0000898432-04-000406.txt : 20120829
0000898432-04-000406.hdr.sgml : 20120829
20040430185731
ACCESSION NUMBER: 0000898432-04-000406
CONFORMED SUBMISSION TYPE: N-2
PUBLIC DOCUMENT COUNT: 4
REFERENCES 429: 811-21574
FILED AS OF DATE: 20040503
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Eaton Vance Floating-Rate Income Trust
CENTRAL INDEX KEY: 0001288992
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: N-2
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-21574
FILM NUMBER: 04771254
BUSINESS ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
BUSINESS PHONE: 617-482-8260
MAIL ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Eaton Vance Floating-Rate Income Trust
CENTRAL INDEX KEY: 0001288992
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: N-2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-115087
FILM NUMBER: 04771253
BUSINESS ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
BUSINESS PHONE: 617-482-8260
MAIL ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
N-2
1
ev_n2.txt
As filed with the Securities and Exchange Commission on April 30, 2004
1933 Act File No. 333-
1940 Act File No. 811- 21574
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. | |
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. |_|
(CHECK APPROPRIATE BOX OR BOXES)
EATON VANCE FLOATING-RATE INCOME TRUST
--------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
-----------------------------------------------------------------
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
NAME AND ADDRESS (OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ.
KIRKPATRICK & LOCKHART LLP
75 STATE STREET
BOSTON, MASSACHUSETTS 02109
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this form are to 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 (check appropriate
box):
/ / when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
===============================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
BEING OFFERING AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED PRICE PER OFFERING FEES
REGISTERED UNIT PRICE
(1) (1) (1) (1)(2)
-------------------------------------------------------------------------------
Common Shares of 50,000 $20.00 $1,000,000 $126.70
Beneficial Interest,
$0.01 par value
===============================================================================
(1) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(o) under the Securities Act of 1933.
(2) Includes Shares that may be offered to the Underwriters pursuant to an
option to cover over-allotments.
____________________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this Prospectus is incomplete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This Prospectus is not an offer to sell
these securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION APRIL 30, 2004
--------------------------------------------------------------------------------
[EATON VANCE LOGO] SHARES
EATON VANCE FLOATING-RATE INCOME TRUST
COMMON SHARES
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES. Eaton Vance Floating-Rate Income Trust (the
"Trust") is a newly organized, diversified, closed-end management investment
company. The Trust's investment objective is to provide a high level of current
income. The Trust may, as a secondary objective, also seek preservation of
capital to the extent consistent with its primary goal of high current income.
The Trust will seek to achieve its investment objectives by investing primarily
in senior, secured floating rate loans ("Senior Loans"). Under normal market
conditions, Eaton Vance Management, the Trust's investment adviser, expects the
Trust to maintain an average duration of less than one year (including the
effect of anticipated leverage).
INVESTMENT ADVISER. The Trust's investment adviser is Eaton Vance Management
("Eaton Vance" or the "Adviser"). As of [_____], 2004, Eaton Vance and its
subsidiaries managed approximately $[____] billion on behalf of funds,
institutional clients and individuals. As of [____], 2004, Eaton Vance and its
subsidiaries managed more than $[____] billion in funds, in other commingled
investment vehicles and for institutional accounts which invest primarily in
Senior Loans.
PORTFOLIO CONTENTS. The Trust pursues its objective by investing its assets
primarily in Senior Loans. Under normal market conditions, the Trust will invest
at least 80% of its total assets in Senior Loans. Senior Loans are made to
corporations, partnerships and other business entities ("Borrowers") which
operate in various industries and geographical regions, including foreign
Borrowers. Senior Loans pay interest at rates which are redetermined
periodically on the basis of a floating base lending rate plus a premium. 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 Borrower's capital structure and secured by specific
collateral), the Adviser believes, based on its experience, that Senior Loans
tend to have more favorable loss recovery rates compared to most other types of
below investment grade obligations which are subordinated and unsecured.
Because the Trust is newly organized, its Common Shares have no history of
public trading. Approximately one to three months after completion of the
offering of common shares, the Trust expects to begin use of financial leverage
through the issuance of preferred shares and/or through borrowings, leveraging
initially up to approximately [___]% of its total assets (including the amount
obtained through leverage).(CONTINUED ON INSIDE COVER PAGE)
INVESTING IN SHARES INVOLVES CERTAIN RISKS, INCLUDING THAT THE TRUST WILL INVEST
SUBSTANTIAL PORTIONS OF ITS ASSETS IN BELOW INVESTMENT GRADE QUALITY SECURITIES
WITH SPECULATIVE CHARACTERISTICS. SEE "INVESTMENT OBJECTIVES, POLICIES AND
RISKS" BEGINNING AT PAGE [___].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO PUBLIC SALES LOAD(1) PROCEEDS TO TRUST
--------------- ------------- -----------------
Per share $ [20.00] $ 0 $ 0
Total
Total assuming full exercise
of the over-allotment option
(NOTES ON FOLLOWING PAGE)
In addition to the sales load, the Trust will pay offering expenses of up to $[
] per share, estimated to total $[ ], which will reduce the "Proceeds to Trust"
(above). Eaton Vance or an affiliate has agreed to pay the amount by which the
aggregate of all of the Trust's offering costs (other than the sales load)
exceeds $[ ], per share. Eaton Vance or an affiliate has agreed to reimburse all
Trust organizational costs.
The underwriters named in the Prospectus may purchase up to [____] additional
shares from the Trust under certain circumstances. The underwriters are offering
the shares subject to various conditions and expect to deliver the shares to
purchasers on or about [____], 2004.
2
--------------------------------------------------------------------------------
(CONTINUED FROM PREVIOUS PAGE)
EXCHANGE LISTING. The Trust intends to apply for the listing of its common
shares on the [____] Stock Exchange under the symbol "__________." Because the
Trust is newly organized, its common shares have no history of public trading.
The shares of closed-end management investment companies frequently trade at a
discount from their net asset value. The returns earned by holders of the
Trust's common shares ("Common Shareholders") who purchase their shares in this
offering and sell their shares below net asset value will be reduced.
The Trust's net asset value and distribution rate will vary and may be affected
by several factors, including changes in the credit quality of issuers and
interest rates and other market factors. Fluctuations in net asset value may be
magnified as a result of the Trust's use of leverage, which is a speculative
investment technique. An investment in the Trust may not be appropriate for all
investors. There is no assurance that the Trust will achieve its investment
objectives.
The Trust expects to use financial leverage through the issuance of preferred
shares and/or through borrowings, initially equal to approximately [____]% of
its gross assets (including the amount obtained through leverage). The Adviser
anticipates that the use of leverage will result in higher income to common
shareholders over time. Use of financial leverage creates an opportunity for
increased income but, at the same time, creates special risks. There can be no
assurance that a leveraging strategy will be utilized or will be successful. SEE
"INVESTMENT OBJECTIVES, POLICIES AND RISKS-- USE OF LEVERAGE AND RELATED RISKS"
AT PAGE [____] AND "DESCRIPTION OF CAPITAL STRUCTURE" AT PAGE [____].
This Prospectus sets forth concisely information you should know before
investing in the shares of the Trust. Please read and retain this Prospectus for
future reference. A Statement of Additional Information dated [____], has been
filed with the Securities and Exchange Commission ("SEC") and can be obtained
without charge by calling 1-800-225-6265 or by writing to the Trust. A table of
contents to the Statement of Additional Information is located at page [___] of
this Prospectus. This Prospectus incorporates by reference the entire Statement
of Additional Information. The Statement of Additional Information is available
along with other Trust-related materials: at the SEC's public reference room in
Washington, DC (call 1-202-942-8090 for information on the operation of the
reference room); the EDGAR database on the SEC's internet site
(http://www.sec.gov); upon payment of copying fees by writing to the SEC's
public reference section, Washington, DC 20549-0102; or by electronic mail at
publicinfo@sec.gov. The Trust's address is The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109 and its telephone number is 1-800-225-6265.
The Trust's shares do not represent a deposit or obligation of, and are not
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.
You should rely only on the information contained or incorporated by reference
in this Prospectus. The Trust has not authorized anyone to provide you with
different information. The Trust is not making an offer of these securities in
any state where the offer is not permitted.
Until [____] (25 days after the date of this Prospectus), all dealers that buy,
sell or trade the shares, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
__________________
(1) Eaton Vance (not the Trust) will pay certain additional compensation to
qualifying underwriters. See "Underwriting." Eaton Vance (not the Trust) will
pay [______] for services provided pursuant to a shareholder servicing agreement
between [______] and Eaton Vance. See "Shareholder Servicing Agent, custodian
and transfer agent." The total amount of the foregoing payments will not exceed
[___]% of the aggregate initial offering price of the Common Shares offered
hereby.
3
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Prospectus summary..........................................
Summary of Trust expenses...................................
The Trust...................................................
Use of proceeds.............................................
Investment objectives, policies and risks...................
Management of the Trust.....................................
Distributions...............................................
Dividend reinvestment plan..................................
Description of capital structure............................
Underwriting................................................
Shareholder Servicing Agent, Custodian and
Transfer Agent............................................
Legal opinions..............................................
Reports to Shareholders.....................................
Independent auditors........................................
Additional information......................................
Table of contents for the Statement of
Additional Information....................................
The Trust's privacy policy..................................
4
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN THE TRUST'S COMMON SHARES. YOU SHOULD
REVIEW THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE
STATEMENT OF ADDITIONAL INFORMATION, ESPECIALLY THE INFORMATION SET FORTH UNDER
THE HEADING "INVESTMENT OBJECTIVE, POLICIES AND RISK."
THE TRUST
Eaton Vance Floating-Rate Income Trust (the "Trust") is a newly organized,
diversified, closed-end management investment company. The Trust offers
investors the opportunity to receive a high level of current income, through a
professionally managed portfolio investing primarily in senior, secured floating
rate loans ("Senior Loans"), which are normally accessible only to financial
institutions and large corporate and institutional investors, and are not widely
available to individual investors. To the extent consistent with this objective,
the Trust may also offer an opportunity for preservation of capital. Investments
are based on Eaton Vance Management's ("Eaton Vance" or the "Adviser") internal
research and ongoing credit analysis, which is generally not available to
individual investors. An investment in the Trust may not be appropriate for all
investors. There is no assurance that the Trust will achieve its investment
objectives.
THE OFFERING
The Trust is offering [____] common shares of beneficial interest, par value
$0.01 per share, through a group of underwriters (the "Underwriters") led by
[____, ____, ____, ]. The common shares of beneficial interest are called
"Common Shares." The Underwriters have been granted an option by the Trust to
purchase up to [ ] additional Common Shares solely to cover over-allotments, if
any. The initial public offering price is $[20.00] per share. The minimum
purchase in this offering is 100 Shares ($[2,000]). See "Underwriting." Eaton
Vance or an affiliate has agreed to (i) reimburse all organizational costs and
(ii) pay all offering costs (other than sales loads) that exceed $[______] per
Common Share.
INVESTMENT OBJECTIVES AND POLICIES
The Trust's investment objective is to provide a high level of current income.
The Trust may, as a secondary objective, also seek preservation of capital to
the extent consistent with its primary goal of high current income. Under normal
market conditions, Eaton Vance expects the Trust to maintain a duration of less
than one year (including the effect of anticipated leverage). The Trust pursues
its objectives by investing primarily in Senior Loans. 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 by reference to a base
lending rate, primarily the London-Interbank Offered Rate ("LIBOR"), plus a
premium. Under normal market conditions, at least 80% of the Trust's total
assets will be invested in interests in Senior Loans. It is anticipated that the
proceeds of the Senior Loans in which the Trust will acquire interests primarily
will be used to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, refinancing, and internal growth and for other
corporate purposes of Borrowers.
The Trust may invest up to 20% of its total assets in: (i) loan interests which
are not secured by any, or that have a lower than senior claim on, collateral,
including "second lien" loans (ii) other income producing securities such as
investment and non-investment grade corporate debt securities and U.S.
government and U.S. dollar-denominated foreign government or supranational debt
securities, and (iii) warrants and equity securities issued by a Borrower or its
affiliates as part of a package of investments in the Borrower or its
affiliates. Corporate bonds of below investment grade quality ("Non-Investment
Grade Bonds"), commonly referred to as "junk bonds," are bonds that are rated
below investment grade by each of the national rating agencies who cover the
security, or, if unrated, are determined to be of comparable quality by the
Adviser. Standard & Poor's Ratings Group ("S&P") and Fitch Ratings ("Fitch")
consider securities rated below BBB- to be below investment grade and Moody's
Investors Service, Inc. ("Moody's") considers securities rated below Baa3 to be
below investment grade. The foregoing credit quality policies apply only at the
time a security is purchased, and the Trust is not required to dispose of a
security in the event of a downgrade of an assessment of credit quality or the
withdrawal of a rating. Securities rated in the lowest investment grade rating
(BBB- or Baa3) may have certain speculative characteristics. Below investment
grade quality securities are considered to be predominantly speculative because
of the credit risk of the issuers. See "Investment Objective, policies and
risks--Additional Risk Considerations--Non-investment grade securities risk."
5
Under normal market conditions, the Trust expects to maintain an average
duration of less than one year (including the effect of anticipated leverage).
In comparison to maturity (which is the date on which a debt instrument ceases
and the issuer is obligated to repay the principal amount), duration is a
measure of the price volatility of a debt instrument as a result of changes in
market rates of interest, based on the weighted average timing of the
instrument's expected principal and interest payments. Duration differs from
maturity in that it considers a security's yield, coupon payments, principal
payments and call features in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its
duration. Prices of securities with longer durations tend to be more sensitive
to interest rate changes than securities with shorter durations. In general, a
portfolio of securities with a longer duration can be expected to be more
sensitive to interest rate changes than a portfolio with a shorter duration.
Investing in Senior Loans involves investment risk. Some Borrowers default on
their Senior Loan payments. The Trust attempts to manage this credit risk
through portfolio diversification and ongoing analysis and monitoring of
Borrowers. The Trust also is subject to market, liquidity, interest rate and
other risks.
Scott H. Page and Payson F. Swaffield (each a Vice President of Eaton Vance) are
the portfolio managers of the Trust. Mr. Page and Mr. Swaffield have co-managed
other Eaton Vance portfolios investing primarily in Senior Loans since 1996. The
Trust's investments are actively managed, and Senior Loans and other securities
may be bought or sold on a daily basis.
The Adviser's staff monitors the credit quality and price of Senior Loans and
other securities held by the Trust, as well as other securities that are
available to the Trust. The Trust may invest in individual Senior Loans and
other securities of any credit quality. Although the Adviser considers ratings
when making investment decisions, it performs its own credit and investment
analysis and does not rely primarily on the ratings assigned by the rating
services. In evaluating the quality of particular Senior Loans or other
securities, whether rated or unrated, the Adviser will normally take into
consideration, among other things, the issuer's financial resources and
operating history, its sensitivity to economic conditions and trends, the
ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects.
The Trust will only invest in U.S. dollar denominated securities. The Trust may
invest in U.S. dollar denominated Senior Loans and other securities of
non-United States issuers. The Trust's investments may have significant exposure
to certain sectors of the economy and thus may react differently to political or
economic developments than the market as a whole.
The Trust may purchase or sell derivative instruments (which derive their value
from another instrument, security or index) for risk management purposes, such
as hedging against fluctuations in Senior Loans and other securities prices or
interest rates; diversification purposes; changing the duration of the Trust; or
leveraging the Trust. Transactions in derivative instruments may include the
purchase or sale of futures contracts on securities, indices and other financial
instruments, credit-linked notes, tranches of collateralized loan obligations
and/or collateralized debt obligations, options on futures contracts, and
exchange-traded and over-the-counter options on securities or indices, and
interest rate, total return and credit default swaps. Guidelines of any rating
organization that rates any preferred shares issued by the Trust may limit the
Trust's ability to engage in such transactions. Subject to the Trust's policy of
investing at least 80% of its total assets in Senior Loans and subject to the
limitations on the use of futures contracts and related options imposed by Rule
4.5 of the Commodity Futures Trading Commission, the Trust may invest, without
limitation, in the foregoing derivative instruments for the purposes stated
herein.
LISTING
The Trust intends to apply for the listing of the Common Shares on the [____]
Stock Exchange under the symbol "________."
LEVERAGE
The Trust expects to use financial leverage through the issuance of preferred
shares and/or through borrowings, including the issuance of debt securities
and/or through investment in derivative instruments. The Trust intends initially
to use financial leverage of approximately [___]% of its gross assets (including
the amount obtained through leverage). The Trust generally will not use leverage
if the Adviser anticipates that it would result in a lower return to holders of
the Common Shares ("Shareholders") over time. Use of financial leverage creates
an opportunity for increased income for Shareholders but, at the same time,
creates special risks (including the likelihood of greater volatility of net
asset value and market price of the Common Shares), and there can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed. The Trust currently intends to issue preferred shares
approximately one to three months after completion of this offering, subject to
market conditions and to the Trust's receipt of a AAA or Aaa credit rating on
such preferred shares from a nationally recognized statistical rating
organization ("Rating Agency") (typically, Moody's, S&P or Fitch). During
6
periods in which the Trust is using leverage, the fees paid to Eaton Vance for
investment advisory services will be higher than if the Trust did not use
leverage because the fees paid will be calculated on the basis of the Trust's
gross assets, including proceeds from the issuance of preferred shares. See
"Investment objectives, policies and risks--Use of leverage and related risks"
and "Management of the Trust--The Adviser."
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance, an indirect wholly-owned subsidiary of Eaton Vance Corp., is the
Trust's investment adviser and administrator. The Adviser and its subsidiaries
manage approximately $[ ] billion on behalf of funds, institutional accounts and
individuals as of [ ], 2004. Twenty-nine of the funds are closed-end. As of [ ],
2004, Eaton Vance and its subsidiaries managed more than $[ ] billion in funds,
in other commingled investment vehicles and for institutional accounts which
invest primarily in Senior Loans. See "Management of the Trust."
TAX ASPECTS
Dividends with respect to the Common Shares generally will not constitute
"qualified dividends" for federal income tax purposes and thus will not be
eligible for the new favorable long-term capital gains tax rates.
DISTRIBUTIONS
Commencing with the Trust's first dividend, the Trust intends to make regular
monthly cash distributions to Shareholders of substantially all of the net
investment income of the Trust. The amount of each monthly distribution will
vary depending on a number of factors, including dividends payable on the
Trust's preferred shares or other costs of financial leverage. As portfolio and
market conditions change, the rate of dividends on the Common Shares and the
Trust's dividend policy could change. Over time, the Trust will distribute all
of its net investment income (after it pays accrued dividends on any outstanding
preferred shares) or other costs of financial leverage. In addition, at least
annually, the Trust intends to distribute any net short-term capital gain and
any net capital gain (which is the excess of net long-term capital gain over
short-term capital loss). The initial distribution is expected to be declared
approximately 45 days and paid approximately 60 to 90 days after the completion
of this offering, depending on market conditions. Shareholders may elect
automatically to reinvest some or all of their distributions in additional
Common Shares under the Trust's dividend reinvestment plan. See "Distributions"
and "Dividend reinvestment plan."
DIVIDEND REINVESTMENT PLAN
The Trust has established a dividend reinvestment plan (the "Plan"). Under the
Plan, a Shareholder may elect to have all dividend and capital gain
distributions automatically reinvested in additional Common Shares either
purchased in the open market, or newly issued by the Trust if the Common Shares
are trading at or above their net asset value. Shareholders may elect to
participate in the Plan by completing the dividend reinvestment plan application
form. Shareholders who do not elect to participate in the Plan will receive all
distributions in cash paid by check mailed directly to them by PFPC Inc., as
dividend paying agent. Shareholders who intend to hold their Common Shares
through a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan. See "Dividend reinvestment
plan."
CLOSED-END STRUCTURE
Closed-end funds differ from open-end management investment companies (commonly
referred to as mutual funds) in that closed-end funds generally list their
shares for trading on a securities exchange and do not redeem their shares at
the option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and typically
engage in a continuous offering of their shares. Mutual funds are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can stay more fully invested in
securities consistent with the closed-end fund's investment objectives and
policies. In addition, in comparison to open-end funds, closed-end funds have
greater flexibility in the employment of financial leverage and in the ability
to make certain types of investments, including investments in illiquid
securities. However, shares of closed-end funds frequently trade at a discount
from their net asset value. In recognition of the possibility that the Common
Shares might trade at a discount to net asset value and that any such discount
may not be in the interest of Shareholders, the Trust's Board of Trustees (the
"Board"), in consultation with Eaton Vance, from time to time may review
possible actions to reduce any such discount. The Board might consider open
market repurchases or tender offers for Common Shares at net asset value. There
can be no assurance that the Board will decide to undertake any of these actions
or that, if undertaken, such actions would result in the Common Shares trading
at a price equal to or close to net asset value per share. The Board might also
7
consider the conversion of the Trust to an open-end mutual fund. The Board
believes, however, that the closed-end structure is desirable, given the Trust's
investment objectives and policies. Investors should assume, therefore, that it
is highly unlikely that the Board would vote to convert the Trust to an open-end
investment company. Investors should note that the anticipated issuance of
preferred shares to provide investment leverage could make a conversion to
open-end form more difficult because of the voting rights of preferred
shareholders, the costs of redeeming preferred shares and other factors. See
"Description of capital structure."
SPECIAL RISK CONSIDERATIONS
NO OPERATING HISTORY
The Trust is a closed-end investment company with no history of operations and
is designed for long-term investors and not as a trading vehicle.
INVESTMENT AND MARKET RISK
An investment in Common Shares is subject to investment risk, including the
possible loss of the entire principal amount invested. An investment in Common
Shares represents an indirect investment in the securities owned by the Trust.
The value of these securities, like other market investments, may move up or
down, sometimes rapidly and unpredictably. The Common Shares at any point in
time may be worth less than the original investment, even after taking into
account any reinvestment of dividends and distributions.
INCOME RISK
The income investors receive from the Trust is based primarily on the interest
it earns from its investments, which can vary widely over the short and
long-term. If prevailing market interest rates drop, investors' income from the
Trust could drop as well. The Trust's income could also be affected adversely
when prevailing short-term interest rates increase and the Trust is utilizing
leverage, although this risk is mitigated by the Trust's investment in Senior
Loans, which pay floating rates of interest.
CREDIT RISK
Credit risk is the risk that one or more debt obligations in the Trust's
portfolio will decline in price, or fail to pay interest or principal when due,
because the issuer of the obligation experiences a decline in its financial
status. Credit risk involves two types: delinquency and default. Delinquency
refers to interruptions in the payment of interest and principal. Default refers
to the potential for unrecoverable principal loss from the sale of foreclosed
collateral or the Trust's inherent right to forgive principal or modify a debt
instrument.
PREPAYMENT RISK
During periods of declining interest rates or for other purposes, the borrowers
may exercise their option to prepay principal earlier than scheduled, forcing
the Trust to reinvest in lower yielding securities. This is known as call or
prepayment risk. Non-Investment Grade Bonds frequently have call features that
allow the issuer to redeem the security at dates prior to its stated maturity at
a specified price (typically greater than par) only if certain prescribed
conditions are met ("call protection"). An issuer may redeem a Non-Investment
Grade Bond if, for example, the issuer can refinance the debt at a lower cost
due to declining interest rates or an improvement in the credit standing of the
issuer. Senior Loans typically have no such call protection. For premium bonds
(bonds acquired at prices that exceed their par or principal value) purchased by
the Trust, prepayment risk may be enhanced.
ISSUER RISK
The value of corporate income-producing securities may decline for a number of
reasons which directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods and services.
SENIOR LOANS RISK
The risks associated with Senior Loans are similar to the risks of
Non-Investment Grade Bonds (discussed below), although Senior Loans are
typically senior and secured in contrast to Non-Investment Grade Bonds, which
are often subordinated and unsecured. Senior Loans' higher standing has
historically resulted in generally higher recoveries in the event of a corporate
reorganization. In addition, because their interest rates are adjusted for
changes in short-term interest rates, Senior Loans generally have less interest
rate risk than Non-Investment Grade Bonds, which are typically fixed rate. The
8
Trust's investments in Senior Loans are typically below investment grade and are
considered speculative because of the credit risk of their issuers. Such
companies are more likely to default on their payments of interest and principal
owed to the Trust, and such defaults could reduce the Trust's net asset value
and income distributions. An economic downturn generally leads to a higher
non-payment rate, and a debt obligation may lose significant value before a
default occurs. Moreover, any specific collateral used to secure a loan may
decline in value or become illiquid, which would adversely affect the loan's
value.
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 Trust's net asset value per share to fall. The frequency and
magnitude of such changes cannot be predicted.
Loans and other debt securities are also subject to the risk of price declines
and to increases in prevailing interest rates, although floating-rate debt
instruments are less exposed to this risk than fixed-rate debt instruments.
Interest rate changes may also increase prepayments of debt obligations and
require the Trust to invest assets at lower yields. No active trading market may
exist for certain loans, which may impair the ability of the Trust to realize
full value in the event of the need to liquidate such assets. Adverse market
conditions may impair the liquidity of some actively traded loans.
NON-INVESTMENT GRADE BONDS RISK
The Trust's investments in Non-Investment Grade Bonds are predominantly
speculative because of the credit risk of their issuers. While offering a
greater potential opportunity for capital appreciation and higher yields,
Non-Investment Grade Bonds typically entail greater potential price volatility
and may be less liquid than higher-rated securities. Issuers of Non-Investment
Grade Bonds are more likely to default on their payments of interest and
principal owed to the Trust, and such defaults will reduce the Trust's net asset
value and income distributions. The prices of these lower rated obligations are
more sensitive to negative developments than higher rated securities. Adverse
business conditions, such as a decline in the issuer's revenues or an economic
downturn, generally lead to a higher non-payment rate. In addition, a security
may lose significant value before a default occurs as the market adjusts to
expected higher non-payment rates.
DERIVATIVES
Derivative transactions (such as futures contracts and options thereon, options,
swaps and short sales) subject the Trust to increased risk of principal loss due
to imperfect correlation or unexpected price or interest rate movements. The
Trust also will be subject to credit risk with respect to the counterparties to
the derivatives contracts purchased by the Trust. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, the Trust may experience significant
delays in obtaining any recovery under the derivative contract in a bankruptcy
or other reorganization proceeding. The Trust may obtain only a limited recovery
or may obtain no recovery in such circumstances.
EFFECTS OF LEVERAGE
There can be no assurance that a leveraging strategy will be utilized by the
Trust or that, if utilized, it will be successful during any period in which it
is employed. Leverage creates risks for Shareholders, including the likelihood
of greater volatility of net asset value and market price of the Common Shares
and the risk that fluctuations in dividend rates on any preferred shares may
affect the return to Shareholders. To the extent the income derived from
securities purchased with proceeds received from leverage exceeds the cost of
leverage, the Trust's distributions will be greater than if leverage had not
been used. Conversely, if the income from the securities purchased with such
proceeds is not sufficient to cover the cost of leverage, the amount available
for distribution to Shareholders as dividends and other distributions will be
less than if leverage had not been used. In the latter case, Eaton Vance in its
best judgment may nevertheless determine to maintain the Trust's leveraged
position if it deems such action to be appropriate. The costs of an offering of
preferred shares and/or borrowing program will be borne by common Shareholders
and consequently will result in a reduction of the net asset value of Common
Shares.
Financial leverage may be achieved through the issuance of preferred shares,
through borrowings, including the issuance of debt securities and/or through
investment in derivative instruments. Use of financial leverage creates an
opportunity for increased income for Shareholders but, at the same time, creates
special risks (including the likelihood of greater volatility of net asset value
and market price of the Common Shares), and there can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. See "Investment objectives, policies and risks--Additional investment
practices" and "Investment objectives, policies and risks--Additional risk
considerations."
9
The Trust currently intends to seek a AAA/Aaa credit rating on any preferred
shares from a Rating Agency. The Trust may be subject to investment restrictions
of the Rating Agency as a result. These restrictions may impose asset coverage
or portfolio composition requirements that are more stringent than those imposed
on the Trust by the Investment Company Act of 1940, as amended (the "Investment
Company Act" or "1940 Act"). It is not anticipated that these covenants or
guidelines will impede Eaton Vance in managing the Trust's portfolio in
accordance with its investment objectives and policies. See "Description of
capital structure--Preferred shares."
As discussed under "Management of the Trust," the fee paid to Eaton Vance will
be calculated on the basis of the Trust's gross assets, including proceeds from
the issuance of preferred shares and/or borrowings, so the fees will be higher
when leverage is utilized. In this regard, holders of preferred shares do not
bear the investment advisory fee. Rather, Common Shareholders bear the portion
of the investment advisory fee attributable to the assets purchased with the
proceeds of the preferred shares offering. See "Investment objectives, policies
and risks--Use of leverage and related risks."
INTEREST RATE RISK
The value of Common Shares will usually change in response to interest rate
fluctuations. When interest rates decline, the value of fixed-rate securities
already held by the Trust can be expected to rise. Conversely, when interest
rates rise, the value of existing fixed-rate portfolio securities can be
expected to decline. Because market interest rates are currently near their
lowest levels in many years, there is a greater than normal risk that the
Trust's portfolio will decline in value due to rising interest rates.
Fluctuations in the value of fixed-rate securities will not affect interest
income on existing securities but will be reflected in the Trust's net asset
value. Fixed-rate securities with longer durations tend to be more sensitive to
changes in interest rates than securities with shorter durations, usually making
them more volatile. The Trust may utilize certain strategies, including taking
positions in futures or interest rate swaps, for the purpose of reducing the
interest rate sensitivity of the portfolio and decreasing the Trust's exposure
to interest rate risk, although there is no assurance that it will do so or that
such strategies will be successful. The Trust is intended to have a relatively
low level of interest rate risk.
FOREIGN SECURITY RISK
The prices of foreign securities may be affected by factors not present with
U.S. securities, including currency exchange rates, political and economic
conditions, less stringent regulation and higher volatility. As a result, many
foreign securities may be less liquid and more volatile than U.S. securities.
LIQUIDITY RISK
The Trust may invest up to [ ]% of its total managed assets in Senior Loans and
other securities for which there is no readily available trading market or which
are otherwise illiquid. The Trust may not be able to dispose readily of such
securities at prices that approximate those at which the Trust could sell such
securities if they were more widely traded and, as a result of such illiquidity,
the Trust may have to sell other investments or engage in borrowing transactions
if necessary to raise cash to meet its obligations. In addition, the limited
liquidity could affect the market price of the securities, thereby adversely
affecting the Trust's net asset value and ability to make dividend
distributions.
REINVESTMENT RISK
Income from the Trust's portfolio will decline if and when the Trust invests the
proceeds from matured, traded or called debt obligations into lower yielding
instruments. A decline in income could affect the Common Shares' distribution
rate and their overall return.
INFLATION RISK
Inflation risk is the risk that the value of assets or income from investment
will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the Common Shares and distributions
thereon can decline. In addition, during any periods of rising inflation,
dividend rates of preferred shares would likely increase, which would tend to
further reduce returns to Shareholders. This risk is mitigated to some degree by
the Trust's investments in Senior Loans.
10
MARKET PRICE OF SHARES
The shares of closed-end management investment companies often trade at a
discount from their net asset value, and the Trust's Common Shares may likewise
trade at a discount from net asset value. The trading price of the Trust's
Common Shares may be less than the public offering price. This risk may be
greater for investors who sell their Common Shares in a relatively short period
after completion of the public offering.
MANAGEMENT RISK
The Trust is subject to management risk because it is an actively managed
portfolio. Eaton Vance and the individual portfolio managers will apply
investment techniques and risk analyses in making investment decisions for the
Trust, but there can be no guarantee that these will produce the desired
results.
REGULATORY RISK
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 may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans.
MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Trust cannot predict the
effects of similar events in the future on the U.S. economy. These terrorist
attacks and related events, including the war in Iraq, its aftermath, and
continuing occupation of Iraq by coalition forces, have led to increased
short-term market volatility and may have long-term effects on U.S. and world
economies and markets. A similar disruption of the financial markets could
impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares. In particular,
Non-Investment Grade Bonds and Senior Loans tend to be more volatile than higher
rated fixed income securities so that these events and any actions resulting
from them may have a greater impact on the prices and volatility on
Non-Investment Grade Bonds and Senior Loans than on higher rated fixed income
securities.
ANTI-TAKEOVER PROVISIONS
The Trust's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Trust or to change the composition of its Board. See "Description
of capital structure--Anti-takeover provisions in the Declaration of Trust."
11
SUMMARY OF TRUST EXPENSES
The purpose of the table below is to help you understand all fees and expenses
that you, as a Shareholder, would bear directly or indirectly. The following
table assumes leverage in an amount equal to [ ]% ([ ]% after preferred shares
issuance and [ ]% borrowings) of the Trust's total assets, and shows Trust
expenses as a percentage of net assets attributable to common shares.
