Investment Company Act of 1940 - Section 15(a)
Eaton Vance Special Investment Trust, et al

March 30, 2004

Our Ref. No. 20041161621
Eaton Vance Special Investment

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Trust, et al. DIVISION OF INVESTMENT MANAGEMENT File No. 811-01545

Your letter dated March 19, 2004 requests our assurance that we would not recommend enforcement action to the Commission under Section 15(a) of the Investment Company Act of 1940 (the "1940 Act") against Boston Management and Research ("BMR") or Fox Asset Management LLC ("Fox") if Eaton Vance Special Investment Trust (the "Trust") enters into an investment advisory agreement with BMR and an investment sub-advisory agreement with Fox on behalf of one of its series, Eaton Vance Small-Cap Value Fund (the "Fund"), without obtaining shareholder approval.

BACKGROUND

You state that the Trust is registered as an open-end investment management company under the 1940 Act. You represent that BMR and Fox are registered as investment advisers under the Investment Advisers Act of 1940 (the "Advisers Act"). The Fund was established as a feeder fund in a master-feeder arrangement for which Small-Cap Value Portfolio (the "Portfolio"), a trust that is registered as an open-end management investment company under the 1940 Act, is the master fund. You state that the Fund is currently the only feeder fund investing in the Portfolio and owns substantially all of the outstanding interests in the Portfolio.¹

You represent that BMR has served as investment adviser, and Fox has served as sub-adviser, to the Portfolio since its inception pursuant to, respectively, an investment advisory agreement (the "Portfolio Advisory Agreement") and an investment sub-advisory agreement (the "Portfolio Sub-Advisory Agreement," and together with the Portfolio Advisory Agreement, the "Portfolio Agreements"). The Portfolio Agreements were initially approved by a vote of a majority of the Portfolio's trustees, including a majority of the trustees who are not interested persons (as defined by section 2(a)(19) of the 1940 Act) of the Portfolio, BMR or Fox ("Independent Trustees"). You state that, as the Portfolio's initial interestholders, BMR and Eaton Vance approved the Portfolio Agreements prior to the Portfolio's commencement of operations.²

You state that, to date, no feeder funds (other than the Fund) or other investors (other than BMR and Eaton Vance) have invested in the Portfolio, and none is expected to do so in the immediate future. You state further that absent the prospective benefits of a master-feeder structure, the Fund's management believes that it would be in the best interests of Fund shareholders for the Fund to withdraw from the Portfolio by redeeming its entire investment in the Portfolio and investing directly in securities. Once the Fund withdraws from the Portfolio, the Portfolio will be dissolved. You state that if the Fund withdraws from the Portfolio, it will no longer be subject to the additional expense associated with the master-feeder structure (specifically the additional audit and administrative costs incurred by the Portfolio). You represent that the cost savings to the Fund of withdrawing from the Portfolio are expected to be approximately $8,000 annually. You state that the trustees of the Trust determined that a redemption of the Fund's interest in the Portfolio would be in the best interests of the Fund and its shareholders, provided that the redemption can be accomplished without the expense of a proxy solicitation to approve new advisory and sub-advisory agreements.

You represent that the trustees of the Trust, including the Independent Trustees, approved an investment advisory agreement with BMR ("Fund Advisory Agreement") and an investment sub-advisory agreement with Fox ("Fund Sub-Advisory Agreement," and together with the Fund Advisory Agreement, the "Fund Agreements") with the same terms and fee arrangements as the Portfolio Advisory Agreement and the Portfolio Sub-Advisory Agreement, respectively.³ Pursuant to the Fund Advisory Agreement, BMR will be responsible for managing the Fund's investments. Pursuant to the Fund Sub-Advisory Agreement, BMR will delegate the investment management responsibility to Fox.⁴ You represent that the Fund Agreements have been adopted in accordance with the provisions of section 15 of the Investment Company Act, other than being approved by the vote of a majority of the Fund's outstanding voting securities.⁵

ANALYSIS

Section 15(a) of the Investment Company Act provides, among other things, that no person may serve as an investment adviser to a registered investment company except pursuant to a written contract that has been approved by the vote of a majority of the company's outstanding voting securities. Section 15(a) is designed to give fund shareholders a voice in a fund's investment advisory contract.⁶ You propose that BMR and Fox serve as investment advisers to the Fund pursuant to the Fund Advisory Agreement and the Fund Sub-Advisory Agreement, respectively, without obtaining the prior approval of a majority of the Fund's outstanding voting securities.

