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As filed with the Securities and Exchange Commission on March 29, 2007
1933 Act File No. 333-32268
1940 Act File No. 811-05808
|U.S. SECURITIES AND EXCHANGE COMMISSION|
WASHINGTON, D.C. 20549
UNDER THE SECURITIES ACT OF 1933 ¨
PRE-EFFECTIVE AMENDMENT NO. ¨
POST-EFFECTIVE AMENDMENT NO. 12 x
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ¨
AMENDMENT NO. 34 x
(Check appropriate box or boxes)
|EATON VANCE PRIME RATE RESERVES|
(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)
Registrants Telephone Number, including Area Code: (617) 482-8260
ALAN R. DYNNER
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
(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.
It is proposed that this filing will become effective pursuant to Rule 486:
|¨ immediately upon filing pursuant to paragraph (b)||¨ 60 days after filing pursuant to paragraph (a)|
|x on April 1, 2007 pursuant to paragraph (b)||¨ on (date) pursuant to paragraph (a)|
Senior Debt Portfolio has also executed this Registration Statement.
Prime Rate Reserves
The investment objective of Eaton Vance Prime Rate Reserves (the Fund) is to provide as high a level of current income as is consistent with the preservation of capital, by investing in a portfolio primarily of senior floating rate loans (Senior Loans). The portfolio also utilizes leverage for the purpose of acquiring additional income-producing investments. The Fund is a continuously offered, closed-end, diversified management investment company. The Fund also is an interval fund, which makes periodic repurchases of its shares pursuant to Rule 23c-3 under the Investment Company Act of 1940, as amended. Senior Loans typically are of below investment grade quality and have below investment grade credit ratings, which ratings are associated with securities having high risk, speculative characteristics. Because of the protective features of Senior Loans (being senior in a borrowers capital structure and secured by specific collateral), the invest ment adviser believes, based on its experience, that Senior Loans tend to have more favorable loss recovery rates compared to unsecured, below investment grade debt obligations.
No market presently exists for resale of the Funds 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 February, May, August and November an offer to repurchase between 5% and 25% of the Funds outstanding shares at net asset value. See Repurchase Offers at page 17.
(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|
|Information in this prospectus|
|Shareholder and Fund Expenses||3||Valuing Shares||14|
|Financial Highlights||4||Purchasing Shares||14|
|Performance Information||6||Sales Charges||16|
|Investment Objective, Policies and Risks||7||Repurchase Offers||17|
|Organization of the Fund||12||Shareholder Account Features||17|
|Management of the Fund||13||Distributions and Taxes||19|
Prospectus dated April 1, ^2007
|This prospectus contains important information about the Fund and the services |
available to shareholders. Please save it for reference.
More information is available in the Statement of Additional Information dated April 1, ^2007, 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 investments of Senior Debt Portfolio (the Portfolio), in which the Fund invests exclusively, is available in the annual and semiannual reports to shareholders. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds performance during the past fiscal 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, or on Eaton Vances website at www.eatonvance.com. You will find and may copy information about the Fund (including the Statement of Additional Information and shareholder reports) at the Securities and Exchange Commissions (SEC) public reference room in Washington, DC (call 1-202-942-8090 for information on the operation of the public reference room); on the EDGAR Database on the SECs Internet site (http://www.sec.gov); or, upon payment of copying fees, by writing to the SECs public reference section, 100 F Street, N.E., Washington, DC 20549-0102, or by electronic mail at email@example.com.
Table of Contents of the Statement of Additional Information
|Investment Policies and Risks||2||Shareholder Account Information||20|
|Investment Restrictions||8||Portfolio Trading||^21|
|Management and Organization||^10||Taxes||23|
|Control Persons and Principal Holders of Shares||^15||Performance||^26|
|Investment Advisory and Other Services||15||Financial Statements||^28|
|Calculation of Net Asset Value||19|
|Appendix A: Ratings of Corporate Bonds||^29|
|Appendix B: Eaton Vance Funds Proxy Voting Policies and Procedures||^31|
|Appendix C: Adviser Proxy Voting Policies and Procedures||^33|
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 Funds SEC File No. is 811-05808.
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|
|Maximum Early Withdrawal Charge||3.00%|
|Annual Fund Operating Expenses (expenses that are deducted from Fund and Portfolio assets)|
|Investment Advisory Fee||0.95%|
|Total Annual Fund Operating Expenses||2.^07%|
|Fee Waivers (advisory fee waiver and administration fee waiver)||(0.75)%|
|Total Annual Fund Operating Expenses (net of fee waivers)||1.^32%|
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. The above-referenced advisory fee and administration fee waivers are contractual in nature. See Management of the Fund for more information regarding the fee waivers.
Fund shares are offered on a best efforts basis at a price equal to their net asset value. Shares of the Fund are not subject to a front-end sales charge (load). Because Eaton Vance Distributors, Inc. and its affiliates will pay all sales commissions to investment dealers from their own assets, the proceeds of the offering will be available to the Fund for investment.
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 $1,000 in the Fund for the time periods indicated and then have all of your shares repurchased at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the operating expenses remain the same. The Example should not be considered a representation of future expenses. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|1 Year||3 Years||5 Years||10 Years|
You would pay the following expenses if you did not have your shares repurchased:
|1 Year||3 Years||5 Years||10 Years|
The following information should be read in conjunction with the audited financial statements that appear in the Funds annual report to shareholders. The Funds financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm. The financial statements and the report of the independent registered public accounting firm are incorporated by reference into the Statement of Additional Information.
|Year Ended November 30,|
|Net asset value - Beginning of year||$ 9.390||$ 9.380||$ 9.180||$ 8.840||$ 9.160|
|Income (loss) from operations|
|Net investment income||$ 0.545||$ 0.393||$ 0.282||$ 0.298||$ 0.332|
|Net realized and unrealized gain (loss)||0.006||0.013||0.199||0.339||(0.319)|
|Total income from operations||$ 0.551||$ 0.406||$ 0.481||$ 0.637||$ 0.013|
|From net investment income||$ (0.551)||$ (0.396)||$ (0.281)||$ (0.297)||$ (0.333)|
|Total distributions||$ (0.551)||$ (0.396)||$ (0.281)||$ (0.297)||$ (0.333)|
|Net asset value - End of year||$ 9.390||$ 9.390||$ 9.380||$ 9.180||$ 8.840|
|Net assets, end of year (000s omitted)||$1,273,866||$1,428,366||$1,636,855||$1,840,559||$2,206,150|
|Ratios (As a percentage of average daily net assets):|
|Expenses before custodian fee reduction(4)||1.32%||1.33%||1.31%||1.31%||1.26%(5)|
|Expenses after custodian fee reduction(4)||1.32%||1.33%||1.31%||1.31%||1.26%(5)|
|Net investment income||5.79%||4.18%||3.02%||3.34%||4.01%(5)|
|Portfolio Turnover of the Portfolio||51%||65%||87%||47%||42%|
(See footnotes on next page.)
Financial Highlights (continued)^
|Year Ended December 31,|
|Net asset value - Beginning of year||$ 9.500||$ 9.890||$ 9.980||$ 9.990||$ 9.990||$ 10.010|
|Income (loss) from operations|
|Net investment income||$ 0.590||$ 0.768||$ 0.661||$ 0.679||$ 0.676||$ 0.684|
|Net realized and unrealized gain (loss)||(0.352)||(0.390)||(0.090)||(0.009)||- (7)||(0.021)|
|Total income from operations||$ 0.238||$ 0.378||$ 0.571||$ 0.670||$ 0.676||$ 0.663|
|From net investment income||$ (0.578)||$ (0.768)||$ (0.661)||$ (0.680)||$ (0.676)||$ (0.683)|
|Total distributions||$ (0.578)||$ (0.768)||$ (0.661)||$ (0.680)||$ (0.676)||$ (0.683)|
|Net asset value - End of year||$ 9.160||$ 9.500||$ 9.890||$ 9.980||$ 9.990||$ 9.990|
|Net assets, end of year (000s omitted)||$3,165,119||$3,975,140||$4,058,075||$2,839,989||$1,909,266||$1,611,735|
|Ratios (As a percentage of average daily net assets):|
|Expenses before custodian fee reduction(4)||1.26%||1.24%||1.24%||1.29%||1.31%||1.35%|
|Expenses after custodian fee reduction(4)||1.26%||1.24%||1.24%||1.29%||1.31%||1.35%|
|Net investment income||6.25%||7.86%||6.66%||6.76%||6.76%||6.81%|
|Portfolio Turnover of the Portfolio||33%||47%||64%||56%||81%||75%|
|(1) Net investment income per share was computed using average shares outstanding.|
(2) For the eleven-month period ended November 30, 2002.
(3) Returns are historical and are calculated by determining the percentage change in net asset value with all distributions reinvested. Total return is not computed on an annualized basis.
(4) Includes the Funds share of the Portfolios allocated ^expenses.
(6) Represents less than 0.01%.
(^7) Represents less than $0.001 per share.
The following bar chart and table provide information about the performance of the Fund for each calendar year through December 31, ^2006. The returns in the bar chart do not reflect the early withdrawal charge. If that charge was reflected, the returns would be lower. The returns in the table are shown before and after the reduction of taxes and include a comparison to the performance of a broad-based, unmanaged loan market index. Although past performance (both before and after taxes) is no guarantee of future results, this performance information demonstrates the risk that the value of your investment will change.^
During the ten years ended December 31, ^2006, the highest quarterly total return was 2.88% for the quarter ended June 30, 2003, and the lowest quarterly return was 0.72% for the quarter ended September 30, 2002.
|Average Annual Total Returns as of December 31, ^2006||Year||Years||Years|
|Fund Return Before Taxes||^3.^14%||4.^74%||^4.^99%|
|Fund Return After Taxes on Distributions||^0.^95%||^3.^22%||2.^82%|
|Fund Return After Taxes on Distributions and the Sale of Fund Shares||^2.^00%||^3.^14%||2.^90%|
|S&P/LSTA Leveraged Loan Index (reflects no deduction for fees, expenses or taxes)||^6.^74%||5.^74%||^5.43%|
The S&P/LSTA Leveraged Loan Index is an unmanaged loan market index. Investors cannot invest directly in an index. (Source for the S&P/LSTA Leveraged Loan Index returns: ^Standard & Poors.) The S&P/ LSTA Leveraged Loan Index began in January 1997.
Total returns are historical and are calculated by determining the percentage change in net asset value or public offering price with all distributions reinvested. The Funds past performance (both before and after taxes) is no guarantee of future results. Investment return and principal value of Fund shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance is for the stated time period only; due to market volatility, the Funds current performance may be lower or higher than the quoted return. For the Funds performance as of the most recent month-end, please refer to www.eatonvance.com.
After-tax returns are calculated using the highest historical individual federal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns depend on a shareholders tax situation and may differ from those shown. After-tax returns are not relevant for shareholders who hold Fund shares in tax-deferred accounts or to shares held by non-taxable entities. Return After Taxes on Distributions for a period may be the same as Return Before Taxes for that period because no taxable distributions were made during that period. Also, Return After Taxes on Distributions and the Sale of Fund Shares for a period may be greater than Return After Taxes on Distributions for the same period because of losses realized on the sale of Fund shares.
Investment Objective, Policies and Risks
Eaton Vance Prime Rate Reserves investment objective is to provide as high a level of current income as is consistent with the preservation of capital, by investing in a portfolio primarily of senior floating rate loans (Senior Loans). The Fund currently seeks to achieve its objective by investing in the Senior Debt Portfolio (the Portfolio), a separate closed-end, diversified investment company with the same investment objective as the Fund. There is no assurance that the Funds objective will be achieved. An investment in shares of the Fund is not a complete investment program. The Portfolio utilizes leverage for the purpose of acquiring additional income-producing investments.
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 typically secured with specific collateral (discussed below) and will have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders, preferred stockholders and common stockholders of the Borrower. Investment in floating rate instruments is expected to minimize changes in the underlying principal value of Senior Loans, and therefore the Funds net asset value, resulting from changes in market interest rates. Nevertheless, the Funds 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 and changes in Senior Loan market prices. Senior Loans are typically of below investment grade quality and have below investment grade credit ratings, which ratings are associated with securities having high risk, speculative characteristics. Borrowers may default on their Senior Loan payments. The Portfolio attempts to manage credit risk by investing in a variety of Borrowers in a number of industries and ongoing analysis and monitoring of Borrowers.
The Portfolios investment adviser is Boston Management and Research (the Investment Adviser or BMR), an indirect subsidiary of Eaton Vance Corporation (EVC). Eaton Vance Management (Eaton Vance), a wholly-owned subsidiary of EVC, 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, MA 02109.
General Composition of the Portfolio
In normal market conditions, currently at least 80% of the Portfolios total assets will be invested (generally by the purchase of assignments) in interests in Senior Loans (including foreign loans that are U.S. dollar denominated and foreign loans denominated in euros, Swiss francs, British pounds, or Canadian dollars (each an Authorized Foreign Currency) making payments of interest and repayments of principal in such Authorized Foreign Currency) (the 80% policy). The 80% policy will not be changed unless Fund shareholders are given 60 days notice of the change. For purposes of the 80% policy, total assets include any borrowings for investment purposes. With respect to any investments in foreign Senior Loans denominated in an Authorized Foreign Currency, the Portfolios investment adviser intends to hedge against foreign currency fluctuations for such Senior Loans principally through the use of currency exchange contracts as well as other appropriate permitted hedging strategies, however there is no certainty that such strategies will be successful. Up to 20% of the Portfolios total assets may be held in cash, invested in investment grade, short-term debt obligations, and/or 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, cash equivalents, and/or high quality, short-term debt securities, which would not be consistent with the Funds investment objective. While temporarily invested, the Fund may not achieve its investment objective. The Portfolio might not use all of the strategies and techniques or invest in all of the types of securities described in this Prospectus or the Statement of Additional Information. While at times the Portfolio may use alternative investment strategies in an effort to limit losses, it may choose not to do so.
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, dividends, refinancings, 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 Borrowers 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 Borrowers assets (discussed below). Senior Loans are typically secured by specific collateral.
In order to borrow money pursuant to a Senior Loan, a Borrower will typically, 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/or (iv) security interests in shares of stock of subsidiaries or affiliates. In the case of Senior Loans
made to non-public companies, the companys shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets that they own personally. In many 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 a Borrowers 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 one and ten 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. The base lending rates are primarily the London-Interbank Offered Rate (LIBOR), and secondarily the prime rate offered by one or more major United States banks (the Prime Rate) and 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 Funds 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, the average life of Senior Loans has been two to four years because of prepayments. As of March 14, ^2007, the Portfolio had a dollar weighted average period to adjustment of approximately ^39 days.
The Portfolio may purchase and retain in its portfolio Senior Loans where the Borrowers have experienced, or may be perceived to be likely to experience, credit problems, including involvement in or recent emergence from bankruptcy reorganization proceedings or other forms of 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 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. Shareholders will receive 60 days notice of any material change in the Funds investment objective.
As stated above, up to 20% of the Portfolios total assets may be held in cash, invested in investment grade short-term debt obligations, and/or 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 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. Other 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 (both domestic and foreign). 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 Portfolios 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 Portfolios investment policies.
Borrowings and Leverage
Subject to the applicable requirements of the Investment Company Act of 1940, as amended (the 1940 Act), 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. ^The Portfolio will ^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 BMRs ability to predict correctly interest rates and market movements. There is no assurance that a leveraging strategy will be successful. The cost of any such borrowings or debt issuance will be borne by the Funds shareholders. BMR also expects that the Portfolio will borrow money or issue indebtedness 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.
As prescribed by the 1940 Act, the Portfolio will be required to maintain specified asset coverages of at least 300% with respect to any bank borrowing or issuance of indebtedness immediately following any such borrowing or issuance and on an ongoing basis as a condition of declaring dividends and repurchasing shares. The Portfolios 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 that are more restrictive than the provisions of the 1940 Act 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 Portfolios freedom to pay dividends, to repurchase shares or to engage in other activities. The rights of the lender to receive payments of interest and repayments of principal of any borrowings made by the Portfolio under a credit facility are senior to the rights of holders of shares, with respect to the payment of dividends or upon liquidation. In the event of a default under a credit facility program, the lenders may have the right to cause a liquidation of the collateral (i.e., sell Senior Loans and other assets of the Portfolio) and, if any such default is not cured, the lenders may be able to control the liquidation as well. Any such borrowing or debt issuance is a speculative technique in that it will magnify any changes to the Funds net asset value. The Portfolio may also borrow for temporary, extraordinary or emergency purposes.
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 Portfolios 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 Fund, 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 typically will invest in Senior Loans that BMR believes are secured by specific collateral the value of which equals or exceeds the aggregate outstanding 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 Borrowers 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. As with other collateral, where stock of the Borrower or its subsidiaries collateralizes a Senior Loan, such stock may lose all or substantially all of its value in the event of the bankruptcy of the Borrower. The loan 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 or causing interest previously paid to be refunded to the Borrower. If interest were required to be refunded or a Senior Loan were invalidated, the Funds performance could be negatively affected.
Senior Loans are typically rated below investment grade and pose a higher risk of default or bankruptcy of the Borrower than do 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.
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 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. Most Senior Loans in the Portfolio have been assigned ratings below investment
grade by independent rating agencies. In the event Senior Loans are not rated, they are likely to be the equivalent of below investment grade quality. Debt securities that are rated Baa and below by Moodys Investors Service, Inc. (Moodys) or BBB and below by Standard & Poors Ratings Group (S&P) are considered to be below investment grade. 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 Moodys and S&P is included as Appendix A to the Statement of Additional Information. Because of the protective features of Senior Loans, BMR believes that Senior Loans tend to have more favorable loss recovery rates as compared to unsecured, below investment grade debt obligations. BMR does not view ratings as the primary factor in its investment decisions and it relies more upon its credit analysis abilities than upon ratings.
Market and Liquidity Risk. Most Senior Loans are valued by an independent pricing service that uses market quotations of investors and traders in Senior Loans. Economic and other events (whether real or perceived) can reduce the demand for certain Senior Loans or Senior Loans generally, which may reduce market prices and cause the Funds net asset value per share to fall. The frequency and magnitude of such changes cannot be predicted.
Some Senior Loans are not readily marketable and may be 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 some of the Senior Loans in which the Portfolio will invest. Where a secondary market exists, such market for some Senior Loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Senior Loans that are illiquid may impair the Portfolios ability to realize the full value of its assets in the event of a voluntary or involuntary liquidation of such assets and thus may cause a decline in the Funds net asset value. 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 risks associated with illiquidity are particularly acute in situations where the Funds 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 Portfolios investments in determining the amount of quarterly repurchase offers.
