As filed with the Securities and Exchange Commission on May 25, 2005
1933 Act File No. 333-123770
1940 Act File No. 811-21735
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ. LEONARD B. MACKEY, JR., ESQ.
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP CLIFFORD CHANCE US LLP
75 STATE STREET 31 WEST 52ND STREET
BOSTON, MASSACHUSETTS 02109 NEW YORK, NY 10019
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
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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 BEING MAXIMUM MAXIMUM AMOUNT OF
REGISTERED OFFERING AGGREGATE REGISTRATION FEES
TITLE OF SECURITIES BEING REGISTERED (1) PRICE PER UNIT OFFERING PRICE (1)(2)(3)
(1) (1)
Common Shares of Beneficial
Interest, $0.01 par value 50,000 $20.00 $1,000,000 $117.70
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(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.
(3) A registration fee of $117.70 was previously paid in connection with the initial filing filed on April 1, 2005.
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 NOT COMPLETE 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 25, 2005
PROSPECTUS
SHARES
EATON VANCE TAX-MANAGED
BUY-WRITE OPPORTUNITIES FUND
COMMON SHARES
$20.00 PER SHARE
(EATON VANCE LOGO)
Investment objectives. Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") is a newly organized, diversified, closed-end management investment company. The Fund's primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the Fund will evaluate returns on an after-tax basis, seeking to minimize and defer shareholder federal income taxes.
Portfolio management strategies. Under normal market conditions, the Fund's investment program will consist primarily of (1) owning a diversified portfolio of common stocks, a segment of which (the "S&P 500 Segment") seeks to exceed the total return performance of the S&P 500 Composite Stock Price Index (the "S&P 500") and a segment of which (the "NASDAQ-100 Segment") seeks to exceed the total return performance of the NASDAQ-100 Index (the "NASDAQ-100") and (2) selling on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment.
(continued on inside front cover)
INVESTING IN THE FUND'S COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED
IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 36 OF THIS PROSPECTUS.
PER SHARE TOTAL(3)
--------- --------
Public offering price....................................... $20.00 $
Sales load(1)............................................... $.90 $
Estimated offering expenses................................. $.04 $
Proceeds, after expenses, to the Fund(2).................... $19.06 $
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(footnotes on inside front cover)
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.
BECAUSE THE FUND IS NEWLY ORGANIZED, ITS COMMON SHARES HAVE NO HISTORY OF PUBLIC TRADING. THE SHARES OF CLOSED-END INVESTMENT COMPANIES OFTEN TRADE AT A DISCOUNT FROM THEIR NET ASSET VALUE, WHICH MAY INCREASE INVESTORS' RISK OF LOSS.
The Common Shares will be ready for delivery on or about , 2005.
MERRILL LYNCH & CO. UBS INVESTMENT BANK WACHOVIA SECURITIES
A.G. EDWARDS RAYMOND JAMES ADVEST, INC.
ROBERT W. BAIRD & CO. BANC OF AMERICA SECURITIES LLC FERRIS, BAKER WATTS
INCORPORATED
J.J.B. HILLIARD, W.L. LYONS, INC. JANNEY MONTGOMERY SCOTT LLC KEYBANC CAPITAL MARKETS
LEGG MASON WOOD WALKER OPPENHEIMER & CO. RBC CAPITAL MARKETS
INCORPORATED
TD WATERHOUSE WEDBUSH MORGAN SECURITIES WELLS FARGO SECURITIES
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The date of this prospectus is , 2005.
(footnotes from previous page)
(1) The Fund has agreed to pay the underwriters $.00667 per Common Share as a partial reimbursement of expenses incurred in connection with the offering. Eaton Vance Management (not the Fund) will pay additional compensation to certain qualifying underwriters. See "Underwriting" on page 56 of this prospectus.
(2) In addition to the sales load, the Fund will pay offering expenses of up to $.04 per Common Share, estimated to total $ , which will reduce the proceeds to the Fund. Eaton Vance or an affiliate has agreed to (i) reimburse all organizational costs of the Fund and (ii) pay all offering costs (other than sales load) that exceed $.04 per Common Share.
(3) The underwriters have an option to purchase up to additional shares of the Fund at the public offering price, less the sales load, within 45 days of the date of this prospectus to cover any overallotments. If the underwriters exercise this option in full, the total public offering price, sales load, estimated offering expenses and proceeds, after expenses, to the Fund will be $ , $ , $ and $ , respectively. See "Underwriting" on page 56 of this prospectus.
(continued from previous page)
Investment adviser and sub-advisers. The Fund's investment adviser is Eaton Vance Management ("Eaton Vance" or the "Adviser"). As of January 31, 2005, Eaton Vance and its subsidiaries managed approximately $98 billion on behalf of funds, institutional clients and individuals, including approximately $58.6 billion in equity assets. Eaton Vance has engaged its affiliate, Parametric Portfolio Associates LLC ("Parametric" or a "Sub-Adviser") as a sub-adviser to the Fund. Parametric, founded in 1987, specializes in managing broadly diversified, risk controlled and tax-efficient portfolios for high net worth and investment company clients. Parametric managed approximately $9.2 billion in assets as of January 31, 2005. Eaton Vance has also engaged Rampart Investment Management Company, Inc. ("Rampart" or a "Sub-Adviser") as a sub-adviser of the Fund. Rampart, founded in 1983, specializes in options management and trading for institutional, high net worth and investment company clients. Rampart managed approximately $2.7 billion in assets as of February 28, 2005. Eaton Vance will be responsible for managing the Fund's overall investment program, providing research support to the Sub-Advisers and supervising the performance of the Sub-Advisers. Parametric will be responsible for structuring and managing the Fund's common stock portfolio, including tax-loss harvesting and other tax-management techniques, relying in part on the fundamental research and analytical judgments of the Adviser. Parametric has developed specialized programs and systems that are designed to provide for efficient implementation of the Fund's strategies. Rampart will be responsible for providing advice on and execution of the Fund's options strategy.
Portfolio contents. Under normal market conditions, the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100. Initially, the S&P 500 Segment is expected to represent approximately 55% to 65% of the value of the Fund's stock portfolio and the NASDAQ-100 Segment approximately 35% to 45%. Over time, these percentages may vary as a result of relative changes in the indices, the Adviser's evaluation of equity market conditions and other factors. Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each of the S&P 500 and the NASDAQ-100 to less than 70% on an ongoing basis. The Fund's stock holdings may include stocks not included in either index. The Fund will invest primarily in common stocks of U.S. issuers.
THE FUND SEEKS TO GENERATE CURRENT EARNINGS FROM OPTION PREMIUMS AND, TO A LESSER EXTENT, FROM DIVIDENDS ON STOCKS HELD. The Fund generally intends to sell index options that qualify for treatment as "section 1256 contracts" on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period. The Fund intends to employ a variety of tax-management techniques and strategies as described herein, seeking in part to minimize the Fund's ordinary income and its net realized short-term capital gains in excess of net realized long-term capital losses. To the extent that the Fund's ordinary income and net realized short-term gains over net realized long-term losses exceed Fund expenses, dividends with respect to such amounts when paid to Common Shareholders will be taxable as ordinary income.
The Fund will seek to generate current earnings in part by employing an options strategy of writing (selling) index call options on the S&P 500 and the NASDAQ-100. Under normal market conditions, the Fund expects to sell on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment. Under normal market conditions, at least 80% of the value of the Fund's total assets will be subject to written index call options. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential future stock price appreciation of the Fund's portfolio of common stocks.
Exchange listing. The Fund's common shares have been approved for listing on the New York Stock Exchange under the symbol "ETV," subject to notice of issuance. Because the Fund 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 Fund's Common Shares ("Common Shareholders") who purchase their shares in this offering and sell their shares below net asset value will be reduced.
Eaton Vance believes that the Fund may be appropriate for investors seeking an investment vehicle that combines regular distributions of current earnings and the potential for capital appreciation. The Fund may be particularly well suited for taxpaying investors who can benefit from the minimization and deferral of federal income taxes that the Fund seeks to provide.
The Fund's net asset value and distribution rate will vary and may be affected by numerous factors, including changes in stock prices, option premiums, market interest rates, dividend rates and other factors. An investment in the Fund may not be appropriate for all investors. There is no assurance that the Fund will achieve its investment objectives.
This prospectus sets forth concisely information you should know before investing in the shares of the Fund. Please read and retain this prospectus for future reference. A Statement of Additional Information dated , 2005 has been filed with the Securities and Exchange Commission and can be obtained without charge by calling 1-800-225-6265 or by writing to the Fund. A table of contents to the Statement of Additional Information is located at page 60 of this prospectus. This prospectus incorporates by reference the entire Statement of Additional Information. The Statement of Additional Information is available along with shareholder reports and other Fund-related materials: at the Securities Exchange Commission's public reference room in Washington, DC (call 1-202-942-8090 for information on the operation of the reference room); from the EDGAR database on the Securities Exchange Commission's internet site (http://www.sec.gov); upon payment of copying fees by writing to the Securities Exchange Commission's public reference section, Washington, DC 20549-0102; or by electronic mail at publicinfo@sec.gov. The Fund's address is The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 and its telephone number is 1-800-225-6265.
The Fund'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.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Summary of Fund Expenses.................................... 23
The Fund.................................................... 24
Use of Proceeds............................................. 24
Investment Objectives and Policies.......................... 24
Risk Factors................................................ 36
Management of the Fund...................................... 42
Distributions............................................... 44
Federal Income Tax Matters.................................. 46
Dividend Reinvestment Plan.................................. 49
Description of Capital Structure............................ 51
Underwriting................................................ 56
Custodian and Transfer Agent................................ 58
Legal Opinions.............................................. 58
Reports to Shareholders..................................... 58
Independent Registered Public Accounting Firm............... 59
Additional Information...................................... 59
Table of Contents for the Statement of Additional
Information............................................... 60
The Fund's Privacy Policy................................... 61
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You should rely only on the information contained or incorporated by reference in this prospectus. The Fund has not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The Fund will notify shareholders promptly of any material change to this prospectus that occurs during the period that this prospectus is required to be delivered. The Fund's business, financial condition and results of operations may have changed since the date of this prospectus.
PROSPECTUS SUMMARY
The following provides a summary of certain information contained in this prospectus relating to the Eaton Vance Tax-Managed Buy-Write Opportunities Fund and its Common Shares and does not contain all of the information that you should consider before investing in the Fund or purchasing its Common Shares. The information is qualified in all respects by the more detailed information included elsewhere in this prospectus, the Statement of Additional Information and in the appropriate registration statements filed with the Securities and Exchange Commission.
THE FUND......................... Eaton Vance Tax-Managed Buy-Write
Opportunities Fund (the "Fund") is a newly
organized, diversified, closed-end
management investment company. The Fund
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seeks to provide current income and gains, with a secondary objective of capital appreciation. Investments are based on Eaton Vance Management's ("Eaton Vance" or the "Adviser"), Parametric Portfolio Associates LLC's ("Parametric" or a "Sub-Adviser") and Rampart Investment Management Company, Inc.'s ("Rampart" or a "Sub-Adviser") internal research and proprietary modeling techniques and software. An investment in the Fund may not be appropriate for all investors. There is no assurance that the Fund will achieve its investment objectives.
THE OFFERING..................... The Fund is offering common shares of beneficial interest, par value $.01 per share, through a group of underwriters (the "Underwriters") led by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The common shares of beneficial interest are called "Common Shares." The Underwriters have been granted an option by the Fund to purchase up to an additional Common Shares solely to cover orders in excess of Common Shares. The initial public offering price is $20.00 per Common Share.
The minimum purchase in this offering is
100 Common Shares ($2,000). See
"Underwriting." Eaton Vance or an affiliate
has agreed to (i) reimburse all
organizational costs of the Fund and (ii)
pay all offering costs (other than sales
load) that exceed $.04 per Common Share.
INVESTMENT OBJECTIVES AND
STRATEGIES....................... The Fund's primary investment objective is
to provide current income and gains, with a
secondary objective of capital
appreciation. In pursuing its investment
objectives, the Fund will evaluate returns
on an after-tax basis, seeking to minimize
and defer shareholder federal income taxes.
There can be no assurance that the Fund
will achieve its investment objectives.
Under normal market conditions, the Fund's
investment program will consist primarily
of (1) owning a diversified portfolio of
common stocks, a segment of which (the "S&P
500 Segment") seeks to exceed the total
return performance of the S&P 500 Composite
Stock Price Index (the "S&P 500") and a
segment of which (the "NASDAQ-100 Segment")
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seeks to exceed the total return performance of the NASDAQ-100 Index (the "NASDAQ-100") and (2) selling on a continuous basis
S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment.
Under normal market conditions, the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100. Initially, the S&P 500 Segment is expected to represent approximately 55% to 65% of the value of the Fund's stock portfolio and the NASDAQ-100 Segment approximately 35% to 45%. Over time, these percentages may vary as a result of relative changes in the indices, the Adviser's evaluation of equity market conditions and other factors.
Although the Fund will designate separate
S&P 500 and NASDAQ-100 segments, the Fund's
stock portfolio will be managed on an
integrated basis. Among other portfolio
considerations set forth below, the Fund
will seek to minimize the projected
tracking of its stock holdings versus a
blend of the S&P 500 and the NASDAQ-100
corresponding to the weightings within the
Fund's stock portfolio of the S&P 500
Segment and the NASDAQ-100 Segment. Due to
tax considerations, the Fund intends to
limit the overlap between its stock
holdings (and any subset thereof) and each
of the S&P 500 and the NASDAQ-100 to less
than 70% on an ongoing basis. The Fund's
stock holdings may include stocks not
included in either index. The Fund will
invest primarily in common stocks of U.S.
issuers. The Fund may invest up to 10% of
its total assets in securities of foreign
issuers, including securities evidenced by
American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"). The
Fund may invest up to 5% of its total
assets in securities of emerging market
issuers. The Fund expects that its assets
will normally be invested across a broad
range of industries and market sectors. The
Fund may not invest 25% or more of its
total assets in the securities of issuers
in any single industry or group of
industries. The Fund may invest a portion
of its assets in stocks of
mid-capitalization companies. Eaton Vance
generally considers mid-capitalization
companies to be those companies having
market capitalizations within the range of
capitalizations for the S&P MidCap 400
Index (the "S&P MidCap 400"). As of March
31, 2005, the median market capitalization
of companies in the S&P MidCap 400 was
approximately $2.36 billion.