Shareholder transaction expenses
Sales load paid by you (as a percentage of offering [____]%
price)....................................
Expenses borne by the Trust................ [____]%(1)(2)
Dividend reinvestment plan fees............ None(3)
PERCENTAGE OF NET ASSETS
ATTRIBUTABLE
TO COMMON SHARES
(ASSUMING THE ISSUANCE
OF PREFERRED SHARES
AND/OR BORROWINGS)(4)
------------------------
Annual expenses
Investment advisory fee.................... [____]%
Interest Payments on Borrowed Funds(2)..... [____]%
Other expenses............................. [____]%(5)
Total annual expenses...................... [____]%
Less Fee and expense....................... (____)%(6)
reimbursements (years 1-5)................ [____]%
Net annual expenses (years 1-5)............ [____]%(6)
__________
(1) Eaton Vance or an affiliate has agreed to reimburse all organizational costs
and pay all offering costs (other than sales load) that exceed $[___] per
Common Share ([___]% of the offering price).
(2) Assumes leverage by borrowing in an amount equal to approximately [___]% of
the Trust's total assets (including all amounts obtained by leverage) at an
interest rate of [___]%. If the Trust offers preferred shares, costs of that
offering, estimated to be slightly more than [___]% of the total amount of
the preferred share offering, will effectively be borne by common
shareholders and result in the reduction of the net asset value of the
Common Shares. Assuming the issuance of preferred shares in an amount equal
to [___]% of the Trust's total assets (after issuance of all leverage),
those offering costs are estimated to be not more than approximately $[____]
or $[____] per Common Share ([ ]% of the offering price).
(3) You will be charged a $5.00 service charge and pay brokerage charges if you
direct the plan agent to sell your Common Shares held in a dividend
reinvestment account.
(4) Stated as percentages of net assets attributable to common shares assuming
no issuance of preferred shares or borrowings, the Trust's expenses would be
estimated to be as follows:
PERCENTAGE OF NET ASSETS
ATTRIBUTABLE
TO COMMON SHARES
(ASSUMING NO PREFERRED SHARES
AND/OR BORROWINGS
ARE ISSUED OR OUTSTANDING)
Annual expenses
Investment advisory fee. [ ]%
Other expenses.......... [______]%
Total annual expenses... [ ]%
Fees and expense reimbursements (______)%
(years 1-5)...........
Net annual expenses (years 1-5) [ ]%
12
(5) Estimated expenses based on the current fiscal year.
(6) Eaton Vance has contractually agreed to reimburse the Fund for fees and
other expenses in the amount of [__]% of average total assets of the Fund
for the first 5 full years of the Fund's operations, [__]% of the average
total assets for the Fund in year 6, [__]% in year 7 and [___]% in year 8.
For this purpose, total assets shall be calculated by deducting accrued
liabilities of the Fund not including the amount of any preferred shares
outstanding or the principal amount of any indebtedness for money borrowed.
Without the reimbursement, Total annual expenses would be estimated to be
[___]% of average daily net assets attributable to Common Shares (or,
assuming no issuance of preferred shares or borrowings, [___]% of average
daily net assets attributable to Common Shares). Eaton Vance may voluntarily
reimburse additional fees and expenses but is under no obligation to do so.
Any such voluntary reimbursements may be terminated at any time.
The expenses shown in the table are based on estimated amounts for the Trust's
first year of operations and assume that the Trust issues approximately [_____]
Common Shares. See "Management of the Trust" and "Dividend reinvestment plan."
EXAMPLE
The following example illustrates the expenses that you would pay on a $1,000
investment in common shares (including the sales load of $[____], estimated
offering expenses of this offering of $[____] and the estimated preferred share
offering costs assuming preferred shares are issued representing [___]% of the
Trust's total assets (after issuance) of $[____]), assuming (1) total net annual
expenses of [___]% of net assets attributable to common shares in years 1
through 5, increasing to [___]% in years 9 and 10 and (2) a [___]% annual
return(1):
1 YEAR 3 YEARS 5 YEAR 10 YEARS(2)
------ ------- ------ -----------
$ $ $ $
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER.
__________
(1) The example assumes that the estimated Other expenses set forth in the
Annual expenses table are accurate, that fees and expenses increase as
described in note 2 below and that all dividends and distributions are
reinvested at net asset value. Actual expenses may be greater or less than
those assumed. Moreover, the Trust's actual rate of return may be greater or
less than the hypothetical 5% return shown in the example.
(2) Assumes reimbursement of fees and expenses of [ ]% of average daily total
assets of the Trust in year 6, [ ]% in year 7 and [ ]% in year 8 and no
reimbursement of fees or expenses in years 9 and 10. Eaton Vance has not
agreed to reimburse the Trust for any portion of its fees and expenses
beyond 2012.
13
--------------------------------------------------------------------------------
THE TRUST
The Trust is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Trust was organized as a
Massachusetts business trust on April 28, 2004, pursuant to a Declaration of
Trust governed by the laws of The Commonwealth of Massachusetts and has no
operating history. The Trust's principal office is located at The Eaton Vance
Building, 255 State Street, Boston, Massachusetts 02109 and its telephone number
is 1-800-225-6265.
This Prospectus relates to the initial public offering of the Trust's common
shares of beneficial interest, $0.01 par value (the "Common Shares"). See
"Underwriting."
USE OF PROCEEDS
The net proceeds of this offering of Common Shares will be approximately $[____]
(or $[____] assuming exercise of the Underwriters' over-allotment option in
full), which, after payment of the estimated offering expenses, will be invested
in accordance with the Trust's investment objectives and policies as soon as
practicable, but, in no event, under normal market conditions, later than three
months after the receipt thereof. Pending such investment, the proceeds may be
invested in high-quality, short-term debt securities, cash and/or other cash
equivalents. Eaton Vance or an affiliate has agreed to (i) reimburse all
organizational costs and (ii) pay all offering costs of the Trust (other than
sales loads) that exceed $[____] per Common Share.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
INVESTMENT OBJECTIVE
The Trust's investment objective is to provide shareholders with a high level of
current income. The Trust may, as a secondary objective, also seek preservation
of capital to the extent consistent with its investment objective of high
current income. Under normal market conditions, Eaton Vance expects the Trust to
maintain an average duration of less than one year (including the effect of
anticipated leverage). The Trust pursues its objectives by investing its assets
primarily in senior secured floating rate loans ("Senior Loans"). Investment in
such floating rate instruments is expected to minimize changes in the underlying
principal value of the Senior Loans, and therefore the Trust's net asset value,
resulting from changes in market interest rates. The borrowers of such loans
will be corporations, partnerships and other business entities ("Borrowers")
which operate in a variety of industries and geographical regions.
PRIMARY INVESTMENT POLICIES
GENERAL COMPOSITION OF THE TRUST
Under normal market conditions, at least 80% of the Trust's total assets are
invested (generally by the purchase of assignments) in interests in Senior Loans
of domestic or foreign Borrowers (so long as foreign loans are U.S.
dollar-denominated and payments of interest and repayments of principal are
required to be made in U.S. dollars). The Trust may invest up to 20% of its
total assets in: (i) loan interests which are not secured by any, or that have a
lower than senior claim on, collateral, including "second lien" loans (ii) other
income producing securities such as investment and non-investment grade
corporate debt securities and U.S. government and U.S. dollar-denominated
foreign government or supranational debt securities, and (iii) warrants and
equity securities issued by a Borrower or its affiliates as part of a package of
investments in the Borrower or its affiliates. If the Adviser determines that
market conditions temporarily warrant a defensive investment policy, the Trust
may invest up to 100% of its assets in cash and/or high quality, short-term debt
securities, which would not be consistent with the Trust's investment objective.
While temporarily invested, the Trust may not achieve its investment objective.
Corporate bonds of below investment grade quality ("Non-Investment Grade
Bonds"), commonly referred to as "junk bonds," are bonds that are rated below
investment grade by each of the national rating agencies who cover the security,
or, if unrated, are determined to be of comparable quality by the Adviser.
Standard & Poor's Ratings Group ("S&P") and Fitch Ratings ("Fitch") consider
securities rated below BBB- to be below investment grade and Moody's Investors
Service, Inc. ("Moody's") considers securities rated below Baa3 to be below
investment grade. The foregoing credit quality policies apply only at the time a
security is purchased, and the Trust is not required to dispose of a security in
the event of a downgrade of an assessment of credit quality or the withdrawal of
a rating. Securities rated in the lowest investment grade rating (BBB- or Baa3)
may have certain speculative characteristics. Below investment grade quality
securities are considered to be predominantly speculative because of the credit
14
risk of the issuers. See "Investment Objective, policies and risks--Additional
Risk Considerations--Non-investment grade securities risk."
The Trust's policy of investing, under normal market conditions, at least 80% of
its total assets in Senior Loans is not considered to be fundamental by the
Trust and can be changed without a vote of the Shareholders. However, this
policy may only be changed by the Trust's Board following the provision of 60
days prior written notice to Shareholders.
Under normal market conditions, the Adviser expects to maintain an average
duration of less than one year (including the effect of anticipated leverage).
In comparison to maturity (which is the date on which a debt instrument ceases
and the issuer is obligated to repay the principal amount), duration is a
measure of the price volatility of a debt instrument as a result of changes in
market rates of interest, based on the weighted average timing of the
instrument's expected principal and interest payments. Duration differs from
maturity in that it considers a security's yield, coupon payments, principal
payments and call features in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its
duration. Prices of securities with longer durations tend to be more sensitive
to interest rate changes than securities with shorter durations. In general, a
portfolio of securities with a longer duration can be expected to be more
sensitive to interest rate changes than a portfolio with a shorter duration.
The Adviser's staff monitors the credit quality and the price of Senior Loans
and other securities held by the Trust, as well as other securities that are
available to the Trust. The Trust may invest in Senior Loans and other
securities of any credit quality.
Although the Adviser considers ratings when making investment decisions, it
performs its own credit and investment analysis and does not rely primarily on
the ratings assigned by the rating services. In evaluating the quality of a
particular security, whether rated or unrated, the Adviser will normally take
into consideration, among other things, the issuer's financial resources and
operating history, its sensitivity to economic conditions and trends, the
ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects. The Adviser will attempt to reduce the
risks of investing in lower rated or unrated debt instruments through active
portfolio management, credit analysis and attention to current developments and
trends in the economy and the financial markets.
The Trust is not required to dispose of a security in the event that a
nationally recognized statistical rating agency ("Rating Agency") downgrades its
assessment of the credit characteristics of a particular issue or withdraws its
assessment, including in the event of a default. In determining whether to
retain or sell such a security, Eaton Vance may consider such factors as Eaton
Vance's assessment of the credit quality of the issuers of such security, the
price at which such security could be sold and the rating, if any, assigned to
such security by other Rating Agencies.
The Trust will only invest in U.S. dollar denominated securities. The Trust may
invest in U.S. dollar denominated securities of non-United States issuers. The
Trust's investments may have significant exposure to certain sectors of the
economy and thus may react differently to political or economic developments
than the market as a whole.
The Trust may purchase shares of other investment companies with a similar
investment objective and policies as permitted under the Investment Company Act.
Such investments are limited to 10% of total assets overall, with no more than
5% invested in any one issuer. The value of shares of other closed-end
investment companies is affected by risks similar to those of the Trust, such as
demand for those securities regardless of the demand for the underlying
portfolio assets. Investment companies bear fees and expenses that the Trust
will bear indirectly, so investors in the Trust will be subject to duplication
of fees. The Trust also may invest up to 5% of its total assets in structured
notes or derivatives with rates of return determined by reference to the total
rate of return on one or more Senior Loans referenced in such notes. The rate of
return on the structured note may be determined by applying a multiplier to the
rate of total return on the referenced Senior Loan or Loans. Application of a
multiplier is comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk of loss; as a
result, a relatively small decline in the value of a referenced Loan could
result in a relatively large loss in the value of a structured note. Common
Shares of other investment companies that invest in Senior Loans and structured
notes will be treated as Senior Loans for purposes of the Trust's policy of
normally investing at least 80% of its assets in Senior Loans, and may be
subject to the Trust's leverage limitations.
SENIOR LOANS
Senior Loans hold the most senior position in the capital structure of a
Borrower, are typically secured with specific collateral and have a claim on the
assets and/or stock of the Borrower that is senior to that held by subordinated
debt holders and stockholders of the Borrower. The capital structure of a
Borrower may include Senior Loans, senior and junior subordinated debt,
preferred stock and common stock issued by the Borrower, typically in descending
order of seniority with respect to claims on the Borrower's assets (discussed
15
below). Senior Loans are typically secured by specific collateral. As also
discussed above, the proceeds of Senior Loans primarily are used to finance
leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases,
refinancings and internal growth and for other corporate purposes.
Senior Loans in which the Trust will invest generally pay interest at rates,
which are redetermined periodically by reference to a base lending rate, plus a
premium. Senior Loans typically have rates of interest which are redetermined
either daily, monthly, quarterly or semi-annually by reference to a base lending
rate, plus a premium or credit spread. These base lending rates are primarily
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. As floating rate loans, the
frequency of how often a loan resets its interest rate will impact how closely
such loans track current market interest rate. The Senior Loans held by the
Trust 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 Trust from its investments in Senior
Loans should increase, and as short-term interest rates decrease, interest
payable to the Trust from its investments in Senior Loans should decrease. The
Trust may utilize derivative instruments to shorten the effective interest rate
redetermination period of Senior Loans in its portfolio. Senior Loans typically
have a stated term of between one and ten years. In the experience of the
Adviser over the last decade, however, the average life of Senior Loans has been
two to four years because of prepayments.
The Trust expects primarily to purchase Senior Loans by assignment from a
participant in the original syndicate of lenders or from subsequent assignees of
such interests. The Trust may also purchase participations in the original
syndicate making Senior Loans. Such indebtedness may be secured or unsecured.
Loan participations typically represent direct participations in a loan to a
corporate borrower, and generally are offered by banks or other financial
institutions or lending syndicates. The Trust may participate in such
syndications, or can buy part of a loan, becoming a part lender. When purchasing
loan participations, the Trust assumes the credit risk associated with the
corporate borrower and may assume the credit risk associated with an interposed
bank or other financial intermediary. The participation interests in which the
Trust intends to invest may not be rated by any nationally recognized rating
service.
The Trust 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 court
proceedings, the Trust 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 Trust may also purchase unsecured loans, other floating rate debt securities
such as notes, bonds and asset-backed securities (such as special purpose trusts
investing in bank loans), credit-linked notes, tranches of collateralized loan
obligations, investment grade fixed income debt obligations and money market
instruments, such as commercial paper.
Senior Loans and other floating-rate debt instruments 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 Trust, a reduction in the value of the investment
and a potential decrease in the net asset value of the Trust. There can be no
assurance that the liquidation of any collateral securing a loan would satisfy
the Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Trust could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. The collateral securing a Senior Loan may
lose all or substantially all of its value in the event of bankruptcy of a
Borrower. Some Senior Loans 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, 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,
it could negatively affect the Trust's performance.
Many Senior Loans in which the Trust will invest may not be rated by a Rating
Agency, will not be registered with the Securities and Exchange Commission or
any state securities commission and will not be listed on any national
securities exchange. 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,
the Adviser 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. Many of the Senior Loans in the Trust will
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. Because of the protective features
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of Senior Loans, the Adviser believes that Senior Loans tend to have more
favorable loss recovery rates as compared to more junior types of below
investment grade debt obligations. The Adviser does not view ratings as the
determinative factor in its investment decisions and relies more upon its credit
analysis abilities than upon ratings.
No active trading market may exist for some loans and some loans may be subject
to restrictions on resale. A secondary market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which may impair the ability to realize full value and thus cause a material
decline in the Trust's net asset value. During periods of limited supply and
liquidity of Senior Loans, the Trust's yield may be lower.
When interest rates decline, the value of a fund invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a fund invested in fixed-rate obligations can be expected to decline.
Although changes in prevailing interest rates can be expected to cause some
fluctuations in the value of Senior Loans (due to the fact that floating rates
on Senior Loans only reset periodically), the value of Senior Loans is
substantially less sensitive to changes in market interest rates than fixed-rate
instruments. As a result, the Adviser expects the Trust's policy of investing a
portion of its assets in floating-rate Senior Loans will make the Trust less
volatile and less sensitive to changes in market interest rates than if the
Trust invested exclusively in fixed-rate obligations. Similarly, a sudden and
significant increase in market interest rates may cause a decline in the value
of these investments and in the Trust's net asset value. Other factors
(including, but not limited to, rating downgrades, credit deterioration, a large
downward movement in stock prices, a disparity in supply and demand of certain
Senior Loans and other securities or market conditions that reduce liquidity)
can reduce the value of Senior Loans and other debt obligations, impairing the
Trust's net asset value.
The Adviser uses an independent pricing service to value most loans and other
debt securities at their market value. The Adviser may use the fair value method
to value loans or other securities if market quotations for them are not readily
available or are deemed unreliable, or if events occurring after the close of a
securities market and before the Trust values its assets 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 the Common Shares are not priced, net asset value can change at times
when Common Shares cannot be sold.
ADDITIONAL INVESTMENT PRACTICES
SECOND LIEN LOANS AND DEBT SECURITIES
The Trust may invest in loans and other debt securities that have the same
characteristics as Senior Loans except that such loans are second in lien
priority rather than first. Such "second tier" loans and securities like Senior
Loans typically have adjustable floating rate interest payments. Accordingly,
the risks associated with "second lien" loans are higher than the risks of loans
with first priority over the collateral. In the event of default on a "second
lien" loan, the first priority lien holder has first claim to the underlying
collateral of the loan. It is possible, that no collateral value would remain
for the second priority lien holder and therefore result in a loss of investment
to the Trust.
COLLATERALIZED LOAN OBLIGATIONS ("CLOS")
The Trust may invest in certain asset-backed securities as discussed below.
Asset-backed securities are payment claims that are securitized in the form of
negotiable paper that is issued by a financing company (generically called a
Special Purpose Vehicle or "SPV"). These securitized payment claims are, as a
rule, corporate financial assets brought into a pool according to specific
diversification rules. The SPV is a company founded solely for the purpose of
securitizing these claims and its only asset is the risk arising out of this
diversified asset pool. On this basis, marketable securities are issued which,
due to the diversification of the underlying risk, generally represent a lower
level of risk than the original assets. The redemption of the securities issued
by the SPV takes place at maturity out of the cash flow generated by the
collected claims.
A CLO is a structured credit security issued by an SPV that was created to
reapportion the risk and return characteristics of a pool of assets. The assets,
typically Senior Loans, are used as collateral supporting the various debt
tranches issued by the SPV. The key feature of the CLO structure is the
prioritization of the cash flows from a pool of debt securities among the
several classes of CLO holders, thereby creating a series of obligations with
varying rates and maturities appealing to a wide range of investors. CLOs
generally are secured by an assignment to a trustee under the indenture pursuant
to which the bonds are issued of collateral consisting of a pool of debt
instruments, usually, non-investment grade bank loans. Payments with respect to
the underlying debt securities generally are made to the trustee under the
indenture. CLOs are designed to be retired as the underlying debt instruments
are repaid. In the event of sufficient early prepayments on such debt
instruments, the class or series of CLO first to mature generally will be
retired prior to maturity. Therefore, although in most cases the issuer of CLOs
will not supply additional collateral in the event of such prepayments, there
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will be sufficient collateral to secure their priority with respect to other CLO
tranches that remain outstanding. The credit quality of these securities depends
primarily upon the quality of the underlying assets, their priority with respect
to other CLO tranches and the level of credit support and/or enhancement
provided.
The underlying assets (E.G., loans) are subject to prepayments which shorten the
securities' weighted average maturity and may lower their return. If the credit
support or enhancement is exhausted, losses or delays in payment may result if
the required payments of principal and interest are not made. The value of these
securities also may change because of changes in market value, that is changes
in the market's perception of the creditworthiness of the servicing agent for
the pool, the originator of the pool, or the financial institution or fund
providing the credit support or enhancement.
COLLATERALIZED DEBT OBLIGATIONS ("CDOS")
The Trust may invest in CDOs. A CDO is a structured credit security issued by an
SPV that was created to reapportion the risk and return characteristics of a
pool of assets. The assets, typically non-investment grade bonds, leveraged
loans, and other asset-backed obligations, are used as collateral supporting the
various debt and equity tranches issued by the SPV. The key feature of the CDO
structure is the prioritization of the cash flows from a pool of debt securities
among the several classes of CDO holders, thereby creating a series of
obligations with varying rates and maturities appealing to a wide range of
investors. CDOs generally are secured by an assignment to a trustee under the
indenture pursuant to which the bonds are issued of collateral consisting of a
pool of debt securities, usually, non-investment grade bonds. Payments with
respect to the underlying debt securities generally are made to the trustee
under the indenture. CDOs are designed to be retired as the underlying debt
securities are repaid. In the event of sufficient early prepayments on such debt
securities, the class or series of CDO first to mature generally will be retired
prior to maturity. Therefore, although in most cases the issuer of CDOs will not
supply additional collateral in the event of such prepayments, there will be
sufficient collateral to secure CDOs that remain outstanding. The credit quality
of these securities depends primarily upon the quality of the underlying assets
and the level of credit support and/or enhancement provided. CDOs operate
similarly to CLOs and are subject to the same inherent risks.
FOREIGN SECURITIES
Although the Trust will only invest in U.S. dollar-denominated income
securities, the Trust may invest in Senior Loans and other debt securities of
non-U.S. issuers. Investment in securities of non-U.S. issuers involves special
risks, including that non-U.S. issuers may be subject to less rigorous
accounting and reporting requirements than U.S. issuers, less rigorous
regulatory requirements, differing legal systems and laws relating to creditors'
rights, the potential inability to enforce legal judgments and the potential for
political, social and economic adversity. The willingness and ability of
sovereign issuers to pay principal and interest on government securities depends
on various economic factors, including among others the issuer's balance of
payments, overall debt level, and cash flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. 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. Investments
may include securities issued by the governments of lesser-developed countries,
which are sometimes referred to as "emerging markets." There may be a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, confiscatory taxation, political or financial
instability, armed conflict and diplomatic developments which could affect the
value of the Trust's investments in certain foreign countries.
CORPORATE BONDS AND OTHER DEBT SECURITIES
The Trust may invest in a wide variety of bonds, debentures and similar debt
securities of varying maturities and durations issued by corporations and other
business entities, including limited liability companies. Debt securities in
which the Trust may invest may pay fixed or variable rates of interest. Bonds
and other debt securities generally are issued by corporations and other issuers
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and normally must repay the amount borrowed on or before
maturity. Certain debt securities are "PERPETUAL" in that they have no maturity
date. The Trust may invest in bonds and other debt securities of any quality. As
discussed below, Non-Investment Grade Bonds, commonly known as "junk bonds," are
considered to be predominantly speculative in nature because of the because of
the credit risk of the issuers.
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NON-INVESTMENT GRADE BONDS
As indicated above, Non-Investment Grade Bonds are those rated lower than
investment grade (I.E., bonds rated lower than Baa3 by Moody's and lower than
BBB- by S&P and Fitch) or are unrated and of comparable quality as determined by
the Adviser. Non-Investment Grade Bonds rated BB and Ba have speculative
characteristics, while lower rated Non-Investment Grade Bonds are predominantly
speculative.
The Trust may hold securities that are unrated or in the lowest rating
categories (rated C by Moody's or D by S&P or Fitch). Bonds rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated D by S&P or Fitch are in payment default or a
bankruptcy petition has been filed and debt service payments are jeopardized. In
order to enforce its rights with defaulted securities, the Trust may be required
to retain legal counsel and/or a financial adviser. This may increase the
Trust's operating expenses and adversely affect net asset value.
The credit quality of most securities held by the Trust reflects a greater than
average possibility that adverse changes in the financial condition of an
issuer, or in general economic conditions, or both, may impair the ability of
the issuer to make payments of interest and principal. The inability (or
perceived inability) of issuers to make timely payment of interest and principal
would likely make the values of securities held by the Trust more volatile and
could limit the Trust's ability to sell its securities at favorable prices. In
the absence of a liquid trading market for securities held by it, the Trust may
have difficulties determining the fair market value of such securities.
Although the Adviser considers security ratings when making investment
decisions, it performs its own credit and investment analysis and does not rely
primarily on the ratings assigned by the rating services. In evaluating the
quality of a particular security, whether rated or unrated, the Adviser will
normally take into consideration, among other things, the issuer's financial
resources and operating history, its sensitivity to economic conditions and
trends, the ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects. Because of the greater number of
investment considerations involved in investing in high yield, high risk bonds,
the achievement of the Trust's objectives depends more on the Adviser's judgment
and analytical abilities than would be the case if the Trust invested primarily
in securities in the higher rating categories. While the Adviser will attempt to
reduce the risks of investing in lower rated or unrated securities through
active Trust management, diversification, credit analysis and attention to
current developments and trends in the economy and the financial markets, there
can be no assurance that a broadly diversified fund of such securities would
substantially lessen the risk of defaults brought about by an economic downturn
or recession. In recent years, issuances of Non-Investment Grade Bonds by
companies in various sectors has increased. Accordingly, the Trust's investments
may have significant exposure to certain sectors of the economy and thus may
react differently to political or economic developments than the market as a
whole.
The Trust's high yield securities may have fixed or variable principal payments
and all types of interest rate and dividend payment and reset terms, including
fixed rate, adjustable rate, zero coupon, contingent, deferred, and payment in
kind features.
CONVERTIBLE SECURITIES
The Trust may invest in convertible securities. A convertible security is a debt
security or preferred stock that is exchangeable for an equity security of the
issuer at a predetermined price. Depending upon the relationship of the
conversion price to the market value of the underlying security, a convertible
security may trade more like an equity security than a debt instrument. The
Trust may invest in convertible securities of any rating.
GOVERNMENT SECURITIES
U.S. Government securities include (1) U.S. Treasury obligations, which differ
in their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one year to
ten years) and U.S. Treasury bonds (generally maturities of greater than ten
years) and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by any of the following: (a) the full faith
and credit of the U.S. Treasury, (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the U.S. Treasury, (c) discretionary
authority of the U.S. Government to purchase certain obligations of the U.S.
Government agency or instrumentality or (d) the credit of the agency or
instrumentality. The Trust may also invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, FHLMC,
FNMA, GNMA, Student Loan Marketing Association, United States Postal Service,
Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Because the U.S.
Government generally is not obligated to provide support to its
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instrumentalities, the Trust will invest in obligations issued by these
instrumentalities only if the Adviser determines that the credit risk with
respect to such obligations is minimal.
The principal of and/or interest on certain U.S. Government securities which may
be purchased by the Trust could be (a) payable in foreign currencies rather than
U.S. dollars or (b) increased or diminished as a result of changes in the value
of the U.S. dollar relative to the value of foreign currencies. The value of
such portfolio securities may be affected favorably by changes in the exchange
rate between foreign currencies and the U.S. dollar.
SAMIS AND OTHER SENIOR LOAN BASED DERIVATIVES
As discussed above, the Trust may obtain exposure to senior of loans and baskets
of senior loans through the use of derivative instruments. Such derivative
instruments have recently become increasingly available. The Adviser reserves
the right to utilize these instruments and similar instruments that may be
available in the future. The Trust currently intends to invest in a derivative
instrument known as the Select Aggregate Market Index ("SAMI") which provides
investors with exposure to a reference basket of Senior Loans. SAMIs are
structured as floating rate instruments. SAMIs consists of a basket of credit
default swaps whose underlying reference securities are baskets of senior
secured loans. While investing in SAMIs will increase the universe of floating
rate debt securities to which the Trust is exposed, such investments entail
risks that are not typically associated with investments in other floating rate
debt securities. The liquidity of the market for SAMIs will be subject to
liquidity in the secured loan and credit derivatives markets. Investment in
SAMIs involves many of the risks associated with investments in derivative
instruments discussed generally below. The Trust may also be subject to the risk
that the counterparty in a derivative transaction will default on its
obligations. Derivative transactions, generally involve the risk of loss due to
unanticipated adverse changes in securities prices, interest rates, the
inability to close out a position, 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 potential
loss on derivative instruments may be substantial relative to the initial
investment therein.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by corporations such as banks or bank holding companies and finance
companies. The rate of return on commercial paper may be linked or indexed to
the level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Securities may be purchased on a "forward commitment" or "when-issued" basis
(meaning securities are purchased or sold with payment and delivery taking place
in the future) in order to secure what is considered to be an advantageous price
and yield at the time of entering into the transaction. However, the yield on a
comparable security when the transaction is consummated may vary from the yield
on the security at the time that the forward commitment or when-issued
transaction was made. From the time of entering into the transaction until
delivery and payment is made at a later date, the securities that are the
subject of the transaction are subject to market fluctuations. In forward
commitment or when-issued transactions, if the seller or buyer, as the case may
be, fails to consummate the transaction, the counterparty may miss the
opportunity of obtaining a price or yield considered to be advantageous. Forward
commitment or when-issued transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made until payment is
received or delivery is made from the other party to the transaction. Forward
commitment or when-issued transactions are not entered into for the purpose of
investment leverage.
ILLIQUID SECURITIES
The Trust may invest without limitation in Senior Loans and other securities for
which there is no readily available trading market or are otherwise illiquid.
Illiquid securities include securities legally restricted as to resale, such as
commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and securities eligible for resale pursuant to Rule 144A thereunder.
Section 4(2) and Rule 144A securities may, however, be treated as liquid by the
Adviser pursuant to procedures adopted by the Board, which require consideration
of factors such as trading activity, availability of market quotations and
number of dealers willing to purchase the security. If the Trust invests in Rule
144A securities, the level of portfolio illiquidity may be increased to the
extent that eligible buyers become uninterested in purchasing such securities.
It may be difficult to sell such securities at a price representing the fair
value until such time as such securities may be sold publicly. Where
registration is required, a considerable period may elapse between a decision to
sell the securities and the time when it would be permitted to sell. Thus, the
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Trust may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Trust may also acquire securities through
private placements under which it may agree to contractual restrictions on the
resale of such securities. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.
DERIVATIVES
As described more specifically below, the Trust may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security or index) to seek to hedge against fluctuations in
securities prices or interest rates or for purposes of leveraging the Trust. The
Trust's transactions in derivative instruments may include the purchase or sale
of futures contracts on securities, credit-linked notes, securities indices,
other indices or other financial instruments; options on futures contracts;
exchange-traded and over-the-counter options on securities or indices;
index-linked securities; and interest rate swaps. The Trust's transactions in
derivative instruments involve a risk of loss or depreciation due to:
unanticipated adverse changes in securities prices, interest rates, the other
financial instruments' prices; the inability to close out a position; default by
the counterparty; imperfect correlation between a position and the 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 Trust's
initial investment in these instruments. In addition, the Trust may lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Trust. Transaction costs will be incurred in opening
and closing positions in derivative instruments. There can be no assurance that
Eaton Vance's use of derivative instruments will be advantageous to the Trust.
CREDIT-LINKED NOTES
The Trust may invest in credit-linked notes ("CLN") for risk management
purposes, including diversification. A CLN is a derivative instrument. It is a
synthetic obligation between two or more parties where the payment of principal
and/or interest is based on the performance of some obligation (a reference
obligation). In addition to credit risk of the reference obligation and interest
rate risk, the buyer/seller of the CLN is subject to counterparty risk.
SWAPS
Swap contracts may be purchased or sold to hedge against fluctuations in
securities prices, interest rates or market conditions, to change the duration
of the overall portfolio, or to mitigate default risk. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) to be exchanged or "swapped" between the parties, which returns
are calculated with respect to a "notional amount," I.E., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate or in a "basket" of securities representing a particular index.
INTEREST RATE SWAPS. The Trust will enter into interest rate and total return
swaps only on a net basis, I.E., the two payment streams are netted out, with
the Trust receiving or paying, as the case may be, only the net amount of the
two payments. Interest rate swaps involve the exchange by the Trust with another
party of their respective commitments to pay or receive interest (E.G., an
exchange of fixed rate payments for floating rate payments). The Trust will only
enter into interest rate swaps on a net basis. If the other party to an interest
rate swap defaults, the Trust's risk of loss consists of the net amount of
payments that the Trust is contractually entitled to receive. The net amount of
the excess, if any, of the Trust's obligations over its entitlements will be
maintained in a segregated account by the Trust's custodian. The Trust will not
enter into any interest rate swap unless the claims-paying ability of the other
party thereto is considered to be investment grade by the Adviser. If there is a
default by the other party to such a transaction, the Trust will have
contractual remedies pursuant to the agreements related to the transaction.
These instruments are traded in the over-the-counter market.
