<PAGE>
As filed with the Securities and Exchange Commission on March 13, 2000
1933 Act File No.
1940 Act File No. 811-07946
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 14 [X]
(CHECK APPROPRIATE BOX OR BOXES)
EV CLASSIC SENIOR FLOATING-RATE FUND
------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 482-8260
------------------------------------------------------------------
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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(NAME AND ADDRESS OF AGENT FOR SERVICE)
If any of the securities being registered on this Form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
<TABLE>
<CAPTION>
It is proposed that this filing will become effective (check appropriate box):
<S> <C>
[ ] when declared effective pursuant to section 8(c)
[ ] immediately upon filing pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)
[X] on March 15, 2000 pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (a)
</TABLE>
If appropriate, check the following box:
[ ] This [post effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is .
Senior Debt Portfolio has also executed this Registration Statement.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amount Proposed Maximum Proposed Maximum Amount of
Being Offering Price Aggregate Registration
Title of Securities Being Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------------------------------------
Common Shares of Beneficial Interest 200,000,000 $9.87 $1,974,000,000 $521,136
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EV CLASSIC SENIOR FLOATING-RATE FUND
Cross Reference Sheet
Items Required by Form N-2
--------------------------
<TABLE>
<CAPTION>
Part A
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Outside Front Cover Cover Page
2. Inside Front and Outside Back Cover Page Cover Pages
3. Fee Table and Synopsis Shareholder and Fund Expenses
4. Financial Highlights Financial Highlights
5. Plan of Distribution Purchasing Shares; Shareholder Account Features;
Sales Charges
6. Selling Shareholders Not Applicable
7. Use of Proceeds Purchasing Shares; Investment Objective, Policies
and Risks
8. General Description of the Registrant Organization of the Fund; Investment Objective,
Policies and Risks
9. Management Management of the Fund; Organization of the
Fund
10. Capital Stock, Long-Term Debt, and Other Organization of the Fund; Distributions and Taxes;
Securities Shareholder Account Features
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of Table of Contents of the Statement of Additional
Additional Information Information
Part B Statement of
Item No. Item Caption Additional Information Caption
- -------- ------------ ------------------------------
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information and History Management and Organization
17. Investment Objective and Policies Investment Policies and Risks; Investment
Restrictions
18. Management Management and Organization; Investment
Advisory and Other Services
19. Control Persons and Principal Holders of Control Persons and Principal Holders of Shares
Securities
20 Investment Advisory and Other Services Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices Portfolio Trading
22. Tax Status Taxes
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
[LOGO]
Investing
for the
21st
Century(R)
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 ("Senior Loans"). The Fund is a continuously offered,
closed-end, non-diversified investment company. Senior Loans are typically of
below investment grade quality and may have below investment grade ratings,
which ratings are associated with securities having high risk, speculative
characteristics. Because of the protective features of Senior Loans (being
senior in a borrower's capital structure and secured by specific collateral),
the investment adviser believes, based on its experience, that Senior Loans tend
to have more favorable loss recovery rates compared to most other types of below
investment grade debt obligations.
Eaton Vance was one of the first investment advisers to manage a portfolio of
Senior Loans in a publicly offered investment company, and has done so
continuously since 1989. Senior Loan assets under management by Eaton Vance
exceed $9 billion.
NO MARKET PRESENTLY EXISTS FOR RESALE OF THE FUND'S SHARES AND IT IS NOT
CURRENTLY ANTICIPATED THAT A SECONDARY MARKET WILL DEVELOP FOR THEM. Fund shares
are not redeemable or readily marketable. To provide investor liquidity, the
Fund ordinarily will make each MARCH, JUNE, SEPTEMBER AND DECEMBER an offer to
repurchase between 5% and 25% of the Fund's outstanding shares at net asset
value. See "Repurchase Offers" at page 15.
(continued on the following page)
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Information in this prospectus
Page Page
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder and Fund Expenses 3 Valuing Shares 13
Financial Highlights 4 Purchasing Shares 13
Performance Information 5 Sales Charges 15
Investment Objective, Policies and Risks 6 Repurchase Offers 15
Organization of the Fund 11 Shareholder Account Features 16
Management of the Fund 12 Distributions and Taxes 16
- -----------------------------------------------------------------------------------
</TABLE>
Prospectus dated March 15, 2000
This prospectus contains important information about the Fund and the services
available to shareholders. Please save it for reference.
<PAGE>
(continued from cover page)
Public Offering Information: Per Share(1) Total(3)
- --------------------------------------------------------------------------------
Public Offering Price $9.87 $8,954,500,000
Sales Loads(2) None None
Proceeds to the Fund $9.87 $8,954,500,000
- -----------------
(1) The shares are offered on a best efforts basis at a price equal to their
net asset value, which on March 1, 2000 was $9.87 per share.
(2) Because Eaton Vance Distributors, Inc. and its affiliates will pay all
sales commissions to investment dealers from their own assets, the net
proceeds of the offering will be available to the Fund for investment.
(3) Amounts are cumulative since the Fund commenced operations.
- --------------------------------------------------------------------------------
More information is available in the Statement of Additional Information dated
March 15, 2000, as may be amended from time to time. The Statement of
Additional Information is incorporated by reference into this prospectus. The
Table of Contents of the Statement of Additional Information appears immediately
below. Additional information about the Portfolio's investments is available in
the annual and semi-annual reports to shareholders. In the annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the past year. You may
obtain free copies of the Statement of Additional Information and the
shareholder reports by contacting: Eaton Vance Distributors, Inc., The Eaton
Vance Building, 255 State Street, Boston, MA 02109, 1-800-225-6265, website:
www.eatonvance.com. You will find and may copy information about the Fund at
the Securities and Exchange Commission's public reference room in Washington, DC
(call 1-800-SEC-0330 for information on the operation of the public reference
room); on the SEC's Internet site (http://www.sec.gov); or, upon payment of
copying fees, by writing to the SEC's public reference room in Washington, DC
20549-0102 or by electronic mail at [email protected].
Table of Contents of the Statement of Additional Information
<TABLE>
<CAPTION>
Page Page
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<S> <C> <C> <C>
Investment Policies and Risks 2 Portfolio Trading 13
Investment Restrictions 4 Taxes 14
Management and Organization 5 Performance 15
Control Persons and Principal Holders of Shares 8 Financial Statements 17
Investment Advisory and Other Services 8 Appendix A: Corporate Bond Ratings a-1
Shareholder Account Information 11
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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.
The Fund's SEC File No. is 811-07946.
2
<PAGE>
SHAREHOLDER AND FUND EXPENSES
Fees and Expenses. These tables describe the fees and expenses that you may pay
if you buy and hold shares.
Shareholder Fees (fees paid directly from your investment)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) (as a percentage of offering price) None
Dividend Reinvestment Fees None
Early Withdrawal Charge Imposed on Repurchase of Entire
Account During the First Year (as a percentage of repurchase
proceeds exclusive of all reinvestments and capital appreciation
in the account) 1.00%
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
- -------------------------------------------------------------------------------
Investment Advisory Fee (after fee waiver) 0.42%
Distribution Fee 0.70%
Other Expenses* (after administration fee waiver) 0.26%
Total Annual Fund Operating Expenses (after fee waivers) 1.38%
*Other Expenses includes a service fee of 0.15%.
NOTES: The Fund invests exclusively in Senior Debt Portfolio (the "Portfolio").
See "Organization of the Fund". The table and Example summarize the aggregate
expenses of the Fund and the Portfolio and are designed to help investors
understand the costs and expenses they will bear, directly or indirectly, by
investing in the Fund. Information for the Fund is based on its expenses for the
most recent fiscal year, adjusted for a revised advisory fee waiver, complete
waiver of administration fees and addition of a distribution fee. If the
distribution fee were eliminated, the investment advisory fee and administration
fee waivers would be reduced by the same aggregate amount. It is possible that
the Trustees of the Fund or Portfolio could reduce or eliminate these waivers
even if the distribution fee remained the same, which would increase Fund
expenses. If no fee waivers existed, the Investment Advisory Fee would be
0.95%, the Administration Fee would be 0.25% and Total Annual Fund Operating
Expenses would be approximately 2.16%. Only the Independent Trustees of the
Fund and Portfolio can reduce or eliminate fee waivers. See "Management of the
Fund".
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other investment companies. The Example
assumes that you invest $1,000 in the Fund for the time periods indicated and
then have all of your shares repurchased at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
$24 $44 $76 $166
You would pay the following expenses if you did not have your shares
repurchased:
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------
$14 $44 $76 $166
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information should be read in conjunction with the audited
financial statements that appear in the Fund's annual report to shareholders.
The Fund's financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
The financial statements and the independent auditors' report are incorporated
by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.960 $ 9.970 $ 9.970 $ 9.990 $ 10.000
---------- ---------- ---------- ---------- --------
Income (loss) from operations
Net investment income $ 0.646 $ 0.664 $ 0.660 $ 0.667 $ 0.634
Net realized and unrealized gain (loss) (0.090) (0.010) 0.001(2) (0.021) (0.008)(2)
---------- ---------- ---------- ---------- ---------
Total income from operations $ 0.556 $ 0.654 $ 0.661 $ 0.646 $ 0.626
---------- ---------- ---------- ---------- ---------
Less distributions
From net investment income $ (0.646) $ (0.664) $ (0.661) $ (0.666) $ (0.633)
From net realized gain -- -- -- -- (0.003)
---------- ---------- ---------- ---------- ---------
Total distributions $ (0.646) $ (0.664) $ (0.661) $ (0.666) $ (0.636)
---------- ---------- ---------- ---------- ---------
Net asset value - End of year $ 9.870 $ 9.960 $ 9.970 $ 9.970 $ 9.990
---------- ---------- ---------- ---------- ---------
Total Return(3) 5.75% 6.76% 6.83% 6.67% 6.42%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $4,487,476 $3,250,417 $1,970,593 $1,316,849 $501,031
Ratios (as a percentage of average daily
net assets):
Operating expenses(4) 1.37% 1.44% 1.46% 1.49% 1.53%+
Interest expense(4) 0.01% 0.01% 0.01% 0.04% 0.13%+
Net investment income 6.53% 6.61% 6.60% 6.61% 7.04%+
Portfolio Turnover of the Portfolio 64% 56% 81% 75% 39%
</TABLE>
+ Annualized.
(1) For the period from the start of business, February 24, 1995, to December
31, 1995.
(2) The per share amounts are not in accord with the net realized and
unrealized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
(3) 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
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(4) Includes the Fund's share of the Portfolio's allocated expenses.
4
<PAGE>
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Fund's
performance including a comparison of the Fund's performance to the performance
of a representative index of tradable, senior, secured, U.S. dollar-denominated
leveraged loans. Although past performance is no guarantee of future results,
this performance information demonstrates the risk that the value of your
investment will change. The bar chart provides the annual total returns for the
Fund for the period February 24, 1995 through December 31, 1999, and the annual
total returns for another investment company that invests in the Portfolio for
the period prior to February 24, 1995. The predecessor total return has not been
adjusted to reflect differences in operating expenses between the Fund and such
other investment company. If such adjustments were made, the performance would
have been lower.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.60% 7.76% 6.18% 5.34% 6.08% 7.36% 6.67% 6.83% 6.76% 5.75%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
The highest quarterly total return was 2.47% for the quarter ended December 31,
1994, and its lowest quarterly return was 0.72% for the quarter ended March 31,
1993.
<TABLE>
<CAPTION>
One Five Ten
Average Annual Total Returns as of December 31, 1999 Year Years Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund Shares 4.76% 6.67% 6.83%
Donaldson, Lufkin & Jenrette Leveraged Loan Index 5.10% 7.28% N/A
</TABLE>
Fund returns in the table reflect the applicable early withdrawal charge in the
first year. The performance shown above for the period prior to February 24,
1995, is the performance of another investment company that invests in the
Portfolio (not adjusted for differences in Fund expenses). The Donaldson, Lufkin
& Jenrette Leveraged Loan Index (the "DLJ Index") is a representative index of
tradable, senior, secured, U.S. dollar-denominated leveraged loans. Investors
cannot invest directly in an Index. Source: Donaldson, Lufkin & Jenrette. The
DLJ Index commenced in January 1992.
5
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
EV Classic Senior Floating-Rate 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 ("Senior Loans"). The Fund currently seeks to achieve its objective by
investing its assets in the Senior Debt Portfolio (the "Portfolio"), a separate
closed-end, non-diversified investment company with the same investment
objective as the Fund. There is no assurance that the Fund's objective will be
achieved. An investment in shares of the Fund is not a complete investment
program.
Senior Loans are made to corporations, partnerships and other business entities
("Borrowers") which operate in various industries and geographical regions.
Senior Loans pay interest at rates which are redetermined periodically on the
basis of a floating base lending rate plus a premium. Senior Loans hold the most
senior position in the capital structure of the Borrower, are secured with
specific collateral (discussed below) and will have a claim on the assets of the
Borrower that is senior to that of subordinated debt, preferred stock and common
stock of the Borrower. Investment in floating rate instruments is expected to
minimize changes in the underlying principal value of Senior Loans, and
therefore the Fund's net asset value, resulting from changes in market interest
rates. Nevertheless, the Fund's net asset value and distribution rate will vary,
and may be affected by several factors, including changes in the credit quality
of the Borrowers underlying Senior Loans. Some Borrowers default on their Senior
Loan payments. The Portfolio attempts to manage these risks through portfolio
diversification and ongoing analysis and monitoring of Borrowers.
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 The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109.
GENERAL COMPOSITION OF THE PORTFOLIO
In normal market conditions, at least 80% of the Portfolio's total assets will
be invested in interests in Senior Loans (either as an original Lender or as a
purchaser of an Assignment or Participation, each as defined below) of domestic
or foreign Borrowers (so long as foreign loans are U.S. dollar-denominated and
payments of interest and repayments of principal are required to be made in U.S.
dollars). 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 loan
interests that are not fully secured ("Unsecured Loans"). If BMR determines that
market conditions temporarily warrant a defensive investment policy, the
Portfolio may invest up to 100% of its assets in cash and high quality,
short-term debt securities. While temporarily invested, the Portfolio may not
achieve its investment objective.
It is anticipated that the proceeds of the Senior Loans in which the Portfolio
will acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. Senior Loans have the most senior position in a Borrower's capital
structure, although some Senior Loans may hold an equal ranking with other
senior securities of the Borrower. The capital structure of a Borrower may
include Senior Loans, senior and junior subordinated debt, preferred stock and
common stock issued by the Borrower, typically in descending order of seniority
with respect to claims on the Borrower's assets (discussed below). Senior Loans
are secured by specific collateral.
<PAGE>
In order to borrow money pursuant to a Senior Loan, a Borrower will frequently,
for the term of the Senior Loan, pledge collateral, including but not limited
to, (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. In the case of Senior 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 certain
instances, a Senior Loan may be secured only by stock in the Borrower or its
subsidiaries. Collateral may consist of assets that may not be readily
liquidated, and there is no assurance that the liquidation of such assets would
satisfy fully a Borrower's obligations under a Senior Loan. The Portfolio will
not invest in a Senior Loan unless, at the time of investment, BMR determines
that the value of the collateral equals or exceeds the aggregate outstanding
principal amount of the Senior Loan.
The Portfolio may hold interests in Senior Loans of any maturity. Senior Loans
typically have a stated term of between five and nine years, and have rates of
interest which typically are redetermined either daily, monthly, quarterly or
semi-annually. Senior Loans generally pay interest at rates which are
redetermined periodically by reference to a base lending rate, plus a premium.
These base lending rates generally are the prime rate offered by one or more
major United States banks (the "Prime Rate"), the London Inter-Bank Offered Rate
6
<PAGE>
("LIBOR"), the certificate of deposit ("CD") rate or other base lending rates
used by commercial lenders. Longer interest rate reset periods generally
increase fluctuations in the Fund's net asset value as a result of changes in
market interest rates. The Senior Loans held by the Portfolio will have a
dollar-weighted average period until the next interest rate adjustment of
approximately 90 days or less. As a result, as short-term interest rates
increase, interest payable to the Portfolio from its investments in Senior Loans
should increase, and as short-term interest rates decrease, interest payable to
the Portfolio from its investments in Senior Loans should decrease. The
Portfolio may utilize certain investment practices to, among other things,
shorten the effective interest rate redetermination period of Senior Loans in
its portfolio. In the experience of BMR over the last decade, because of
prepayments the average life of Senior Loans has been two to three years. As of
March 1, 2000, the Portfolio had a dollar weighted average period to adjustment
of approximately 46 days.