The Fund will seek to generate current
earnings in part by employing an options
strategy of writing (selling) index call
options on the S&P 500 and the NASDAQ-100.
Under normal market conditions, the Fund
expects to sell on a continuous basis S&P
500 call options on at least 80% of the
value of the S&P 500 Segment and NASDAQ-100
call options on at least 80% of the value
of the NASDAQ-100
Segment. Under normal market conditions, at least 80% of the value of the Fund's total assets will be subject to written index call options. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential future stock price appreciation of the Fund's portfolio of common stocks. The Fund seeks to generate current earnings from option premiums and, to a lesser extent, from dividends on stocks held.
The Fund intends to sell S&P 500 and NASDAQ-100 call options that are exchange-listed and "European style," meaning that the options may be exercised only on the expiration date of the option.
Index options differ from options on
individual securities in that index options
(i) typically are settled in cash rather than by delivery of securities and (ii) reflect price fluctuations in a group of securities or segments of the securities market rather than price fluctuations in a single security.
As the seller of S&P 500 and NASDAQ-100 call options, the Fund will receive cash (the premiums) from option purchasers. The purchaser of an S&P 500 or NASDAQ-100 call option has the right to any appreciation in the value of the applicable index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). Generally, the Fund intends to sell S&P 500 and NASDAQ-100 call options that are slightly "out-of-the-money" (i.e., the exercise price generally will be slightly above the current level of the applicable index when the option is sold). The Fund may also sell index options that are more substantially "out-of-the-money." Such options that are more substantially "out-of-the-money" provide greater potential for the Fund to realize capital appreciation on its portfolio stocks but generally would pay a lower premium than options that are slightly "out-of-the-money." By selling index options, the Fund will, in effect, sell the potential appreciation in the value of the S&P 500 or NASDAQ-100 above the exercise price in exchange for the option premium received. If, at expiration, an S&P 500 or NASDAQ-100 call option sold by the Fund is exercised, the Fund will pay the purchaser the difference between the cash value of the applicable index and the exercise price of the option. The premium, the exercise price and the market value of the applicable index will determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund's policies, under normal market conditions, that the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100, and that at least 80% of the value of the Fund's total assets will be subject to
written index call options are non-fundamental policies and may be changed by the Fund's Board of Trustees (the "Board") without Common Shareholder approval following the provision of 60 days prior written notice to Common Shareholders.
In implementing the Fund's investment strategy, the Adviser and Sub-Advisers intend to employ a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by shareholders in connection with their investment in the Fund as described below.
The S&P 500 is an unmanaged index of 500 stocks maintained and published by Standard & Poor's that is market-capitalization weighted and generally representative of the performance of larger stocks traded in the United States. It is not possible to invest directly in the S&P 500. The NASDAQ-100 is an unmanaged index maintained by the Nasdaq Stock Market, Inc. ("Nasdaq") that includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq based upon market capitalization. The NASDAQ-100 reflects companies across a range of major industry groups, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology.
It is not possible to invest directly in
the NASDAQ-100. Compared to the S&P 500,
the NASDAQ-100 has a substantially higher
weighting in technology oriented
industries. The Fund is not sponsored,
endorsed, sold or promoted by Standard &
Poor's or Nasdaq, and neither makes any
representation regarding the advisability
of investing in the Fund.
INVESTMENT SELECTION
STRATEGIES....................... Eaton Vance will be responsible for
managing the Fund's overall investment
program, providing research support to the
Sub-Advisers and supervising the
performance of the Sub-Advisers. Parametric
will be responsible for structuring and
managing the Fund's common stock portfolio,
including tax-loss harvesting and other
tax-management techniques, relying in part
on the fundamental research and analytical
judgments of the Adviser. Parametric has
developed specialized programs and systems
that are designed to provide for efficient
implementation of the Fund's strategies.
The Fund's investments will be actively
managed, and securities may be bought or
sold on a daily basis. Rampart will be
responsible for providing advice on and
execution of the Fund's options strategy.
The Adviser believes that a strategy of
owning a portfolio of common stocks and
selling covered call options (a "buy-write
strategy") can provide current income and
gains and attractive risk-adjusted returns.
The Fund will sell only "covered" call
options. An index call option is considered
covered if the Fund maintains with its
custodian assets determined to be liquid
(in accordance with procedures
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established by the Board) in an amount
equal to the contract value of the index.
An index call option also is covered if the
Fund holds a call on the same index as the
call written where the exercise price of
the call held is (i) equal to or less than
the exercise price of the call written, or
(ii) greater than the exercise price of the
call written, provided the difference is
maintained by the Fund in segregated assets
determined to be liquid (in accordance with
procedures established by the Board).
Compared to selling call options on
individual stocks, the Adviser believes
that selling index call options can achieve
better tax and transactional efficiency
because listed options on broad-based
securities indices are "section 1256
contracts" as defined in the Internal
Revenue Code of 1986, as amended (the
"Code"), subject to favorable tax treatment
and because the markets for index options
are generally deeper and more liquid than
options on individual stocks.
Eaton Vance further believes that a
strategy of owning a portfolio of common
stocks, designated segments of which seek
to extend the total return performance of
the S&P 500 and the NASDAQ-100, in
conjunction with writing index call options
on the S&P 500 and the NASDAQ-100 should
generally provide returns that are superior
to owning the same stocks without an
associated call option writing program
under three different stock market
scenarios: (1) down-trending equity
markets; (2) flat market conditions; and
(3) moderately rising equity markets. In
the Adviser's opinion, only in more
strongly rising equity markets would the
buy-write strategy generally be expected to
underperform the stock-only portfolio. For
these purposes, the Adviser considers more
strongly rising equity market conditions to
exist whenever the current annual rate of
return for U.S. common stocks (as
represented by the S&P 500 and/or the
NASDAQ-100) exceeds the long-term
historical average of stock market returns.
The Adviser considers moderately rising
equity market conditions to exist whenever
current annual returns on U.S. common
stocks are positive, but do not exceed the
long-term historical average of stock
market returns.
To avoid being subject to the "straddle
rules" under federal income tax law, the
Fund intends to limit the overlap between
its stock holdings (and any subset thereof)
and each of the S&P 500 and the NASDAQ-100
to less than 70% on an ongoing basis. Under
the "straddle rules," "offsetting positions
with respect to personal property"
generally are considered to be straddles.
In general, investment positions will be
offsetting if there is a substantial
diminution in the risk of loss from holding
one position by reason of holding one or
more other positions. The Fund expects that
the index call options it writes will not
be considered straddles because its stock
holdings will be sufficiently dissimilar
from the components of the
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S&P 500 and the NASDAQ-100 under applicable
guidance established by the Internal
Revenue Service (the "IRS"). Under certain
circumstances, however, the Fund may enter
into options transactions or certain other
investments that may constitute positions
in a straddle. Parametric will consider a
variety of factors in constructing and
maintaining the Fund's stock portfolio,
including, but not limited to, stock
performance ratings as determined by the
Adviser, stock dividend yields, overlap
between the Fund's stock holdings and the
S&P 500 and the NASDAQ-100, projected
tracking of the Fund's stock holdings
versus a blend of the S&P 500 and the
NASDAQ-100, realization of loss harvesting
opportunities and other tax management
considerations. The Adviser's evaluation of
the future performance potential of
individual stocks will be one among several
considerations in portfolio construction
and will not, on a standalone basis, be
determinative of portfolio construction.
The Adviser's stock ratings will be based
primarily on fundamental research.
The Fund's index option strategy is
designed to produce current cash flow from
options premiums and to moderate the
volatility of the Fund's returns. This
index option strategy is of a hedging
nature, and is not designed to speculate on
equity market performance. The Adviser
believes that the Fund's index option
strategy will moderate the volatility of
the Fund's returns because the option
premiums received will help to mitigate the
impact of downward price movements in the
stocks held by the Fund, while the Fund's
obligations under index calls written will
effectively limit the Fund's ability to
participate in upward price movements in
portfolio stocks beyond certain levels.
The Fund expects to sell on a continuous
basis S&P 500 call options on at least 80%
of the value of the S&P 500 Segment and
NASDAQ-100 call options on at least 80% of
the value of the NASDAQ-100 Segment. Under
normal conditions, at least 80% of the
value of the Fund's total assets will be
subject to written index call options. The
Adviser does not intend to sell index call
options representing amounts greater than
the value of the Fund's common stock
portfolio (i.e., take a "naked" position).
The Adviser intends to sell S&P 500 and
NASDAQ-100 call options that are
exchange-listed and "European style,"
meaning that the options may only be
exercised on the expiration date of the
option. Exchange-traded index options are
typically settled in cash and provide that
the holder of the option has the right to
receive an amount of cash determined by the
excess of the exercise-settlement value of
the index over the exercise price of the
option. The exercise-settlement value is
calculated based on opening sales prices of
the component index stocks on the option
valuation date, which is the last business
day before the expiration date. Generally,
the Adviser intends to sell
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S&P 500 and NASDAQ-100 call options that
are slightly "out-of-the-money," meaning
that option exercise prices generally will
be slightly above the current level of the
index at the time the options are written.
The Fund may also sell index options that
are more substantially "out-of-the-money."
Such options that are more substantially
"out-of-the-money" provide greater
potential for the Fund to realize capital
appreciation on its portfolio stocks but
generally would pay a lower premium than
options that are slightly
"out-of-the-money." The Adviser expects
initially to follow a primary options
strategy of selling S&P 500 and NASDAQ-100
call options with a remaining maturity of
between approximately one and three months
and maintaining its short call options
positions until approximately their option
valuation date, at which time replacement
call option positions with a remaining
maturity within this range are written.
In implementing the Fund's investment
strategy, the Adviser and the Sub-Advisers
intend to employ a variety of techniques
and strategies designed to minimize and
defer the federal income taxes incurred by
Common Shareholders in connection with
their investment in the Fund. These
include: (1) selling index call options
that qualify for treatment as "section 1256
contracts" as defined in the Code, on which
capital gains and losses are generally
treated as 60% long-term and 40%
short-term, regardless of holding period;
(2) limiting the overlap between its stock
holdings (and any subset thereof) and each
of the S&P 500 and the NASDAQ-100 to less
than 70% on an ongoing basis so that the
Fund's stock holdings and S&P 500 and
NASDAQ-100 call options are not subject to
the "straddle rules;" (3) engaging in a
systematic program of tax-loss harvesting
in the Fund's stock portfolio, periodically
selling stock positions that have
depreciated in value to realize capital
losses that can be used to offset capital
gains realized by the Fund; and (4)
managing the sale of appreciated stock
positions so as to minimize the Fund's net
realized short-term capital gains in excess
of net realized long-term capital losses.
The Fund will seek to offset the 40% of
gains on index options treated as
short-term against Fund expenses and
realized losses on other investments
allocable against short-term gains. When an
appreciated security is sold, the Fund
intends to select for sale the share lots
resulting in the most favorable tax
treatment, generally those with holding
periods sufficient to qualify for long-term
capital gains treatment that have the
highest cost basis.
In addition, the Fund will seek to earn and
distribute "qualified dividend income."
Under federal income tax law enacted in
2003, the qualified dividend income of
individuals and other noncorporate
taxpayers is taxed at long-term capital
gain tax rates if certain holding period
and other
7
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requirements are met. Qualified dividends
are dividends from domestic corporations
and dividends from foreign corporations
that meet certain specified criteria. The
Fund generally can pass the tax treatment
of qualified dividend income it receives
through to Common Shareholders. For the
Fund to receive tax-advantaged treatment of
its qualified dividend income, the Fund
must hold stock paying qualified dividends
for more than 60 days during the 121-day
period beginning 60 days before the
ex-dividend date (or more than 90 days
during the associated 181-day period, in
the case of certain preferred stocks). In
addition, the Fund cannot be obligated to
make related payments (pursuant to a short
sale or otherwise) with respect to
positions in any security that is
substantially similar or related property
with respect to such stock. Similar
provisions apply to each Common
Shareholder's investment in the Fund. In
order for qualified dividend income paid by
the Fund to a Common Shareholder to be
taxable at long-term capital gains rates,
the Common Shareholder must hold his or her
Fund shares for more than 60 days during
the 121-day period surrounding the ex-
dividend date. The provisions of the Code
applicable to qualified dividend income are
effective through 2008. Thereafter,
qualified dividend income will be subject
to tax at ordinary income rates unless
further legislative action is taken. The
Fund's investment program and the tax
treatment of Fund distributions may be
affected by IRS interpretations of the Code
and future changes in tax laws and
regulations, including changes resulting
from the "sunset" provisions described
above that would have the effect of
repealing the favorable treatment of
qualified dividend income and reimposing
the higher tax rates applicable to ordinary
income in 2009 unless further legislative
action is taken.
The Fund may seek to enhance the level of
tax-advantaged dividend income it receives
by emphasizing higher-yielding stocks in
its stock portfolio and by engaging in
dividend capture trading. In a dividend
capture trade, the Fund sells a stock on or
shortly after the stock's ex-dividend date
and uses the sale proceeds to purchase one
or more other stocks that are expected to
pay dividends before the next dividend
payment on the stock being sold. Through
this practice, the Fund may receive more
dividend payments over a given time period
than if it held a single stock. In order
for dividends received by the Fund to
qualify for favorable tax treatment, the
Fund must comply with the holding period
and other requirements set forth in the
preceding paragraph. By complying with
applicable holding period and other
requirements while engaging in dividend
capture trading, the Fund may be able to
enhance the level of tax-advantaged
dividend income it receives because it will
receive more dividend payments qualifying
for favorable treatment during the same
time period than if it
8
|
simply held its portfolio stocks. The use
of dividend capture trading strategies will
expose the Fund to increased trading costs
and potentially higher short-term gain or
loss.
