.
20,000,000 Term loan, maturing March 31, 2002 20,000,000
Produces nonwoven fabrics
STX CHEMICALS CORP.
14,975,000 Term loan, maturing September 30, 2004 14,975,000
Petrochemicals and pulp chemicals --------------
$ 88,404,184
--------------
COAL - 0.4%
ALLIANCE COAL CORPORATION
$ 4,959,677 Term loan, maturing December 31, 2001 $ 4,959,677
6,965,000 Term loan, maturing December 31, 2002 6,965,000
Diversified producer and supplier of steam and
metallurgical coal --------------
$ 11,924,677
--------------
COMMERCIAL SERVICES - 4.4%
ADVO, INC.
$13,063,265 Term loan, maturing March 31, 2004 $ 13,063,265
Shared advertising distributor
AVIALL, INC.
15,000,000 Term loan, maturing September 30, 2001 15,000,000
Turbine engine repair and parts distribution
BRAND SCAFFOLD SERVICES, INC.
2,992,500 Term loan, September 30, 2003 2,992,500
1,995,000 Term loan, September 30, 2004 1,995,000
Industrial scaffolding rental, erection and
dismantlement services
ELLER MEDIA COMPANY
30,000,000 Term loan, December 31, 2004 30,000,000
Outdoor advertising
HOSIERY CORPORATION OF AMERICA, INC.
2,857,595 Term loan, maturing October 17, 1999 2,857,595
13,575,000 Term loan, maturing July 31, 2001 13,575,000
Women's hosiery
NBC MERGER SUB, INC.
7,450,000 Term loan, maturing August 31, 2003 7,450,000
Used college textbook wholesaler
OSI HOLDINGS CORPORATION
15,000,000 Term loan, maturing October 15, 2003 15,000,000
Accounts receivable management services
PSI ACQUISITION CORPORATION
2,078,457 Term loan, maturing December 31, 1998 2,078,457
12,750,000 Term loan, maturing December 31, 2000 12,750,000
Diversified consulting services
SELECT BEVERAGES, INC.
3,960,000 Term loan, maturing June 30, 2001 3,960,000
5,940,000 Term loan, maturing June 30, 2002 5,940,000
Soft drink bottler
UNICCO SERVICE COMPANY
5,000,000 Term loan, maturing June 30, 2001 5,000,000
Provider of janitorial services --------------
$ 131,661,817
--------------
COMMUNICATION EQUIPMENT - 0.8%
CIRCO CRAFT TECHNOLOGIES GROUP, INC.
$ 4,000,000 Term loan, maturing June 30, 2004 $ 4,000,000
4,000,000 Term loan, maturing June 30, 2005 4,000,000
Supplier of interconnection products
COMMUNICATIONS & POWER INDUSTRIES, INC.
1,750,000 Term loan, maturing August 11, 2000 1,750,000
5,583,333 Term loan, maturing August 12, 2002 5,583,333
Microwave, electronic, and radio frequency
components
DICTAPHONE ACQUISITION INC.
8,910,000 Term loan, maturing June 30, 2002 8,910,000
Manufactures, markets, and services communication
systems --------------
$ 24,243,333
--------------
COMPUTER SYSTEMS - 0.3%
GENICOM CORPORATION
$ 8,868,745 Term loan, maturing December 31, 2002 $ 8,868,745
Produces computer printers and supplies, and --------------
provides multivendor servicing
CONGLOMERATES - 3.0%
AMERICAN MARKETING INDUSTRIES, INC.
$ 1,485,000 Term loan, maturing August 31, 2001 $ 1,485,000
3,465,000 Term loan, maturing November 30, 2002 3,465,000
Manufacturer and distributor of corporate
promotional and incentive products
E & S HOLDINGS
4,277,778 Term loan, maturing September 30, 2004 4,277,778
4,277,778 Term loan, maturing September 30, 2005 4,277,778
2,444,444 Term loan, maturing March 30, 2006 2,444,444
Sporting goods and infant products
FENWAY HOLDINGS, L.L.C.
8,481,215 Term loan, maturing September 15, 2002 8,481,215
Manufactures and distributes billiard tables, dart
machines, wood mouldings, windows, doors, artificial
flowers, archery bows, and plastics.
PHASE METRICS, INC.
5,000,000 Term loan, maturing December 4, 2001 5,000,000
Designs and manufactures production test equipment
for the computer data storage industry
SMARTE CARTE CORPORATION
500,000 Term loan, maturing June 30, 2003 500,000
3,000,000 Term loan, maturing June 30, 2003 3,000,000
4,500,000 Term loan, maturing June 30, 2003 4,500,000
Airport baggage cart management and self storage
locker service
WALTER INDUSTRIES, INC.
26,095,729 Term loan, maturing January 22, 2002 26,095,729
9,875,000 Term loan, maturing January 22, 2003 9,875,000
Homebuilding and financing, pipe manufacturing and
coal mining
YOUNG & RUBICAM L.P.