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 Funds net asset value will vary, the Funds management expects the Portfolios 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 Funds net asset value. Similarly, a sudden and significant increase in market interest rates may cause a decline in the Funds net asset value. Other economic factors (such as a large downward movement in stock prices, a disparity in supply and demand of certain securities or market conditions that reduce liquidity) can also adversely impact the markets for Senior Loans and debt obligations. Rating downgrades of holdings or their issuers will generally reduce the value of such holdings. Changes in the values of the Portfolios holdings likely will cause fluctuation in the Funds net asset value.
Foreign Securities. The Portfolio may invest in Senior Loans and other debt securities of non-U.S. issuers. The Portfolio may invest in foreign Senior Loans that are either U.S. dollar-denominated or denominated in an Authorized Foreign Currency. 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 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 Portfolios investments in certain foreign countries. The Portfolio will not invest more than 25% of its net assets in foreign Senior Loans that are denominated in an Authorized Foreign Currency and will not invest more than 35% of its net assets in both U.S. dollar-denominated foreign Senior Loans and foreign Senior Loans that are denominated in an Authorized Foreign Currency.
The value of foreign assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency rates and exchange control regulations. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the U.S. or abroad. Foreign currency exchange transactions may be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through entering into derivative currency
transactions. Forward foreign currency exchange contracts are individually negotiated and privately traded so they are dependent upon the creditworthiness of the counterparty. Such contracts may be used when a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign currency of dividend or interest payments on such a security is anticipated. A forward contract can then lock in the U.S. dollar price of the security or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. Currency transactions are subject to the risk of a number of complex political and economic factors applicable to the countries issuing the underlying currencies. Furthermore, unlike trading in most other types of instruments, there is no systematic reporting of last sale information with respect to the foreign currencies underlying the derivative currency transactions. As a result, available information may not be complete. There is also a risk of default by, or bankruptcy of, the financial institution serving as a counterparty.
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.
Diversification. The Fund and Portfolio are each a diversified investment company under the 1940 Act. This means that with respect to 75% of its total assets (1) it may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. Government obligations) and (2) it may not own more than 10% of the outstanding voting securities of any one issuer (which generally is inapplicable because debt obligations are not voting securities). With respect to no more than 25% of its total assets, the Portfolio or the Fund may make investments that are not subject to the foregoing restrictions.
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 derive their value from another instrument, security, index or currency) to enhance return, to hedge against fluctuations in securities prices, interest rates or currency exchange rates, to change the duration of obligations held by the Portfolio, to manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies. Transactions in derivative instruments may include, but are not limited to, the purchase or sale of futures contracts on securities, indices, other financial instruments or currencies; options on futures contracts; and exchange-traded and over-the-counter options on securities, indices or currencies. The Portfolio may enter into interest rate swaps, credit default swaps, total return swaps and forward rate contracts and purchase credit linked notes as well as instruments that have a greater or lesser credit risk than the security underlying that instrument. 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 Portfolios holdings. Interest rate swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest, e.g., an exchange of fixed rate payments for floating rate payments. Credit default swaps enable the Portfolio to buy or sell credit protection on an individual issuer or basket of issuers. Credit linked notes and credit default swaps involve certain risks, including the risk that the counterparty may be unable to fulfill the transaction.
The use of derivatives is highly specialized and engaging in derivative transactions for purposes other than hedging is speculative. Transactions in derivative instruments involve unique risks, such as losses due to unanticipated adverse changes in prices, interest rates, indices, or currency exchange rates; the inability to close out a position; default by the counterparty; imperfect correlation between a position and the 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 initial investment therein. In addition, the Portfolio may lose the entire premium paid for purchased options that expire before they can be profitably exercised. The Portfolio incurs transaction costs in opening and closing positions in derivative instruments. There can be no assurance that the investment advisers use of derivative instruments will be advantageous.
Repurchase Agreements. The Portfolio may enter into repurchase agreements (the purchase of a security coupled with an agreement to resell at a ^specified date and price) with respect to its permitted investments. In the event of the bankruptcy of the ^counterparty to a repurchase agreement, recovery of cash may be delayed. To the extent that, in the meantime, the value of the purchased securities may have decreased, a loss could result. The ^terms of a repurchase agreement 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 agreement, and will be marked to market daily.
^Securities Lending. The Portfolio may seek to earn income by lending portfolio ^holdings to broker-dealers or other institutional borrowers. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the
^portfolio holdings loaned if the borrower of the ^holdings fails financially. Loans will only be made to firms that have been approved by BMR. ^BMR or the securities lending agent will periodically monitor the ^financial condition of ^such organizations while any loans are outstanding. In addition loans will ^only ^be ^made ^when BMR believes the expected returns, net of ^expenses, ^justify the attendant risk. Securities loans currently are required to be secured continuously by collateral in cash, cash equivalents (such as money market instruments) or other liquid securities held by the custodian and maintained in an amount at least equal to the market value of the ^holdings loaned. ^The Portfolio may lend up to one-third of the ^value of ^its total assets (including borrowings) or such other amount as is permitted under relevant law. To date, the Portfolio has not utilized securities lending but may do so in the future.
Organization of the Fund
The Fund is organized as a business trust established under Massachusetts law pursuant to a Declaration of Trust dated May 2, 1989, as amended, and is registered under the 1940 Act. The Trustees of the Fund are responsible for the overall management and supervision of its affairs. The Fund currently has one class of shares of beneficial interest which may be issued in an unlimited number by the Trustees. Each share represents an equal proportionate beneficial interest in the Fund and, when issued and outstanding, the shares are fully paid and nonassessable by the Fund and may be repurchased only as described under Repurchase Offers. There are no annual meetings of shareholders, but special meetings may be held as required by law to elect or remove Trustees, approve management or advisory contracts or change investment policies that may only be changed with shareholder approval. Because the Fund invests in the Portfolio, it may be asked to vote on certain Portfolio matters (such as 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 without shareholder approval. 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 Funds 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 Funds 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 Funds outstanding shares, except that if the Trustees recommend such transaction, the approval by vote of the holders of a majority of the outstanding shares will be sufficient. If not so terminated, the Fund may continue indefinitely.
Anti-Takeover Provisions. The Fund presently has certain anti-takeover provisions in its Declaration of Trust which are intended to limit, and could have the effect of limiting, the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure. As indicated above, a two-thirds vote is required for certain transactions. The affirmative vote or consent of the holders of two-thirds of the shares of the Fund (a greater vote than that required by the 1940 Act and, in some cases, greater than the required vote applicable to business corporations under state law) is required to authorize the conversion of the Fund from a closed-end to an open-end investment company (except that if the Trustees recommend such conversion, the approval by vote of the holders of a majority of the outstanding shares will be sufficient) and the affirmative vote or consent of the holders of three-quarters of the shares of the Fund is required to authorize any of the following transactions (the Transactions): (i) merger or consolidation of the Fund with or into any corporation; (ii) issuance of any securities of the Fund to any person or entity for cash; (iii) sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate fair market value of less than $1,000,000 or assets sold in the ordinary course of business); or (iv) sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any entity or person (except assets having an aggregate fair market value of less than $1,000,000) if such corporation, person or entity is directly, or indirectly through affiliates, the beneficial owner of 5% or more of the outstanding shares of the Fund. However, such vote or consent will not be required with respect to the Transactions if the Board of Trustees under certain conditions approves the Transaction. Further, the provisions of the Funds 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 Funds assets, and the liquidation and distribution of the Funds 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 Funds repurchase offers.
Management of the Fund
The Portfolio engages BMR to manage the investments of the Portfolio. In return, the Portfolio has agreed to pay BMR a fee in the amount of 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 accepted a contractual waiver of a portion of BMRs compensation so that the aggregate advisory fees paid by the Portfolio and indirectly by the Fund 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. For the fiscal year ended November 30, ^2006, the Portfolio paid BMR advisory fees equivalent to ^0.45% of the Portfolios average daily gross assets.
Eaton Vance serves as administrator of the Fund, providing the Fund with administrative services and related office facilities. In return, the Fund may pay Eaton Vance a fee in the amount of 0.25% annually of the average daily gross assets of the Portfolio attributable to the Fund. Eaton Vance and the Trustees have agreed to a contractual waiver of Eaton Vances administration fee.
The foregoing advisory fee and administration fee waivers are intended to completely offset the distribution fee paid by the Fund, so long as a distribution fee is paid by the Fund. These waivers will be eliminated or reduced in the event that the distribution fees of the Fund or another fund investing in the Portfolio are eliminated or reduced. The waivers may otherwise only be eliminated or reduced by the independent Trustees, which would increase total Fund expenses if the Funds distribution fee remained the same.
The Funds most recent shareholder report provides information regarding the basis for the Trustees approval of the Portfolios advisory agreement.
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 ^$135 billion. 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. Eaton Vance Distributors, Inc., the Funds principal underwriter is a wholly-owned subsidiary of Eaton Vance.
Scott H. Page and Payson F. Swaffield, Vice Presidents of Eaton Vance and BMR, are co-portfolio managers of the Portfolio (since August 1, 1996) and of other Eaton Vance floating rate loan portfolios.
The Statement of Additional Information provides additional information about each portfolio managers compensation, other accounts managed by each portfolio manager, and each portfolio managers ownership of Fund shares.
Eaton Vance also serves as the sub-transfer agent for the Fund. For the sub-transfer agency services it provides, Eaton Vance receives an aggregate fee based upon the actual expenses it incurs in the performance of sub-transfer agency services. This fee is paid to Eaton Vance by the Funds transfer agent from the fees the transfer agent receives from the Eaton Vance funds.
The Fund values its shares once on each day the New York Stock Exchange (the Exchange) is open for trading (typically Monday through Friday), as of the close of regular trading on the Exchange (normally 4:00 p.m. New York time). The Fund will be closed for business and will not price its shares on the following business holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Funds net asset value per share is determined by the Funds custodian, Investors Bank & Trust Company (IBT) (as agent for the Fund) in the manner authorized by the Trustees of the Fund. Net asset value is computed by dividing the value of the Funds total assets, less its liabilities by the number of shares outstanding. Because the Fund invests its assets in the Portfolio, the Funds net asset value will reflect the value of its interest in the Portfolio (which, in turn, reflects the underlying value of the Portfolios assets and liabilities).
The Portfolios 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 Portfolios total assets, and subtracting all of the Portfolios liabilities.
The Trustees have adopted procedures for valuing investments and have delegated to the investment adviser the daily valuation of such investments. The investment adviser uses an independent pricing service to value most loans and other debt securities. The pricing service for loans considers information obtained from broker-dealers and the pricing service for debt obligations may consider various factors and market information relating to debt obligations. In certain situations, the investment adviser may use the fair value of a security if a loan or a security is not priced by the pricing service, the pricing services price is deemed unreliable, or if events occur after the close of a securities market (usually a foreign market) and before the Portfolio values it assets that would materially affect net asset value. A security that is fair valued may be valued at a price higher or lower than actual market quotations or the value determined by other funds using their own fair valuation procedures. Because foreign securities trade on days when Fund shares are not priced, ^the value of securities held by the Fund can change on days when Fund shares cannot be redeemed. Eaton Vance has established a Valuation Committee that oversees the valuation of investments.
You may purchase Fund shares through your investment dealer or by mailing an account application form to the transfer agent (see back cover for address). You may request a current account application by calling 1-800-262-1122. Your initial investment must be at least $1,000.
After your initial investment, additional investments ^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.
You may 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. The minimum initial investment amount is waived for bank automated investing accounts, certain group purchase plans (including tax-deferred retirement and other pension plans and proprietary fee-based programs sponsored by broker-dealers) and for persons affiliated with Eaton Vance and certain Fund service providers.
The price of Fund shares is the net asset value. The Fund or your investment dealer must receive your purchase order no later than the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) in order for your purchase to be effected at that days net asset value. When purchasing Fund shares, your investment dealer must communicate your order to the principal underwriter by a specific time each day in order for the purchase price to be based on that days net asset value per share. It is the investment dealers responsibility to transmit orders promptly. The Fund may accept purchase orders as of the time of their receipt by certain investment dealers (or their designated intermediaries). 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.
Restrictions on Excessive Trading and Market Timing. The Fund is not intended for excessive trading or market timing. Market timers seek to profit by rapidly switching money into a fund when they expect the share price of the fund to rise and taking money out of the fund when they expect those prices to fall. By realizing profits through short-term trading,
shareholders that engage in rapid purchases and sales or exchanges of a funds shares may dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management. In particular, excessive purchases and sales or exchanges of a funds shares may cause a fund to have difficulty implementing its investment strategies, may force the fund to sell portfolio securities at inopportune times to raise cash or may cause increased expenses (such as increased brokerage costs, realization of taxable capital gains without attaining any investment advantage or increased administrative costs).
A fund that invests in securities that are, among other things, thinly traded, traded infrequently or relatively illiquid (including certain Senior Loans owned by the Portfolio or other obligations not valued by the pricing service) is susceptible to the risk that the current market price for such securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (commonly referred to as price arbitrage). In addition, because the Portfolio may invest in foreign securities, it may be susceptible to a time zone arbitrage strategy in which shareholders attempt to take advantage of Fund share prices that may not reflect developments in a foreign securities market that occur after the close of such market but prior to the pricing of Fund shares. The investment adviser is authorized to use the fair value of a security if ^prices are unavailable or are deemed unreliable (see Valuing Shares). Because the Fund conducts repurchase offers only quarterly, the Fund believes that the potential adverse effects from short-term trading are less significant than mutual funds that redeem their shares daily. In addition, the use of fair value pricing, and the restrictions on excessive trading and market timing described below are intended to reduce a shareholders ability to engage in price or time zone arbitrage to the detriment of the Fund.
The Boards of Trustees of the Eaton Vance funds have adopted policies to discourage short-term trading and market timing and to seek to minimize their potentially detrimental effects. Pursuant to these policies, if an investor (through one or more accounts) makes more than two round-trip exchanges (exchanging from one fund to another fund and back again) within 12 months, it will be deemed to constitute market timing or excessive trading. Under the policies, the Fund or its principal underwriter will reject or cancel a purchase order, suspend or terminate the exchange privilege or terminate the ability of an investor to invest in the Eaton Vance funds if the Fund or the principal underwriter determines that a proposed transaction involves market timing or excessive trading that it believes is likely to be detrimental to the Fund. The Fund and its principal underwriter cannot ensure that they will be able to identify all cases of market timing and excessive trading, although they believe they have adequate procedures in place to attempt to do so. The Fund or its principal underwriter may also reject or cancel any purchase order (including an exchange) from an investor or group of investors for any other reason. Decisions to reject or cancel purchase orders (including exchanges) in the Fund are inherently subjective and will be made in a manner believed to be in the best interest of a Funds shareholders. No Eaton Vance fund has any arrangement to permit market timing^.
The Fund and the principal underwriter have provided guidance to financial intermediaries (such as banks, broker-dealers, insurance companies and retirement administrators) concerning the application of the Eaton Vance funds market timing and excessive trading policies to Fund shares held in omnibus accounts maintained and administered by such intermediaries, including guidance concerning situations where market timing or excessive trading is considered to be detrimental to the Fund. The Fund or its principal underwriter may rely on a financial intermediarys policy to restrict market timing and excessive trading if it believes that policy is likely to prevent market timing that is likely to be detrimental to the Fund. Such policy may be more or less restrictive than the Funds policy. The Fund and the principal underwriter cannot ensure that these financial intermediaries will in all cases apply the policies of the Fund or their own policies, as the case may be, to accounts under their control.
Payments to Investment Dealers. In connection with sales of Fund shares, an investment dealer may receive sales charges and Fund distribution fees as described below. The principal underwriter, out of its own resources, may make cash payments to certain investment dealers who provide marketing support, transaction processing and/or administrative services and, in some cases, include some or all Eaton Vance funds in ^specialized selling programs. Payments made by the principal underwriter to an investment dealer may be significant and are typically in the form of fees based on Fund sales, assets, transactions processed and/or accounts attributable to that investment dealer. Investment dealers also may receive amounts from the principal underwriter in connection with educational or due diligence meetings that include information concerning Eaton Vance funds. The principal underwriter may pay or allow other promotional incentives or payments to investment dealers to the extent permitted by applicable laws and regulations.
Certain investment dealers that maintain street name or omnibus accounts provide sub-accounting, recordkeeping and/ or administrative services to the Eaton Vance funds and are compensated for such services by the funds. As used in this prospectus, the term investment dealer includes any broker, dealer, bank (including bank trust departments), registered investment adviser, financial planner, retirement plan administrator, their designated intermediaries and any other firm having a selling, administration or similar agreement with the principal underwriter or its affiliates.
Shareholders pay no sales load when purchasing shares. The principal underwriter will make payments from its own assets at the rate of 3.0% of the dollar amount of the shares being purchased to investment dealers who have sales agreements with the principal underwriter.
If the shares remain outstanding for at least one year from the date of their original purchase, the principal underwriter will compensate the investment dealers at an annual rate, paid quarterly, equal to .10% for the second year, .15% for the third year, .20% for the fourth year, .25% for the fifth year and .30% for the sixth year and subsequent years, of the value of Fund shares sold by such investment dealers and remaining outstanding. All compensation paid to investment dealers will be made from BMRs, the principal underwriters and Eaton Vances own assets, which may include amounts received by the principal underwriter as early withdrawal charges or distribution 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 S ecurities Dealers, Inc. (NASD).
Early Withdrawal Charge. An early withdrawal charge (EWC) to recover distribution expenses will be charged in connection with most shares held for less than four years which are accepted by the Fund for repurchase pursuant to repurchase offers. The 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 the 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. Fund shares are subject to the following EWC schedule:
|Year of Repurchase|
|Fifth and following||0%|
EWCs are waived following the death of a beneficial owner of shares (a death certificate and other applicable documents may be required). At the time of acceptance of the repurchase offer, the shareholder must notify the transfer agent either directly or through the principal underwriter that the EWC should be waived. Such waiver, subject to confirmation of the investors entitlement, will then be granted; otherwise, the waiver will be lost. 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. Amendments to EWC waivers are prospective only (apply only to shares subsequently purchased).
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.
More information about sales charges is available free of charge on the Eaton Vance website at www.eatonvance.com and in the Statement of Additional Information. Please consult the Eaton Vance website for any updates to sales charge information before making a purchase of Fund shares.
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. Because the distribution fee payable by the Fund may be considered an asset-based sales charge, long-term shareholders of the Fund may pay more than the economic equivalent of the maximum front-end sales charges permitted by the NASD.
As a matter of fundamental policy which cannot be changed without shareholder approval, the Fund is required in the months of February, May, August and November to offer to repurchase at least 5% and up to 25% of its shares. Under normal market conditions, the Trustees expect to authorize a 25% offer. (The Fund may also make a discretionary repurchase offer once every two years and has not yet done 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 1-800-262-1122 (f und #32).
At least 21 days prior to the repurchase request deadline the Fund will mail written notice to each shareholder setting forth the number of shares the Fund will repurchase, the repurchase request deadline and other terms of the offer to repurchase, and the procedures for shareholders to follow to request a repurchase. (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 value of the Portfolio, the investment company in which the Fund invests; 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 of the Fund. Moreover, diminution in the size of the Portfolio through repurchases of Fund shares 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 and indirectly by the Fund. 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 Funds 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.