The foregoing policies relating to
investments in common stocks and options
writing are the Fund's primary investment
policies. In addition to its primary
investment policies, the Fund may invest to
a limited extent in other types of
securities and engage in certain other
investment practices. In addition to
writing index call options, the Fund may
invest up to 20% of its total assets in
derivative instruments acquired for
hedging, risk management and investment
purposes (to gain exposure to securities,
securities markets, markets indices and/or
currencies consistent with its investment
objectives and policies), provided that no
more than 10% of the Fund's total assets
may be invested in such derivative
instruments acquired for non-hedging
purposes. To seek to protect against price
declines in securities holdings with large
accumulated gains, the Fund may use various
hedging techniques (such as the purchase
and sale of futures contracts on stocks and
stock indices and options thereon, equity
swaps, covered short sales, forward sales
of stocks and the purchase and sale of
forward currency exchange contracts and
currency futures). By using these
techniques rather than selling appreciated
securities, the Fund can, within certain
limitations, reduce its exposure to price
declines in the securities without
realizing substantial capital gains under
current tax law. Derivative instruments may
also be used by the Fund to enhance returns
or as a substitute for the purchase or sale
of securities. As a general matter,
dividends received on hedged stock
positions are characterized as ordinary
income and are not eligible for favorable
tax treatment. Dividends received on
securities with respect to which the Fund
is obligated to make related payments
(pursuant to short sales or otherwise) will
be treated as fully taxable ordinary income
(i.e., income other than tax-advantaged
dividends). In addition, use of derivatives
may give rise to short-term capital gains
and other income that would not qualify for
favorable tax treatment. See "Risk
Factors."
LISTING.......................... The Fund's Common Shares have been approved
for listing on the New York Stock Exchange
under the symbol "ETV," subject to notice
of issuance.
INVESTMENT ADVISER, ADMINISTRATOR
AND SUB-ADVISERS................. Eaton Vance, a wholly owned subsidiary of
Eaton Vance Corp., is the Fund's investment
adviser and administrator. The Adviser and
its subsidiaries managed approximately $98
billion on behalf of funds, institutional
clients and individuals as of January 31,
2005, including approximately $58.6 billion
in equity assets. Thirty-two of the funds
managed by Eaton Vance are closed-end
funds. Eaton Vance has engaged Parametric,
an indirect, majority-owned subsidiary of
Eaton Vance Corp., as a sub-adviser to the
9
|
Fund. Parametric, founded in 1987,
specializes in managing broadly
diversified, risk controlled and
tax-efficient portfolios for high net worth
and investment company clients. Parametric
managed approximately $9.2 billion in
assets as of January 31, 2005. Eaton Vance
has also engaged Rampart as a sub-adviser.
Rampart, founded in 1983, specializes in
options management and trading for
institutional, high net worth and
investment company clients. Rampart managed
approximately $2.7 billion in assets as of
February 28, 2005. Eaton Vance will be
responsible for managing the Fund's overall
investment program, providing research
support to the Sub-Advisers and supervising
the performance of the Sub-Advisers.
Parametric will be responsible for
structuring and managing the Fund's common
stock portfolio, including tax-loss
harvesting and other tax-management
techniques, relying in part on the
fundamental research and analytical
judgments of the Adviser. Parametric has
developed specialized programs and systems
that are designed to provide for efficient
implementation of the Fund's strategies.
Rampart will be responsible for providing
advice on and execution of the Fund's
options strategy. See "Management of the
Fund."
DISTRIBUTIONS.................... Commencing with the Fund's first
distribution, the Fund intends to make
regular quarterly distributions to Common
Shareholders sourced from the Fund's cash
available for distribution. "Cash available
for distribution" will consist of the
Fund's net option premiums, net realized
and unrealized gains on stock investments,
and dividends and interest income, after
payment of Fund expenses. The Fund's
distribution rate may be adjusted from time
to time. The Board may modify this
distribution policy at any time without
obtaining the approval of Common
Shareholders. The initial distribution is
expected to be declared approximately 75
days and paid approximately 90 to 120 days
after the completion of this offering,
depending on market conditions.
The Fund's annual distributions will likely
differ from annual net investment income.
The investment income of the Fund will
consist of all dividend and interest income
accrued on portfolio investments,
short-term capital gain (including
short-term gains on option positions and
gains on the sale of portfolio investments
held for one year or less) in excess of
long-term capital loss and income from
certain hedging transactions, less all
expenses of the Fund. Expenses of the Fund
will be accrued each day. To the extent
that the Fund's net investment income for
any year exceeds the total quarterly
distributions paid during the year, the
Fund will make a special distribution at or
near year-end of such excess amount as may
be required. Over time, all of the Fund's
investment company taxable income will be
distributed.
10
|
At least annually, the Fund intends to
distribute any net capital gain (which is
the excess of net long-term capital gain
over net short-term capital loss) or,
alternatively, to retain all or a portion
of the year's net capital gain and pay
federal income tax on the retained gain. As
provided under federal tax law, Common
Shareholders of record as of the end of the
Fund's taxable year will include their
attributable share of the retained gain in
their income for the year as a long-term
capital gain, and will be entitled to a tax
credit or refund for the tax deemed paid on
their behalf by the Fund. The Fund may
treat the cash value of tax credit and
refund amounts in connection with retained
capital gains as a substitute for
equivalent cash distributions.
If the Fund's total quarterly distributions
in any year exceed the amount of its net
investment income for the year, any such
excess would be characterized as a return
of capital for federal income tax purposes
to the extent not designated as a capital
gain dividend. Distributions in any year
may include a substantial return of capital
component. Under the Investment Company Act
of 1940, as amended (the "1940 Act"), for
any distribution that includes amounts from
sources other than net income, the Fund is
required to provide Common Shareholders a
written statement regarding the components
of such distribution. Such a statement will
be provided at the time of any distribution
believed to include any such amounts.
To permit the Fund to maintain more stable
distributions, distribution rates will be
based on projected annual cash available
from distribution. As a result, the
distributions paid by the Fund for any
particular quarter may be more or less than
the amount of cash available for
distribution from that quarterly period. In
certain circumstances, the Fund may be
required to sell a portion of its
investment portfolio to fund distributions.
Distributions will reduce the Common
Shares' net asset value.
The Fund has applied for an order from the
Securities Exchange Commission granting it
an exemption from Section 19(b) of the 1940
Act and Rule 19b-1 thereunder to permit the
Fund to include realized long-term capital
gains as a part of its regular
distributions to Common Shareholders more
frequently than would otherwise be
permitted by the 1940 Act (generally once
per taxable year). In the event that such
an exemptive order is obtained, the Fund
will consider increasing the frequency of
its regular distributions from quarterly to
monthly. There is no assurance that the
Securities Exchange Commission will grant
the Fund's request for such exemptive
order. The staff of the Securities Exchange
Commission has indicated that it has
suspended the processing of exemptive
applications requesting the type of relief
referenced above, pending review by the
staff of the results of an industry-wide
Securities Exchange Commission inspection
focusing on
11
|
the dividend practices of closed-end
investment companies. There can be no
assurance as to when that review might be
completed or whether, following that
review, the staff would process such
applications or grant such relief. As a
result of this development, the Fund has no
current expectation that it will be in a
position to include long-term capital gains
in Fund distributions more frequently than
is permitted under the 1940 Act, thus
leaving the Fund with the possibility of
variability in distributions (and their tax
attributes) as discussed above.
Common Shareholders may elect automatically
to reinvest some or all of their
distributions in additional Common Shares
under the Fund's dividend reinvestment
plan. See "Distributions" and "Dividend
Reinvestment Plan."
DIVIDEND REINVESTMENT PLAN....... The Fund has established a dividend
reinvestment plan (the "Plan"). Under the
Plan, a Common Shareholder may elect to
have all distributions automatically
reinvested in additional Common Shares
either purchased in the open market or
newly issued by the Fund if the Common
Shares are trading at or above their net
asset value. Common Shareholders may elect
to participate in the Plan by completing
the dividend reinvestment plan application
form. Common 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. Common 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 traditional,
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 that are
redeemable at net asset value at the option
of the shareholder and typically engage in
a continuous offering of their shares.
Shares of closed-end funds frequently trade
at a discount from their net asset value.
In recognition of this possibility and that
any such discount may not be in the
interest of Common Shareholders, the Fund's
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 Common
Share. The Board might also consider the
conversion of the Fund to an open-
12
|
end mutual fund. The Board believes,
however, that the closed-end structure is
desirable, given the Fund's investment
objectives and policies. Investors should
assume, therefore, that it is highly
unlikely that the Board would vote to
convert the Fund to an open-end investment
company.
SPECIAL RISK CONSIDERATIONS...... The following describes various principal
risks of investing in the Fund. A more
detailed description of these and other
risks of investing in the Fund are
described under "Risk Factors" in this
prospectus and under "Additional Investment
Information and Restrictions" in the Fund's
Statement of Additional Information
No operating history. The Fund is a newly
organized, diversified 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 Fund, which are generally traded on
a securities exchange or in the
over-the-counter markets. The value of
these securities, like other market
investments, may move up or down, sometimes
rapidly and unpredictably. Because the Fund
intends to sell stock index call options on
a continuous basis on at least 80% of the
value of its total assets, the Fund's
appreciation potential from equity market
performance will be limited. The Common
Shares at any point in time may be worth
less than the original investment, even
after taking into account any reinvestment
of distributions.
Issuer risk. The value of securities held
by the Fund may decline for a number of
reasons that directly relate to the issuer,
such as management performance, financial
leverage and reduced demand for the
issuer's goods and services.
Equity risk. Under normal market
conditions, the Fund will invest at least
80% of its total assets in a diversified
portfolio of common stocks. Therefore, a
principal risk of investing in the Fund is
equity risk. Equity risk is the risk that
the value of securities held by the Fund
will fluctuate or fall due to general
market or economic conditions, perceptions
regarding the industries in which the
issuers of securities held by the Fund
participate, and the particular
circumstances and performance of particular
companies whose securities the Fund holds.
Although common stocks have historically
generated higher average returns than
fixed-income securities over the long term,
common stocks also have experienced
significantly more volatility in returns.
An adverse event, such as an unfavorable
earnings report, may depress the value of
equity securities of an issuer held by the
Fund; the price of common stock of an
13
|
issuer may be particularly sensitive to
general movements in the stock market; or a
drop in the stock market may depress the
price of most or all of the common stocks
held by the Fund. In addition, common stock
of an issuer in the Fund's portfolio may
decline in price if the issuer fails to
make anticipated dividend payments because,
among other reasons, the issuer of the
security experiences a decline in its
financial condition. Common stocks in which
the Fund will invest are structurally
subordinated to preferred stocks, bonds and
other debt instruments in a company's
capital structure, in terms of priority to
corporate income, and therefore will be
subject to greater dividend risk than
preferred stocks or debt instruments of
such issuers. Finally, common stock prices
may be sensitive to rising interest rates,
as the costs of capital rise and borrowing
costs increase.
Risks of investing in mid-cap
companies. The Fund may make investments
in stocks of companies whose market
capitalization is considered middle sized
or "mid-cap." Mid-cap companies often are
newer or less established companies than
larger capitalization companies.
Investments in mid-cap companies carry
additional risks because earnings of these
companies tend to be less predictable; they
often have limited product lines, markets,
distribution channels or financial
resources; and the management of such
companies may be dependent upon one or a
few key people. The market movements of
equity securities of mid-cap companies may
be more abrupt or erratic than the market
movements of equity securities of larger,
more established companies or the stock
market in general. Historically, mid-cap
companies have sometimes gone through
extended periods when they did not perform
as well as larger companies. In addition,
equity securities of mid-cap companies
generally are less liquid than those of
larger companies. This means that the Fund
could have greater difficulty selling such
securities at the time and price that the
Fund would like.
Risks of "growth" stock investing. The
Fund expects to invest substantially in
stocks with "growth" characteristics.
Growth stocks can react differently to
issuer, political, market and economic
developments than the market as a whole and
other types of stocks. Growth stocks tend
to be more expensive relative to their
earnings or assets compared to other types
of stocks. As a result, growth stocks tend
to be sensitive to changes in their
earnings and more volatile than other types
of stocks.
Risk of selling index call options. The
Fund expects to sell on a continuous basis
S&P 500 call options on at least 80% of the
value of the S&P 500 Segment and NASDAQ-100
call options on at least 80% of the value
of the NASDQ-100 Segment, and collectively
to sell index call options on at least 80%
of the Fund's total assets. The
14
|
purchaser of an index call option has the
right to any appreciation in the value of
the index over the exercise price of the
call option as of the valuation date of the
option. Because their exercise is settled
in cash, sellers of index call options such
as the Fund cannot provide in advance for
their potential settlement obligations by
acquiring and holding the underlying
securities. The Fund intends to mitigate
the risks of its written index call
positions by holding a diversified
portfolio of stocks, the S&P 500 Segment of
which is similar to the S&P 500 and the
NASDAQ-100 Segment of which is similar to
the NASDAQ-100. However, the Fund does not
intend to acquire and hold a portfolio
containing exactly the same stocks as the
S&P 500 and the NASDAQ-100. Due to tax
considerations, the Fund intends to limit
the overlap between its stock holdings (and
any subset thereof) and each of the S&P 500
and the NASDAQ-100 to less than 70% on an
ongoing basis. Consequently, the Fund bears
the risk that the performance of the
securities held will vary from the
performance of the S&P 500 and the
NASDAQ-100. For example, the Fund will
suffer a loss if the S&P 500 appreciates
substantially above the exercise price of
S&P 500 call options written by the Fund
while the securities held by the Fund in
the S&P 500 Segment in the aggregate fail
to appreciate as much or decline in value
over the life of the written option. Index
options written by the Fund will be priced
on a daily basis. Their value will be
affected primarily by changes in the price
and dividend rates of the underlying common
stocks in the S&P 500 and the NASDAQ-100,
changes in actual or perceived volatility
of the S&P 500 and the NASDAQ-100 and the
remaining time to the options' expiration.