You contend that requiring the approval of shareholders of the Fund under the circumstances presented in your letter would serve no purpose and would impose a significant, needless expense on the Fund and its shareholders. You also represent that the terms and conditions of the Fund Agreements will be identical to those of the Portfolio Agreements, respectively, including the identity of the investment adviser and sub-adviser and their respective advisory personnel, the management services to be provided, the assets to be managed and the rate of compensation to be paid. You represent that the only material difference between the Portfolio Agreements and the Fund Agreements is that the identity of the contracting investment company (and the facts related thereto) will change from the Portfolio to the Trust on behalf of the Fund. Additionally, you contend that the level of advisory services that the Fund will receive from BMR and Fox under the respective Fund Agreements will not be reduced or modified in any way from the services the Portfolio receives from BMR and Fox under the respective Portfolio Agreements.

You contend further that the staff has granted relief in a situation that was very similar to the situation that you present. In Principal Preservation Portfolios, Inc., et al. (pub. avail. Jan. 11, 1996) ("Principal"), the staff agreed, among other things, not to recommend enforcement action under section 15(a) if a feeder fund reorganized to become a stand-alone fund and, without obtaining shareholder approval, adopted an investment advisory contract that was substantially identical to the investment advisory contract between the investment adviser and the former master fund. You note that in Principal, the investment advisory contract between the investment adviser and the master fund had been approved by the shareholders of the feeder fund. You believe, for the reasons described above, that BMR and Fox should not be required to obtain the approval of the shareholders of the Fund prior to serving as an investment adviser to the Fund. We agree.

Based on the foregoing facts and representations, we would not recommend enforcement action to the Commission under section 15(a) of the 1940 Act against BMR or Fox if the Trust enters into an investment advisory agreement with BMR and an investment sub-advisory agreement with Fox on behalf of the Fund without obtaining shareholder approval. Our position is based particularly on your representations that:

• the terms and conditions of the Fund Agreements will be identical to those of the Portfolio Agreements, respectively, including the identity of the investment adviser and sub-adviser and their respective advisory personnel, the management services to be provided, the assets to be managed and the rate of compensation to be paid;
• the only material difference between the Portfolio Agreements and the Fund Agreements is that the identity of the contracting investment company (and the facts relating thereto) will change from the Portfolio to the Trust on behalf of the Fund;
• the level of advisory services that the Fund will receive from BMR and Fox under the respective Fund Agreements will not be reduced or modified in any way from the services the Portfolio receives from BMR and Fox under the respective Portfolio Agreements;
• the Fund Agreements have been adopted in accordance with the provisions of section 15 of the Investment Company Act, other than being approved by the vote of a majority of the Fund's outstanding voting securities; and
• the Fund will provide appropriate notice to its existing shareholders about the Fund's withdrawal from the Portfolio and the appointment of BMR and Fox as the Fund's investment adviser and sub-adviser, respectively, and all prospective investors in the Fund would be notified of these changes.

This letter expresses the Division's position on enforcement action only and does not purport to express any legal conclusion on the issues presented. Any different facts or representations may require a different conclusion.

John L. Sullivan
Senior Counsel

Incoming Letter:

March 19, 2004

Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

Attention: John Sullivan, Esq.