Shareholder Account Features
Once you purchase shares, the transfer agent establishes ^an account for you^.
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 any class of another|
|Eaton Vance fund chosen by you, subject to the terms of that funds prospectus. Before|
|selecting this option, you must obtain a prospectus of the other fund and consider its|
|objectives, risks, and charges and expenses carefully.|
Information from the Fund. From time to time, you may be mailed the following:
| Quarterly repurchase offer notices.|
| Semiannual and annual reports, containing a list of portfolio holdings as of the end of the second and fourth fiscal|
|quarters, respectively, 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.|
The Fund will file with the SEC a list of the Portfolios portfolio holdings as of the end of the first and third fiscal quarters on Form N-Q. The Funds annual and semiannual reports (as filed on Form N-CSR) and each Form N-Q may be viewed on the SECs website (www.sec.gov). The most recent fiscal and calendar quarter end holdings may also be viewed on the Eaton Vance website (www.eatonvance.com). Portfolio holdings information is filed with the SEC or posted on the Eaton Vance website approximately 60 days after the end of the quarter to which it relates. The Fund also posts information about certain portfolio characteristics of the Portfolio (such as top ten holdings and asset allocation) as of the most recent calendar quarter end on the Eaton Vance website approximately ten business days after calendar quarter end.
Tax-Deferred Retirement Plans. Fund shares are available for purchase in connection with certain tax-deferred retirement plans. Call 1-800-262-1122 for information. Distributions will be invested in additional shares for all tax-deferred retirement plans.
Exchange Privilege. You may exchange your Fund shares at the time of a Fund repurchase at net asset value for Class B shares of one or more open-end investment companies in the Eaton Vance Group of Funds or Eaton Vance Money Market Fund, which are subject to a contingent deferred sales charge. 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 of Fund shares.
Before exchanging, you should read the prospectus of the new fund carefully. If you wish to exchange shares, write to the transfer agent (see back cover for address) or call 1-800-262-1122. Each exchange must involve shares which have a net asset value of at least $1,000. The exchange privilege may be changed or discontinued at any time. You will receive 60 days notice of any material change to the privilege. This privilege may not be used for market timing. If an account (or group of accounts) makes more than two round-trip exchanges (exchanged from one fund to another and back again) within 12 months, it will be deemed to be market timing. As described under Purchasing Shares, the exchange privilege may be terminated for market timing accounts or for other reasons.
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 reasonable procedures, they will not be responsible for unauthorized telephone or electronic transactions and you bear the risk of possible loss resulting from these transactions. You may decline the telephone redemption option on the account application. Telephone instructions are ^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 to utilize a number of shareholder features, such as telephone transactions, directly with the Fund. ^If you transfer ^shares in a street name account to an account with another investment dealer or to an account directly with the ^Fund, you ^should obtain historical information about your shares prior to the transfer^.
Procedures for Opening New Accounts. To help the government fight the funding of terrorism and money laundering activities, federal law requires the Fund to obtain, verify and record information that identifies each person who opens a Fund account. When you open an account, the transfer agent or your investment dealer will ask you for your name, address, date of birth and other identifying information. You also may be asked to produce a copy of your drivers license and other identifying documents. If a person fails to provide the information requested, any application by that person to
open a new account will be rejected. Moreover, if the transfer agent or the investment dealer is unable to verify the identity of a person based on information provided by that person, it may take additional steps including, but not limited to, requesting additional information from the person, closing the persons account or reporting the matter to the appropriate federal authorities. If your account is closed for this reason, your shares may be automatically redeemed. If the Funds net asset value has decreased since your purchase, you will lose money as a result of this redemption.
Account Questions. If you have any questions about your account or the services available, please call Eaton Vance Shareholder Services at 1-800-262-1122, 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. Your account will be credited with dividends beginning on the business day after the day when the funds used to purchase your shares are collected by the transfer agent. The Funds 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. The Funds distributions will be taxable as described above whether they are paid in cash or reinvested in additional shares. Investors who purchase shares at a time when the Funds net asset value reflects gains that are either unrealized or realized but undistributed will pay the full price for the shares and then may receive some portion of the purchase price back as a taxable distribution. 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 shareholders 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.
The Funds investments in certain debt obligations may cause the Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements.
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 at a rate of 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid thereafter. An individuals TIN is generally his or her social security number.
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.
Prime Rate Reserves
April 1, ^2007
Investment Adviser of Senior Debt Portfolio
Boston Management and Research, The Eaton Vance Building, 255 State Street, Boston, MA 02109
Administrator of Eaton Vance Prime Rate Reserves
Eaton Vance Management, The Eaton Vance Building, 255 State Street, Boston, MA 02109
Eaton Vance Distributors, Inc., The Eaton Vance Building, 255 State Street, Boston, MA 02109 1-800-225-6265
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
PFPC Inc., P.O. Box 9653, Providence, RI 02940-9653 1-800-262-1122
Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA 02116
|^354-4/07||© ^2007 Eaton Vance Management|
|STATEMENT OF |
April 1, ^2007
|Eaton Vance Prime Rate Reserves|
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
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:
|Investment Policies and Risks||2^||Shareholder Account Information||20|
|Investment Restrictions||8^||Portfolio Trading||21^|
|Management and Organization||10^||Taxes||^23|
|Control Persons and Principal Holders of Shares||^15||Performance||^26|
|Investment Advisory and Other Services||15||Financial Statements||^28|
|Calculation of Net Asset Value||^19|
|Appendix A: Ratings of Corporate Bonds||^29|
|Appendix B: Eaton Vance Funds Proxy Voting ^Policy and Procedures||^31|
|Appendix C: Adviser Proxy Voting Policies and Procedures||^33|
This SAI is NOT a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by the Funds prospectus dated April 1, ^2007, 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.
© ^2007 Eaton Vance Management
The following defined terms may be used herein: SEC for the Securities and Exchange Commission; CFTC for the Commodities Futures Trading Commission; Code for the Internal Revenue Code of 1986, as amended; 1940 Act for the Investment Company Act of 1940, as amended; and NASD for the National Association of Securities Dealers, Inc.
INVESTMENT POLICIES AND RISKS
Primary strategies are defined in the prospectus. The following is a description of the various investment practices that may be engaged in, whether as a primary or secondary strategy, and a summary of certain attendant risks. The investment adviser(s) may not buy any of the following instruments or use any of the following techniques unless it believes that doing so will help achieve the investment objective(s).
Structure 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 group of loan investors (Loan Investors). The Agent typically administers and enforces the Senior Loan on behalf of the other Loan Investors in the syndicate. In addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Loan Investors.
Senior Loans primarily include senior floating rate loans and secondarily senior floating rate debt obligations (including those issued by an asset-backed pool), and interests therein. Loan interests primarily take the form of assignments purchased in the primary or secondary market. Loan interests may also take the form of participation interests in, or novations of a Senior Loan. 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 Loan Investors or from other investors in loan interests.
The Portfolio typically purchases Assignments from the Agent or other Loan Investors. The purchaser of an Assignment typically succeeds to all the rights and obligations under the Loan Agreement of the assigning Loan Investor and becomes a Loan Investor under the Loan Agreement with the same rights and obligations as the assigning Loan Investor. 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 Loan Investor.
The Portfolio also may invest in Participations. Participations by the Portfolio in a Loan Investors portion of a Senior Loan typically will result in the Portfolio having a contractual relationship only with such Loan Investor, 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 Loan Investor selling the Participation and only upon receipt by such Loan Investor 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 Loan Investors 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 Bo rrower and the Loan Investor selling the Participation. In the event of the insolvency of the Loan Investor selling a Participation, the Portfolio may be treated as a general creditor of such Loan Investor. The selling Loan Investors and other persons interpositioned between such Loan Investors 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 Committees 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 Loan Investor selling the Participation, and any other persons interpositioned between the Portfolio and the Loan Investor, at the time of investment has outstanding debt or deposit obligations rated investment grade (BBB or A-3 or higher by Standard & Poors Ratings Group (S&P) or Baa or P-3 or higher by Moodys Investors Service, Inc. (Moodys) or comparably rated by another nationally recognized rating agency (each a Rating Agency)) or determined by the investment adviser to be of comparable quality. Securities rated Baa by Moodys have speculative characteristics. Similarly, the Portfolio will purchase an Assignment or Participation or act as a Loan Investor 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 the investment adviser 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 Moodys is regarded by Moodys 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 Moodys are considered by Moodys to have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced.
Certain Fees Paid to the Portfolio. 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 amendment 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 holders of the Senior Loan (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 Loan Investors directly, as the case may be, is normally an event of acceleration; i.e., the Agent, or the Loan Investors directly, as the case may be, has the right to call the outstanding Senior Loan. The typical practice of an Agent or a Loan Investor 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 Loan Investors 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 Loan Investors pursuant to the applicable Loan Agreement.
A financial institutions 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 Agents 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 can 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 Loan Investors, 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 Funds performance because the Portfolio should be able to reinvest prepayments in other Senior Loans that have similar yields (subject to market conditions) and because receipt of such fees may mitigate any adverse impact on the Funds 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 that have obtained bridge loans from other parties. A Borrowers 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 Borrowers perceived creditworthiness.
The Portfolio will be subject to the risk that collateral securing a loan will decline in value or have no 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 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 Borrowers 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 Portfolios security interest in the loan collateral or subordinate the Portfolios rights under the Senior Loan to the interests of the Borrowers unsecured creditors or cause interest, previously paid to be refunded to the Borrower. If a court required interest to be refunded, it could negatively affect the Funds performance. 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 Portfolios security interest in loan collateral. If the Portfolios 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, or the Portfolio could also have to refund interest (see the prospectus for additional information).
Junior Loans. The Portfolio may invest in secured and unsecured subordinated loans, second lien loans and subordinated bridge loans (Junior Loans). Second lien loans are generally second in line in terms of repayment priority. A second lien loan may have a claim on the same collateral pool as the first lien or it may be secured by a separate set of assets, such as property, plants, or equipment. Second lien loans generally give investors priority over general unsecured creditors in the event of an asset sale.
Junior Loans are subject to the same general risks inherent to any loan investment, including credit risk, market and liquidity risk, and interest rate risk. Due to their lower place in the Borrowers capital structure and possible unsecured status, Junior Loans involve a higher degree of overall risk than Senior Loans of the same Borrower.
The Portfolio may purchase Junior Loan interests either in the form of an assignment or a loan participation. As the purchaser of an assignment, the Portfolio would typically succeed to all of the rights and obligations of the assigning investor under the loan documents. In contrast, loan participations typically result in the purchaser having a contractual relationship only with the seller of the loan interest, not with the Borrower. As a result, the loan is not transferred to the loan participant. The loan participants right to receive payments from the Borrower derives from the seller of the loan participation. The loan participant will generally have no right to enforce compliance by the Borrower with the terms of the loan agreement. Lastly, the loan participants voting rights may be limited.
Bridge Loans. Bridge loans or bridge facilities are short-term loan arrangements (e.g., 12 to 18 months) typically made by a Borrower in anticipation of intermediate-term or long-term permanent financing. Most bridge loans are structured as floating-rate debt with step-up provisions under which the interest rate on the bridge loan rises the longer the loan remains outstanding. In addition, bridge loans commonly contain a conversion feature that allows the bridge loan investor to convert its loan interest into senior exchange notes if the loan has not been prepaid in full on or prior to its maturity date. Bridge loans may be subordinate to other debt and may be secured or unsecured. Like any loan, bridge loans involve credit risk. Bridge loans are generally made with the expectation that the Borrower will be able to obtain permanent financing in the near future. Any delay in obtaining permanent financing subjects the bridge loan investor to increased risk. A Borrowers use of bridge loans also involves the risk that the Borrower may be unable to locate permanent financing to replace the bridge loan, which may impair the Borrowers perceived creditworthiness. From time to time, the Portfolio may make a commitment to participate in a bridge loan facility, obligating itself to participate in the facility if it funds. In return for this commitment, the Portfolio receives a fee. The investment adviser intends to limit any such commitments to less than 5% of the Portfolios assets.
Derivative Instruments. Derivative instruments (which are instruments that derive their value from another instrument, security, index or currency) may be purchased or sold to enhance income (in the case of written options), to hedge against fluctuations in securities prices, market conditions or currency exchange rates, to change the duration of the overall portfolio, or as a substitute for the purchase or sale of securities or currencies. Such transactions may be in the U.S. or abroad and may include the purchase or sale of futures contracts on securities (such as U.S. Government securities), indicies, other financial instruments (such as certificates of deposit, Eurodollar time deposits and economic indicies); options on futures contracts; exchange-traded and over-the-counter options on securities, indicies or currencies; interest rate swaps and forward foreign currency exchange contracts. Transactions in derivative instruments involve a risk of loss or depreciation due to: unanticipated adverse changes in securities prices, interest rates, indices, the other financial instruments prices or currency exchange rates; the inability to close out a position; default by the counterparty; imperfect correlation between a position and the 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 an investment in these instruments. In addition, the entire premium paid for purchased options may be lost before they can be profitably exercised. Transaction costs are incurred in opening and closing positions. Derivative instruments may sometimes increase or leverage exposure to a particular market risk, thereby increasing price volatility of derivative instruments the Portfolio holds. The Portfolios success in using derivative instruments to hedge portfolio assets depends on the degree of price correlation between the derivative instruments and the hedged asset. Imperfect correlation may be caused by several factors, including temporary price disparities among the trading markets for the derivative instrument, the assets underlying the derivative instrument and the Portfolios assets.
Over-the-counter (OTC) derivative instruments involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in an exchange-traded derivative instrument, which may make the contract temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or futures option can vary from the previous days settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the closing out of positions to limit losses. The staff of the SEC takes the position that certain purchased OTC options, and assets used as cover for written OTC options, are illiquid. The ability to terminate OTC derivative instruments may depend on the cooperation of the counterparties to such contracts. For thinly traded derivative instruments, the only source of price quotations may be the selling dealer or counterparty. In addition, certain provisions of the Code limit the use of derivative instruments. The Portfolio has claimed an exclusion from the definition of a Commodity Pool Operator (CPO) under the Commodity Exchange Act and therefore is not subject to registration as a CPO. The use of derivatives is highly specialized activities that involve skills different from conducting ordinary portfolio securities transactions. There can be no assurance that the investment advisers use of derivative instruments will be advantageous to the Portfolio. The Portfolio will engage in transactions in futures contracts and regulated options only to the extent such transactions are consistent with the requirements of the Code for maintaining the qualification of the Fund as a regulated investment company for federal income tax purposes.
Foreign exchange traded futures contracts and options thereon may be used only if the investment adviser determines that trading on such foreign exchange does not entail risks, including credit and liquidity risks, that are materially greater than the risks associated with trading on CFTC-regulated exchanges.
A put option on a security may be written only if the investment adviser intends to acquire the security.
Fixed-Income Securities. Fixed-income securities include preferred, preference and convertible securities, equipment lease certificates, equipment trust certificates and conditional sales contracts. Preference stocks are stocks that have many characteristics of preferred stocks, but are typically junior to an existing class of preferred stocks. Equipment lease certificates are debt obligations secured by leases on equipment (such as railroad cars, airplanes or office equipment), with the issuer of the certificate being the owner and lessor of the equipment. Equipment trust certificates are debt obligations secured by an interest in property (such as railroad cars or airplanes), the title of which is held by a trustee while the property is being used by the borrower. Conditional sales contracts are agreements under which the seller of property continues to hold title to the property until the purchase price is fully paid or other conditions are met by the buyer.
Fixed-rate bonds may have a demand feature allowing the holder to redeem the bonds at specified times. These bonds are more defensive than conventional long-term bonds (protecting to some degree against a rise in interest rates) while providing greater opportunity than comparable intermediate term bonds, since they may be retained if interest rates decline. Acquiring these kinds of bonds provides the contractual right to require the issuer of the bonds to purchase the security at an agreed upon price, which right is contained in the obligation itself rather than in a separate agreement or instrument. Since this right is assignable only with the bond, it will not be assigned any separate value. Floating or variable rate obligations may be acquired as short-term investments pending longer term investment of funds.
Certain securities may permit the issuer at its option to call, or redeem, the securities. If an issuer were to redeem securities during a time of declining interest rates, the Portfolio may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed.
The rating assigned to a security by a rating agency does not reflect assessment of the volatility of the securitys market value or of the liquidity of an investment in the securities. Credit ratings are based largely on the issuers historical financial condition and the rating agencys investment analysis at the time of rating, and the rating assigned to any particular security is not necessarily a reflection of the issuers current financial condition. Credit quality in the high yield, high risk bond market can change from time to time, and recently issued credit ratings may not fully reflect the actual risks posed by a particular high yield security. In addition to lower rated securities, the Portfolio also may invest in higher rated securities. For a description of corporate bond ratings, see Appendix A.
Credit Default Swap Contracts. The Portfolio may enter credit default swap contracts. When the Portfolio is the buyer of a credit default swap contract, the Portfolio is entitled to receive the par (or other agreed upon) value of a referenced debt obligation from the counterparty to the contract in the event of a default by a third party (such as a U.S. or corporate issuer) on the debt obligation. In return, the Portfolio would pay the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Portfolio would have made the payments and received no benefit from the contract. If a transaction is to be settled by physical delivery, the Portfolio must deliver to the seller a credit instrument that satisfies agreed upon delivery conditions. The seller then pays the Portfolio the par value of the delivered instrument. When the Portfolio is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay upon default of the referenced debt obligation. As the seller, the Portfolio would effectively add leverage because in addition to its total assets, it would be subject to investment exposure on the notional amount of the swap. These transactions involve certain risks, including that the seller may be unable to fulfill its obligations in the transaction.
Credit Linked Notes and Similar Structured Investments. The Portfolio may also purchase credit linked notes and similar structured investments. Credit linked notes are synthetic obligations between two or more parties where the payment of principal and/or interest is based on the performance of some obligation, basket of obligations, index or economic indicator (a reference obligation). In addition to the credit risk associated with the reference obligation and interest rate risk, the buyer and seller of a credit linked noted or similar structured investment are subject to counterparty risk.
Warrants. The Portfolio may acquire warrants and other securities as part of a unit combining Senior Loans and equity securities of a Borrower or its affiliates. The acquisition of such equity securities will only be incidental to the Portfolios purchase of a Senior Loan. The Portfolio can (1) acquire warrants with upfront fees received in connection with purchasing a loan and (2) receive and hold warrants in connection with a loan restructuring. Warrants are an option to purchase equity securities at a specific price valid for a specific period of time. They do not represent ownership of the securities, but only the right to buy them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. Warrants may become valueless if not sold or exercised prior to their expiration. Warrants have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. ^Canadian special warrants issued in private placements prior to a public offering are not considered warrants for purposes of ^the Portfolios investment restrictions^.