The trading price of S&P 500 and NASDAQ-100
call options will also be affected by
liquidity considerations and the balance of
purchase and sale orders.
A decision as to whether, when and how to
use options involves the exercise of skill
and judgment, and even a well-conceived and
well-executed options program may be
adversely affected by market behavior or
unexpected events. As the writer of S&P 500
and NASDAQ-100 call options, the Fund will
forgo, during the option's life, the
opportunity to profit from increases in the
value of the applicable index above the sum
of the option premium received and the
exercise price of the call option, but
retains the risk of loss, minus the option
premium received, should the value of the
applicable index decline. When a call
option is exercised, the Fund will be
required to deliver an amount of cash
determined by the excess of the value of
the applicable index at contract
termination over the exercise price of the
option. Thus, the exercise of index call
options sold by the Fund may require the
Fund to sell
15
|
portfolio securities to generate cash at
inopportune times or for unattractive
prices.
The trading price of options may be
adversely affected if the market for such
options becomes less liquid or smaller. The
Fund may close out a call option by buying
the option instead of letting it expire or
be exercised. There can be no assurance
that a liquid market will exist when the
Fund seeks to close out a call option
position by buying the option. Reasons for
the absence of a liquid secondary market on
an exchange include the following: (i)
there may be insufficient trading interest
in certain options; (ii) restrictions may
be imposed by an exchange on opening
transactions or closing transactions or
both; (iii) trading halts, suspensions or
other restrictions may be imposed with
respect to particular classes or series of
options; (iv) unusual or unforeseen
circumstances may interrupt normal
operations on an exchange; (v) the
facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at
all times be adequate to handle current
trading volume; or (vi) one or more
exchanges could, for economic or other
reasons, decide or be compelled to
discontinue the trading of options (or a
particular class or series of options) at
some future date. If trading were
discontinued, the secondary market on that
exchange (or in that class or series of
options) would cease to exist. However,
outstanding options on that exchange that
had been issued by the OCC as a result of
trades on that exchange would continue to
be exercisable in accordance with their
terms.
The hours of trading for options may not
conform to the hours during which common
stocks held by the Fund are traded. To the
extent that the options markets close
before the markets for securities,
significant price and rate movements can
take place in the securities markets that
would not be reflected concurrently in the
options markets. Index call options are
marked to market daily and their value is
affected by changes in the value and
dividend rates of the securities
represented in the underlying index,
changes in interest rates, changes in the
actual or perceived volatility of the
associated index and the remaining time to
the options' expiration, as well as trading
conditions in the options market.
Tax risk. Reference is made to "Federal
Income Tax Matters" for an explanation of
the federal income tax consequences and
attendant risks of investing in the Fund.
Although the Fund seeks to minimize and
defer the federal income taxes incurred by
Common Shareholders in connection with
their investment in the Fund, there can be
no assurance that it will be successful in
this regard. The tax treatment and
characterization of the Fund's
distributions may change over time due to
changes in the Fund's mix of investment
returns and changes in the federal tax
laws,
16
|
regulations and administrative and judicial
interpretations. Distributions paid on the
Common Shares may be characterized
variously as non-qualified dividends
(taxable at ordinary income rates),
qualified dividends and capital gains
dividends (each taxable at long-term
capital gains rates) or return of capital
(not currently taxable). The ultimate tax
characterization of the Fund's
distributions made in a calendar year may
not finally be determined until after the
end of that calendar year. Distributions to
a Common Shareholder that are return of
capital will be tax free to the amount of
the Common Shareholder's current tax basis
in his or her Common Shares, with any
distribution amounts exceeding such basis
treated as capital gain on a deemed sale of
Common Shares. Common Shareholders are
required to reduce their tax basis in
Common Shares by the amount of tax-free
return of capital distributions received,
thereby increasing the amount of capital
gain (or decreasing the amount of capital
loss) to be recognized upon a later
disposition of the Common Shares. In order
for Fund distributions of qualified
dividend income to be taxable at favorable
long-term capital gains rates, a Common
Shareholder must meet certain prescribed
holding period and other requirements with
respect to his or her Common Shares. If
positions held by the Fund were treated as
"straddles" for federal income tax
purposes, dividends on such positions would
not constitute qualified dividend income
subject to favorable income tax treatment.
Gain or loss on positions in a straddle are
subject to special (and generally
disadvantageous) rules as described under
"Distributions -- Federal Income Tax
Matters."
Distribution risk. The quarterly
distributions Common Shareholders will
receive from the Fund will be sourced from
the Fund's net option premiums, net
realized and unrealized gains on stock
investments, and dividends and interest
income, after payment of Fund expenses. The
Fund's cash available for distribution may
vary widely over the short- and long-term.
If stock market volatility declines or
stock prices decline, the level of premiums
from writing index call options and the
amounts available for distribution from
options activity will likely decrease as
well. Payments to close written call
options will reduce amounts available for
distribution from call option premiums
received. Net realized and unrealized gains
on the Fund's stock investments will be
determined primarily by the direction and
movement of the U.S. stock market (and the
particular stocks held). Dividends on
common stocks are not fixed but are
declared at the discretion of the issuer's
board of directors. There can be no
assurance that quarterly distributions paid
by the Fund to the Common Shareholders will
be maintained at initial levels or increase
over time.
17
|
Foreign security risk. The value of
foreign securities is affected by changes
in currency rates, foreign tax laws
(including withholding tax), government
policies (in this country or abroad),
relations between nations and trading,
settlement, custodial and other operational
risks. In addition, the costs of investing
abroad (such as foreign brokerage costs,
custodial expenses and other fees) are
generally higher than in the United States,
and foreign securities markets may be less
liquid, more volatile and less subject to
governmental supervision than markets in
the United States. Foreign investments also
could be affected by other factors not
present in the United States, including
expropriation of assets, armed conflict,
confiscatory taxation, lack of uniform
accounting and auditing standards, less
publicly available financial and other
information and potential difficulties in
enforcing contractual obligations or
repatriating capital invested in foreign
countries. As an alternative to holding
foreign-traded securities, the Fund may
invest in dollar-denominated securities of
foreign companies that trade on U.S.
exchanges or in the U.S. over-the-counter
market (including depositary receipts,
which evidence ownership in underlying
foreign securities). Since the Fund may
invest in securities denominated or quoted
in currencies other than the U.S. dollar,
the Fund may be affected by changes in
foreign currency exchange rates (and
exchange control regulations) which affect
the value of investments held by the Fund
and the accrued income and appreciation or
depreciation of the investments in U.S.
dollars. Changes in foreign currency
exchange rates relative to the U.S. dollar
will affect the U.S. dollar value of the
Fund's assets denominated in that currency
and the Fund's return on such assets as
well as any temporary uninvested reserves
in bank deposits in foreign currencies. In
addition, the Fund will incur costs in
connection with conversions between various
currencies.
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 or less reliable publicly available
information about a foreign company than
about a domestic company. Volume and
liquidity in most foreign markets are 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 for,
or loss of certificates of, portfolio
18
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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,
which could affect investments in those
countries. Moreover, individual foreign
economies may differ favorably or
unfavorably from the U.S. economy in such
respects as growth of gross national
product, rate of inflation, capital
reinvestment, resource self-sufficiency and
balance of payments position. Foreign
securities markets, while growing in volume
and sophistication, are generally not as
developed as those in the United States,
and securities of some foreign issuers
(particularly those located in developing
countries) may be less liquid and more
volatile than securities of comparable U.S.
companies. The risks of foreign investments
described above apply to an even greater
extent to investments in emerging markets.
Emerging market security risk. The Fund
may invest up to 5% of its total assets in
securities of issuers located in emerging
markets. The risks of foreign investments
described above apply to an even greater
extent to investments in emerging markets.
The securities markets of emerging
countries are generally smaller, less
developed, less liquid, and more volatile
than the securities markets of the United
States and developed foreign markets.
Disclosure and regulatory standards in many
respects are less stringent than in the
United States and developed foreign
markets. There also may be a lower level of
monitoring and regulation of securities
markets in emerging market countries and
the activities of investors in such markets
and enforcement of existing regulations has
been extremely limited. Many emerging
countries have experienced substantial, and
in some periods extremely high, rates of
inflation for many years. Inflation and
rapid fluctuations in inflation rates have
had and may continue to have very negative
effects on the economies and securities
markets of certain emerging countries.
Economies in emerging markets generally are
heavily dependent upon international trade
and, accordingly, have been and may
continue to be affected adversely by trade
barriers, exchange controls, managed
adjustments in relative currency values,
and other protectionist measures imposed or
negotiated by the countries with which they
trade. The economies of these countries
also have been and may continue to be
adversely affected by economic conditions
in the countries in which they trade. The
economies of countries with emerging
markets may also be predominantly based on
only a few industries or dependent on
revenues from particular commodities. In
addition, custodial services and other
costs relating to investment in foreign
markets may be more expensive in emerging
markets than in many developed
19
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foreign markets, which could reduce the
Fund's income from such securities.
In many cases, governments of emerging
countries continue to exercise significant
control over their economies, and
government actions relative to the economy,
as well as economic developments generally,
may affect the Fund's investments in those
countries. In addition, there is a
heightened possibility of expropriation or
confiscatory taxation, imposition of
withholding taxes on interest payments, or
other similar developments that could
affect investments in those countries.
There can be no assurance that adverse
political changes will not cause the Fund
to suffer a loss of any or all of its
investments.
Interest rate risk. The premiums from
writing index call options and amounts
available for distribution from the Fund's
options activity may decrease in declining
interest rate environments. The value of
the Fund's common stock investments may
also be influenced by changes in interest
rates. Higher yielding stocks and stocks of
issuers whose businesses are substantially
affected by changes in interest rates may
be particularly sensitive to interest rate
risk.
Derivatives risk. In addition to writing
index call options, the risks of which are
described above, the Fund may invest up to
20% of its total assets in other derivative
investments acquired for hedging, risk
management and investment purposes.
Derivative transactions including options
on securities and securities indices and
other transactions in which the Fund may
engage (such as futures contracts and
options thereon, swaps and short sales) may
subject the Fund to increased risk of
principal loss due to unexpected movements
in stock prices, changes in stock
volatility levels and interest rates, and
imperfect correlations between the Fund's
securities holdings and indices upon which
derivative transactions are based. The Fund
also will be subject to credit risk with
respect to the counterparties to any
over-the-counter derivatives contracts
entered into by the Fund. If a counterparty
becomes bankrupt or otherwise fails to
perform its obligations under a derivative
contract due to financial difficulties, the
Fund may experience significant delays in
obtaining any recovery under the derivative
contract in a bankruptcy or other
reorganization proceeding. The Fund may
obtain only a limited recovery or no
recovery in such circumstances. Derivatives
may disproportionately increase losses and
have a potentially large negative impact on
the Fund's performance.
Liquidity risk. The Fund may invest up to
15% of its total assets in securities for
which there is no readily available trading
market or which are otherwise illiquid. The
Fund may not be able readily to dispose of
such securities at prices that approximate
those at which the Fund could sell such
securities if they were more widely traded
and, as a
20
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result of such illiquidity, the Fund 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 Fund's net
asset value, and at times may make the
disposition of securities impracticable.
Inflation risk. Inflation risk is the risk
that the purchasing power of assets or
income from investments 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.
Market price of common shares. The shares
of closed-end management investment
companies often trade at a discount from
their net asset value, and the Fund's
Common Shares may likewise trade at a
discount from net asset value. The net
asset value per Common Share will be
reduced immediately following this offering
by the sales load and the amount of
offering expenses paid by the Fund. The
trading price of the Fund's Common Shares
may be less than the public offering price.
The risk will be greater for investors who
sell their Common Shares in a relatively
short period after completion of the public
offering.
Financial leverage risk. Although the Fund
has no current intention to do so, the Fund
is authorized and reserves the flexibility
to utilize leverage through the issuance of
preferred shares and/or borrowings,
including the issuance of debt securities.
In the event that the Fund determines in
the future to utilize investment leverage,
there can be no assurance that such a
leveraging strategy will be successful
during any period in which it is employed.
Leverage creates risks for Common
Shareholders, including the likelihood of
greater volatility of net asset value and
market price of the Common Shares and the
risk that fluctuations in distribution
rates on any preferred shares or
fluctuations in borrowing costs may affect
the return to Common Shareholders. To the
extent the returns derived from securities
purchased with proceeds received from
leverage exceeds the cost of leverage, the
Fund's distributions may be greater than if
leverage had not been used. Conversely, if
the returns from the securities purchased
with such proceeds is not sufficient to
cover the cost of leverage, the amount
available for distribution to Common
Shareholders 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
Fund's leveraged position if it deems such
action to be appropriate. The costs of an
offering of preferred shares and/or a
borrowing program would be borne by Common
Shareholders and consequently would result
in a reduction of the net asset value of
Common Shares. In addition, the fee paid to
Eaton Vance will be calculated on the basis
of the Fund's average daily gross assets,
including proceeds from the issuance of
preferred shares and/or borrowings, so the
21
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fee 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.
Technology risk. The technology industries
can be significantly affected by
obsolescence of existing technology, short
product cycles, falling prices and profits,
competition from new market entrants, and
general economic conditions.
Management risk. The Fund is subject to
management risk because it is an actively
managed portfolio. Eaton Vance, Parametric,
Rampart and the individual portfolio
managers invest the assets of the Fund as
they deem appropriate in implementing the
Fund's investment strategy. Accordingly,
the success of the Fund depends upon the
investment skills and analytical abilities
of Eaton Vance, Parametric, Rampart and the
individual portfolio managers to develop
and actively implement investment
strategies that achieve the Fund's
investment objectives. There is no
assurance that Eaton Vance, Parametric,
Rampart and the individual portfolio
managers will be successful in developing
and implementing the Fund's investment
strategy. Subjective decisions made by
Eaton Vance, Parametric, Rampart and the
individual portfolio managers may cause the
Fund to incur losses or to miss profit
opportunities on which it could otherwise
have capitalized.