The Portfolio may purchase and retain in its portfolio a Senior Loan where the
Borrower has 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 debt restructuring. Such
investments may provide opportunities for enhanced income as well as capital
appreciation. At times, in connection with the restructuring of a Senior Loan
either outside of bankruptcy court or in the context of bankruptcy court
proceedings, the Portfolio may determine or be required to accept equity
securities or junior debt securities in exchange for all or a portion of a
Senior Loan.
The Fund and the Portfolio have adopted certain fundamental investment
restrictions set forth in the Statement of Additional Information which may not
be changed unless authorized by a shareholder and an interestholder vote,
respectively. Except for such restrictions, the investment objective and
policies of the Fund and the Portfolio may be changed by the Trustees of the
Fund and the Portfolio without obtaining the approval of Fund shareholders.
CERTAIN CHARACTERISTICS OF SENIOR LOANS
A Senior Loan 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
("Lenders"). The Agent typically administers and enforces the Senior Loan on
behalf of the other Lenders in the syndicate. In addition, an institution,
typically but not always the Agent, holds any collateral on behalf of the
Lenders.
Senior Loans include senior secured floating rate loans and institutionally
traded senior secured floating rate debt obligations issued by an asset-backed
pool, and interests therein. 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 Senior 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 purchase "Assignments" from Lenders. The purchase of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan Agreement
with the same rights and obligations as the assigning Lender. Assignments may,
however, be arranged through private negotiations between potential assignees
and potential assignors, and the rights and obligations acquired by the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
<PAGE>
The Portfolio also may invest in "Participations". Participations by the
Portfolio in a Lender's portion of a Senior Loan typically will result in the
Portfolio having a contractual relationship only with such Lender, not with the
Borrower. As a result, the Portfolio may have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by such Lender of such payments
from the Borrower. In connection with purchasing Participations, the Portfolio
generally will have no right to enforce compliance by the Borrower with the
terms of the loan agreement, nor any rights with respect to any funds acquired
by other Lenders through set-off against the Borrower and the Portfolio may not
directly benefit from the collateral supporting the Senior Loan in which it has
purchased the Participation. As a result, the Portfolio may assume the credit
risk of both the Borrower and the Lender selling the Participation. In the event
of the insolvency of the Lender selling a Participation, the Portfolio may be
treated as a general creditor of such Lender. The selling Lenders and other
persons interpositioned between such Lenders and the Portfolio with respect to
such Participations will likely conduct their principal business activities in
the banking, finance and financial services industries. Persons engaged in such
industries may be more susceptible to, among other things, fluctuations in
interest rates, changes in the Federal Open Market Committee's monetary policy,
governmental regulations concerning such industries and concerning capital
raising activities generally and fluctuations in the financial markets
generally.
The Portfolio will only acquire Participations if the Lender selling the
Participation, and any other persons interpositioned between the Portfolio and
the Lender, at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by Standard & Poor's
7
<PAGE>
Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc.
("Moody's") or comparably rated by another nationally recognized rating agency
(each a "Rating Agency")) or determined by BMR to be of comparable quality.
Securities rated Baa by Moody's have speculative characteristics. Similarly, the
Portfolio will purchase an Assignment or Participation or act as a Lender with
respect to a syndicated Senior Loan only where the Agent with respect to such
Senior Loan at the time of investment has outstanding debt or deposit
obligations rated investment grade or determined by BMR to be of comparable
quality. Long-term debt rated BBB by S&P is regarded by S&P as having adequate
capacity to pay interest and repay principal and debt rated Baa by Moody's is
regarded by Moody's as a medium grade obligation, i.e., it is neither highly
protected nor poorly secured. Commercial paper rated A-3 by S&P indicates that
S&P believes such obligations exhibit adequate protection parameters but that
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation and issues of commercial paper rated P-3 by Moody's are considered by
Moody's to have an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. A description of the corporate bond ratings of Moody's and
S&P is included as Appendix A to the Statement of Additional Information.
OTHER INVESTMENTS
As stated above, up to 20% of the Portfolio's total assets may be held in cash,
invested in short-term debt obligations, and invested in interests in Unsecured
Loans. 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 Senior 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 asset value 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 investments in Senior Loans. All of such other debt
instruments will be investment grade. Downgraded securities may be retained by
the Portfolio.
The Portfolio may acquire warrants and other equity securities as part of a unit
combining a Senior Loan and equity securities of a Borrower or its affiliates.
The acquisition of such equity securities will only be incidental to the
Portfolio's purchase of a Senior Loan. The Portfolio may also acquire equity
securities issued in exchange for a Senior 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 Senior Loan or would otherwise
be consistent with the Portfolio's investment policies.
BORROWINGS AND LEVERAGE
The Portfolio may from time to time (i) borrow money on a secured or unsecured
basis at variable or fixed rates, and (ii) issue indebtedness such as commercial
paper, bonds, debentures, notes or similar obligations or instruments. BMR
expects that the Portfolio will do so to remain fully invested after accounting
for anticipated cash infusions from the prepayment of Senior Loans and the sale
of Fund shares, and cash outflows from the fulfillment of settlement obligations
(including the funding of revolving Senior Loans) and the repurchase of Fund
shares. The Portfolio may also borrow and issue debt for the purpose of
acquiring additional income-producing investments when it believes that the
interest payments and other costs with respect to such borrowings or
indebtedness will be exceeded by the anticipated total return (a combination of
income and appreciation) on such investments. Successful use of a leveraging
strategy depends on BMR's ability to predict correctly interest rates and market
movements. Historically, the Portfolio has not used leverage for investment
purposes. There is no assurance that a leveraging strategy will be successful.
As prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"), the Portfolio will be required to maintain specified asset coverages of
at least 300% with respect to any bank borrowing or issuance of indebtedness
immediately following any such borrowing or issuance and on an ongoing basis as
a condition of declaring dividends and repurchasing shares. The Portfolio's
inability to make distributions as a result of these requirements could cause
the Fund to fail to qualify as a regulated investment company and/or subject the
Fund to income or excise taxes. The Portfolio may be required to dispose of
portfolio investments on unfavorable terms if market fluctuations or other
factors reduce the required asset coverage to less than the prescribed amount.
The Portfolio may be required to maintain minimum average balances in connection
with borrowings or to pay a commitment or other fee to maintain a line of
credit; either of these requirements will increase the cost of borrowing over
the stated interest rate. The issuance of additional classes of debt involves
offering expenses and other costs and may limit the Portfolio's freedom to pay
dividends or to engage in other activities. Any such borrowing or debt issuance
is a speculative technique in that it will magnify any changes to the Fund's net
asset value. The Portfolio may also borrow for temporary, extraordinary or
emergency purposes.
8
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ADDITIONAL RISK CONSIDERATIONS
The Fund is subject to numerous investment risks. 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.
Credit Risk. Senior Loans, like other corporate debt obligations, are subject
to the risk of non-payment of scheduled interest or principal. Such non-payment
would result in a reduction of income to the Portfolio, a reduction in the value
of the Senior Loan experiencing non-payment and a potential decrease in the net
asset value of the Portfolio. Although, with respect to Senior Loans, the
Portfolio generally will invest only in Senior Loans that BMR believes are
secured by specific collateral the value of which equals or exceeds the
principal amount of the Senior Loan at the time of initial investment, there can
be no assurance that the liquidation of any such collateral would satisfy the
Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Portfolio could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. To the extent that a Senior Loan is
collateralized by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy of a Borrower.
The Agent generally is responsible for determining that the Lenders have
obtained a perfected security interest in the collateral securing the Senior
Loan. Some Senior Loans in which the Portfolio may invest are subject to the
risk that a court, pursuant to fraudulent conveyance or other similar laws,
could subordinate such Senior Loans to presently existing or future indebtedness
of the Borrower or take other action detrimental to the holders of Senior Loans,
such as the Portfolio, including, in certain circumstances, invalidating such
Senior Loans.
Senior Loans in which the Portfolio will invest may not be rated by a Rating
Agency, and may not be registered with the SEC or any state securities
commission and will not be listed on any national securities exchange. Although
the Portfolio will generally have access to financial and other information made
available to the Lenders in connection with Senior Loans, the amount of public
information available with respect to Senior Loans will generally be less
extensive than that available for rated, registered or exchange listed
securities. In evaluating the creditworthiness of Borrowers, BMR will consider,
and may rely in part, on analyses performed by others. Borrowers may have
outstanding debt obligations that are rated below investment grade by a Rating
Agency. Rating Agencies have begun rating Senior Loans and many Senior Loans
have been assigned a rating below investment grade. The Portfolio will invest in
such Senior Loans. Debt securities which are unsecured and rated below
investment grade are viewed by the Rating Agencies as having speculative
characteristics and are commonly known as "junk bonds". A description of the
ratings of corporate bonds by Moody's and S&P is included as Appendix A to the
Statement of Additional Information. Because of the protective features of
Senior Loans (being senior and secured by specific collateral), BMR believes
that Senior Loans tend to have more favorable loss recovery rates as compared to
most other types of below investment grade debt obligations. Accordingly, BMR
does not view ratings as a determinative factor in its investment decisions and,
relies more upon its credit analysis abilities than upon ratings.
Securities rated below investment grade or unrated securities of comparable
quality ("lower quality securities") are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). The prices of lower quality
securities are also more likely to react to real or perceived developments
affecting market and credit risk than are prices of investment grade quality
securities ("higher quality securities"), which react primarily to movements in
the general level of interest rates. Senior Loans issued in connection with
mergers, acquisitions, leveraged buy-outs, recapitalizations and other highly
leveraged transactions, pose a higher risk of default or bankruptcy of the
issuer than other higher quality debt securities, particularly during periods of
deteriorating economic conditions and contraction in the credit markets. The
investments in the Portfolio will have speculative characteristics, and
companies obligated by such debt are generally more vulnerable in an economic
downturn.
Interest Rate Risk. When interest rates decline, the value of a portfolio
invested in fixed-rate obligations can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed-rate obligations
can be expected to decline. Although the Fund's net asset value will vary, the
Fund's management expects the Portfolio's policy of acquiring interests in
floating rate Senior Loans to minimize fluctuations in net asset value as a
result of changes in market interest rates. However, because floating rates on
Senior Loans only reset periodically, changes in prevailing interest rates can
be expected to cause some fluctuation in the Fund's net asset value. Similarly,
a sudden and significant increase in market interest rates may cause a decline
in the Fund's net asset value.
<PAGE>
Foreign Securities. Although the Portfolio will only invest in U.S.
dollar-denominated income securities, the Portfolio may invest in Senior Loans
and other debt securities of non-U.S. issuers. Investment in securities of
non-U.S. issuers involves special risks, including that non-U.S. issuers may be
subject to less rigorous accounting and reporting requirements than U.S.
issuers, less rigorous regulatory requirements, differing legal systems and laws
relating to creditors' rights, the potential inability to enforce legal
judgments and the potential for political, social and economic adversity. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign settlement procedures
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<PAGE>
and trade regulations may involve certain risks (such as delay in the payment or
delivery of securities and interest or in the recovery of assets held abroad)
and expenses not present in the settlement of domestic investments. There may be
a possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability, armed conflict and diplomatic
developments which could affect the value of the Portfolio's investments in
certain foreign countries. The Portfolio will not invest more than 35% of its
net assets in foreign Senior Loans, and has no current intention to invest more
than 10%.
Liquidity Risk. Most Senior Loans are not readily marketable and are subject to
restrictions on resale. Senior Loans generally are not listed on any national
securities exchange or automated quotation system and no active trading market
may exist for many of the Senior Loans in which the Portfolio will invest. Where
a secondary market exists, such market may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods. Senior
Loans are thus relatively illiquid, which illiquidity may impair the Portfolio's
ability to realize the full value of its assets in the event of a voluntary or
involuntary liquidation of such assets. The Portfolio has no limitation on the
amount of its assets which may be invested in securities which are not readily
marketable or are subject to restrictions on resale. The substantial portion of
the Portfolio's assets invested in Senior Loan interests may restrict the
ability of the Portfolio to dispose of its investments in a timely fashion and
at a fair price, and could result in capital losses. The risks associated with
illiquidity are particularly acute in situations where the Fund's operations
require cash, such as when the Fund conducts repurchase offers for its shares,
and may result in borrowings to meet short-term cash requirements. The Trustees
of the Fund will consider the liquidity of the Portfolio's investments in
determining the amount of quarterly repurchase offers.
Regulatory Changes. To the extent that legislation or state or federal
regulators that regulate certain financial institutions impose additional
requirements or restrictions with respect to the ability of such institutions to
make loans, particularly in connection with highly leveraged transactions, the
availability of Senior Loans for investment by the Portfolio may be adversely
affected. Further, such legislation or regulation could depress the market value
of Senior Loans held by the Portfolio.
Non-Diversification. The Fund and the Portfolio have each registered as a
"non-diversified" investment company under the 1940 Act so that, subject to its
investment restrictions and in connection with federal income tax rules, with
respect to 50% of its total assets, the Portfolio will be able to invest more
than 5% of the value of its assets in the obligations of any single issuer,
including Senior Loans of a single Borrower or single Lender, although it has no
current intention to do so. The Portfolio will not invest more than 10% of the
value of its assets in securities (including interests in Senior Loans) of any
single Borrower. Moreover, the Portfolio may invest more than 10% (but not more
than 25%) of its total assets in Senior Loan interests for which the same
intermediate participant is interposed between the Portfolio and the Borrower.
To the extent the Portfolio invests a relatively high percentage of its assets
in obligations of a limited number of issuers, the Portfolio will be more
susceptible than a more widely diversified investment company to any single
corporate, economic, political or regulatory occurrence.
SPECIAL INVESTMENT PRACTICES
The Portfolio may engage in the following investment practices to seek to
enhance income or reduce investment risk.
Interest Rate and Other Hedging Transactions. The Portfolio may purchase or
sell derivative instruments (which are instruments that derive their value from
another instrument, security or index) to seek to hedge against fluctuations in
securities prices or interest rates. The Portfolio's transactions in derivative
instruments may include the purchase or sale of futures contracts on securities,
securities indices, other indices or other financial instruments; options on
futures contracts; exchange-traded and over-the-counter options on securities or
indices; index-linked securities; and interest rate swaps. The Portfolio's
transactions in derivative instruments involve a risk of loss or depreciation
due to: unanticipated adverse changes in securities prices, interest rates, the
other financial instruments' prices; the inability to close out a position;
default by the counterparty; imperfect correlation between a position and the
<PAGE>
desired hedge; tax constraints on closing out positions; and portfolio
management constraints on securities subject to such transactions. The loss on
derivative instruments (other than purchased options) may substantially exceed
the Portfolio's initial investment in these instruments. In addition, the
Portfolio may lose the entire premium paid for purchased options that expire
before they can be profitably exercised by the Portfolio. Transaction costs will
be incurred in opening and closing positions in derivative instruments. There
can be no assurance that BMR's use of derivative instruments will be
advantageous to the Portfolio. To date, the Portfolio has not utilized these
techniques.
The Portfolio may use interest rate swaps for risk management purposes and not
as a speculative investment and would typically use interest rate swaps to
shorten the average interest rate reset time of the Portfolio's holdings.
Interest rate swaps involve the exchange by the Portfolio with another party of
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<PAGE>
their respective commitments to pay or receive interests, e.g., an exchange of
fixed rate payments for floating rate payments. The use of interest rate swaps
is a highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
BMR has had limited experience in the use of interest rate swaps but has
utilized other types of hedging techniques. If BMR is incorrect in its forecasts
of market values, interest rates and other applicable factors, the investment
performance of the Portfolio would be less favorable than what it would have
been if this investment technique were never used.
Securities Lending. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers of other institutional borrowers. During
the existence of a loan, the Portfolio will continue to receive the equivalent
of the interest paid by the issuer on the securities loaned and will also
receive a fee, or all or a portion of the interest on investment of the
collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the securities loaned if the borrower of the
securities fails financially. However, the loans will be made only to
organizations deemed by BMR to be of good standing and when, in the judgment of
the Portfolio's management, the consideration which can be earned from
securities loans of this type, net of administrative expenses and any finders or
other fees, justifies the attendant risk. The financial condition of the
borrower will be monitored by BMR on an ongoing basis. The value of the
securities loaned will not exceed 30% of the Portfolio's total assets. To date,
the Portfolio has not utilized securities lending.
Repurchase Agreements. The Portfolio may enter into repurchase agreements with
member banks of the Federal Reserve System or primary dealers in U.S. Government
securities. Under a repurchase agreement, the Portfolio buys securities at one
price and simultaneously promises to sell back those securities at a higher
price. The Portfolio's repurchase agreements will provide that the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement, and will be marked to market daily. The repurchase date is usually
within seven days of the original purchase date. In all cases, BMR must be
satisfied with the creditworthiness of the other party to the agreement before
entering into a repurchase agreement. In the event of the bankruptcy of the
other party to a repurchase agreement, the Portfolio might experience delays in
recovering its cash. To the extent that, in the meantime, the value of the
securities the Portfolio purchased may have declined, the Portfolio could
experience a loss.