Asset Coverage. To the extent required by SEC guidelines, the Portfolio will only engage in transactions that expose it to an obligation to another party if it owns either (1) an offsetting (covered) position for the same type of financial asset, or (2) cash or liquid securities, segregated with its custodian, with a value sufficient at all times to cover its potential obligations not covered as provided in (1). Assets used as cover or segregated with the custodian cannot be sold while the position(s) requiring cover is open unless replaced with other appropriate assets. As a result, if a large portion of assets is segregated or committed as cover, it could impede portfolio management or the ability to meet redemption requests or other current obligations.
Securities Lending. As described in the prospectus, the Portfolio may seek to earn income by lending portfolio holdings to broker-dealers and other institutional investors. Cash collateral received by the Portfolio in respect of loaned holdings is invested in Eaton Vance Cash Collateral Fund, LLC (Cash Collateral Fund), a privately offered investment company holding high quality, U.S. dollar denominated money market instruments. As compensation for its services as manager, Eaton Vance is paid a fee at a rate of 0.08% annually of the average daily net assets of Cash Collateral Fund. Eaton Vance pays all of Cash Collateral Funds custody, audit and other ordinary operating expenses, excluding extraordinary, non-recurring items such as expenses incurred in connection with litigation, proceedings, claims and reorganization expenses. Payments to Eaton Vance for managing Cash Collateral Fund are in addition to the investment advisory fee paid by the Portfolio to BMR.
Foreign Investments. Because foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than about a domestic company. Volume and liquidity in most foreign debt markets is less than in the United States and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. There is generally less government supervision and regulation of securities exchanges, broker-dealers and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect to cert ain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) may be purchased. ADRs, EDRs and GDRs are certificates evidencing ownership of shares of a foreign issuer and are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. However, they continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include the political and economic risks of the underlying issuers country, as well as in the case of depositary receipts traded on non-U.S. ^markets, exchange risk. ADRs, EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts may involve higher expenses, they may not pass-through voting or other shareholder rights, and they may be less liquid^.
Foreign Currency Transactions. The value of foreign assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency rates and exchange control regulations. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the ^United States or abroad. Foreign currency exchange transactions may be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through entering into derivative currency transactions. Currency futures contracts are exchange-traded and change in value to reflect movements of a currency or a basket of currencies. Settlement must be made in a designated currency.
Forward foreign currency exchange contracts are individually negotiated and privately traded so they are dependent upon the creditworthiness of the counterparty. Such contracts may be used when a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign currency of dividend or interest payments on such a security is anticipated. A forward contract can then lock in the U.S. dollar price of the security or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. Additionally, when the investment adviser believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the securities held that are denominated in such foreign currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible. In addition, it may not be possible to hedge against long-term currency changes. Cross-hedging may be used by using forward contracts in one currency (or basket of currencies) to hedge against fluctuations in the value of securities denominated in a different currency if the investment adviser determines that there is an established historical pattern of correlation between the two currencies (or the basket of currencies and the underlying currency). Use of a different foreign currency magnifies exposure to foreign currency exchange rate fluctuations. Forward contracts may also be used to shift exposure to foreign currency exchange rate changes from one currency to another. Short-term hedging provides a means of fixing the dollar value of only a portion of portfolio assets.
Currency transactions are subject to the risk of a number of complex political and economic factors applicable to the countries issuing the underlying currencies. Furthermore, unlike trading in most other types of instruments, there is no systematic reporting of last sale information with respect to the foreign currencies underlying the derivative currency transactions. As a result, available information may not be complete. In an over-the-counter trading environment, there are no daily price fluctuation limits. There may be no liquid secondary market to close out options purchased or written, or forward contracts entered into, until their exercise, expiration or maturity. There is also the risk of default by, or the bankruptcy of, the financial institution serving as a counterparty.
Other Investment ^Companies. The Portfolio may invest in closed-end investment companies which invest in floating rate instruments. The Portfolio will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the advisory fee paid by the Portfolio. The value of ^closed-end investment ^company securities,which are ^usually traded on an exchange, is affected by the demand for ^the securities ^themselves, independent of the demand for the underlying portfolio assets, and, accordingly, such securities can trade at a discount from their net asset values. Please refer to Cash Equivalents for additional information about investment in other investment companies. ^If the Portfolio invests in Cash Management Portfolio, an affiliated money market fund, the ^managment fee paid on such investment w ill be ^credited against the Portfolios management fee.
Cash Equivalents. The Portfolio may invest in cash equivalents to invest daily cash balances or for temporary defensive purposes. Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations and may include Cash Management Portfolio, an affiliated money market fund which invests in such short-term securities.
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 Funds 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. Accordingly, 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, (c) lending its portfolio securities and (d) lending cash consistent with applicable law;|
|(6)||Purchase any security if, as a result of such purchase, more than 25% of the Funds 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.|
In connection with Restriction (1) above, the 1940 Act currently permits investment companies to borrow money so long as there is 300% asset coverage of the borrowing (i.e., borrowings do not exceed one-third of the investment companys total assets after subtracting liabilities other than the borrowings). There is no current intent to borrow money, except for the limited purposes described in the prospectus.
For the purpose of investment restriction (6), the Fund will consider all relevant factors in determining who is the issuer of the loan interest, including: the credit quality of the Borrower, the amount and quality of the collateral, the terms of the Loan Agreement and other relevant agreements (including inter-creditor agreements), the degree to which the credit of such interpositioned person was deemed material to the decision to purchase the loan interest, the interest rate environment, and general economic conditions applicable to the Borrower and such interpositioned person. In addition, with respect to restriction (6), the Fund will construe the phrase more than 25% to be 25% or more.
The Fund, as a matter of fundamental policy which may not be changed without a vote of a majority of its outstanding voting securities and in accord with the provisions of Rule 23c-3 (as amended from time to time) under the 1940 Act, shall make repurchase offers for its common shares of beneficial interest at periodic intervals of three months between repurchase request deadlines, such deadlines to be dates in the months of February, May, August and November determined by the Board of Trustees with the repurchase pricing date and time being not later than the close of business 14 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 14 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 Funds shareholders or may be changed with respect to the Portfolio by the Trustees of the Portfolio without the approval of the Fund or the Portfolios 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 (i) it owns an equal amount of such securities or 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 or (ii) it holds in a segregated account cash or other liquid securities (to the extent required under the 1940 Act) in an amount equal to the current market value of the securities sold short, and unless not more than 25% of its net assets (taken at current value) is held as collateral for such sales at any one time.
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 acquisition by the Fund and Portfolio of such security or asset. Accordingly, any later increase or decrease resulting from a change in values, assets or other circumstances or any subsequent rating change made by a rating service (or as determined by the investment adviser if the security is not rated by a rating agency), will not compel the Fund and Portfolio to dispose of such security or other asset. However, the Fund and Portfolio must always be in compliance with the borrowing policy limitation set forth above and any restrictive covenants under a credit facility agreement.
MANAGEMENT AND ORGANIZATION
Fund Management. The Trustees of the Fund are responsible for the overall management and supervision of the affairs of the Fund. The Trustees of the Portfolio are responsible for the overall management and supervision of the affairs of the Portfolio. 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. Trustees and officers of the Fund and the Portfolio hold indefinite terms of office. The noninterested Trustees consist of those Trustees who are not interested persons of the Fund and the Portfolio, as that term is defined under the 1940 Act. The business address of each Trustee and officer is The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109. As used in this SAI, EVC refers to Eaton Vance Corp., EV refers to Eaton Vance Inc. and EVD refers to Eaton Vance Distribut ors, Inc. EVC and EV are the corporate parent and trustee, respectively, of Eaton Vance and BMR. EVD is the principal underwriter of the Fund. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with Eaton Vance listed below.
|Number of Portfolios
in Fund Complex
|Term of Office and
Length of Service
|Name and Date of Birth||Principal Occupation(s) During Past Five Years||Other Directorships Held|
|JAMES B. HAWKES||Trustee||Trustee of the Fund||Chairman and Chief Executive Officer of EVC, BMR, Eaton Vance and||^171||Director of EVC|
|11/9/41||since 1989; of the||EV; Director of EV; Chief Executive Officer, ^President and Director of|
|Portfolio since||EVD. Trustee and/or officer of 171 registered investment companies|
|1992||in the Eaton Vance Fund Complex. Mr. Hawkes is an interested person|
|because of his positions with BMR, Eaton Vance, EVC, EVD and EV,|
|which are affiliates of the Fund and Portfolio.|
|BENJAMIN C. ESTY||Trustee||Since 2005||Roy and Elizabeth Simmons Professor of Business Administration,||^171||None|
|1/2/63||Harvard University Graduate School of Business Administration (since|
|2003). Formerly, Associate Professor, Harvard University Graduate|
|School of Business Administration (2000-2003).|
|SAMUEL L. HAYES, III||Trustee and||Trustee of the Fund||Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard||^171||Director of Tiffany & Co.|
|2/23/35||Chairman of the||since 1989; of the||University Graduate School of Business Administration. Director of||(specialty retailer)|
|Board||Portfolio since||Yakima Products, Inc. (manufacturer of automotive accessories) (since|
|1994; and||2001) and Director of Telect, Inc. (telecommunication services|
|Chairman of the||company).^|
|Board since 2005|
|WILLIAM H. PARK||Trustee||Since 2003||Vice Chairman, Commercial Industrial Finance Corp. (specialty finance||^171||None|
|9/19/47||company) (since ^2006). Formerly, President and Chief Executive|
|Officer, Prizm Capital Management, LLC (investment management|
|RONALD A. PEARLMAN||Trustee||Since 2003||Professor of Law, Georgetown University Law Center. ^||^171||None|
|Number of Portfolios
in Fund Complex
|Term of Office and
Length of Service
|Name and Date of Birth||Principal Occupation(s) During Past Five Years||Other Directorships Held|
|NORTON H. REAMER||Trustee||Trustee of the Fund||President, Chief Executive Officer and a Director of Asset Management||^171||None|
|9/21/35||since 1989; of the||Finance Corp. (a specialty finance company serving the investment|
|Portfolio since||management industry) (since October 2003). President, Unicorn|
|1994||Corporation (an investment and financial advisory services company)|
|(since September 2000). Formerly, Chairman and Chief Operating|
|Officer, Hellman, Jordan Management Co., Inc. (an investment|
|management company) (2000-2003). Formerly, Advisory Director of|
|Berkshire Capital Corporation (investment banking firm) (2002-|
|LYNN A. STOUT||Trustee||Since 1998||Professor of Law, University of California at Los Angeles School of||^171||None|
|RALPH F. VERNI||Trustee||Since 2005||Consultant and private investor.||^171||None|
(1)Includes both master and feeder funds in a master-feeder structure.
Principal Officers who are not Trustees
|Term of Office and
Length of Service
|Name and Date of Birth||Principal Occupation(s) During Past Five Years|
|SCOTT H. PAGE||President||Since 2002*||Vice President of Eaton Vance and BMR. Officer of ^15 registered investment companies managed|
|11/30/59||by Eaton Vance or BMR.|
|PAYSON F. SWAFFIELD||Vice President||For the Fund since 1998; of the||Vice President of Eaton Vance and BMR. Officer of ^15 registered investment companies managed|
|8/13/56||Portfolio since 1996||by Eaton Vance or BMR.|
|DAN A. MAALOULY||Treasurer||Since 2005||Vice President of Eaton Vance and BMR. Previously, Senior Manager at PricewaterhouseCoopers|
|3/25/62||LLP (1997-2005). Officer of ^71 registered investment companies managed by Eaton Vance or|
|ALAN R. DYNNER||Secretary||Since 1997||Vice President, Secretary and Chief Legal Officer of BMR, Eaton Vance, EVD, EV and EVC.|
|10/10/40||Officer of ^171 registered investment companies managed by Eaton Vance or BMR.|
|PAUL M. ONEIL||Chief Compliance Officer||Since 2004||Vice President of Eaton Vance and BMR. Officer of ^171 registered investment companies|
|7/11/53||managed by Eaton Vance or BMR.|
*Prior to 2002, Mr. Page served as Vice President of the Fund since 1998 and of the Portfolio since 1996.
The Board of Trustees of the Fund and the Portfolio have several standing Committees, including the Governance Committee, the Audit Committee and the Special Committee. The Governance, the Audit and the Special Committees are each comprised of only noninterested Trustees.
^Ms. Stout (Chair), Messrs. Esty, Hayes, Park, Reamer and Verni are members of the Governance Committee of the Board of Trustees of the Fund and the Portfolio^. The purpose of the Governance Committee is to consider, evaluate and make recommendations to the Board of Trustees with respect to the structure, membership and operation of the Board of Trustees and the Committees thereof, including the nomination and selection of noninterested Trustees and a Chairperson of the Board of Trustees and the compensation of such persons. During the fiscal year ended November 30, ^2006, the Governance Committee convened ^six times.
The Governance Committee will, when a vacancy exists or is anticipated, consider any nominee for noninterested Trustee recommended by a shareholder if such recommendation is submitted in writing to the Governance Committee, contains sufficient background information concerning the candidate, including evidence the candidate is willing to serve as a noninterested Trustee if selected for the position, and is received in a sufficiently timely manner.
Messrs. Reamer (Chair), Hayes, Park, Verni and Ms. Stout are members of the Audit Committee of the Board of Trustees of the Fund and the Portfolio. The Board of Trustees has designated Messrs. Hayes, Park and Reamer, each a noninterested Trustee, as audit committee financial experts. The Audit Committees purposes are to (i) oversee the Fund and Portfolios accounting and financial reporting processes, its internal control over financial reporting, and, as appropriate, the internal control over financial reporting of certain service providers; (ii) oversee or, as appropriate, assist Board oversight of the quality and integrity of the Fund and Portfolios financial statements and the independent audit thereof; (iii) oversee, or, as appropriate, assist Board oversight of, the Fund and Portfolios compliance with legal and regulatory requirements that relate to the Fund and Portfolios accounting and financial reporting, internal control over financial reporting and indepe ndent audits; (iv) approve prior to appointment the engagement and, when appropriate, replacement of the independent registered public accounting firm, and, if applicable, nominate the independent registered public accounting firm to be proposed for shareholder ratification in any proxy statement of a Fund; (v) evaluate the qualifications, independence and performance of the independent registered public accounting firm and the audit partner in charge of leading the audit; and (vi) prepare, as necessary, audit committee reports consistent with the requirements of Rule 306 of Regulation S-K for inclusion in the proxy statement of a Fund. During the fiscal year ended November 30, ^2006, the Audit Committee convened four times.
^Messrs. Hayes (Chair), Esty, Park, Reamer and Verni are currently members of the Special Committee of the Board of Trustees of the Fund and the Portfolio. The purposes of the Special Committee are to consider, evaluate and make recommendations to the Board of Trustees concerning the following matters: (i) contractual arrangements with each service provider to the Fund and Portfolio, including advisory, sub-advisory, transfer agency, custodial and fund accounting, distribution services and administrative services; (ii) any and all other matters in which any service provider (including Eaton Vance or any affiliated entity thereof) has an actual or potential conflict of interest with the interests of the Fund, the Portfolio or investors therein; and (iii) any other matter appropriate for review by the noninterested Trustees, unless the matter is within the responsibilities of the Audit Committee or the Governance Committee. During the fiscal year ended November 30, ^2006, the Specia l Committee convened ^twelve times.
Share Ownership. The following table shows the dollar range of equity securities beneficially owned by each Trustee in the Fund and in all Eaton Vance Funds overseen by the Trustee as of December 31, ^2006. Interests in the Portfolio cannot be purchased by a Trustee.^^
|Aggregate Dollar Range of Equity|
Securities Owned in All Registered
Funds Overseen by Trustee in the
Eaton Vance Fund Complex
|Dollar Range of Equity Securities
Owned in the Fund
|Name of Trustee|
|James B. Hawkes||$1 - $10,000**||over $100,000|
|Benjamin C. Esty||None||^over $100,000|
|Samuel L. Hayes, III||None||over $100,000|
|William H. Park||None||over $100,000|
|Ronald A. Pearlman||None||over $100,000|
|Norton H. Reamer||None||over $100,000|
|Lynn A. Stout||None||over $100,000*|
|Ralph F. Verni||None||over $100,000*|
|^* Includes shares which may be deemed to be beneficially owned through the Trustee Deferred ^Compensation|
**Includes shares held by Mr. Hawkes spouse.
As of December 31, ^2006, no noninterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of EVC, EVD or any person controlling, controlled by or under common control with EVC or EVD.
During the calendar years ended December 31, ^2005 and December 31, ^2006, no noninterested Trustee (or their immediate family members) had:
|1.||Any direct or indirect interest in Eaton Vance, EVC, EVD or any person controlling, controlled by or under common control with EVC or EVD;|
|2.||Any direct or indirect material interest in any transaction or series of similar transactions with (i) the Trust or any Fund; (ii) another fund managed by EVC, distributed by EVD or a person controlling, controlled by or under common control with EVC or EVD; (iii) EVC or EVD; (iv) a person controlling, controlled by or under common control with EVC or EVD; or (v) an officer of any of the above; or|
|3.||Any direct or indirect relationship with (i) the Trust or any Fund; (ii) another fund managed by EVC, distributed by EVD or a person controlling, controlled by or under common control with EVC or EVD; (iii) EVC or EVD; (iv) a person controlling, controlled by or under common control with EVC or EVD; or (v) an officer of any of the above.|
During the calendar years ended December 31, ^2005 and December 31, ^2006, no officer of EVC, EVD or any person controlling, controlled by or under common control with EVC or EVD served on the Board of Directors of a company where a noninterested Trustee of the Fund or the Portfolio or any of their immediate family members served as an officer.
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 or her 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 Portfolios 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 Fund nor the Portfolio has a retirement plan for 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 Trustees of the Fund and the Portfolio are paid by the Fund and the Portfolio, respectively. (A Trustee of the Fund and the Portfolio who is a member of the Eaton Vance organization receives no compensation from the Fund and the Portfolio.) During the fiscal year ended November 30, ^2006, the Trustees of the Fund and the Portfolio earned the following compensation in their capacities as Trustees from the Fund and the Portfolio. For the year ended December 31, ^2006, the Trustees earned the following compensation in their capacities as Trustees of the funds in the Eaton Vance fund complex(1):
|Source of Compensation||Benjamin C.
|Fund||$ ^459||$ ^694||$ ^432||$ ^456||$ ^447||$ ^487||$ ^481|
|Fund and Fund Complex(1)||$^185,000^||$^300,^000||$^185,000(5)||$^185,000||$^195,000||$^195,000(6)||$^185,000(7)|
|(1) As of April 1, ^2007, the Eaton Vance fund complex consists of ^171registered investment companies or series thereof. ^|
(2) Includes ^$3,599 of deferred compensation.
(3) Includes ^$1,195 of deferred compensation.
(4) Includes ^$2,502 of deferred compensation.