17,500,000 Term loan, maturing March 31, 2003 17,500,000
Advertising, public relations, direct marketing,
sales development and design and health care
communications --------------
$ 90,901,944
--------------
CONTAINERS - METAL & GLASS - 2.0%
CALMAR, INC.
$ 5,928,750 Term loan, maturing September 15, 2003 $ 5,928,750
4,440,000 Term loan, maturing June 15, 2004 4,440,000
Plastic sprayers and dispensers
REID PLASTICS, INC.
9,972,000 Term loan, maturing November 12, 2003 9,972,000
Bottle manufacturer
SILGAN CORPORATION
14,656,426 Term loan, maturing December 31, 2000 14,656,426
26,655,055 Term loan, maturing March 15, 2002 26,655,055
Metal and plastic packaging products --------------
$ 61,652,231
--------------
CONTAINERS - PAPER - 7.0%
IPC, INC.
$ 8,250,000 Term loan, maturing September 30, 2001 $ 8,250,000
Plastic and paper packaging products
JEFFERSON SMURFIT CORPORATION
1,181,682 Revolving loan, maturing April 30, 2001 1,181,682
25,366,827 Term loan, maturing April 30, 2001 25,366,827
22,190,481 Term loan, maturing April 30, 2002 22,190,481
10,741,040 Term loan, maturing October 31, 2002 10,741,040
Liner board and other paper board products
RIC HOLDING, INC.
1,266,644 Revolving loan, maturing February 28, 2003 1,266,644
19,150,067 Term loan, maturing February 28, 2003 19,150,067
19,422,361 Term loan, maturing February 28, 2004 19,422,361
7,751,552 Term loan, maturing August 28, 2004 7,751,552
Liner board, lumber and paper packaging products
STONE CONTAINER CORPORATION
39,258,534 Term loan, maturing April 1, 2000 39,258,534
45,657,387 Term loan, maturing October 1, 2003 45,657,387
Commodity pulp, paper and packaging products
STRONGHAVEN, INC.
9,500,000 Term loan, maturing May 31, 2004 9,500,000
Manufacturer of corrugated boxes --------------
$ 209,736,575
--------------
COSMETICS - 0.7%
MARY KAY COSMETICS, INC.
$ 9,919,355 Term loan, maturing December 6, 2002 $ 9,919,355
Cosmetics, skin and hair care, and perfume products
REVLON CONSUMER PRODUCTS COMPANY
10,000,000 Term loan, maturing March 31, 1999 10,000,000
Cosmetics, skin and hair care, and perfume products --------------
$ 19,919,355
--------------
ELECTRONICS - INSTRUMENTATION - 0.5%
DETAILS, INC.
$16,545,146 Term loan, maturing December 31, 2001 $ 16,545,146
Manufactures prototype printed circuit boards --------------
FOODS - 1.3%
INTERNATIONAL HOME FOODS, INC.
$ 2,200,000 Revolving loan, maturing March 31, 2003 $ 2,200,000
12,972,973 Term loan, maturing September 30, 2004 12,972,973
11,027,027 Term loan, maturing September 30, 2005 11,027,027
Manufactures and markets food products with popular
brand names
VAN DE KAMP'S, INC.
7,303,493 Term loan, maturing April 30, 2003 7,303,493
4,570,425 Term loan, maturing September 30, 2003 4,570,425
Distributor of frozen convenience foods --------------
$ 38,073,918
--------------
FOOD WHOLESALERS - 4.5%
CATERAIR INTERNATIONAL CORPORATION
$ 8,990,908 Term loan, maturing September 15, 2001 $ 8,990,908
Food service to airlines
FAVORITE BRANDS INTERNATIONAL, INC.
15,000,000 Term loan, maturing August 30, 2004 15,000,000
Manufactures and markets marshmallows and caramels
FLEMING COMPANIES, INC.
734,108 Revolving loan, maturing July 19, 2000 734,108
5,082,287 Letter of Credit, maturing June 30, 2000 5,082,287
5,753,510 Term loan, maturing July 19, 2000 5,753,510
Wholesale food distributor
KEEBLER HOLDING CORPORATION
16,464,226 Term loan, maturing July 31, 2003 16,464,226
11,893,043 Term loan, maturing July 31, 2004 11,893,043
Manufactures and distributes cookies and crackers
RYKOFF-SEXTON, INC.
10,114,865 Term loan, maturing October 31, 2002 10,114,865
4,844,595 Term loan, maturing October 31, 2001 4,844,595
Manufactures and distributes food products
SC INTERNATIONAL SERVICES, INC.
11,214,868 Term loan, maturing September 15, 2002 11,214,868
2,464,347 Term loan, maturing September 15, 2003 2,464,347
Food service to airlines
SPECIALTY FOODS CORPORATION
34,850,000 Term loan, maturing April 30, 2001 34,850,000
Bread and cheese products
VOLUME SERVICES, INC.