Office of Chief Counsel

Re: Request for No-Action Assurance under Section 15(a) of the Investment Company Act of 1940, as amended

Ladies and Gentlemen:

On behalf of Eaton Vance Special Investment Trust (the "Trust"), Boston Management and Research ("BMR") and Fox Asset Management LLC ("Fox"), we hereby request confirmation by the staff of the Division of Investment Management that it would not recommend enforcement action under Section 15(a) of the Investment Company Act of 1940, as amended, (the "1940 Act") against the Trust, BMR or Fox if the Trust enters into an investment advisory agreement with BMR and a sub-investment advisory agreement with Fox on behalf of one of its series, Eaton Vance Small-Cap Value Fund (the "Fund"), without obtaining shareholder approval. The Trust is a Massachusetts business trust registered as an open-end investment management company under the 1940 Act. BMR and Fox are registered as investment advisers under the Investment Advisers Act of 1940, as amended (the "Advisers Act") and are indirect controlled subsidiaries of Eaton Vance Corp. ("EVC"), a publicly-traded holding company.

Background

Current Structure. The Fund was established in March 2002 as a feeder fund in a master-feeder arrangement for which Small-Cap Value Portfolio (the "Portfolio"), a New York trust registered as an open-end management investment company under the 1940 Act, is the master fund. The Fund's shares are registered under the Securities Act of 1933, as amended (the "1933 Act"). Interests in the Portfolio are not registered under the 1933 Act. The Portfolio offers its interests only in private placement transactions to feeder funds, such as the Fund, and certain other institutional investors. The Fund is currently the only feeder fund investing in the Portfolio. The Fund owns substantially all of the outstanding interests in the Portfolio. The other investors in the Portfolio are BMR and Eaton Vance Management ("Eaton Vance"), an investment adviser registered under the Advisers Act and a controlled subsidiary of EVC.⁷

Service Provider Relationships. BMR has served as investment adviser to the Portfolio since its inception pursuant to an investment advisory agreement (the "Portfolio Advisory Agreement"). Fox has served as investment sub-adviser to the Portfolio since its inception pursuant to an investment sub-advisory agreement (the "Portfolio Sub-Advisory Agreement"). The Portfolio Advisory and Sub-Advisory Agreements were initially approved on March 18, 2002 (and have since been renewed) by a vote of a majority of the Portfolio's Trustees, including a majority of the Trustees who are not "interested persons" (as defined by Section 2(a)(19) of the 1940 Act) of the Portfolio, BMR or Fox. As the Portfolio's initial interestholders, BMR and Eaton Vance approved the Portfolio Advisory and Sub-Advisory Agreements prior to the Portfolio's commencement of operations. The Fund currently is not a party to an investment advisory or sub-advisory agreement because it does not invest directly in securities.

Eaton Vance provides the Fund with administrative and related services pursuant to an Administrative Services Agreement. In addition, Eaton Vance serves as sub-transfer agent for the Fund. Eaton Vance Distributors, Inc. ("EVD") is the Fund's principal underwriter under the terms of a Distribution Agreement.⁸ Each of these service agreements has been approved by the Board of Trustees of the Trust, including (except for the sub-transfer agency agreement) a majority of the Trustees who are not interested persons of the Portfolio or Eaton Vance and its affiliates.