Market disruption. The terrorist attacks
in the United States on September 11, 2001
had a disruptive effect on the securities
markets. These terrorist attacks and
related events, including the war in Iraq,
its aftermath, and continuing occupation of
Iraq by coalition forces, have raised
short-term market risk and may have adverse
long-term effects on U.S. and world
economies and markets. A similar disruption
of the financial markets could impact
trading in common stocks and stock options,
interest rates, credit risk, inflation and
other factors relating to the Common
Shares. The Fund cannot predict the effects
of similar events in the future on the U.S.
economy and securities markets.
Anti-takeover provisions. The Fund's
Agreement and Declaration of Trust includes
provisions that could limit the ability of
other persons or entities to acquire
control of the Fund or to change the
composition of its Board. These provisions
may deprive Common Shareholders of
opportunities to sell their Common Shares
at a premium over the then current market
price of the Common Shares. See "Risk
Factors" and "Description of Capital
Structure -- Anti-Takeover Provisions in
the Declaration of Trust."
|
SUMMARY OF FUND EXPENSES
The purpose of the table below is to help you understand all fees and expenses that you, as a Common Shareholder, would bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Sales load paid by you (as a percentage of offering
price)................................................. 4.50%
Expenses borne by Common Shareholders..................... .20%(1)
Dividend reinvestment plan fees........................... None(2)
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PERCENTAGE OF NET
ASSETS ATTRIBUTABLE
TO COMMON SHARES
-------------------
ANNUAL EXPENSES
Management fee............................................ 1.00%
Other expenses............................................ .20%(3)
----
Total annual expenses..................................... 1.20%
====
|
(1) Eaton Vance or an affiliate has agreed to reimburse all organizational costs and pay all offering costs (other than sales load) that exceed $.04 per Common Share (.20% of the offering price).
(2) 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.
(3) Estimated expenses based on the current fiscal year.
The expenses shown in the table are based on estimated amounts for the Fund's first year of operations and assume that the Fund issues approximately 12,500,000 Common Shares. If the Fund issues fewer Common Shares, these expenses as a percentage of net assets attributable to Common Shares generally would increase. See "Management of the Fund" 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 $45 and estimated offering expenses of this offering of $2), assuming (i) total annual expenses of 1.20% of net assets attributable to Common Shares and (ii) a 5% annual returns*:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $59 $83 $110 $186 |
* The example assumes that the estimated Other expenses set forth in the Annual Expenses table are accurate, and that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund's actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
THE FUND
Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") is a newly organized, diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act" or the "Investment Company Act"). The Fund was organized as a Massachusetts business trust on March 30, 2005 pursuant to a Declaration of Trust governed by the laws of The Commonwealth of Massachusetts and has no operating history. The Fund'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 Fund'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' overallotment option in full), which, after payment of the estimated offering expenses, will be invested in accordance with the Fund's investment objectives and policies as soon as practicable, but, in no event, assuming 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 cash equivalents. Eaton Vance or an affiliate has agreed to (i) reimburse all organizational costs of the Fund and (ii) pay all offering costs of the Fund (other than sales load) that exceed $.04 per Common Share.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the Fund will evaluate returns on an after-tax basis, seeking to minimize and defer shareholder federal income taxes. There can be no assurance that the Fund will achieve its investment objectives.
Under normal market conditions, the Fund's investment program will consist primarily of (1) owning a diversified portfolio of common stocks, a segment of which (the "S&P 500 Segment") seeks to exceed the total return performance of the S&P 500 Composite Stock Price Index (the "S&P 500") and a segment of which (the "NASDAQ-100 Segment") seeks to exceed the total return performance of the NASDAQ-100 Index (the "NASDAQ-100") and (2) selling on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment.
PRIMARY INVESTMENT POLICIES
General composition of the Fund. Under normal market conditions, the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100. Initially, the S&P 500 Segment is expected to represent approximately 55% to 65% of the value of Fund's stock portfolio and the NASDAQ-100 Segment approximately 35% to 45%. Over time, these percentages may vary as a result of relative changes in the indices, the Adviser's evaluation of equity market conditions and other factors. Although the Fund will designate separate S&P 500 and NASDAQ-100 segments, the Fund's stock portfolio will be managed on an integrated basis. Among other portfolio considerations set forth below, the Fund will seek to minimize the projected tracking of its stock holdings versus a blend of the S&P 500 and the NASDAQ-100 corresponding to the weightings within the Fund's stock portfolio of the S&P 500 Segment and the NASDAQ-100 Segment. Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each of the S&P 500 and the NASDAQ-100 to less than 70% on an ongoing basis. The Fund's common stock holdings may include stocks not included in either index. The Fund will invest primarily in common stocks of U.S. issuers. The
Fund may invest up to 10% of its total assets in securities of foreign issuers, including American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"). The Fund may invest up to 5% of its total assets in securities of emerging markets issuers. The Fund normally expects that its assets will be invested across a broad range of industries and market sectors. The Fund may not invest 25% or more of its total assets in the securities of issuers in any single industry or group of industries. The Fund may invest a portion of its assets in stocks of mid-capitalization companies. Eaton Vance generally considers mid-capitalization companies to be those companies having market capitalizations within the range of capitalizations for the S&P MidCap 400 Index (the "S&P MidCap 400"). As of March 31, 2005, the median market capitalization of companies in the S&P MidCap 400 was approximately $2.36 billion.
The Fund will seek to generate current earnings in part by employing an options strategy of writing (selling) index call options on the S&P 500 and the NASDAQ-100. Under normal market conditions, the Fund expects to sell on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of value of the NASDAQ-100 Segment. Under normal market conditions, at least 80% of the value of the Fund's total assets will be subject to written index call options on a continuous basis. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential future stock price appreciation of the Fund's portfolio of common stocks. Generally, the Fund intends to sell S&P 500 and NASDAQ-100 call options that are slightly "out-of-the-money," meaning that option exercise prices generally will be slightly higher than the current level of the index at the time the options are written. The Fund may also sell index options that are more substantially "out-of-the-money." Such options that are more substantially "out-of-the-money" provide greater potential for the Fund to realize capital appreciation on its portfolio stocks but generally would pay a lower premium than options that are slightly "out-of-the-money." The Fund seeks to generate current earnings from option premiums and, to a lesser extent, from dividends on stocks held.
The Fund intends to sell S&P 500 and NASDAQ-100 call options that are exchange-listed and "European style," meaning that the options may be exercised only on the expiration date of the option. Index options differ from options on individual securities in that index options (i) typically are settled in cash rather than by delivery of securities (meaning the exercise of an index option does not involve the actual purchase or sale of securities) and (ii) reflect price fluctuations in a group of securities or segments of the securities market rather than price fluctuations in a single security.
As the seller of S&P 500 and NASDAQ-100 call options, the Fund will receive cash (the premium) from options purchasers. The purchaser of an index option has the right to receive from the option seller any appreciation in the value of the index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). The exercise-settlement value of the applicable index is calculated based on opening sales prices of the component index stocks on the option valuation date, which is the last business day before the expiration date. By writing S&P 500 and NASDAQ-100 call options, the Fund will, in effect, sell the potential appreciation in the value of the applicable index above the exercise price in exchange for the option premium received. If, at expiration, an S&P 500 or NASDAQ-100 call option sold by the Fund is exercised, the Fund will pay the purchaser the difference between the cash value of the applicable index and the exercise price of the option. The premium, the exercise price and the market value of the applicable index will determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund expects to maintain high turnover in index call options, based on the Adviser's intent to sell index call options on at least 80% of the full value of its assets and the Fund's initial expectation to roll forward its options positions approximately every one to three months. For its stock holdings, the Fund's annual portfolio turnover rate is expected to exceed that of the S&P 500 and the NASDAQ-100 due to turnover in connection with the Fund's tax loss harvesting, gain matching, dividend capture and other strategies. On an overall basis, the Fund's annual turnover rate may exceed 100%. A high turnover rate (100% or more) necessarily involves greater trading costs to the Fund.
The Fund's policies, under normal market conditions, that the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100, and that at least 80% of the value of the Fund's total assets will be subject to written index call options, are non-fundamental policies and may be changed by the Fund's Board of Trustees (the "Board") without Common Shareholder approval following the provision of 60 days prior written notice to Common Shareholders.
In implementing the Fund's investment strategy, the Adviser and Sub-Advisers intend to employ a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by shareholders in connection with their investment in the Fund as described below.
The S&P 500 is an unmanaged index of 500 stocks maintained and published by Standard & Poor's that is market-capitalization weighted and generally representative of the performance of larger stocks traded in the United States. It is not possible to invest directly in the S&P 500. The NASDAQ-100 is an unmanaged index maintained by the Nasdaq Stock Markets, Inc. ("Nasdaq") that includes 100 of the largest domestic and international non-financial companies listed on The NASDAQ Stock Market based upon market capitalization. The NASDAQ-100 reflects companies across major industry groups, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It is not possible to invest directly in the NASDAQ-100. Compared to the S&P 500, the NASDAQ-100 has a substantially higher weighting in technology oriented industries. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's or Nasdaq, and neither makes any representation regarding the advisability of investing in the Fund.
Investment strategy. Eaton Vance will be responsible for managing the Fund's overall investment strategy, providing research support to the Sub-Advisers and supervising the performance of the Sub-Advisers. Parametric will be responsible for structuring and managing the Fund's common stock portfolio, including tax-loss harvesting and other tax-management techniques, relying in part on the fundamental research and analytical judgments of the Adviser. Parametric has developed specialized programs and systems that are designed to provide for efficient implementation of the Fund's strategies. The Fund's investments are actively managed, and securities may be bought or sold on a daily basis. Rampart will be responsible for providing advice on and execution of the Fund's options strategy. See "Management of the Fund."
The Adviser believes that a strategy of owning a portfolio of common stocks and selling covered call options (a "buy-write strategy") can provide current income and gains and attractive risk-adjusted returns. Compared to selling call options on individual stocks, selling index call options can achieve better tax and transactional efficiency because index options are cash-settled "section 1256 contracts" subject to favorable tax treatment and because the markets for index options are generally deeper and more liquid than options on individual stocks.
Eaton Vance further believes that a strategy of owning a portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100, in conjunction with writing index call options on the S&P 500 and the NASDAQ-100 should generally provide returns that are superior to owning the same stocks without an associated call option writing program under three different stock market scenarios: (1) down-trending equity markets; (2) flat market conditions; and (3) moderately rising equity markets. In the Adviser's opinion, only in more strongly rising equity markets would the buy-write strategy generally be expected to underperform the stock-only portfolio. For these purposes, the Adviser considers more strongly rising equity market conditions to exist whenever the current annual rate of return for U.S. stocks (as represented by the S&P 500 and/or the NASDAQ-100) exceeds the long-term historical average of stock market returns. The Adviser considers moderately rising equity market conditions to exist whenever current annual returns on U.S. common stocks are positive, but do not exceed the long-term historical average of stock market returns.
To avoid being subject to the "straddle rules" under federal income tax
law, the Fund intends to limit the overlap between its stock holdings (and any
subset thereof) and each of the S&P 500 and the NASDAQ-100 to less than 70% on
an ongoing basis. Under the "straddle" rules, "offsetting positions with respect
to personal property" generally are considered to be straddles. In general,
investment positions will
be offsetting if there is a substantial diminution in the risk of loss from holding one position by reason of holding one or more other positions. The Fund expects that the index call options it writes will not be considered straddles because its stock holdings will be sufficiently dissimilar from the components of the S&P 500 and the NASDAQ-100 under applicable guidelines established by the IRS. Under certain circumstances, however, the Fund may enter into options transactions or certain other investments that may constitute positions in a straddle. Parametric will consider a variety of factors in constructing and maintaining the Fund's stock portfolio, including, but not limited to, stock performance ratings as determined by the Adviser, stock dividend yields, overlap between the Fund's stock holdings and the S&P 500 and the NASDAQ-100, projected tracking of the Fund's stock portfolio versus a blend of the S&P 500 and the NASDAQ-100, realization of loss harvesting opportunities and other tax management considerations. The Adviser's evaluation of the future performance potential of individual stocks will be one among several considerations in portfolio construction and will not, on a standalone basis, be determinative of portfolio construction. The Adviser's stock ratings will be based primarily on fundamental research.
The Fund's index option strategy is designed to produce current cash flow from option premiums and to moderate the volatility of the Fund's returns. This index option strategy is of a hedging nature, and is not designed to speculate on equity market performance. The Adviser believes that the Fund's index option strategy will moderate the volatility of the Fund's returns because the option premiums received will help to mitigate the impact of downward price movements in the stocks held by the Fund, while the Fund's obligations under index calls written will effectively limit the Fund's ability to participate in upward price movements in portfolio stocks beyond certain levels. The Adviser initially expects to follow a primary options strategy of selling S&P 500 and NASDAQ-100 call options with a remaining maturity of between approximately one and three months and maintaining its short call options positions until approximately their option valuation date, at which time replacement call option positions with a remaining maturity within this range are written. The Adviser expects to sell S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment. The Adviser does not intend to sell index call options representing amounts greater than the value of the Fund's common stock portfolio (i.e., take a "naked" position).
The foregoing policies relating to investment in common stocks and index options writing are the Fund's primary investment policies. In addition to its primary investment policies, the Fund may invest to a limited extent in other types of securities and engage in certain other investment practices.
In addition to the intended strategy of selling index call options, the Fund may invest up to 20% of its total assets in other derivative instruments acquired for hedging, risk management and investment purposes (to gain exposure to securities, securities markets, markets indices and/or currencies consistent with its investment objectives and policies), provided that no more than 10% of the Fund's total assets may be invested in such derivative instruments acquired for non-hedging purposes. Derivative instruments may be used in order to help protect against a decline in the value of its portfolio securities. Derivative instruments may also be used by the Fund to enhance returns or as a substitute for the purchase or sale of securities.