ORGANIZATION OF THE FUND
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
"Repurchase Offers". There are no annual meetings of shareholders, but special
meetings may be held as required by law to elect or remove Trustees and consider
certain other matters. Because the Fund invests in the Portfolio, it may be
asked to vote on certain Portfolio matters (like changes in certain Portfolio
investment restrictions). When necessary, the Fund will hold a meeting of its
shareholders to consider the Portfolio matter and then vote its interest in the
Portfolio in proportion to the votes cast by its shareholders. The Fund can
withdraw from the Portfolio at any time. Shareholders are entitled to one vote
for each full share held. Fractional shares may be voted proportionately. Shares
have no preemptive or conversion rights and are freely transferable. In the
event of liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders.
The Fund's Declaration of Trust may not be amended without the affirmative vote
of a majority of the outstanding shares of the Fund (or such greater vote as is
described below under "Anti-Takeover Provisions"), except that the Declaration
of Trust may be amended by the Trustees to change the name of the Fund, to make
such other changes as do not have a materially adverse effect on the rights or
interests of shareholders and to conform the Declaration of Trust to applicable
federal laws or regulations. The Fund may be terminated (i) upon the merger or
consolidation with or sale of the Fund's assets to another company, if approved
by the holders of two-thirds of the outstanding shares of the Fund, except that
if the Trustees recommend such transaction, the approval by vote of the holders
of a majority of the outstanding shares will be sufficient, or (ii) upon
liquidation and distribution of the assets of the Fund, if approved by the
holders of two-thirds of the Fund's outstanding shares, except that if the
Trustees recommend such transaction, the approval by vote of the holders of a
majority of the outstanding shares will be sufficient. If not so terminated, the
Fund may continue indefinitely.
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<PAGE>
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 SEC, for the full text of these provisions.
The foregoing provisions will make more difficult the conversion of the Fund to
an open-end investment company and the consummation of the Transactions without
the Trustees' approval, and could have the effect of depriving shareholders of
an opportunity to sell their shares at a premium over prevailing market prices,
in the event that a secondary market for the Fund shares does develop, by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. However, the Board of Trustees has
considered these anti-takeover provisions and believes that they are in the
shareholders' best interests and benefit shareholders by providing the advantage
of potentially requiring persons seeking control of the Fund to negotiate with
its management regarding the price to be paid.
Master-Feeder Structure. The Trustees of the Fund have considered the advantages
and disadvantages of investing the assets of the Fund in the Portfolio, as well
as the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure may offer opportunities for growth in the assets of the
Portfolio, and may afford the potential for economies of scale for the Fund. The
other investors in the Portfolio will affect its liquidity, and therefore, could
reduce the amount of the Fund's repurchase offers.
MANAGEMENT OF THE FUND
The Portfolio engages BMR, a wholly-owned subsidiary of Eaton Vance, to manage
the investments of the Portfolio and provide related office facilities,
administrative services and personnel. In return, the Portfolio has agreed to
pay BMR 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 are calculated by deducting all liabilities of the Portfolio
except the principal amount of any indebtedness for money borrowed, including
debt securities issued by the Portfolio.
The Trustees of the Portfolio have voted to accept a waiver of BMR's
compensation effective May 1, 1999 so that the aggregate advisory fees paid by
the Portfolio under the advisory agreement during any fiscal year or portion
thereof will not exceed on an annual basis: (a) 0.50% of average daily gross
assets of the Portfolio up to and including $1 billion; (b) 0.45% of average
daily gross assets in excess of $1 billion up to and including $2 billion; (c)
0.40% of average daily gross assets in excess of $2 billion up to and including
$7 billion; (d) 0.3875% of average daily gross assets in excess of $7 billion up
to and including $10 billion; and (e) 0.375% of average daily gross assets in
excess of $10 billion. The Portfolio paid BMR advisory fees equivalent to 0.54%
of the Portfolio's average daily gross assets for the fiscal year ended December
31, 1999. The waiver of BMR's advisory fees will be eliminated or reduced in
the event that the distribution fee of certain funds investing in the Portfolio
is eliminated or reduced. In addition, Eaton Vance will be paid an
administration fee so that the Fund's total fixed expenses remain the same
provided, however, the Fund continues to qualify as a regulated investment
company for federal income tax purposes. Such actions by Eaton Vance are
expected to be sufficient to prevent an increase in the overall operating
expenses borne by the Fund.
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<PAGE>
Eaton Vance, its affiliates and predecessor companies have been managing assets
of individuals and institutions since 1924 and managing investment companies
since 1931. BMR or Eaton Vance currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of over $42 billion, of which approximately $39
billion is in investment companies, including over $9 billion in the Portfolio
and another investment company that invests primarily in Senior Loans. Eaton
Vance is a wholly-owned subsidiary of Eaton Vance Corp., a publicly-held holding
company which through its subsidiaries and affiliates engages primarily in
investment management, administration and marketing activities. The principal
underwriter is a wholly-owned subsidiary of Eaton Vance.
Scott H. Page and Payson F. Swaffield, Vice Presidents of Eaton Vance and BMR,
have acted as co-portfolio managers of the Portfolio since August 1, 1996. Prior
thereto, Messrs. Page and Swaffield were senior Senior Loan analysts of Eaton
Vance.
The Fund, the Portfolio and BMR have adopted Codes of Ethics relating to
personal securities transactions. The Codes permit Eaton Vance personnel to
invest in securities (including securities that may be purchased or held by the
Portfolio) for their own accounts, subject to certain pre-clearance, reporting
and other restrictions and procedures contained in such Codes.
Eaton Vance serves as administrator, providing the Fund with administrative
services and related office facilities. In return, the Fund may pay Eaton Vance
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. For the
fiscal year ended December 31, 1999, the amount of administration fees paid by
the Fund to Eaton Vance was equal to 0.25% (annualized) of the average daily
gross assets of the Portfolio attributable to the Fund. Beginning May 1, 1999,
Eaton Vance agreed to waive its administration fee as long as the distribution
fee described below is being paid by the Fund.
VALUING SHARES
The Fund values its shares once on each day the New York Stock Exchange (the
"Exchange") is open for trading, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by the Fund's custodian, Investors Bank & Trust Company
("IBT") (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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value is computed by dividing the
value of the Fund's total assets, less its liabilities by the number of shares
outstanding. Because the Fund invests its assets in an interest in the
Portfolio, the Fund's net asset value will reflect the value of its interest in
the Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) in the
manner authorized by the Trustees of the Portfolio. Net asset value is computed
by determining the value of the Portfolio's total assets (the Senior 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).
BMR values interests in Senior Loans held by the Portfolio pursuant to valuation
procedures approved by the Portfolio's Trustees. Under these procedures, Senior
Loans, when initially acquired by the Portfolio, are valued at cost. Certain
Senior Loans are deemed to be "liquid" because reliable market quotations are
readily available for them. BMR values these liquid Senior Loans at their
market value, so that they are marked to market daily. BMR values all other
Senior Loans at their fair value. In determining the fair value of a Senior
Loan, BMR will consider relevant factors, data, and information, including: (i)
the characteristics of and fundamental analytical data relating to the Senior
Loan, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate of the Senior Loan, the
terms and conditions of the Senior Loan and any related agreements, and the
position of the Senior 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
Senior Loan, including price quotations for and trading in the Senior Loan and
interests in similar Senior Loans and the market environment and investor
attitudes towards the Senior Loan and interests in similar Senior Loans; (v) the
reputation and financial condition of the Agent and any intermediate
participants in the Senior Loan; and (vi) general economic and market conditions
affecting the fair value of the Senior Loan. The fair value of each Senior Loan
is reviewed and approved by BMR's Valuation Committee and by the Portfolio's
Trustees.
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PURCHASING SHARES
You may purchase Fund shares through your investment dealer or by mailing the
account application form included in this prospectus to the transfer agent (see
back cover for address). Your initial investment must be at least $5,000 ($2,000
in the case of Individual Retirement Accounts). The price of Fund shares is the
net asset value.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund with each
investment.
Once the $5,000 minimum investment has been made, you may also make automatic
investments of $50 or more each month or quarter from your bank account. You
can establish bank automated investing on the account application or by calling
1-800-262-1122.
You may purchase Fund shares for cash or in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. The Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
SALES CHARGES
Shareholders pay no sales load when purchasing shares. The principal underwriter
compensates the investment dealers at the rate of .75% of the dollar amount of
the shares being purchased, consisting of .60% of sales commission and .15% of
service fee (for the first year's services). No compensation is paid for
exchanges from another Eaton Vance fund, and exchanges will be refused if shares
in such other fund (and any prior Eaton Vance funds) have been held for less
than 30 days.
If the shares remain outstanding for at least one year, the principal
underwriter will compensate the investment dealers at an annual rate, paid
monthly, equal to .60% of the value of Fund shares sold by such investment
dealers and remaining outstanding. All compensation paid to investment dealers
will be made from BMR's, the principal underwriter's and Eaton Vance's own
assets, which may include amounts received by the principal underwriter as early
withdrawal charges, distribution fees or service fees, 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 investment dealers and the principal underwriter is subject to applicable
limitations imposed by the National Association of Securities Dealers, Inc.
("NASD").
The principal underwriter may also, from time to time, at its own expense,
provide additional cash incentives to investment dealers 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
investment dealers.
The Portfolio intends to 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.
Early Withdrawal Charge. An early withdrawal charge ("EWC") 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
repurchase offers. The EWC is based on the lower of the net asset value at the
time of purchase or at the time of repurchase. Shares acquired through
reinvestment of distributions are exempt from the EWC. Redemptions are made
first from shares that are not subject to an EWC. The EWC will be paid to the
principal underwriter. The EWC will be equal to 1% of the value of shares
accepted for repurchase pursuant to a repurchase offer. No EWC will be imposed
on Fund shares sold to Eaton Vance, or its affiliates, or to their respective
employees or clients. The EWC will also be waived in connection with minimum
required distributions from tax-sheltered retirement plans by applying the rate
required to be withdrawn under the applicable rules and regulations of the
Internal Revenue Service to the balance of your account. All EWC waivers are
prospective only.
14
<PAGE>
If your shares are repurchased, you may reinvest at net asset value any portion
or all of the repurchase proceeds in shares of the Fund, provided that the
reinvestment occurs within 60 days of the repurchase, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any EWC paid in connection with the repurchase. Reinvestment requests must
be in writing. If you reinvest, you will be sold shares at the next determined
net asset value following receipt of your request.
Distribution Plan. The Fund has adopted a plan that allows the Fund to pay
distribution fees for the sale and distribution of shares. The Fund currently
pays distribution fees of 0.70% of average daily net assets annually. This fee
cannot be increased without shareholder approval.
Service Plan. In addition to advisory fees and other expenses, the Fund pays
service fees pursuant to a Service 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 Fund currently makes service
fee payments for personal services and/or the maintenance of shareholder
accounts to the principal underwriter, investment dealers and other persons in
amounts not exceeding 0.15% of the Fund's average daily net assets for each
fiscal year.
REPURCHASE OFFERS
As a matter of fundamental policy which cannot be changed without shareholder
approval, the Fund is required in the months of MARCH, JUNE, SEPTEMBER AND
DECEMBER to offer to repurchase at least 5% and up to 25% of its shares. Under
normal market conditions, the Trustees expect to authorize a 25% offer. (The
Fund may also make a discretionary repurchase offer once every two years but has
no current intention to do so.) The repurchase price will be the net asset value
determined not more than 14 days following the repurchase request deadline and
payment for all shares repurchased pursuant to these offers will be made not
later than 7 days after the repurchase pricing date. Under normal circumstances,
it is expected that net asset value will be determined on the repurchase request
deadline and payment for shares tendered will be made within 3 business days
after such deadline. During the period the offer to repurchase is open
shareholders may obtain the current net asset value by calling 1-800-225-6265,
option 2 (fund #132).
At least 21 days prior to the repurchase request deadline the Fund will mail
written notice to each shareholder setting forth the number of shares the Fund
will repurchase, the repurchase request deadline and other terms of the offer to
repurchase, and the procedures for shareholders to follow to request a
repurchase. (This notice may be included in a shareholder report or other Fund
document.) The repurchase request deadline will be strictly observed.
Shareholders and financial intermediaries failing to submit repurchase requests
in good order (as set forth in the repurchase form) by such deadline will be
unable to liquidate shares until a subsequent repurchase offer.
If more shares are tendered for repurchase than the Fund has offered to
repurchase, the Board may, but is not obligated, to increase the number of
shares to be repurchased by 2% of the Fund shares outstanding; if there are
still more shares tendered than are offered for repurchase, shares will be
repurchased on a pro-rata basis. Thus, shareholders may be unable to liquidate
all or a given percentage of their shares and some shareholders may tender more
shares than they wish to have repurchased in order to ensure repurchase of at
least a specific number of shares. Shareholders may withdraw shares tendered for
repurchase at any time prior to the repurchase request deadline.
Repurchase offers and the need to fund repurchase obligations may affect the
ability of the Portfolio to be fully invested, which may reduce returns.
Moreover, diminution in the size of the Portfolio through repurchases without
offsetting new sales may result in untimely sales of portfolio securities and a
higher expense ratio, and may limit the ability of the Portfolio to participate
in new investment opportunities. Repurchases resulting in portfolio turnover
will result in additional expenses being borne by the Portfolio. The Portfolio
may borrow to meet repurchase obligations which entails certain risks and costs.
See "Borrowings and Leverage". The Portfolio may also sell portfolio securities
to meet repurchase obligations which, in certain circumstances, may adversely
affect the market for Senior Loans and reduce the Fund's value.
The Fund may suspend or postpone a repurchase offer only: (A) if making or
effecting the repurchase offer would cause the Fund to lose its status as a
regulated investment company under the Internal Revenue Code; (B) for any period
during which the Exchange or any market in which the securities owned by the
Portfolio are principally traded is closed, other than customary weekend and
holiday closings, or during which trading in such market is restricted; (C) for
any period during which an emergency exists as a result of which disposal by the
Portfolio of securities owned by it is not reasonably practicable, or during
which it is not reasonably practicable for the Portfolio or Fund fairly to
determine the value of its net assets; or (D) for such other periods as the SEC
may by order permit for the protection of shareholders of the Fund.
15
<PAGE>
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account(R) for you. Share certificates are issued only on request.
Distributions. You may have your Fund distributions paid in one of the
following ways:
.Full Reinvest Option Dividends and capital gains are reinvested in
additional shares. This option will be assigned if
you do not specify an option.
.Partial Reinvest Option Dividends are paid in cash and capital gains are
reinvested in additional shares.
.Cash Option Dividends and capital gains are paid in cash.
.Exchange Option Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund
chosen by you. Before selecting this option, you
must obtain a prospectus of the other fund and
consider its objectives and policies carefully.
Information from the Fund. From time to time, you may be mailed the following:
.Quarterly repurchase offer notices.
.Annual and Semi-Annual Reports, containing performance information and
financial statements.
.Periodic account statements, showing recent activity and total share balance.
.Form 1099 and tax information needed to prepare your income tax returns.
.Proxy materials, in the event a shareholder vote is required.
.Special notices about significant events affecting your Fund.
Tax-Sheltered Retirement Plans. Fund shares are available for purchase in
connection with certain tax-sheltered retirement plans. Call 1-800-225-6265 for
information. Distributions will be invested in additionial shares for all
tax-sheltered retirement plans.
Exchange Privilege. You may exchange your Fund shares at the time of a Fund
repurchase at net asset value for Class C shares of one or more open-end
investment companies in the Eaton Vance Group of Funds or Eaton Vance Money
Market Fund, which are subject to a contingent deferred sales charge. No EWC
will be imposed on Fund shares exchanged; however, the new fund shares will be
subject to a contingent deferred sales charge in the event of a redemption.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for shares of the Fund at net asset value per share, but subject to
any restrictions or qualifications set forth in the current prospectus of any
such fund. For the purposes of calculating the contingent deferred sales charge
applicable to shares acquired in an exchange, your shares will age from the date
of your original purchase.
The Fund may implement an automatic exchange program whereby shareholders can
elect to have a fixed amount invested in another Eaton Vance Fund quarterly.
Such investments would be subject to the Fund's repurchase offer limitations,
but shareholders would not be required to submit a repurchase offer request each
quarter.
Before exchanging, you should read the prospectus of the new fund carefully.