4,978,600 Term loan, maturing December 31, 2002 4,978,600
2,489,250 Term loan, maturing December 31, 2003 2,489,250
Provides food services for civic centers and sports
facilities --------------
$ 134,874,607
--------------
HEALTH CARE - DIVERSIFIED - 1.2%
COMMUNITY HEALTH SYSTEMS, INC.
$12,609,589 Term loan, maturing December 31, 2003 $ 12,609,589
12,609,589 Term loan, maturing December 31, 2004 12,609,589
9,493,151 Term loan, maturing December 31, 2005 9,493,151
Hospital and healthcare management --------------
$ 34,712,329
--------------
HEALTH CARE - MISCELLANEOUS - 2.2%
IMED CORPORATION
$ 2,465,000 Term loan, maturing November 30, 2003 $ 2,465,000
2,465,000 Term loan, maturing November 30, 2004 2,465,000
2,320,000 Term loan, maturing May 31, 2005 2,320,000
Provider of infusion systems and related
technologies
MEDIQ / PRN LIFE SUPPORT SERVICE
9,975,000 Term loan, maturing September 30, 2004 9,975,000
Medical equipment and rental services
NATIONAL MEDICAL CARE, INC.
50,000,000 Term loan, maturing September 30, 2003 50,000,000
Kidney dialysis service provider --------------
$ 67,225,000
--------------
HOTELS - 0.5%
DOUBLETREE CORPORATION
$15,054,971 Term loan, maturing May 15, 2004 $ 15,054,971
Hotel management --------------
HOUSEHOLD FURNISHINGS - 0.6%
SIMMONS COMPANY
$ 6,956,774 Term loan, maturing March 31, 2003 $ 6,956,774
Manufactures bedding
LIFESTYLE FURNISHINGS INTERNATIONAL
12,050,001 Term loan, maturing August 8, 2004 12,050,001
Manufacturer of home improvement and building
products --------------
$ 19,006,775
--------------
HOUSEHOLD PRODUCTS - 0.2%
RAYOVAC CORPORATION
$ 2,770,834 Term loan, maturing September 30, 2003 $ 2,770,834
2,770,833 Term loan, maturing September 30, 2004 2,770,833
Manufacturer of general and specialty batteries,
flashlights and other battery-powered lighting
devices --------------
$ 5,541,667
--------------
LEISURE - 2.6%
AMF GROUP, INC.
$15,373,090 Term loan, maturing March 31, 2001 $ 15,373,090
14,234,499 Term loan, maturing March 31, 2003 14,234,499
5,599,532 Term loan, maturing March 31, 2004 5,599,532
Manufactures and operates bowling equipment and
supplies
AMFAC PARKS, INC.
8,250,000 Term loan, maturing September 30, 2002 8,250,000
Provides lodging, food and beverage services to
national and state parks
METRO-GOLDWYN-MAYER, INC.
2,014,286 Revolving loan, maturing September 30, 2001 2,014,286
5,357,143 Term loan, maturing September 30, 2002 5,357,143
Film and television production and distribution
PANAVISION INTERNATIONAL, L.P.
2,400,000 Revolving loan, maturing December 31, 2002 2,400,000
2,400,000 Term loan, maturing December 31, 2002 2,400,000
Manufactures lens and camera equipment
SIX FLAGS THEME PARKS, INC.
8,333,290 Term loan, maturing June 23, 2001 8,333,290
10,816,800 Term loan, maturing June 23, 2003 10,816,800
Amusement parks
VIACOM, INC.
3,100,000 Term loan, maturing July 1, 2002 3,100,000
Television and motion picture entertainment --------------
$ 77,878,640
--------------
MACHINERY - 0.4%
NUMATICS, INCORPORATED
$ 4,754,474 Term loan, maturing January 3, 2002 $ 4,754,474
7,923,304 Term loan, maturing January 3, 2004 7,923,304
Manufactures air valves, cylinders, and air
filtration and drying devices --------------
$ 12,677,778
--------------
MANUFACTURING - DIVERSIFIED - 3.0%
IMO INDUSTRIES, INC.
$ 9,944,445 Term loan, maturing April 30, 2003 $ 9,944,445
Manufactures pumps, gears and speed reducers, and
elecronic control products and instrumentation.
INTERLAKE CORP.
6,099,374 Term loan, maturing June 30, 1999 6,099,374
Engineered materials
INTERMETRO INDUSTRIES CORPORATION
5,488,044 Term loan, maturing June 30, 2001 5,488,044
4,268,478 Term loan, maturing December 31, 2002 4,268,478
Shelving
INTERNATIONAL WIRE GROUP, INC.