The Trust may use interest rate swaps for risk management purposes only and not
as a speculative investment and would typically use interest rate swaps to
shorten the average interest rate reset time of the Trust's holdings. Interest
rate swaps involve the exchange by the Trust with another party of their
respective commitments to pay or receive interests (E.G., an exchange of fixed
rate payments for floating rate payments). The use of interest rate swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
If the Adviser is incorrect in its forecasts of market values, interest rates
and other applicable factors, the investment performance of the Trust would be
unfavorably affected.
TOTAL RETURN SWAPS. As stated above, the Trust will enter into total return
swaps only on a net basis. Total return swaps are contracts in which one party
agrees to make payments of the total return from the underlying asset(s), which
may include securities, baskets of securities, or securities indices during the
specified period, in return for payments equal to a fixed or floating rate of
interest or the total return from other underlying asset(s).
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CREDIT DEFAULT SWAPS. The Trust may enter into credit default swap contracts for
risk management purposes, including diversification. When the Trust is the buyer
of a credit default swap contract, the Trust 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
foreign corporate issuer, on the debt obligation. In return, the Trust 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 Trust
would have spent the stream of payments and received no benefit from the
contract. When the Trust 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 Trust would effectively add
leverage to its portfolio because, in addition to its total net assets, the
Trust would be subject to investment exposure on the notional amount of the
swap. The Trust will segregate assets in the form of cash and cash equivalents
in an amount equal to the aggregate market value of the credit default swaps of
which it is the seller, marked to market on a daily basis. These transactions
involve certain risks, including the risk that the seller may be unable to
fulfill the transaction.
FUTURES AND OPTIONS ON FUTURES
The Trust may purchase and sell various kinds of financial futures contracts and
options thereon to seek to hedge against changes in interest rates or for other
risk management purposes. Futures contracts may be based on various debt
securities and securities indices (such as the Municipal Bond Index traded on
the Chicago Board of Trade). Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed the Trust's initial investment in these contracts. The Trust will
only purchase or sell futures contracts or related options in compliance with
the rules of the Commodity Futures Trading Commission. These transactions
involve transaction costs. There can be no assurance that Eaton Vance's use of
futures will be advantageous to the Trust. Rating Agency guidelines on any
preferred shares issued by the Trust may limit use of these transactions.
SECURITIES LENDING
The Trust may seek to earn income by lending portfolio securities 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
securities loaned if the borrower of the securities fails financially. In the
judgment of the Adviser, the loans will be made only to organizations whose
credit quality or claims paying ability is considered to be at least investment
grade and when the expected returns, net of administrative expenses and any
finders' fees, justifies 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
securities loaned. The financial condition of the borrower will be monitored by
the Adviser on an ongoing basis.
BORROWINGS
The Trust may borrow money to the extent permitted under the 1940 Act as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time. The Trust may from time to time borrow money to
add leverage to the portfolio. The Trust may also borrow money for temporary
administrative purposes.
The Trust currently expects that it may enter into definitive agreements with
respect to a credit facility after the closing of the offer and sale of the
Common Shares offered hereby. The Trust intends to arrange a senior revolving
credit facility pursuant to which the Trust expects to be entitled to borrow an
amount up to between approximately 25% and 50% of the Trust's total assets as of
the closing of the offer and sale of the Common Shares offered hereby. Any such
borrowings would constitute financial leverage. The terms of any agreements
relating to such a credit facility have not been determined and are subject to
definitive agreement and other conditions but the Trust anticipates that such a
credit facility would have terms substantially similar to the following: (i) a
final maturity not expected to exceed three years subject to possible extension
by the Trust; (ii) with respect to each draw under the facility, an interest
rate equal to the lesser of LIBOR plus a stated premium or an alternate rate on
the outstanding amount of each such draw, reset over periods ranging from one to
six months; and (iii) payment by the Trust of certain fees and expenses
including an underwriting fee, a commitment fee on the average undrawn amount of
the facility, an ongoing administration fee and the expenses of the lenders
under the facility incurred in connection therewith; subject to the market
conditions which may cause the cost to be more or less, the Trust currently
expects that the aggregate annualized cost to the Trust over the life of the
facility of the interest rate and fees referred to in clauses (ii) and (iii)
will not exceed an amount equal to the stated principal amount of the facility
times an amount equal to 30-day LIBOR plus 75 basis points. Individual draws on
the facility may have maturities ranging from seven days to one year. The
facility is not expected to be convertible into any other securities of the
Trust, outstanding amounts are expected to be prepayable by the Trust prior to
final maturity without significant penalty and there are not expected to be any
sinking Trust or mandatory retirement provisions. Outstanding amounts would be
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payable at maturity or such earlier times as required by the agreement. The
Trust may be required to prepay outstanding amounts under the facility or incur
a penalty rate of interest in the event of the occurrence of certain events of
default. The Trust expects to indemnify the lenders under the facility against
liabilities they may incur in connection with the facility. In addition the
Trust expects that such a credit facility would contain covenants which, among
other things, likely will limit the Trust's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment policies
and engage in certain transactions including mergers and consolidations, and may
require asset coverage ratios in addition to those required by the 1940 Act. The
Trust may be required to maintain a portion of its assets in cash or high-grade
securities as a reserve against interest or principal payments and expenses. The
Trust expects that any credit facility would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Trust will
enter into an agreement for a credit facility on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any such credit facility may in the future
be replaced or refinanced by one or more credit facilities having substantially
different terms or by the issuance of preferred shares or debt securities.
REPURCHASE AGREEMENTS
The Trust may enter into repurchase agreements (the purchase of a security
coupled with an agreement to resell at a high price) with respect to its
permitted investments. In the event of the bankruptcy of the other party to a
repurchase agreement, the Trust might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Trust
purchased may have decreased, the Trust could experience a loss. The Trust's
repurchase agreements will provide that the value of the collateral underlying
the repurchase agreement will always be a least equal to the repurchase price,
including any accrued interest earned on the agreement, and will be marked to
market daily.
REVERSE REPURCHASE AGREEMENTS
The Trust may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Trust temporarily transfers possession of a portfolio
instrument to another party, such as a bank or broker-dealer, in return for
cash. At the same time, the Trust agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, which reflects an
interest payment. The Trust may enter into such agreements when it is able to
invest the cash acquired at a rate higher than the cost of the agreement, which
would increase earned income.
When the Trust enters into a reverse repurchase agreement, any fluctuations in
the market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Trust's assets. As a result, such transactions may increase fluctuations
in the market value of the Trust's assets. While there is a risk that large
fluctuations in the market value of the Trust's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,
they constitute a form of leverage. Such agreements will be treated as subject
to investment restrictions regarding "borrowings." If the Trust reinvests the
proceeds of a reverse repurchase agreement at a rate lower than the cost of the
agreement, entering into the agreement will lower the Trust's yield.
PORTFOLIO TURNOVER
The Trust cannot accurately predict its portfolio turnover rate, but the annual
turnover rate may exceed 100% (excluding turnover of securities having a
maturity of one year or less). A high turnover rate (100% or more) necessarily
involves greater expenses to the Trust and may result in a realization of net
short-term capital gains. The Trust may engage in active short-term trading to
benefit from yield disparities among different issues of securities or among the
markets for fixed income securities of different countries, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. Such
trading will increase the Trust's rate of turnover and may increase the
incidence of net short-term capital gains which, upon distribution by the Trust,
are taxable to Trust Shareholders as ordinary income.
USE OF LEVERAGE AND RELATED RISKS
The Trust expects to use leverage through the issuance of preferred shares,
through borrowings, including the issuance of debt securities and/or investment
in derivative instruments. The Trust initially intends to use leverage of
approximately 38% of its gross assets (including the amount obtained from
leverage). The Trust generally will not use leverage if the Adviser anticipates
that it would result in a lower return to Shareholders for any significant
amount of time. The Trust also may borrow money as a temporary measure for
23
extraordinary or emergency purposes, including the payment of dividends and the
settlement of securities transactions which otherwise might require untimely
dispositions of Trust securities.
Leverage creates risks for holders of the Common Shares, including the
likelihood of greater volatility of net asset value and market price of the
Common Shares. There is a risk that fluctuations in the dividend rates on any
preferred shares may adversely affect the return to the holders of the Common
Shares. If the income from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return on the Trust will be less
than if leverage had not been used, and therefore the amount available for
distribution to Shareholders as dividends and other distributions will be
reduced. The Adviser in its best judgment nevertheless may determine to maintain
the Trust's leveraged position if it deems such action to be appropriate in the
circumstances.
Changes in the value of the Trust's portfolio will be borne entirely by the
Shareholders. If there is a net decrease (or increase) in the value of the
Trust's investment portfolio, the leverage will decrease (or increase) the net
asset value per Common Share to a greater extent than if the Trust were not
leveraged. During periods in which the Trust is using leverage, the fees paid to
Eaton Vance for investment advisory services will be higher than if the Trust
did not use leverage because the fees paid will be calculated on the basis of
the Trust's gross assets, including the proceeds from the issuance of preferred
shares. As discussed under "Description of capital structure," the Trust's
issuance of preferred shares may alter the voting power of common shareholders.
Capital raised through leverage will be subject to dividend payments, which may
exceed the income and appreciation on the assets purchased. The issuance of
preferred shares involves offering expenses and other costs and may limit the
Trust's freedom to pay dividends on Common Shares or to engage in other
activities. The issuance of a class of preferred shares having priority over the
Common Shares creates an opportunity for greater return per Common Share, but at
the same time such leveraging is a speculative technique in that it will
increase the Trust's exposure to capital risk. Unless the income and
appreciation, if any, on assets acquired with offering proceeds exceed the cost
of issuing additional classes of securities (and other Trust expenses), the use
of leverage will diminish the investment performance of the Common Shares
compared with what it would have been without leverage.
The Trust may be subject to certain restrictions on investments imposed by
guidelines of one or more Rating Agencies that may issue ratings for any
preferred shares issued by the Trust. These guidelines may impose asset coverage
or Trust composition requirements that are more stringent than those imposed on
the Trust by the 1940 Act. It is not anticipated that these covenants or
guidelines will impede the Adviser from managing the Trust's portfolio in
accordance with the Trust's investment objectives and policies.
Under the Investment Company Act, the Trust is not permitted to issue preferred
shares unless immediately after such issuance the total asset value of the
Trust's portfolio is at least 200% of the liquidation value of the outstanding
preferred shares (I.E., such liquidation value may not exceed 50% of the Trust's
total assets). In addition, the Trust is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the net asset value of the Trust's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
such liquidation value. If preferred shares are issued, the Trust intends, to
the extent possible, to purchase or redeem preferred shares, from time to time,
to maintain coverage of any preferred shares of at least 200%. If the Trust
issues preferred shares amounting to [ ]% leverage, there will be an asset
coverage of [ ]%. Normally, holders of the Common Shares will elect five of the
Trustees of the Trust and holders of any preferred shares will elect two. In the
event the Trust failed to pay dividends on its preferred shares for two years,
preferred shareholders would be entitled to elect a majority of the Trustees
until the dividends are paid.
To qualify for federal income taxation as a "regulated investment company," the
Trust must distribute in each taxable year at least 90% of its net investment
income (including net interest income and net short-term gain). The Trust also
will be required to distribute annually substantially all of its income and
capital gain, if any, to avoid imposition of a nondeductible 4% federal excise
tax. If the Trust is precluded from making distributions on the Common Shares
because of any applicable asset coverage requirements, the terms of the
preferred shares may provide that any amounts so precluded from being
distributed, but required to be distributed for the Trust to meet the
distribution requirements for qualification as a regulated investment company,
will be paid to the holders of the preferred shares as a special dividend. This
dividend can be expected to decrease the amount that holders of preferred shares
would be entitled to receive upon redemption or liquidation of the shares.
The Trust's willingness to issue new securities for investment purposes, and the
amount the Trust will issue, will depend on many factors, the most important of
which are market conditions and interest rates. Successful use of a leveraging
strategy may depend on the Adviser's ability to predict correctly interest rates
and market movements, and there is no assurance that a leveraging strategy will
be successful during any period in which it is employed.
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Assuming the utilization of leverage in the amount of [__]% of the Trust's gross
assets and an annual dividend rate on preferred shares of [__]% and an annual
interest rate of [__]% on borrowings payable on such leverage based on market
rates as of the date of this Prospectus, the additional income that the Trust
must earn (net of expenses) in order to cover such dividend payments is 0.54%.
The Trust's actual cost of leverage will be based on market rates at the time
the Trust undertakes a leveraging strategy, and such actual cost of leverage may
be higher or lower than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Common Shares of leverage in the amount of approximately [__]% of
the Trust's gross assets, assuming hypothetical annual returns of the Trust's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to Shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.
Assumed portfolio return (10)% (5)% 0% 5% 10%
(net of expenses).............
Corresponding Common Share
return assuming [___]% ( )% ( )% ( )% % %
leverage....................
Until the Trust issues preferred shares or borrows, the Common Shares will not
be leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Common
Shares cannot be achieved until the proceeds resulting from the use of leverage
have been invested in accordance with the Trust's investment objectives and
policies.
ADDITIONAL RISK CONSIDERATIONS
NO OPERATING HISTORY
The Trust is a closed-end management investment company with no history of
operations and is designed for long-term investors and not as a trading vehicle.
INVESTMENT AND MARKET RISK
An investment in Common Shares is subject to investment risk, including the
possible loss of the entire principal amount invested. An investment in Common
Shares represents an indirect investment in the securities owned by the Trust.
The value of these securities, like other market investments, may move up or
down, sometimes rapidly and unpredictably. The Common Shares at any point in
time may be worth less than the original investment, even after taking into
account any reinvestment of dividends and distributions.
INCOME RISK
The income investors receive from the Trust is based primarily on the interest
it earns from its investments, which can vary widely over the short and
long-term. If prevailing market interest rates drop, investors' income from the
Trust over time could drop as well. The Trust's income could also be affected
already when prevailing short-term interest rates increase and the Trust is
utilizing leverage, although this risk is mitigated by the Trust's investment in
Senior Loans.
CREDIT RISK
Credit risk is the risk that one or more debt obligations in the Trust's
portfolio will decline in price, or fail to pay interest or principal when due,
because the issuer of the obligation experiences a decline in its financial
status. Credit risk involves two types: delinquency and default. Delinquency
refers to interruptions in the payment of interest and principal. Default refers
to the potential for unrecoverable principal loss from the sale of foreclosed
collateral or the Trust's inherent right to forgive principal or modify a debt
instrument.
PREPAYMENT RISK
During periods of declining interest rates or for other purposes, the borrowers
may exercise their option to prepay principal earlier than scheduled, forcing
the Trust to reinvest in lower yielding securities. This is known as call or
prepayment risk. Non-Investment Grade Bonds frequently have call features that
allow the issuer to redeem the security at dates prior to its stated maturity at
a specified price (typically greater than par) only if certain prescribed
conditions are met ("call protection"). An issuer may redeem a high yield
obligation if, for example, the issuer can refinance the debt at a lower cost
due to declining interest rates or an improvement in the credit standing of the
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issuer. Senior Loans typically have no such call protection. For premium bonds
(bonds acquired at prices that exceed their par or principal value) purchased by
the Trust, prepayment risk may be enhanced.
ISSUER RISK
The value of corporate income-producing securities may decline for a number of
reasons which directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods and services.
DERIVATIVES RISK
Derivative transactions (such as futures contracts and options thereon, options
and swaps) subject the Trust to increased risk of principal loss due to
imperfect correlation or unexpected price or interest rate movements. The Trust
also will be subject to credit risk with respect to the counterparties to the
derivatives contracts purchased by the Trust. If a counterparty becomes bankrupt
or otherwise fails to perform its obligations under a derivative contract due to
financial difficulties, the Trust may experience significant delays in obtaining
any recovery under the derivative contract in a bankruptcy or other
reorganization proceeding. The Trust may obtain only a limited recovery or may
obtain no recovery in such circumstances.
MANAGEMENT RISK
The Trust is subject to management risk because it is an actively managed
portfolio. Eaton Vance and the individual portfolio managers will apply
investment techniques and risk analyses in making investment decisions for the
Trust, but there can be no guarantee that these will produce the desired
results.
LIQUIDITY RISK
The Trust may invest up to [ ]% of its total managed assets in Senior Loans and
other securities for which there is no readily available trading market or which
are otherwise illiquid. 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 Trust's 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 Trust 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 Trust's 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 Trust's net asset value. The
Trust 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 Trust's operations require cash, such as when the Trust
conducts repurchase offers for its shares, and may result in borrowings to meet
short-term cash requirements. The Trustees of the Trust will consider the
liquidity of the Trust's investments in determining the amount of quarterly
repurchase offers.
REINVESTMENT RISK
Income from the Trust's portfolio will decline if and when the Trust invests the
proceeds from matured, traded or called debt obligations into lower yielding
instruments. A decline in income could affect the Common Shares' distribution
rate and their overall return.
INFLATION RISK
Inflation risk is the risk that the value of assets or income from investment
will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the Common Shares and distributions
thereon can decline. In addition, during any periods of rising inflation,
dividend rates of preferred shares would likely increase, which would tend
further to reduce returns to Shareholders. This risk is mitigated to some degree
by the Trust's investments in Senior Loans.
26
MARKET PRICE OF SHARES
The shares of closed-end management investment companies often trade at a
discount from their net asset value, and the Common Shares may likewise trade at
a discount from net asset value. The trading price of the Common Shares may be
less than the public offering price. This risk may be greater for investors who
sell their Common Shares in a relatively short period after completion of the
public offering.
INTEREST RATE RISK
The value of Trust shares will usually change in response to interest rate
fluctuations. When interest rates decline, the value of fixed-rate securities
already held by the Trust can be expected to rise. Conversely, when interest
rates rise, the value of existing fixed-rate portfolio securities can be
expected to decline. Because market interest rates are currently near their
lowest levels in many years, there is a greater than normal risk that the
Trust's portfolio will decline in value due to rising interest rates.
Fluctuations in the value of fixed-rate securities will not affect interest
income on existing securities but will be reflected in the Trust's net asset
value. Fixed-rate securities with longer durations tend to be more sensitive to
changes in interest rates than securities with shorter durations, usually making
them more volatile. Because the Trust's dollar-weighted average duration will
normally not exceed 18 months (including the effects of anticipated leverage),
the Common Shares' net asset value and market price per Common Share will tend
to fluctuate more in response to changes in market interest rates than if the
Trust invested mainly in short-term debt securities and less than if the Trust
invested mainly in longer-term debt securities. The Trust may utilize certain
strategies, including taking positions in futures or interest rate swaps, for
the purpose of reducing the interest rate sensitivity of the portfolio and
decreasing the Trust's exposure to interest rate risk, although there is no
assurance that it will do so or that such strategies will be successful. The
Trust is intended to have a relatively low level of interest rate risk.
FOREIGN SECURITY RISK
The prices of foreign securities may be affected by factors not present with
U.S. securities, including currency exchange rates, political and economic
conditions, less stringent regulation and higher volatility. As a result, many
foreign securities may be less liquid and more volatile than U.S. securities.
REGULATORY RISK
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 may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans.
MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Trust cannot predict the
effects of similar events in the future on the U.S. economy. These terrorist
attacks and related events, including the war in Iraq, its aftermath, and
continuing occupation of Iraq by coalition forces, have led to increased
short-term market volatility and may have long-term effects on U.S. and world
economies and markets. A similar disruption of the financial markets could
impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares. In particular,
Non-Investment Grade Bonds and Senior Loans tend to be more volatile than higher
rated fixed income securities so that these events and any actions resulting
from them may have a greater impact on the prices and volatility on
Non-Investment Grade Bonds and Senior Loans than on higher rated fixed income
securities.
ANTI-TAKEOVER PROVISIONS
The Trust's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Trust or to change the composition of its Board. See "Description
of capital structure--Anti-takeover provisions in the Declaration of Trust."
27
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The management of the Trust, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the
responsibility of the Trust's Board under the laws of The Commonwealth of
Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Trust's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of
individuals and institutions since 1924 and of investment companies since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $[ ] billion as of April [ ],
2004. Eaton Vance is an indirect, 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.
Under the general supervision of the Trust's Board, the Adviser will carry out
the investment and reinvestment of the assets of the Trust, will furnish
continuously an investment program with respect to the Trust, will determine
which securities should be purchased, sold or exchanged, and will implement such
determinations. The Adviser will furnish to the Trust investment advice and
office facilities, equipment and personnel for servicing the investments of the
Trust. The Adviser will compensate all Trustees and officers of the Trust who
are members of the Adviser's organization and who render investment services to
the Trust, and will also compensate all other Adviser personnel who provide
research and investment services to the Trust. In return for these services,
facilities and payments, the Trust has agreed to pay the Adviser as compensation
under the Advisory Agreement a fee in the amount of [ ]% of the average daily
gross assets of the Trust, subject to the expense reimbursement agreement
described below. Eaton Vance has contractually agreed to reimburse the Fund for
fees and other expenses in the amount of [ ]% of average daily total assets of
the Fund for the first 5 full years of the Fund's operations, [ ]% of average
daily total assets of the Fund in year 6, [ ]% in year 7 and [ ]% in year 8.
Eaton Vance may voluntarily reimburse additional fees and expenses but is under
no obligation to do so. Any such voluntary reimbursements may be terminated at
any time. Gross assets of the Trust shall be calculated by deducting accrued
liabilities of the Trust not including the amount of any preferred shares
outstanding or the principal amount of any indebtedness for money borrowed.
During periods in which the Trust is using leverage, the fees paid to Eaton
Vance for investment advisory services will be higher than if the Trust did not
use leverage because the fees paid will be calculated on the basis of the
Trust's gross assets, including proceeds from any borrowings and from the
issuance of preferred shares.
Scott H. Page and Payson F. Swaffield are responsible for the overall and
day-to-day management of the Trust's investments. Among other portfolios, Mr.
Page and Mr. Swaffield have each been Eaton Vance portfolio managers since 1996,
and are Vice Presidents of Eaton Vance. They currently co-manage (i) the
following registered closed-end interval funds: Eaton Vance Prime Rate Reserves,
Eaton Vance Advisers Senior Floating-Rate Fund, Eaton Vance Institutional Senior
Floating Rate Fund and Eaton Vance Classic Senior Floating-Rate Fund; (ii) the
following registered open-end funds: Eaton Vance Floating-Rate Fund and Eaton
Vance Floating-Rate High Income Fund (the Senior Loan portion); (iii) Eaton
Vance Senior Income Trust, a registered closed-end fund listed on the New York
Stock Exchange, (iv) Eaton Vance Limited Duration Income Fund, a registered
closed-end fund listed on the New York Stock Exchange (the Senior Loan portion);
(v) Eaton Vance Senior Floating-Rate Trust, a registered closed-end fund listed
on the New York Stock Exchange and (vi) Eaton Vance VT Floating-Rate Income
Fund, a registered open-end fund offered primarily to insurance company separate
accounts, all of which employ investment strategies primarily focused on Senior
Loans. As of [_________], 2004, these funds had combined assets of more than
$[____] billion. Mr. Russ has managed portfolios for institutional clients
investing primarily in Senior Loans since 2001. Mr. Russ has also been an
investment analyst with Eaton Vance since 1997. These clients have assets of
approximately $[____] million as of [_________], 2004. [See "Additional
investment information and restrictions--Litigation involving Eaton Vance" in
the SAI for further information.]
The Trust and the Adviser have adopted a Code of Ethics relating to personal
securities transactions. The Code permits Adviser personnel to invest in
securities (including securities that may be purchased or held by the Trust) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Code.
Eaton Vance serves as administrator of the Trust but currently receives no
compensation for providing administrative services to the Trust. Under an
Administration Agreement with the Trust ("Administration Agreement"), Eaton
Vance is responsible for managing the business affairs of the Trust, subject to
the supervision of the Trust's Board. Eaton Vance will furnish to the Trust all
office facilities, equipment and personnel for administering the affairs of the
Trust. Eaton Vance's administrative services include recordkeeping, preparation
and filing of documents required to comply with federal and state securities
laws, supervising the activities of the Trust's custodian and transfer agent,
28
providing assistance in connection with the Trustees' and shareholders'
meetings, providing service in connection with any repurchase offers and other
administrative services necessary to conduct the Trust's business.
DISTRIBUTIONS
The Trust intends to make monthly distributions of net investment income, after
payment of interest on any outstanding borrowings or dividends on any
outstanding preferred shares. The Trust will distribute annually any net
short-term capital gain and any net capital gain (which is the excess of net
long-term capital gain over short-term capital loss). Distributions to
Shareholders cannot be assured, and the amount of each monthly distribution is
likely to vary. Initial distributions to Shareholders are expected to be
declared approximately 45 days and paid approximately 60 to 90 days after the
completion of this offering depending on market conditions. While there are any
borrowings or preferred shares outstanding, the Trust may not be permitted to
declare any cash dividend or other distribution on its Common Shares in certain
circumstances. See "Description of capital structure."
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Trust.
The Trust intends to make monthly distributions of net investment income after
payment of dividends on any outstanding preferred shares or interest on any
outstanding borrowings. The Trust will distribute annually any net short-term
capital gain (which are taxable as ordinary income) and any net capital gain.
Distributions of the Trust's net capital gains ("capital gain dividends"), if
any, are taxable to Shareholders as long-term capital gains, regardless of the
length of time Common Shares have been held by Shareholders. Dividends paid to
Shareholders out of the Trust's current and accumulated earnings and profits,
except in the case of capital gain dividends and certain dividends received by
individuals, will be taxable as ordinary income. Dividends with respect to the
Common Shares generally will not constitute "qualified dividends" for federal
income tax purposes and thus will not be eligible for the new favorable
long-term capital gains tax rates. Distributions, if any, in excess of the
Trust's earnings and profits will first reduce the adjusted tax basis of a
holder's Common Shares and, after that basis has been reduced to zero, will
constitute capital gains to the Shareholder (assuming the Common Shares are held
as a capital asset). See below for a summary of the maximum tax rates applicable
to capital gains (including capital gain dividends). Dividends will not qualify
for a dividends received deduction generally available to corporate
Shareholders.
The Trust will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Selling Shareholders will generally recognize gain or loss in an amount equal to
the difference between the Shareholder's adjusted tax basis in the Common Shares
sold and the amount received. If the Common Shares are held as a capital asset,
the gain or loss will be a capital gain or loss.
The maximum tax rate applicable to net capital gains recognized by individuals
and other non-corporate taxpayers is (i) the same as the maximum ordinary income
tax rate for gains recognized on the sale of capital assets held for one year or
less, (ii) 15% for gains recognized on the sale of capital assets held for more
than one year (as well as certain capital gain dividends) (5% for individuals in
the 10% or 15% tax brackets). Any loss on a disposition of Common Shares held
for six months or less will be treated as a long-term capital loss to the extent
of any capital gain dividends received with respect to those Common Shares. For
purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of Common Shares
will be disallowed to the extent those Common Shares are replaced by other
Common Shares within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition of the Common Shares (whether through the
reinvestment of distributions, which could occur, for example, if the
Shareholder is a participant in the Plan (as defined below) or otherwise). In
that event, the basis of the replacement Common Shares will be adjusted to
reflect the disallowed loss.
An investor should be aware that, if Common Shares are purchased shortly before
the record date for any taxable dividend (including a capital gain dividend),
the purchase price likely will reflect the value of the dividend and the
investor then would receive a taxable distribution likely to reduce the trading
value of such Common Shares, in effect resulting in a taxable return of some of
the purchase price. Taxable distributions to individuals and certain other
non-corporate Shareholders, including those who have not provided their correct
29
taxpayer identification number and other required certifications, may be subject
to "backup" federal income tax withholding at the fourth lowest rate of tax
applicable to a single individual (in 2004, 28%).
The foregoing briefly summarizes some of the important federal income tax
consequences to Shareholders of investing in Common Shares, reflects the federal
tax law as of the date of this Prospectus, and does not address special tax
rules applicable to certain types of investors, such as corporate and foreign
investors. Investors should consult their tax advisors regarding other federal,
state or local tax considerations that may be applicable in their particular
circumstances, as well as any proposed tax law changes.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Trust's dividend reinvestment plan (the "Plan"), a Shareholder
may elect to have all distributions of dividends (including all capital gain
dividends) automatically reinvested in Common Shares. Shareholders may elect to
participate in the Plan by completing the dividend reinvestment plan application
form. If Shareholders do not participate, such Shareholders will receive all
distributions in cash paid by check mailed directly to them by PFPC Inc., as
dividend paying agent.
PFPC Inc. (the "Plan Agent") serves as agent for the Shareholders in
administering the Plan. Shareholders who elect not to participate in the Plan
will receive all distributions of dividends in cash paid by check mailed
directly to the Shareholder of record (or if the Common Shares are held in
street or other nominee name, then to the nominee) by PFPC Inc., as disbursing
agent. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by written notice if received by the Plan
Agent prior to any dividend record date.
Common Shares will be acquired by the Plan Agent or an independent broker-dealer
for the participants' accounts, depending upon the circumstances described
below, either (i) through receipt of additional previously authorized but
unissued Common Shares from the Trust ("newly issued Common Shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases") on the [ ] Stock Exchange or elsewhere. If on the payment date for
the dividend, the net asset value per Common Share is equal to or less than the
market price per Common Share plus estimated brokerage commissions (such
condition being referred to herein as "market premium"), the Plan Agent will
invest the dividend amount in newly issued Common Shares on behalf of the
participants. The number of newly issued Common Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
dividend by the net asset value per Common Share on the date the Common Shares
are issued, provided that the maximum discount from the then current market
price per Common Share on the date of issuance may not exceed 5%. If on the
dividend payment date the net asset value per Common Share is greater than the
market value plus estimated brokerage commissions (such condition being referred
to herein as "market discount"), the Plan Agent will invest the dividend amount
in Common Shares acquired on behalf of the participants in open-market
purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have up to 30 days after the dividend payment date to invest the dividend
amount in Common Shares acquired in open-market purchases. If, before the Plan
Agent has completed its open-market purchases, the market price of a Common
Share exceeds the net asset value per Common Share, the average per Common Share
purchase price paid by the Plan Agent may exceed the net asset value of the
Common Shares, resulting in the acquisition of fewer Common Shares than if the
dividend had been paid in newly issued Common Shares on the dividend payment
date. Therefore, the Plan provides that if the Plan Agent is unable to invest
the full dividend amount in open-market purchases during the purchase period or
if the market discount shifts to a market premium during the purchase period,
the Plan Agent will cease making open-market purchases and will invest the
uninvested portion of the dividend amount in newly issued Common Shares.
The Plan Agent maintains all Shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by Shareholders for tax records. Common Shares in the account of each
Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each Shareholder proxy will include those Common Shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for Common Shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of Shareholders such as banks, brokers or nominees that hold Common
Shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of Common Shares certified from time to time
by the record Shareholder's name and held for the account of beneficial owners
who participate in the Plan.
30
There will be no brokerage charges with respect to Common Shares issued directly
by the Trust as a result of dividends payable either in Common Shares or in
cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
Shareholders participating in the Plan may receive benefits not available to
Shareholders not participating in the Plan. If the market price (plus
commissions) of the Common Shares is above their net asset value, participants
in the Plan will receive Common Shares of the Trust at less than they could
otherwise purchase them and will have Common Shares with a cash value greater
than the value of any cash distribution they would have received on their Common
Shares. If the market price plus commissions is below the net asset value,
participants will receive distributions in Common Shares with a net asset value
greater than the per Common Share value of any cash distribution they would have
received on their Common Shares. However, there may be insufficient Common
Shares available in the market to make distributions in Common Shares at prices
below the net asset value. Also, since the Trust does not redeem its Common
Shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
upon 30 days' notice to Plan participants, the Trust reserves the right to amend
or terminate the Plan. Shareholders will be charged a $5.00 service charge and
pay brokerage charges if such Shareholder directs the Plan Agent to sell Common
Shares held in a dividend reinvestment account.
All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027. Please call 1-800-331-1710
between the hours of 9:00 a.m. and 5:00 p.m. Eastern Standard Time if you have
questions regarding the Plan.
DESCRIPTION OF CAPITAL STRUCTURE
The Trust is an unincorporated business trust established under the laws of The
Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
August 5, 2003 and filed with the Secretary of The Commonwealth on April [____],
2004 (the "Declaration of Trust"). The Declaration of Trust provides that the
Trustees of the Trust may authorize separate classes of shares of beneficial
interest. The Trustees have authorized an unlimited number of Common Shares. The
Trust intends to hold annual meetings of Shareholders in compliance with the
requirements of the [____] Stock Exchange.