Each exchange must involve shares which have a net asset value of at least
$1,000. This privilege may not be used for "market timing". If an account (or
group of accounts) makes more than two round-trip exchanges within twelve
months, it will be deemed to be market timing. The exchange privilege may be
terminated for market timing accounts. The exchange privilege may be changed or
discontinued at any time. You will receive 60 days' notice of any material
change to the privilege.
Telephone and Electronic Transactions. You can repurchase and exchange shares by
telephone under certain circumstances. In addition, certain transactions may be
conducted through the Internet. The transfer agent and the principal
underwriter have procedures in place to authenticate telephone and electronic
instructions (such as using security codes or verifying personal account
information). As long as the transfer agent and principal underwriter follow
these procedures, they will not be responsible for unauthorized telephone or
electronic transactions and you bear the risk of possible loss resulting from
these transactions. Telephone instructions are tape recorded.
"Street Name" Accounts. If your shares are held in a "street name" account at
an investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, repurchase or exchange shares, to make
changes in your account, or to obtain account information. You will not be able
16
<PAGE>
to utilize a number of shareholder features, such as telephone transactions,
directly with the Fund. The transfer of shares in a "street name" account to an
account with another investment dealer or to an account directly with the Fund
involves special procedures and you will be required to obtain historical
information about your shares prior to the transfer. Before establishing a
"street name" account with an investment dealer, you should determine whether
that dealer allows reinvestment of distributions in "street name" accounts.
Account Questions. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
DISTRIBUTIONS AND TAXES
The Fund declares daily and distributes monthly substantially all of its net
investment income and distributes annually (usually in December) its net
realized short-term and long-term capital gains, if any. Daily distribution
crediting will commence on the business day after collected funds for the
purchase of Fund shares are available at the transfer agent, even if orders to
purchase shares had been placed with investment dealers. Investors who purchase
shares shortly before the record date of any dividend or distribution will pay
the full price for the shares and then receive some portion of the price back as
a taxable distribution. The Fund's distributions will not qualify for the
dividends-received deduction for corporations. The Fund expects distributions to
consist primarily of net investment income which, along with short-term capital
gain distributions, are taxable to shareholders as ordinary income, whether paid
in cash or additional shares of the Fund. Capital gain distributions (if any)
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has owned Fund shares. Certain distributions paid in January
will be taxable to shareholders as if received on December 31 of the prior year.
The repurchase of Fund shares may result in a taxable gain or loss to the
redeeming shareholder, depending on whether the amount received is greater or
less than such shareholder's adjusted tax basis in the shares. An exchange of
shares of the Fund for shares of another Eaton Vance fund generally will have
similar tax consequences. Different tax consequences may apply for tendering and
nontendering shareholders in connection with a repurchase offer, and these
consequences are disclosed in the Statement of Additional Information. For
example, if a shareholder tenders fewer than all of his or her shares, such
repurchase may not be treated as an exchange for federal income tax purposes and
may result in deemed distributions to non-tendering shareholders. On the other
hand, shareholders who tender all of their shares will be treated as having sold
their shares and generally will realize a capital gain or loss.
Taxable distributions to certain shareholders, including those who have not
provided the Fund with their correct taxpayer identification number and other
required certifications, may be subject to "backup" federal tax withholding of
31%.
The foregoing only summarizes some of the federal tax consequences to
shareholders of investing in shares of the Fund, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors, individual retirement accounts and other retirement plans.
Investors should consult their tax advisers.
17
<PAGE>
[LOGO]
Investing
for the
21st
Century(R)
- --------------------------------------------------------------------------------
EV Classic Senior
Floating-Rate Fund
Prospectus March 15, 2000
- --------------------------------------------------------------------------------
Investment Adviser of Senior Debt Portfolio
Boston Management and Research, The Eaton Vance Building, 255 State Street,
Boston, MA 02109
Administrator of EV Classic Senior Floating-Rate Fund
Eaton Vance Management, The Eaton Vance Building, 255 State Street,
Boston, MA 02109
Principal Underwriter
Eaton Vance Distributors, Inc., The Eaton Vance Building, 255 State Street,
Boston, MA 02109 (800) 225-6265
Custodian
Investors Bank & Trust Company, 200 Clarendon Street, Boston MA 02116
Transfer Agent
PFPC Global Fund Services, P.O. Box 9653, Providence, RI 02904-9653
(800) 262-1122
Auditors
Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA 02116
CSFRP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
March 15, 2000
EV CLASSIC SENIOR FLOATING-RATE FUND
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Fund and the Portfolio. Capitalized terms used in this
SAI and not otherwise defined have the meanings given to them in the
prospectus. This SAI contains additional information about:
Page
Investment Policies and Risks ....................................... 2
Investment Restrictions ............................................. 4
Management and Organization ......................................... 5
Control Persons and Principal Holders of Shares ..................... 8
Investment Advisory and Other Services .............................. 8
Shareholder Account Information ..................................... 11
Portfolio Trading ................................................... 13
Taxes ............................................................... 14
Performance ......................................................... 15
Financial Statements ................................................ 17
Appendix A: Ratings of Corporate Bonds .............................. a-1
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS
DATED MARCH 15, 2000, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS,
WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
INVESTMENT POLICIES AND RISKS
LENDING FEES. In the process of buying, selling and holding Senior Loans 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 Senior Loan
it may receive a facility fee and when it sells a Senior Loan 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
Senior Loan. In certain circumstances, the Portfolio may receive a prepayment
penalty fee upon the prepayment of a Senior 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
Senior 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 Senior Loan in the form of a
Participation, the agreement between the buyer and seller may limit the rights
of the holder 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 the
Participation 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 Senior 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 Senior 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 Senior Loan usually
does, but is often not obligated to, notify holders of Senior Loans 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 Senior Loan, may
give the Borrower an opportunity to provide additional collateral or may seek
other protection for the benefit of the participants in the Senior 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 Senior Loan and other fees paid on a continuing
basis. With respect to Senior Loans 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 Senior Loans. 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 Senior Loan, or suffer a loss of principal and/or
interest. In situations involving intermediate participants similar risks may
arise.
PREPAYMENTS. Senior Loans will usually require, in addition to scheduled
payments of interest and principal, the prepayment of the Senior Loan from
free cash flow, as defined above. The degree to which Borrowers prepay Senior
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 Senior Loan 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 Senior Loans that have similar or identical yields and because receipt
of such fees may mitigate any adverse impact on the Fund's yield.
OTHER INFORMATION REGARDING SENIOR LOANS. 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 Senior Loans to or
acquire them from the Portfolio or may be intermediate participants with
respect to Senior Loans in which the Portfolio owns interests. Such banks may
also act as Agents for Senior Loans held by the Portfolio.
The Portfolio may acquire interests in Senior 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 Senior Loans 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.
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 Senior Loan to be
undercollateralized or unsecured. In most credit agreements there is no formal
requirement to pledge additional collateral. In addition, the Portfolio may
invest in Senior Loans guaranteed by, or fully secured by assets of,
shareholders or owners, even if the Senior 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 Senior Loan. On occasions when such
stock cannot be pledged, the Senior 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 Senior 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 Senior Loans and, indirectly, Senior Loans.
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 Senior 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 Senior 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 Senior 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.
INTEREST RATE SWAPS. The Portfolio may enter into interest rate swaps on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities. For example, if the Portfolio holds a
Senior Loan 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 Senior Loan because of subsequent changes in
interest rates. This would protect the Portfolio from a decline in the value
of the Senior Loan due to rising interest rates, but would also limit its
ability to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch
as these transactions are entered into for good faith hedging purposes and
because a segregated account will be used, the Portfolio will not treat them
as being subject to the Portfolio's borrowing restrictions. The net amount of
the excess, if any, of the Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account
by the Portfolio's custodian. The Portfolio will not enter into any interest
rate swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be
investment grade by BMR. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid in
comparison with the markets for other similar instruments which are traded in
the interbank market.
The Portfolio may enter into interest rate swaps only with respect to
positions held in its portfolio. Interest rate swaps do not involve the
delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to interest rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make or receive. Since interest rate swaps are individually negotiated, the
Portfolio expects to achieve an acceptable degree of correlation between its
rights to receive interest on Senior Loans and its rights and obligations to
receive and pay interest pursuant to interest rate swaps.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as
used in this SAI 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
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding 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 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".
The Fund, as a matter of fundamental policy which may not be changed
without a vote of a majority of its outstanding voting securities and in
accord with the provisions of Rule 23c-3 (as amended from time to time) under
the 1940 Act, shall make repurchase offers for its common shares of beneficial
interest at periodic intervals of three months between repurchase request
deadlines, such deadlines to be dates in the months of March, June, September
and December determined by the Board of Trustees with the repurchase pricing
date and time being not later than the close of business fourteen days after
the repurchase request deadline (or the next business day if the 14th day is
not a business day).
The Portfolio, as a matter of fundamental policy which may not be changed
without a vote of a majority of its outstanding voting securities and in
accord with the provisions of Rule 23c-3 (as amended from time to time) under
the 1940 Act, shall make repurchase offers for its interests at periodic
intervals of three months to each holder of its interests between repurchase
request deadlines, such deadlines to be dates determined by the Board of
Trustees in the months when each such holder conducts its periodic repurchases
with the repurchase pricing date and time being not later than the close of
business fourteen days after the repurchase request deadline (or the next
business day if the 14th day is not a business day).
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in a management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policy which may be changed with respect to the Fund by the
Trustees of the Fund without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio without
the approval of the Fund or the Portfolio's other investors. As a matter of
nonfundamental policy, neither the Fund nor the Portfolio may make short sales
of securities or maintain a short position, unless at all times when a short
position is open it either owns an equal amount of such securities or owns
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to,
the securities sold short.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances will not
compel the Fund or the Portfolio, as the case may be, to dispose of such
security or other asset. Notwithstanding the foregoing, under normal market
conditions the Fund and the Portfolio must take actions necessary to comply
with the policy of investing at least 80% of total assets in interests in
Loans. Moreover, the Fund and the Portfolio must always be in compliance with
the borrowing policies set forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Fund are responsible for the overall
management and supervision of the Fund's affairs. 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 The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Fund
or the Portfolio as defined in the 1940 Act, are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (40), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April, 1999). President and Chief
Operating Officer of John A. Levin & Co. (a registered investment advisor)
(July, 1997 to April, 1999) and a Director of Baker, Fentress & Company
which owns John A. Levin & Co. (July, 1997 to April, 1999). Formerly
Executive Vice President of Smith Barney Mutual Funds (from July, 1994 to
June, 1997). Elected Trustee October 30, 1998. Trustee of various investment
companies managed by Eaton Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
JAMES B. HAWKES (58), President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee
and officer of various investment companies managed by Eaton Vance or BMR.
DONALD R. DWIGHT (68), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
SAMUEL L. HAYES, III (65), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (64), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director of UAM Funds (mutual funds).
Trustee of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (42), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (70), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
SCOTT H. PAGE (40), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
PAYSON F. SWAFFIELD (43), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (54), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (59), Secretary
Vice President, Secretary and Chief Legal Officer of BMR, Eaton Vance and EVC.
Prior to joining Eaton Vance on November 1, 1996, he was a Partner of the
law firm of Kirkpatrick & Lockhart LLP, New York and Washington, D.C., and
was Executive Vice President of Neuberger & Berman Management, Inc., a
mutual fund management company. Officer of various investment companies
managed by Eaton Vance or BMR.
JANET E. SANDERS (64), Assistant Treasurer and Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (37), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (42), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
The Nominating Committee of the Board of Trustees of the Fund and the
Portfolio is comprised of all Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
purpose of the Committee is to recommend to the Board nominees for the
position of noninterested Trustee and to assure that at least a majority of
the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Fund and of the
Portfolio. The purpose of the Special Committee is to consider, evaluate and
make recommendations to the full Board of Trustees concerning (i) all
contractual arrangements with service providers to the Fund and the Portfolio,
including investment advisory (Portfolio only), administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or
potential conflict of interest with the Fund, the Portfolio or investors
therein.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Fund and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
matters relative to trading and brokerage policies and practices, accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian, transfer agent and
dividend disbursing agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by the Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services
of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolio nor the Fund has a
retirement plan for its Trustees.
Each interested Trustee and officer holds comparable positions with
certain affiliates of BMR or with certain other funds of which BMR or Eaton
Vance is the investment adviser or distributor.
The fees and expenses of the noninterested Trustees of the Fund and of the
Portfolio are paid by the Fund and the Portfolio, respectively. (The Trustees of
the Fund and the Portfolio who are members of the Eaton Vance organization
receive no compensation from the Fund or the Portfolio). During the fiscal year
ended December 31, 1999, the noninterested Trustees of the Fund and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio, and the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM FUND AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------- -------------- ------------------
Jessica M. Bibliowicz $835 $7,088 $160,000
Donald R. Dwight ..... 680 6,188(2) 160,000(3)
Samuel L. Hayes, III . 745 6,779 170,000
Norton H. Reamer ..... 715 6,401 160,000
Lynn A. Stout ........ 821 7,191(4) 160,000(5)
Jack L. Treynor ...... 798 7,072 170,000
- ------------
(1) As of March 1, 2000, the Eaton Vance fund complex consists of 143
registered investment companies or series thereof.
(2) Includes $3,269 of deferred compensation.
(3) Includes $972 of deferred compensation.
(4) Includes $60,000 of deferred compensation.
(5) Includes $16,000 of deferred compensation.
ORGANIZATION. The Fund is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such
a trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. The Fund's Declaration of Trust, as
amended, contains an express disclaimer of shareholder liability in connection
with the Fund property or the acts, obligations or affairs of the Fund. The
Declaration of Trust also provides for indemnification out of the Fund
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself is unable to meet its obligations. The Fund has been advised
by its counsel that the risk of any shareholder incurring any liability for
the obligations of the Fund is remote.
The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to the Fund or
its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Voting rights are not cumulative, which
means that the holders of more than 50% of the shares voting for the election
of Trustees can elect 100% of the Trustees and, in such event, the holders of
the remaining less than 50% of the shares voting on the matter will not be
able to elect any Trustees. As permitted by Massachusetts law, there will
normally be no meetings of Fund shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders. In such an event, the
Trustees of the Fund then in office will call a shareholders' meeting for the
election of Trustees. Except for the foregoing circumstances, the Trustees
shall continue to hold office and may appoint successor Trustees.
The Fund's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Fund's
custodian or by votes cast at a meeting called for that purpose. The by-laws
further provide that the Trustees of the Fund shall promptly call a meeting of
the shareholders for the purpose of voting upon a question of removal of any
such Trustee or Trustees when requested in writing so to do by the record
holders of not less than 10 per centum of the outstanding shares.
The Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
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 of the Portfolio
holding office have been elected by investors. In such an event the Trustees
of the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding
interests have removed him from that office either by a written declaration
filed with the Portfolio's custodian or by votes cast at a meeting called for
that purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio's Declaration of Trust, as amended, provides that the Fund
and other entities permitted to invest in the Portfolio (e.g., other U.S. and
foreign investment companies, and common and commingled trust funds) will each
be liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Fund believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Whenever the Fund as an investor in a 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
securities (as opposed to a cash distribution from the Portfolio). If Senior
Loans and noncash assets are distributed, the Fund could incur brokerage, tax
or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of the Fund. Notwithstanding the above,
there are other means for meeting shareholder repurchase requests, such as
borrowing.
The Fund may withdraw all its assets from the Portfolio at any time if the
Board of Trustees of the Trust determines that it is in the best interest of
the Fund to do so. In the event the Fund withdraws all of its assets from the
Portfolio, or the Board of Trustees of the Trust determines that the
investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, the Trustees would consider what action
might be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's
assets in accordance with its investment objective. The Fund's investment
performance may be affected by a withdrawal of all its assets (or the assets
of another investor in the Portfolio) from the Portfolio.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of February 29, 2000, the Trustees and officers of the Fund, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. To the knowledge of the Fund, no person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES. 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.
For the fiscal years ended December 31, 1999, 1998 and 1997, the Portfolio
paid BMR advisory fees aggregating $45,057,800, $44,484,347 and $31,751,900,
respectively, equivalent to 0.54%, 0.88% and 0.89%, respectively, of the
Portfolio's average daily gross assets. As at December 31, 1999, the gross
assets of the Portfolio were $9,386,851,323. BMR's fee waiver described in the
prospectus is indefinite, but could be removed or changed upon agreement of
BMR and the Portfolio's Board of Trustees at any time.