9,924,242 Term loan, maturing September 30, 2002 9,924,242
19,894,737 Term loan, maturing September 30, 2003 19,894,737
Manufactures and markets copper wire and harnesses
INTESYS TECHNOLOGIES, INC.
4,390,244 Term loan, maturing December 31, 2001 4,390,244
Plastic injection molding and fabricated battery
packs
JACKSON PRODUCTS, INC.
7,402,173 Term loan, maturing September 1, 2002 7,402,173
7,406,250 Term loan, maturing September 1, 2003 7,406,250
1,995,000 Term loan, maturing September 1, 2001 1,995,000
Manufactures and distributes safety equipment and
reflective beads
METTLER-TOLEDO HOLDINGS, INC.
4,400,000 Term loan, maturing December 31, 2003 4,400,000
5,100,000 Term loan, maturing December 31, 2004 5,100,000
Manufactures and markets weighing instruments for
use in labratory, industrial and food retailing
applications
PRECISE TECHNOLOGY, INC.
5,000,000 Term loan, maturing March 31, 2003 5,000,000
Plastic injection molding --------------
$ 91,312,987
--------------
MEDICAL PRODUCTS - 0.5%
GRAPHIC CONTROLS CORPORATION
$15,871,368 Term loan, maturing September 28, 2003 $ 15,871,368
Recording and monitoring devices --------------
METALS - 1.0%
COLUMBUS MCKINNON CORPORATION
$ 8,200,000 Term loan, maturing September 30, 2003 $ 8,200,000
Manufacturer of hoists and lifting equipment
SINTER METALS, INC.
12,500,000 Term loan, maturing June 30, 2005 12,500,000
Manufacturer of pressed powder metal products
U.S. SILICA COMPANY
5,000,000 Term loan, maturing December 31, 2001 5,000,000
4,000,000 Term loan, maturing December 31, 2003 4,000,000
Producer of industrial silica --------------
$ 29,700,000
--------------
MISCELLANEOUS - 1.8%
ALLIED WASTE NORTH AMERICA
$ 7,258,065 Term loan, maturing June 30, 2002 $ 7,258,065
4,000,000 Term loan, maturing June 30, 2003 4,000,000
8,000,000 Term loan, maturing June 30, 2004 8,000,000
8,000,000 Term loan, maturing June 30, 2005 8,000,000
Non-hazardous solid waste management
PRIME SUCCESSION, INC.
16,000,000 Term loan, maturing August 1, 2003 16,000,000
Operator of funeral homes and cemeteries
ROSE HILLS COMPANY
10,000,000 Term loan, maturing December 1, 2003 10,000,000
Operator of funeral homes and cemeteries --------------
$ 53,258,065
--------------
PAPER AND FOREST PRODUCTS - 3.7%
FORT HOWARD CORPORATION
$60,289,333 Term loan, maturing March 8, 2002 $ 60,289,333
8,293,939 Term loan, maturing December 31, 2002 8,293,939
Sanitary tissue paper products
S.D. WARREN COMPANY
41,404,270 Term loan, maturing December 20, 2002 41,404,270
Major U.S. producer of coated free paper --------------
$ 109,987,542
--------------
PUBLISHING - 0.9%
K-III COMMUNICATIONS
$28,000,000 Term loan, maturing June 30, 2004 $ 28,000,000
Leader in the education, media and information --------------
businesses
PUBLISHING - NEWSPAPERS - 2.0%
AMERICAN MEDIA OPERATIONS, INC.
$ 27,436 Revolving loan, maturing September 30, 2002 $ 27,436
18,354,069 Term loan, maturing September 30, 2002 18,354,069
Weekly periodical publisher
JOURNAL NEWS, INC.
23,067,224 Term loan, maturing December 31, 2002 23,067,224
5,000,000 Term loan, maturing December 31, 2002 5,000,000
14,198,473 Term loan, maturing May 1, 2003 14,198,473
Suburban newspaper --------------
$ 60,647,202
--------------
RESTAURANTS - 0.7%
AMERICA'S FAVORITE CHICKEN COMPANY
$13,958,787 Term loan, maturing October 31, 2001 $ 13,958,787
Church's Fried Chicken and Popeye's restaurants
LONG JOHN SILVER'S RESTAURANTS, INC.
8,014,642 Term loan, maturing December 31, 1996 8,014,642
Seafood restaurants --------------
$ 21,973,429
--------------
RETAIL STORES - DEPARTMENT STORES - 4.1%
FEDERATED DEPARTMENT STORES, INC.
$65,864,901 Term loan, maturing January 31, 2000 $ 65,864,901
1,340,246 Revolving loan, maturing March 31, 2000 1,340,246
Retail department store
KMART CORPORATION
57,761,514 Term loan, maturing June 6, 1999 57,761,514
Retail department store --------------
$ 124,966,661
--------------
RETAIL STORES - DRUG STORES - 0.3%
DUANE READE, INC.