(5) Includes ^$133,680 of deferred compensation.
(6) Includes ^$45,000 of deferred compensation.
(7) Includes ^$92,500 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 Funds 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 Funds 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 Funds by-laws provide that no person shall serve as a Trustee if shareholders holding two-thirds of the outstanding shares have removed him or her from that office either by a written declaration filed with the Funds 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 was organized as a trust under the laws of the state of New York on May 1, 1992 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 Portfolios 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 Portfolios 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 Portfolios Declaration of Trust, as amended, provides that the Fund and other entities permitted to invest in the Portfolio (e.g., other U.S. and foreign investment companies, and common and commingled trust funds) will each be liable for all obligations of the Portfolio. However, the risk of the Fund incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance exists and the Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of the Fund believe that neither the Fund nor its shareholders will be adversely affected by reason of the Fund investing in the Portfolio.
The Fund may be required to vote on matters pertaining to the Portfolio. When required by law to do so, 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 without shareholder approval at any time if the Board of Trustees of the Fund determines that it is in the best interest of the Fund and its shareholders to do so. In the event the Fund withdraws all of its assets from the Portfolio, or the Board of Trustees of the Fund determines that the investment objective of the Portfolio is no longer consistent with the investment objective of the Fund, the Trustees would consider what action might be taken, including investing the assets of the Fund in another pooled investment entity or retaining an investment
adviser to manage the Funds assets in accordance with its investment objective. The Funds investment performance may be affected by a withdrawal of all its assets (or the assets of another investor in the Portfolio) from the Portfolio.
Proxy Voting Policy. The Boards of Trustees of the Fund and Portfolio have adopted a proxy voting policy and ^procedures (the Fund Policy), pursuant to which the Trustees have delegated proxy voting responsibility to the investment adviser and adopted the proxy voting policies and procedures of the investment adviser (the Policies)^. An independent proxy voting service has been retained to assist in the voting of Fund and Portfolio proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. The Trustees will review the Funds and Portfolios proxy voting records from time to time and will annually consider approving the Policies for the upcoming year. For a copy of the Fund Policy and investment adviser Policies, see Appendix B and Appendix C, respectively. Information on how the Fund and Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 3 0 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the SECs website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of March 1, ^2007, the Trustees and officers of the Fund, as a group, owned in the aggregate less than 1% of the outstanding shares of the Fund. As of March 1, ^2007, Merrill Lynch, Pierce, Fenner & Smith, Inc. of Jacksonville, FL, was the record owner of approximately 13.6% of the outstanding shares, which were held on behalf of its customers who are the beneficial owners of such shares, and as to which they had voting power under certain limited circumstances. To the knowledge of the Fund, no other person owned of record or beneficially 5% or more of the Funds outstanding shares as of such date.
|INVESTMENT ADVISORY AND OTHER SERVICES|
Investment Advisory Services. Under the general supervision of the Portfolios 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 provide related office facilities 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.
The Portfolio has agreed to pay BMR a fee in the amount of 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 accepted a contractual waiver of a portion of BMRs compensation 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. This waiver of BMRs advisory fees will be eliminated or reduced in the event that the distribution fees of certain funds investing in the Portfolio are eliminated or reduced. For the three fiscal years ended November 30, ^2006, the Portfolio paid BMR advisory fees aggregatin g $^13,^019,^584, $14,^552,^021 and $^14,^904,^968, respectively, equivalent to 0.45%, 0.^45% and 0.44%, respectively, of the Portfolios average daily gross assets for each year. As at November 30, ^2006, the gross assets of the Portfolio were $^2,680,798,370. The advisory fee paid by the Portfolio is reduced by the Portfolios allocable portion of the advisory fees paid by Cash Management Portfolio, an affiliated investment company managed by BMR. For the fiscal year ended November 30, 2006, the Portfolios allocated portion of the advisory fee paid by Cash Management Portfolio totaled $11,100. For more information with respect to the foregoing advisory fee waiver, see the Funds prospectus.
Information About BMR and Eaton Vance. BMR and Eaton Vance are business trusts organized under the laws of The Commonwealth of Massachusetts. Eaton Vance, Inc. (EV) serves as trustee of BMR and Eaton Vance. EV and Eaton Vance are wholly-owned subsidiaries of Eaton Vance Corporation (EVC), a Maryland corporation and publicly-held holding company. BMR is an indirect subsidiary of EVC. EVC through its subsidiaries and affiliates engages primarily in investment management, administration and marketing activities. The Directors of EVC are James B. Hawkes, Thomas E. Faust Jr., Ann E. Berman, John G.L. Cabot, Leo I. Higdon, Jr., Vincent M. OReilly, Dorothy E. Puhy and Winthrop H. Smith, Jr. All shares of the outstanding Voting Common Stock of EVC are deposited in a Voting Trust, the Voting Trustees of which are Messrs. Hawkes and Faust, Jeffrey P. Beale, Cynthia J. Clemson, Alan R. Dynner, Michael R. Mach, Robert B. MacIntosh, Thomas M. Metzold, Scott H. Page, Duncan W. Richardson, G. West Saltonstall, Judith A. Saryan, William M. Steul, Payson F. Swaffield and Michael W. Weilheimer (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.
Code of Ethics. The investment adviser, principal underwriter, and the Fund and the Portfolio have adopted Codes of Ethics governing personal securities transactions. Under the Codes, Eaton Vance employees may purchase and sell securities (including securities held or eligible for purchase by the Portfolio) subject to the provisions of the Codes and certain employees are also subject to pre-clearance, reporting requirements and other procedures.
The Codes can be reviewed and copied at the Securities and Exchange Commissions public reference room in Washington, DC (call 1-202-942-8090 for information on the operation of the public reference room); on the EDGAR Database on the SECs Internet site (http://www.sec.gov); or, upon payment of copying fees, by writing to the SECs public reference section, Washington, DC 20549-0102, or by electronic mail at firstname.lastname@example.org.
Portfolio Managers. The co-portfolio managers (each referred to as a portfolio manager) of the Portfolio are Scott H. Page and Payson F. Swaffield. Each portfolio manager manages other investment companies and/or investment accounts in addition to the Portfolio. The following tables show, as of the Funds most recent fiscal year ended November 30, ^2006, the number of accounts each portfolio manager managed in each of the listed categories and the total assets in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets in those accounts.^
a Performance Fee
|Scott H. Page|
|Registered Investment Companies||^13||^$14,775.3||^0||^$ 0|
|Other Pooled Investment Vehicles||^7||^$4,939.5||^6||^$2,561.5|
|Other Accounts||^2||^$1,093.4||^0||^$ 0|
|Payson F. Swaffield|
|Registered Investment Companies||^13||^$14,775.3||^0||^$ 0|
|Other Pooled Investment Vehicles||^7||^$4,939.5||^6||^$2,561.5|
|Other Accounts||^2||^$1,093.4||^0||^$ 0|
*In millions of dollars. For registered investment companies, assets represent net assets of all open-end investment companies
and gross assets of all closed-end investment companies.
The following table shows the dollar value of shares of the Fund beneficially owned ^by each portfolio manager as of the Funds most recent fiscal year ended November 30, ^2006 and in all Eaton Vance Funds as of December 31, 2006. Interests in the Portfolio cannot be purchased by a portfolio manager.^
|Aggregate Dollar Range of|
Equity Securities Owned in all
Registered Funds in
the Eaton Vance Family of Funds
|Dollar Range of
Owned in the Fund
|Scott H. Page||None||over $1,000,000|
|Payson F. Swaffield||None||over $1,000,000|
It is possible that conflicts of interest may arise in connection with a portfolio managers management of the Portfolios investments on the one hand and the investments of other accounts for which the portfolio manager is responsible for on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Portfolio and other accounts he advises. In addition due to differences in the investment strategies or restrictions between the Portfolio and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the Portfolio. In some cases, another account
managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his discretion in a manner that he believes is equitable to all interested persons.
Compensation ^Structure for BMR. Compensation of the investment advisers portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-based compensation consisting of options to purchase shares of EVCs nonvoting common stock and/or restricted shares of EVCs nonvoting common stock. The investment advisers investment professionals also receive certain retirement, insurance and other benefits that are broadly available to all the investment advisers employees. Compensation of the investment advisers investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year end of EVC.
Method to Determine Compensation. The investment adviser compensates its portfolio managers based on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus appropriate peer groups or benchmarks. Performance is normally based on periods ending on the September 30th preceding fiscal year end. Fund performance is evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. In evaluating the performance of a fund and its manager, emphasis is normally placed on three-year performance, with consideration of performance over longer and shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to risk-adjusted performance. For funds with an investment objective other than total return (such as current income), consideration will also be given to the funds success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance.
The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers performance in meeting them.
The investment adviser seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. The investment adviser participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of the investment adviser and its parent company. The overall annual cash bonus pool is based on a substantially fixed percentage of pre-bonus operating income. While the salaries of the investment advisers portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.
Administrative Services. Under the Administration Agreement, Eaton Vance is responsible for managing the business affairs of the Fund, subject to the supervision of the Funds 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 Vances administrative services include recordkeeping, preparation and filing of documents required to comply with federal and state securities laws, supervising the activities of the Funds 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 Funds business. The Trustees of the Fund have accepted a contractual waiver of the Funds administration fee. See the Funds prospectus for more information with respect to this waiver. The Fund did not pay for services rendered under the Administration Agreement during the three fiscal years ended November 30, ^2006.
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 investm ent 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 Portfolios 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 Funds 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 Funds 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.
Sub-Transfer Agency Services. Eaton Vance also serves as sub-transfer agent for the Fund. As sub-transfer agent, Eaton Vance performs the following services directly on behalf of the Fund: (1) provides call center services to financial intermediaries and shareholders; (2) answers written inquiries related to shareholder accounts (matters relating to portfolio management, distribution of shares and other management policy questions will be referred to the Fund); (3) furnishes an SAI to any shareholder who requests one in writing or by telephone from the Fund; and (4) processes transaction requests received via telephone. For the transfer agency services it provides, Eaton Vance receives an aggregate annual fee equal to the lesser of $2.5 million or the actual expenses incurred by Eaton Vance in the performance of those services. This fee is paid to Eaton Vance by the Funds transfer agent from fees it receives from the Eaton Vance funds. The Fund will pay a pro rata share of such fee. For the fiscal year ended November 30, ^2006, the transfer agent accrued for or paid to Eaton Vance ^$72,861 for sub-transfer agency services performed on behalf of the Fund.^
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 SEC. 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 NASD. During the fiscal year ended November 30, ^2006, the Fund made distribution payments to the principal underwriter under the Distribution Plan aggregating ^$9,748,166.
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 Trustee s. 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 Distribution Plan because their employers (or affiliates thereof) receive distribution and/or service fees under the Distribution Plan or agreements related thereto.
The Trustees of the Fund believe that the Distribution Plan will be a significant factor in the expected growth of the Funds 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 three fiscal years ended November 30, ^2006, the principal underwriter made compensation payments to investment dealers in the aggregate amount of approximately ^$1,325,518, $1,720,884 and $2,652,611.^
Custodian. Investors Bank & Trust Company (IBT), 200 Clarendon Street, Boston, MA 02116, serves as custodian to the Fund and Portfolio. IBT has custody of all cash and securities representing the Funds interest in the Portfolio, has custody of the Portfolios assets, maintains the general ledger of the Portfolio and the Fund and computes the daily net asset value of interests in the Portfolio and the net asset value of shares of the Fund. In such capacity it attends to details in connection with the sale, exchange, substitution, transfer or other dealings with the Portfolios 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 transa ctions with various banks, including IBT. It is Eaton Vances 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 Registered Public Accounting Firm. Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA 02116, is the independent registered public accounting firm of the Fund and Portfolio, providing audit services^, and assistance ^and consultation with respect to the preparation of filings with the SEC.
Transfer Agent and Dividend Paying Agent and Registrar. PFPC Inc., P.O. Box 9653, Providence, RI 02940-9653, serves with respect to the shares as transfer and dividend paying agent and as registrar.
|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 investors 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 investors 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 investors 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 investors investment in the Portfolio as of the Portfolio Valuation Time on t he prior Portfolio Business Day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investors 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 investors interest in the Portfolio for the current Portfolio Business Day.
Senior Loans that meet certain criteria and are deemed to have prices that are readily available and reliable are valued by an independent pricing service. Other Senior Loans are valued at their fair value by the investment adviser. In connection with determining the fair value of a Senior Loan, the investment adviser makes an assessment of the likelihood that the borrower will make a full repayment of the Senior Loan. The primary factors considered by the investment adviser when making this assessment are (i) the creditworthiness of the borrower, (ii) the value of the collateral backing the Senior Loan, and (iii) the priority of the Senior Loan versus other creditors of the borrower. If, based on its assessment, the investment adviser believes there is a reasonable likelihood that the borrower will make a full repayment of the Senior Loan, the investment adviser will determine the fair value of the Senior Loan using a matrix pricing approach that considers the yield on the Senior Loan relative to yields on other loan interests issued by companies of comparable credit quality. If, based on its assessment, the investment adviser believes there is not a reasonable likelihood that the borrower will make a full
repayment of the Senior Loan, the investment adviser will determine the fair value of the Senior Loan using analyses that include, but are not limited to (i) a comparison of the value of the borrowers outstanding equity and debt to that of comparable public companies; (ii) a discounted cash flow analysis; or (iii) when the investment adviser believes it is likely that a borrower will be liquidated or sold, an analysis of the terms of such liquidation or sale. In certain cases, the investment adviser will use a combination of analytical methods to determine fair value, such as when only a portion of a borrowers assets are likely to be sold. In conducting its assessment and analyses for purposes of determining fair value of a Senior Loan, the investment adviser will use its discretion and judgment in considering and appraising such factors, data and information and the relative weight to be given thereto as it deems relevant, including without limitation, some or all of the following: (i) the fundamental characteristics of and fundamental analytical data relating to the Senior Loan, including the cost, size, current interest rate, 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 Borrowers debt structure; (ii) the nature, adequacy and value of the collateral securing the Senior Loan, including the Portfolios rights, remedies and interests with respect to the collateral; (iii) the creditworthiness of the Borrower, based on an evaluation of, among other things, its financial condition, financial statements and information about the Borrowers 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 experience, reputation, stability 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. Fair value determinations are made by the portfolio managers ^based on information available to such managers. The portfolio managers of other funds managed by Eaton Vance that invest in Senior Loans may not possess the same information about a Senior Loan borrower as the portfolio managers of Senior Debt Portfolio. At times, the fair value of a Senior Loan determined by the portfolio managers of other funds managed by Eaton Vance that invest in Senior Loans may vary from the fair value of the same Senior Loan determined by the portfolio managers of Senior Debt Portfolio. The fair value of each Senior Loan is periodically reviewed and approved by the investment advisers Valuation Committee and by ^the Trustees based upon procedures approved by the Trustees. Ju nior Loans are valued in the same manner as Senior Loans.
Debt obligations (other than short-term obligations maturing in sixty days or less), including listed securities and securities for which price quotations are available and forward contracts, will normally be valued on the basis of market valuations furnished by dealers or pricing services. Financial futures contracts listed on commodity exchanges and exchange-traded options are valued at closing settlement prices. Over-the-counter options are valued at the mean between the bid and asked prices provided by dealers. Marketable securities listed in the NASDAQ ^Global or Global Select Market System are valued at the NASDAQ official closing price. The value of interest rate swaps will be based upon a dealer quotation. Short-term obligations and money market securities maturing in sixty days or less are valued at amortized cost which approximates value. Investments for which reliable market quotations are unavailable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio. Occasionally, events affecting the value of foreign securities may occur between the time trading is completed abroad and the close of the Exchange which will not be reflected in the computation of the Portfolios net asset value (unless the Portfolio deems that such event would materially affect its net asset value in which case an adjustment would be made and reflected in such computation). The Portfolio may rely on an independent fair valuation service in making any such adjustment to the value of a foreign equity security.
|SHAREHOLDER ACCOUNT INFORMATION|
Waiver of Investment Minimums. In addition to waivers described in the prospectus, minimum investment amounts are waived for current and retired Directors and Trustees of Eaton Vance funds and portfolios, clients (including custodial, agency, advisory and trust accounts), current and retired officers and employees of Eaton Vance, its affiliates and other investment advisers and sub-advisers of Eaton Vance sponsored funds, and for such persons spouses, parents, siblings and lineal descendants and their beneficial accounts. The minimum initial investment amount is also waived for officers and employees of the Funds custodian and transfer agent.
Other Information. The Funds net asset value per share is normally rounded to two decimal places. In certain situations (such as a merger, share split or a purchase or repurchase of shares that represents a significant portion of the Fund), Eaton Vance may determine to extend the calculation of the net asset value per share to additional decimal places to ensure that neither the value of the Fund nor a shareholders shares is diluted materially as the result of a purchase or repurchase or other transaction.
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 shareholders 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 Funds transfer agent). The amount of any early withdrawal charge related to the prior purchase will be credited to the shareholders 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 ar e 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.
Exchange Privilege. In addition to exchanges into the same class of another Eaton Vance fund, Fund shares may be exchanged for shares of a money market fund sponsored by an investment dealer and approved by the principal underwriter (an investment dealer fund). For purposes of calculating the EWC applicable to investment dealer fund shares acquired in an exchange, the EWC schedule applicable to the exchanged shares will apply and the purchase of investment dealer fund shares is deemed to have occurred at the time of the original purchase of the exchanged shares, except that the time during which a shareholder holds such investment dealer fund shares will not be credited toward completing of the EWC period.
Tax-Deferred Retirement Plans. Shares of the Fund are available for purchase in connection with certain tax-deferred 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.
During the fiscal year ended November 30, ^2006, the principal underwriter received approximately ^$459,318 in EWCs.
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.
Decisions concerning the execution of portfolio security transactions, including the selection of the market and the executing firm, are made by BMR. The Portfolio is responsible for the expenses associated with portfolio transactions. The investment adviser is also responsible for the execution of transactions for all other accounts managed by it. The investment adviser places the portfolio security transactions for execution with many firms. The investment adviser uses its best efforts to obtain execution of portfolio security transactions at prices which are advantageous and at reasonably competitive spreads or (when a disclosed commission is being charged) at reasonably competitive commission rates. In seeking such execution, the investment adviser will use its best judgment in evaluating the terms of a transaction, and will give consideration to various relevant factors, including without limitation the full range and quality of the executing firms services including the responsivene ss of the firm to the investment adviser, the size and type of the transaction, the nature and character of the market for the security, the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities of the executing firm, the reputation, reliability, experience and financial condition of the firm, the value and quality of the services rendered by the firm in other transactions, and the reasonableness of the spread or commission, if any. In addition, the investment adviser may consider the receipt of Proprietary Research Services (as defined below), provided it does not compromise the investment advisers obligation to seek best overall execution for the Portfolio. The investment adviser may engage in portfolio brokerage transactions with a broker-dealer firm that sells shares of Eaton Vance funds, provided such transactions are not directed to that firm as compensation for the promotion or sale of such shares.