Tax-managed investing. Taxes are a major influence on the net after-tax returns that investors receive on their taxable investments. There are five potential sources of returns for a Common Shareholder: (1) appreciation or depreciation in the value of the Common Shares; (2) distributions of qualified dividend income; (3) distributions of other investment income and net short-term capital gains; (4) distributions of long-term capital gains (and long-term capital gains retained by the Fund); and (5) distributions of return of capital. These different sources of investment returns are subject to widely varying federal income tax treatment. Distributions of other investment income (i.e., non-qualified dividend income) and net realized short-term gains are taxed currently as ordinary income, at rates as high as 35%. Distributions of qualified dividend income and net realized long-term gains (whether distributed or retained by the Fund) are taxed currently at rates up to 15% for individuals and other noncorporate taxpayers. Generally, return from unrealized appreciation and depreciation in the value of Common Shares and distributions characterized as return of capital are not taxable until the Common Shareholder sells his
or her Common Shares. Upon sale, a capital gain or loss equal to the difference between the net proceeds of such sale and the Common Shareholder's adjusted tax basis is realized. Capital gain is considered long-term and is taxed at rates up to 15% for individuals and other noncorporate taxpayers if the Common Shareholder has held his or her shares more than one year. Otherwise, capital gain is considered short-term and is taxed at rates up to 35%. The after-tax returns achieved by a Common Shareholder will be substantially influenced by the mix of different types of returns subject to varying federal income tax treatment.
In implementing the Fund's investment strategy, the Adviser and Sub-Advisers intend to employ a variety of techniques and strategies designed to skew the mix of Fund returns to the types of returns that are most advantageously taxed, thereby seeking to minimize and defer the federal income taxes incurred by Common Shareholders in connection with their investment in the Fund. Such techniques and strategies are expected to include: (1) employing a call options strategy consisting of selling S&P 500 and NASDAQ-100 call options that qualify for treatment as "section 1256 contracts" on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period; (2) limiting the overlap between its stock holdings (and any subset thereof) and each of the S&P 500 and the NASDAQ-100 to less than 70% on an ongoing basis so that the Fund's stock holdings and S&P 500 and NASDAQ-100 call options are not subject to the "straddle rules;" (3) engaging in a systematic program of tax-loss harvesting in the Fund's stock portfolio, periodically selling stock positions that have depreciated in value to realize capital losses that can be used to offset capital gains realized by the Fund; and (4) managing the sale of appreciated stock positions so as to minimize the Fund's net realized short-term capital gains in excess of net realized long-term capital losses. The Fund will seek to offset the 40% of gains on index options treated as short-term against Fund expenses and realized losses on other investments allocable against short-term gains. When an appreciated security is sold, the Fund intends to select for sale the share lots resulting in the most favorable tax treatment, generally those with holding periods sufficient to qualify for long-term capital gains treatment that have the highest cost basis.
In addition, the Fund will seek to earn and distribute "qualified dividend income." Under federal income tax law enacted in 2003, the qualified dividend income of individuals and other noncorporate taxpayers is taxed at long-term capital gain tax rates if certain holding period and other requirements are met. Qualified dividends are dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria. The Fund generally can pass the tax treatment of qualified dividend income it receives through to Common Shareholders. For the Fund to receive tax-advantaged treatment of its qualified dividend income, the Fund must hold stock paying qualified dividends for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (or more than 90 days during the associated 181-day period, in the case of certain preferred stocks). In addition, the Fund cannot be obligated to make related payments (pursuant to a short sale or otherwise) with respect to positions in any security that is substantially similar or related property with respect to such stock. Similar provisions apply to each Common Shareholder's investment in the Fund. In order for qualified dividend income paid by the Fund to a Common Shareholder to be taxable at long-term capital gains rates, the Common Shareholder must hold his or her Fund shares for more than 60 days during the 121-day period surrounding the ex-dividend date. The provisions of the Code applicable to qualified dividend income are effective through 2008. Thereafter, qualified dividend income will be taxable as ordinary income unless further legislative action is taken. The Fund's investment program and the tax treatment of Fund distributions may be affected by IRS interpretations of the Code and future changes in tax laws and regulations, including changes resulting from the "sunset" provisions described above that would have the effect of repealing the favorable treatment of qualified dividend income and reimposing the higher tax rates applicable to ordinary income in 2009 unless further legislative action is taken.
The Fund may seek to enhance the level of tax-advantaged dividend income it receives by emphasizing higher-yielding stocks in its stock portfolio and by engaging in dividend capture trading. In a dividend capture trade, the Fund sells a stock on or shortly after the stock's ex-dividend date and uses the sale proceeds to purchase one or more other stocks that are expected to pay dividends before the next dividend payment on the stock being sold. Through this practice, the Fund may receive more dividend payments over a given time period than if it held a single stock. In order for dividends received by the
Fund to qualify for favorable tax treatment, the Fund must comply with the holding period and other requirements set forth in the preceding paragraph. By complying with applicable holding period and other requirements while engaging in dividend capture trading, the Fund may be able to enhance the level of tax-advantaged dividend income it receives because it will receive more dividend payments qualifying for favorable treatment during the same time period than if it simply held portfolio stocks. The use of dividend capture trading strategies will expose the Fund to increased trading costs and potentially higher short-term gain or loss.
To seek to protect against price declines in securities holdings with large accumulated gains, the Fund may use various hedging techniques (such as the sale of futures contracts on stocks and stock indices and options thereon, equity swaps, covered short sales, and forward sales of stocks). By using these techniques rather than selling appreciated securities, the Fund can, within certain limitations, reduce its exposure to price declines in the securities without realizing substantial capital gains under current tax law. Derivative instruments may also be used by the Fund to enhance returns or as a substitute for the purchase or sale of securities. As a general matter, dividends received on hedged stock positions are characterized as ordinary income and are not eligible for favorable tax treatment. Dividends received on securities with respect to which the Fund is obligated to make related payments (pursuant to short sales or otherwise) will be treated as fully taxable ordinary income (i.e., income other than tax-advantaged qualified dividend income). In addition, use of derivatives may give rise to short-term capital gains and other income that would not qualify for favorable tax treatment. As indicated above, in addition to writing index call options, the Fund may invest up to 20% of its total assets in derivative instruments acquired for hedging, risk management and investment purposes (to gain exposure to securities, securities markets, markets indices and/or currencies consistent with its investment objectives and policies), provided that no more than 10% of the Fund's total assets may be invested in such derivative instruments acquired for non-hedging purposes.
Common stocks. Under normal market conditions, the Fund will invest at least 80% of its total assets in a diversified portfolio of common stocks, designated segments of which seek to exceed the total return performance of the S&P 500 and the NASDAQ-100. Common stock represents an equity ownership interest in the issuing corporation. Holders of common stock generally have voting rights in the issuer and are entitled to receive common stock dividends when, as and if declared by the corporation's board of directors. Common stock normally occupies the most subordinated position in an issuer's capital structure. Returns on common stock investments consist of any dividends received plus the amount of appreciation or depreciation in the value of the stock.
Although common stocks have historically generated higher average returns than fixed-income securities over the long term and particularly during periods of high or rising concerns about inflation, common stocks also have experienced significantly more volatility in returns and may not maintain their real value during inflationary periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, the prices of common stocks are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common stock prices fluctuate for many reasons, including changes in investors' perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the issuer occur. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital rise and borrowing costs increase.
Foreign securities. The Fund may invest up to 10% of its total assets in securities of non-United States issuers, including up to 5% of its total assets in securities of issuers located in emerging markets. The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks. In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than markets in the United States. Foreign investments also could be affected by other factors not present in the United States, including expropriation, armed conflict,
confiscatory taxation, lack of uniform accounting and auditing standards, less publicly available financial and other information and potential difficulties in enforcing contractual obligations. As an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts, which evidence ownership in underlying foreign securities). Dividends received with respect to stock of a foreign corporation may qualify for the reduced rates of federal income taxation applicable to qualified dividend income only if such corporation satisfies the requirements to be a "qualified foreign corporation."
The Fund may invest in ADRs, EDRs and GDRs, which are certificates evidencing ownership of shares of foreign issuers 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, may not pass through voting or other shareholder rights, and may be less liquid than sponsored receipts.
Index options generally. The Fund will pursue its objectives in part by selling on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of value of the NASDAQ-100 Segment.
The Fund will sell S&P 500 and NASDAQ-100 index options that are exchange-listed and that are "European style," meaning that the options may only be exercised on the expiration date of the option. Index options differ from options on individual securities in that index options (i) typically are settled in cash rather than by delivery of securities and (ii) reflect price fluctuations in a group of securities or segments of the securities market rather than price fluctuations in a single security.
Option contracts are originated and standardized by the Options Clearing Corporation (the "OCC"). Currently, index options are available on approximately 89 indexes, with new listings added periodically. The Fund will sell S&P 500 and NASDAQ-100 call options that are generally issued, guaranteed and cleared by the OCC. S&P 500 and NASDAQ-100 index options currently trade exclusively on the Chicago Board Options Exchange. The Adviser believes that there exists a large trading volume of S&P 500 and NASDAQ-100 options, sufficient to fulfill the Fund's requirements to implement its index options strategy.
Selling index call options. The Fund's index option strategy is designed to produce current cash flow from options premiums and to moderate the volatility of the Fund's returns. This index option strategy is of a hedging nature, and is not designed to speculate on equity market performance.
As the seller of S&P 500 and NASDAQ-100 call options, the Fund will receive cash (the premium) from the purchasers thereof. The purchaser of an index option has the right to any appreciation in the value of the applicable index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). Generally, the Fund intends to sell S&P 500 and NASDAQ-100 call options that are slightly "out-of-the-money" (i.e., the exercise price generally will be slightly above the current level of the applicable index when the option is sold). The Fund may also sell index options that are more substantially "out-of-the-money." Such options that are more substantially "out-of-the-money" provide greater potential for the Fund to realize capital appreciation on its portfolio stocks but generally would pay a lower premium than options that are slightly "out-of-the-money." The Fund will, in effect, sell the potential appreciation in the value of the S&P 500 or NASDAQ-100 above the exercise price in exchange for the option premium received. If, at expiration, an S&P 500 or NASDAQ-100 call option sold by the Fund is exercised, the Fund will pay the purchaser the difference between the cash value of the applicable index and the exercise price of the option. The premium, the exercise price and the market value of the S&P 500 or NASDAQ-100, as applicable, will determine the gain or loss realized by the Fund as the seller of the index call option.
Prior to expiration, the Fund may close an option position by making an offsetting market purchase of identical option contracts (same type, underlying index, exercise price and expiration). The cost of closing transactions and payments in settlement of exercised options will reduce the net option premiums available for distribution to Common Shareholders by the Fund. The reduction in net option premiums due to a rise in stock prices should generally be offset, at least in part, by appreciation in the value of the Fund's common stock portfolio and by the opportunity to realize higher premium income from selling new index options at higher exercise prices.
In certain extraordinary market circumstances, to limit the risk of loss on the Fund's index option strategy, the Fund may enter into "spread" transactions by purchasing index call options with higher exercise prices than those of index call options written. The Fund will only engage in such transactions when Eaton Vance and Rampart believe that certain extraordinary events temporarily have depressed equity prices and substantial short-term appreciation of such prices is expected. By engaging in spread transactions in such circumstances the Fund will reduce the limitation imposed on its ability to participate in such recovering equity markets that exist if the Fund only writes index call options. The premiums paid to purchase such call options are expected to be lower than the premiums earned from the call options written at lower exercise prices. However, the payment of these premiums will reduce amounts available for distribution from the Fund's option activity.
The Fund will sell only "covered" call options. An index call option is considered covered if the Fund maintains with its custodian assets determined to be liquid (in accordance with procedures established by the Board) in an amount equal to the contract value of the index. An index call option also is covered if the Fund holds a call on the same index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by the Fund in segregated assets determined to be liquid (in accordance with procedures established by the Board).
If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital gain equal to the premium received by the Fund at the time the option was written. If an option written by the Fund is exercised, the Fund realizes on the expiration date a capital gain if the cash payment made by the Fund upon exercise is less than the premium received from writing the option and a capital loss if the cash payment made is more than the premium received. If a written option is repurchased, the Fund realizes upon the closing purchase transaction a capital gain if the cost of repurchasing the option is less than the premium received from writing the option and a capital loss if the cost of repurchasing the option is more than the premium received. Because exchange-listed S&P 500 and NASDAQ-100 options are "section 1256 contracts," the Fund's gains and losses thereon generally will be treated as 60% long-term and 40% short-term capital gain or loss, regardless of holding period. In addition, the Fund generally will be required to "mark to market" (i.e., treat as sold for fair market value) each outstanding index option position at the close of each taxable year (and on October 31 of each year for excise tax purposes). See "Federal Income Tax Matters."
The principal factors affecting the market value of an option contract include supply and demand in the options market, interest rates, the current market price of the underlying index in relation to the exercise price of the option, the actual or perceived volatility associated with the underlying index, and the time remaining until the expiration date. The premium received for an option written by the Fund is recorded as an asset of the Fund and its obligation under the option contract as an equivalent liability. The Fund then adjusts over time the liability as the market value of the option changes. The value of each written option will be marked to market daily and valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices or otherwise at fair value as determined by the Board of the Fund.
The transaction costs of buying and selling options consist primarily of commissions (which are imposed in opening, closing and exercise transactions), but may also include margin and interest costs in particular transactions. The impact of transaction costs on the profitability of a transaction may often be greater for options transactions than for transactions in the underlying securities because these costs are often greater in relation to option premiums than in relation to the prices of underlying securities.
Transaction costs may be especially significant in option strategies calling for multiple purchases and sales of options over short periods of time or concurrently. Transaction costs associated with the Fund's options strategy will vary depending on market circumstances and other factors.