COMMON SHARES
The Declaration of Trust permits the Trust to issue an unlimited number of full
and fractional Common Shares. Each Common Share represents an equal
proportionate interest in the assets of the Trust with each other Common Share
in the Trust. Holders of Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board. The 1940 Act or the terms of
any borrowings or preferred shares may limit the payment of dividends to the
holders of Common Shares. Each whole Common Share shall be entitled to one vote
as to matters on which it is entitled to vote pursuant to the terms of the
Declaration of Trust on file with the SEC. Upon liquidation of the Trust, after
paying or adequately providing for the payment of all liabilities of the Trust
and the liquidation preference with respect to any outstanding preferred shares,
and upon receipt of such releases, indemnities and refunding agreements as they
deem necessary for their protection, the Trustees may distribute the remaining
assets of the Trust among the holders of the Common Shares. The Declaration of
Trust provides that Shareholders are not liable for any liabilities of the
Trust, requires inclusion of a clause to that effect in every agreement entered
into by the Trust and indemnifies shareholders against any such liability.
Although shareholders of an unincorporated business trust established under
Massachusetts law, in certain limited circumstances, may be held personally
liable for the obligations of the Trust as though they were general partners,
the provisions of the Declaration of Trust described in the foregoing sentence
make the likelihood of such personal liability remote.
While there are any borrowings or preferred shares outstanding, the Trust may
not be permitted to declare any cash dividend or other distribution on its
Common Shares, unless at the time of such declaration, (i) all accrued dividends
on preferred shares or accrued interest on borrowings have been paid and (ii)
the value of the Trust's total assets (determined after deducting the amount of
such dividend or other distribution), less all liabilities and indebtedness of
the Trust not represented by senior securities, is at least 300% of the
aggregate amount of such securities representing indebtedness and at least 200%
of the aggregate amount of securities representing indebtedness plus the
aggregate liquidation value of the outstanding preferred shares (expected to
equal the aggregate original purchase price of the outstanding preferred shares
plus redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Trust may be required to
comply with other asset coverage requirements as a condition of the Trust
obtaining a rating of the preferred shares from a Rating Agency. These
requirements may include an asset coverage test more stringent than under the
1940 Act. This limitation on the Trust's ability to make distributions on its
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Common Shares could in certain circumstances impair the ability of the Trust to
maintain its qualification for taxation as a regulated investment company for
federal income tax purposes. The Trust intends, however, to the extent possible
to purchase or redeem preferred shares or reduce borrowings from time to time to
maintain compliance with such asset coverage requirements and may pay special
dividends to the holders of the preferred shares in certain circumstances in
connection with any such impairment of the Trust's status as a regulated
investment company. See "Investment objectives, policies and risks" and
"Distributions and taxes." Depending on the timing of any such redemption or
repayment, the Trust may be required to pay a premium in addition to the
liquidation preference of the preferred shares to the holders thereof.
The Trust has no present intention of offering additional Common Shares, except
as described herein. Other offerings of its Common Shares, if made, will require
approval of the Board. Any additional offering will not be sold at a price per
Common Share below the then current net asset value (exclusive of underwriting
discounts and commissions) except in connection with an offering to existing
Shareholders or with the consent of a majority of the Trust's outstanding Common
Shares. The Common Shares have no preemptive rights.
The Trust generally will not issue Common Share certificates. However, upon
written request to the Trust's transfer agent, a share certificate will be
issued for any or all of the full Common Shares credited to an investor's
account. Common Share certificates that have been issued to an investor may be
returned at any time.
CREDIT FACILITY/COMMERCIAL PAPER PROGRAM
In the event the Trust leverages through borrowings, the Trust may enter into
definitive agreements with respect to a credit facility/commercial paper program
or other borrowing program. The Trust may negotiate with commercial banks to
arrange a credit facility/commercial paper program pursuant to which the Trust
expects to be entitled to borrow an amount up to % of the Trust's total assets
(inclusive of the amount borrowed) as of the closing of the offer and sale of
the Common Shares offered hereby. Any such borrowings would constitute financial
leverage. Such a facility/commercial paper program is not expected to be
convertible into any other securities of the Trust, outstanding amounts are
expected to be prepayable by the Trust prior to final maturity without
significant penalty and there are not expected to be any sinking fund or
mandatory retirement provisions. Outstanding amounts would be payable at
maturity or such earlier times as required by the agreement. The Trust may be
required to prepay outstanding amounts under the facility/program or incur a
penalty rate of interest in the event of the occurrence of certain events of
default. The Trust would be expected to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program.
In addition, the Trust expects that such a credit facility/program would contain
covenants that, among other things, likely will limit the Trust's ability to pay
dividends in certain circumstances, incur additional debt, change its
fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and may require asset coverage ratios in addition to
those required by the 1940 Act. The Trust may be required to pledge its assets
and to maintain a portion of its assets in cash or high-grade securities as a
reserve against interest or principal payments and expenses. The Trust expects
that any credit facility/program would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Trust will
enter into an agreement for a credit facility/program on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any such credit facility/program may in the
future be replaced or refinanced by one or more credit facilities having
substantially different terms or by the issuance of preferred shares or debt
securities.
REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT MEASURES
Because shares of closed-end management investment companies frequently trade at
a discount to their net asset values, the Board has determined that from time to
time it may be in the interest of Shareholders for the Trust to take corrective
actions. The Board, in consultation with Eaton Vance, will review at least
annually the possibility of open market repurchases and/or tender offers for the
Common Shares and will consider such factors as the market price of the Common
Shares, the net asset value of the Common Shares, the liquidity of the assets of
the Trust, effect on the Trust's expenses, whether such transactions would
impair the Trust's status as a regulated investment company or result in a
failure to comply with applicable asset coverage requirements, general economic
conditions and such other events or conditions which may have a material effect
on the Trust's ability to consummate such transactions. There are no assurances
that the Board will, in fact, decide to undertake either of these actions or if
undertaken, that such actions will result in the Trust's Common Shares trading
at a price which is equal to or approximates their net asset value. In
recognition of the possibility that the Common Shares might trade at a discount
to net asset value and that any such discount may not be in the interest of
32
Shareholders, the Board, in consultation with Eaton Vance, from time to time may
review possible actions to reduce any such discount.
PREFERRED SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including preferred shares
(the "preferred shares"), having a par value of $0.01 per share, in one or more
series, with rights as determined by the Board, by action of the Board without
the approval of the Shareholders.
Under the requirements of the 1940 Act, the Trust must, immediately after the
issuance of any preferred shares, have an "asset coverage" of at least 200%.
Asset coverage means the ratio which the value of the total assets of the Trust,
less all liability and indebtedness not represented by senior securities (as
defined in the 1940 Act), bears to the aggregate amount of senior securities
representing indebtedness of the Trust, if any, plus the aggregate liquidation
preference of the preferred shares. If the Trust seeks a rating of the preferred
shares, asset coverage requirements, in addition to those set forth in the 1940
Act, may be imposed. The liquidation value of the preferred shares is expected
to equal their aggregate original purchase price plus redemption premium, if
any, together with any accrued and unpaid dividends thereon (on a cumulative
basis), whether or not earned or declared. The terms of the preferred shares,
including their dividend rate, voting rights, liquidation preference and
redemption provisions, will be determined by the Board (subject to applicable
law and the Trust's Declaration of Trust) if and when it authorizes the
preferred shares. The Trust may issue preferred shares that provide for the
periodic redetermination of the dividend rate at relatively short intervals
through an auction or remarketing procedure, although the terms of the preferred
shares may also enable the Trust to lengthen such intervals. At times, the
dividend rate as redetermined on the Trust's preferred shares may approach or
exceed the Trust's return after expenses on the investment of proceeds from the
preferred shares and the Trust's leverage structure would result in a lower rate
of return to Shareholders than if the Trust were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Trust, the terms of any preferred shares may entitle the holders of
preferred shares to receive a preferential liquidating distribution (expected to
equal the original purchase price per preferred share plus redemption premium,
if any, together with accrued and unpaid dividends, whether or not earned or
declared and on a cumulative basis) before any distribution of assets is made to
holders of Common Shares. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred shareholders would not be
entitled to any further participation in any distribution of assets by the
Trust.
Holders of preferred shares, voting as a class, shall be entitled to elect two
of the Trust's Trustees. Under the 1940 Act, if at any time dividends on the
preferred shares are unpaid in an amount equal to two full years' dividends
thereon, the holders of all outstanding preferred shares, voting as a class,
will be allowed to elect a majority of the Trust's Trustees until all dividends
in default have been paid or declared and set apart for payment. In addition, if
required by the Rating Agency rating the preferred shares or if the Board
determines it to be in the best interests of the Shareholders, issuance of the
preferred shares may result in more restrictive provisions than required by the
1940 Act being imposed. In this regard, holders of the preferred shares may be
entitled to elect a majority of the Trust's Board in other circumstances, for
example, if one payment on the preferred shares is in arrears.
The Trust currently intends to seek a AAA/Aaa credit rating for the preferred
shares from a Rating Agency. The Trust intends that, as long as preferred shares
are outstanding, the composition of its portfolio will reflect guidelines
established by such Rating Agency. Although, as of the date hereof, no such
Rating Agency has established guidelines relating to the preferred shares, based
on previous guidelines established by such Rating Agencies for the securities of
other issuers, the Trust anticipates that the guidelines with respect to the
preferred shares will establish a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. Although, at this time, no assurance
can be given as to the nature or extent of the guidelines which may be imposed
in connection with obtaining a rating of the preferred shares, the Trust
currently anticipates that such guidelines will include asset coverage
requirements which are more restrictive than those under the 1940 Act,
restrictions on certain portfolio investments and investment practices,
requirements that the Trust maintain a portion of its assets in short-term,
high-quality, fixed-income securities and certain mandatory redemption
requirements relating to the preferred shares. No assurance can be given that
the guidelines actually imposed with respect to the preferred shares by such
Rating Agency will be more or less restrictive than as described in this
Prospectus.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The Declaration of Trust includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Trust or to change the composition of its Board, and could have the effect of
depriving Shareholders of an opportunity to sell their Common Shares at a
33
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Trust. These provisions may have the effect of
discouraging attempts to acquire control of the Trust, which attempts could have
the effect of increasing the expenses of the Trust and interfering with the
normal operation of the Trust. The Board is divided into three classes, with the
term of one class expiring at each annual meeting of Shareholders. At each
annual meeting, one class of Trustees is elected to a three-year term. This
provision could delay for up to two years the replacement of a majority of the
Board. A Trustee may be removed from office only for cause by a written
instrument signed by the remaining Trustees or by a vote of the holders of at
least two-thirds of the class of shares of the Trust that elected such Trustee
and are entitled to vote on the matter.
In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Trust, voting as
a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board shall by resolution have approved a memorandum of
understanding with such holders, in which case normal voting requirements would
be in effect. For purposes of these provisions, a 5%-or-greater holder of a
class of shares (a "Principal Shareholder") refers to any person who, whether
directly or indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any class
of beneficial interest of the Trust. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Trust or any
subsidiary of the Trust with or into any Principal Shareholder; (ii) the
issuance of any securities of the Trust to any Principal Shareholder for cash;
(iii) the sale, lease or exchange of all or any substantial part of the assets
of the Trust to any Principal Shareholder (except assets having an aggregate
fair market value of less than $1,000,000, aggregating for the purpose of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period); or (iv) the sale, lease or exchange
to the Trust or any subsidiary thereof, in exchange for securities of the Trust,
of any assets of any Principal Shareholder (except assets having an aggregate
fair market value of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board has determined that provisions with respect to the Board and the 75%
voting requirements described above, which voting requirements are greater than
the minimum requirements under Massachusetts law or the 1940 Act, are in the
best interest of Shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of these provisions.
CONVERSION TO OPEN-END FUND
The Trust may be converted to an open-end management investment company at any
time if approved by the lesser of (i) two-thirds or more of the Trust's then
outstanding Common Shares and preferred shares (if any), each voting separately
as a class, or (ii) more than 50% of the then outstanding Common Shares and
preferred shares (if any), voting separately as a class if such conversion is
recommended by at least 75% of the Trustees then in office. If approved in the
foregoing manner, conversion of the Trust could not occur until 90 days after
the shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all shareholders. The composition of
the Trust's portfolio likely would prohibit the Trust from complying with
regulations of the SEC applicable to open-end management investment companies.
Accordingly, conversion likely would require significant changes in the Trust's
investment policies and liquidation of a substantial portion of its relatively
illiquid portfolio. Conversion of the Trust to an open-end management investment
company also would require the redemption of any outstanding preferred shares
and could require the repayment of borrowings, which would eliminate the
leveraged capital structure of the Trust with respect to the Common Shares. In
the event of conversion, the Common Shares would cease to be listed on the [ ]
Stock Exchange or other national securities exchange or market system. The Board
believes that the closed-end structure is desirable, given the Trust's
investment objectives and policies. Investors should assume, therefore, that it
is unlikely that the Board would vote to convert the Trust to an open-end
management investment company. Shareholders of an open-end management investment
company may require the company to redeem their shares at any time (except in
certain circumstances as authorized by or under the 1940 Act) at their net asset
value, less such redemption charge, if any, as might be in effect at the time of
a redemption. If the Trust were to convert to an open-end investment company,
the Trust expects it would pay all such redemption requests in cash, but likely
would reserve the right to pay redemption requests in a combination of cash or
securities. If such partial payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Trust were
converted to an open-end fund, it is likely that new Common Shares would be sold
at net asset value plus a sales load.
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--------------------------------------------------------------------------------
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through [____, ____,
____, ____] as lead managers and [____, ____, ____, ____] as their
representatives (together with the lead managers, the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement with the Trust and Eaton Vance (the "Underwriting Agreement"), to
purchase from the Trust the number of Common Shares set forth opposite their
respective names. The Underwriters are committed to purchase and pay for all of
such Common Shares (other than those covered by the over-allotment option
described below) if any are purchased.
NUMBER OF
COMMON
UNDERWRITERS SHARES
------------------------------------------ ------
Total.....................................
======
The Trust has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to an additional [_________]
Common Shares to cover over-allotments, if any, at the initial offering price.
The Underwriters may exercise such option solely for the purpose of covering
underwriting over-allotments incurred in the sale of the Common Shares offered
hereby. To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase an additional number of Common Shares proportionate to such
Underwriter's initial commitment.
The Trust has agreed to pay a commission to the Underwriters in the amount of
$[______] per Common Share ([ ]% of the public offering price per Common Share).
The Representatives have advised the Trust that the Underwriters may pay up to
$[_____] per Common Share from such commission to selected dealers who sell the
Common Shares and that such dealers may reallow a concession of up to $[ ] per
Common Share to certain other dealers who sell Common Shares. Eaton Vance or an
affiliate has agreed to (i) reimburse all organizational costs and (ii) pay all
offering costs of the Trust that exceed $[______] per Common Share. Investors
must pay for any Common Shares purchased on or before [_____].
Prior to this offering, there has been no public market for the Common Shares or
any other securities of the Trust. Consequently, the offering price for the
Common Shares was determined by negotiation among the Trust and the
Representatives. There can be no assurance, however, that the price at which
Common Shares sell after this offering will not be lower than the price at which
they are sold by the Underwriters or that an active trading market in the Common
Shares will develop and continue after this offering. The minimum investment
requirement is 100 Common Shares ($[2,000]).
The Trust and Eaton Vance have each agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Trust has agreed not to offer, sell or register with the Securities and
Exchange Commission any additional equity securities of the Trust, other than
issuances of Common Shares, including pursuant to the Trust's Plan, and
issuances in connection with any preferred shares, each as contemplated in this
Prospectus, for a period of 180 days after the date of the Underwriting
Agreement without the prior written consent of the Representatives.
The Representatives have informed the Trust that the Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
In connection with this offering, the Underwriters may purchase and sell Common
Shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Shares and syndicate short positions involve
the sale by the Underwriters of a greater number of Common Shares than they are
required to purchase from the Trust in this offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Shares sold in this offering
for their account may be reclaimed by the syndicate if such Common Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Shares, which may be higher than the price that might otherwise prevail
35
in the open market; and these activities, if commenced, may be discontinued at
any time without notice. These transactions may be effected on the [______]
Stock Exchange or otherwise.
The Trust anticipates that the Representatives and certain other Underwriters
may from time to time act as brokers or dealers in connection with the execution
of its portfolio transactions after they have ceased to be Underwriters and,
subject to certain restrictions, may act as such brokers while they are
Underwriters.
In connection with the offering, certain of the Underwriters or selected dealers
may distribute prospectuses electronically.
Eaton Vance (and not the Trust) has agreed to pay to certain qualifying
Underwriters who meet specified sales targets ("Qualifying Underwriters"),
quarterly in arrears, an annual fee of up to [___]% of the Trust's average daily
gross assets attributable to Common Shares sold by such Qualifying Underwriters
(including a proportionate share of assets acquired using leverage). Such sales
targets may be waived or lowered with respect to any Underwriter in the sole
discretion of Eaton Vance. These fee payments will remain in effect only so long
as the Advisory Agreement remains in effect between the Trust and Eaton Vance or
any successor in interest or affiliate of Eaton Vance, as and to the extent that
such Advisory Agreement is renewed periodically in accordance with the 1940 Act.
The sum of the additional compensation payable to the Qualifying Underwriters
will not exceed [ ]% of the aggregate initial offering price of the Common
Shares offered hereby.
As described below under "Shareholder Servicing Agent, Custodian and Transfer
Agent," [ ] will provide shareholder services to the Trust pursuant to a
shareholder servicing agreement with Eaton Vance.
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AGENT
Pursuant to a shareholder servicing agreement (the "Shareholder Servicing
Agreement") between [ ] (the "Shareholder Servicing Agent") and Eaton Vance, the
Shareholder Servicing Agent will (i) at the request of and as specified by Eaton
Vance, undertake to make available public information pertaining to the Trust on
an ongoing basis and to communicate to investors and prospective investors the
Trust's features and benefits (including arranging periodic seminars or
conference calls for Eaton Vance to communicate to investors, responding to
questions from current or prospective Shareholders and contacting specific
Shareholders, where appropriate), provided that services shall not include
customary market research information provided by the Shareholder Servicing
Agent or its registered broker-dealer affiliates in the ordinary course of their
business; (ii) at the request of and as specified by Eaton Vance, make available
to investors and prospective investors market price, net asset value, yield and
other information regarding the Trust (provided that services shall not include
customary market research information provided by the Shareholder Servicing
Agent or its registered broker-dealer affiliates in the ordinary course of their
business), if reasonably obtainable, for the purpose of maintaining the
visibility of the Trust in the investor community; (iii) at the request of Eaton
Vance or the Trust, provide certain economic research and statistical
information and reports, if reasonably obtainable, to Eaton Vance or the Trust
and consult with representatives of Eaton Vance and/or Trustees of the Trust in
connection therewith, which information and reports shall include: (a)
statistical and financial market information with respect to the Trust's market
performance; and (b) comparative information regarding the Trust and other
closed-end management investment companies with respect to (1) the net asset
value of their respective shares, (2) the respective market performance of the
Trust and such other companies, and (3) other relevant performance indicators.
Except as legally required, such information and reports may not be quoted or
referred to, orally or in writing, reproduced or disseminated by the Trust or
any of its affiliates or any of their agents, without the prior written consent
of the Shareholder Servicing Agent, which consent will not be unreasonably
withheld; and (iv) at the request of Eaton Vance or the Trust, provide
information to and consult with Eaton Vance and/or the Board of Trustees of the
Trust with respect to applicable strategies designed to address market value
discounts, which may include share repurchases, tender offers, modifications to
dividend policies or capital structure, repositioning or restructuring of the
Trust, conversion of the Trust to an open-end investment company, liquidation or
merger; including providing information concerning the use and impact of the
above strategic alternatives by other market participants; provided, however,
that under the terms of the Shareholder Servicing Agreement, the Shareholder
Servicing Agent is not obligated to render any opinions, valuations or
recommendations of any kind or to perform any such similar services. For these
services, Eaton Vance will pay the Shareholder Servicing Agent a fee computed
daily and payable quarterly equal, on an annual basis, to [___]% of the Trust's
average daily gross assets. The sum of the payments payable to the Shareholder
Servicing Agent under the Shareholder Servicing Agreement will not exceed [ ]%
of the aggregate initial offering price of the Common Shares offered hereby.
Under the terms of the Shareholder Servicing Agreement, the Shareholder
Servicing Agent is relieved from liability to Eaton Vance or the Trust for any
act or omission to act in the course of its performance under the Shareholder
Servicing Agreement in the absence of bad faith, gross negligence or willful
misconduct on the part of the Shareholder Servicing Agent. The Shareholder
Servicing Agreement will continue so long as the Advisory Agreement remains in
36
effect between the Trust and the Adviser or any successor in interest or
affiliate of the Adviser, as and to the extent that such Advisory Agreement is
renewed periodically in accordance with the 1940 Act.
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116 is the custodian of the Trust and will maintain custody of
the securities and cash of the Trust. IBT maintains the Trust's general ledger
and computes net asset value per share at least weekly. IBT also attends to
details in connection with the sale, exchange, substitution, transfer and other
dealings with the Trust's investments and receives and disburses all funds. IBT
also assists in preparation of shareholder reports and the electronic filing of
such reports with the SEC.
PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 is the transfer
agent and dividend disbursing agent of the Trust.
LEGAL OPINIONS
Certain legal matters in connection with the Common Shares will be passed upon
for the Trust by Kirkpatrick & Lockhart LLP, Boston, Massachusetts, and for the
Underwriters by [_________].
REPORTS TO SHAREHOLDERS
The Trust will send to Shareholders unaudited semi-annual and audited annual
reports, including a list of investments held.
INDEPENDENT AUDITORS
[__________], [__________], [__________], are the independent auditors for the
Trust and will audit the Trust's financial statements.
Additional information
The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Trust has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its rules and regulations. The Statement
of Additional Information can be obtained without charge by calling
1-800-225-6265.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
37
--------------------------------------------------------------------------------
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
Additional investment information and
restrictions..............................
Trustees and officers.....................
Investment advisory and other services
Determination of net asset value..........
Portfolio trading.........................
Taxes.....................................
Other information.........................
Independent auditors......................
Financial statements......................
Appendix A: Ratings....................... A-
THE TRUST'S PRIVACY POLICY
The Trust is committed to ensuring your financial privacy. This notice is being
sent to comply with privacy regulations of the Securities and Exchange
Commission. The Trust has in effect the following policy with respect to
nonpublic personal information about its customers:
o Only such information received from you, through application forms or
otherwise, and information about your Trust transactions will be collected.
o None of such information about you (or former customers) will be disclosed to
anyone, except as permitted by law (which includes disclosure to employees
necessary to service your account).
o Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality of
such information.
For more information about the Trust's privacy policies call 1-800-262-1122.
38
[EATON VANCE LOGO]
CE-SFRFP
39
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION APRIL ___, 2004
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
_________________________, 2004
Eaton Vance Floating-Rate Income Trust
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PAGE
----
Additional investment information and restrictions
Trustees and officers................
Investment advisory and other services
Determination of net asset value.....
Portfolio trading....................
Taxes................................
Other information....................
Independent auditors.................
Statement Of Assets And Liabilities..
Notes to financial statements........
APPENDIX A: Ratings.................. A-
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE FLOATING-RATE INCOME TRUST (THE
"TRUST") DATED , 2004, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING YOUR
FINANCIAL INTERMEDIARY OR CALLING THE TRUST AT 1-800-225-6265.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION, WHICH IS NOT A PROSPECTUS, IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Trust's Prospectus.
Additional investment information and restrictions
Primary investment strategies are described in the Prospectus. The following is
a description of the various investment policies that may be engaged in, whether
as a primary or secondary strategy, and a summary of certain attendant risks.
Eaton Vance may not buy any of the following instruments or use any of the
following techniques unless it believes that doing so will help to achieve the
Trust's investment objectives.
SENIOR LOANS
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 to corporations and
secondarily institutionally traded senior floating rate debt obligations 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 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 Trust 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 Trust also may invest in "Participations." Participations by the Trust in a
Loan Investor's portion of a Senior Loan typically will result in the Trust
having a contractual relationship only with such Loan Investor, not with the
Borrower. As a result, the Trust 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 Trust 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 Trust may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. As a result, the
Trust may assume the credit risk of both the Borrower and the Loan Investor
selling the Participation. In the event of the insolvency of the Loan Investor
selling a Participation, the Trust may be treated as a general creditor of such
Loan Investor. The selling Loan Investors and other persons interpositioned
2
between such Loan Investors and the Trust with respect to such Participations
will likely conduct their principal business activities in the banking, finance
and financial services industries. Persons engaged in such industries may be
more susceptible to, among other things, fluctuations in interest rates, changes
in the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.
The Trust will only acquire Participations if the Loan Investor selling the
Participation, and any other persons interpositioned between the Trust 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 & Poor's
Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc.
("Moody's") or comparably rated by another nationally recognized rating agency)
or determined by the Adviser to be of comparable quality. Securities rated Baa
by Moody's have speculative characteristics. Long-term debt rated BBB by S&P is
regarded by S&P as having adequate capacity to pay interest and repay principal
and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, I.E., it is neither highly protected nor poorly secured. Commercial
paper rated A-3 by S&P indicates that S&P believes such obligations exhibit
adequate protection parameters but that adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation and issues of commercial paper
rated P-3 by Moody's are considered by Moody's to have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Indebtedness of
companies whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Some companies may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Consequently,
when investing in indebtedness of companies with poor credit, the Trust bears a
substantial risk of losing the entire amount invested.
The following table is intended to provide investors with a comparison of
short-term money market rates, a representative base commercial lending rate,
and a representative indicator of the premium over such base lending rate for
Senior Loans. This comparison should not be considered a representation of
future money market rates, spreads of Senior Loans over base reference rates nor
what an investment in the Trust may earn or what an investor's yield or total
return may be in the future.
SEPT. SEPT. SEPT. SEPT. SEPT. SEPT.
1993 1995 1997 1999 2001 2003
---- ---- ---- ---- ---- ----
3 Month Treasury Bill(1).... 2.98% 5.42% 5.11% 4.86% 2.38% 0.95%
3 Month LIBOR(2).......... 3.21 5.87 5.80 5.57 3.03 1.14
CSFB Leveraged Loan Index(3) 5.71 8.18 8.13 8.04 6.18 4.34
----------
(1) Source: Bloomberg
(2) The London InterBank Offer Rate; Source: Bloomberg
(3) The CSFB Leveraged Loan Index is a representative index of tradable, senior
secured, U.S. dollar-denominated leveraged loans. Investors cannot invest
directly in an index. Source for the CSFB leveraged loan index returns:
Thomson Financial.
LOAN COLLATERAL
In order to borrow money pursuant to a Senior Loan, a Borrower will frequently,
for the term of the Senior Loan, pledge collateral, including but not limited
to, (i) working capital assets, such as accounts receivable and inventory; (ii)
3
tangible fixed assets, such as real property, buildings and equipment; (iii)
intangible assets, such as trademarks and patent rights (but excluding
goodwill); and (iv) security interests in shares of stock of subsidiaries or
affiliates. In the case of Senior Loans made to non-public companies, the
company's shareholders or owners may provide collateral in the form of secured
guarantees and/or security interests in assets that they own. In 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 fully a
Borrower's obligations under a Senior Loan.
CERTAIN FEES PAID TO THE TRUST
In the process of buying, selling and holding Senior Loans, the Trust may
receive and/or pay certain fees. These fees are in addition to interest payments
received and may include facility fees, commitment fees, amendment fees,
commissions and prepayment penalty fees. When the Trust 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 Trust 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 Trust may receive a prepayment penalty fee upon the
prepayment of a Senior Loan by a Borrower. Other fees received by the Trust may
include covenant waiver fees and covenant modification fees.
BORROWER COVENANTS
A Borrower must comply with various restrictive covenants contained in a loan
agreement or note purchase agreement between the Borrower and the 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 that 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 to monitor the Borrower's compliance with covenants may involve a
risk of fraud by the Borrower. In the case of a Senior Loan in the form of
Participation, the agreement between the buyer and seller may limit the rights
of the holder to vote on certain changes that 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 that are parties to the Loan Agreement. The
Trust will generally rely upon the Agent or an intermediate participant to
receive and forward to the Trust its portion of the principal and interest
payments on the Senior Loan. Furthermore, unless under the terms of a
Participation Agreement the Trust has direct recourse against the Borrower, the
Trust will rely on the Agent and the other Loan Investors to use appropriate
credit remedies against the Borrower. The Agent is typically responsible for
4
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 Trust will perform such tasks on its own behalf,
although a collateral bank will typically hold any collateral on behalf of the
Trust and the other Loan Investors pursuant to the applicable Loan Agreement.
A financial institution's appointment as Agent may usually be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement should remain available to holders of Senior
Loans. However, if assets held by the Agent for the benefit of the Trust were
determined to be subject to the claims of the Agent's general creditors, the
Trust might incur certain costs and delays in realizing payment on a Senior
Loan, or suffer a loss of principal and/or interest. In situations involving
intermediate participants, similar risks may arise.
PREPAYMENTS
Senior Loans will usually require, in addition to scheduled payments of interest
and principal, the prepayment of the Senior Loan from a portion of 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 other factors. As such,
prepayments cannot be predicted with accuracy. Upon a prepayment, either in part
or in full, the actual outstanding debt on which the Trust derives interest
income will be reduced. However, the Trust 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 Trust's performance because the Trust
typically is able to reinvest prepayments in other Senior Loans that have
similar yields and because receipt of such fees may mitigate any adverse impact
on the Trust's yield.
OTHER INFORMATION REGARDING SENIOR LOANS
From time to time the Adviser 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 Trust or may be
intermediate participants with respect to Senior Loans in which the Trust owns
interests. Such banks may also act as Agents for Senior Loans held by the Trust.
The Trust may acquire interests in Senior Loans that 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 Trust may also invest in Senior Loans of Borrowers that have
obtained bridge loans from other parties. A Borrower's use of bridge loans
involves a risk that the Borrower may be unable to locate permanent financing to
replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.
5
The Trust 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 Trust 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 Borrower's ability to dispose of such securities, other than in connection
with such pledge or replacement, will be strictly limited for the protection of
the holders of Senior Loans and, indirectly, Senior Loans themselves.
If a Borrower becomes involved in bankruptcy proceedings, a court may invalidate
the Trust's security interest in the loan collateral or subordinate the Trust's
rights under the Senior Loan to the interests of the Borrower's 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 Trust's
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 Trust. 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 that 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 Trust's security interest in loan
collateral. If the Trust's security interest in loan collateral is invalidated
or the Senior Loan is subordinated to other debt of a Borrower in bankruptcy or
other proceedings, the Trust would have substantially lower recovery, and
perhaps no recovery on the full amount of the principal and interest due on the
Loan.
The Trust 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 Trust's
purchase of a Senior Loan. The Trust may also acquire equity securities or debt
securities (including non-dollar denominated debt 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 the
Adviser, may enhance the value of a Senior Loan or would otherwise be consistent
with the Trust's investment policies.
DEBTOR-IN-POSSESSION FINANCING
The Trust may invest in debtor-in-possession financings (commonly called "DIP
financings"). DIP financings are arranged when an entity seeks the protections
of the bankruptcy court under chapter 11 of the U.S. Bankruptcy Code. These
financings allow the entity to continue its business operations while
reorganizing under chapter 11. Such financings are senior liens on unencumbered
security (I.E., security not subject to other creditors claims). There is a risk
that the entity will not emerge from chapter 11 and be forced to liquidate its
assets under chapter 7 of the Bankruptcy Code. In such event, the Trust's only
recourse will be against the property securing the DIP financing.
6
LITIGATION INVOLVING EATON VANCE
On October 15, 2001, an amended consolidated complaint was filed in the United
States District Court for the District of Massachusetts against four Eaton Vance
closed-end interval funds (the "Interval Funds"); their Trustees and certain
officers of the Interval Funds; Eaton Vance, the Interval Funds' administrator;
Boston Management and Research, the Interval Funds' investment adviser; and
Eaton Vance Corp., the parent of Eaton Vance and Boston Management and Research.
The Complaint, framed as a class action, alleges that for the period between May
25, 1998 and March 5, 2001, the Interval Funds' assets were incorrectly valued
and certain matters were not properly disclosed, in violation of the federal
securities laws. The Complaint seeks unspecified damages. The named defendants
believe that the Complaint is without merit and are vigorously contesting the
lawsuit. Eaton Vance believes that the lawsuit is not likely to have a material
adverse affect on its ability to render services to the Trust.
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 may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans.
CREDIT QUALITY
Many Senior Loans in which the Trust may invest are of below investment grade
credit quality. Accordingly, these Senior Loans are subject to similar or
identical risks and other characteristics described below in relation to
Non-Investment Grade Bonds.
NON-INVESTMENT GRADE BONDS
Investments in Non-Investment Grade Bonds generally provide greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and
bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and interest
payments. Debt securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of higher
quality securities.