Transactions on stock exchanges and other agency transactions involve the payment of negotiated brokerage commissions. Such commissions vary among different broker-dealer firms, and a particular broker-dealer may charge different commissions according to such factors as the difficulty and size of the transaction and the volume of business done with
such broker-dealer. Transactions in foreign securities often involve the payment of brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid or received usually includes an undisclosed dealer markup or markdown. In an underwritten offering the price paid often includes a disclosed fixed commission or discount retained by the underwriter or dealer. Although spreads or commissions paid on portfolio security transactions will, in the judgment of the investment adviser, be reasonable in relation to the value of the services provided, commissions exceeding those which another firm might charge may be paid to broker-dealers who were selected to execute transactions on behalf of the investment advisers clients in part for providing brokerage and research services to the investment adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a broker or dealer who executes a portfolio transaction may receive a commission that is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the investment adviser determines in good faith that such compensation was reasonable in relation to the value of the brokerage and research services provided. This determination may be made either on the basis of that particular transaction or on the basis of overall responsibilities which the investment adviser and its affiliates have for accounts over which they exercise investment discretion. Brokerage and research services may include advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; effecting securities transactions and performing functions incidental thereto (such as clearance and settlement); and the Research Services referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the advisers of investment companies, institutions and other investors to receive research, analytical, statistical and quotation services, data, information and other services, products and materials which assist such advisers in the performance of their investment responsibilities (Research Services) from broker-dealer firms that execute portfolio transactions for the clients of such advisers and from affiliates of executing broker-dealers. Investment advisers also commonly receive Research Services from research providers that are not affiliated with an executing broker-dealer, but which have entered into payment arrangements involving an executing broker-dealer (Third Party Research Services). Under a typical Third Party Research Services payment arrangement, the research provider agrees to provide services to an investment adviser in exchange for specified payments to the research provider by a broker-dealer that executes portfolio transactions for clients of the investment adviser. The investment adviser and the executing broker-dealer enter into a related agreement specifying the amount of brokerage business the investment adviser will direct to the executing broker-dealer to offset payments made by the executing broker-dealer for Third Party Research Services received by the investment adviser. For example, an investment adviser may agree to direct brokerage business generating $45,000 in commissions on portfolio transactions to a broker-dealer firm as consideration for the executing broker-dealer making payments of $30,000 to a provider of Third Party Research Services. The ratio of the commissions to be paid to an executing broker-dealer as consideration for Third Party Research Services over the cost borne by the executing broker-dealer in connection with providing such services to the investment adviser is referred to herein as the Third Party Research Services Payment Ratio.
Consistent with the foregoing practices, the investment adviser receives Research Services from many broker-dealer firms with which the investment adviser places transactions and may receive them from third parties with which these broker-dealers have arrangements. The Portfolio and the investment adviser may also receive Research Services from underwriters and dealers in fixed-price offerings, which Research Services are reviewed and evaluated by the investment adviser in connection with its investment responsibilities.
Research Services received by the investment adviser may ^include, but are not limited to, such matters as general economic, political, business and market information, industry and company reviews, evaluations of securities and portfolio strategies and transactions, certain proxy voting data and analysis services, technical analysis of various aspects of the securities markets, recommendations as to the purchase and sale of securities and other portfolio transactions, certain financial, industry and trade publications, news and information services, certain pricing and quotation equipment and services, and certain research oriented computer ^software, data bases and services. Any particular Research Service obtained through a broker-dealer may be used by the investment adviser in connection with client accounts other than those accounts which pay commissions to such broker-dealer. Any such Research Service may be broadly useful and of value to the investment adviser in rendering investment advisory services to all or a significant portion of its clients, or may be relevant and useful for the management of only one clients account or of a few clients accounts, or may be useful for the management of merely a segment of certain clients accounts, regardless of whether any such account or accounts paid commissions to the broker-dealer through which such Research Service was obtained. The investment adviser evaluates the nature and quality of the various Research Services obtained through broker-dealer firms and may attempt to allocate
sufficient portfolio security transactions to such firms to ensure the continued receipt of Research Services which the investment adviser believes are useful or of value to it in rendering investment advisory services to its clients.
In the event that the investment adviser executes Portfolio securities transactions with a broker-dealer on or after May 1, 2004 and the associated commission is consideration for Third Party Research Services (as described above), the investment adviser has agreed to reduce the advisory fee payable by the Portfolio by an amount equal to the commission payment associated with the transaction divided by the applicable Third Party Research Services Payment Ratio. However, the investment adviser generally does not expect to acquire Third Party Research with Portfolio brokerage commissions.
Some executing broker-dealers develop and make available directly to their brokerage customers proprietary Research Services (Proprietary Research Services). As a general matter, broker-dealers bundle the cost of Proprietary Research Services with trade execution services rather than charging separately for each. In such circumstances, the cost or other value of the Proprietary Research Services cannot be determined. The advisory fee paid by the Portfolio will not be reduced in connection with the receipt of Proprietary Research Services by the investment adviser.
The investment companies sponsored by the investment adviser or its affiliates may allocate brokerage commissions to acquire information relating to the performance, fees and expenses of such companies and other mutual funds, which information is used by the Trustees of such companies to fulfill their responsibility to oversee the quality of the services provided by various entities, including the investment adviser, to such companies. Such companies may also pay cash for such information.
Securities considered as investments for the Portfolio may also be appropriate for other investment accounts managed by the investment adviser or its affiliates. Whenever decisions are made to buy or sell securities by the Portfolio and one or more of such other accounts simultaneously, the investment adviser 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 coinci de 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 the investment adviser 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 Fund and the Portfolio that the benefits from the investment adviser organization outweigh any disadvantage that may arise from exposure to simultaneous transactions.
The following table shows brokerage commissions paid during the three fiscal years ended November 30, ^2006, as well as the amount of the Portfolios security transactions for the most recent fiscal year (if any) that were directed to firms, that provided some Research Services to the investment adviser or its affiliates, and the commissions paid in connection therewith. As described above, the investment adviser may consider the receipt of Research Services in selecting a broker-dealer firm, provided it does not compromise the investment advisers obligation to seek best overall execution.
|Amount of Transactions
Directed to Firms
|Commissions Paid on|
Transactions Directed to
Firms Providing Research
|Fiscal Year End|| Brokerage
|November 30, ^2006||$ ^0||$0||$0|
|November 30, ^2005||$^10,^505|
|November 30, ^2004||$^3,^912|
The frequency of portfolio purchases and sales, known as the turnover rate, will vary from year to year. The Portfolios turnover rates for the three fiscal years ended November 30, ^2006, were ^51%, ^65% and ^87%, respectively. Historical turnover rate(s) are included in the Financial Highlights table(s) in the prospectus.
The Fund is treated as a separate entity for federal income tax purposes, and intends to qualify each year as a regulated investment company (RIC), under Subchapter M of the Code. Accordingly, the Fund intends to satisfy certain requirements relating to sources of its income and diversification of its assets and to distribute substantially all of its net investment income and net short-term and long-term capital gains (after reduction by any available capital loss carryforwards) in accordance with the timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying any federal income tax. The Fund will not be subject to federal income tax on income paid to its shareholders
in the form of dividends or ^capital gain distributions. The Fund qualified as a RIC for its fiscal year ended November 30, ^2006. The Fund also seeks to avoid payment of federal excise tax. However, if the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the undistributed amounts.
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 also satisfy these requirements. 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 Portfolios 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 investors distributive share of the Portfolios 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 incurring a federal excise tax obligation, the Code requires the Fund to distribute (or be deemed to have distributed) 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), 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 fails to meet these requirements it will be subject to a nondeductible 4% excise tax on the undistributed amounts.
If the Fund does not qualify for taxation as a RIC for any taxable year, the Funds 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 substantial distributions.
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.
The Portfolios investments in options, futures contracts, hedging transactions, forward contracts (to the extent permitted), swaps and certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules), the effect of which may be to accelerate income to the Portfolio, defer Portfolio losses, cause adjustments in the holding periods of Portfolio securities, convert capital gain into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to Fund shareholders.
The Portfolio may be subject to foreign taxes on its income (including, in some cases, capital gains) from foreign securities. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. As it is not expected that more than 50% of the value of the total assets of the Portfolio will consist of securities issued by foreign corporations, the Fund will not be eligible to pass through to shareholders its proportionate share of any foreign taxes paid by the Portfolio and allocated to the Fund, with the result that shareholders will not include in income, and will not be entitled to take any foreign tax credits or deductions for such foreign taxes.
Dividends and distributions on the Funds shares are generally subject to federal income tax as described herein to the extent they do not exceed the Funds realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholders investment. Such distributions are likely to occur at a time when the Funds net asset value reflects gains that are either unrealized or realized but not distributed. Such realized gains may be required to be distributed even when the Funds net asset value also reflects unrealized losses. Certain distributions declared in October, November or December and paid in the following January will be taxed to shareholders as if received on December 31 of the year in which they were declared.
A loss on the repurchase of shares with a holding period of six months or less may be treated as a long-term capital loss to the extent of any distribution of long-term capital gain with respect to such shares. In addition, all or a portion of a loss realized on a repurchase or other disposition of Fund shares may be disallowed under wash sale rules to the extent the shareholder acquired other shares of the same Fund (whether through the reinvestment of distributions or otherwise) within the period beginning 30 days before the redemption of the loss shares and ending 30 days after such date. Any disallowed loss will result in an adjustment to the shareholders tax basis in some or all of the other shares acquired.
Shareholders should consult their tax advisers regarding the specific tax consequences, including state and local tax consequences, of participating in a repurchase of Fund shares. 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 shareholders 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 greater than 20% in the shareholders 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 shareholders 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 one year. 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 Funds earnings and profits for its taxable year and the shareholders 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.
In general, dividends (other than capital gain dividends) paid to a shareholder that is not a U.S. person within the meaning of the Code (a foreign person), are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate). ^For taxable years beginning before January 1, 2008, the Fund generally will not be required to withhold any amounts with respect to distributions of (i) U.S.-source interest income that would not be subject to U.S. federal income tax if earned directly by an individual foreign person, and (ii) net short-term capital gains in excess of net long-term capital losses, in each case to the extent such distributions are properly designated by the Fund.
Until December 31, 2007, if the Fund makes a distribution to a foreign shareholder that is attributable to gain from U.S. real property interests (USRPIs), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in U.S. real property holding corporations such as real estate investment trusts, and if such foreign shareholder owned more than 5% of the Funds outstanding shares at any time during the preceding one year, the distribution will be subject to a 35% withholding tax and will obligate such foreign shareholder to file a U.S. tax return. If a foreign person who owned more than 5% of the Funds outstanding shares at any time during the preceding one year redeems shares of the Fund within the 30 days prior to an ex-dividend date of a distribution subject to the 35% tax and within 30 days before or after the ex-dividend date acquires or contracts to acquire a substantially identica l interest in the Fund, such foreign person may be subject to the 35% tax and a U.S. filing requirement. After December 31, 2007, these rules apply only to Fund distributions attributable to distributions received by the Fund from real estate investment trusts. It is not expected that a significant portion of the Funds distributions will be attributable to gains from the sale or exchange of USRPIs.
Amounts paid by the Fund to individuals and certain other shareholders who have not provided the Fund with their correct taxpayer identification number (TIN) and certain certifications required by the Internal Revenue Service (the IRS) as well as shareholders with respect to whom the Fund has received certain information from the IRS or a broker, may be subject to backup withholding of federal income tax arising from the Funds taxable dividends and other distributions as well as the proceeds of redemption transactions (including repurchases and exchanges), at a rate of 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid thereafter. An individuals TIN is generally his or her social security number. Backup withholding is not an additional tax and any amount withheld may be credited against a shareholders U.S. federal income tax liability.
Under Treasury regulations, if a shareholder realizes a loss on disposition of a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal
Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted^.
If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. Under recently enacted legislation, certain tax-exempt entities and their managers may be subject to excise tax if they are parties to certain reportable transactions.
The foregoing discussion does not address the special tax rules applicable to certain classes of investors, such as corporations, IRAs and other retirement plans, tax-exempt entities, foreign investors, insurance companies and financial institutions. Shareholders should consult with their own tax advisers with respect to special tax rules that may apply to either particular situations, as well as the federal, state, local and where applicable, foreign tax consequences of investing in the Fund.
Performance Calculations. Average annual total return before deduction of taxes (pre-tax return) is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation, and distributions paid and reinvested) for the stated period and annualizing the result. The calculation assumes (i) that all distributions are reinvested at net asset value on the reinvestment dates during the period, (ii) a complete redemption of the investment at the end of the period, and (iii) the deduction of any applicable EWC at the end of the period. If the fees or expenses of the Fund or the Portfolio are waived or reimbursed, the Funds performance will be higher. Information about the performance of the Fund or other investments should not be considered a representation of future Fund performance.
Average annual total return after the deduction of taxes on distributions is calculated in the same manner as pre-tax return except the calculation assumes that any federal income taxes due on distributions are deducted from the distributions before they are reinvested. Average annual total return after the deduction of taxes on distributions and taxes on redemption also is calculated in the same manner as pre-tax return except the calculation assumes that (i) any federal income taxes due on distributions are deducted from the distributions before they are reinvested and (ii) any federal income taxes due upon redemption are deducted at the end of the period. After-tax returns are based on the highest federal income tax rates in effect for individual taxpayers as of the time of each assumed distribution and redemption (taking into account their tax character), and do not reflect the impact of state and local taxes. In calculating after-tax returns, the net value of any federal income tax credits available to shareholders is applied to reduce federal income taxes payable on distributions at or near year-end and, to the extent the net value of such credits exceeds such distributions, is then assumed to be reinvested in additional Fund shares at net asset value on the last day of the fiscal year in which the credit was generated or, in the case of certain tax credits, on the date on which the year-end distribution is paid. For pre-tax and after-tax total return information, see the table below.
In addition to the foregoing total return figures, the Fund may provide pre-tax and after-tax annual and cumulative total return, as well as the ending redeemable cash value of a hypothetical investment. If shares are subject to a sales charge, total return figures may be calculated based on reduced sales charges or at net asset value. These returns would be lower if the full sales charge was imposed. After-tax returns may also be calculated using different tax rate assumptions and taking into account state and local income taxes as well as federal taxes. The Funds performance may differ from that of other investors in the Portfolio, including other investment companies.
Yield is computed pursuant to a standardized formula by dividing the net investment income per share earned during a recent thirty-day period by the maximum offering price per share on the last day of the period and annualizing the resulting figure. Net investment income per share is calculated from the yields to maturity of all debt obligations based on prescribed methods, reduced by accrued expenses for the period with the resulting number being divided by the average daily number of shares outstanding and entitled to receive distributions during the period. Yield figures do not reflect the deduction of any applicable EWC, but assume the maximum of any initial sales charge. Actual yield may be affected by variations in sales charges on investments.
Performance Information. The table below indicates the average annual total return (both before and after taxes) on a hypothetical investment of $1,000 in shares for the periods shown in the table.
Total returns are historical and are calculated by determining the percentage change in net asset value or public offering price with all distributions reinvested. The Funds past performance (both before and after taxes) is no guarantee of future results. Investment return and principal value of Fund shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance is for the stated time period only; due to market volatility, the Funds current performance may be lower or higher than the quoted return. For the Funds performance as of the most recent month-end, please refer to www.eatonvance.com.
About Returns After Taxes. After-tax returns are calculated using the highest historical individual federal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on a shareholders tax situation and may differ from those shown. After-tax returns are not relevant to shareholders who hold shares in tax-deferred accounts or to shares held by non-taxable entities. Return After Taxes on Distributions for a period may be the same as Return Before Taxes for that period because no taxable distributions were made during that period. Also, Return After Taxes on Distributions and Sale of Fund Shares for a period may be greater than Return After Taxes on Distributions for the same period because of losses realized on the sale of Fund shares. The tax treatment of a portion of the distributions made in the current year may be recharacterized as taxable after year-end.
|Length of Period Ended November 30, ^2006|
|Average Annual Total Return:||One Year||Five Years||Ten Years|
|Before Taxes and Excluding Maximum Sales Charge||^6.^02%||^4.^69%||^4.^98%|
|Before Taxes and Including Maximum Sales Charge||^3.^02%||^4.^69%||^4.^98%|
|After Taxes on Distributions and Excluding Maximum Sales Charge||^3.^88%||^3.^17%||2.^81%|
|After Taxes on Distributions and Including Maximum Sales Charge||^0.^88%||^3.^17%||2.^81%|
|After Taxes on Distributions and Redemption and Excluding Maximum Sales Charge||^3.^88%||^3.^10%||2.^89%|
|After Taxes on Distributions and Redemption and Including Maximum Sales Charge||^1.^93%||^3.^10%||2.^89%|
For the 30 days ended November 30, ^2006, the SEC yield was ^6.^48%.
Disclosure of Portfolio Holdings and Related Information. In accordance with rules established by the SEC, the Fund sends semiannual and annual reports to shareholders that contain a complete list of portfolio holdings as of the end of the second and fourth fiscal quarters, respectively, within 60 days of quarter-end. The Fund also discloses complete portfolio holdings as of the end of the first and third fiscal quarters on Form N-Q, which is filed with the SEC within 60 days of quarter-end. The Funds complete portfolio holdings as reported in annual and semiannual reports and on Form N-Q (which includes a list of the Portfolios holdings) are available for viewing on the SEC website at http://www.sec.gov and may be reviewed and copied at the SECs public reference room (information on the operation and terms of usage of the SEC public reference room is available at http://www.sec.gov/info/edgar/prrrules.htm or by calling 1-800-SEC-0330). Generally within ^five busines s days of filing with the SEC, the Funds portfolio holdings as reported in annual and semiannual reports and on Form N-Q also are available on Eaton Vances website at www.eatonvance.com and are available upon request at no ^cost by contacting Eaton Vance at 1-800-225-6265. The Fund also will post a complete list of its portfolio holdings (including the Portfolios holdings) as of each calendar quarter end on the Eaton Vance website within 60 days of calendar quarter-end.
In addition to the disclosure of complete portfolio holdings, the Fund may also post information about certain portfolio characteristics (such as top ten holdings and asset allocation information) as of each calendar quarter end on the Eaton Vance website approximately ten business days after quarter-end. Such information is also available upon request by contacting Eaton Vance at 1-800-225-6265.