ADMINISTRATIVE SERVICES. Under the Administration Agreement, Eaton Vance is
responsible for managing the business affairs of the Fund, subject to the
supervision of the Fund's Board of Trustees. Eaton Vance will furnish to the
Fund all office facilities, equipment and personnel for administering the
affairs of the Fund. Eaton Vance will compensate all Trustees and officers of
the Fund who are members of the Eaton Vance organization and who render
executive and administrative services to the Fund, and will also compensate
all other Eaton Vance personnel who perform management and administrative
services for the Fund. Eaton Vance's administrative services include
recordkeeping, preparation and filing of documents required to comply with
federal and state securities laws, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Trustees' and shareholders' meetings, providing services in connection with
quarterly repurchase offers and other administrative services necessary to
conduct the Fund's business.
Effective May 1, 1999, Eaton Vance agreed to waive its administration fee
as long as the distribution fee described below is being paid by the Fund. For
the period from January 1, 1999 to April 30, 1999, the Fund paid Eaton Vance
administration fees of $2,975,943, which was equal to 0.25% (annualized) of
the average daily gross assets of the Portfolio attributable to the Fund for
such period. For the fiscal years ended December 31, 1998 and 1997, the Fund
paid Eaton Vance administration fees of $6,375,216 and $4,213,131,
respectively, which was equal to 0.25% of the average daily gross assets of
the Portfolio attributable to the Fund for each fiscal 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 with the Portfolio, by Eaton Vance
under the Administration Agreement with the Fund or by the principal
underwriter under its Distribution Agreement with the Fund. Such costs and
expenses to be borne by the Portfolio and the Fund, as the case may be,
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping
accounting books and records; expenses of pricing and valuation services; the
cost of share certificates; membership dues in investment company
organizations; expenses of acquiring, holding and disposing of securities and
other investments; fees and expenses of registering under the securities laws
and governmental fees; expenses of reports to shareholders and investors,
proxy statements and other expenses of shareholders' or investors' meetings;
insurance premiums; printing and mailing expenses; interest, taxes and
corporate fees; legal and accounting expenses; compensation and expenses of
Trustees not affiliated with BMR or Eaton Vance; expenses of conducting
repurchase offers for the purpose of repurchasing Portfolio interests or Fund
shares; and investment advisory and administration fees. The Portfolio and
the Fund will also each bear expenses incurred in connection with any
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers and Trustees
with respect thereto, to the extent not covered by insurance.
The Portfolio's Advisory Agreement continues in effect from year to year
so long as such continuance is approved at least annually (i) by the vote of a
majority of the noninterested Trustees of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and
(ii) by the Trustees of the Portfolio or by vote of a majority of the
outstanding interests of the Portfolio. The Fund's Administration Agreement
continues in effect from year to year so long as such continuance is approved
at least annually by the vote of a majority of the Fund's Trustees. Each
agreement may be terminated at any time without penalty on sixty (60) days'
written notice by the Trustees of the Fund or the Portfolio, as the case may
be, BMR or Eaton Vance, as applicable, or by vote of the majority of the
outstanding shares of the Fund or interests of the Portfolio, as the case may
be. Each agreement will terminate automatically in the event of its
assignment. Each agreement provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Fund or the Portfolio under such agreements on
the part of Eaton Vance or BMR, as applicable, Eaton Vance or BMR will not be
liable to the Fund or the Portfolio, as applicable, for any loss incurred, to
the extent not covered by insurance.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business trusts
organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as trustee
of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned subsidiaries
of Eaton Vance Corporation ("EVC"), a Maryland corporation and publicly-held
holding company. EVC through its subsidiaries and affiliates engages primarily
in investment management, administration and marketing activities. The
Directors of EVC are James B. Hawkes, John G.L. Cabot, Leo I. Higdon, Jr.,
John M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. All of the issued
and outstanding shares of Eaton Vance are owned by EVC. All of the issued and
outstanding shares of BMR are owned by Eaton Vance. All shares of the
outstanding Voting Common Stock of EVC are deposited in a Voting Trust, the
Voting Trustees of which are Messrs. Hawkes, Jeffrey P. Beale, Alan R. Dynner,
Thomas E. Faust, Jr., Thomas J. Fetter, Scott H. Page, Duncan W. Richardson,
William M. Steul, Payson F. Swaffield, Michael W. Weilheimer, and Wharton P.
Whitaker (all of whom are officers of Eaton Vance). The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Management and
Organization", all of the officers of the Fund (as well as Mr. Hawkes who is
also a Trustee) hold positions in the Eaton Vance organization.
DISTRIBUTION PLAN. The Fund has adopted a compensation-type Distribution Plan
("Distribution Plan") as if Rule 12b-1 under the 1940 Act were applicable
pursuant to an exemptive order obtained from the Securities and Exchange
Commission. The Distribution Plan provides for payment of a monthly
distribution fee to the principal underwriter in an amount equal to 0.70% of
average daily net assets. The Distribution Plan is designed to permit an
investor to purchase shares through an investment dealer without receiving an
initial sales charge and at the same time permit the principal underwriter to
compensate investment dealers in connection therewith. Early withdrawal
charges are paid to the principal underwriter. Aggregate payments to the
principal underwriter under the Distribution Plan are limited by a rule of the
National Association of Securities Dealers, Inc. as if such rule were
applicable. During the period beginning May 1, 1999, through the fiscal year
ended December 31, 1999, the Fund made distribution payments to the principal
underwriter under the Distribution Plan aggregating $20,932,079.
The Eaton Vance organization may profit by reason of operation of the
Distribution Plan. The Distribution Plan continues in effect from year to year
so long as such continuance is approved at least annually by the vote of a
majority of (i) the noninterested Trustees of the Fund who have no direct or
indirect financial interest in the operation of the Distribution Plan or any
agreements related to the Distribution Plan (the "Plan Trustees") and (ii) all
of the Trustees then in office. The Distribution Plan may be terminated at 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. The Distribution Plan requires
quarterly Trustee review of a written report of the amount expended under the
Distribution Plan and the purposes for which such expenditures were made. The
Distribution Plan may not be amended to increase materially the payments
described therein without approval of the shareholders of the Fund and
Trustees. So long as the Distribution Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion
of such Trustees. The Trustees of the Fund who are "interested" persons of the
Fund have an indirect financial interest in the Plan because their employers
(or affiliates thereof) receive distribution fees and/or service fees
(described below) under the Plan or agreements related thereto.
The Trustees of the Trust believe that the Distribution Plan will be a
significant factor in the expected growth of the Fund's assets, and will
result in increased investment flexibility and advantages which will benefit
the Fund and its shareholders. Payments made to the principal underwriter and
investment dealers provide incentives to provide continuing personal services
to investors and the maintenance of shareholder accounts. By providing
incentives to the principal underwriter and investment dealers, the
Distribution Plan is expected to result in the maintenance of, and possible
future growth in, the assets of the Fund. Based on the foregoing and other
relevant factors, the Trustees of the Fund have determined that in their
judgment there is a reasonable likelihood that the Distribution Plan will
benefit the Fund and its shareholders.
DEALER COMPENSATION. For the fiscal year ended December 31, 1999, the
principal underwriter made compensation payments to investment dealers in the
aggregate amount of approximately $14,451,683.
SERVICE PLAN. The Fund's Service Plan was approved by the Independent Trustees
of the Fund, who have no direct or indirect financial interest in the Service
Plan, and by all of the Trustees of the Fund on February 21, 1995.
The principal underwriter will retain the service fee in the first year
(as reimbursement for an initial service fee payment of 0.15% to investment
dealers at the time of sale) and each quarter thereafter only with respect to
shares that are repurchased. However, the Service 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 Service Plan in any fiscal year of the Fund does not exceed 0.25% of
the Fund's average daily net assets. During the fiscal year ended December 31,
1999, the Fund made service fee payments under the Service Plan aggregating
$6,281,970 of which $2,887,252 was paid to investment dealers and the balance
of $3,394,718 was retained by the principal underwriter.
The Service Plan remains in effect through and including April 28, 2000,
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
Service Plan or any agreements related to the Service 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 Service Plan.
The Service 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 Service Plan must also be approved by the Trustees
of the Fund in the manner described above. The Service 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 Service 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 Service Plan and the purposes for
which such expenditures were made.
So long as the Service 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 Service Plan will benefit the Fund and its shareholders.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to 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, maintains the general
ledger of the Fund and the Portfolio, and computes the daily net asset value
of interests in the Portfolio and the net asset value of shares of the Fund.
In such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT also
provides services in connection with the preparation of shareholder reports
and the electronic filing of such reports with the SEC. EVC and its affiliates
and their officers and employees from time to time have transactions with
various banks, including IBT. It is Eaton Vance's opinion that the terms and
conditions of such transactions were not and will not be influenced by
existing or potential custodial or other relationships between the Fund or the
Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston,
MA 02116, are the independent accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR. PFPC Global Fund Services,
P.O. Box 9653, Providence, RI 02904-9653, serves with respect to the shares as
transfer and dividend paying agent and as registrar.
SHAREHOLDER ACCOUNT INFORMATION
CALCULATION OF NET ASSET VALUE. Each investor in the Portfolio, including the
Fund, may add to or reduce its investment in the Portfolio on each day the
Exchange is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals (which would be made pursuant to Portfolio repurchase offers) for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed
as a percentage equal to the fraction (i) the numerator of which is the value
of such investor's investment in the Portfolio as of the Portfolio Valuation
Time on the prior Portfolio Business Day plus or minus, as the case may be,
the amount of any additions to or withdrawals from the investor's investment
in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
The Trustees have approved and monitor the procedures under which Senior
Loans are valued. Under these procedures, BMR and the Valuation Committee may
approve the use of a pricing service and expand mark-to-market valu-
ation of Senior Loans in the future, which may result in a change in the
Fund's net asset value per share. The Fund's net asset value per share will
also be affected by fair value pricing decisions and by changes in the market
for Senior Loans.
Non-Loan Portfolio holdings (other than short term obligations, but
including listed issues) may be valued on the basis of prices furnished by one
or more pricing services which determine prices for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. In certain circumstances,
portfolio securities will be valued at the last sale price on the exchange
that is the primary market for such securities, or the average of the last
quoted bid price and asked price for those securities for which the over-the-
counter market is the primary market or for listed securities in which there
were no sales during the day. The value of interest rate swaps will be
determined in accordance with a discounted present value formula and then
confirmed by obtaining a bank quotation.
Short-term obligations which mature in 60 days or less are valued at
amortized cost, if their original term to maturity when acquired by the
Portfolio was 60 days or less, or are valued at amortized cost using their
value on the 61st day prior to maturity, if their original term to maturity
when acquired by the Portfolio was more than 60 days, unless in each case this
is determined not to represent fair value. Repurchase agreements will be
valued by the Portfolio at cost plus accrued interest. Securities for which
there exist no price quotations or valuations and all other assets are valued
at fair value as determined in good faith by or on behalf of the Trustees of
the Portfolio.
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. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable net asset value per Fund
share on the day such proceeds are received. Eaton Vance will use reasonable
efforts to obtain the then current market price for such securities but does
not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an investment
dealer, together with a completed and signed Letter of Transmittal in approved
form (available from investment dealers). Investors who are contemplating an
exchange of securities for shares, or their representatives, must contact
Eaton Vance to determine whether the securities are acceptable before
forwarding such securities. Eaton Vance reserves the right to reject any
securities. Exchanging securities for shares may create a taxable gain or
loss. Each investor should consult his or her tax adviser with respect to the
particular federal, state and local tax consequences of exchanging securities.
REINVESTMENT PRIVILEGE: A shareholder whose shares have been repurchased
pursuant to a repurchase offer may reinvest, with credit for any early
withdrawal charge paid on the value of the repurchased shares, any portion or
all of the repurchase proceeds (plus that amount necessary to acquire a
fractional share to round off the purchase to the nearest full share) in
shares of the Fund, provided that the reinvestment is effected within 60 days
after such repurchase. For purposes of determining any early withdrawal charge
upon acceptance of a subsequent repurchase offer, the shareholder's prior
period of ownership will be included in this calculation. Shares are sold to a
reinvesting shareholder at the next determined net asset value following
timely receipt of a written purchase order by the principal underwriter or by
the Fund (or by the Fund's transfer agent). The amount of any early withdrawal
charge related to the prior purchase will be credited to the shareholder's
account and also reinvested at the then current net asset value. A reinvesting
shareholder may realize a gain or loss for federal tax purposes as a result of
such prior sale in the repurchase offer, but to the extent that the
shareholder realizes a loss upon a repurchase of shares by the Fund and the
proceeds are reinvested in shares of the Fund (or other shares of the Fund are
purchased through reinvestment of dividends or otherwise) within the period
beginning 30 days before and ending 30 days after the date of the repurchase
by the Fund, some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase
in connection with certain tax-sheltered retirement plans. Detailed
information concerning these plans, including certain exceptions to minimum
investment requirements, and copies of the plans are available from the
principal underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Participant accounting
services (including trust fund reconciliation services) will be offered only
through third party recordkeepers and not by the principal underwriter. Under
all plans, dividends and distributions will be automatically reinvested in
additional shares.
REPURCHASE OFFER HISTORY. The Fund has accepted all shares tendered by
shareholders in repurchase offers to date. The following table reflects the
repurchase offer history of the Fund since it adopted Rule 23c-3 under the
1940 Act.
PERCENTAGE OF
REPURCHASE OFFER TOTAL FUND
PERIOD AMOUNT AUTHORIZED SHARES REPURCHASED
-----------------------------------------------------------------
September, 1997 25% 3.4%
December, 1997 25% 6.6%
March, 1998 25% 6.8%
June, 1998 25% 6.0%
September, 1998 25% 3.9%
December, 1998 25% 4.6%
March, 1999 25% 5.4%
June, 1999 25% 4.0%
September, 1999 25% 5.0%
December, 1999 25% 8.5%
During the fiscal year ended December 31, 1999, the principal underwriter
received approximately $1,841,000 in EWCs.
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 Senior Loans from major international banks,
selected domestic regional banks, insurance companies, finance companies and
other financial institutions. In selecting financial institutions from which
Senior Loans 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 Senior Loans which they have sold, they
may act as principal or on an agency basis in connection with their sale by
the Portfolio.
Other fixed-income obligations which may be purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net basis
(i.e., without commission) through broker-dealers or banks acting for their
own account rather than as brokers, or otherwise involve transactions directly
with the issuers of such obligations. The Portfolio may also purchase fixed-
income and other securities from underwriters, the cost of which may include
undisclosed fees and concessions to the underwriters. While it is anticipated
that the Portfolio will not pay significant brokerage commissions, on occasion
it may be necessary or desirable to purchase or sell a security through a
broker on an agency basis, in which case the Portfolio will incur a brokerage
commission. Although spreads or commissions on portfolio transactions will, in
the judgment of BMR, be reasonable in relation to the value of the services
provided, spreads or commissions exceeding those which another firm might
charge may be paid to firms who were selected to execute transactions on
behalf of the Portfolio and BMR's other clients for providing brokerage and
research services to BMR.
For the fiscal year ended December 31, 1999, the Portfolio paid brokerage
commissions of $152,652 with respect to portfolio transactions. Of this
amount, approximately $126,379 was paid in respect of portfolio security
transactions aggregating approximately $174,375,402 to firms which provided
some Research Services to Eaton Vance (although many of such firms may have
been selected in any particular transaction primarily because of their
execution capabilities. The Portfolio paid no brokerage commissions during the
fiscal years ended December 31, 1998 and 1997.
The frequency of portfolio purchases and sales, known as the "turnover
rate," will vary from year to year. The Portfolio's turnover rate for the
fiscal years ended December 31, 1999 and 1998 were 64% and 56%, respectively.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust
and the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
TAXES
The Fund is treated as a separate corporation, and intends to qualify each
year as a regulated investment company ("RIC"), under the Internal Revenue
Code of 1986, as amended (the "Code") to avoid federal income tax.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute a
sufficient amount of its investment company taxable income so as to effect
such qualification. The Fund may also distribute part or all of its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to reduce or avoid any federal income
or excise tax to the Fund.
Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them, and the Portfolio intends
to do so. For federal income tax purposes, the Portfolio intends to be treated
as a partnership that is not a "publicly traded partnership" and, as a result,
will not be subject to federal income tax. The Fund, as an investor in the
Portfolio, will be required to take into account in determining its federal
income tax liability its share of the Portfolio's income, gains, losses,
deductions, and credits, without regard to whether it has received any cash
distributions from the Portfolio.
The Portfolio will allocate at least annually among its investors,
including the Fund, each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. For purposes of applying the requirements of
the Code regarding qualification as a RIC, the Fund (i) will be deemed to own
its proportionate share of each of the assets of the Portfolio and (ii) will
be entitled to the gross income of the Portfolio attributable to such share.