$ 3,245,833 Term loan, maturing September 30, 1997 $ 3,245,833
5,000,000 Term loan, maturing September 30, 1999 5,000,000
Retail drug stores --------------
$ 8,245,833
--------------
RETAIL STORES - FOOD CHAINS - 7.0%
DOMINICK'S FINER FOODS, INC.
$ 5,261,538 Revolving loans, maturing April 30, 2003 $ 5,261,538
5,538,461 Term loan, maturing April 30, 2003 5,538,461
Supermarket chain in Chicago
GRAND UNION COMPANY
21,628,890 Term loan, maturing June 15, 2002 21,628,890
Supermarket chain in the Northeast
PATHMARK STORES, INC.
1,158,542 Revolving loan, maturing July 31, 1998 1,158,542
45,333,950 Term loan, maturing October 31, 1999 45,333,950
Supermarket chain in mid-Atlantic states
RALPHS GROCERY COMPANY
2,871,663 Revolving Loan, maturing June 15, 2001 2,871,663
5,191,060 Term loan, maturing June 15, 2001 5,191,060
16,133,855 Term loan, maturing June 15, 2002 16,133,855
12,542,855 Term loan, maturing June 15, 2003 12,542,855
7,243,452 Term loan, maturing February 15, 2004 7,243,452
3,018,016 Term loan, maturing June 15, 2004 3,018,016
Third largest supermarket chain in Southern
California
SMITH'S FOOD & DRUG CENTERS, INC.
17,502,821 Term loan, maturing August 31, 2002 17,502,821
24,754,920 Term loan, maturing November 30, 2003 24,754,920
13,836,803 Term loan, maturing November 30, 2004 13,836,803
13,836,803 Term loan, maturing November 30, 2005 13,836,803
Supermarket and drug store chain
STAR MARKET COMPANY, INC.
10,073,684 Term loan, maturing December 31, 2001 10,073,684
4,402,632 Term loan, maturing December 31, 2002 4,402,632
Supermarket chain in Massachusetts --------------
$ 210,329,945
--------------
RETAIL - SPECIALTY - 1.0%
BRYLANE, L.P.
$11,000,000 Term loan, maturing February 28, 2003 $ 11,000,000
Retail catalog distributor
GRIFFITH CONSUMERS COMPANY
10,406,517 Term loan, maturing December 31, 2002 10,406,517
9,958,333 Term loan, maturing December 31, 2003 9,958,333
Retail petroleum distributor --------------
$ 31,364,850
--------------
STEEL - 0.1%
UCAR INTERNATIONAL, INC.
$ 3,943,986 Term loan, maturing December 31, 2002 $ 3,943,986
Processing materials for steel industry --------------
TELECOMMUNICATIONS - 1.8%
ARCH COMMUNICATIONS ENTERPRISES, INC.
$10,500,000 Term loan, maturing December 31, 2003 $ 10,500,000
Paging service provider
COMCAST CELLULAR COMMUNICATIONS, INC.
28,316,000 Term loan, maturing September 30, 2004 28,316,000
Wireless communications provider
MOBILEMEDIA COMMUNICATIONS, INC.
5,833,333 Term loan, maturing June 30, 2002* 5,366,667
4,166,667 Term loan, maturing June 30, 2003* 3,833,333
Paging service provider
SPRINT SPECTRUM L.P.
5,000,000 Term loan, maturing January 21, 2006 5,000,000
Broadband wireless PCS provider --------------
$ 53,016,000
--------------
<PAGE>
TEXTILES - 1.5%
COLLINS & AIKMAN PRODUCTS COMPANY
$24,365,482 Term loan, maturing December 31, 2002 $ 24,365,482
Automotive products, residential upholstery fabrics,
and wallcoverings
LONDON FOG INDUSTRIES, INC.
9,582,314 Term loan, maturing May 31, 2002* 6,899,266
1,971,219 Term loan, maturing May 31, 2002* 1,419,278
Outerwear
RENFRO CORPORATION
5,000,000 Term loan, maturing November 15, 2003 5,000,000
Manufactures socks
THE WILLIAM CARTER COMPANY
6,300,000 Term loan, maturing October 31, 2003 6,300,000
Manufacturer and distributer of children's apparel --------------
$ 43,984,026
--------------
TRANSPORTATION - 0.5%
RCTR HOLDINGS, INC.