Non-Investment Grade Bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in Non-Investment Grade Bond prices because the
advent of recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of Non-Investment Grade
Bonds defaults, in addition to risking payment of all or a portion of interest
and principal, the Trust may incur additional expenses to seek recovery. In the
case of Non-Investment Grade Bonds structured as zero-coupon, step-up or
payment-in-kind securities, their market prices will normally be affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities that pay interest currently and in cash. Eaton Vance seeks to
reduce these risks through diversification, credit analysis and attention to
current developments in both the economy and financial markets.
7
The secondary market on which Non-Investment Grade Bonds are traded may be less
liquid than the market for investment grade securities. Less liquidity in the
secondary trading market could adversely affect the net asset value of the
Common Shares. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of Non-Investment
Grade Bonds, especially in a thinly traded market. When secondary markets for
Non-Investment Grade Bonds are less liquid than the market for investment grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is no reliable, objective data available.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly and the Trust may have greater
difficulty selling these securities. The Trust will be more dependent on Eaton
Vance's research and analysis when investing in Non-Investment Grade Bonds.
Eaton Vance seeks to minimize the risks of investing in all securities through
in-depth credit analysis and attention to current developments in interest rate
and market conditions.
A general description of the ratings of securities by S&P, Fitch and Moody's is
set forth in Appendix A to this SAI. Such ratings represent these rating
organizations' opinions as to the quality of the securities they rate. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, debt obligations with the same maturity, coupon and
rating may have different yields while obligations with the same maturity and
coupon may have the same yield. For these reasons, the use of credit ratings as
the sole method of evaluating Non-Investment Grade Bonds can involve certain
risks. For example, credit ratings evaluate the safety or principal and interest
payments, not the market value risk of Non-Investment Grade Bonds. Also, credit
rating agencies may fail to change credit ratings in a timely fashion to reflect
events since the security was last rated. Eaton Vance does not rely solely on
credit ratings when selecting securities for the Trust, and develops its own
independent analysis of issuer credit quality.
In the event that a rating agency or Eaton Vance downgrades its assessment of
the credit characteristics of a particular issue, the Trust is not required to
dispose of such security. In determining whether to retain or sell a downgraded
security, Eaton Vance may consider such factors as Eaton Vance's assessment of
the credit quality of the issuer of such security, the price at which such
security could be sold and the rating, if any, assigned to such security by
other rating agencies. However, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of high quality
debt securities.
CONVERTIBLE SECURITIES
The Trust may invest in convertible securities. Convertible securities include
any corporate debt security or preferred stock that may be converted into
underlying shares of common stock. The common stock underlying convertible
securities may be issued by a different entity than the issuer of the
convertible securities. Convertible securities entitle the holder to receive
interest payments paid on corporate debt securities or the dividend preference
on a preferred stock until such time as the convertible security matures or is
redeemed or until the holder elects to exercise the conversion privilege. As a
result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in non-convertible form.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (I.E., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security typically will fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security
will be influenced by its "conversion value," which is the market value of the
8
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock.
If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price
of the convertible security is governed principally by its investment value. If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed income
security. Holders of convertible securities have a claim on the assets of the
issuer prior to the common stockholders, but may be subordinated to holders of
similar non-convertible securities of the same issuer.
OTHER INVESTMENTS
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.
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 Trust 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 security's market value or of the liquidity of an
investment in the securities. Credit ratings are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of rating, and the rating assigned to any particular security is not
necessarily a reflection of the issuer's 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
Trust also may invest in higher rated securities. For a description of corporate
bond ratings, see Appendix A.
9
REPURCHASE AGREEMENTS
The Trust may enter into repurchase agreements (the purchase of a security
coupled with an agreement to resell at a higher price) with respect to its
permitted investments. In the event of the bankruptcy of the other party to a
repurchase agreement, the Trust might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Trust
purchased may have decreased, the Trust could experience a loss. Repurchase
agreements that mature in more than seven days will be treated as illiquid. The
Trust's repurchase agreements will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the agreement, and
will be marked to market daily.
ZERO COUPONS BONDS
Zero coupon bonds are debt obligations that do not require the periodic payment
of interest and are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. The Trust is required to
accrue income from zero coupon bonds on a current basis, even though it does not
receive that income currently in cash and the Trust is required to distribute
its income for each taxable year. Thus, the Trust may have to sell other
investments to obtain cash needed to make income distributions.
INDEXED SECURITIES
The Trust may invest in securities that fluctuate in value with an index. Such
securities generally will either be issued by the U.S. Government or one of its
agencies or instrumentalities or, if privately issued, collateralized by
mortgages that are insured, guaranteed or otherwise backed by the U.S.
Government, its agencies or instrumentalities. The interest rate or, in some
cases, the principal payable at the maturity of an indexed security may change
positively or inversely in relation to one or more interest rates, financial
indices, securities prices or other financial indicators ("reference prices").
An indexed security may be leveraged to the extent that the magnitude of any
change in the interest rate or principal payable on an indexed security is a
multiple of the change in the reference price. Thus, indexed securities may
decline in value due to adverse market changes in reference prices. Because
indexed securities derive their value from another instrument, security or
index, they are considered derivative debt securities, and are subject to
different combinations of prepayment, extension, interest rate and/or other
market risks.
SHORT SALES
The Trust may utilize short sales for hedging purposes. A short sale is affected
by selling a security which the Trust does not own, or, if the Trust does own
the security, is not to be delivered upon consummation of the sale. The Trust
may engage in short sales "against the box" (I.E., short sales of securities the
Trust already owns) for hedging purposes. If the price of the security in the
short sale decreases, the Trust will realize a profit to the extent that the
short sale price for the security exceeds the market price. If the price of the
security increases, the Trust will realize a loss to the extent that the market
price exceeds the short sale price. Selling securities short runs the risk of
losing an amount greater than the initial investment therein.
10
Purchasing securities to close out the short position can itself cause the price
of the securities to rise further, thereby exacerbating the loss. Short-selling
exposes the Trust to unlimited risk with respect to that security due to the
lack of an upper limit on the price to which an instrument can rise. Although
the Trust reserves the right to utilize short sales, the Adviser is under no
obligation to utilize shorts at all.
FOREIGN INVESTMENTS
The Trust may invest in U.S. dollar denominated securities of non-U.S. issuers.
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 certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments that 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 purchasing directly 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 foreign exchange risk as well as the political and economic risks of the
underlying issuer's country. 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.
OPTIONS
Call options may be purchased to provide exposure to increases in the market
(E.G., with respect to temporary cash positions) or to hedge against an increase
in the price of securities or other investments that the Trust intends to
purchase or has sold short. Similarly, put options may be purchased for
speculative purposes or to hedge against a decrease in the market generally or
in the price of securities or other investments held by the Trust. Buying
options may reduce the Trust's returns, but by no more than the amount of the
premiums paid for the options.
The Trust may write covered call options (I.E., where the Trust owns the
security or other investment that is subject to the call) to enhance returns
when the Adviser perceives that the option premium offered is in excess of the
premium that the Adviser would expect to be offered under existing market
conditions, or if the exercise price of the option is in excess of the price
that the Adviser expects the security or other underlying investment to reach
11
during the life of the option. Writing covered call options may limit the
Trust's gain on portfolio investments if the option is exercised because the
Trust will have to sell the underlying investments below the current market
price. Purchasing and writing put and call options are highly specialized
activities and entail greater than ordinary market risks.
SECURITIES LENDING
As described in the Prospectus, the Trust may lend a portion of its portfolio
Senior Loans or other securities to broker-dealers or other institutional
borrowers. Loans will be made only to organizations whose credit quality or
claims paying ability is considered by the Adviser to be at least investment
grade. All securities loans will be collateralized on a continuous basis by cash
or U.S. government securities having a value, marked to market daily, of at
least 100% of the market value of the loaned securities. The Trust may receive
loan fees in connection with loans that are collateralized by securities or on
loans of securities for which there is special demand. The Trust may also seek
to earn income on securities loans by reinvesting cash collateral in
mortgage-backed securities ("MBS") or other securities consistent with its
investment objective and policies, seeking to invest at rates that are higher
than the "rebate" rate that it normally will pay to the borrower with respect to
such cash collateral. Any such reinvestment will be subject to the investment
policies, restrictions and risk considerations described in the Prospectus and
in this SAI.
Senior Loans and other securities may result in delays in recovering, or a
failure of the borrower to return, the loaned securities. The defaulting
borrower ordinarily would be liable to the Trust for any losses resulting from
such delays or failures, and the collateral provided in connection with the loan
normally would also be available for that purpose. Securities loans normally may
be terminated by either the Trust or the borrower at any time. Upon termination
and the return of the loaned securities, the Trust would be required to return
the related cash or securities collateral to the borrower and it may be required
to liquidate longer term portfolio securities in order to do so. To the extent
that such securities have decreased in value, this may result in the Trust
realizing a loss at a time when it would not otherwise do so. The Trust also may
incur losses if it is unable to reinvest cash collateral at rates higher than
applicable rebate rates paid to borrowers and related administrative costs.
These risks are substantially the same as those incurred through investment
leverage, and will be subject to the investment policies, restrictions and risk
considerations described in the Prospectus and in this SAI.
The Trust will receive amounts equivalent to any interest or other distributions
paid on securities while they are on loan, and the Trust will not be entitled to
exercise voting or other beneficial rights on loaned securities. The Trust will
exercise its right to terminate loans and thereby regain these rights whenever
the Adviser considers it to be in the Trust's interest to do so, taking into
account the related loss of reinvestment income and other factors.
SHORT-TERM TRADING
Securities may be sold in anticipation of market decline (a rise in interest
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold. In addition, a security may be sold and another purchased
at approximately the same time to take advantage of what the Adviser believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
fixed income securities or changes in the investment objectives of investors.
12
TEMPORARY INVESTMENTS
The Trust may invest temporarily in cash or cash equivalents. 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.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Trust are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Trust's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Trust 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 outstanding shares
of the Trust. As a matter of fundamental policy the Trust may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940 (the
"1940 Act"). The 1940 Act currently requires that any indebtedness incurred
by a closed-end investment company have an asset coverage of at least 300%;
(2) Issue senior securities, as defined in the 1940 Act, 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. The 1940 Act currently defines "senior
security" as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness, and any stock of a
class having priority over any other class as to distribution of assets or
payment of dividends. Debt and equity securities issued by a closed-end
investment company meeting the foregoing asset coverage provisions are
excluded from the general 1940 Act prohibition on the issuance of senior
securities;
(3) Purchase securities on margin (but the Trust may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of 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 Trust is
authorized to invest in accordance with its investment objectives and
policies, (b) entering into repurchase agreements, (c) lending its portfolio
securities and (d) lending cash consistent with applicable law;
(6) Purchase or sell real estate, although it may purchase and sell securities
that are secured by interests in real estate and securities of issuers that
invest or deal in real estate. The Trust reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of
securities;
(7) 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;
13
(8) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of a single issuer or purchase more than 10% of the
outstanding voting securities of a single issuer, except obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities and
except securities of other investment companies; and
(9) Invest 25% or more of its total assets in any single industry or group of
industries (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
The Trust may borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Trust
securities. The 1940 Act currently requires that the Trust have 300% asset
coverage with respect to all borrowings other than temporary borrowings.
For purposes of construing restriction (9), securities of the U.S. government,
its agencies, or instrumentalities are not considered to represent industries.
The Trust reserves the right to invest 25% or more of its assets in each of the
energy, raw materials, real estate, utilities and financial services sectors.
For purposes of continuing restriction (9), a large economic or market sector
shall not be construed as a group of industries.
The Trust has adopted the following nonfundamental investment policy, which may
be changed by the Board without approval of the Trust's shareholders. As a
matter of nonfundamental policy, the Trust may not make short sales of
securities or maintain a short position, unless at all times when a short
position is open it either owns an equal amount of such securities or owns
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount to, the
securities sold short.
The Trust may invest more than 10% of its total assets in one or more other
management investment companies (or may invest in affiliated investment
companies) to the extent permitted by section 12(d) of the 1940 Act and rules
thereunder.
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 Trust's acquisition 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 Adviser if the security is not rated by
a rating agency) will not compel the Trust to dispose of such security or other
asset. Notwithstanding the foregoing, the Trust must always be in compliance
with the borrowing policies set forth above.
14
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
[The Trustees of the Fund are responsible for the overall management and
supervision of the affairs of the Fund. The Trustees and officers of the Fund
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. The "noninterested
Trustees" consist of those Trustees who are not "interested persons" of the
Fund, 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., "BMR" refers to Boston Management and
Research, and "EVD" refers to Eaton Vance Distributors Inc. EVC and EV are the
corporate parent and trustee, respectively, of Eaton Vance and BMR.]
[Independent Trustee information required in tabular format to be added by
amendment.]
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX OTHER
NAME AND POSITION(S) AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
-------------------- -------------------------------- ------------------------ -------------- --------------
INTERESTED TRUSTEES
Thomas E. Faust Jr. Trustee and Since 4/28/04 Executive Vice
5/31/58 Vice President President of
Eaton Vance, BMR, EVC
and EV. Chief
Investment
Officer of Eaton Vance
and BMR and .Director
of EVC. Chief Executive
Officer of Belair
Capital Fund LLC,
Belcrest Capital Fund
LLC, Belmar Capital
Fund LLC, Belport
Capital Fund LLC and
Belrose Capital Fund
LLC (private investment
companies sponsored by
Eaton Vance). Officer
of 56 registered
investment companies
managed by Eaton Vance
or BMR.
James B. Hawkes Trustee and Since 4/28/04 Chairman, President and 197
11/9/41 Vice President Chief Executive Officer
of BMR, Eaton Vance,
EVC and EV; Director of
EV and EVC; Vice
President and Director
of EVD. Trustee and/or
officer of 197
registered investment
companies in the Eaton
Vance Fund Complex. Mr.
Hawkes is an interested
person because of his
positions with BMR,
Eaton Vance, EVC and
EV, which are
affiliates of the Fund.
----------
(1) Includes both master and feeder funds in master-feeder structure.
15
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF OFFICE
POSITION(S) AND LENGTH OF
NAME AND DATE OF BIRTH WITH THE FUND SERVICE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
-------------------------------------- -------------------------- ------------------- ----------------------------------------------
Payson F. Swaffield President and Chief Since 4/28/04 Vice President of Eaton Vance and BMR. Officer
8/13/56 Executive Officer of 15 registered investment companies managed
by Eaton Vance or BMR.
Barbara E. Campbell Treasurer and Principal Since 4/28/04 Vice President of BMR and Eaton Vance. Officer
6/19/57 Financial and Accounting of 195 registered investment companies managed
Officer by Eaton Vance or BMR.
Alan R. Dynner Secretary Since 4/28/04 Vice President, Secretary and Chief Legal
10/10/40 Officer of BMR, Eaton Vance, EVD, EV and EVC.
Officer of 197 registered investment companies
managed by Eaton Vance or BMR.
Scott H. Page Vice President Since 4/28/04 Vice President of Eaton Vance and BMR. Officer
11/30/59 of 15 registered investment companies managed
by Eaton Vance or BMR
Susan Schiff Vice President Since 4/28/04 Vice President of Eaton Vance and BMR. Officer
3/13/61 of 27 registered investment companies managed
by Eaton Vance or BMR.
Michael W. Weilheimer Vice President Since 4/28/04 Vice President of Eaton Vance and BMR. Officer
2/11/61 of 12 registered investment companies managed
by Eaton Vance or BMR.
[The Board of Trustees of the Fund has several standing Committees, including
the Governance Committee, the Audit Committee, and the Special Committee. Each
such Committee is comprised of only noninterested Trustees.
The Governance Committee of the Board of Trustees of the Fund is comprised of
the noninterested Trustees. [_______] currently serves as chairperson of the
Governance Committee. 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
the compensation of noninterested Trustees.
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 to the Governance Committee, contains sufficient
background information concerning the candidate and is received in a
sufficiently timely manner.
[__________] are members of the Audit Committee of the Board of Trustees of the
Fund. The Board of Trustees has designated [____________], each a noninterested
Trustee, as audit committee financial experts. The Audit Committee's functions
include (i) overseeing the Fund's accounting and financial reporting policies
and practices, its internal audit controls and procedures, the internal controls
of certain service providers, as appropriate, and the quality and integrity of
the Fund's financial statements and independent audit thereof; (ii) approving
the selection, evaluation and, when appropriate, replacement of the Fund's
independent auditors; and (iii) evaluating the qualification, independence, and
performance of the Fund's independent auditors.]
[____________] are currently members of the Special Committee of the Board of
Trustees of the Fund. 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, including advisory, subadvisory, transfer agency, custodial and fund
accounting, distribution services and administrative services; (ii) any and all
other matters in which any of the Fund service providers (including Eaton Vance
or any affiliated entity thereof) has an actual or potential conflict of
interest with
16
the interests of the Fund, 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
of the Fund. In addition, the Special Committee has established a Contract
Review Subcommittee whose duties and powers include evaluating proposed new or
amended or existing contracts for services provided to the Fund and making
recommendations to the Board of Trustees with respect to all matters involving
an actual or potential conflict of interest between the interests of Eaton Vance
or any of its affiliated companies, on the one hand, and the Fund on the other
hand. The members of the Contract Review Subcommittee are [____________].
As of the date of this SAI, each of the Committees has held [___] meetings.
When considering approval of the Advisory Agreement between the Fund and the
Adviser, the Contract Review Sub-Committee of the Special Committee considered,
among other things, the following:
>> A report comparing the fees and expenses of the Fund and certain
profitability analyses prepared by Eaton Vance;
>> Information on the relevant peer group(s) of funds;
>> The economic outlook and the general investment outlook in the relevant
investment markets;
>> Eaton Vance's results and financial condition and the overall organization of
the Adviser;
>> Arrangements regarding the distribution of Fund shares;
>> The procedures used to determine the fair value of the Fund's assets;
>> The allocation of brokerage, including allocations to soft dollar brokerage
and allocations to firms that sell Eaton Vance fund shares;
>> Eaton Vance's management of the relationship with the custodian,
subcustodians and fund accountants;
>> The resources devoted to Eaton Vance's compliance efforts undertaken on
behalf of the funds it manages and the record of compliance with the
investment policies and restrictions and with policies on personal securities
transactions;
>> The quality nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;
>> Investment management staffing;
>> Operating expenses (including transfer agency expenses) to be paid to third
parties; and
>> Information to be provided to investors, including the Fund's shareholders. ]
[In evaluating the Advisory Agreement between the Fund and Eaton Vance, the
Contract Review Subcommittee of the Special Committee reviewed material
furnished by Eaton Vance at the initial Board meeting held on __________,
including the above referenced considerations and information relating to the
education, experience and number of investment professionals and other personnel
who would provide services under the Advisory Agreement. The Contract Review
Subcommittee also took into account the time and attention to be devoted by
senior management to the Fund and the other funds in the complex. The Contract
Review Subcommittee evaluated the level of skill required to manage the Fund and
concluded that the human resources available at Eaton Vance were appropriate to
fulfill effectively the duties of the Adviser on behalf of the Fund. The
Contract Review Subcommittee also considered the business reputation of the
17
Adviser, its financial resources and professional liability insurance coverage
and concluded that Eaton Vance would be able to meet any reasonably foreseeable
obligations under the Advisory Agreement.
The Contract Review Subcommittee of the Special Committee received information
concerning the investment philosophy and investment process to be applied by
Eaton Vance in managing the Fund. In this regard, the Contract Review
Subcommittee considered Eaton Vance's in-house research capabilities as well as
other resources available to Eaton Vance personnel, including research services
that may be available to Eaton Vance as a result of securities transactions
effected for the Fund and other investment advisory clients. The Contract Review
Subcommittee concluded that Eaton Vance's investment process, research
capabilities and philosophy were well suited to the Fund, given the Fund's
investment objective and policies.
In addition to the factors mentioned above, the Contract Review Subcommittee of
the Special Committee also reviewed the level of the Adviser's profits in
respect of the management of the Eaton Vance funds, including the Fund. The
Contract Review Subcommittee considered the profits realized by Eaton Vance and
its affiliates in connection with the operation of the Fund. The Contract Review
Subcommittee also considered profit margins of Eaton Vance in comparison with
available industry data.
The Contract Review Subcommittee of the Special Committee did not consider any
single factor as controlling in determining whether or not to approve the
Advisory Agreement. Nor are the items described herein all encompassing of the
matters considered by the Contract Review Subcommittee. In assessing the
information provided by Eaton Vance and its affiliates, the Contract Review
Subcommittee also took into consideration the benefits to shareholders of
investing in a fund that is part of a large family of funds which provides a
large variety of shareholder services. Based on its consideration of all factors
that it deemed material and assisted by the advice of its independent counsel,
the Contract Review Subcommittee of the Special Committee concluded that the
approval of the Advisory Agreement, including the fee structure (described
herein) is in the interests of shareholders.]
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Trust and all Eaton Vance Trusts overseen by the
Trustee as of December 31, 2003.
AGGREGATE DOLLAR RANGE
DOLLAR RANGE OF EQUITY
OF SECURITIES OWNED IN ALL
NAME OF TRUSTEE EQUITY REGISTERED
SECURITIES FUNDS OVERSEEN BY
OWNED IN THE TRUSTEE IN THE
FUND EATON VANCE FUND COMPLEX
---------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
..................................
..................................
NONINTERESTED TRUSTEES
..................................
18
As of [____________], 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, 2002 and December 31, 2003, 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 Trust; (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 Trust; (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, 2001 and December 31, 2002, 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 Trust or any of their immediate family members
served as an officer.
Trustees of the Trust who are not affiliated with the Adviser may elect to defer
receipt of all or a percentage of their annual fees in accordance with the terms
of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Trust 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
Trust's assets, liabilities, and net income per share, and will not obligate the
Trust to retain the services of any Trustee or obligate the Trust to pay any
particular level of compensation to the Trustee. The Trust does not have a
retirement plan for its Trustees.
The fees and expenses of the Trustees of the Trust are paid by the Trust. (A
Trustee of the Trust who is a member of the Eaton Vance organization receives no
compensation from the Trust.) During the Trust's fiscal year ending [ ], 2004,
it is anticipated that the Trustees of the Trust will earn the following
compensation in their capacities as Trustees. For the year ended December 31,
2003, the Trustees earned the compensation set forth below in their capacities
as Trustees from the funds in the Eaton Vance fund complex(1).
19
SOURCE OF COMPENSATION [----] [---] [-----] [---] [---] [---]
------------------------------------------------------------------------------------------
Fund*...............................$ $ $ $ $ $
Fund Complex........................$ $ $ $ $ $
------------
* ESTIMATED
(1) AS OF ______________, 2004, THE EATON VANCE FUND COMPLEX CONSISTED OF [197]
REGISTERED INVESTMENT COMPANIES OR SERIES THEREOF.
PROXY VOTING POLICY
The Trust is subject to the Eaton Vance Funds Proxy Voting Policy and Procedures
(the "Fund Policy"), pursuant to which the Trustees have delegated proxy voting
responsibility to the Adviser and adopted the Adviser's proxy voting policies
and procedures (the "Policies"), which are described below. The Trustees will
review the Trust's proxy voting records from time to time and will annually
consider approving the Policies for the upcoming year. In the event that a
conflict of interest arises between the Trust's shareholders and the Adviser or
any of its affiliates or any affiliate of the Trust, the Adviser will generally
refrain from voting the proxies related to the companies giving rise to such
conflict until it consults with the Board of the Trust except as contemplated
under the Fund Policy. The Board's Special Committee will instruct the Adviser
on the appropriate course of action.
The Policies are designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The Adviser will generally support company management on proposals
relating to environmental and social policy issues, on matters regarding the
state of organization of the company and routine matters related to corporate
administration which are not expected to have a significant economic impact on
the company or its shareholders. On all other matters, the Adviser will review
each matter on a case-by-case basis and reserves the right to deviate from the
Policies' guidelines when it believes the situation warrants such a deviation.
The Policies include voting guidelines for matters relating to, among other
things, the election of directors, approval of independent auditors, executive
compensation, corporate structure and anti-takeover defenses. The Adviser may
abstain from voting from time to time where it determines that the costs
associated with voting a proxy outweigh the benefits derived from exercising the
right to vote.
In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Trust's shareholders and the Adviser or any of its
affiliates or any affiliate of the Trust by maintaining a list of significant
existing and prospective corporate clients. The Adviser's personnel responsible
for reviewing and voting proxies on behalf of the Trust will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the Adviser identified in the Policies. Such
members of senior management will determine if a conflict exists. If a conflict
does exist, the proxy will either be voted strictly in accordance with the
Policies or the Adviser will seek instruction on how to vote from the Special
Committee. Effective August 31, 2004, information on how the Trust voted proxies
relating to portfolio securities during the 12 month period ended June 30, 2004
will be available (1) without charge, upon request, by calling 1-800-262-1122,
and (2) on the Securities and Exchange Commission's website at
http://www.sec.gov.
20
--------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and of investment companies
since 1931. They maintain a large staff of experienced fixed-income, senior loan
and equity investment professionals to service the needs of their clients. The
fixed-income group focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The senior loan group focuses on senior floating
rate loans, unsecured loans and other floating rate debt securities such as
notes, bonds and asset backed securities. The equity group covers stocks ranging
from blue chip to emerging growth companies. Eaton Vance and its affiliates act
as adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Trust will be responsible for all of its costs and expenses not expressly
stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Trust
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, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Trust shares;
and investment advisory and administration fees. The Trust will also bear
expenses incurred in connection with any litigation in which the Trust is a
party and any legal obligation to indemnify its officers and Trustees with
respect thereto, to the extent not covered by insurance.
The Advisory Agreement with the Adviser continues in effect to October 20, 2005
and 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 Trust or of
the Adviser cast in person at a meeting specifically called for the purpose of
voting on such approval and (ii) by the Board of Trustees of the Trust or by
vote of a majority of the outstanding interests of the Trust. The Trust's
Administration Agreement continues in effect from year to year so long as such
continuance is approved at least annually by the vote of a majority of the
Trust's Trustees. Each agreement may be terminated at any time without penalty
on sixty (60) days' written notice by the Trustees of the Trust or Eaton Vance,
as applicable, or by vote of the majority of the outstanding shares of the
Trust. 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 Trust under such agreements on the part of Eaton Vance, Eaton Vance shall
not be liable to the Trust for any loss incurred, to the extent not covered by
insurance.
Eaton Vance is a business trust organized under Massachusetts law. EV serves as
trustee of Eaton Vance. Eaton Vance and EV are subsidiaries of EVC, a Maryland
corporation and publicly-held holding company. EVC through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Directors of EVC are James B. Hawkes, John G. L.
Cabot, Thomas E. Faust Jr., Leo I. Higdon, Jr., John M. Nelson, Vincent M.
O'Reilly and Ralph Z. Sorenson. All shares of the outstanding Voting Common
21
Stock of EVC are deposited in a voting trust, the voting trustees of which are
Messrs. James B. Hawkes, Jeffrey P. Beale, Alan R. Dynner, Thomas E. Faust, Jr.,
Thomas J. Fetter, Scott H. Page, Duncan W. Richardson, William M. Steul, Payson
F. Swaffield, Michael W. Weilheimer and Wharton P. Whitaker (all of whom are
officers of Eaton Vance or its affiliates). 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 and its affiliates who are also
officers, or officers and Directors of EVC and EV. As indicated under "Trustees
and Officers", all of the officers of the Trust (as well as Mr. Hawkes who is
also a Trustee) hold positions in the Eaton Vance organization.
EVC and its affiliates and their officers and employees from time to time have
transactions with various banks, including the custodian of the Trust, IBT. It
is Eaton Vance's opinion that the terms and conditions of such transactions were
not and will not be influenced by existing or potential custodial or other
relationships between the Trust and such banks.
INVESTMENT ADVISORY SERVICES
Under the general supervision of the Trust's Board of Trustees, Eaton Vance will
carry out the investment and reinvestment of the assets of the Trust, will
furnish continuously an investment program with respect to the Trust, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Eaton Vance will furnish to the Trust investment
advice and provide related office facilities and personnel for servicing the
investments of the Trust. Eaton Vance will compensate all Trustees and officers
of the Trust who are members of the Eaton Vance organization and who render
investment services to the Trust, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Trust.
ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the
business affairs of the Trust, subject to the supervision of the Trust's Board
of Trustees. Eaton Vance will furnish to the Trust all office facilities,
equipment and personnel for administering the affairs of the Trust. Eaton Vance
will compensate all Trustees and officers of the Trust who are members of the
Eaton Vance organization and who render executive and administrative services to
the Trust, and will also compensate all other Eaton Vance personnel who perform
management and administrative services for the Trust. Eaton Vance's
administrative services include recordkeeping, preparation and filing of
documents required to comply with federal and state securities laws, supervising
the activities of the Trust's custodian and transfer agent, providing assistance
in connection with the Trustees and shareholders' meetings, providing services
in connection with quarterly repurchase offers and other administrative services
necessary to conduct the Trust's business.
CODE OF ETHICS
The Adviser and the Trust have adopted a Code of Ethics governing personal
securities transactions. Under the Code, Eaton Vance employees may purchase and
sell securities (including securities held or eligible for purchase by the
Trust) subject to certain pre-clearance and reporting requirements and other
procedures.
The Code can be reviewed and copied at the Securities and Exchange Commission's
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 SEC's
Internet site (http://www.sec.gov); or, upon payment of copying fees, by writing
22
the SEC's public reference section, Washington, DC 20549-0102, or by electronic
mail at publicinfo@sec.gov.
DETERMINATION OF NET ASSET VALUE
The net asset value per Share of the Trust is determined no less frequently than
daily, generally on each day of the week that the New York Stock Exchange (the
"Exchange") is open for trading, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Trust's net asset value per
Share is determined by IBT, in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of the Trust's total
assets, less its liabilities by the number of shares outstanding.
The Adviser uses an independent pricing service to value most loans, and other
debt securities at their market value. The Adviser may use the fair value method
to value loans or other securities if market quotations for them are not readily
available or are deemed unreliable, or if events occurring after the close of a
securities market and before the Trust values its assets 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.
The Trustees have approved and monitor the procedures under which Senior Loans
are valued. The Adviser and the Valuation Committee may implement new pricing
methodologies or expand mark-to-market valuation of Senior Loans in the future,
which may result in a change in the Trust's net asset value per share. The
Trust's net asset value per share will also be affected by fair value pricing
decisions and by changes in the market for Senior Loans. In determining the fair
value of a Senior Loan, the Adviser will consider relevant factors, data, and
information, including: (i) the characteristics of and fundamental analytical
data relating to the Senior Loan, including the cost, size, current interest
rate, period until next interest rate reset, maturity and base lending rate of
the Senior Loan, the terms and conditions of the Senior Loan and any related
agreements, and the position of the Senior Loan in the Borrower's debt
structure; (ii) the nature, adequacy and value of the collateral, including the
Trust's rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness of the Borrower, based on an evaluation of its financial
condition, financial statements and information about the Borrower's business,
cash flows, capital structure and future prospects; (iv) information relating to
the market for the Senior Loan, including price quotations for and trading in
the Senior Loan and interests in similar Senior Loans and the market environment
and investor attitudes towards the Senior Loan and interests in similar Senior
Loans; (v) the 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. The
fair value of each Senior Loan is reviewed and approved by the Adviser's
Valuation Committee and the Trust's Trustees.
Non-loan holdings (other than debt securities, including short term obligations)
may be valued on the basis of prices furnished by one or more pricing services
that determine prices for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. Marketable
securities listed on the NASDAQ National Market System are valued at the NASDAQ
official closing price. The value of interest rate swaps will be based upon a
dealer quotation.
23
Debt securities for which the over-the-counter market is the primary market are
normally valued on the basis of prices furnished by one or more pricing services
at the mean between the latest available bid and asked prices. OTC options are
valued at the mean between the bid and asked prices provided by dealers.
Financial futures contracts listed on commodity exchanges and exchange-traded
options are valued at closing settlement prices. Short-term obligations having
remaining maturities of less than 60 days are valued at amortized cost, which
approximates value, unless the Trustees determine that under particular
circumstances such method does not result in fair value. As authorized by the
Trustees, debt securities (other than short-term obligations) may be valued on
the basis of valuations furnished by a pricing service that determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. Securities for which there is no such quotation or
valuation and all other assets are valued at fair value as determined in good
faith by or at the direction of the Trust's Trustees.