In order to avoid federal excise tax, the Code requires the Fund to
distribute by the end of each calendar year substantially all of its ordinary
income for such year and capital gain net income (for the one-year period
ended on October 31 unless an election is made to use the calendar year) for
such year, plus certain other amounts. Under current law, provided that the
Fund qualifies as a RIC and the Portfolio is treated as a partnership for
Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
should be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
If the Fund does not qualify for taxation as a RIC for any taxable year,
the Fund's income will be subject to corporate income taxes, and all
distributions from earnings and profits, including distributions of net
capital gain (if any), will be taxable to shareholders as ordinary income. In
addition, in order to requalify for taxation as a RIC, the Fund may be
required to recognize unrealized gains, pay substantial taxes and interest,
and make certain distributions.
The federal income tax rules governing the taxation of interest rate swaps
may require the Fund to treat certain 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 (if
necessary) in order to enable the Fund to maintain its qualification as a RIC.
Certain investments of the Portfolio may bear original issue discount or
market discount for tax purposes. The Fund will be required to include in
income each year a portion of such original issue discount and may elect to
include in income each year a portion of such market discount. The Portfolio
may have to dispose of investments that it would otherwise have continued to
hold to provide cash to enable the Fund to satisfy its distribution
requirements with respect to such income.
Distributions of net investment income and short-term capital gains are
taxable as ordinary income, whether paid in cash or additional shares of the
Fund. Distributions of net capital gain are taxable to shareholders as long-
term capital gain, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the
shareholder. A loss on the repurchase of shares held for six months or less
may be treated as a long-term capital loss to the extent of any distribution
of net capital gain with respect to such shares.
Shareholders should consult their tax advisers regarding the specific tax
consequences, including state and local tax consequences, of participating in
the repurchase. A tender of shares pursuant to the repurchase offer (including
an exchange for shares of another Eaton Vance fund) will be treated as a
taxable sale or exchange of the shares if the tender (i) completely terminates
the shareholder's interest in the Fund, (ii) is treated as a distribution that
is "substantially disproportionate" or (iii) is treated as a distribution that
is "not essentially equivalent to a dividend". A "substantially
disproportionate" distribution generally requires a reduction of at least 20%
in the shareholder's proportionate interest in the Fund after all shares are
tendered. A distribution "not essentially equivalent to a dividend" requires
that there be a "meaningful reduction" in the shareholder's interest, which
should be the case if the shareholder has a minimal interest in the Fund,
exercises no control over Fund affairs and suffers a reduction in his or her
proportionate interest.
The Fund intends to take the position that tendering shareholders will
qualify for sale or exchange treatment. If the transaction is treated as a
sale or exchange for tax purposes, any gain or loss recognized will be treated
as a capital gain or loss by shareholders who hold their shares as a capital
asset and as a long-term capital gain or loss if such shares have been held
for more than twelve months. If the transaction is not treated as a sale or
exchange, the amount received upon a sale of shares may consist in whole or in
part of ordinary dividend income, a return of capital or capital gain,
depending on the Fund's earnings and profits for its taxable year and the
shareholder's tax basis in the shares. In addition, if any amounts received
are treated as a dividend to tendering shareholders, a constructive dividend
may be received by non-tendering shareholders whose proportionate interest in
the Fund has been increased as a result of the tender.
PERFORMANCE
From time to time, the Fund may quote yield based on a specific one-month
period. Yield is calculated by dividing the net investment income per share
earned during a recent 30-day period by the maximum offering price per share
of the Fund on the last day of the period and annualizing the resulting
figure. Yield will fluctuate from time to time and is not necessarily
representative of future results. Advertisements and communications to present
or prospective shareholders may also cite a total return for any period. Total
return will be calculated by subtracting the net asset value of a single
purchase of shares at a given date from the net asset value of those shares
(assuming reinvestment of distributions) on a subsequent date. The difference
divided by the original net asset value is the total return. The calculation
of the Fund's total return reflects the effect of compounding inasmuch as all
dividends and distributions are assumed to be reinvested in additional shares
of the Fund at net asset value. In addition, the calculation of total return
and yield may not reflect the imposition of any early withdrawal charges. The
Fund may quote total return for the period prior to commencement of operations
which would reflect the total return of another investment company that
invests in the Portfolio. If the fees or expenses of the Fund or the Portfolio
are waived or reimbursed, the Fund's performance will be higher. Information
about the performance of the Fund or other investments should not be
considered a representation of future Fund performance.
The Fund's SEC yield for the 30-day period ended December 31, 1999 was
7.18%. Yields will fluctuate from time to time and are not necessarily
representative of future results.
The calculation of total return and yield do not reflect the amount of any
shareholder income tax liability.
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in shares for the periods shown in the
table. The total return for the period prior to the Fund's commencement of
operations, February 24, 1995, reflects the total return of another investment
company that invests in the Portfolio. This total return has not been adjusted
to reflect differences in operating expenses between the Fund and such other
investment company. If such adjustments were made, the performance would have
been lower. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate and shares, when redeemed, may be
worth more or less than their original cost.
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT TOTAL RETURN
PERIOD DATE INVESTMENT ON 12/31/99 CUMULATIVE ANNUALIZED
- --------------------------------------------------------------------------------
10 Years Ended
12/31/99 12/31/89 $1,000 $1,935.50 93.55% 6.83%
5 Years Ended
12/31/99 12/31/94 $1,000 $1,381.26 38.13% 6.67%
1 Year Ended
12/31/99 12/31/98 $1,000 $1,057.54 5.75% 5.75%
Comparative information about the Fund's yield, net asset value and total
return, about the Prime Rate, LIBOR and other base lending rates, may also be
included in advertisements and communications of the Fund. Comparisons may be
made to CD rates; money market mutual funds and deposit accounts; and Treasury
bills.
From time to time, advertisements and other material furnished to current
and prospective shareholders may include information on the history of the
Fund's net asset value per share for the life of the Fund since its inception.
Advertisements and communications about the Fund may include a comparison
of loan interests and other corporate debt instruments. These may describe the
credit agreements used in connection with loan interests. Moreover, the
markets for loan interests may be described. The comparison may also be made
to relevant indices and other asset classes.
The Fund's performance may be compared in publications to the performance
of various indices and investments for which reliable data is available, and
to averages, performance rankings or ratings, or other information prepared by
recognized mutual fund statistical services.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings or rankings assigned by independent ratings
services such as Moody's, S&P and Fitch) may be included in advertisements and
other material furnished to present and prospective shareholders. Such
information may be stated as a percentage of the Portfolio's holdings on such
date.
Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific financial goals. Information in advertisements
and materials furnished to present and prospective investors may also include
quotations (including editorial comments) and statistics concerning investing
in securities, as well as investing in particular types of securities and the
performance of such securities.
Evaluations of the Fund's performance including ratings and rankings made
by indepencent sources, e.g. Lipper Inc., Wiesenberger and Morningstar, Inc.,
may be used in advertisements and in information furnished to present or
prospective shareholders. Information, charts and illustrations relating to
inflation and the effect of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders.
Information used in advertisements and in materials provided to present
and prospective shareholders may include descriptions of Eaton Vance and other
Fund and Portfolio service providers, their investment styles, other
investment products, personnel and Fund distribution channels.
BMR was one of the first investment management firms to manage a portfolio
of Senior Loans. BMR has former commercial bank lending officers and
investment bank corporate finance officers dedicated to this investment
discipline. The services of leading law and accounting firms are used as well.
The Fund or the principal underwriter may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for, the Fund and the Portfolio appear in the Fund's most recent annual report
to shareholders, which is incorporated by reference into this SAI. A copy of
the Fund's annual report accompanies this SAI. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information
to shareholders residing at the same address may be eliminated.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended December 31, 1999, as
previously filed electronically with the Commission (Accession No.
0000950156-00-000126).
<PAGE>
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF S&P:
AAA -- Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B -- Bonds rated B have a greater vulnerability to default but presently
have the capacity to meeting interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC -- Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC -- The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
DESCRIPTION OF BOND RATINGS OF MOODY'S:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, therefore, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
<PAGE>
[logo] Investing
for the
EATON VANCE 21st
===========
Century(R)
- --------------------------------------------------------------------------------
EV Classic Senior
Floating-Rate Fund
STATEMENT OF ADDITIONAL INFORMATION
MARCH 15, 2000
- --------------------------------------------------------------------------------
Investment Adviser of Senior Debt Portfolio
Boston Management and Research, The Eaton Vance Building, 255 State Street,
Boston, MA 02109
Administrator of EV Classic Senior Floating-Rate Fund
Eaton Vance Management, The Eaton Vance Building, 255 State Street,
Boston, MA 02109
Principal Underwriter
Eaton Vance Distributors, Inc., The Eaton Vance Building, 255 State Street,
Boston, MA 02109 (800) 225-6265
Custodian
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
Transfer Agent
PFPC Global Fund Services, P.O. Box 9653, Providence, RI 02904-9653
(800) 262-1122
Independent Accountants
Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA 02116
CSFRSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
INCLUDED IN PART A:
Financial highlights for each of the four years ended December 31, 1999,
and for the period from the start of business, February 24, 1995, to
December 31, 1995
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORT DATED DECEMBER 31, 1999
(ACCESSION NO. 0000950156-00-000126), FILED ELECTRONICALLY PURSUANT TO
SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT OF 1940.
Financial Statements for EV CLASSIC SENIOR FLOATING-RATE FUND:
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the year ended December 31, 1999
Statements of Changes in Net Assets for each of the two years
ended December 31, 1999
Statement of Cash Flows for the year ended December 31, 1999
Financial Highlights for each of the four years ended December
31, 1999 and for the period from the start of business,
February 24, 1995, to December 31, 1995
Notes to Financial Statements
Independent Auditors' Report
Financial Statements for SENIOR DEBT PORTFOLIO:
Portfolio of Investments as of December 31, 1999
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the year ended December 31, 1999
Statements of Changes in Net Assets for each of the two years
ended December 31, 1999
Statement of Cash Flows for the year ended December 31, 1999
Supplementary Data for the four years ended December 31, 1999 and
for the period from the start of business, February 22, 1995,
to December 31, 1995
Notes to Financial Statements
Independent Auditors' Report
(2) EXHIBITS:
(a) Amended and Restated Agreement and Declaration of Trust dated December
7, 1994 filed as Exhibit (a) to the Registration Statement under the
Securities Act of 1933 (1933 Act File No. 33-64321) and Amendment No.
5 to the Registration Statement under the Investment Company Act of
1940 (1940 Act File No. 811-07946) filed with the Commission on
November 16, 1995 (Amendment No. 5) and incorporated herein by
reference.
(b) Amended and Restated By-Laws filed as Exhibit (b) to Amendment No. 5
and incorporated herein by reference.
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
C-1
<PAGE>
(g) Not applicable
(h) (a) Distribution Agreement dated November 1, 1996 filed as Exhibit
(h)(a) to Post-Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (1933 Act File No. 333-22163) and
Amendment No. 9 to the Registration Statement under the Investment
Company Act of 1940 (1940 Act File No. 811-07946) filed with the
Commission on July 2, 1997 (Amendment No. 9) and incorporated herein
by reference.
(b) Selling Group Agreement between Eaton Vance Distributors, Inc. and
Authorized Dealers filed as Exhibit (6)(b) to the Post-Effective
Amendment No. 61 to the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019 and 811-1241) and incorporated herein by
reference.
(i) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
Matter of Capital Exchange Fund, Inc., Release No. IC-20671 (November
1, 1994).
(j) (a) Custodian Agreement dated February 22, 1995 filed as Exhibit (j)
to Amendment No. 5 and incorporated herein by reference.
(b)Amendment to Custodian Agreement dated October 23, 1995 filed as
Exhibit (j)(b) to the Post-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 (1933 Act File
No. 33-64321) and Amendment No. 6 to the Registration Statement under
the Investment Company Act of 1940 (1940 Act File No. 811-07946) filed
with the Commission on April 1, 1996 (Amendment No. 6) and
incorporated herein by reference.
(c) Amendment to Master Custodian Agreement with Investors Bank &
Trust Company dated December 21, 1998 as Exhibit (g)(3) to the
Registration Statement of Eaton Vance Municipals Trust (File Nos.
33-572 and 811-4409) (Accession No. 0000950156-99-000050) and
incorporated herein by reference.
(k) (a) Administration Agreement dated February 22, 1995 filed as Exhibit
(k)(a) to Amendment No. 3 and incorporated herein by reference.
(b) Distribution Plan adopted December 21, 1998 filed as Exhibit
(k)(b) to the Registration Statement under the Securities Act of 1933
(1933 Act File No. 333-72709) and Amendment No. 12 to the Registration
Statement under the Investment Company Act of 1940 (1940 Act File No.
811-07946) filed with the Commission on February 22, 1999 (Amendment
No. 12) and incorporated herein by reference.
(d)Transfer Agency Agreement as of January 1, 1998 filed as Exhibit
(k)(b) to the Registration Statement on Form N-2 of Eaton Vance
Advisers Senior Floating-Rate Fund (File Nos. 333-46853, 811-08671)
(Accession No. 0000950156-98-000172) and incorporated herein by
reference.
(e)Amendment to the Transfer Agency Agreement dated October 18, 1999
filed as Exhibit (h)(2)(b) to the Registration Statement of Eaton
Vance Municipals Trust (File Nos. 33-572 and 811-4409) (Accession No.
000950156-99-000723) and incorporated herein by reference.
(l) Opinion and Consent of Counsel dated March 10, 2000 filed herewith.
(m) Not applicable
(n) Consent of Independent Auditors filed herewith.
(o) Not applicable
(p) Letter Agreement with Eaton Vance Management dated December 7, 1994
filed as Exhibit (p) to Amendment No. 5 and incorporated herein by
reference.
C-2
<PAGE>
(q) Not applicable
(r) Code of Ethics filed herewith.
(s) (a) Power of Attorney for EV Classic Senior Floating-Rate Fund dated
February 14, 1997 filed as Exhibit (r) to Amendment No. 9 and
incorporated herein by reference.
(b) Power of Attorney for EV Classic Senior Floating-Rate Fund dated
November 16, 1998 filed as Exhibit (s)(b) to Amendment No. 12 and
incorporated herein by reference.
(t) (a) Power of Attorney for Senior Debt Portfolio dated February 14,
1997 filed as Exhibit (s) to Amendment No. 9 and incorporated herein
by reference.
(b) Power of Attorney for Senior Debt Portfolio dated December 21,
1998 filed as Exhibit (t)(b) to Amendment No. 12 and incorporated
herein by reference.
ITEM 25. MARKETING ARRANGEMENTS
Not applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the approximate expenses incurred in
connection with the offerings of Registrant:
Registration fees $2,661,293(1)
National Association of Securities Dealers, Inc. Fees $ 213,500(1)
Printing (other than stock certificates) $ 105,000
Engraving and printing stock certificates $ 0
Fees and expenses of qualification under state
securities laws (excluding fees of counsel) $ 78,200
Accounting fees and expenses $ 5,000
Legal fees and expenses $ 50,000
----------
Total $3,112,993(1)
==========
-------------------------------
(1) These amounts include expenses for the shares being registered hereby
and those registered pursuant to the Registration Statements declared
effective on February 21, 1995 (File No. 33-67118); May 5, 1995 (File
No. 33-59143); December 15, 1995 (File No. 33-64321); February 21,
1997 (File No. 333-22163); March 10, 1997 (File No. 333-23031); April
1, 1998 (File No. 333-48873); November 2, 1998 (File No. 333-65863);
and March 17, 1999 (File No. 333-72709).
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of benefical interest 109,331
as of
MARCH 1, 2000
ITEM 29. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Agreement and
Declaration of Trust dated December 7, 1994 permits Trustee and officer
indemnification by By-Law, contract and vote. Article XI of the By-Laws contains
indemnification provisions. Registrant's Trustees and officers are insured under
a standard investment company errors and omissions insurance policy covering
loss incurred by reason of negligent errors and omissions committed in their
capacities as such.
C-3
<PAGE>
The distribution agreement of the Registrant also provides for reciprocal
indemnity of the principal underwriter on the one hand, and the Trustees and
officers, on the other.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the captions
"Management of the Fund" in the Prospectus and "Investment Advisory and
Administrative Services" in the Statement of Additional Information; (ii) the
Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File No.
1-8100); and (iii) the Forms ADV of Eaton Vance Management (File No. 801-15930)
and Boston Management and Research (File No. 801-43127) filed with the
Commission, all of which are incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Boston, MA 02116, and its transfer agent, PFPC Global Fund Services,
4400 Computer Drive, Westborough, MA 01581-5120, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody of Eaton Vance Management, The Eaton Vance Building, 255 State
Street, Boston, MA 02109. Registrant is informed that all applicable accounts,
books and documents required to be maintained by registered investment advisers
are in the custody and possession of Eaton Vance Management and Boston
Management and Research.