$15,254,286 Term loan, maturing December 31, 2001 $ 15,254,286
Consumer truck rental and moving supplies provider --------------
TOTAL LOAN INTERESTS (IDENTIFIED COST, $2,457,952,472) $2,453,928,379
--------------
<PAGE>
- -----------------------------------------------------------------------------------
COMMON STOCKS - 0.1%
- -----------------------------------------------------------------------------------
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C>
806,708 America's Favorite Chicken Company, Common Stock* $ 2,675,850
4,380,486 London Fog Industries, Inc. 0
--------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $0) $ 2,675,850
--------------
- -----------------------------------------------------------------------------------
PREFERRED STOCKS - 0.2%
- -----------------------------------------------------------------------------------
5,489,500 America's Favorite Chicken Company, 10% Preferred $ 5,489,500
Stock
5,845,956 London Fog Industries, Inc. 17.5% Preferred Stock* 0
--------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $10,014,474) $ 5,489,500
--------------
- -----------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 14.3%
- -----------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S> <C>
$89,246,000 Associates Corp. of North America, 6.50%, 1/2/97 $ 89,229,886
50,000,000 CIT Group Holdings Inc., 5.92%, 1/2/97 49,991,778
30,330,000 Delaware Funding Corp., 5.70%, 1/15/97 30,262,769
30,081,000 Delaware Funding Corp., 6.00%, 1/8/97 30,045,905
90,000,000 Ford Motor Credit Corp., 5.65%, 1/8/97 89,901,125
90,000,000 General Electric Capital Co., 5.90%, 1/2/97 89,985,250
50,000,000 Prudential Funding, 5.40%, 1/13/97 49,910,000
--------------
TOTAL SHORT-TERM INVESTMENTS, AT AMORTIZED COST $ 429,326,713
--------------
TOTAL INVESTMENTS (IDENTIFIED COST, $2,897,293,659) - $2,891,420,442
96.1%
OTHER ASSETS, LESS LIABILITIES - 3.9% 118,654,014
--------------
TOTAL NET ASSETS - 100% $3,010,074,456
==============
*Non-income producing security.
Note: The description of the principal business for each security set forth above is unaudited.
</TABLE>
See notes to financial statements
<PAGE>
--------------------------
SENIOR DEBT PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$2,897,293,659) $2,891,420,442
Cash 108,766,309
Receivable for investments sold 836,199
Interest receivable 17,431,947
Deferred organization expenses (Note 1D) 37,818
Prepaid expenses 924,149
Other receivables 102,800
--------------
Total assets $3,019,519,664
LIABILITIES:
Deferred facility fee income (Note 1B) $9,139,557
Trustees' fees payable 7,883
Accrued expenses 297,768
----------
Total liabilities 9,445,208
--------------
NET ASSETS applicable to investors' interest in Portfolio $3,010,074,456
==============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $3,015,947,673
Unrealized depreciation of investments
(computed on the basis of identified cost) (5,873,217)
--------------
Total $3,010,074,456
==============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------
For the Year Ended December 31, 1996
(Expressed in United States Dollars)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $190,544,570
Facility fees earned 5,007,225
------------
Total income $195,551,795
Expenses --
Investment advisory fee (Note 2) $21,643,760
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 29,707
Custodian fee 717,453
Interest expense 1,003,430
Legal and accounting services 626,128
Printing 63,466
Amortization of organization expenses (Note 1D) 6,222
Miscellaneous 214,433
-----------
Total expenses 24,304,599
------------
Net investment income $171,247,196
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions $(2,509,974)
Change in unrealized depreciation of investments (1,387,860)
-----------
Net realized and unrealized loss on investments (3,897,834)
------------
Net increase in net assets from operations $167,349,362
============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1996
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES --
Purchase of loan interests $(2,549,912,095)
Proceeds from sales and principal repayments 1,508,489,493
Interest received 184,155,805
Facility fees received 6,910,782
Interest paid (1,021,630)
Operating expenses paid (22,739,497)
Net increase in short-term investments (245,561,299)
---------------
Net cash used for operating activities $(1,119,678,441)
---------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES --
Proceeds from capital contributions $ 1,604,853,413
Payments for capital withdrawals (383,467,171)
---------------
Net cash provided from financing activities $ 1,221,386,242
---------------
Net increase in cash $ 101,707,801
CASH AT BEGINNING OF YEAR 7,058,508
---------------
CASH AT END OF YEAR $ 108,766,309
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FROM OPERATING ACTIVITIES:
Net increase in net assets from operations $ 167,349,362
Increase in receivable for investments sold (489,852)
Increase in interest receivable (6,388,765)
Increase in prepaid expenses (268,331)
Decrease in deferred organization expenses 6,222
Increase in other receivables (102,800)
Increase in deferred facility fee income 1,903,557
Increase in payable to affiliates 2,908
Increase in accrued expenses and other liabilities 176,647
Net increase in investments (1,281,867,389)
---------------
Net cash used for operating activities $(1,119,678,441)
===============
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995*
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 171,247,196 $ 72,119,692
Net realized gain (loss) on investments (2,509,974) 1,214,316
Change in unrealized depreciation of
investments (1,387,860) (1,760,430)
-------------- ------------
Net increase in net assets from
operations $ 167,349,362 $ 71,573,578
-------------- ------------
Capital transactions --
Contributions $1,604,853,413 $1,684,280,868
Withdrawals (383,467,171) (134,615,604)
-------------- ------------
Increase in net assets from capital
transactions $1,221,386,242 $1,549,665,264
-------------- ------------
Total increase in net assets $1,388,735,604 $1,621,238,842
NET ASSETS:
At beginning of year 1,621,338,852 100,010
-------------- ------------
At end of year $3,010,074,456 $1,621,338,852
============== ==============
* For the period from the start of business, February 22, 1995, to December 31,
1995.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995*
------ ---------
RATIOS (to average daily net assets):
Operating expenses 0.98% 1.01%+
Interest expense 0.04% 0.13%+
Net investment income 7.17% 7.95%+
PORTFOLIO TURNOVER 75% 39%
+ Annualized.