The standard contract size for exchange-listed S&P 500 and NASDAQ-100 index options is the index level multiplied by $100. There are three items needed to identify a particular S&P 500 or NASDAQ-100 index option contract: (1) the expiration month, (2) the exercise (or strike) price and (3) the type (i.e., call or put). For example, a January 2005 1200 strike S&P 500 call option provides the option holder the right to receive $100 multiplied by the positive difference between the January option exercise-settlement value of the S&P 500 (determine on January 20, 2005 based on opening sales prices of the component index stocks on that date) and 1200. A call option whose exercise price is above the current price of the underlying index is called "out-of-the-money" and a call option whose exercise price is below the current price of the underlying index is called "in-the-money."
The following is a conceptual example of the returns that may be achieved from a buy-write investment strategy that consists of holding a portfolio of stocks whose performance matches the S&P 500 and selling S&P 500 call options on the full value of the stock position. This example is not meant to represent the performance of actual option contracts or the Fund.
A holder of a portfolio of common stocks writes (sells) January 2005 1200 strike S&P 500 call options on December 17, 2004 when the S&P 500 is at 1198.63. The options writer receives $14.41 (1.20%) per option written. Assume that the portfolio of stocks held by the options writer matches the performance of the S&P 500 over the period until the January exercise-settlement value of the S&P 500 is determined on January 20, 2005.
In the example, the return over the period until option expiration earned
by the holder of a portfolio of stocks whose performance matches the S&P 500 and
who writes S&P 500 index call options on the full value of the portfolio
position and maintains the options position until expiration will be as follows:
(1) if the S&P 500 declines 1.20%, the option will expire worthless and the
holder will have a net return of zero (option premium offsets loss in stock
portfolio); (2) if the S&P 500 is flat, the option will again expire worthless
and the holder will have a net return of 1.20% (option premium plus no gain or
loss on portfolio); (3) if the S&P 500 rises 0.11%, the option will again expire
with no value and the holder will have a net return of 1.31% (option premium
plus 0.11% portfolio return); and (4) if the index rises more than 0.11%, the
exercise of the option would limit portfolio gain to 0.11% and total net return
to 1.31%. If the index value at exercise exceeds the exercise price, returns
over the period from the position are capped at 1.31%. On an annualized basis,
before accounting for the costs of the options transactions, in this example
option premiums increase returns by approximately 12.9% in down, flat and
moderately up markets; annualized returns in this example for the buy-write
strategy, before accounting for the costs of the options transactions, are
capped at approximately 14.1% in a strong up market. It should be noted that the
Fund will seek to offset the 40% of short-term gains realized on writing options
on the S&P 500 and the NASDAQ-100 against losses and expenses on the Fund's
stock portfolio.
As demonstrated in the example, writing index call options can lower the variability of potential return outcomes and can enhance returns in three of four market performance scenarios (down, flat or moderately up). Only when the level of the index at option expiration exceeds the sum of the premium received and the option exercise price would the buy-write strategy be expected to provide lower returns than the stock portfolio-only alternative. The amount of downside protection afforded by the buy-write strategy in declining market scenarios is limited, however, to the amount of option premium received. If the S&P 500 or NASDAQ-100 declines by an amount greater than the option premium, a buy-write strategy consisting of owning all of the stocks in the index and writing index options on the value thereof would generate an investment loss. The Fund's returns from implementing a buy-write strategy using S&P 500 and NASDAQ-100 options will also be substantially affected by the performance of S&P 500 Segment of the Fund's portfolio versus the S&P 500 and the performance of the NASDAQ-100 Segment of the Fund's portfolio versus the NASDAQ-100. The returns on these segments are unlikely to be the same as the returns on the corresponding indices. Also, the Fund's returns from its buy-write strategy will be affected by the level of premiums available on options written on the S&P 500 and the NASDAQ-100, which level may, depending on the market conditions, be more or less than the premiums in the example.
ADDITIONAL INVESTMENT PRACTICES
In addition to its primary investment strategies as described above, the Fund may engage in the following investment practices.
Temporary investments. During unusual market circumstances, the Fund may temporarily invest a substantial portion of its assets 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. In moving to a substantial temporary investments position and in transitioning from such a position back into conformity with the Fund's normal investment policies, the Fund may incur transaction costs that would not be incurred if the Fund had remained fully invested in accordance with such normal policies. The transition to and from a substantial temporary investments position may also result in the Fund having to sell common stocks and/or close out options positions and then later purchase common stocks and open new options positions in circumstances that might not otherwise be optimal. The Fund's investment in such temporary investments under unusual market circumstances may not be in furtherance of the Fund's investment objectives.
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 return on a comparable security when the transaction is consummated may vary from the return 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 transacted securities 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 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. The Fund does not intend to enter into forward commitment or when-issued transactions for the purpose of investment leverage.
Illiquid securities. The Fund may invest up to 15% of its total assets in securities for which there is no readily available trading market or that 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 Fund 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 illiquid securities at a price representing their fair value until such time as such securities may be sold publicly. Where registration is required, a considerable period may elapse between a decision by the Fund to sell the securities and the time when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell. The Fund 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.
Other derivative instruments. In addition to the intended strategy of selling index call options, the Fund may invest up to 20% of its total assets in other derivative instruments (which are instruments that derive their value from another instrument, security or index) acquired for hedging, risk management and investment purposes (to gain exposure to securities, securities markets, markets indices and/or currencies consistent with its investment objectives and policies), provided that no more than 10% of the Fund's total assets may be invested in such derivative instruments for non-hedging purposes. These strategies may be executed through the use of derivative contracts in the United States or abroad. In the course of pursuing these investment strategies, the Fund may purchase and sell derivative contracts based
on equity and fixed-income indices and other instruments, purchase and sell futures contracts and options thereon, and enter into various transactions such as swaps, caps, floors or collars. In addition, derivatives may also include new techniques, instruments or strategies that are permitted as regulatory changes occur. Derivative instruments may be used by the Fund to enhance returns or as a substitute for the purchase or sale of securities.
Swaps. Swap contracts may be purchased or sold to hedge against fluctuations in securities prices, interest rates or market conditions, to mitigate non-payment or default risk or to gain exposure to particular securities, baskets of securities, indices or currencies. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) on different currencies, securities, baskets of currencies or securities, indices or other instruments, which returns are calculated with respect to a "notional amount," i.e., the designated referenced amount of exposure to the underlying instruments. The Fund will enter into swaps only on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. If the other party to a swap defaults, the Fund's risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive. The net amount of the excess, if any, of the Fund's obligations over its entitlements will be maintained in a segregated account by the Fund's custodian. The Fund will not enter into any 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 Fund will have contractual remedies pursuant to the agreements related to the transaction. Swaps are traded in the over-the-counter market. The use of 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 total return performance of the Fund would be unfavorably affected.
Total return swaps. Total return swaps are contracts in which one party agrees to make payments of the total return from the designated 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 designated underlying asset(s).
Interest rate swaps. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments).
Futures and options on futures. The Fund may purchase and sell various kinds of financial futures contracts and options thereon to seek to hedge against changes in stock prices or interest rates, for other risk management purposes or to gain exposure to certain securities, indices and currencies. Futures contracts may be based on various securities indices and securities. Such transactions involve a risk of loss or depreciation due to adverse changes in securities prices, which may exceed the Fund's initial investment in these contracts. The Fund 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. Sales of futures contracts and related options generally result in realization of short-term or long-term capital gain depending on the period for which the investment is held. To the extent that any futures contract or options on futures contract held by the Fund is a "section 1256 contract" under the Code, the contract will be marked-to-market annually and any gain or loss will be treated as 60% long-term and 40% short-term, regardless of the holding period for such contract.
Short sales. The Fund may sell a security short if it owns at least an equal amount of the security sold short or another security convertible or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box). In a short sale against-the-box, the short seller is exposed to the risk of being forced to deliver stock that it holds to close the position if the borrowed stock is called in by the lender, which would cause gain or loss to be recognized on the delivered stock. The Fund expects normally to close its short sales against-the-box by delivering newly acquired stock.
Short sales against-the-box can be a tax-efficient alternative to the sale of an appreciated securities position. The ability to use short sales against-the-box as a tax-efficient management technique
with respect to holdings of appreciated securities is limited to circumstances in which the hedging transaction is closed out not later than thirty days after the end of the Fund's taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at least the next sixty days after the hedging transaction is closed. Not meeting these requirements would trigger the recognition of gain on the underlying appreciated securities position under the federal tax laws applicable to constructive sales.
Securities lending. The Fund 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. 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 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 Fund may borrow money to the extent permitted under the 1940 Act as interpreted, modified or otherwise permitted by the regulatory authority having jurisdiction. Although it does not currently intend to do so, the Fund may in the future from time to time borrow money to add leverage to the portfolio. The Fund may also borrow money for temporary administrative purposes or to meet temporary cash needs.
Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund 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 Fund agrees to repurchase the instrument at an agreed upon time (normally within seven days) and price, which reflects an interest payment. The Fund 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. Income realized on reverse repurchase agreements is taxable as ordinary income.
When the Fund 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 Fund's assets. As a result, such transactions may increase fluctuations in the market value of the Fund's assets. There is a risk that large fluctuations in the market value of the Fund's assets could affect net asset value and the market price of Common Shares. Because reverse repurchase agreements may be considered to be the practical equivalent of borrowing funds, they constitute a form of leverage and may be subject to leverage risks. Such agreements will be treated as subject to investment restrictions as mentioned above under "Borrowings." If the Fund 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 Fund's cash available for distribution.
Portfolio turnover. The Fund will buy and sell securities to seek to accomplish it investment objectives. Portfolio turnover generally involves expense to the Fund, including brokerage commissions and other transaction costs on the sale of securities and reinvestment in other securities. The Fund expects to maintain high turnover in index call options, based on the Adviser's intent to sell index call options on at least 80% of the full value of its assets and the Fund's initial expectation to roll forward its options positions approximately every one to three months. For its stock holdings, the Fund's annual portfolio turnover rate is expected to exceed that of the S&P 500 and the NASDAQ-100 due to turnover in connection with the Fund's tax loss harvesting, gain matching, dividend capture and other strategies. On an overall basis, the Fund's annual turnover rate may exceed 100%. A high turnover rate (100% or more) necessarily involves greater trading costs to the Fund.
RISK FACTORS
Risk is inherent in all investing. The following discussion summarizes the principal risks that you should consider before deciding whether to invest in the Fund. For additional information about the risks associated with investing in the Fund, see "Additional Investment Information and Restrictions" in the Statement of Additional Information.
NO OPERATING HISTORY
The Fund is a newly organized, diversified 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 Fund, which are generally traded on a securities exchange or in the over-the- counter markets. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Because the Fund intends to sell index call options on a continuous basis on substantially the full value of its common stock holdings, the Fund's appreciation potential from equity market performance will be limited. The Common Shares at any point in time may be worth less than the original investment, even after taking into account any reinvestment of distributions.
ISSUER RISK
The value of securities held by the Fund may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer's goods and services.
EQUITY RISK
Under normal market conditions, the Fund will invest its managed assets in a diversified portfolio of common stocks. Therefore, a principal risk of investing in the Fund is equity risk. Equity risk is the risk that the value of securities held by the Fund will fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, and the particular circumstances and performance of particular companies whose securities the Fund holds. Although common stocks have historically generated higher average returns than fixed-income securities over the long term, common stocks also have experienced significantly more volatility in returns. An adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks held by the Fund. In addition, common stock of an issuer in the Fund's portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Common stocks in which the Fund will invest are structurally subordinated to preferred stocks, bonds and other debt instruments in a company's capital structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk than preferred stocks or debt instruments of such issuers. Finally, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase.
RISKS OF INVESTING IN MID-CAP COMPANIES
The Fund may make investments in stocks of companies whose market
capitalization is considered middle sized or "mid-cap." Mid-cap companies often
are newer or less established companies than larger companies. Investments in
mid-cap companies carry additional risks because earnings of these companies
tend to be less predictable; they often have limited product lines, markets,
distribution channels or financial resources; and the management of such
companies may be dependent upon one or a few key people. The market movements of
equity securities of mid-cap companies may be more abrupt or erratic than the
market movements of equity securities of larger, more established companies or
the stock market
in general. Historically, mid-cap companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of mid-cap companies generally are less liquid than those of larger companies. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like.
RISKS OF "GROWTH" STOCK INVESTING
The Fund expects to invest substantially in stocks with "growth" characteristics. Growth stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. Growth stocks tend to be more expensive relative to their earnings or assets compared to other types of stocks. As a result, growth stocks tend to be sensitive to changes in their earnings and more volatile than other types of stocks.
RISK OF SELLING INDEX CALL OPTIONS
The Fund expects to sell S&P 500 and NASDAQ-100 call options on a continuous basis on at least 80% of the value of its total assets. The purchaser of an index call option has the right to any appreciation in the value of the index over the exercise price of the call option as of the valuation date of the option. Because their exercise is settled in cash, sellers of index call options such as the Fund cannot provide in advance for their potential settlement obligations by acquiring and holding the underlying securities. The Fund intends to mitigate the risks of its written index call positions by holding a diversified portfolio of stocks, the S&P 500 Segment of which is similar to the S&P 500 and the NASDAQ-100 Segment of which is similar to the NASDAQ-100. However, the Fund does not intend to acquire and hold a portfolio containing exactly the same stocks as the S&P 500 and the NASDAQ-100. Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each of the S&P 500 and the NASDAQ-100 to less than 70% on an ongoing basis. Consequently, the Fund bears the risk that the performance of the securities held will vary from the performance of the S&P 500 and the NASDAQ-100. For example, the Fund will suffer a loss if the S&P 500 appreciates substantially above the exercise price of the S&P 500 call options written by the Fund while the securities held by the Fund in the S&P 500 Segment in the aggregate fail to appreciate as much or decline in value over the life of the written option. Index options written by the Fund will be priced on a daily basis. Their value will be affected primarily by changes in the price and dividend rates of the underlying common stocks in the S&P 500 and the NASDAQ-100, changes in actual or perceived volatility of the S&P 500 and the NASDAQ-100 and the remaining time to the options' expiration. The trading price of S&P 500 and NASDAQ-100 call options will also be affected by liquidity considerations and the balance of purchase and sale orders.