Proposed Transaction

When the Fund and the Portfolio were organized in the master-feeder structure, it was contemplated that additional feeder funds or other permitted investors would invest in the Portfolio, which would increase Portfolio assets thereby creating economies of scale for Portfolio investors. To date no feeder funds (other than the Fund) or other investors (other than BMR and Eaton Vance) have invested in the Portfolio and none are expected to do so in the immediate future.
Absent the prospective benefits of a master-feeder structure, the Fund's management believes it would be in the best interests of Fund shareholders for the Fund to withdraw from the Portfolio by redeeming its entire investment in the Portfolio and investing directly in securities. In the event of such a withdrawal, the Portfolio would distribute the proceeds of the Fund's redemption in-kind.⁹ Once the Fund withdraws from the Portfolio, the Portfolio will be dissolved. If the Fund withdraws from the Portfolio, it will no longer be subject to the additional expense associated with the master-feeder structure (specifically the additional audit and administrative costs incurred by the Portfolio). While these costs may be insignificant to a larger feeder fund or master fund that attracts numerous investors, the costs are relatively significant to a smaller sized fund.¹⁰
Prior to redeeming its interest in the Portfolio, the Fund would adopt an investment advisory agreement (the "Fund Advisory Agreement") with BMR and an investment sub-advisory agreement (the "Fund Sub-Advisory Agreement") with Fox with the same terms and fee arrangements as the Portfolio Advisory Agreement and Portfolio Sub-Advisory Agreement, respectively. Pursuant to the Fund Advisory Agreement, BMR will be responsible for managing the Fund's investments, including the securities the Portfolio distributes to the Fund as a result of its redemption. Pursuant to the Fund Sub-Advisory Agreement, BMR will delegate investment management responsibility to Fox.¹¹
At a meeting of the Trust's Board of Trustees on August 11, 2003, the Trustees of the Trust determined that a redemption of the Fund's interest in the Portfolio would be in the best interests of the Fund and its shareholders, provided that the redemption can be accomplished without the expense of a proxy solicitation to approve new advisory and sub-advisory agreements. In that connection, the Trustees, including the Independent Trustees, approved the Fund Advisory and Sub-Advisory Agreements, which were adopted in accordance with Section 15 of the 1940 Act other than having been approved by the vote of a majority of the Fund's outstanding voting securities.
Following the Fund's redemption of its interest in the Portfolio, the Fund's registration statement would be supplemented or otherwise amended to reflect the Fund's change in structure and the appointment of BMR as the Fund's investment adviser and Fox as the Fund's sub-adviser. Therefore, all prospective investors in the Fund would be notified of these changes. In addition, the Fund will provide appropriate notice to its existing shareholders about the Fund's withdrawal from the Portfolio and the appointment of BMR and Fox as the Fund's investment adviser and sub-adviser, respectivelyof .

No-Action Relief Requested

We request, on behalf of the Trust, BMR and Fox, that the staff confirm that it would not recommend enforcement action under Section 15(a) of the 1940 Act against the Fund, BMR or Fox if the Trust on behalf of the Fund enters into the Fund Advisory Agreement with BMR and the Fund Sub-Advisory Agreement with Fox without obtaining shareholder approval.

Legal Discussion

The Law. Section 15(a) of the 1940 Act provides that no person may serve as an investment adviser to a registered investment company except pursuant to a written contract that, among other things, has been approved by a vote of majority of the company's outstanding voting securities. Generally, any material change in an investment advisory agreement creates a new contract that must be approved in accordance with Section 15. The purpose of Section 15 is to protect shareholders of a registered investment company against conflicts of interest and overreaching or otherwise detrimental investment advisory agreements.

As noted above, the Portfolio Advisory and Sub-Advisory Agreements were initially approved by a vote of a majority of the Portfolio's Trustees, including a majority of the Trustees who are not interested persons of the Portfolio or Eaton Vance and its affiliates. The Portfolio Advisory and Sub-Advisory Agreements were also approved by the Portfolio's initial interestholders prior to commencement of Portfolio operations.

The terms and conditions of the Fund Advisory Agreement and Fund Sub-Advisory Agreement will be identical to those of the Portfolio Advisory Agreement and Portfolio Sub-Advisory Agreement, respectively, including the identity of the investment adviser and sub-adviser and their respective advisory personnel, the management services to be provided, the assets to be managed and the rate of compensation to be paid. The only material difference between the Portfolio Agreements and the Fund Agreements is that the identity of the contracting investment company (and the facts relating thereto) will change from the Portfolio to the Trust on behalf of the Fund. The level of advisory services the Fund will receive from BMR under the Fund Advisory Agreement and from Fox under the Fund Sub-Advisory Agreement will not be reduced or modified in any way from the services the Portfolio receives from BMR and Fox under the Portfolio Advisory and Sub-Advisory Agreements. As there will be no substantive change from the agreements that are currently in place for the Portfolio and the level of service will remain the same, we believe both the purpose and the spirit of Section 15 would be fulfilled if the Fund adopted the Fund Advisory and Sub-Advisory Agreements without a vote of the shareholders of the Fund. Accordingly, we believe that requiring the approval of shareholders of the Fund under these circumstances would serve no purpose and would impose a significant, needless expense on the Fund and its shareholders.