* For the period from the start of business, February 22, 1995, to December
31, 1995.
See notes to financial statements
<PAGE>
--------------------------
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Senior Debt Portfolio (the Portfolio) is registered under the Investment Company
Act of 1940 as a non-diversified closed-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on February 22, 1995, with the acquisition of
securities with a value of $583,240,521, including unrealized depreciation of
$2,724,927, in exchange for an interest in the Portfolio by one of the
Portfolio's investors. The following is a summary of significant accounting
policies of the Portfolio. The policies are in conformity with accounting
principles generally accepted in the United States of America.
A. INVESTMENT VALUATION -- The Portfolio's investments in interests in loans
(Loan Interests) are valued at fair value by the Portfolio's investment adviser,
Boston Management and Research, under procedures established by the Trustees as
permitted by Section 2(a)(41) of the Investment Company Act of 1940. Such
procedures include the consideration of relevant factors, data and information
relating to fair value, including (i) the characteristics of and fundamental
analytical data relating to the Loan Interest, including the cost, size, current
interest rate, period until next interest rate reset, maturity and base lending
rate of the Loan Interest, the terms and conditions of the loan and any related
agreements and the position of the loan in the borrower's debt structure; (ii)
the nature, adequacy and value of the collateral, including the Portfolio's
rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness of the borrower, based on evaluations of its financial
condition, financial statements and information about the borrower's business,
cash flows, capital structure and future prospects; (iv) information relating to
the market for the Loan Interest including price quotations for and trading in
the Loan Interest and interests in similar loans and the market environment and
investor attitudes towards the Loan Interest and interests in similar loans; (v)
the reputation and financial condition of the agent bank and any intermediate
participant in the loan; and (vi) general economic and market conditions
affecting the fair value of the Loan Interest. Other portfolio securities (other
than short-term obligations, but including listed issues) may be valued on the
basis of prices furnished by one or more pricing services which determine prices
for normal, institutional-sized trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities will be valued at the last sales
price on the exchange that is the primary market for such securities, or the
last quoted bid price for those securities for which the over-the-counter market
is the primary market or for listed securities in which there were no sales
during the day. The value of interest rate swaps will be determined in
accordance with a discounted present value formula and then confirmed by
obtaining a bank quotation. Short-term obligations which mature in sixty days or
less are valued at amortized cost, if their original term to maturity when
acquired by the Portfolio was 60 days or less, or are valued at amortized cost
using their value on the 61st day prior to maturity, if their original term to
maturity when acquired by the Portfolio was more than 60 days, unless in each
case this is determined not to represent fair value. Repurchase agreements are
valued at cost plus accrued interest. Other portfolio securities for which there
are no quotations or valuations are valued at fair value as determined in good
faith by or on behalf of the Trustees.
B. INCOME -- Interest income from Loan Interests is recorded on the accrual
basis at the then-current interest rate, while all other interest income is
determined on the basis of interest accrued, adjusted for amortization of
premium or discount when required for federal income tax purposes. Facility fees
received are recognized as income over the expected term of the loan.
C. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deductions or credit.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. OTHER -- Investment transactions are accounted for on a trade date basis.
F. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
G. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as custodian
of the Portfolio. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash balances
the Portfolio maintains with IBT. All significant credit balances used to reduce
the Portfolio's custodian fee are reported as a reduction of expenses in the
statement of operations.
- ------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is earned by Boston Management and Research (BMR) as
compensation for investment advisory services rendered to the Portfolio. The fee
is computed at the monthly rate of 19/240 of 1% (0.95% per annum) of the
Portfolio's average daily gross assets up to and including $1 billion and at
reduced rates as daily gross assets exceed that level. For the year ended
December 31, 1996, the effective annual rate, based on average daily gross
assets, was 0.91% and amounted to $21,643,760. Except as to Trustees of the
Portfolio who are not members of BMR's organization, officers and Trustees
receive remuneration for their services to the Portfolio out of such investment
advisory fee.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of BMR. Trustees of the Portfolio that are not affiliated
with the Investment Advisor may elect to defer receipt of all or a percentage of
their annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the year ended December 31, 1996, no significant amounts
have been deferred.