Generally, trading in the foreign securities owned by the Trust is substantially
completed each day at various times prior to the close of the Exchange. The
values of these securities used in determining the net asset value of the Trust
generally are computed as of such times. Occasionally, events affecting the
value of foreign securities may occur between such times and the close of the
Exchange, which will not be reflected in the computation of the Trust's net
asset value (unless the Trust deems that such events would materially affect its
net asset value, in which case an adjustment would be made and reflected in such
computation). The Trust may rely on an independent fair valuation service in
making any such adjustment. Foreign securities and currency held by the Trust
will be valued in U.S. dollars; such values will be computed by the custodian
based on foreign currency exchange rate quotations supplied by an independent
quotation service.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio Senior Loan and other security
transactions, including the selection of the market and the executing firm, are
made by the Adviser. The Adviser is also responsible for the execution of
transactions for all other accounts managed by it. The Adviser places the
portfolio security transactions of the Trust and of all other accounts managed
by it for execution with many firms. The Adviser uses its best efforts to obtain
execution of portfolio security transactions at prices that are advantageous to
the Trust and at reasonably competitive spreads or (when a disclosed commission
is being charged) at reasonably competitive commission rates. In seeking such
execution, the 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 firm's services,
the value of the brokerage and research services provided, the responsiveness of
the firm to the 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 this and other transactions, and
the reasonableness of the spread or commission, if any.
The Trust 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, the Adviser 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 that they have sold, they may act as
principal or on an agency basis in connection with their sale by the Trust.
24
Other fixed income obligations that may be purchased and sold by the Trust are
generally traded in the over-the-counter market on a net basis (I.E., without
commission) through broker-dealers or banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuers of
such obligations. The Trust may also purchase fixed income and other securities
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters.
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.
Although spreads or commissions paid on portfolio security transactions will, in
the judgment of the Adviser, be reasonable in relation to the value of the
services provided, commissions exceeding those that another firm might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Adviser's clients in part for providing brokerage and research
services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a broker
or dealer who executes a portfolio transaction on behalf of the Trust 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
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 on the basis of that particular transaction or on the
basis of overall responsibilities which the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. 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 that 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
third parties with which such broker-dealers have arrangements. Consistent with
this practice, the Adviser receives Research Services from many broker-dealer
firms with which the Adviser places the Trust's transactions and from third
parties with which these broker-dealers have arrangements. These Research
Services include such matters as general economic, political, business and
market information, industry and company reviews, evaluations of securities and
portfolio strategies and transactions, proxy voting data and analysis services,
technical analysis of various aspects of the securities market, recommendations
as to the purchase and sale of securities and other portfolio transactions,
financial, industry and trade publications, news and information services,
25
pricing and quotation equipment and services, and research oriented computer
hardware, software, data bases and services. Any particular Research Service
obtained through a broker-dealer may be used by the Adviser in connection with
client accounts other than those accounts that pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
the 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 client's 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 advisory fee paid by the
Trust is not reduced because the Adviser receives such Research Services. The
Adviser evaluates the nature and quality of the various Research Services
obtained through broker-dealer firms and attempts to allocate sufficient
portfolio security transactions to such firms to ensure the continued receipt of
Research Services that the Adviser believes are useful or of value to it in
rendering investment advisory services to its clients.
The Trust and the Adviser may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by the Adviser in connection with its investment responsibilities. The
investment companies sponsored by the Adviser or its affiliates may allocate
trades in such offerings 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
Adviser, to such companies. Such companies may also pay cash for such
information.
Subject to the requirement that the Adviser shall use its best efforts to seek
and execute portfolio Senior Loan and other security transactions at
advantageous prices and at reasonably competitive spreads or commission rates,
the Adviser is authorized to consider as a factor in the selection of any
broker-dealer firm with whom portfolio orders may be placed the fact that such
firm has sold or is selling shares of the Trust or of other investment companies
sponsored by the Adviser. This policy is not inconsistent with a rule of the
National Association of Securities Dealers, Inc. ("NASD"), which rule provides
that no firm which is a member of the NASD shall favor or disfavor the
distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or expected
by such firm from any source.
Securities considered as investments for the Trust may also be appropriate for
other investment accounts managed by the Adviser or its affiliates. Whenever
decisions are made to buy or sell securities by the Trust and one or more of
such other accounts simultaneously, the 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 Trust will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
the 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
Trust from time to time, it is the opinion of the Trustees of the Trust that the
26
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
TAXES
The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Trust. The Trust intends to elect to
be treated and to qualify each year as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
the Trust intends to satisfy certain requirements relating to sources of its
income and diversification of its assets and to distribute substantially all of
its net 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 or excise tax. To the extent it qualifies for
treatment as a RIC and satisfies the above-mentioned distribution requirements,
the Trust will not be subject to federal income tax on income paid to its
shareholders in the form of dividends or capital gain distributions.
In order to avoid incurring a 4% federal excise tax obligation, the Code
requires that the Trust distribute (or be deemed to have distributed) by
December 31 of each calendar year an amount at least equal to the sum of (i) 98%
of its ordinary income for such year and (ii) 98% of its capital gain net income
(which is the excess of its realized net long-term capital gain over its
realized net short-term capital loss), generally computed on the basis of the
one-year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, plus 100% of any ordinary income and
capital gain net income from the prior year (as previously computed) that were
not paid out during such year and on which the Trust paid no federal income tax.
Under current law, provided that the Trust qualifies as a RIC for federal income
tax purposes, the Trust should not be liable for any income, corporate excise or
franchise tax in The Commonwealth of Massachusetts.
If the Trust does not qualify as a RIC for any taxable year, the Trust's taxable
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 the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, the Trust may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
The Trust's investment in zero coupon and certain other securities will cause it
to realize income prior to the receipt of cash payments with respect to these
securities. Such income will be accrued daily by the Trust and, in order to
avoid a tax payable by the Trust, the Trust may be required to liquidate
securities that it might otherwise have continued to hold in order to generate
cash so that the Trust may make required distributions to its shareholders.
Investments in lower rated or unrated securities may present special tax issues
for the Trust to the extent that the issuers of these securities default on
their obligations pertaining thereto. The Code is not entirely clear regarding
the federal income tax consequences of the Trust's taking certain positions in
connection with ownership of such distressed securities.
Any recognized gain or income attributable to market discount on long-term debt
obligations (i.e., on obligations with a term of more than one year except to
the extent of a portion of the discount attributable to original issue discount)
purchased by the Trust is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if purchased
after its original issue at a price less than (i) the stated principal amount
27
payable at maturity, in the case of an obligation that does not have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a DE MINIMIS exclusion.
The Trust's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) 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 Trust, defer Trust losses, cause adjustments in the
holding periods of securities held by the Trust, 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 shareholders. The Trust may be required to limit its activities
in options and futures contracts in order to enable it to maintain its RIC
status.
Any loss realized upon the sale or exchange of Trust shares with a holding
period of 6 months or less will be treated as a long-term capital loss to the
extent of any capital gain distributions received with respect to such shares.
In addition, all or a portion of a loss realized on a redemption or other
disposition of Trust shares may be disallowed under "wash sale" rules to the
extent the shareholder acquires other shares of the same Trust (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 shareholder's tax
basis in some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Trust (or of another fund) pursuant to
the reinvestment or exchange privilege. Any disregarded amounts will result in
an adjustment to the shareholder's tax basis in some or all of any other shares
acquired.
Dividends and distributions on the Trust's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Trust's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Trust's 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 Trust's 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. In addition, certain other
distributions made after the close of a taxable year of the Trust may be
"spilled back" and treated as paid by the Trust (except for purposes of the 4%
excise tax) during such taxable year. In such case, shareholders will be treated
as having received such dividends in the taxable year in which the distributions
were actually made. Dividends paid out of the Trust's investment company taxable
income are generally taxable to a Shareholder as ordinary income to the extent
of the Trust's earnings and profits. Dividends with respect to the Common Shares
generally will not constitute "qualified dividends" for federal income tax
purposes and thus will not be eligible for the new favorable long-term capital
gains tax rates.
Amounts paid by the Trust to individuals and certain other shareholders who have
not provided the Trust 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 Trust has received certain
information from the IRS or a broker may be subject to "backup" withholding of
28
federal income tax arising from the Trust's taxable dividends and other
distributions as well as the gross proceeds of sales of shares, at a rate of up
to 28% for amounts paid during 2003. An individual's TIN is generally his or her
social security number. Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from payments made to a shareholder
may be refunded or credited against such shareholder's U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
The foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in the Trust.
The Trust will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class's proportionate share of
a particular type of income for a year is determined according to the percentage
of total dividends paid by the RIC during that year to the class. Accordingly,
the Trust intends to designate a portion of its distributions in capital gain
dividends in accordance with the IRS position.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Trust, under current law the manner in which the Trust intends to
allocate items of ordinary income and net capital gain among the Common Shares
and preferred shares will be respected for federal income tax purposes. It is
possible that the IRS could disagree with counsel's opinion and attempt to
reallocate the Trust's net capital gain or other taxable income.
STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local tax
consequences of investing in the Trust.
Other information
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Trust property or the acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust 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 Trust itself is unable to meet its obligations. The
Trust has been advised by its counsel that the risk of any shareholder incurring
any liability for the obligations of the Trust is remote.
The 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 Trust or its shareholders
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
29
conduct of his or her 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.
The Declaration of Trust provides that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The Declaration of Trust
further provides that the Trustees of the Trust 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 Trust's Prospectus and this SAI do not contain all of the information set
forth in the Registration Statement that the Trust has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.
INDEPENDENT AUDITORS
[ ], [City], [State] are the independent auditors for the Trust, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
30
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDER OF
EATON VANCE FLOATING-RATE INCOME TRUST:
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Floating-Rate Income Trust (the "Trust") as of [________] and the related
statement of operations for the period from [________] (date of organization)
through [________]. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eaton Vance Floating-Rate
Income Trust as of [________], and the result of its operations for the period
from [________] (date of organization) through [________] in conformity with
accounting principles generally accepted in the United States of America.
[Auditor] [City, State]
[DATE]
31
--------------------------------------------------------------------------------
EATON VANCE FLOATING-RATE INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
[____________________]
ASSETS
Cash..................................... $
Offering costs...........................
Receivable from Adviser.................. 0
--------
Total assets............................. $ 0
========
LIABILITIES
Accrued offering costs................... $ 0
Accrued organizational costs............. 0
--------
Total liabilities........................ $ 0
========
Net assets applicable to [__________]
common shares of beneficial $ 0
========
interest issued and outstanding..........
NET ASSET VALUE AND OFFERING PRICE PER SHARE $ 20.00
========
STATEMENT OF OPERATIONS
PERIOD FROM APRIL 28, 2004 (DATE OF ORGANIZATION) THROUGH [________________].
INVESTMENT $ --
INCOME..................
EXPENSES
Organization costs.... $
Expense reimbursement (______)
Net expenses....... $ --
-------
NET INVESTMENT INCOME $ --
=======
See notes to financial statements.
32
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION
The Trust was organized as a Massachusetts business trust on April 28, 2004, and
has been inactive since that date except for matters relating to its
organization and registration as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended, and the sale of [ ] common shares to Eaton Vance
Management, the Trust's Investment Adviser.
Eaton Vance Management, or an affiliate, has agreed to reimburse all
organizational costs, estimated at approximately $[ ].
Eaton Vance Management, or an affiliate, has agreed to pay all offering costs
(other than sales loads) that exceed $[ ] per common share.
The Trust's investment objective is to provide a high level of current income.
The Trust may, as a secondary objective, also seek preservation of capital to
the extent consistent with its primary goal of high current income.
NOTE 2: ACCOUNTING POLICIES
The Trust's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the
use of management estimates. Actual results may differ from those estimates.
The Trust's share of offering costs will be recorded within paid in capital as a
reduction of the proceeds from the sale of common shares upon the commencement
of Trust operations. The offering costs reflected above assume the sale of [ ]
common shares.
NOTE 3: INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment advisory agreement between the Adviser and the Trust,
the Trust has agreed to pay an investment advisory fee, payable on a monthly
basis, at an annual rate of [ ]% of the average daily gross assets of the Trust.
Gross assets of the Trust shall be calculated by deducting accrued liabilities
of the Trust not including the amount of any preferred shares outstanding or the
principal amount of any indebtedness for money borrowed.
In addition, Eaton Vance has contractually agreed to reimburse the Trust for
fees and other expenses in the amount of [ ]% of the average daily gross assets
for the first 5 full years of the Trust's operations, [ ]% of average weekly
gross assets in year 6, [ ]% in year 7 and [ ]% in year 8. This reimbursement is
exclusive of the Trust's organizational and offering costs.
33
NOTE 4: FEDERAL INCOME TAXES
The Trust intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income, including any net realized gain on investments.
34
APPENDIX A: RATINGS
--------------------------------------------------------------------------------
Description of securities ratings+
Moody's Investors Service, Inc.
LONG-TERM DEBT SECURITIES RATINGS
Aaa: Bonds that 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 that 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 that make the
long term risk appear somewhat larger than the Aaa securities.
A: Bonds that 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 that 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 that 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 that 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 that 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 that 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 that 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.
35
------------
+ 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 that would be
given to these securities on the date of the Trust's fiscal year end.
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 in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
SHORT-TERM DEBT SECURITIES RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
36
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB--
rating.
37
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
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.
38
COMMERCIAL PAPER
COMMERCIAL PAPER RATING DEFINITIONS
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from A for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1: A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 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.
B: A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: A short-term obligation rated C 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.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
FITCH RATINGS
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
39
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
l: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics, which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (--): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
40
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: 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. The Trust is dependent on the Adviser's judgment,
analysis and experience in the evaluation of such bonds.
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 issuer's
ability to make interest and principal payments.
41
EATON VANCE FLOATING-RATE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
[_________]
----------------
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710
INDEPENDENT AUDITORS
[_________]
42
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A:
Not applicable.
Included in Part B:
Independent Auditor's Report*
Statement of Assets and Liabilities*
Notes to Financial Statement*
____________________________
*To be added by amendment.
(2) EXHIBITS:
(a) Agreement and Declaration of Trust dated April 28, 2004 filed
herewith.
(b) By-Laws filed herewith.
(c) Not applicable.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest
to be filed by amendment.
(e) Form of Dividend Reinvestment Plan to be filed by amendment.
(f) Not applicable.
(g) (1) Form of Investment Advisory Agreement dated ________, 2004, to be
filed by amendment.
(2) Form of Expense Reimbursement Arrangement dated __________, 2004,
to be filed by amendment.
(h) (1) Form of Underwriting Agreement to be filed by amendment.
(2) Form of Master Agreement Among Underwriters to be filed by
amendment.
(3) Form of Master Selected Dealers Agreement to be filed by
amendment.
(i) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
matter of Capital Exchange Fund, Inc., Release No. IC- 20671 (November
1, 1994).
(j) (1) Master Custodian Agreement with Investors Bank & Trust Company
dated ______________, 2004 to be filed by amendment.
(2) Extension Agreement dated August 31, 2000 to Master Custodian
Agreement with Investors Bank & Trust Company filed as Exhibit
(g)(4) to Post-Effective Amendment No. 85 of Eaton Vance
Municipals Trust (File Nos. 33-572, 811-4409) filed with the
Commission on January 23, 2001 (Accession No.
0000940394-01-500027) and incorporated herein by reference.
(3) Delegation Agreement dated December 11, 2000, with Investors Bank
& Trust Company filed as Exhibit (j)(e) to the Eaton Vance Prime
Rate Reserves N-2, Amendment No. 5 (File Nos. 333-32267,
811-05808) filed April 3, 2002 (Accession No.
0000940394-01-500126) and incorporated herein by reference.
(k) (1) Supplement to the Transfer Agency and Services Agreement dated
___________, 2004 to be filed by amendment.
(2) Transfer Agency and Services Agreement as amended and restated on
June 16, 2003, filed as Exhibit (k)(2) to the Registration
Statement of Eaton Vance Tax-Advantaged Dividend Income Fund
(File Nos. 333- 107050 and 811-21400) filed July 15, 2003
(Accession No. 0000898432-03-000638) and incorporated herein by
reference.
(3) Form of Administration Agreement dated _______________, 2004 to
be filed by amendment.
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP as to Registrant's
Common Shares to be filed by amendment.
(m) Not applicable.
(n) Consent of Independent Auditors to be filed by amendment.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management to be filed by amendment.
(q) Not applicable.
(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 June 4,
2002, filed as Exhibit (p) to Post- Effective Amendment No. 45 of
Eaton Vance Investment Trust (File Nos. 33-1121, 811-4443) filed July
24, 2002 (Accession No. 0000940394-02-000462) and incorporated herein
by reference.
(s) Power of Attorney dated ____________, 2004 to be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement to be filed by amendment.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
Registration and Filing Fees $_________________
National Association of Securities Dealers, Inc. Fees
New York Stock Exchange Fees
Costs of Printing and Engraving
Accounting Fees and Expenses
Legal Fees and Expenses
===============
Total $_________________
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of April 29, 2004, of
each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial 0
interest, par value $0.01 per
share
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws contain and the form of Underwriting Agreement to
be filed by amendment is expected to contain provisions limiting the liability,
and providing for indemnification, of the Trustees and officers under certain
circumstances.
Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their official capacities as
such. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
Investment advisory and other services" in the Statement of Additional
Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange
Act of 1934 (File No. 001-8100); and (iii) the Form ADV of Eaton Vance
Management (File No. 801-15930) filed with the Commission, all of which are
incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Boston, MA 02116, and its transfer agent, PFPC 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.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend offering of Common Shares until
the prospectus is amended if (1) subsequent to the effective date of this
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of this Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. for the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to 497(h) under the Securities Act
shall be deemed to be part of the Registration Statement as of the time it was
declared effective; and
b. for the purpose of determining any liability under the Securities
Act, each post- effective amendment that contains a form of prospectus 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.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of an oral or written request, its Statement of Additional Information.
NOTICE
A copy of the Agreement and Declaration of Trust of Eaton Vance
Floating-Rate Income Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but are binding only upon the assets and property of the
Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, there unto duly
authorized in the City of Boston and the Commonwealth of Massachusetts, on the
30th day of April 2004.
EATON VANCE FLOATING-RATE INCOME TRUST
By: /s/ Payson F. Swaffield
-------------------------------------
Payson F. Swaffield
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Payson F. Swaffield President and Chief Executive April 30, 2004
------------------------ Officer
Payson F. Swaffield
/s/ Barbara E. Campbell Treasurer and Principal April 30, 2004
------------------------ Financial and Accounting
Barbara E. Campbell Officer
/s/ Thomas E. Faust Jr. Trustee April 30, 2004
------------------------
Thomas E. Faust Jr.
/s/ James B. Hawkes Trustee April 30, 2004
------------------------
James B. Hawkes
INDEX TO EXHIBITS
(a) Agreement and Declaration of Trust dated April 28, 2004
(b) By-Laws
EX-99.A
2
trustagmt.txt
EATON VANCE FLOATING-RATE INCOME TRUST
-------------------
AGREEMENT AND DECLARATION OF TRUST
Dated April 28, 2004
TABLE OF CONTENTS
ARTICLE I - NAME AND DEFINITIONS............................................ 1
Section 1.1. Name............................................... 1
Section 1.2. Definitions........................................ 1
ARTICLE II - TRUSTEES....................................................... 3
Section 2.1. Management of the Trust............................ 3
Section 2.2 Number of Trustees................................. 3
Section 2.3 Terms of Office of Trustee......................... 3
Section 2.4 Resignation and Appointment of Trustees............ 3
Section 2.5 Vacancies.......................................... 4
Section 2.6 Delegation of Power to Other Trustees.............. 4
Section 2.7 Removal of Trustees................................ 4
Section 2.8. General Powers..................................... 4
Section 2.9. Investments........................................ 5
Section 2.10. Legal Title........................................ 6
Section 2.11. By-Laws............................................ 7
Section 2.12. Distribution and Repurchase of Shares.............. 7
Section 2.13. Delegation......................................... 7
Section 2.14. Collection and Payment............................. 7
Section 2.15. Expenses........................................... 7
Section 2.16. Committees......................................... 7
Section 2.17. Miscellaneous Powers............................... 8
Section 2.18. Litigation......................................... 8
ARTICLE III - CONTRACTS..................................................... 8
Section 3.1. Principal Underwriter.............................. 8
Section 3.2. Investment Adviser................................. 9
Section 3.3. Administrator...................................... 9
Section 3.4. Other Service Providers............................ 9
Section 3.5. Transfer Agents.................................... 9
Section 3.6. Custodian.......................................... 9
Section 3.7. Affiliations....................................... 9
ARTICLE IV - LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES
AND OTHERS..................................................... 10
Section 4.1. No Personal Liability of Shareholders, Trustees,
Officers and Employees............................. 10
Section 4.2. Trustee's Good Faith Action; Advice to Others;
No Bond or Surety.................................. 10
Section 4.3. Indemnification.................................... 10
Section 4.4. No Duty of Investigation........................... 11
Section 4.5. Reliance on Records and Experts.................... 11
i
ARTICLE V - SHARES OF BENEFICIAL INTEREST................................... 11
Section 5.1. Shares of Beneficial Interest...................... 11
Section 5.2. Voting Powers...................................... 11
Section 5.3. Rights of Shareholders............................. 12
Section 5.4. Trust Only......................................... 12
Section 5.5. Issuance of Shares................................. 12
ARTICLE VI - REDEMPTIONS AND REPURCHASES.................................... 13
Section 6.1. Redemptions and Repurchases of Shares.............. 13
Section 6.2. Manner of Payment.................................. 13
Section 6.3. Involuntary Redemption............................. 13
ARTICLE VII - DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS................................................. 14
Section 7.1. Net Asset Value.................................... 14
Section 7.2. Dividends and Distributions........................ 14
Section 7.3. Power to Modify Foregoing Procedures............... 15
ARTICLE VIII - DURATION; TERMINATION OF TRUST OR A CLASS OR SERIES;
MERGERS; AMENDMENTS.......................................... 15
Section 8.1. Duration........................................... 15
Section 8.2. Merger or Termination of the Trust or a Series
or a Class......................................... 15
Section 8.3. Amendments......................................... 15
Section 8.4. Certain Transactions............................... 16
Section 8.5. Conversion......................................... 18
ARTICLE IX - MISCELLANEOUS.................................................. 18
Section 9.1. Use of the Words "Eaton Vance"..................... 18
Section 9.2. Notices............................................ 18
Section 9.3. Filing of Copies, References, Headings and
Counterparts....................................... 18
Section 9.4. Applicable Law..................................... 19
Section 9.5. Provisions in Conflict with Law or Regulations..... 19
ii
AGREEMENT AND DECLARATION OF TRUST, made April 28, 2004 by the Trustees
hereunder and by the holders of beneficial interest to be issued hereunder as
hereinafter provided and
WITNESSETH:
WHEREAS, the Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed under
this Agreement and Declaration of Trust for the benefit of the holders, from
time to time, of the shares of beneficial interest to be issued hereunder and
subject to the provisions set forth below.
ARTICLE I
NAME AND DEFINITIONS
--------------------
SECTION 1.1. NAME. The name of the trust created hereby is Eaton Vance
Floating-Rate Income Trust.
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to a contract
described in Section 3.3 hereof.
(b) "By-Laws" means the By-Laws referred to in Section 2.11 hereof, as from
time to time amended.
(c) "Class" means any class of Shares designated by the Trustees as such
following any division of Shares of the Trust into two or more Classes as
provided in Section 5.1 hereof.
(d) The term "Commission" has the meaning given the term in the 1940 Act.
(e) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(f) "Declaration" means this Declaration of Trust as amended from time to
time.
(g) "His" shall include the feminine and neuter, as well as the masculine,
genders.
(h) The term "Interested Person" has the meaning specified in the 1940 Act
subject, however, to such exceptions and exemptions as may be granted by the
Commission in any rule, regulation or order.
(i) "Investment Adviser" means the party, other than the Trust, to an
agreement described in Section 3.2 hereof.
(j) The "1940 Act" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.
(k) "Outstanding Shares" means those Shares shown from time to time on the
books of the Trust or its Transfer Agent as then issued and outstanding.
(l) "Person" means and includes individuals, corporations, limited
liability companies, partnerships, trusts, associations, firms, joint ventures
and other entities, whether or not legal entities, as well as governments,
instrumentalities, and agencies and political subdivisions thereof, and
quasi-governmental agencies and instrumentalities.
(m) "Principal Underwriter" means a party, other than the Trust, to a
contract described in Section 3.1 hereof.
(n) "Prospectus" means the Prospectus and Statement of Additional
Information, if any, included in the Registration Statement of the Trust under
the Securities Act of 1933 as such Prospectus and Statement of Additional
Information, if any, may be amended or supplemented and filed with the
Commission from time to time.
(o) "Registration Statement" means the Registration Statement of the Trust
under the Securities Act of 1933 as such Registration Statement may be amended
and filed with the Commission from time to time.
(p) "Series" means any series of Shares designated by the Trustees as such
following the division of Shares of any Class into two or more Series as
provided in Section 5.1 hereof.
(q) "Shareholder" means a record owner of Outstanding Shares.
(r) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time, or, if more than one Class or Series is authorized by the Trustees, the
equal proportionate transferable units into which each Class or Series shall be
divided from time to time.
(s) "Transfer Agent" means any Person other than the Trust who maintains
the Shareholder records of the Trust, such as the list of Shareholders, the
number of Shares credited to each account, and the like.
(t) "Trust" means the Trust named in Section 1.1.
(u) The "Trustees" means the persons who have signed this Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who now serve or may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof and the By-Laws of the Trust, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in his capacity or their
capacities as trustees hereunder.
(v) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees, including any and all assets of or allocated to any Class or Series,
as the context may require.
(w) Except as such term may be otherwise defined by the Trustees in
connection with any meeting or other action of Shareholders or in conjunction
with the establishment of any Class or Series, the term "vote" when used in
connection with an action of Shareholders shall include a vote taken at a
meeting of Shareholders or the consent or consents of Shareholders taken without
such a meeting.
2
ARTICLE II
TRUSTEES
--------
SECTION 2.1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust
shall be managed by the Trustees and they shall have all powers and authority
necessary, appropriate or desirable to perform that function.
SECTION 2.2. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than two (2) nor more than fifteen (15). No reduction in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his term unless the Trustee is specifically removed
pursuant to Section 2.3 or Section 2.7 of this Article II at the time of
decrease.
SECTION 2.3. TERM OF OFFICE OF TRUSTEES. The Board of Trustees shall be
divided into three classes. Within the limits above specified, the number of the
Trustees in each class and the class which each Trustee is assigned shall be
determined by resolution of the Board of Trustees. The term of office of the
first class shall expire on the date of the first annual meeting of Shareholders
or special meeting in lieu thereof following the effective date of the
Registration Statement. The term of office of the second class shall expire on
the date of the second annual meeting of Shareholders or special meeting in lieu
thereof following the effective date of the Registration Statement. The term of
office of the third class shall expire on the date of the third annual meeting
of Shareholders or special meeting in lieu thereof following the effective date
of the Registration Statement. Upon expiration of the term of office of each
class as set forth above, the number of Trustees in such class, as determined by
the Board of Trustees, shall be elected for a term expiring on the date of the
third annual meeting of Shareholders or special meeting in lieu thereof
following such expiration to succeed the Trustees whose terms of office expire.
The Trustees shall be elected at an annual meeting of the Shareholders or
special meeting in lieu thereof called for that purpose, except as provided in
Section 2.3 of this Article and each Trustee elected shall hold office until his
successor shall have been elected and shall have qualified; except (a) that any
Trustee may resign his trust (without need for prior or subsequent accounting)
by an instrument in writing signed by him and delivered to the other Trustees,
which shall take effect upon such delivery or upon such later date as is
specified therein; (b) that any Trustee may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.2 hereof) for cause, at any time by written instrument, signed by
the remaining Trustees, specifying the date when such removal shall become
effective; and (c) that any Trustee who requests in writing to be retired or who
has become incapacitated by illness or injury may be retired by written
instrument signed by a majority of the other Trustees, and he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Fund or the remaining Trustees any Fund property held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
document as the remaining Trustees shall require as provided in the preceding
sentence.
SECTION 2.4. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of any increase in number, or
for any other reason, exist, the remaining Trustees or, prior to the public
offering of Shares of the Fund, if only one Trustee shall then remain in office,
the remaining Trustee, shall fill such vacancy by appointing such other person
as they, or anyone of them, in their discretion, shall see fit. Such appointment
shall be evidenced by a written instrument signed by a majority of the remaining
Trustees or by the remaining Trustee, as the case may be. Any such appointment
shall not become effective, however, until the person named in the written
3
instrument or appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of the Declaration. Within twelve
months of such appointment, the Trustees shall cause notice of such appointment
to be mailed to each Shareholder at his address as recorded on the books of the
Fund. An appointment of a Trustee may be made by the Trustees then in office and
notice thereof mailed to Shareholders as aforesaid in anticipation of a vacancy
to occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become effective
only at or after the effective date of said retirement, resignation or increase
in number of Trustees. The power of appointment is subject to the provisions of
Section 16(a) of the 1940 Act.
SECTION 2.5. VACANCIES. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Fund or to remove any existing agency created pursuant to the terms of
this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the duties imposed upon the Trustees
by the Declaration and only such Trustees shall be counted for the purposes of
establishing the existence of a quorum or performing such duties or exercising
such powers of the Trustees as described in this Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
SECTION 2.6. DELEGATION OF POWER TO OTHER TRUSTEES. Subject to the
provisions of the 1940 Act, any Trustee may, by power of attorney, delegate his
power for a period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall less than two (2) Trustees
personally exercise the powers granted to the Trustees under the Declaration
except as herein otherwise expressly provided.
SECTION 2.7. REMOVAL OF TRUSTEES BY THE SHAREHOLDERS. The Fund shall comply
with the provisions of Section 16(c) of the 1940 Act as though applicable to the
Fund, and with interpretations hereof by the Commission staff, insofar as such
provisions and interpretations provide for the removal of trustees of common-law
trusts and the calling of Shareholder meetings for such purpose; provided,
however, that the Fund may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section 16(c) or
a staff interpretation thereof and, if exemptive order(s) or interpretation(s)
are issued or provided by the Commission or its staff, such order(s) or
interpretation(s) shall be deemed part of Section 16(c) for the purpose of
applying this Section 2.7.
SECTION 2.8. GENERAL POWERS. The Trustees in all instances shall act as
principals for and on behalf of the Trust and their acts shall bind the Trust.
The business and affairs of the Trust shall be managed by the Trustees and they
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary,
appropriate or desirable in connection with the management of the Trust. The
Trustees shall not be bound or limited in any way by present or future laws,
practices or customs in regard to trust investments or to other investments
which may be made by fiduciaries, but shall have full authority and power to
make any and all investments which they, in their uncontrolled discretion, shall
deem proper to promote, implement or accomplish the various objectives and
interests of the Trust and of its Classes and Series. The Trustees shall have
full power and authority to adopt such accounting and tax accounting practices
as they consider appropriate for the Trust and for any Class or Series. The
Trustees shall have exclusive and absolute control over the Trust Property and
over the business of the Trust to the same extent as if the Trustees were the
sole owners of the Trust Property and business in their own right, and with such
full powers of delegation as the Trustees may exercise from time to time. The
Trustees shall have power to conduct the business of the Trust and carry on its
operations in any and all of its branches and maintain offices both within and
without The Commonwealth of Massachusetts, in any and all states of the United
States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies, and
instrumentalities of the United States of America and of foreign governments,
and to do all such other things as they deem necessary, appropriate or desirable
in order to promote or implement the interests of the Trust or of any Class or
Series although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust or of any Class or
Series made by the Trustees in good faith shall be conclusive and binding upon
4
all Shareholders. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of plenary power and authority to the
Trustees.
The enumeration of any specific power in this Declaration shall not be
construed as limiting the aforesaid general and plenary powers.
SECTION 2.9. INVESTMENTS. The Trustees shall have full power and authority:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To acquire or buy, and invest Trust Property in, own, hold for
investment or otherwise, and to sell or otherwise dispose of, all types and
kinds of securities and investments of any kind including, but not limited to,
stocks, profit-sharing interests or participations and all other contracts for
or evidences of equity interests, bonds, debentures, warrants and rights to
purchase securities, and interests in loans, certificates of beneficial
interest, bills, notes and all other contracts for or evidences of indebtedness,
money market instruments including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and other obligations, and all other
negotiable and non-negotiable securities and instruments, however named or
described, issued by corporations, trusts, associations or any other Persons,
domestic or foreign, or issued or guaranteed by the United States of America or
any agency or instrumentality thereof, by the government of any foreign country,
by any State, territory or possession of the United States, by any political
subdivision or agency or instrumentality of any state or foreign country, or by
any other government or other governmental or quasi-governmental agency or
instrumentality, domestic or foreign; to acquire and dispose of interests in
domestic or foreign loans made by banks and other financial institutions; to
deposit any assets of the Trust in any bank, trust company or banking
institution or retain any such assets in domestic or foreign cash or currency;
to purchase and sell gold and silver bullion, precious or strategic metals, and
coins and currency of all countries; to engage in "when issued" and delayed
delivery transactions; to enter into repurchase agreements, reverse repurchase
agreements and firm commitment agreements; to employ all types and kinds of
hedging techniques and investment management strategies; and to change the
investments of the Trust and of each Class or Series.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any Trust Property or any of the
foregoing securities, instruments or investments; to purchase and sell options
on securities, currency, precious metals and other commodities, indices, futures
contracts and other financial instruments and assets and enter into closing and
other transactions in connection therewith; to enter into all types of
commodities contracts, including without limitation the purchase and sale of
futures contracts on securities, currency, precious metals and other
commodities, indices and other financial instruments and assets; to enter into
forward foreign currency exchange contracts and other foreign exchange and
currency transactions of all types and kinds; to enter into interest rate,
currency and other swap transactions; and to engage in all types and kinds of
hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and other assets included in the Trust Property, including
without limitation the right to vote thereon and otherwise act with respect
thereto; and to do all acts and things for the preservation, protection,
improvement and enhancement in value of all such securities and assets.