Precedents. The staff has granted relief in situations very similar to the situation presented here. In 1996, Principal Preservation Portfolios, Inc. requested no action assurances from the staff where a series of Principal Preservation Portfolios, Inc., a feeder fund in a master-feeder structure, and another feeder fund investing in the same master fund withdrew from the master fund to be reorganized as two separate classes of a single stand-alone fund. Principal Preservation Portfolios, Inc. (publicly available January 11, 1996). The stand-alone fund adopted an advisory agreement that was substantially identical to the advisory agreement between the former master fund and its adviser without obtaining shareholder approval of the new agreement. The staff stated that it would not recommend enforcement action under Section 15(a) of the 1940 Act. In reaching its conclusion, the staff stated that its position was based in particular on Principal Presentation Portfolio Inc.'s representation that the terms and conditions of the new feeder fund advisory agreement were identical to those of the master fund agreement with respect to the identity of the adviser and advisory personnel, the management services to be provided, the assets to be managed and the rate of compensation to be paid. Id. at footnote 11.
As in Principal Preservation Portfolio, Inc., the Fund Advisory Agreement and Fund Sub-Advisory Agreement will be substantially identical to the Portfolio Advisory Agreement and the Portfolio Sub-Advisory Agreement, respectively. We note that in the Principal Preservation Portfolios, Inc. situation, the advisory agreement between the former master fund and its adviser had been approved by the feeder fund's shareholders. The Portfolio Advisory and Sub-Advisory Agreements were approved by the Portfolio's initial interestholders, but have not been presented to Portfolio interestholders (including the Fund) for approval since that time.¹² We believe that this distinction is not significant because although the Portfolio's interestholders have not had an opportunity to explicitly approve the Portfolio Advisory and/or Sub-Advisory Agreements, they have implicitly approved both Agreements by making their investment in the Portfolio (and the Fund's shareholders have done the same by investing in the Fund).¹³

In addition to the response to the request by Principal Preservation Portfolio, Inc., the staff has agreed in other no-action correspondence not to recommend enforcement action under Section 15(a) in other situations in which a new advisory contract was created from a pre-existing advisory contract, provided that the new arrangement or amendment did not materially change the advisory relationship or terms of the advisory contract previously approved by shareholders. See Wells Fargo Bank, N.A. (publicly available March 31, 1998) (Citing the Principal Preservation Portfolios, Inc. letter, the staff indicated it would not recommend enforcement action under Section 15(a) of the 1940 Act if a wholly-owned subsidiary of the fund's adviser was appointed as a subadviser without obtaining shareholder approval for the new subadvisory agreement.); see also, Franklin Templeton Group of Funds (publicly available July 23, 1997) (The staff would not recommend enforcement action under Section 15(a) of the 1940 Act if the fund replaced an existing advisory contract, which covered both advisory and administrative services, with two new contracts that covered the services separately, without obtaining shareholder approval for the new advisory agreement.). The primary factors considered by the staff in granting no-action relief in these instances were that (a) the proposed changes to the advisory arrangements would not reduce or modify in any way the nature or level of advisory services provided to the fund or increase the fees paid by the fund for advisory services and (b) in the Wells Fargo Bank, N.A. letter, appropriate notice would be given to existing and prospective investors.