ITEM 32. MANAGEMENT SERVICES
None.
ITEM 33. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
continuos offering of the shares; and
(4) To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 486(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Boston, and the Commonwealth of Massachusetts, on
March 10, 2000.
EV CLASSIC SENIOR FLOATING-RATE FUND
By: /s/ James B. Hawkes
-------------------------------------
James B. Hawkes, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 10, 2000.
SIGNATURE TITLE
--------- -----
/s/ James B. Hawkes
- ------------------------ Trustee, President and Principal Executive Officer
James B. Hawkes
/s/ James L. O'Connor
- ------------------------ Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ------------------------ Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------ Trustee
Donald R. Dwight
Samuel L. Hayes, III*
- ------------------------ Trustee
Samuel L. Hayes, III
Norton H. Reamer*
- ------------------------ Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------ Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------ Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-5
<PAGE>
SIGNATURES
Senior Debt Portfolio has duly caused this Registration Statement on Form
N-2 of EV Classic Senior Floating-Rate Fund (File No. 333- ) to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Boston and
the Commonwealth of Massachusetts, on March 10, 2000.
SENIOR DEBT PORTFOLIO
By: /s/ JAMES B. HAWKES
----------------------------------
James B. Hawkes, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
capacities and on March 10, 2000.
SIGNATURE TITLE
--------- -----
/s/ James B. Hawkes
- ------------------------ Trustee, President and Principal Executive Officer
James B. Hawkes
/s/ James L. O'Connor
- ------------------------ Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ------------------------ Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------ Trustee
Donald R. Dwight
Samuel L. Hayes, III*
- ------------------------ Trustee
Samuel L. Hayes, III
Norton H. Reamer*
- ------------------------ Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------ Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------ Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(l) Opinion and Consent of Counsel dated March 10, 2000
(n) Consent of Independent Auditors
(r) Code of Ethics
<PAGE>
EXHIBIT (l)
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Telephone: (617) 482-8260
Telecopy: (617) 338-8054
March 10, 2000
EV Classic Senior Floating-Rate Fund
255 State Street
Boston, MA 02109
Gentlemen:
EV Classic Senior Floating-Rate Fund (the "Trust") is a voluntary
association (commonly referred to as a "business trust") established under
Massachusetts law with the powers and authority set forth under its Declaration
of Trust dated August 5, 1993 as Amended and Restated December 7, 1994 (the
"Declaration of Trust").
I am of the opinion that all legal requirements have been complied with in
the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration of
Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the Trustees may authorize one or more
classes of shares and the number of shares of each class authorized is
unlimited. Furthermore, the Trustees may from time to time issue and sell or
cause to be issued and sold shares of the Trust for cash or for property. All
such shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust authorized the issuance of
an additional 200,000,000 common shares of beneficial interest, without par
value, of the Trust. The Trust is now registering on Form N-2 with the
Securities and Exchange Commission such 200,000,000 common shares of beneficial
interest under the Securities Act of 1933, as amended.
I have examined originals, or copies, certified or otherwise identified to
my satisfaction, of such certificates, records and other documents as we have
deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and with respect to Massachusetts law (other than
the Massachusetts Uniform Securities Act), only to the extent that Massachusetts
law may be applicable and without reference to the laws of the other several
states or of the United States of America, I am of the opinion that under
existing law:
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of the Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of the Commonwealth
of Massachusetts.
<PAGE>
EV Classic Senior Floating-Rate Fund
March 10, 2000
Page 2
2. Common shares of beneficial interest of the Trust registered by Form N-2
may be legally and validly issued in accordance with the Declaration of Trust
upon receipt by the Trust of payment in compliance with the Declaration of Trust
and, when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts bar and have acted as internal legal
counsel of the Trust in connection with the registration of shares.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Trust's Registration Statement on Form
N-2 pursuant to the Securities Act of 1933, as amended.
Very truly yours,
/s/ Eric G. Woodbury
Eric G. Woodbury, Esq.
Vice President
<PAGE>
EXHIBIT (n)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of EV Classic Senior
Floating-Rate Fund of our report dated February 11, 2000, relating to EV Classic
Senior Floating-Rate Fund and of our report dated February 11, 2000, relating to
Senior Debt Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended December 31, 1999, which is incorporated by
reference in the Statement of Additional Information, which is part of such
Registration Statement.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Other Service Providers" in
the Statement of Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 10, 2000
<PAGE>
EXHIBIT (r)
CODE OF ETHICS
ADOPTED BY THE
EATON VANCE
GROUP OF FUNDS
EFFECTIVE MAY 1, 1981
UPDATED DECEMBER 1, 1984
As amended February 21, 1995
<PAGE>
Each investment company (the "Fund") which is a member of the EV Group of
Funds has adopted this Code of Ethics, pursuant to Rule 17j-1 under the
Investment Company Act of 1940, with respect to certain types of personal
securities transactions by officers and by Directors, Trustees or individual
General Partners (hereinafter collectively called "Directors") of the Fund which
might be deemed to create possible conflicts of interest and to establish
reporting requirements and enforcement procedures with respect to such
transactions.
I. CODE PROVISIONS APPLICABLE ONLY TO AFFILIATED OFFICERS AND DIRECTORS OF THE
FUND.
A. INCORPORATION OF EVM'S CODE OF ETHICS. The provisions of EVM's Statement
of Policy with respect to personal security transactions ("EVM's Code of
Ethics"), which is attached as Appendix A hereto, are hereby incorporated herein
as the Fund's Code of Ethics applicable to officers and Directors of the Fund
who are employees of EVM. A violation of EVM's Code of Ethics by any such
officer or Director shall constitute a violation of the Fund's Code of Ethics.
B. REPORTS. Officers and Directors of the Fund who are employees of EVM
shall file the reports required by EVM's Code of Ethics. Such filings shall be
deemed to be a filing with the Fund under this Code of Ethics, and shall at all
times be available to the Fund.
C. REVIEW. The Director of Research of EVM shall compare the reported
personal securities transactions with completed and contemplated portfolio
transactions of the Fund to determine whether a violation of this Code may have
occurred. Before making any determination that a violation has been committed by
any person, the Director of Research shall give such person an opportunity to
supply additional explanatory material. If the Director of Research determines
that a material violation of this Code has or may have occurred, he shall submit
his written determination, together with the transaction report and any
additional explanatory material provided by the individual, to the President of
EVM, who shall make an independent determination of whether a material violation
has occurred.
D. SANCTIONS. If the President of EVM finds that a material violation has
occurred, he shall report the violation and any sanctions imposed by EVM to the
Directors of the Fund. If a securities transaction of the President of EVM is
under consideration, either the Chairman of EVM or another senior officer of EVM
designated by the Chairman shall act in all respects in the manner prescribed
herein for the President of EVM.
II. CODE PROVISIONS APPLICABLE ONLY TO INDEPENDENT DIRECTORS OF THE FUND.
A. DEFINITIONS.
(1) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder. Application of this
definition is explained in more detail in Appendix B hereto.
-2-
<PAGE>
(2) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act of 1940. Generally,
it means that the power to exercise a controlling influence over
the management or policies of a company, unless such power is
solely the result of an official position with such company.
(3) "Independent Director" means a Director, Trustee or individual
General Partner of the Fund who is not an employee of EVM.
(4) "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security.
(5) "Security" shall have the same meaning as that set forth in
Section 2(a)(36) of the Investment Company Act of 1940
(generally, all securities) except that it shall not include
securities issued by the Government of the Unites States or an
agency or instrumentality thereof (including all short-term debt
securities which are "government securities" within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940),
bankers' acceptances, bank certificates of deposit, commercial
paper and shares of registered open-end investment companies.
(6) A Security is "being considered for purchase or sale" by the Fund
when a recommendation that the Fund purchase or sell the Security
has been communicated by a member of EVM's Investment Department
to an officer of the Fund.
B. PROHIBITED PURCHASES AND SALES. No Independent Director of the Fund
shall purchase or sell, directly or indirectly, any Security in which he has, or
by reason of such transaction acquires, any direct or indirect beneficial
ownership and which to his actual knowledge at the time of such purchase or
sale:
(1) is being considered for purchase or sale by the Fund; or
(2) is being purchased or sold by the Fund.
C. EXEMPTED TRANSACTIONS. The prohibitions of Section IIB of this Code
shall not apply to:
(1) purchases or sales effected in any account over which the
Independent Director has no direct or indirect influence or
control;
(2) purchase or sales which are non-volitional on the part of the
Independent Director or the Fund;
(3) purchases which are part of an automatic dividend reinvestment
plan;
-3-
<PAGE>
(4) purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired;
(5) purchases or sales other than those exempted in (1) through (4)
above (a) which will not cause the Independent Director to gain
improperly a personal profit as a result of his relationship with
the Fund, or (b) which will only remotely affect the Fund because
the proposed transaction would be unlikely to affect a highly
institutional market, or (c) which, because of the circumstances
of the proposed transaction, are not related economically to the
Securities purchased or sold or to be purchased or sold by the
Fund, and in each case which are previously approved by the
Director of Research of EVM which approval shall be confirmed in
writing.
D. REPORTING. Whether or not one of the exemptions listed in Section IIC
hereof applies, each Independent Director of the Fund shall file with the
Director of Research of EVM a written report containing the information
described below in this Section IID with respect to each transaction in any
Security in which such Independent Director has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership, if such
Independent Director, at the time he entered into that transaction, actually
knew or, in the ordinary course of fulfilling his official duties as a Director
of the Fund should have known, that during the 15-day period immediately
preceding or after the date of that transaction:
(a) such Security was or is to be purchased or sold by the Fund, or
(b) such Security was or is being considered for purchase or sale by
the Fund;
PROVIDED, HOWEVER, that such Independent Director shall not be required to make
a report with respect to any transaction effected for any account over which he
does not have any direct or indirect influence or control. Each such report
shall be deemed to be filed with the Fund for purposes of this Code, and may
contain a statement that the report shall not be construed as an admission by
the Independent Director that he has any direct or indirect beneficial ownership
in the Security to which the report relates.
Such report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each Security involved:
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
-4-
<PAGE>
(iv) The name of the broker, dealer or bank with or through who the
transaction was effected.
Any report concerning a purchase or sale prohibited under Section IIB hereof
with respect to which the Independent Director relies upon one of the exemptions
provided in Section IIC shall contain a brief statement of the exemption relied
upon and the circumstances of the transaction.
E. REVIEW. The Director of Research of EVM shall compare the reported
personal securities transactions with completed and contemplated portfolio
transactions of the Fund to determine whether any transaction ("Reviewable
Transaction") of the type listed in Section IIB (without regard to exemptions
provided by Section IIC(1) through (5)) may have occurred. If the Director of
Research determines that a Reviewable Transaction may have occurred, he shall
submit the pertinent information regarding the transaction to counsel for the
Fund. Such counsel shall determine whether a material violation of this Code has
occurred, taking into account all the exemptions provided under Section IIC.
Before making any determination that a violation has occurred, such counsel
shall give the person involved an opportunity to supply additional information
regarding the transaction in question.
F. SANCTIONS. If such counsel determines that a material violation of this
Code has occurred, such counsel shall so advise the Chairman or the President of
the Fund and an ad hoc committee consisting of the Independent Directors of the
Fund, other than the person whose transaction is under consideration, and such
counsel shall provide the committee with a report of the matter, including any
additional information supplied by such person. The committee may impose such
sanctions as it deems appropriate.
III. MISCELLANEOUS CODE PROVISIONS.
A. AMENDMENT OR REVISION OF EVM'S CODE OF ETHICS. Any amendment or revision
of EVM's Code of Ethics shall be deemed to be an amendment or revision of
Section IA of this Code, and such amendment or revision shall be promptly
furnished to the Independent Directors of the Fund.
B. RECORDS. The Fund shall maintain records in the manner and to the extent
set forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f)(1) under the Investment Company Act of
1940 and shall be available for examination by representatives of the Securities
and Exchange Commission:
(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
-5-
<PAGE>
(3) A copy of each report made by an officer or Director pursuant to
this Code shall be preserved for a period of not less than five
years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place; and
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. CONFIDENTIALITY. All reports of securities transactions and any other
information filed with the Fund or furnished to any person pursuant to this Code
shall be treated as confidential, but are subject to review as provided herein
and by representatives of the Securities and Exchange Commission.
D. INTERPRETATION OF PROVISIONS. The Directors of the Fund may from time to
time adopt such interpretations of this Code as they deem appropriate.
E. EFFECT OF VIOLATION OF THIS CODE. In adopting Rule 17j-1 the Securities
and Exchange Commission specifically noted in Investment Company Act Release No.
IC-11421 that a violation of any provision of a particular code of ethics, such
as this Code, would not be considered a PER SE unlawful act prohibited by the
general anti-fraud provisions of the Rule. As stated in the Release:
"....the Commission believes that such a violation should
and would be considered, with all the surrounding facts and
circumstances, merely as one piece of evidence in
determining whether, in addition to a violation of the code
of ethics, a violation of the anti-fraud provisions of the
Rule also has occurred."
In adopting this Code of Ethics, it is not intended that a violation of this
Code is or should be considered to be a violation of Rule 17j-1.
-6-
<PAGE>
Appendix A
I.
STATEMENT OF POLICY
WITH RESPECT TO
PERSONAL SECURITIES TRANSACTIONS
DATED: April 1, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
A. Statement of General Principles.......................................................................1
B. Applicability of Restrictions and Procedures..........................................................1
C. Substantive Restrictions on Personal Investing Activities.............................................2
1. Initial Public Offerings and Secondary Public Distributions..................................2
2. Private Placements...........................................................................2
3. Blackout Periods.............................................................................3
4. Securities Recommended by a Member of the Investment Department..............................3
5. Securities of Broker-Dealers and Investment Bankers..........................................3
6. Short Sales and Options......................................................................3
7. Short-Term Trading Profits...................................................................3
8. Margin Accounts..............................................................................3
9. Transactions of Certain Affiliated Persons...................................................3
10. Gifts........................................................................................4
11. Service As a Director........................................................................4
D. Compliance Procedures.................................................................................4
1. Preclearance.................................................................................4
2. Records of Securities Transactions...........................................................4
3. Filing of Broker/Dealer Reports..............................................................5
4. Disclosure of Personal Holdings..............................................................5
5. Post-Trade Monitoring........................................................................5
6. Certification of Compliance with Statement of Policy.........................................5
7. Review by the Board of Directors.............................................................5
8. Confidentiality..............................................................................5
E. Additional Disclosure.................................................................................5
F. Sanctions.............................................................................................6
Attachment A - Accounts in Which You Have a Direct or Indirect Beneficial Ownership Interest
</TABLE>
<PAGE>
STATEMENT OF POLICY WITH RESPECT TO PERSONAL SECURITIES TRANSACTIONS
A. STATEMENT OF GENERAL PRINCIPLES
The investment managers of the Eaton Vance Funds and counsel accounts are
encouraged to invest personally, as we believe this can make them better
managers. However, they have the duty at all times to place the interests of
Fund shareholders and any other client first, and they may not in any respect
take advantage of client transactions. It is essential that we avoid not only
actual but also any appearance of conflicts of interest and any abuse of an
individual's position of trust and responsibility. No Statement of Policy can
cover every possible circumstance, and an individual's conduct must depend
ultimately upon his sense of fiduciary obligation to our Funds and our counsel
clients.
This Statement of Policy, which supersedes our prior one which was in
effect for a number of years, is prompted by the recommendations in the Report
of the Advisory Group on Personal Investing issued by the Investment Company
Institute in May 1994 ("the ICI Report") and in the SEC Staff Report on Personal
Investing by Investment Company Personnel issued in September 1994 ("the SEC
Report"). The SEC Report endorsed the ICI Report and stated that the staff
expects "all funds to adopt the [Advisory Group] Report's recommendations, in
whole or in substantial part, absent special circumstances."
We believe this Statement of Policy meets the SEC staff's expectations and
is appropriate and desirable for Eaton Vance Management and Boston Management
and Research.
B. APPLICABILITY OF RESTRICTIONS AND PROCEDURES
This section defines what groups of officers and employees in the Eaton
Vance complex are specifically covered by the restrictions and procedures of
this Statement of Policy. This section also defines the accounts covered by this
Statement in addition to the direct personal accounts of such covered persons.
All employees, however, must get pre-approval for the two types of transactions
described in the second paragraph of Section D.1. below.
Rule 17j-1 under the Investment Company Act creates the definition of
"access person"* in order to define those who must make reports of personal
securities transactions under that Rule. We use the term herein to mean the
persons subject to all the restrictions of this Statement of Policy.