5
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, lease, develop and dispose of (by sale or otherwise) any type or kind
of property, real or personal, including domestic or foreign currency, and any
right or interest therein.
(f) To borrow money and in this connection issue notes, commercial paper or
other evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security all or any part of the Trust Property; to
endorse, guarantee, or undertake the performance of any obligation or engagement
of any other Person; to lend all or any part of the Trust Property to other
Persons; and to issue general unsecured or other obligations of the Trust, and
enter into indentures or agreements relating thereto.
(g) To aid, support or assist by further investment or other action any
Person, any obligation of or interest which is included in the Trust Property or
in the affairs of which the Trust or any Class or Series has any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, securities and other obligations
of any such Person.
(h) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper.
(i) To carry on any other business in connection with or incidental to any
of the foregoing powers referred to in this Declaration, to do everything
necessary, appropriate or desirable for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power referred to in this
Declaration, either alone or in association with others, and to do every other
act or thing incidental or appurtenant to or arising out of or connected with
such business or purposes, objects or powers.
(j) To the extent necessary or appropriate to give effect to the
preferences, special or relative rights and privileges of any Class or Series,
to allocate assets, liabilities, income and expenses of the Trust to particular
Classes or Series or to apportion the same among two or more Classes or Series.
The foregoing clauses shall be construed both as objects and powers, and
shall not be held to limit or restrict in any manner the general and plenary
powers of the Trustees.
Notwithstanding any other provision herein, the Trustees shall have full
power in their discretion, without any requirement of approval by Shareholders,
to invest part or all of the Trust Property (or part or all of the assets of any
Class or Series), or to dispose of part or all of the Trust Property (or part or
all of the assets of any Class or Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act. Any such other investment company may (but need
not) be a trust (formed under the laws of the State of New York or of any other
state) which is classified as a partnership for federal income tax purposes.
SECTION 2.10. LEGAL TITLE. Legal title to all the Trust Property shall be
vested in the Trustees who from time to time shall be in office. The Trustees
may hold any security or other Trust Property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, and may cause
legal title to any security or other Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust or any Class or
Series, or in the name of a custodian, subcustodian, agent, securities
6
depository, clearing agency, system for the central handling of securities or
other book-entry system, or in the name of a nominee or nominees of the Trust or
a Class or Series, or in the name of a nominee or nominees of a custodian,
subcustodian, agent, securities depository, clearing agent, system for the
central handling of securities or other book-entry system, or in the name of any
other Person as nominee. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of such
Trustee in the Trust Property shall vest automatically in the remaining
Trustees.
SECTION 2.11. BY- LAWS. The Trustees shall have full power and authority to
adopt By-Laws providing for the conduct of the business of the Trust and
containing such other provisions as they deem necessary, appropriate or
desirable, and, subject to the voting powers of one or more Classes or Series,
to amend and repeal such By-Laws. Unless the By-Laws specifically require that
Shareholders authorize or approve the amendment or repeal of a particular
provision of the By-Laws, any provision of the By-Laws may be amended or
repealed by the Trustees without Shareholder authorization or approval.
SECTION 2.12. DISTRIBUTION AND REPURCHASE OF SHARES. The Trustees shall
have full power and authority to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in Shares. Shares may be sold for cash or property or other consideration
whenever and in such amounts and manner as the Trustees deem desirable. The
Trustees shall have full power to provide for the distribution of Shares either
through one or more principal underwriters or by the Trust itself, or both.
SECTION 2.13. DELEGATION. The Trustees shall have full power and authority
to delegate from time to time to such of their number or to officers, employees
or agents of the Trust or to other Persons the doing of such things and
execution of such agreements or other instruments either in the name of the
Trust or any Class or Series of the Trust or the names of the Trustees or
otherwise as the Trustees may deem desirable or expedient.
SECTION 2.14. COLLECTION AND PAYMENT. The Trustees shall have full power
and authority to collect all property due to the Trust; to pay all claims,
including taxes, against the Trust or Trust Property; to prosecute, defend,
compromise, settle or abandon any claims relating to the Trust or Trust
Property; to foreclose any security interest securing any obligations, by virtue
of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
SECTION 2.15. EXPENSES. The Trustees shall have full power and authority to
incur on behalf of the Trust or any Class or Series and pay any costs or
expenses which the Trustees deem necessary, appropriate, desirable or incidental
to carry out, implement or enhance the business or operations of the Trust or
any Class or Series thereof, and to pay compensation from the funds of the Trust
to themselves as Trustees. The Trustees shall determine the compensation of all
officers, employees and Trustees of the Trust. The Trustees shall have full
power and authority to cause the Trust to charge all or any part of any cost,
expense or expenditure (including without limitation any expense of selling or
distributing Shares) or tax against the principal or capital of the Trust or any
Class or Series, and to credit all or any part of the profit, income or receipt
to the principal or capital of the Trust or any Class or Series.
SECTION 2.16. COMMITTEES. The Trustees may appoint from their own number,
and terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the power and authority of the Trustees as the
Trustees may determine.
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SECTION 2.17. MISCELLANEOUS POWERS. The Trustees shall have full power and
authority to: (a) distribute to Shareholders all or any part of the earnings or
profits, surplus (including paid-in surplus), capital (including paid-in
capital) or assets of the Trust or of any Class or Series, the amount of such
distributions and the manner of payment thereof to be solely at the discretion
of the Trustees; (b) employ, engage or contract with such Persons as the
Trustees may deem desirable for the transaction of the business or operations of
the Trust or any Class or Series thereof; (c) enter into or cause the Trust or
any Class or Series thereof to enter into joint ventures, partnerships (whether
as general partner, limited partner or otherwise) and any other combinations or
associations; (d) purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability; (e) establish pension,
profit-sharing, share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (f)
indemnify or reimburse any Person with whom the Trust or any Class or Series
thereof has dealings, including without limitation the Investment Adviser,
Administrator, Principal Underwriter, Transfer Agent, financial service firms
and other agents, to such extent as the Trustees shall determine; (g) guarantee
the indebtedness or contractual obligations of other Persons; (h) determine and
change the fiscal year of the Trust and the methods by which its books, accounts
and records shall be kept; and (i) adopt a seal for the Trust, but the absence
of such seal shall not impair the validity of any instrument executed on behalf
of the Trust.
SECTION 2.18 LITIGATION. The Trustees shall have full power and authority,
in the name and on behalf of the Trust, to engage in and to prosecute, defend,
compromise, settle, abandon, or adjust by arbitration or otherwise, any actions,
suits, proceedings, disputes, claims and demands relating to the Trust, and out
of the assets of the Trust or any Class or Series thereof to pay or to satisfy
any liabilities, losses, debts, claims or expenses (including without limitation
attorneys' fees) incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any committee thereof, in the exercise of their or its good faith
business judgment, to dismiss or terminate any action, suit, proceeding,
dispute, claim or demand, derivative or otherwise, brought by any Person,
including a Shareholder in his own name or in the name of the Trust or any Class
or Series thereof, whether or not the Trust or any Class or Series thereof or
any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust or any Class or
Series thereof.
ARTICLE III
CONTRACTS
---------
SECTION 3.1. PRINCIPAL UNDERWRITER. The Trustees may in their discretion
from time to time authorize the Trust to enter into one or more contracts
providing for the sale of the Shares. Pursuant to any such contract the Trust
may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, any
such contract shall be on such terms and conditions as the Trustees may in their
discretion determine; and any such contract may also provide for the sale of
Shares by such other party as principal or as agent of the Trust.
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SECTION 3.2. INVESTMENT ADVISER. The Trustees may, subject to any approvals
by Shareholders required by applicable law, in their discretion from time to
time authorize the Trust to enter into one or more investment advisory
agreements whereby the other party or parties to any such agreements shall
undertake to furnish the Trust investment advisory and research facilities and
services and such other facilities and services, if any, as the Trustees shall
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine. Notwithstanding any provisions of this Declaration,
the Trustees may authorize the Investment Adviser, in its discretion and without
any prior consultation with the Trust, to buy, sell, lend and otherwise trade
and deal in any and all securities, commodity contracts and other investments
and assets of the Trust and to engage in and employ all types of transactions
and strategies in connection therewith. Any such action taken pursuant to such
agreement shall be deemed to have been authorized by all of the Trustees.
The Trustees may also authorize the Trust to employ, or authorize the
Investment Adviser to employ, one or more sub-investment advisers from time to
time to perform such of the acts and services of the Investment Adviser and upon
such terms and conditions as may be agreed upon between the Investment Adviser
and such sub-investment adviser and approved by the Trustees.
SECTION 3.3. ADMINISTRATOR. The Trustees may in their discretion from time
to time authorize the Trust to enter into one or more administration agreements,
whereby the other party to such agreement shall undertake to furnish to the
Trust or a Series or a Class thereof such administrative facilities and services
and such other facilities and services, if any, as the Trustees consider
desirable and all upon such terms and conditions as the Trustees may in their
discretion determine.
The Trustees may also authorize the Trust to employ or authorize the
Administrator to employ one or more sub-administrators from time to time to
perform such of the acts and services of the Administrator and upon such terms
and conditions as may be agreed upon between the Administrator and such
sub-administrator and approved by the Trustees.
SECTION 3.4. OTHER SERVICE PROVIDERS. The Trustees may in their discretion
from time to time authorize the Trust to enter into one or more agreements
whereby the other party or parties to any such agreements will undertake to
provide to the Trust or any Class or Series or Shareholders or beneficial owners
of Shares such services as the Trustees consider desirable and all upon such
terms and conditions as the Trustees in their discretion may determine.
SECTION 3.5. TRANSFER AGENTS. The Trustees may in their discretion from
time to time appoint one or more transfer agents for the Trust or any Class or
Series thereof. Any contract with a transfer agent shall be on such terms and
conditions as the Trustees may in their discretion determine.
SECTION 3.6. CUSTODIAN. The Trustees may appoint a bank or trust company
having an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least $2,000,000 as a custodian of the Trust or any
Class or Series with authority as its agent to hold cash and securities owned by
the Trust or the Class or Series and to release and deliver the same and
otherwise to perform such duties as the Trustees may specify, all upon such
terms and conditions as may be agreed upon between the Trust and the Custodian.
SECTION 3.7. AFFILIATIONS. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, creditor, director, officer, partner, trustee or employee of or has
any interest in any Person or any parent or affiliate of any such Person, with
which a contract or agreement of the character described in this Article III has
been or will be made, or that any such Person, or any parent or affiliate
thereof, is a Shareholder of or has an interest in the Trust, or that
9
(ii) any such Person also has similar contracts, agreements or plans with
other investment companies (including, without limitation, the investment
companies referred to in the last paragraph of Section 2.9) or Persons, or has
other business activities or interests, shall not affect in any way the validity
of any such contract, agreement or plan or disqualify any Shareholder, Trustee
or officer of the Trust from authorizing, voting upon or executing the same or
create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
-------------------------------------------------------------
SECTION 4.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS AND
EMPLOYEES. No Shareholder shall be subject to any personal liability whatsoever
to any Person in connection with Trust Property or the acts, obligations or
affairs of the Trust or any Class or Series thereof. All Persons dealing or
contracting with the Trustees as such or with the Trust or any Class or Series
thereof or having any claim against the Trust or any Class or Series thereof
shall have recourse only to the Trust or such Class or Series for the payment of
their claims or for the payment or satisfaction of claims, obligations or
liabilities arising out of such dealings or contracts. No Trustee, officer or
employee of the Trust, whether past, present or future, shall be subject to any
personal liability whatsoever to any such Person, and all such Persons shall
look solely to the Trust Property, or to the assets of one or more specific
Class or Series of the Trust if the claim arises from the act, omission or other
conduct of such Trustee, officer or employee with respect to only such Class or
Series, for satisfaction of claims of any nature arising in connection with the
affairs of the Trust or such Class or Series. If any Shareholder, Trustee,
officer or employee, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability of the Trust or any Class or Series
thereof, he shall not, on account thereof, be held to any personal liability.
SECTION 4.2. TRUSTEE'S GOOD FAITH ACTION; ADVICE TO OTHERS; NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon all Interested Parties. A Trustee shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of them or of
any officer, agent, employee, consultant, investment adviser or other adviser,
administrator, distributor or principal underwriter, custodian or transfer,
dividend disbursing, shareholder servicing or accounting agent of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration and their duties as Trustees, and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. In discharging their duties, the
Trustees, when acting in good faith, shall be entitled to rely upon the records,
books and accounts of the Trust and upon reports made to the Trustees by any
officer, employee, agent, consultant, accountant, attorney, investment adviser
or other adviser, principal underwriter, expert, professional firm or
independent contractor. The Trustees as such shall not be required to give any
bond or surety or any other security for the performance of their duties. No
provision of this Declaration shall protect any Trustee or officer of the Trust
against any liability to the Trust or its Shareholders to which he would
otherwise be subject by reason of his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 4.3. INDEMNIFICATION. The Trustees may provide, whether in the
By-Laws or by contract, vote or other action, for the indemnification by the
Trust or by any Class or Series thereof of the Shareholders, Trustees, officers
and employees of the Trust and of such other Persons as the Trustees in the
exercise of their discretion may deem appropriate or desirable. Any such
indemnification may be mandatory or permissive, and may be insured against by
policies maintained by the Trust.
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SECTION 4.4. NO DUTY OF INVESTIGATION. No purchaser, lender or other Person
dealing with the Trustees or any officer, employee or agent of the Trust or a
Class or Series thereof shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid, loaned, or delivered to or on the order of the Trustees or of said
officer, employee or agent. Every obligation, contract, instrument, certificate,
Share, other security or undertaking of the Trust or a Class or Series, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security or undertaking of the
Trust or a Class or Series made or issued by the Trustees may recite that the
same is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust or a Class or Series thereof
under any such instrument are not binding upon any of the Trustees or
Shareholders individually, but bind only the Trust Property or the Trust
Property of the applicable Class or Series, and may contain any further recital
which they may deem appropriate, but the omission of any such recital shall not
operate to bind the Trustees or Shareholders individually.
SECTION 4.5. RELIANCE ON RECORDS AND EXPERTS. Each Trustee, officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the records, books and accounts of
the Trust or a Class or Series thereof, upon an opinion or other advice of legal
counsel, or upon reports made or advice given to the Trust or a Class or Series
thereof by any Trustee or any of the Trust's officers or employees or by the
Investment Adviser, the Administrator, the Custodian, a Principal Underwriter,
Transfer Agent, accountants, appraisers or other experts, advisers, consultants
or professionals selected with reasonable care by the Trustees or officers of
the Trust, regardless of whether the person rendering such report or advice may
also be a Trustee, officer or employee of the Trust.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 5.1. SHARES OF BENEFICIAL INTEREST. The interest of the
beneficiaries of the Trust initially shall be divided into common shares of
beneficial interest of $.01 par value. The number of common shares authorized
hereunder is unlimited. All shares issued, including, without limitation, those
issued in connection with a dividend or distribution or a share split, shall be
fully paid and nonassessable. The Trustees may, without Shareholder approval,
authorize one or more Classes of Shares (which Classes may without Shareholder
approval be divided by the Trustees into two or more Series), Shares of each
such Class or Series having such preferences, voting powers and special or
relative rights or privileges (including conversion rights, if any) as the
Trustees may determine and as shall be set forth in a resolution adopted in
accordance with the By-Laws. The number of Shares of each Class or Series
authorized shall be unlimited except as the By-Laws may otherwise provide. The
Trustees may from time to time divide or combine the Shares of any Class or
Series into a greater or lesser number without thereby changing the
proportionate beneficial interest in the Class or Series.
The ownership of Shares shall be recorded on the books of the Trust or a
transfer or similar agent. No certificates certifying the ownership of Shares
shall be issued except as the Trustees may otherwise determine from time to
time. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders of each
Class or Series and as to the number of Shares of each Class or Series held from
time to time by each Shareholder. The Trustees may at any time discontinue the
issuance of Share certificates and may, by written notice to each Shareholder,
require the surrender of Share certificates to the Trust for cancellation. Such
surrender and cancellation shall not affect the ownership of Shares in the
Trust.
11
SECTION 5.2. VOTING POWERS. Subject to the voting powers of one or more
Classes or Series, the Shareholders shall have power to vote only (i) with
respect to the election of Trustees, (ii) for the removal of Trustees as
provided for herein, (iii) with respect to any Investment Adviser as required by
applicable law, (iv) with respect to any termination or amendment of this Trust,
or with respect to certain transactions, to the extent and as provided in
Article VIII, (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by law, this
Declaration, the By-Laws or any registration of the Trust with the Securities
and Exchange Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. Notwithstanding any
other provision of this Declaration, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall, except as
otherwise provided in the By-Laws or required by applicable law, be voted in the
aggregate as a single Class without regard to Classes or Series. There shall be
no cumulative voting in the election of Trustees.
SECTION 5.3. RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property of
every description and the right to conduct any business of the Trust are vested
exclusively in the Trustees, and the Shareholders shall have no interest therein
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust or of any Class or Series nor can they be
called upon to share or assume any losses of the Trust or of any Class or Series
or suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights specifically set forth
in this Declaration. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights, except as the Trustees may
specifically determine with respect to any Class or Series.
Every Shareholder by virtue of having become a Shareholder shall be held to
have expressly assented and agreed to the terms of this Declaration and the
Bylaws and to have become a party hereto and thereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust.
SECTION 5.4. TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, limited liability company, bailment or any form of legal
relationship other than a Massachusetts business trust. Nothing in this
Declaration shall be construed to make the Shareholders, either by themselves or
with the Trustees, partners or members of a joint stock association.
SECTION 5.5. ISSUANCE OF SHARES. The Trustees in their discretion may, from
time to time and without any authorization or vote of the Shareholders, issue
Shares of any Class or Series, in addition to the then issued and Outstanding
Shares, to such party or parties and for such amount and type of consideration,
including cash or property, at such time or times and on such terms as the
Trustees may deem appropriate or desirable, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and reissue and resell full
and fractional Shares held in the treasury. The Trustees may authorize the
issuance of certificates of beneficial interest to evidence the ownership of
12
Shares. Shares held in the treasury shall not be voted nor shall such Shares be
entitled to any dividends or other distributions declared with respect thereto.
The Trustees in their discretion may also, from time to time and without any
authorization or vote of the Shareholders, issue to the extent consistent with
applicable law securities of the Trust convertible into Shares of the Trust and
warrants to purchase securities of the Trust, in each case pursuant to such
terms and under such conditions as the Trustees may specify in their discretion.
Shares of any Class or Series, in addition to the then issued and outstanding
Shares, and such warrants or convertible securities, may be issued to such party
or parties and for such amount and type of consideration, including cash or
property, at such time or times and on such terms as the Trustees may deem
appropriate or desirable, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. The officers of the Trust are severally authorized
to take all such actions as may be necessary or desirable to carry out this
Section 5.5.
ARTICLE VI
REDEMPTIONS AND REPURCHASES
---------------------------
SECTION 6.1. REDEMPTIONS AND REPURCHASES OF SHARES. From time to time the
Trust may redeem or repurchase its Shares, all upon such terms and conditions as
may be determined by the Trustees and subject to any applicable provisions of
the 1940 Act. The Trust may require Shareholders to pay a withdrawal charge, a
sales charge, or any other form of charge to the Trust, to the underwriter or to
any other person designated by the Trustees upon redemption or repurchase of
Trust Shares in such amount as shall be determined from time to time by the
Trustees. The Trust may also charge a redemption or repurchase fee in such
amount as may be determined from time to time by the Trustees.
SECTION 6.2 MANNER OF PAYMENT. Payment of Shares redeemed or repurchased
may at the option of the Trustees or such officer or officers as they may duly
authorize for the purpose, in their complete discretion, be made in cash, or in
kind, or partially in cash and partially in kind. In case of payment in kind the
Trustees, or their delegate, shall have absolute discretion as to what security
or securities shall be distributed in kind and the amount of the same, and the
securities shall be valued for purposes of distribution at the figure at which
they were appraised in computing the net asset value of the Shares, provided
that any Shareholder who cannot legally acquire securities so distributed in
kind by reason of the prohibitions of the 1940 Act shall receive cash.
SECTION 6.3. INVOLUNTARY REDEMPTION. If the Trustees shall, at any time and
in good faith, be of the opinion that direct or indirect ownership of Shares of
any Class or Series or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such person a number, or principal amount, of Shares or
other securities of the Trust sufficient to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust into conformity
with the requirements for such qualification and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any person whose acquisition of
the Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected upon such terms and
conditions as shall be determined by the Trustees.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
SECTION 7.1. NET ASSET VALUE. The net asset value of each outstanding Share
of the Trust or of any Class or Series thereof shall be determined on such days
and at or as of such time or times as the Trustees may determine. Any reference
in this Declaration to the time at which a determination of net asset value is
made shall mean the time as of which the determination is made. The power and
duty to determine and method of determination of net asset value may be
delegated by the Trustees from time to time to the Investment Adviser, the
Administrator, the Custodian, the Transfer Agent or such other Person or Persons
as the Trustees may determine. The value of the assets of the Trust or any Class
or Series thereof shall be determined in a manner authorized by the Trustees.
From the total value of said assets, there shall be deducted all indebtedness,
interest, taxes, payable or accrued, including estimated taxes on unrealized
book profits, expenses and management charges accrued to the appraisal date, and
all other items in the nature of liabilities which shall be deemed appropriate
by the Trustees, as incurred by or allocated to the Trust or any Class or Series
thereof. The resulting amount, which shall represent the total net assets of the
Trust or Class or Series thereof, shall be divided by the number of Outstanding
Shares of the Trust or Class or Series thereof at that time and the quotient so
obtained shall be deemed to be the net asset value of the Shares of the Trust or
Class or Series thereof. The Trust may declare a suspension of the determination
of net asset value to the extent permitted by the 1940 Act. It shall not be a
violation of any provision of this Declaration if Shares are sold, redeemed or
repurchased by the Trust at a price other than one based on net asset value if
the net asset value is affected by one or more errors inadvertently made in the
pricing of portfolio securities or other investments or in accruing or
allocating income, expenses, reserves or liabilities. No provision of this
Declaration shall be construed to restrict or affect the right or ability of the
Trust to employ or authorize the use of pricing services, appraisers or any
other means, methods, procedures, or techniques in valuing the assets or
calculating the liabilities of the Trust or any Class or Series thereof.
SECTION 7.2. DIVIDENDS AND DISTRIBUTIONS. (a) The Trustees may from time to
time distribute ratably among the Shareholders of the Trust or of a Class or
Series thereof such portion of the net earnings or profits, surplus (including
paid-in surplus), capital (including paid-in capital), or assets of the Trust or
such Class or Series held by the Trustees as they may deem appropriate or
desirable. Such distributions may be made in cash, additional Shares or property
(including without limitation any type of obligations of the Trust or Class or
Series or any assets thereof), and the Trustees may distribute ratably among the
Shareholders of the Trust or Class or Series thereof additional Shares of the
Trust or Class or Series thereof issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem appropriate or desirable. Such
distributions may be among the Shareholders of the Trust or Class or Series
thereof at the time of declaring a distribution or among the Shareholders of the
Trust or Class or Series thereof at such other date or time or dates or times as
the Trustees shall determine. The Trustees may always retain from the earnings
or profits such amounts as they may deem appropriate or desirable to pay the
expenses and liabilities of the Trust or a Class or Series thereof or to meet
obligations of the Trust or a Class or Series thereof, together with such
amounts as they may deem desirable to use in the conduct of its affairs or to
retain for future requirements or extensions of the business or operations of
the Trust or such Class or Series. The Trust may adopt and offer to Shareholders
such dividend reinvestment plans, cash dividend payout plans or other
distribution plans as the Trustees may deem appropriate or desirable. The
Trustees may in their discretion determine that an account administration fee or
other similar charge may be deducted directly from the income and other
distributions paid on Shares to a Shareholder's account in any Class or Series.
(b) The Trustees may prescribe, in their absolute discretion, such bases
and times for determining the amounts for the declaration and payment of
dividends and distributions as they may deem necessary, appropriate or
desirable.
14
(c) Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books of account, the
above provisions shall be interpreted to give the Trustees full power and
authority in their absolute discretion to distribute for any fiscal year as
dividends and as capital gains distributions, respectively, additional amounts
sufficient to enable the Trust or a Class or Series thereof to avoid or reduce
liability for taxes.
SECTION 7.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
provision contained in this Declaration, the Trustees may prescribe, in their
absolute discretion, such other means, methods, procedures or techniques for
determining the per Share net asset value of a Class or Series thereof or the
income of the Class or Series thereof, or for the declaration and payment of
dividends and distributions on any Class or Series.
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A
CLASS OR SERIES; MERGERS; AMENDMENTS
------------------------------------
SECTION 8.1. DURATION. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII. The death, declination,
resignation, retirement, removal or incapacity of the Trustees, or any one of
them, shall not operate to terminate or annul the Trust or to revoke any
existing agency or delegation or authority pursuant to the terms of this
Declaration or of the By-Laws.
SECTION 8.2. MERGER OR TERMINATION OF THE TRUST OR A SERIES OR A CLASS. The
Trust may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized at a meeting of Shareholders
called for the purpose by the affirmative vote of the holders of two-thirds of
each Class and Series of Shares outstanding and entitled to vote (with each such
class and series separately voting thereon as a separate Class or Series), or by
an instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of each Class and Series of Shares (with each such Class
and Series separately consenting thereto as a separate Class or Series);
provided, however, that if such merger, consolidation, sale, lease or exchange
is recommended by the Trustees, the vote or written consent of the holders of a
majority of the Shares outstanding and entitled to vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. Upon making provision for the
payment of all outstanding obligations, taxes and other liabilities, (whether
accrued or contingent) of the Trust, the Trustees shall distribute the remaining
assets of the Trust ratably among the holders of the outstanding Shares, except
as may be otherwise provided by the Trustees with respect to any Class or Series
of Shares thereof.
Subject to authorization by the Shareholders as indicated below in this
paragraph, the Trust may at any time sell and convert into money all of the
assets of the Trust, and, upon making provision for the payment of all
outstanding obligations, taxes and other liabilities (whether accrued or
contingent) of the Trust, the Trustees shall distribute the remaining assets of
the Trust ratably among the holders of the outstanding Shares, except as may be
otherwise provided by the Trustees with respect to any Class or Series of
Shares. Such action shall first have been authorized at a meeting of
Shareholders called for the purpose by the affirmative vote of the holders of
two-thirds of each Class and Series of Shares outstanding and entitled to vote
(with each such Class and Series separately voting thereon as a separate Class
or Series), or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of each Class and Series of Shares
15
(with each such Class and Series separately consenting thereto as a separate
Class or Series); provided, however, that if such action is recommended by the
Trustees, the vote or written consent of the holders of a majority of the Shares
outstanding and entitled to vote shall be sufficient authorization.
Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in this section, the Trust shall terminate and the
Trustees shall be discharged of any and all further liabilities and duties
hereunder and the right, title and interest of all parties shall be cancelled
and discharged.
SECTION 8.3. AMENDMENTS. The execution of an instrument setting forth the
establishment and designation and the relative rights of any Class or Series of
Shares in accordance with Section 5.1 hereof shall, without any authorization,
consent or vote of the Shareholders, effect an amendment of this Declaration.
Except as otherwise provided in this Section, if authorized by a majority of the
Trustees and by vote of a majority of the outstanding voting securities of the
Trust affected by the amendment (which voting securities shall, unless otherwise
provided by the Trustees, vote together on such amendment as a single class), or
by any larger vote which may be required by applicable law or this Declaration
of Trust in any particular case, the Trustees may amend or otherwise supplement
this Declaration. The Trustees may also amend this Declaration without the vote
or consent of Shareholders to change the name of the Trust or to make such other
changes as do not have a materially adverse effect on the rights or interests of
Shareholders hereunder or if they deem it necessary to conform this Declaration
to the requirements of applicable Federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
No amendment may be made under this Section which shall amend, alter,
change or repeal any of the provisions of Article VIII unless the amendment
effecting such amendment, alteration, change or repeal shall receive the
affirmative vote or consent of the holders of two-thirds of each Class and
Series of Shares outstanding and entitled to vote (with each such Class and
Series separately voting thereon on consenting thereto as a separate Class or
Series). Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of Shares otherwise required by law or by any agreement
between the Trust and any national securities exchange.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
SECTION 8.4. CERTAIN TRANSACTIONS. (a) Notwithstanding any other provision
of this Declaration and subject to the exceptions provided in sub-section (d) of
this Section 8.4, the types of transactions described in sub-section (c) of this
Section 8.4 shall require the affirmative vote or consent of the holders of
seventy-five percent (75%) of each Class of Shares outstanding (with each such
Class voting separately thereon), when a Principal Shareholder (as defined in
sub-section (b) of this Section 8.4) is determined by the Trustees to be a party
to the transaction. Such affirmative vote or consent shall be in addition to the
vote or consent of the holders of Shares otherwise required by law or by the
terms of any Class or Series, whether now or hereafter authorized, or by any
agreement between the Trust and any national securities exchange.
(b) The term "Principal Shareholder" shall mean any Person which is the
beneficial owner, directly or indirectly, of more than five percent (5%) of the
Outstanding Shares of the Trust or of any Class and shall include any
"affiliate" or "associate", as such terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934. For the
purpose of this Section 8.4, in addition to the Shares which a Person
beneficially owns directly, (a) a Person shall be deemed to be the beneficial
owner of any Shares (i) which the Trustees determine it has the right to acquire
pursuant to any agreement or upon exercise of conversion rights or warrants, or
16
otherwise (but excluding Share options granted by the Trust) or (ii) which the
Trustees determine are beneficially owned, directly or indirectly (including
Shares deemed owned through application of clause (i) above), by any other
Person with which it or its "affiliate" or "associate" (as defined above) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its affiliate or associate,
and (b) the outstanding Shares shall include Shares deemed owned through
application of clauses (i) and (ii) above but shall not include any other Shares
which are not at the time issued and outstanding but may be issuable pursuant to
any agreement, or upon exercise of conversion rights or warrants, or otherwise.
(c) This Section 8.4 shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any subsidiary of the
Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the Trust to any Principal
Shareholder for cash.
(iii) The sale, lease or exchange of all or any substantial part of
the assets of the Trust to any Principal Shareholder (except assets
determined by the Trustees to have an aggregate fair market value of
less than $1,000,000, aggregating for the purpose of such computation
all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period or assets sold in the
ordinary course of business).
(iv) The sale, lease or exchange to or with the Trust or any
subsidiary thereof, in exchange for securities of the Trust, of any
assets of any Principal Shareholder (except assets determined by the
Trustees to have an aggregate fair market value of less than
$1,000,000 aggregating for the purpose of such computation all assets
sold, leased or exchanged in any series of similar transactions within
a twelve-month period).
For purposes of this sub-section 8.4(c), the term "Principal Shareholder"
shall include all subsidiaries, affiliates, associates, or other persons acting
in concert with any Principal Shareholder.
(d) The provisions of this Section 8.4 shall not be applicable to (i) any
of the transactions described in sub-section (c) of this Section 8.4 if the
Trustees shall by resolution have approved a memorandum of understanding with
such Principal Shareholder with respect to and substantially consistent with
such transaction, or (ii) any such transaction with any Person of which a
majority of the outstanding shares of all classes of stock normally entitled to
vote in the election of directors is owned of record or beneficially by the
Trust and its subsidiaries.
(e) The Trustees shall have the power to determine for the purposes of this
Section 8.4 on the basis of information known to the Trust, whether (i) a Person
beneficially owns more than five percent (5%) of the outstanding Shares or is
otherwise a Principal Shareholder, (ii) a Person is an "affiliate" or
"associate" (as defined above) of another, (iii) the assets being acquired or
leased to or by the Trust or any subsidiary thereof constitute a substantial
part or the assets of the Trust and have an aggregate fair market value of less
than $1,000,000, (iv) the memorandum of understanding referred to in sub-section
(d) hereof is substantially consistent with the transaction covered thereby, and
(v) the provisions of the Section 8.5 otherwise apply to any Person or
transaction. Any such determination shall be conclusive and binding for all
purposes of this Section 8.4.