Although the transactions in the Wells Fargo and Franklin Templeton letters cited above differ factually from the transaction contemplated by the Fund, we believe the rationales, which supported no-action relief in those cases, are equally compelling here. Accordingly, we request that the staff confirm that it would not recommend any enforcement action against the Trust, BMR or Fox if the proposed Fund Advisory Agreement with BMR and the Fund Sub-Advisory Agreement with Fox are adopted, entered into, and implemented in connection with the Fund's redemption of its investment in the Portfolio without first obtaining approval from the shareholders of the Fund.

Thank you in advance for your consideration of this request. If you have any questions or would like any additional information or documents, please call the undersigned at 617-598-8305.

Very truly yours,

Maureen A. Gemma

Endnotes

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¹ You state that the other investors in the Portfolio are BMR and Eaton Vance Management ("Eaton Vance"), an investment adviser that is registered under the Advisers Act. You state that BMR seeded the Portfolio with an investment of $100,000. You state further that Eaton Vance made a de minimis investment for purposes of maintaining the Portfolio's status as a partnership for federal tax purposes. As of August 31, 2003, the net assets of the Portfolio were $4,995,070, and the Fund's investment in the Portfolio was valued at $4,886,065.

² You state that the Portfolio Agreements have not been presented to the Portfolio's interestholders (including the Fund) for approval since the Portfolio Agreements were approved by the Portfolio's initial interestholders.

³ Telephone conversation between John L. Sullivan of the staff and Maureen A. Gemma of Eaton Vance Management on March 29, 2004.

⁴ You represent that, despite the delegation of investment management responsibility to Fox, BMR will supervise Fox and provide investment portfolio administrative services to the Fund pursuant to the Fund Advisory Agreement.

⁵ In addition, you represent that the Fund will provide appropriate notice to its existing shareholders about the Fund's withdrawal from the Portfolio and the appointment of BMR and Fox as the Fund's investment adviser and sub-adviser, respectively. You also represent that all prospective investors in the Fund would be notified of these changes.

⁶ See Temporary Exemption for Certain Investment Advisers, Investment Company Act Release No. 23325 (July 28, 1998) (proposing amendments to rule 15a-4 under the 1940 Act). Section 15(a) is also designed to prevent trafficking in fund advisory contracts. Id.

⁷ BMR seeded the Portfolio with an investment of $100,000. Eaton Vance made a de minimus investment for purposes of maintaining the Portfolio's status as a partnership for federal tax purposes.

⁸ EVD is also a controlled subsidiary of EVC.

⁹ Any such redemption in-kind would be executed pursuant to the In-Kind Redemption Procedures for Affiliated Shareholders adopted by the Eaton Vance Funds in accordance with the conditions set forth in the Signature Financial Group, Inc. no action letter (publicly available December 28, 1999).

¹⁰ At August 31, 2003, the net assets of the Portfolio were $4,995,070 and the Fund's investment in the Portfolio was valued at $4,886,065. The cost savings to the Fund of withdrawing from the Portfolio are expected to be approximately $8,000 annually.

¹¹ Despite the delegation of investment management responsibility to Fox, BMR will supervise Fox and provide investment portfolio administrative services to the Fund pursuant to the Fund Advisory Agreement.

¹² If the Portfolio had sought interestholders approval of the Portfolio Advisory Agreement and/or Sub-Advisory Agreement, the Fund would have sought voting instructions from its shareholders and thus Fund shareholders would have had an opportunity to approve the Portfolio Advisory Agreement and/or Sub-Advisory Agreement.

¹³ See the letter from the Division of Investment Management of the Securities and Exchange Commission to the Investment Company Institute dated Nov. 11, 1992 (stating that the staff would no longer require a fund to undertake in its initial registration statement to hold a shareholders' meeting to approve, among other things, the fund's investment advisory contract as approved by the Fund's initial shareholder based on the staff's finding that "by investing in a fund, the public shareholders have voted with their dollars to accept the fund's existing advisory contract").

http://www.sec.gov/divisions/investment/noaction/eatonvance033004.htm