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*ACCESS PERSON
Using the Investment Company Act definition, an ACCESS PERSON for the Funds
under our Statement of Policy is any officer of EVM or BMR; any employee of EVM
or BMR or EVC who, in connection with his regular functions or duties,
participates in or obtains information regarding the purchase or sale of a
security by a registered investment company, or whose functions relate to the
making of any recommendations with respect to such purchases or sales; any
officer of EVD who in the ordinary course of his business makes, participates in
or obtains information regarding the purchase or sale of securities for the
registered investment company for which EVD acts; and any natural person in a
control relationship to the registered investment company, EVM, BMR or EVD who
obtains information concerning recommendations made to such company with regard
to the purchase or sale of a security.
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Rule 204-2 under the Investment Advisers Act defines "advisory
representative."** We use that definition in analyzing a person's relationship
to investment counsel accounts.
For convenience sake, in this Statement of Policy we use the term "access
person" to apply to both access persons to the Funds and advisory
representatives to the counsel accounts.
It should be noted that in the statutory definitions of both "access
person" and "advisory representative" there is a common element, i.e.,
possession of information about the investment activity at the firm, except that
all officers of the investment advisers (EVM and BMR), regardless of their
duties and possibilities of knowledge of investment activity, are embraced by
the terms. Those persons who are NOT officers of EVM or BMR who are NOT involved
in the investment or trading process (such as wholesalers, marketing personnel
and certain administrative personnel) are not subject to our reporting
requirement, though they were in the past.
ACCOUNTS COVERED. This Statement of Policy applies to all accounts in which
the employee has "a direct or indirect beneficial ownership," UNLESS the
employee has no "direct or indirect influence or control" over the account.
"Beneficial ownership" normally would include accounts of a spouse, minor
children and relatives resident in the employee's home, as well as accounts of
another person if by reason of any contract, understanding, relationship,
agreement or other arrangement the employee obtains therefrom benefits
substantially equivalent to those of ownership (see Attachment A hereto). If
questions occur in this area, they should be reviewed with the Compliance
Attorney.
When an employee has a direct or indirect beneficial interest in an account
and may be considered to have a measure of influence or control over an account,
the Compliance Attorney and internal counsel of Eaton Vance Corp., on the basis
of the particular facts and circumstances of the case, may determine that this
Statement of Policy is not applicable to the account in whole or in part.
When an employee has a measure of influence or control over an account, but
not direct or indirect beneficial ownership therein (as for example when the
employee serves as executor or trustee for someone outside his immediate family,
or manages or helps to manage a charitable account), the rules set forth in this
Statement of Policy will not be considered to be directly applicable, but in all
transactions involving any such account the employee will be expected to conform
to the spirit of these rules and specifically avoid any activity that conflicts
or might appear to conflict with the interests of our clients.
C. SUBSTANTIVE RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
1. INITIAL PUBLIC OFFERINGS AND SECONDARY PUBLIC DISTRIBUTIONS. No access
person shall purchase securities of a publicly-owned corporation that is making
a public or private primary or secondary distribution of its securities, except
in connection with the exercise of rights issued in respect of securities he or
she already owns. There is no objection to purchase at open market prices
(provided, of course, that a client is not buying or selling at the same time),
but the purchase of securities (other than securities of registered open-end
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**ADVISORY REPRESENTATIVE
Using the Investment Advisers Act definition, an ADVISORY REPRESENTATIVE to
Eaton Vance counsel accounts is any officer of EVM or BMR; any employee of EVM
who makes any recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made; any employee of EVM who, in
connection with his duties, obtains any information concerning which securities
are being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations; and
persons (and their affiliates) in a control relationship with EVM who obtain
information concerning securities recommendations prior to their effective
dissemination.
<PAGE>
-3-
investment companies) offered at a fixed public price by underwriters or a
selling group is prohibited. The reason for this rule is that it precludes the
appearance that an employee has used our clients' market stature as a means of
obtaining "hot" issues which would otherwise not be offered to him or her. Any
realization of short-term profits may create at least the appearance that an
investment opportunity that should have been available to a fund or counsel
account was diverted to the personal benefit of an individual access person.
2. PRIVATE PLACEMENTS. An access person must obtain express prior approval
of the Investment Compliance Officer (for equity securities) or the Fixed Income
Approval Authority, as appropriate, for any acquisition of securities in a
private placement. Any prior approval should take into account, among other
factors, whether the investment opportunity should be reserved for a fund and
its shareholders or other client, and whether the opportunity is being offered
to an individual by virtue of his or her position with the investment adviser.
Access persons who have been authorized to acquire securities in a private
placement shall disclose that investment when they play a part in any investment
company or other client's subsequent consideration of an investment in the
issuer. In such circumstances the Fund or other client's decision to purchase
securities of the issuer should be subject to review by investment personnel
with no personal interest in the issuer.
3. BLACKOUT PERIODS. No access person shall exercise a securities
transaction on a day during which any fund or counsel account in the Eaton Vance
complex has a pending "buy" or "sell" order in that same security until that
order is executed or withdrawn. No portfolio manager shall buy or sell a
security within seven calendar days before or after a fund or other client whose
account s/he manages trades in that security. In addition, a portfolio manager
must notify the Investment Compliance Officer if s/he has a direct or indirect
beneficial interest in a security which s/he intends to buy or sell for a fund
or client.
If, within seven days of effecting a personal transaction in a security, a
portfolio manager deems it to be in the best interests of a fund or client to
effect a transaction in the securities of the same issuer, the portfolio manager
must obtain the written permission of the Investment Compliance Officer or the
Compliance Attorney prior to executing the fund transaction. The portfolio
manager may be required to disgorge any profit realized from the personal
transaction.
4. SECURITIES RECOMMENDED BY A MEMBER OF THE INVESTMENT DEPARTMENT. Each
access person who is a member of the Investment Department who makes a written
recommendation as to whether a security shall be purchased, sold or held in the
account of a fund or client shall fully apprise the Investment Compliance
Officer of any direct or indirect beneficial ownership interest which he or she
may have in such security.
5. SECURITIES OF BROKER-DEALERS AND INVESTMENT BANKERS. No access person
who is a member of the Investment Department or Trading Department may purchase
any security issued by or have a financial interest in a company which derives
significant income from stock brokerage or investment banking. For example,
purchases of securities of firms such as Merrill Lynch are prohibited, since
that firm derives a significant percentage of its income from brokerage
activities.
6. SHORT SALES AND OPTIONS. Access persons are prohibited from engaging in
short selling or buying, selling or exercising put or call options of securities
held by a fund or other client or being considered for purchase by a fund or
other client. It should be noted, for example, that an exercise of an option or
the covering of a short sale could conflict with current trading for clients.
7. SHORT-TERM TRADING PROFITS. Short-term trading by access persons, i.e.,
profiting in the purchase and sale or sale and purchase of the same (or
equivalent) securities within 60 calendar days, is discouraged. We believe that
excessive short-term trading by access persons may increase the risk of
<PAGE>
-4-
conflicts of interest, may in some cases affect an individual's investment
judgment, and may in some instances divert an individual's attention from the
best interests of our funds and other clients. As all access persons must
preclear their sales as well as purchases, the discouragement can be applied in
every appropriate instance. Where one or both sides of a short-term trade have
not been precleared there is presumably already a violation and the whole matter
should be handled under the Sanctions section, with disgorgement of profits
being only one alternative available to the Investment Compliance Officer and
the Management Committee.
8. MARGIN ACCOUNTS. If an access person maintains a margin account, his or
her securities could be sold involuntarily to cover the margin at a time when
the same security was being traded for a fund or other client. Caution should
therefore be exercised in the use of margin accounts.
9. TRANSACTIONS OF CERTAIN AFFILIATED PERSONS. Pursuant to Section 17 of
the Investment Company Act of 1940 and state blue sky regulations, a fund is
prohibited from purchasing or retaining in its portfolio any securities issued
by an issuer any of whose officers, directors or security holders is an officer
or director of the fund, or is an officer or director of the investment adviser
of the fund, if after the purchase of the securities of such issuer by the fund,
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or other securities, or both, of such issuer, and such persons owning more than
1/2 of 1% of such shares or other securities together own beneficially more than
5% of such shares or securities, or both. In view of the foregoing, your
attention is directed to the Quarterly Report of Personal Securities
Transactions ("Quarterly Report") and the Annual Report of Securities Holdings,
both of which call for a special report of any such holding. To avoid any
possibility of an inadvertent violation of this provision, holdings exceeding
1/2 of 1% of the shares or other securities of any publicly-owned issuers are
discouraged.
10. GIFTS. Access persons shall not accept gifts of a value in excess of
$100 from any person or entity that does business with or on behalf of an Eaton
Vance Fund or counsel account.
11. SERVICE AS A DIRECTOR. No access person shall serve on the board of
directors of a publicly traded company, absent prior determination by the Chief
Executive Officer that the board service would be consistent with the interests
of the fund and its shareholders which may have an investment in such public
company. In the relatively small number of instances in which board service may
be authorized, access persons serving as directors should be isolated from those
making investment decisions through "Chinese Wall" or other procedures.
D. COMPLIANCE PROCEDURES
1. PRECLEARANCE. All a persons must receive preclearance for personal
securities transactions from the Investment Compliance Officer (for equity
securities) or from the Fixed Income Approval Authority, as appropriate. The
period for which the preclearance remains valid shall be set at the time of
preclearance and will typically expire at the close of business the following
day. No prior clearance need be sought for BONA fide gifts, for transactions
that are non-volitional on the part of the access person (e.g., automatic
dividend reinvestments), or for transactions, such as the tender of shares
pursuant to a tender offer, which constitute an exercise of rights offered by an
issuer PRO RATA to all holders of a class of securities. In addition, no
clearance need be sought for a transaction in a type of security that does not
have to be reported under "Records of Securities Transactions" below. If there
is any question as to whether a particular transaction requires preclearance,
consult with the Compliance Attorney or the Investment Compliance Officer.
<PAGE>
-5-
ALL EMPLOYEES need clearance from the Treasurer of Eaton Vance Corp. prior
to acquiring or disposing of securities issued by EVC. In addition, ALL
EMPLOYEES need clearance from the Investment Compliance Officer prior to
acquiring or disposing of shares in publicly-traded, closed-end investment
companies advised by EVM or BMR.
2. RECORDS OF SECURITIES TRANSACTIONS. Each access person must file with
the Compliance Assistant a Quarterly Report disclosing all transactions in
securities during the prior quarter in accounts covered by this Statement of
Policy (see "Accounts Covered"). Transactions encompass sales, purchases and
other acquisitions or dispositions including gifts and exercise of conversion
rights or subscription rights. The Quarterly Report is due eight days after the
end of each calendar quarter. The Quarterly Report must be filed even if there
were no reportable transactions during the prior quarter, in which case the
access person should state on the report form that there were no such
transactions. No transactions need be reported in (i) direct obligations of the
United States government, (ii) commercial paper maturing in under one year, or
(iii) transactions in shares of any investment company other than
publicly-traded closed-end investment companies. In addition, transactions such
as stock splits and automatic dividend reinvestments need not be reported.
The Quarterly Report is designed to comply with the requirements of the SEC
under the Investment Company Act of 1940 and the Investment Advisers Act of
1940. The reports are available for inspection by the SEC at any time, and are
part of the review by members of the SEC staff in their inspections.
It should be noted that the Quarterly Report required by this Statement of
Policy is separate and distinct from, and not in lieu of, any responsibilities
to make prompt filings of reports with the SEC (and with the Boston Stock
Exchange or NASD in connection with Eaton Vance Corp. non-voting common stock)
or with respect to acquisitions and dispositions of securities (including
options) issued by Eaton Vance Corp. pursuant to Section 16(a) of the Securities
Exchange Act of 1934.
3. FILING OF BROKER/DEALER REPORTS. Each access person shall cause all his
or her brokerage firms or bank custodians to send, as soon as they are prepared,
copies of all confirmations of securities transactions and all monthly,
quarterly and annual statements of his or her accounts to the Compliance
Assistant.
4. DISCLOSURE OF PERSONAL HOLDINGS. All access persons shall submit to the
Compliance Assistant a current statement of securities holdings at the time of
initial employment, or upon becoming an access person, and annually thereafter
on or before January 20 of each year. Disclosure can be limited to the name of
the security and, in the case of equities, whether the number of shares was more
or less than 1,000, and in the case of fixed income securities, whether the
value of the securities was more or less dm $100,000. This statement need not
include holdings in a type of security which does not have to be reported under
"Records of Securities Transactions" above.
5. POST-TRADE MONITORING. The quarterly reporting requirement, the receipt
of brokerage confirmations and account statements and the submission of
statements of securities holdings at the time of employment and annually
thereafter should adequately provide for post-trade monitoring by the Investment
Compliance Officer. In addition, employees shall submit to the Investment
Compliance Officer such additional information as he or she may reasonably
request in carrying out the provisions and the spirit of this Statement of
Policy.
6. CERTIFICATION OF COMPLIANCE WITH STATEMENT OF POLICY. All employees
shall certify annually that they have read the Statement of Policy, that they
understand it, and that they have complied with its requirements.
<PAGE>
-6-
7. REVIEW BY THE BOARD OF DIRECTORS. EVM and BMR shall prepare an annual
report to the Trustees/Directors/Director Managing Partners of the Funds which:
o summarizes existing procedures concerning personal investing and any
changes in the procedures made during the past year;
o identifies any material violations of the Statement of Policy during
the past year; and
o identifies any recommended changes in existing restrictions or
procedures based upon the investment company's experience under its
code of ethics, evolving industry practices, or developments in
applicable laws or regulations.
The Trustees shall review any violations of the Statement of Policy as
identified in the report and any recommended changes in existing restrictions
and procedures. They should then take such action, if any, as they may deem
appropriate.
8. CONFIDENTIALITY. All reports of securities transactions, reports of
holdings, and any other information filed pursuant to this Statement of Policy
shall be treated as confidential. Absent reasonable cause for investigating a
potential violation of this Statement of Policy, access to records submitted
pursuant hereto shall be restricted to the Compliance Assistant, the Investment
Compliance Officer, the Compliance Attorney and representatives of the
Securities and Exchange Commission.
E. ADDITIONAL DISCLOSURE
There will be disclosure in the funds' prospectuses or in their statements
of additional information as to whether access persons are permitted to engage
in personal securities transactions and, if so, subject to what general
restrictions and procedures.
F. SANCTIONS
Careful adherence to this Statement of Policy is one of the basic
conditions of employment of every employee. Any employee violating any provision
of this Statement of Policy shall be subject to sanction, including but not
limited to suspension or termination of employment, censure or disgorgement of
profits, on the recommendation of the Investment Compliance Officer or the
Compliance Attorney and the approval of the Management Committee.
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
<PAGE>
Appendix B
ATTACHMENT A
ACCOUNTS IN WHICH YOU HAVE A DIRECT OR
INDIRECT BENEFICIAL OWNERSHIP INTEREST
Quarterly, annual and time of initial employment reporting requirements under
the Eaton Vance Statement of Policy with Respect to Personal Securities
Transactions ("Statement of Policy") apply to all accounts in which the
director, officer or access person (as that term is defined in the Statement of
Policy) has direct or indirect "beneficial ownership," except for those accounts
over which such individual has no direct or indirect influence or control.
What constitutes "beneficial ownership" has been dealt with in a number of SEC
rules and releases and has grown to encompass many diverse situations.
"Beneficial ownership" includes securities held:
(a) by you for your own benefit, whether registered in your own name, or
otherwise;
(b) by others for your benefit (regardless of whether or how registered), such
as securities held for you by custodians, brokers, relatives, executors or
administrators;
(c) for your own account by pledgees;
(d) by a trust in which you have an income or remainder interest. Exceptions:
where your only interest is to receive principal if (1) some other
remainderman dies before distribution or (2) some other person can direct,
by will, distribution of trust property or income to you;
(e) by you as trustee or co-trustee, where either you or members of your
immediate family (i.e., spouse, children and their descendants,
step-children, parents and their ancestors, and step-parents) have an
income or remainder interest in the trust;
(f) by a trust of which you are the settlor, if you have the power to revoke
the trust without obtaining the consent of all the beneficiaries;
(g) by any partnership in which you are a partner;
(h) by a personal holding company controlled by you alone or jointly with
others;
(i) in the name of your spouse unless legally separated;
(j) in the names minor children or in the name of any relative of yours or of
your spouse (including an adult child) who is presently sharing your home.
This applies even if the securities were not received from you and the
dividends are not actually used for the maintenance of your home;
(k) in the name of another person (other than those listed in (i) and (j)
above) if by reason of any contract, understanding, relationship, agreement
or other arrangement, you obtain benefits substantially equivalent to those
of ownership; or
(l) in the name of any person other than yourself, even though you do not
obtain benefits substantially equivalent to those of ownership (as
described in (k) above), if you can vest or revest title in yourself.