- ------------------------------------------------------------------------------
(3) INVESTMENTS
The Portfolio invests primarily in Loan Interests. The ability of the issuers of
the Loan Interests to meet their obligations may be affected by economic
developments in a specific industry. The cost of purchases and the proceeds from
principal repayments and sales of Loan Interests for the year ended December 31,
1996 aggregated $2,550,646,342 and $1,508,979,345, respectively.
- ------------------------------------------------------------------------------
(4) SHORT-TERM DEBT AND CREDIT AGREEMENTS
The Portfolio has entered into a revolving credit agreement, that will allow the
Portfolio to borrow an additional $245 million to support the issuance of
commercial paper and to permit the Portfolio to invest in accordance with its
investment practices. Interest is charged under the revolving credit agreement
at the bank's base rate or at an amount above either the bank's adjusted Libor
rate or adjusted certificate of deposit rate. Interest expense includes a
commitment fee of approximately $612,500 which is computed at the annual rate of
1/4 of 1% on the unused portion of the revolving credit agreement. There were no
borrowings under this agreement during the year ended December 31, 1996. As of
December 31, 1996, the Portfolio had no commercial paper outstanding.
<PAGE>
- ------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost and unrealized appreciation/depreciation in the value of investments
owned at December 31, 1996, as computed on a federal income tax basis, were as
follows:
Aggregate cost $2,897,767,149
==============
Gross unrealized appreciation $ 3,996,833
Gross unrealized depreciation 9,870,050
--------------
Net unrealized depreciation $ 5,873,217
==============
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF
SENIOR DEBT PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Senior Debt Portfolio as of December 31, 1996,
the related statements of operations and cash flows for the year then ended, and
the statements of changes in net assets and the supplementary data for the year
ended December 31, 1996 and for the period from the start of business, February
22, 1995, to December 31, 1995 (all expressed in United States dollars). These
financial statements and supplementary data are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities and Loan Interests owned at December 31, 1996, by correspondence with
the custodian and selling or agent banks; where replies were not received from
selling or agent banks, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Senior Debt Portfolio as of
December 31, 1996, the results of its operations and its cash flows, the changes
in its net assets, and its supplementary data for the respective periods in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1A, the financial statements include Loan Interests and
certain other securities held by Senior Debt Portfolio valued at $2,462,093,729
(81.8% of net assets of the Portfolio), which values are fair values determined
by the Portfolio's investment adviser in the absence of actual market values.
Determination of fair value involves subjective judgment, as the actual market
value of a particular Loan Interest or security can be established only by
negotiation between the parties in a sales transaction. We have reviewed the
procedures established by the Trustees and used by the Portfolio's investment
adviser in determining the fair values of such Loan Interests and securities and
have inspected underlying documentation, and in the circumstances, we believe
that the procedures are reasonable and the documentation appropriate.
DELOITTE & TOUCHE
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
FEBRUARY 7, 1997
<PAGE>
-----------------------
INVESTMENT MANAGEMENT
EV CLASSIC OFFICERS INDEPENDENT TRUSTEES
SENIOR FLOATING-
RATE FUND JAMES B. HAWKES DONALD R. DWIGHT
24 Federal Street President and Trustee President, Dwight
Boston, MA 02110 Partners, Inc.
M. DOZIER GARDNER Chairman, Newspapers of
Vice President and New England, Inc.
Trustee
SAMUEL L. HAYES, III
JAMES L. O'CONNOR Jacob H. Schiff
Treasurer Professor of
Investment Banking,
THOMAS OTIS Harvard
Secretary University Graduate
School of
Business
Administration
NORTON H. REAMER
President and
Director, United
Asset
Management
Corporation
JOHN L. THORNDIKE
Director, Fiduciary
Company Incorporated
JACK L. TREYNOR
Investment Adviser
and Consultant
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SENIOR DEBT OFFICERS INDEPENDENT TRUSTEES
PORTFOLIO
24 Federal Street JAMES B. HAWKES DONALD R. DWIGHT
Boston, MA 02110 President and Trustee President, Dwight
Partners, Inc.
M. DOZIER GARDNER Chairman, Newspapers
Vice President and of New England, Inc.
Trustee
SAMUEL L. HAYES, III
WILLIAM CHISHOLM Jacob H. Schiff
Vice President Professor of
Investment Banking,
RAYMOND O'NEILL Harvard University
Vice President Graduate School of
Business
MICHEL NORMANDEAU Administration
Vice President
NORTON H. REAMER
THOMAS OTIS President and
Secretary Director, United
Asset Management Corporation
JAMES L. O'CONNOR
Treasurer JOHN L. THORNDIKE
Director, Fiduciary
Company Incorporated
PORTFOLIO MANAGERS
JACK L. TREYNOR
SCOTT H. PAGE Investment Adviser
Vice President and Consultant
PAYSON F. SWAFFIELD
Vice President