17
SECTION 8.5. CONVERSION. Notwithstanding any other provisions of this
Declaration, the conversion of the Trust from a "closed-end company" to an
"open-end company," as those terms are defined in Section 5(a)(2) and 5(a)(1),
respectively, of the 1940 Act shall require the affirmative vote or consent of
the holders of two-thirds of each Class outstanding (with each Class separately
voting thereon or consenting thereto as a separate Class). Such affirmative vote
or consent shall be in addition to the vote or consent of the holders of the
Shares otherwise required by law or by the terms of any Class or Series, whether
now or hereafter authorized, or by any agreement between the Trust and any
national securities exchange. However, if such conversion is recommended by at
least 75% of the Trustees then in office, the vote or written consent of the
holders of a majority of the outstanding voting securities of the Trust (which
voting securities shall vote separately on the matter by class) shall be
sufficient to authorize such conversion.
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.1. USE OF THE WORDS "EATON VANCE". Eaton Vance Corp. (hereinafter
referred to as "EVC"), which owns (either directly or through subsidiaries) all
of the capital shares of the Investment Adviser of the Trust (or of the
investment adviser of each of the investment companies referred to in the last
paragraph of Section 2.9), has consented to the use by the Trust of the
identifying words "Eaton Vance" in the name of the Trust. Such consent is
conditioned upon the continued employment of EVC or a subsidiary or affiliate of
EVC as Investment Adviser of the Trust or as the investment adviser of each of
the investment companies referred to in the last paragraph of Section 2.9. As
between the Trust and itself, EVC shall control the use of the name of the Trust
insofar as such name contains the identifying words "Eaton Vance". EVC may from
time to time use the identifying words "Eaton Vance" in other connections and
for other purposes, including, without limitation, the names of other investment
companies, trusts, corporations or businesses which it may manage, advise,
sponsor or own or in which it may have a financial interest. EVC may require the
Trust to cease using the identifying words "Eaton Vance" in the name of the
Trust if EVC or a subsidiary or affiliate of EVC ceases to act as investment
adviser of the Trust or as the investment adviser of each of the investment
companies referred to in the last paragraph of Section 2.9.
SECTION 9.2. NOTICES. Notwithstanding any other provision of this
Declaration, any and all notices to which any Shareholder may be entitled and
any and all communications shall be deemed duly served or given if mailed,
postage prepaid, addressed to any Shareholder of record at his last known
address as recorded on the register of the Trust. If and to the extent
consistent with applicable law, a notice of a meeting, an annual report, and any
other communication to Shareholders need not be sent to a Shareholder (i) if an
annual report and a proxy statement for two consecutive shareholder meetings
have been mailed to such Shareholder's address and have been returned as
undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of distributions on Shares during a twelve-month period have
been mailed to such Shareholder's address and have been returned as
undeliverable or (iii) in any other case in which a proxy statement concerning a
meeting of security holders is not required to be given pursuant to the
Commission's proxy rules as from time to time in effect under the Securities
Exchange Act of 1934, as amended. However, delivery of such proxy statements,
annual reports and other communications shall resume if and when such
Shareholder delivers or causes to be delivered to the Trust written notice
setting forth such Shareholder's then current address.
SECTION 9.3. FILING OF COPIES, REFERENCES, HEADINGS AND COUNTERPARTS. The
original or a copy of this instrument, of any amendment hereto and of each
declaration of trust supplemental hereto, shall be kept at the office of the
Trust. Anyone dealing with the Trust may rely on a certificate by a Trustee or
18
an officer of the Trust as to whether or not any such amendments or supplemental
declarations of trust have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by a Trustee or an officer of the Trust to be a copy of
this instrument or of any such amendment hereto or supplemental declaration of
trust.
In this instrument or in any such amendment or supplemental declaration of
trust, references to this instrument, and all expressions such as "herein",
"hereof", and "hereunder", shall be deemed to refer to this instrument as
amended or affected by any such supplemental declaration of trust. Headings are
placed herein for convenience of reference only and in case of any conflict, the
text of this instrument, rather than the headings, shall control. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original, but such counterparts shall constitute one instrument. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees then in office and filed with the
Massachusetts Secretary of State. A restated Declaration shall, upon execution,
be conclusive evidence of all amendments and supplemental declarations contained
therein and may thereafter be referred to in lieu of the original Declaration
and the various amendments and supplements thereto.
SECTION 9.4. APPLICABLE LAW. The Trust set forth in this instrument is made
in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
SECTION 9.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of legal counsel, that any of such provisions is in
conflict with the 1940 Act, the Internal Revenue Code of 1986 or with other
applicable laws and regulations, the conflicting provision shall be construed in
such a manner consistent with such law as may most closely reflect the intention
of the offending provision; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned, being all of the current Trustees of
the Trust, have executed this instrument this 28th day of April, 2004.
/s/ Thomas E. Faust Jr. /s/ James B. Hawkes
---------------------------------- --------------------------------
Thomas E. Faust Jr., as Trustee James B. Hawkes, as Trustee
and not Individually and not Individually
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, Massachusetts
Then personally appeared the above named Thomas E. Faust Jr. and James B.
Hawkes, each of whom acknowledged the foregoing instrument to be his free act
and deed.
Before me,
/s/ Lynne M. Hetu
--------------------------------
My commission expires:
July 15, 2005
20
The names and addresses of all the Trustees of the Trust are as follows:
Thomas E. Faust Jr.
199 Winding River Road
Wellesley, MA 02482
James B. Hawkes
11 Quincy Park
Beverly, MA 01915
Trust Address:
The Eaton Vance Building
255 State Street
Boston, MA 02109
21
EX-99.B
3
bylaws.txt
BY-LAWS
OF
EATON VANCE FLOATING-RATE INCOME TRUST
ARTICLE I
The Trustees
SECTION 1. NUMBER OF TRUSTEES. The number of Trustees shall be fixed by the
Trustees, provided, however, that such number shall at no time be less than two
or exceed fifteen.
ARTICLE II
Officers and Their Election
SECTION 1. OFFICERS. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and such other officers or agents as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a holder of shares in the Trust.
SECTION 2. ELECTION OF OFFICERS. The Treasurer and Secretary shall be chosen
annually by the Trustees. The President shall be chosen annually by and from the
Trustees. Except for the offices of the President and Secretary, two or more
offices may be held by a single person. The officers shall hold office until
their successors are chosen and qualified.
SECTION 3. RESIGNATIONS AND REMOVALS. Any officer of the Trust may resign by
filing a written resignation with the President or with the Trustees or with the
Secretary, which shall take effect on being so filed or at such time as may
otherwise be specified therein. The Trustees may at any meeting remove an
officer.
ARTICLE III
Powers and Duties of Trustees and Officers
SECTION 1. TRUSTEES. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility, so far as such powers are not inconsistent with the
laws of the Commonwealth of Massachusetts, the Declaration of Trust, or these
By-Laws.
SECTION 2. EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect from their own
number an executive committee to consist of not less than three nor more than
five members, which shall have the power and duty to conduct the current and
ordinary business of the Trust while the Trustees are not in session, and such
other powers and duties as the Trustees may from time to time delegate to such
committee. The Trustees may also elect from their own number other committees
from time to time, the number composing such committees and the powers conferred
upon the same to be determined by the Trustees. Without limiting the generality
of the foregoing, the Trustees may appoint a committee consisting of less than
the whole number of Trustees then in office, which committee may be empowered to
act for and bind the Trustees and the Trust, as if the acts of such committee
were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review, investigation or other
disposition of any dispute, claim, action, suit or proceeding which shall be
pending or threatened to be brought before any court, administrative agency or
other adjudicatory body.
SECTION 3. CHAIRMAN OF THE TRUSTEES. The Trustees may, but need not, appoint
from among their number a Chairman. When present he shall preside at the
meetings of the shareholders and of the Trustees. He may call meetings of the
Trustees and of any committee thereof whenever he deems it necessary. He shall
be an executive officer of this Trust and shall have, with the President,
general supervision over the business and policies of this Trust, subject to the
limitations imposed upon the President, as provided in Section 4 of this Article
III.
SECTION 4. PRESIDENT. In the absence of the Chairman of the Trustees, the
President shall preside at all meetings of the shareholders. Subject to the
Trustees and to any committees of the Trustees, within their respective spheres,
as provided by the Trustees, he shall at all times exercise a general
supervision and direction over the affairs of the Trust. 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 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 5. TREASURER. The Treasurer shall be the principal financial and
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such bank or trust company as the
Trustees shall employ as custodian in accordance with Article III of the
Declaration of Trust. He shall make annual reports in writing of the business
conditions of the Trust, which reports shall be preserved upon its records, and
he shall furnish such other reports regarding the business and condition as the
Trustees may from time to time require. The Treasurer shall perform such duties
additional to foregoing as the Trustees may from time to time designate.
SECTION 6. SECRETARY. The Secretary shall record in books kept for the purpose
all votes and proceedings of the Trustees and the shareholders at their
respective meetings. He shall have custody of the seal, if any, of the Trust and
shall perform such duties additional to the foregoing as the Trustees may from
time to time designate.
SECTION 7. OTHER OFFICERS. Other officers elected by the Trustees shall perform
such duties as the Trustees may from time to time designate.
SECTION 8. COMPENSATION. The Trustees and officers of the Trust may receive such
reasonable compensation from the Trust for the performance of their duties as
the Trustees may from time to time determine.
2
ARTICLE IV
Meetings of Shareholders
SECTION 1. MEETINGS. Meetings of shareholders, at which the shareholders shall
elect Trustees and transact such other business as may properly come before the
meeting, shall be held annually so long as required by the American Stock
Exchange, New York Stock Exchange or such other exchange or trading system on
which shares are principally traded. Meetings of the shareholders (or any class
or series) may be called at any time by the President, and shall be called by
the President or the Secretary at the request, in writing or by resolution, of a
majority of the Trustees, or at the written request of the holder or holders of
twenty-five percent (25%) or more of the total number of the then issued and
outstanding shares of the Trust entitled to vote at such meeting. Any such
request shall state the purposes of the proposed meeting.
SECTION 2. PLACE OF MEETINGS. Meetings of the shareholders shall be held at the
principal place of business of the Trust in Boston, Massachusetts, unless a
different place within the United States is designated by the Trustees and
stated as specified in the respective notices or waivers of notice with respect
thereto.
SECTION 3. NOTICE OF MEETINGS. Notice of all meetings of the shareholders,
stating the time, place and the purposes for which the meetings are called,
shall be given by the Secretary to each shareholder entitled to vote thereat,
and to each shareholder who under the By-Laws is entitled to such notice, by
delivering (by electronic, telephonic, computerized or other alternative means
as may be approved by resolutions adopted by the trustees, which authorization
is received not more than six months before delivery of such notice) or mailing,
postage paid, addressed to such address as it appears upon the books of the
Trust, at least ten days no more than ninety days before the time fixed for the
meeting, and the person given such notice shall make an affidavit with respect
thereto. If any shareholder shall have failed to inform the Trust of his
address, no notice need be sent to him. No notice need be given to any
shareholder if a written waiver of notice, executed before or after the meeting
by the shareholder or his attorney thereunto authorized, is filed with the
records of the meeting.
SECTION 4. QUORUM. Except as otherwise provided by law, to constitute a quorum
for the transaction of any business at any meeting of shareholders, there must
be present, in person or by proxy, holders of a majority of the total number of
shares of the then issued and outstanding shares of the Trust entitled to vote
at such meeting; provided that if a class (or series) of shares is entitled to
vote as a separate class (or series) on any matter, then in the case of that
matter a quorum shall consist of the holders of a majority of the total number
of shares of the then issued and outstanding shares of that class (or series)
entitled to vote at the meeting. Shares owned directly or indirectly by the
Trust, if any, shall not be deemed outstanding for this purpose.
If a quorum, as above defined, shall not be present for the purpose of any
vote that may properly come before any meeting of shareholders at the time and
place of any meeting, the shareholders present in person or by proxy and
entitled to vote at such meeting on such matter holding a majority of the shares
present and entitled to vote on such matter may by vote adjourn the meeting from
time to time to be held at the same place without further notice than by
announcement to be given at the meeting until a quorum, as above defined,
entitled to vote on such matter, shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened.
3
SECTION 5. VOTING. At each meeting of the shareholders every shareholder of the
Trust shall be entitled to one vote in person or by proxy for each of the then
issued and outstanding shares of the Trust then having voting power in respect
of the matter upon which the vote is to be taken, standing in his name on the
books of the Trust at the time of the closing of the transfer books for the
meeting, or, if the books be not closed for any meeting, on the record date
fixed as provided in Section 4 of Article VI of these By-Laws for determining
the shareholders entitled to vote at such meeting, or if the books be not closed
and no record date be fixed, at the time of the meeting. The record holder of a
fraction of a share shall be entitled in like manner to corresponding fraction
of a vote. Notwithstanding the foregoing, the Trustees may, in connection with
the establishment of any class (or series) of shares or in proxy materials for
any meeting of shareholders or in other solicitation materials or by vote or
other action duly taken by them, establish conditions under which the several
classes (or series) shall have separate voting rights or no voting rights.
All elections of Trustees shall be conducted in any manner approved at the
meeting of the shareholders at which said election is held, and shall be by
ballot if so requested by any shareholder entitled to vote thereon. The persons
receiving the greatest number of votes shall be deemed and declared elected.
Except as otherwise required by law or by the Declaration of Trust or by these
By-Laws, all matters shall be decided by a majority of the votes cast, as
hereinabove provided, by persons entitled to vote thereon.
SECTION 6. PROXIES. Any shareholder entitled to vote upon any matter at any
meeting of the shareholders may so vote by proxy, provided that such proxy to
act is authorized to act by (i) a written instrument, dated not more than six
months before the meeting and executed either by the shareholder or by his or
her duly authorized attorney in fact (who may be so authorized by a writing or
by any non-written means permitted by the laws of The Commonwealth of
Massachusetts) or (ii) such electronic, telephonic, computerized or other
alternative means as may be approved by a resolution adopted by the Trustees,
which authorization is received not more than six months before the initial
session of the meeting. Proxies shall be delivered to the Secretary of the Trust
or other person responsible for recording the proceedings before being voted. A
proxy with respect to shares held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of such proxy
the Trust receives a specific written notice to the contrary from any one of
them. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting. A proxy
purporting to be exercised by or on behalf of a shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At all meetings of the shareholders,
unless the voting is conducted by inspectors, all questions relating to the
qualifications of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the chairman of the meeting.
SECTION 7. CONSENTS. Any action which may be taken by shareholders may be taken
without a meeting if a majority of shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by law, the Declaration
or these By-Laws for approval of such matter) consent to the action in writing
and the written consents are filed with the records of the meetings of
shareholders. Such consents shall be treated for all purposes as a vote taken at
a meeting of shareholders.
4
SECTION 8. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS
(A) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for
election of the Board of Trustees and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (a)
pursuant to the notice of meeting described in Section 3 of this Article of
these By-laws; (b) by or at the direction of the Board of Trustees; or (c) by
any shareholder of the Trust who was a shareholder of record at the time of
giving of notice provided for in Section 3 of this Article of these By-Laws, who
is entitled to vote at the meeting and who complied with the notice provisions
set forth in this Section 8.
(2) For nominations or other business properly to be brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of
this Section 8, the shareholder must have given timely notice thereof in writing
to the Secretary of the Trust and such other business must be a proper matter
for shareholder action. To be timely, a shareholder's notice shall be delivered
to the Secretary at the principal executive offices of the Trust not later than
the close of business on the ninetieth day nor earlier than the close of
business on the one hundred-twentieth day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than thirty days before or more than sixty
days after such anniversary date, notice by the shareholder to be timely must be
so delivered not earlier than the close of business on the later of the
ninetieth day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. In no
event, shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a Trustee all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of trustees/directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected); (b) as to
any other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the Trust's
books, and of such beneficial owner and (ii) the class/series and number of
shares of the Trust which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 8 to the contrary, in the event that the number of Trustees to be
elected to the Board of Trustees is increased and there is no public
announcement naming all of the nominees for Trustee or specifying the size of
the increased Board of Trustees made by the Trust at least one hundred days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 8 shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Trust not later than the close of business on the tenth day
following the day on which such public announcement is first made by the Trust.
5
(B) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted
by a special meeting of shareholders as shall have been brought before the
meeting pursuant to the Trust's notice of meeting. Nominations of persons for
election to the Board of Trustees may be made at a special meeting of
shareholders at which Trustees are to be elected pursuant to the Trust's notice
of meeting (1) by or at the direction of the Board of Trustees or (2) by any
shareholder of the Trust who is a shareholder of record at the time of giving of
notice provided for in this Section 8, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section 8.
In the event the Trust calls a special meeting of shareholders for the purpose
of electing one or more Trustees to the Board of Trustees, any such shareholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Trust's notice of meeting, if the shareholder's
notice required by paragraph (A)(2) of this Section 8 shall be delivered to the
Secretary at the principal executive offices of the Trust not earlier than the
close of business on the one hundred-twentieth day prior to such special meeting
and not later than the close of business on the later of the ninetieth day prior
to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Trustees to be elected at such meeting. In no
event, shall the public announcement or adjournment of a special meeting
commence a new time period for the giving of a shareholder's notice as described
above.
(C) GENERAL. (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 8 shall be eligible to serve as Trustees
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 8. Except as otherwise provided by law, the Declaration of Trust
or these By-Laws, the Chairman (or such other officer presiding at the meeting)
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the case may
be, in accordance with the procedures set forth in this Section 8 and, if any
proposed nomination or business is not in compliance with this Section 8, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Trust with the Securities and Exchange Commission (the "Commission") pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 8. Nothing in this Section 8 shall be deemed to affect any
rights of (a) shareholders to request inclusion of proposals in the Trust's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) the holders
of any class of preferred shares of beneficial interest to elect Trustees under
specified circumstances.
6
ARTICLE V
Trustees Meetings
SECTION 1. MEETINGS. The Trustees may in their discretion provide for regular or
stated meetings of the Trustees. Meetings of the Trustees other than regular or
stated meetings shall be held whenever called by the Chairman, President or by
any other Trustee at the time being in office. Any or all of the Trustees may
participate in a meeting by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting.
SECTION 2. NOTICES. Notice of regular or stated meetings need not be given.
Notice of the time and place of each meeting other than regular or stated
meeting shall be given by the Secretary or by the Trustee calling the meeting
and shall be mailed to each Trustee at least two days before the meeting, or
shall be telegraphed, cabled, or wirelessed to each Trustee at his business
address or personally delivered to him at least one day before the meeting. Such
notice may, however, be waived by all the Trustees. Notice of a meeting need not
be given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice need not specify the
purpose of any special meeting.
SECTION 3. CONSENTS. Any action required or permitted to be taken at any meeting
of the Trustees may be taken by the Trustees without a meeting if a written
consent thereto is signed by all the Trustees and filed with the records of the
Trustees' meetings. A Trustee may deliver his consent to the Trust by facsimile
machine or other graphic communication equipment. Such consent shall be treated
as a vote at a meeting for all purposes.
SECTION 4. PLACE OF MEETINGS. The Trustees may hold their meetings within or
without The Commonwealth of Massachusetts.
SECTION 5. QUORUM AND MANNER OF ACTING. A majority of the Trustees in office
shall be present in person at any regular stated or special meeting of the
Trustees in order to constitute a quorum for the transaction of business at such
meeting and (except as otherwise required by the Declaration of Trust, by these
By-Laws or by statute) the act of a majority of the Trustees present at any such
meeting, at which a quorum is present, shall be the act of the Trustees. In the
event that action is to be taken with respect to the death, declination,
resignation, retirement, removal or incapacity of one or more Trustees, a quorum
for the transaction of such business and any other business conducted at such
meeting and (except as otherwise required by the Declaration of Trust, by these
By-Laws or by statute) shall be a majority of the remaining Trustees then in
office. In the absence of quorum, a majority of the Trustees present may adjourn
the meeting from time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given.
7
ARTICLE VI
Shares of Beneficial Interest
SECTION 1. CERTIFICATES FOR SHARES OF BENEFICIAL INTEREST. Certificates for
shares of beneficial interest of any class of shares of the Trust, if issued,
shall be in such form as shall be approved by the Trustees. They shall be signed
by, or in the name of, the Trust by the President and by the Treasurer and may,
but need not be, sealed with seal of the Trust; provided, however, that where
such certificate is signed by a transfer agent or a transfer clerk acting on
behalf of the Trust or a registrar other than a Trustee, officer or employee of
the Trust, the signature of the President or Treasurer and the seal may be
facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates, shall cease to be such officer or officers of the Trust whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Trust, such certificate or
certificates may nevertheless be adopted by the Trust and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signatures shall have been used thereon had not
ceased to be such officer or officers of the Trust.
SECTION 2. TRANSFER OF SHARES. Transfers of shares of beneficial interest of any
shares of the Trust shall be made only on the books of the Trust by the owner
thereof or by his attorney thereunto authorized by a power of attorney duly
executed and filed with the Secretary or a transfer agent, and only upon the
surrender of any certificate or certificates for such shares. The Trust shall
not impose any restrictions upon the transfer of the shares of the Trust, but
this requirement shall not prevent the charging of customary transfer agent
fees.
SECTION 3. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Trust shall, if and
whenever the Trustees shall so determine, maintain one or more transfer offices
or agencies, each in the charge of a transfer agent designated by the Trustees,
where the shares of beneficial interest of the Trust shall be directly
transferable. The Trust shall, if and whenever the Trustees shall so determine,
maintain one or more registry offices, each in the charge of a registrar
designated by the Trustees, where such shares shall be registered, and no
certificate for shares of the Trust in respect of which a transfer agent and/or
registrar shall have been designated shall be valid unless countersigned by such
transfer agent and/or registered by such registrar. The principal transfer agent
may be located within or without the Commonwealth of Massachusetts and shall
have charge of the stock transfer books, lists and records, which shall be kept
within or without Massachusetts in an office which shall be deemed to be the
stock transfer office of the Trust. The Trustees may also make such additional
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates for shares of the Trust.
SECTION 4. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Trustees may
fix in advance a time which shall be not more than seventy-five days before the
date of any meeting of shareholders, or the date for the payment of any dividend
or the making or any distribution to shareholders or the last day on which the
consent or dissent of shareholders may be effectively expressed for any purpose,
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting, and any adjournment thereof, or the right to
receive such dividend or distribution or the right to give such consent or
dissent, and in such case only shareholders of record on such record date shall
have such right, notwithstanding any transfer of shares on the books of the
Trust after the record date. The Trustees may, without fixing such record date,
close the transfer books for all or any part of such period for any of the
foregoing purposes.
8
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any shares
of the Trust shall immediately notify the Trust of any loss, destruction or
mutilation of the certificate therefor, and the Trustees may, in their
discretion, cause a new certificate or certificates to be issued to him, in case
of mutilation of the certificate, upon the surrender of the mutilated
certificate, or, in case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction and, in any case, if the Trustees
shall so determine, upon the delivery of a bond in such form and in such sum and
with such surety or sureties as the Trustees may direct, to indemnify the Trust
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate.
SECTION 6. RECORD OWNER OF SHARES. The Trust shall be entitled to treat the
person in whose name any share of the Trust is registered on the books of the
Trust as the owner thereof, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person.
ARTICLE VII
Fiscal Year
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall end on such date as
the Trustees may, from time to time, determine.
ARTICLE VIII
Seal
SECTION 1. SEAL. The Trustees may adopt a seal of the Trust which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time prescribe.
ARTICLE IX
Inspection of Books
SECTION 1. INSPECTION OF BOOKS. The Trustees shall from time to time determine
whether and to what extent, and at what times and places, and under what
conditions and regulations the accounts and books of the Trust or any of them
shall be open to the inspection of the shareholders; and no shareholder shall
have any right to inspect any account or book or document of the Trust except as
conferred by law or authorized by the Trustees or by resolution of the
shareholders.
9
ARTICLE X
Principal Custodian and Sub-custodians
SECTION 1. PRINCIPAL CUSTODIAN. The following provisions shall apply to the
employment of the principal Custodian pursuant to the Declaration of Trust:
(A) The Trust may employ the principal Custodian:
(1) To hold securities owned by the Trust and deliver the same upon
written order or oral order, if confirmed in writing, or by such
electro-mechanical or electronic devices as are agreed to by the
Trust and such Custodian;
(2) To receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or, as the
Trustees may direct, in any bank, trust company or banking
institution approved by such Custodian, provided that all such
deposits shall be subject only to the draft or order of such
Custodian; and
(3) To disburse such funds upon orders or vouchers.
(B) The Trust may also employ such Custodian as its agent:
(1) To keep the books and accounts of the Trust and furnish clerical
and accounting services; and
(2) To compute the net asset value per share in the manner approved
by the Trust.
(C) All of the foregoing services shall be performed upon such basis of
compensation as may be agreed upon between the Trust and the principal
Custodian. If so directed by vote of the holders of a majority of the
outstanding shares of Trust, the principal Custodian shall deliver and pay
over all property of the Trust held by it as specified in such vote.
(D) In case of the resignation, removal or inability to serve of any such
Custodian, the Trustees shall promptly appoint another bank or trust
company meeting the requirements of the Declaration of Trust as successor
principal Custodian. The agreement with the principal Custodian shall
provide that the retiring principal Custodian shall, upon receipt of notice
of such appointment, deliver the funds and property of the Trust in its
possession to and only to such successor, and that pending appointment of a
successor principal Custodian, or a vote of the shareholders to function
without a principal Custodian, the principal Custodian shall not deliver
funds and property of the Trust to the Trustees, but may deliver them to a
bank or trust company doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus and undivided profits, as
10
shown by its last published report, of not less than $2,000,000, as the
property of the Trust to be held under terms similar to those on which they
were held by the retiring principal Custodian.
SECTION 2. SUB-CUSTODIAN. The Trust may also authorize the principal Custodian
to employ one or more sub-custodians from time to time to perform such of the
acts and services of the Custodian and upon such terms and conditions as may be
agreed upon between the Custodian and sub-custodian.
SECTION 3. SECURITIES DEPOSITORIES, ETC. Subject to such rules, regulations and
orders as the Commission may adopt, the Trust may authorize or direct the
principal Custodian or any sub-custodian to deposit all or any part of the
securities in or with one or more depositories or clearing agencies or systems
for the central handling of securities or other book-entry systems approved by
the Trust, or in or with such other persons or systems as may be permitted by
the Commission, or otherwise in accordance with the Act, pursuant to which all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the Trust or the
principal Custodian or the sub-custodian. The Trust may also authorize the
deposit in or with one or more eligible foreign custodians (or in or with one or
more foreign depositories, clearing agencies or systems for the central handling
of securities) of all or part of the Trust's foreign assets, securities, cash
and cash equivalents in amounts reasonably necessary to effect the Trust's
foreign investment transactions, in accordance with such rules, regulations and
orders as the Commission may adopt.
ARTICLE XI
Limitation of Liability and Indemnification
SECTION 1. LIMITATION OF LIABILITY. Provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees shall not be responsible for or liable in
any event for neglect or wrongdoing of them or any officer, agent, employee or
investment adviser of the Trust, but nothing contained in the Declaration of
Trust or herein shall protect any Trustee against any liability to which he
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 2. INDEMNIFICATION OF TRUSTEES AND OFFICERS. The Trust shall indemnify
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
has been a Trustee, officer, employee or agent of the Trust, or is or has been
serving at the request of the Trust as a Trustee, director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, provided that:
(a) such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Trust,
(b) with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful,
11
(c) unless ordered by a court, indemnification shall be made only as
authorized in the specific case upon a determination that
indemnification of the Trustee, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in subparagraphs (a) and (b) above
and (e) below, such determination to be made based upon a review
of readily available facts (as opposed to a full trial-type
inquiry) by (i) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter) or (ii)
by independent legal counsel in a written opinion,
(d) in the case of an action or suit by or in the right of the Trust
to procure a judgment in its favor, no indemnification shall be
made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Trust unless and
only to the extent that the court in which such action or suit is
brought, or a court of equity in the county in which the Trust
has its principal office, shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, he is fairly and reasonably entitled
to indemnify for such expenses which such court shall deem
proper, and
(e) no indemnification or other protection shall be made or given to
any Trustee or officer of the Trust against any liability to the
Trust or to its security holders 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.
Expenses (including attorneys' fees) incurred with respect to any claim,
action, suit or proceeding of the character described in the preceding paragraph
shall be paid by the Trust in advance of the final disposition thereof upon
receipt of an undertaking by or on behalf of such person to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Trust as authorized by this Article, provided that either:
(1) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such advances;
or
(2) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion
shall determine, based upon a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason
to believe that the recipient ultimately will be found entitled
to indemnification.
As used in this Section 2, a "Disinterested Trustee" is one who is not (i)
an "Interested Person," as defined in the Act, of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule, regulation,
or order of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
12
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, or with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 3. INDEMNIFICATION OF SHAREHOLDERS. In case any shareholder or former
shareholder shall be held to be personally liable solely by reason of his being
or having been a shareholder and not because of his acts or omissions or for
some other reason, the shareholder or former shareholder (or his heirs,
executors, administrators or other legal representatives, or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust shall, upon
request by the shareholder, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. A holder of shares of a series shall be entitled to indemnification
hereunder only out of assets allocated to that series.
ARTICLE XII
Report to Shareholders
SECTION 1. REPORTS TO SHAREHOLDERS. The Trustees shall at least semi-annually
transmit by written, electronic, computerized or other alternative means to the
shareholders a written financial report of the transactions of the Trust
including financial statements which shall at least annually be certified by
independent public accountants.
ARTICLE XIII
Amendments
SECTION 1. AMENDMENTS. These By-Laws may be amended at any meeting of the
Trustees by a vote of a majority of the Trustees then in office; provided,
however, that any provision of Article XI may be amended only by a two-thirds
vote.
Dated: April 28, 2004
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COVER
4
filename4.txt
Kirkpatrick & Lockhart LLP
75 State Street
Boston, MA 02109
Tel.: (617) 261-3187
Fax.: (617) 261-3175
April 30, 2004
VIA EDGAR
---------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Eaton Vance Floating-Rate Income Trust
Registration Statement on Form N-2 (333-___; 811-21574)
-------------------------------------------------------
Ladies and Gentlemen:
Transmitted electronically with this letter for filing pursuant to the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, on behalf of Eaton Vance Floating-Rate Income Trust (the "Fund") is a
registration statement on Form N-2 relating to Registrant's initial issuance of
common shares of beneficial interest, par value $.01 per share (the
"Registration Statement"). The Fund has filed electronically a Notification of
Registration on Form N-8A in conjunction with this filing.
The Fund is a newly-organized, closed-end management investment company
and the Registration Statement is being filed for the purpose of registering
common shares of beneficial interest of the Fund. The registration fee for
purposes of the initial filing of $126.70 has been wired through the FEDWIRE
system to the Securities and Exchange Commission's ("SEC") account at Mellon
Bank. The Registration Statement transmitted with this letter contains conformed
signature pages, the manually executed originals of which are maintained at the
offices of the Fund.
The SEC staff follows selective review procedures for registration
statements, set forth in Securities Act Release No. 6510 (Feb. 15, 1984), which
are applicable to all management investment company registration statements. The
staff may determine not to review a registration statement (or portions of a
registration statement) based on similarity to prior filings that have been
reviewed by the staff. Based on these procedures, a registrant may identify
portions of prior filings similar or identical to, and intended to serve as
precedent for, a current filing.
The Fund is nearly identical to a currently existing fund and in this
regard, the disclosure in the Registration Statement regarding the Fund is
substantially similar to that contained in the Form N-2 registration statement
filed on behalf of Eaton Vance Senior Floating-Rate Trust (333-108010;
811-21411) declared effective on November 21, 2003.
Securities and Exchange Commission
Page 2
Therefore, the Registration Statement is substantially identical to the
above registration statement. Thus, the staff may conclude that the entire
Registration Statement needs only cursory (if any) review.
The Fund desires to commence the public offering of its common shares as
soon as possible and expects to begin circulating a "red herring" prospectus
within the next month. The appropriate legends are included on the cover pages
of the prospectus and SAI. The Fund requests selective review as discussed above
and seeks comments, if any, on the Registration Statement as soon as possible.
It is expected that the Fund will file a pre-effective amendment responding to
any comments and registering additional shares promptly after the resolution of
any comments, along with a request for acceleration of effectiveness of the
Registration Statement.
Questions should be directed to the undersigned at (617) 261-3187.
Sincerely,
/s/Marc O. Stahl
----------------
Marc O. Stahl