The portfolio holdings of the Fund and other information concerning portfolio characteristics may be considered material, non-public information. The Fund does not selectively disclose to any person the portfolio holdings and related information of the Fund. However, portfolio holdings may be disclosed, from time to time as necessary, for legitimate business purposes of the Fund including the following: 1) affiliated and unaffiliated service providers (including the investment adviser, custodian, transfer agent, principal underwriter, etc.) that have a legal or contractual duty to keep such information confidential; 2) other persons who owe a fiduciary or other duty of trust or confidence to the Fund (such as Fund legal counsel and independent registered public accounting firm); or 3) persons to whom the disclosure is made in advancement of a legitimate business purpose of the Fund and who have expressly agreed in writing to maintain the disclosed information in confidence and to use it only in connection with the legitimate business purpose underlying the arrangement (such as arrangements with securities lending agents, credit rating agencies, statistical ratings agencies,
analytical service providers engaged by the investment adviser, proxy evaluation vendors, pricing services, translation ^services, lenders under Fund credit ^facilities and, for purposes of facilitating portfolio transactions, investment dealers and other intermediaries). Additional categories of disclosure involving a legitimate business purpose may be added to this list in the future.
The foregoing portfolio holdings disclosure policies are designed to provide useful information concerning the Fund to existing and prospective Fund shareholders while at the same time inhibiting the improper use of portfolio holdings information in trading Fund shares and/or portfolio securities held by the Fund. However, there can be no assurance that the provision of any portfolio holdings information is not susceptible to inappropriate uses (such as the development of market timing models), particularly in the hands of highly sophisticated investors, or that it will not in fact be used in such ways beyond the control of the Fund.
The audited financial statements of, and the report of the independent registered public accounting firm for the Fund and Portfolio appear in the Funds most recent annual report to shareholders and are incorporated by reference into this SAI. A copy of the annual report accompanies this SAI.
Householding. 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 and the report of the independent registered public accounting firm for the Fund and the Portfolio for the fiscal year ended November 30, 2006, as previously filed electronically with the SEC (Accession No. 0001104659-07-008379).
|DESCRIPTION OF CORPORATE BOND RATINGS|
The ratings indicated herein are believed to be the most recent ratings available at the date of this SAI for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent ratings which would be given to these securities on a particular date.
Bonds which are unrated expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative bonds. Evaluation of these bonds is dependent on the investment advisers judgment, analysis and experience.
Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuers ability to make interest and principal payments.
|Moodys Investors Service, Inc.|
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edged. 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 are generally 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 risk appear somewhat larger than the 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 thereby not well safeguarded during other 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 represent 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.
Absence of Rating: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
|1.||An application for rating was not received or accepted.|
|2.||The issue or issuer belongs to a group of securities or companies that are not rated as a matter of policy.|
|3.||There is a lack of essential data pertaining to the issue or issuer.|
|4.||The issue was privately placed, in which case the rating is not published in Moody's publications.|
Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group
AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only to a small degree. The obligors capacity to meet its financial commitment is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligors capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However, 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.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken but payments on this obligation are being continued. C is also used for a preferred stock that is in arrears (as well as for junior debt of issuers rated CCC and CC).
D: The D rating, unlike other ratings, is not prospective; rather, it is used only where a default has actually occurred and not where a default is only expected. Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
NR: NR indicates no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
Notes: An obligation which is unrated exposes the investor to risks with respect to capacity to pay interest or repay principal which are similar to the risks of lower-rated speculative obligations. Evaluation of such debt is dependent on the investment advisers judgment, analysis and experience.
Investors should note that the assignment of a rating to a bond by a rating service may not reflect the effect of recent developments on the issuers ability to make interest and principal payments.
|EATON VANCE FUNDS|
PROXY VOTING POLICY AND PROCEDURES
The Boards of Trustees (the Boards) of the Eaton Vance Funds (the Funds) recognize that it is their fiduciary responsibility to actively monitor the Funds operations. The Boards have always placed paramount importance on their oversight of the implementation of the Funds investment strategies and the overall management of the Funds investments. A critical aspect of the investment management of the Funds continues to be the effective assessment and voting of proxies relating to the Funds portfolio securities. While the Boards will continue to delegate the day-to-day responsibilities relating to the management of the proxy-voting process to the relevant investment adviser or sub-adviser, if applicable, of the Fund (or its underlying portfolio in the case of a master-feeder arrangement), the Boards have determined that it is in the interests of the Funds shareholders to adopt these written proxy voting policy and procedures (the Policy 48;). For purposes of this Policy the term Fund shall include a Funds underlying portfolio in the case of a master-feeder arrangement and the term Adviser shall mean the adviser to a Fund or its sub-adviser if a sub-advisory relationship exists.
|II. Delegation of Proxy Voting Responsibilities|
Pursuant to investment advisory agreements between each Fund and its Adviser, the Adviser has long been responsible for reviewing proxy statements relating to Fund investments and, if the Adviser deems it appropriate to do so, to vote proxies on behalf of the Funds. The Boards hereby formally delegate this responsibility to the Adviser, except as otherwise described in this Policy. In so doing, the Boards hereby adopt on behalf of each Fund the proxy voting policies and procedures of the Adviser(s) to each Fund as the proxy voting policies and procedures of the Fund. The Boards recognize that the Advisers may from time to time amend their policies and procedures. The Advisers will report material changes to the Boards in the manner set forth in Section ^V below. In addition, the Boards will annually review and approve the Advisers proxy voting policies and procedures.
III. Delegation of Proxy Voting Disclosure Responsibilities
The Securities and Exchange Commission (the Commission) recently enacted certain new reporting requirements for registered investment companies. The Commissions new regulations require that funds (other than those which invest exclusively in non-voting securities) make certain disclosures regarding their proxy voting activities. The most significant disclosure requirement for the Funds is the duty pursuant to Rule 30b1-4 promulgated under the Investment Company Act of 1940, as amended (the 1940 Act), to file Form N-PX no later than August 31st of each year beginning in 2004. Under Form N-PX, each Fund will be required to disclose, among other things, information concerning proxies relating to the Funds portfolio investments, whether or not the Fund (or its Adviser) voted the proxies relating to securities held by the Fund and how it voted in the matter and whether it voted for or against management.
The Boards hereby delegate to each Adviser the responsibility for recording, compiling and transmitting in a timely manner all data required to be filed on Form N-PX to Eaton Vance Management, which acts as administrator to each of the Funds (the Administrator), for each Fund that such Adviser manages. The Boards hereby delegate the responsibility to file Form N-PX on behalf of each Fund to the Administrator.
|IV. Conflicts of Interest|
The Boards expect each Adviser, as a fiduciary to the Fund(s) it manages, to put the interests of each Fund and its shareholders above those of the Adviser. In the event that in connection with its proxy voting responsibilities a material conflict of interest arises between a Funds shareholders and the Funds Adviser or the Administrator (or any of their affiliates) or any affiliated person of the Fund, and the Proxy Administrator intends to vote the proxy in a manner inconsistent with the guidelines approved by the Board, the Adviser, to the extent it is aware or reasonably should have been aware of the material conflict, will refrain from voting any proxies related to companies giving rise to such material conflict until it notifies and consults with the appropriate Board(s), or a committee or sub-committee of such Board concerning the material conflict.
Once the Adviser notifies the relevant Board(s), committee or sub-committee of the Board, of the material conflict, the Board(s), committee or sub-committee, shall convene a meeting to review and consider all relevant materials related to the proxies involved. In considering such proxies, the Adviser shall make available all materials requested by the Board, committee or sub-committee and make reasonably available appropriate personnel to discuss the matter upon request. The Board, committee or sub-committee will instruct the Adviser on the appropriate course of action. If the Board, committee
or sub-committee is unable to meet and the failure to vote a proxy would have a material adverse impact on the Fund(s) involved, each Adviser will have the right to vote such proxy, provided that it discloses the existence of the material conflict to the Board, committee or sub-committee at its next meeting. Any determination regarding the voting of proxies of each Fund that is made by the committee or sub-committee shall be deemed to be a good faith determination regarding the voting of proxies by the full Board.
The Administrator shall make copies of each Form N-PX filed on behalf of the Funds available for the Boards review upon the Boards request. The Administrator (with input from the Adviser for the relevant Fund(s)) shall also provide any reports reasonably requested by the Boards regarding the proxy voting records of the Funds.
Each Adviser shall annually report any material changes to such Advisers proxy voting policies and procedures to the relevant Board(s) and the relevant Board(s) will annually review and approve the Advisers proxy voting policies and procedures. Each Adviser shall report any changes to such Advisers proxy voting policies and procedures to the Administrator prior to implementing such changes in order to enable the Administrator to effectively coordinate the Funds disclosure relating to such policies and procedures.
|EATON VANCE MANAGEMENT|
BOSTON MANAGEMENT AND RESEARCH
PROXY VOTING POLICIES AND PROCEDURES
Eaton Vance Management, Boston Management and Research and Eaton Vance Investment Counsel (each an Adviser and collectively the Advisers) have each adopted and implemented policies and procedures that each Adviser believes are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with its fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Advisers authority to vote the proxies of their clients is established by their advisory contracts or similar documentation, such as the Eaton Vance Funds Proxy Voting Policy and Procedures. These proxy policies and procedures reflect the U.S. Securities and Exchange Commission (SEC) requirements governing advisers and the long-standing fiduciary standards and responsibilities for ERISA accounts set out in the Department of Labor Bulletin 94-2 C.F.R. 2509.94 -2 (July 29, 1994).
Each Adviser manages its clients assets with the overriding goal of seeking to provide the greatest possible return to such clients consistent with governing laws and the investment policies of each client. In pursuing that goal, each Adviser seeks to exercise its clients rights as shareholders of voting securities to support sound corporate governance of the companies issuing those securities with the principle aim of maintaining or enhancing the companies economic value.
The exercise of shareholder rights is generally done by casting votes by proxy at shareholder meetings on matters submitted to shareholders for approval (for example, the election of directors or the approval of a companys stock option plans for directors, officers or employees). Each Adviser is adopting the formal written Guidelines described in detail below and will utilize such Guidelines in voting proxies on behalf of its clients. These Guidelines are designed to promote accountability of a companys management and board of directors to its shareholders and to align the interests of management with those of shareholders.
Each Adviser will vote any proxies received by a client for which it has sole investment discretion through a third-party proxy voting service (Agent) in accordance with customized policies, as approved by the Boards of Trustees of the Eaton Vance Funds and, with respect to proxies referred back to the Adviser by the Agent pursuant to the Guidelines, in a manner that is reasonably designed to eliminate any potential conflicts of interest, as described more fully below. The Agent is currently Institutional Shareholder Services Inc. Proxies will be voted in accordance with client-specific guidelines and an Eaton Vance Funds sub-advisers proxy voting policies and procedures, if applicable.
No set of guidelines can anticipate all situations that may arise. In special cases, the Proxy Administrator (the person specifically charged with the responsibility to oversee the Agent and coordinate the voting of proxies referred back to the Adviser by the Agent) may seek insight from the Proxy Group established by the Advisers. The Proxy Group will assist in the review of the Agents recommendation when a proxy voting issue is referred to the Proxy Group through the Proxy Administrator. The members of the Proxy Group, which may include employees of the Advisers affiliates, may change at the Advisers discretion.
|III.||Roles and Responsibilities|
|The Proxy Administrator will assist in the coordination of the voting of each clients proxy in accordance with the Guidelines below and the Funds Proxy Voting Policy and Procedures. The Proxy Administrator is authorized to direct the Agent to vote a proxy in accordance with the Guidelines. Responsibilities assigned herein to the Proxy Administrator, or activities in support thereof, may be performed by such members of the Proxy Group or employees of the Advisers affiliates as are deemed appropriate by the Proxy Group.|
|An independent proxy voting service (the Agent), as approved by the Board of each Fund, shall be engaged to assist in the voting of proxies. The Agent is currently Institutional Shareholder Services Inc. The Agent is responsible for coordinating with the clients custodians and the Advisers to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed in a timely fashion. The Agent is required to vote and/or refer all proxies in accordance with the Guidelines below. The Agent shall retain a record of all proxy votes handled by the Agent. Such record must reflect all of the information required to be disclosed in a Funds Form N-PX pursuant|
|to Rule 30b1-4 under the Investment Company Act of 1940. In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to an Adviser upon request. Subject to the oversight of the Advisers, the Agent shall establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services to the Advisers, including methods to reasonably ensure that its analysis and recommendations are not influenced by a conflict of interest, and shall disclose such controls and policies to the Advisers when and as provided for herein. Unless otherwise specified, references herein to recommendations of the Agent shall refer to those in which no conflict of interest has been identified.|
|The Adviser shall establish a Proxy Group which shall assist in the review of the Agents recommendations when a proxy voting issue has been referred to the Proxy Administrator by the Agent. The members of the Proxy Group, which may include employees of the Advisers affiliates, may be amended from time to time at the Advisers discretion.|
|For each proposal referred to the Proxy Group, the Proxy Group will review the (i) Guidelines, (ii) recommendations of the Agent, and (iii) any other resources that any member of the Proxy Group deems appropriate to aid in a determination of the recommendation.|
|If the Proxy Group recommends a vote in accordance with the Guidelines, or the recommendation of the Agent, where applicable, it shall instruct the Proxy Administrator to so advise the Agent.|
|If the Proxy Group recommends a vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, or if the proxy statement relates to a conflicted company of the Agent, as determined by the Advisers, it shall follow the procedures for such voting outlined below.|
|The Proxy Administrator shall use best efforts to convene the Proxy Group with respect to all matters requiring its consideration. In the event the Proxy Group cannot meet in a timely manner in connection with a voting deadline, the Proxy Administrator shall follow the procedures for such voting outlined below.|
|IV.||Proxy Voting Guidelines (Guidelines)|
|It shall generally be the policy of the Advisers to take no action on a proxy for which no client holds a position or otherwise maintains an economic interest in the relevant security at the time the vote is to be cast.|
|In all cases except those highlighted below, it shall generally be the policy of the Advisers to vote in accordance with the recommendation by the Agent, Institutional Shareholder Services Inc.|
|When a fund client participates in the lending of its securities and the securities are on loan at the record date, proxies related to such securities generally will not be forwarded to the relevant Adviser by the funds custodian and therefore will not be voted. In the event that the Adviser determines that the matters involved would have a material effect on the applicable funds investment in the loaned securities, the fund will exercise its best efforts to terminate the loan in time to be able to cast such vote or exercise such consent.|
|Interpretation and application of these Guidelines is not intended to supersede any law, regulation, binding agreement or other legal requirement to which an issuer may be or become subject. The Guidelines relate to the types of proposals that are most frequently presented in proxy statements to shareholders. Absent unusual circumstances, each Adviser will utilize these Guidelines when voting proxies on behalf of its clients. The Guidelines may be revised at any time, provided such revisions are reported to the Boards of Trustees of the Eaton Vance Funds.|
|B.||Proposals Regarding Mergers and Corporate Restructurings|
|The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to Mergers and Corporate Restructurings.|
|C.||Proposals Regarding Mutual Fund Proxies Disposition of Assets/Termination/Liquidation and Mergers|
|The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to the Disposition of Assets/Termination/Liquidation and Mergers contained in mutual fund proxies.|
D. Corporate Structure Matters/Anti-Takeover Defenses
As a general matter, the Advisers will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions (except in the case of closed-end management investment companies).
E. Social and Environmental Issues
The Advisers generally support management on social and environmental proposals.
F. Voting Procedures
Upon receipt of a referral from the Agent or upon advice from an Eaton Vance investment professional, the Proxy Administrator may solicit additional research from the Agent, as well as from any other source or service.
1. WITHIN-GUIDELINES VOTES: Votes in Accordance with the Guidelines and/or, where applicable, Agent Recommendation
In the event the Proxy Administrator recommends a vote within Guidelines and/or, where applicable, in accordance with the Agents recommendation, the Proxy Administrator will instruct the Agent to vote in this manner.
2. NON-VOTES: Votes in Which No Action is Taken
The Proxy Administrator may recommend that a client refrain from voting under the following circumstances: (i) if the economic effect on shareholders' interests or the value of the portfolio holding is indeterminable or insignificant, e. g. , proxies in connection with securities no longer held in the portfolio of a client or proxies being considered on behalf of a client that is no longer in existence; or (ii) if the cost of voting a proxy outweighs the benefits, e. g. , certain international proxies, particularly in cases in which share blocking practices may impose trading restrictions on the relevant portfolio security. In such instances, the Proxy Administrator may instruct the Agent not to vote such proxy.
Reasonable efforts shall be made to secure and vote all other proxies for the clients, but, particularly in markets in which shareholders' rights are limited, Non-Votes may also occur in connection with a client's related inability to timely access ballots or other proxy information in connection with its portfolio securities.
Non-Votes may also result in certain cases in which the Agent's recommendation has been deemed to be conflicted, as provided for herein.
3. OUT-OF-GUIDELINES VOTES: Votes Contrary to Guidelines, or Agent Recommendation, where applicable, Where No Recommendation is Provided by Agent, or Where Agent's Recommendation is Conflicted
If the Proxy Administrator recommends that a client vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, if the Agent has made no recommendation on a matter requiring case-by-case consideration and the Guidelines are silent, or the Agent's recommendation on a matter requiring case-by-case consideration is deemed to be conflicted, the Proxy Administrator will forward the Agents analysis and recommendation and any research obtained from the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent as it deems necessary. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group. The Adviser will provide a report to the Boards of Trustees of the Eaton Vance Funds reflecting any votes cast contrary to the Guidelines or Agent Recommendation, as applicable, and shall do so no less than annually.
The Proxy Administrator will maintain a record of all proxy questions that have been referred by the Agent, all applicable recommendations, analysis and research received and any resolution of the matter.
The Advisers will maintain records relating to the proxies they vote on behalf of their clients in accordance with Section 204-2 of the Investment Advisers Act of 1940, as amended. Those records will include:
All records described above will be maintained in an easily accessible place for five years and will be maintained in the offices of the Advisers or their Agent for two years after they are created.
|VI.||Assessment of Agent and Identification and Resolution of Conflicts with Clients|
|A.||Assessment of Agent|
|The Advisers shall establish that the Agent (i) is independent from the Advisers, (ii) has resources that indicate it can competently provide analysis of proxy issues, and (iii) can make recommendations in an impartial manner and in the best interests of the clients and, where applicable, their beneficial owners. The Advisers shall utilize, and the Agent shall comply with, such methods for establishing the foregoing as the Advisers may deem reasonably appropriate and shall do so not less than annually as well as prior to engaging the services of any new proxy voting service. The Agent shall also notify the Advisers in writing within fifteen (15) calendar days of any material change to information previously provided to an Adviser in connection with establishing the Agent's independence, competence or impartiality.|
|B.||Conflicts of Interest|
|As fiduciaries to their clients, each Adviser puts the interests of its clients ahead of its own. In order to ensure that relevant personnel of the Advisers are able to identify potential material conflicts of interest, each Adviser will take the following steps:|
|Quarterly, the Eaton Vance Legal and Compliance Department will seek information from the department heads of each department of the Advisers and of Eaton Vance Distributors, Inc. (EVD) (an affiliate of the Advisers and principal underwriter of certain Eaton Vance Funds). Each department head will be asked to provide a list of significant clients or prospective clients of the Advisers or EVD.|
|A representative of the Legal and Compliance Department will compile a list of the companies identified (the Conflicted Companies) and provide that list to the Proxy Administrator.|
|The Proxy Administrator will compare the list of Conflicted Companies with the names of companies for which he or she has been referred a proxy statement (the Proxy Companies). If a Conflicted Company is also a Proxy Company, the Proxy Administrator will report that fact to the Proxy Group.|
|If the Proxy Administrator expects to instruct the Agent to vote the proxy of the Conflicted Company strictly according to the Guidelines contained in these Proxy Voting Policies and Procedures (the Policies) or the recommendation of the Agent, as applicable, he or she will (i) inform the Proxy Group of that fact, (ii) instruct the Agent to vote the proxies and (iii) record the existence of the material conflict and the resolution of the matter.|
|If the Proxy Administrator intends to instruct the Agent to vote in a manner inconsistent with the Guidelines contained herein or the recommendation of the Agent, as applicable, the Proxy Group, in consultation with Eaton Vance senior management, will then determine if a material conflict of interest exists between the relevant Adviser and its clients. If the Proxy Group, in consultation with Eaton Vance senior management, determines that a material conflict exists, prior to instructing the Agent to vote any proxies relating to these Conflicted Companies the Adviser will seek instruction on how the proxy should be voted from:|
|The client, in the case of an individual or corporate client;|
|In the case of a Fund, its board of directors, or any committee or sub-committee identified by the board; or|
|The adviser, in situations where the Adviser acts as a sub-adviser to such adviser.|
The Adviser will provide all reasonable assistance to each party to enable such party to make an informed decision.
If the client, Fund board or adviser, as the case may be, fails to instruct the Adviser on how to vote the proxy, the Adviser will generally instruct the Agent, through the Proxy Administrator, to abstain from voting in order to avoid the appearance of impropriety. If however, the failure of the Adviser to vote its clients proxies would have a material adverse economic impact on the Advisers clients securities holdings in the Conflicted Company, the Adviser may instruct the Agent, through the Proxy Administrator, to vote such proxies in order to protect its clients interests. In either case, the Proxy Administrator will record the existence of the material conflict and the resolution of the matter.
The Advisers shall also identify and address conflicts that may arise from time to time concerning the Agent. Upon the Advisers request, which shall be not less than annually, and within fifteen (15) calendar days of any material change to such information previously provided to an Adviser, the Agent shall provide the Advisers with such information as the Advisers deem reasonable and appropriate for use in determining material relationships of the Agent that may pose a conflict of interest with respect to the Agents proxy analysis or recommendations. Such information shall include, but is not limited to, a monthly report from the Agent detailing the Agents Corporate Securities Division clients and related revenue data. The Advisers shall review such information on a monthly basis. The Proxy Administrator shall instruct the Agent to refer any proxies for which a material conflict of the Agent is deemed to be present to the Proxy Administrator. Any such proxy referred by the Agent shall be referred to the Proxy Group for consideration accompanied by the Agents written analysis and voting recommendation. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group.
Item 25. Financial Statements and Exhibits
|(1) Financial Statements:|
Included in Part A:
Financial highlights for the four years ended November 30, 2006, for the eleven-month period ended
November 30, 2002 and for each of the seven years ended December 31, 2001
Included in Part B:
|INCORPORATED BY REFERENCE TO THE ANNUAL REPORT DATED NOVEMBER |
30, 2006 (ACCESSION NO. 0001104659-07-008379), FILED ELECTRONICALLY
PURSUANT TO SECTION 30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940.
|Financial Statements for Eaton Vance Prime Rate Reserves:|
Statement of Assets and Liabilities as of November 30, 2006
Statement of Operations for the year ended November 30, 2006
Statements of Changes in Net Assets for the two years ended November 30, 2006
Financial Highlights for the four years ended November 30, 2006, for the eleven-month
period ended November 30, 2002 and for the year ended December 31, 2001
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
|Financial Statements for Senior Debt Portfolio:|
Portfolio of Investments as of November 30, 2006
Statement of Assets and Liabilities as of November 30, 2006
Statement of Operations for the year ended November 30, 2006
Statements of Changes in Net Assets for the two years ended November 30, 2006
Supplementary Data for the four years ended November 30, 2006, for the eleven-month
period ended November 30, 2002 and for the year ended December 31, 2001
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
(2) Exhibits (with inapplicable items omitted)
|(a)||Amended and Restated Agreement and Declaration of Trust dated April 26, 2000 filed as Exhibit|
|(a)(b) to Post-Effective Amendment No. 1 to the Registration Statement under the Securities Act|
|of 1933 (1933 Act File No. 333-32268) and Amendment No. 23 to the Registration Statement|
|under the Investment Company Act of 1940 (1940 Act File No. 811-05808) filed with the SEC on|
|June 16, 2000 (Amendment No. 23) and incorporated herein by reference.|
|(b) (a)||By-Laws (as amended June 12, 1989) filed as Exhibit (b)(a) to the Registration Statement under|
|the Securities Act of 1933 (1933 Act File No. 333-63623) and Amendment No. 14 to the|
|Registration Statement under the Investment Company Act of 1940 (1940 Act File No. 811-|
|05808) filed with the SEC on October 24, 1995 (Amendment No. 14) and incorporated herein by|
|(b)||By-Laws Amendment dated December 13, 1993 filed as Exhibit (b)(b) to Amendment No. 14 and|
|incorporated herein by reference.|
|(c)||Amendment to By-Laws dated June 18, 2002 filed as Exhibit (b)(c) to Post-Effective Amendment|
|No. 7 to the Registration Statement under the Securities Act of 1933 (1933 Act File No. 333-|
|32268) and Amendment No. 29 to the Registration Statement under the Investment Company Act|
|of 1940 (1940 Act File No. 811-05808) filed with the SEC on March 24, 2003 (Amendment No.|
|29) and incorporated herein by reference.|
|(d)||Amendment to By-Laws dated October 21, 2002 filed as Exhibit (b)(d) to Amendment No. 29 and|
|incorporated herein by reference.|
|(e)||Amendment to By-Laws dated February 7, 2005 filed as Exhibit (b)(e) to Post-Effective|
|Amendment No. 10 to the Registration Statement under the Securities Act of 1933 (1933 Act File|
|No. 333-32268) and Amendment No. 32 to the Registration Statement under the Investment|
|Company Act of 1940 (1940 Act File No. 811-05808) filed with the SEC on March 30, 2005|
|(Accession No. 0000940394-05-000366) (Amendment No. 32) and incorporated herein by|
|(f)||Amendment to By-Laws dated December 11, 2006 filed herewith.|
|(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. 333-25731) and Amendment No. 17 to the Registration Statement under the Investment|
|Company Act of 1940 (1940 Act File No. 811-05808) filed with the SEC on July 2, 1997|
|(Amendment No. 17) and incorporated herein by reference.|
|(b)||Selling Group Agreement between Eaton Vance Distributors, Inc. and Authorized Dealers filed as|
|Exhibit (6)(b) to the Post-Effective Amendment No. 61 filed December 28, 1995 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,|
|(j) (a)||Custodian Agreement dated December 17, 1990 filed as Exhibit (j) to Amendment No. 14 and|
|incorporated herein by reference.|
|(b)||Amendment to Custodian Agreement dated October 23, 1995 filed as Exhibit (j)(b) to the Post-|
|Effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933 (1933|
|Act File No. 33-63623) and Amendment No. 15 to the Registration Statement under the|
|Investment Company Act of 1940 (1940 Act File No. 811-05808) filed with the SEC on April 1,|
|1996 (Amendment No. 15) 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) filed January 25,|
|1999 and incorporated herein by reference.|
|(d)||Extension Agreement dated August 31, 2005 to Master Custodian Agreement with Investors Bank|
|& Trust Company filed as Exhibit (j)(2) to the Eaton Vance Tax-Managed Global Buy-Write|
|Opportunities Fund N-2, Pre-Effective Amendment No. 2 (File Nos. 333-123961, 811-21745)|
|filed with the SEC on September 26, 2005 (Accession No. 0000950135-05-005528) and|
|incorporated herein by reference.|
|(e)||Delegation Agreement dated December 11, 2000 with Investors Bank & Trust Company filed as|
|Exhibit (j)(e) to Post-Effective Amendment No. 5 to the Registration Statement under the|
|Securities Act of 1933 (1933 Act File No. 333-32268) and Amendment No. 27 to the Registration|
|Statement under the Investment Company Act of 1940 (1940 Act File No. 811-05808) filed with|
|the SEC on April 3, 2001 (Amendment No. 27) and incorporated herein by reference.|
|(k) (a)||Administration Agreement dated July 14, 1989 filed as Exhibit (k)(a) to Amendment No. 14 and|
|incorporated herein by reference.|
|(b)||Administration Agreement Amendment dated October 24, 1994 filed as Exhibit (k)(b) to|
|Amendment No. 14 and incorporated herein by reference.|
|(c)||Fee Waiver Agreement dated as of March 21, 2005 filed as Exhibit (k)(c) to Amendment No. 32|
|and incorporated herein by reference.|
|(d)||Distribution Plan adopted December 21, 1998 filed as Exhibit (k)(c) to the Registration Statement|
|under the Securities Act of 1933 (1933 Act File No. 333-72711) and Amendment No. 20 to the|
|Registration Statement under the Investment Company Act of 1940 (1940 Act File No. 811-|
|05808) filed with the SEC on February 22, 1999 (Amendment No. 20) and incorporated herein by|
|(e)||Transfer Agency Agreement dated as of August 1, 2005 filed as Exhibit (h)(3) to Post-Effective|
|Amendment No. 109 of Eaton Vance Mutual Funds Trust (File Nos. 2-90946, 811-4015) filed|
|with the SEC on August 25, 2005 (Accession No. 0000940394-05-000983) and incorporated|
|herein by reference.|
|(f)||Sub-Transfer Agency Services Agreement effective August 1, 2005 filed as Exhibit (h)(4) to Post-|
|Effective Amendment No. 109 of Eaton Vance Mutual Funds Trust (File Nos. 2-90946, 811-4015)|
|filed with the SEC on August 25, 2005 (Accession No. 0000940394-05-000983) and incorporated|
|herein by reference.|
|(l)||Opinion and Consent of Counsel dated March 10, 2000 filed as Exhibit (l) to the Registration|
|Statement under the Securities Act of 1933 (1933 Act File No. 333-32268) and Amendment No.|
|22 to the Registration Statement under the Investment Company Act of 1940 (1940 Act File No.|
|811-05808) filed with the SEC on March 13, 2000 (Amendment No. 22) and incorporated herein|
|(n)||Consent of Independent Registered Public Accounting Firm filed herewith.|
|(r)||Code of Ethics adopted by Eaton Vance Corp., Eaton Vance Management, Boston Management|
|and Research, Eaton Vance Distributors, Inc. and the Eaton Vance Funds effective September 1,|
|2000, as revised February 1, 2006, filed as Exhibit (p)(1) Post-Effective Amendment No. 94 of|
|Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) filed with the SEC on January 27, 2006|
|(Accession No. 0000940394-06-000125) and incorporated herein by reference.|
|(s) (a)||Power of Attorney for Eaton Vance Prime Rate Reserves dated November 1, 2005, filed as Exhibit|
|(q) to Post-Effective Amendment No. 102 of Eaton Vance Municipals Trust (File Nos. 333-572,|
|811-4409) filed with the SEC on November 29, 2005 (Accession No. 0000940394-05-001357)|
|and incorporated herein by reference.|
|(b)||Powers of Attorney for the President of Eaton Vance Prime Rate Reserves dated November 1,|
|2005 and for the Treasurer dated January 25, 2006 filed as Exhibit (s)(b) to Post-Effective|
|Amendment No. 11 to the Registration Statement under the Securities Act of 1933 (1933 Act File|
|No. 333-32268) and Amendment No. 33 to the Registration Statement under the Investment|
|Company Act of 1940 (1940 Act File No. 811-05808) filed with the SEC on March 30, 2006|
|(Amendment No. 33) and incorporated herein by reference.|
|(c)||Power of Attorney for Senior Debt Portfolio dated November 1, 2005, filed as Exhibit (q)(2) to|
|Post-Effective Amendment No. 93 of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241)|
|filed with the SEC on December 23, 2005 (Accession No. 0000940394-05-001402) and|
|incorporated herein by reference.|
|(d)||Power of Attorney for the Treasurer of Senior Debt Portfolio dated January 25, 2006, filed as|
|Exhibit (q)(18) to Post-Effective Amendment No. 112 of Eaton Vance Mutual Funds Trust (File|
|Nos. 2-90946, 811-4015) filed with the SEC on February 28, 2006 (Accession No. 0000940394-|
|06-000201) and incorporated herein by reference.|
|(e)||Power of Attorney for the President of Senior Debt Portfolio dated November 1, 2005 filed as|
|Exhibit (s)(e) to Amendment No. 33 and incorporated herein by reference.|
Item 26. Marketing Arrangements
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the approximate expenses incurred in connection with the offerings of Registrant:
|National Association of Securities Dealers, Inc. Fees||$ 168,000(1)|
|Printing (other than stock certificates)||$ 208,000|
|Engraving and printing stock certificates||$ 4,800|
|Fees and expenses of qualification under state securities laws|
|(excluding fees of counsel)||$ 282,350|
|Accounting fees and expenses||$ 13,500|
|Legal fees and expenses||$230,000|
|(1)These amounts include expenses for the shares registered pursuant to the Registration Statements declared |
effective on May 3, 1989 (File No. 33-28516); August 9, 1989 (File No. 33-30268); July 3, 1990 (File No. 33-
34922); November 28, 1995 (File No. 33-63623); May 1, 1997 (File No. 333-25731); November 2, 1998 (File No.
333-65869); May 3, 1999 (File No. 333-72711); and March 15, 2000 (File No. 333-32268).
Item 28. Persons Controlled by or under Common Control
Item 29. Number of Holders of Securities
|Title of Class||Number of Record Holders|
|Shares of beneficial interest||43,829|
|March 1, 2007|
Item 30. Indemnification
The Registrants By-Laws contain provisions limiting the liability, and providing for indemnification, of the Trustees and officers under certain circumstances. Registrants Trustees and officers are insured under a standard investment company errors and omissions insurance policy covering loss incurred by reason of negligent errors and omissions committed in their capacities as such.
The distribution agreement of the Registrant also provides for reciprocal indemnity of the principal underwriter on the one hand, and the Trustees and officers, on the other.
Item 31. Business and Other Connections of 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 32. 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 Registrants custodian, Investors Bank & Trust Company, 200 Clarendon Street, 16th Floor, Mail Code ADM27, Boston, MA 02116, and its transfer agent, PFPC Inc., 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 33. Management Services
Item 34. 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; and
(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
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the continuous offering of the shares; and
(4) To send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to the Registration Statement pursuant to Rule 486(b) under the Securities Act of 1933 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boston, and the Commonwealth of Massachusetts, on March 28, 2007.
|EATON VANCE PRIME RATE RESERVES|
|By: /s/ Scott H. Page|
|Scott H. Page, President|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on March 28, 2007.
|/s/ Scott H. Page
Scott H. Page
|President and Principal Executive Officer|
|/s/ Dan A. Maalouly
Dan A. Maalouly
|Treasurer (Principal Financial and Accounting Officer)|
|Benjamin C. Esty*
Benjamin C. Esty
|/s/ James B. Hawkes
James B. Hawkes
|Samuel L. Hayes, III*
Samuel L. Hayes
|William H. Park*
William H. Park
|Ronald A. Pearlman*
Ronald A. Pearlman
|Norton H. Reamer*
Norton H. Reamer
|Lynn A. Stout*
Lynn A. Stout
|Ralph F. Verni*
Ralph F. Verni
|*By: /s/ James B. Hawkes|
|James B. Hawkes (As attorney-in-fact)|
Senior Debt Portfolio has duly caused this Amendment to the Registration Statement on Form N-2 of Eaton Vance Prime Rate Reserves (File No. 333-32268) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boston and the Commonwealth of Massachusetts, on March 28, 2007.
|SENIOR DEBT PORTFOLIO|
|By: /s/ Scott H. Page|
|Scott H. Page, President|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in their capacities and on March 28, 2007.
|/s/ Scott H. Page
Scott H. Page
|President and Principal Executive Officer|
|/s/ Dan A. Maalouly
Dan A. Maalouly
|Treasurer and Principal Financial and Accounting Officer|
|Benjamin C. Esty*
Benjamin C. Esty
|/s/ James B. Hawkes
James B. Hawkes
|Samuel L. Hayes, III*
Samuel L. Hayes
|William H. Park*
William H. Park
|Ronald A. Pearlman*
Ronald A. Pearlman
|Norton H. Reamer*
Norton H. Reamer
|Lynn A. Stout*
Lynn A. Stout
|Ralph F. Verni*
Ralph F. Verni
|*By: /s/ James B. Hawkes|
|James B. Hawkes (As attorney-in-fact)|
|Amendment to By-Laws dated December 11, 2006|
|Consent of Independent Registered Public Accounting Firm|
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EATON VANCE PRIME RATE RESERVES
|December 11, 2006|
Pursuant to ARTICLE XV of the BY-LAWS of Eaton Vance Prime Rate Reserves (the Trust), upon vote by a majority of the Trustees of the Trust, Section 4 and Section 7 of Article III are hereby amended and restated in their entirety as follows:
SECTION 4. President. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman of the Trustees, the President shall be the chief executive officer of the Trust and subject to the control of the Trustees, he shall have general supervision, direction and control of the business of the Trust and of its employees and shall exercise such general powers of management as are usually vested in the office of President of a corporation. In the event that the Chairman does not preside at a meeting of shareholders or delegate such power and authority to another Trustee or officer of the Fund, the President or his designee shall preside at such meeting. He shall have the power to employ attorneys and counsel for the Trust and to employ such subordinate officers, agents, clerks and employees as he may find necessary to transact the business of the Trust. He shall also have the power to grant, issue, execute or sign such powers of attorney, proxies, contracts, agreeme nts or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust. The President shall have such other powers and duties as, from time to time, may be conferred upon or assigned to him by the Trustees.
SECTION 7. Other Officers. Other officers elected by the Trustees shall perform such duties as the Trustees may from time to time designate, including executing or signing such powers of attorney, proxies, contracts, agreements or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Post-Effective Amendment No. 12 to Registration Statement No. 333-32268 on Form N-2 of our reports dated January 16, 2007 relating to the financial statements and financial highlights of Eaton Vance Prime Rate Reserves (the Fund) and Senior Debt Portfolio appearing in the Annual Report on Form N-CSR of the Fund for the year ended November 30, 2006, and to the references to us under the headings Financial Highlights in the Prospectus and Investment Advisory and Other Services-Independent Registered Public Accounting Firm in the Statement of Additional Information, which are part of such Registration Statement.
|/s/ Deloitte & Touche LLP|
DELOITTE & TOUCHE LLP
|March 28, 2007|