A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived and well-executed options program may be adversely affected by market behavior or unexpected events. As the writer of S&P 500 and NASDAQ-100 call options, the Fund will forgo, during the option's life, the opportunity to profit from increases in the value of the applicable index above the sum of the option premium received and the exercise price of the call option, but retains the risk of loss, minus the option premium received, should the value of the applicable index decline. When a call option is exercised, the Fund will be required to deliver an amount of cash determined by the excess of the value of the applicable index at contract termination over the exercise price of the option. Thus, the exercise of index call options sold by the Fund may require the Fund to sell portfolio securities to generate cash at inopportune times or for unattractive prices.
The trading price of options may be adversely affected if the market for
such options becomes less liquid or smaller. The Fund may close out a call
option by buying the option instead of letting it expire or be exercised. There
can be no assurance that a liquid market will exist when the Fund seeks to close
out a call option position by buying the option. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation (the "OCC") may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled to discontinue the trading of options (or a particular class or series of options) at some future date. If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during which common stocks held by the Fund are traded. To the extent that the options markets close before the markets for securities, significant price and rate movements can take place in the securities markets that would not be reflected concurrently in the options markets. Index call options are marked to market daily and their value is substantially affected by changes in the value of and dividend rates of the securities represented in the underlying index, changes in interest rates, changes in the actual or perceived volatility of the associated index and the remaining time to the options' expiration, as well as trading conditions in the options market.
TAX RISK
Reference is made to "Federal Income Tax Matters" for an explanation of the federal income tax consequences and attendant risks of investing in the Fund. Although the Fund seeks to minimize and defer the federal income taxes incurred by Common Shareholders in connection with their investment in the Fund, there can be no assurance that it will be successful in this regard. The tax treatment and characterization of the Fund's distributions may change over time due to changes in the Fund's mix of investment returns and changes in the federal tax laws, regulations and administrative and judicial interpretations. Distributions paid on the Common Shares may be characterized variously as non-qualified dividends (taxable at ordinary income rates), qualified dividends and capital gains dividends (each taxable at long-term capital gains rates) or return of capital (not currently taxable). The ultimate tax characterization of the Fund's distributions made in a calendar year may not finally be determined until after the end of that calendar year. Distributions to a Common Shareholder that are return of capital will be tax free to the amount of the Common Shareholder's current tax basis in his or her Common Shares, with any distribution amounts exceeding such basis treated as capital gain on a deemed sale of Common Shares. Common Shareholders are required to reduce their tax basis in Common Shares by the amount of tax-free return of capital distributions received, thereby increasing the amount of capital gain (or decreasing the amount of capital loss) to be recognized upon a later disposition of the Common Shares. In order for Fund distributions of qualified dividend income to be taxable at favorable long-term capital gains rates, a Common Shareholder must meet certain prescribed holding period and other requirements with respect to his or her Common Shares. If positions held by the Fund were treated as "straddles" for federal income tax purposes, dividends on such positions would not constitute qualified dividend income subject to favorable income tax treatment. Gain or loss on positions in a straddle are subject to special (and generally disadvantageous) rules as described under "Federal Income Tax Matters."
DISTRIBUTION RISK
The quarterly distributions Common Shareholders will receive from the Fund will be sourced from the Fund's net option premiums, net realized and unrealized gains on stock investments, and dividends and interest income, after payment of Fund expenses. The Fund's cash available for distribution may vary widely over the short- and long-term. If stock market volatility declines and, therefore, stock prices decline, the level of premiums from writing index call options and the amounts available for distribution from options activity will likely decrease as well. Payments to close written call options will reduce amounts available for distribution from call option premiums received. Net realized and unrealized gains on the Fund's stock investments will be determined primarily by the direction and movement of the U.S. stock market (and the particular stocks held). Dividends on common stocks are not fixed but are declared at the discretion of the issuer's board of directors. There can be no assurance that quarterly
distributions paid by the Fund to the Common Shareholders will be maintained at initial levels or increase over time.
FOREIGN SECURITY RISK
The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks. In addition, the costs of investing abroad (such as foreign brokerage costs, custodial expenses and other fees) are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than markets in the United States. Foreign investments also could be affected by other factors not present in the United States, including expropriation of assets, armed conflict, confiscatory taxation, lack of uniform accounting and auditing standards, less publicly available financial and other information and potential difficulties in enforcing contractual obligations or repatriating capital invested in foreign countries. As an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts, which evidence ownership in underlying foreign securities). Since the Fund may invest in securities denominated or quoted in currencies other than the U.S. dollar, the Fund will be affected by changes in foreign currency exchange rates (and exchange control regulations) which affect the value of investments held by the Fund and the accrued income and appreciation or depreciation of the investments in U.S. dollars. Changes in foreign currency exchange rates relative to the U.S. dollar will affect the U.S. dollar value of the Fund's assets denominated in that currency and the Fund's return on such assets as well as any temporary uninvested reserves in bank deposits in foreign currencies. In addition, the Fund will incur costs in connection with conversions between various currencies. Foreign securities may not be eligible for the reduced rate of taxation applicable to qualified dividend income.
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 markets are 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 for, or loss of certificates of, 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, which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
EMERGING MARKET SECURITY RISK
The Fund may invest up to 5% of its total assets in securities of issuers
located in emerging markets. The risks of foreign investments described above
apply to an even greater extent to investments in emerging markets. The
securities markets of emerging countries are generally smaller, less developed,
less liquid, and more volatile than the securities markets of the United States
and developed foreign markets. Disclosure and regulatory standards in many
respects are less stringent than in the United States and developed foreign
markets. There also may be a lower level of monitoring and regulation of
securities markets in emerging market countries and the activities of investors
in such markets and enforcement of existing regulations has been extremely
limited. Many emerging countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in
inflation rates have had and may continue to have very negative effects on the economies and securities markets of certain emerging countries. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of these countries also have been and may continue to be adversely affected by economic conditions in the countries in which they trade. The economies of countries with emerging markets may also be predominantly based on only a few industries or dependent on revenues from particular commodities. In addition, custodial services and other costs relating to investment in foreign markets may be more expensive in emerging markets than in many developed foreign markets, which could reduce the Fund's income from such securities.
In many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions relative to the economy, as well as economic developments generally, may affect the Fund's investments in those countries. In addition, there is a heightened possibility of expropriation or confiscatory taxation, imposition of withholding taxes on interest payments, or other similar developments that could affect investments in those countries. There can be no assurance that adverse political changes will not cause the Fund to suffer a loss of any or all of its investments.
INTEREST RATE RISK
The premiums from writing index call options and amounts available for distribution from the Fund's options activity may decrease in declining interest rate environments. The value of the Fund's common stock investments may also be influenced by changes in interest rates. Higher yielding stocks and stocks of issuers whose businesses are substantially affected by changes in interest rates may be particularly sensitive to interest rate risk.
DERIVATIVES RISK
In addition to writing index call options, the risks of which are described above, the Fund may invest up to 20% of its total assets in other derivative investments acquired for hedging, risk management and investment purposes. Derivative transactions including options on securities and securities indices and other transactions in which the Fund may engage (such as futures contracts and options thereon, swaps and short sales) may subject the Fund to increased risk of principal loss due to unexpected movements in stock prices, changes in stock volatility levels and interest rates, and imperfect correlations between the Fund's securities holdings and indices upon which derivative transactions are based. The Fund also will be subject to credit risk with respect to the counterparties to any over-the-counter derivatives contracts entered into by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or no recovery in such circumstances. Derivatives may disproportionately increase losses and have a potentially large negative impact on the Funds' performance.
LIQUIDITY RISK
The Fund may invest up to 15% of its total assets in securities for which there is no readily available trading market or which are otherwise illiquid. The Fund may not be able readily to dispose of such securities at prices that approximate those at which the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity, the Fund 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 Fund's net asset value, and at times may make the disposition of securities infeasible.
INFLATION RISK
Inflation risk is the risk that the purchasing power 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.
MARKET PRICE OF COMMON SHARES
The shares of closed-end management investment companies often trade at a discount from their net asset value, and the Fund's Common Shares may likewise trade at a discount from net asset value. The net asset value per Common Share will be reduced immediately following this offering by the sales load and the amount of offering expenses paid by the Fund. The trading price of the Fund's Common Shares may be less than the public offering price. The risk will be greater for investors who sell their Common Shares in a relatively short period after completion of the public offering.
FINANCIAL LEVERAGE RISK
Although the Fund has no current intention to do so, the Fund is authorized and reserves the flexibility to utilize leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt securities. In the event that the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed. Leverage creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares and the risk that fluctuations in distribution rates on any preferred shares or fluctuations in borrowing costs may affect the return to Common Shareholders. To the extent the returns derived from securities purchased with proceeds received from leverage exceeds the cost of leverage, the Fund's distributions may be greater than if leverage had not been used. Conversely, if the returns from the securities purchased with such proceeds is not sufficient to cover the cost of leverage, the amount available for distribution to Common Shareholders 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 Fund's leveraged position if it deems such action to be appropriate. The costs of an offering of preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of the net asset value of Common Shares. In addition, the fee paid to Eaton Vance will be calculated on the basis of the Fund's average daily gross assets, including proceeds from the issuance of preferred shares and/or borrowings, so the fee 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.
TECHNOLOGY RISK
The technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions.
MANAGEMENT RISK
The Fund is subject to management risk because it is an actively managed portfolio. Eaton Vance, Parametric, Rampart and the individual portfolio managers invest the assets of the Fund as they deem appropriate in implementing the Fund's investment strategy. Accordingly, the success of the Fund depends upon the investment skills and analytical abilities of Eaton Vance, Parametric, Rampart and the individual portfolio managers to develop and actively implement investment strategies that achieve the Fund's investment objectives. There is no assurance that Eaton Vance, Parametric, Rampart and the individual portfolio managers will be successful in developing and implementing the Fund's investment strategy. Subjective decisions made by Eaton Vance, Parametric, Rampart and the individual portfolio managers may cause the Fund to incur losses or to miss profit opportunities on which it could otherwise have capitalized.
MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. These terrorist attacks and related
events, including the war in Iraq, its aftermath, and continuing occupation of
Iraq by coalition forces, have raised short-term market risk and may have
adverse long-term effects on U.S. and world economies and markets. A similar
disruption of the financial markets
could impact trading in common stocks and stock options, interest rates, credit risk, inflation and other factors relating to the Common Shares. The Fund cannot predict the effects of similar events in the future on the U.S. economy and securities markets.
ANTI-TAKEOVER PROVISIONS
The Fund's Agreement and Declaration of Trust includes provisions that could limit the ability of other persons or entities to acquire control of the Fund or to change the composition of its Board. These provisions may deprive Common Shareholders of opportunities to sell their Common Shares at a premium over the then current market price of the Common Shares. See "Description of Capital Structure -- Anti-Takeover Provisions in the Declaration of Trust."
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The management of the Fund, including general supervision of the duties performed by the Adviser under the Advisory Agreement (as defined below) and the Sub-Advisers under each Sub-Advisory Agreement (as defined below), is the responsibility of the Fund's Board under the laws of The Commonwealth of Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Fund'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 funds since 1931. Eaton Vance (or its affiliates) currently serves as the investment adviser to investment funds and various individual and institutional clients with combined assets under management of approximately $98 billion as of January 31, 2005, including approximately $58.6 billion in equity assets. Eaton Vance is a direct, 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 Fund's Board, Eaton Vance will be
responsible for managing the Fund's overall investment program, providing the
Sub-Advisers with research support and supervising the performance of the
Sub-Advisers. As described below under the caption "The Sub-Advisers,"
Parametric will be responsible for structuring and managing the Fund's common
stock portfolio, including tax-loss harvesting and other tax-management
techniques, relying in part on the fundamental research and analytical judgments
of the Adviser; Rampart will responsible for providing advice on and execution
of the Fund's options strategy. The Adviser will furnish to the Fund investment
advice and office facilities, equipment and personnel for servicing the
investments of the Fund. The Adviser will compensate all Trustees and officers
of the Fund who are members of the Adviser's organization and who render
investment services to the Fund, and will also compensate all other Adviser
personnel who provide research and investment services to the Fund. In return
for these services, facilities and payments, the Fund has agreed to pay the
Adviser as compensation under the Advisory Agreement an annual fee in the amount
of 1.00% of the average daily gross assets of the Fund. For purposes of the
Advisory Agreement and each Sub-Advisory Agreement, gross assets of the Fund
means total assets of the Fund, including any form of investment leverage that
the Fund may in the future determine to utilize, minus all accrued expenses
incurred in the normal course of operations, but not excluding any liabilities
or obligations attributable to any future investment leverage obtained through
(i) indebtedness of any type (including, without limitation, borrowing through a
credit facility/commercial paper program or the issuance debt securities), (ii)
the issuance of preferred shares or other similar preference securities, (iii)
the reinvestment of collateral received for securities loaned in accordance with
the Fund's investment objectives and policies and/or (iv) any other means.
During any future periods in which the Fund is using leverage, the fees paid to
Eaton Vance for investment advisory services will be higher than if the Fund did
not use leverage because the fees paid will be calculated on the basis of the Fund's gross assets, including proceeds from any borrowings and from the issuance of preferred shares.
Walter A. Row and other Eaton Vance investment professionals comprise the investment team responsible for managing the Fund's overall investment program, providing the Sub-Advisers with research support and supervising the performance of the Sub-Advisers. Mr. Row is the portfolio manager responsible for the day-to-day management of Eaton Vance's responsibilities with respect to the Fund's investment portfolio.
Mr. Row is a Vice President and the Director of Equity Research at Eaton Vance. He is a member of Eaton Vance's Equity Strategy Committee, manages three other Eaton Vance registered closed-end investment companies that utilize buy-write strategies and has been an equity analyst and member of Eaton's Vance's equity research team since 1996.
THE SUB-ADVISERS
Eaton Vance has engaged its affiliate Parametric as a sub-adviser to the Fund. Parametric will be responsible for structuring and managing the Fund's common stock portfolio, including tax-loss harvesting and other tax-management techniques, relying in part on the fundamental research and analytical judgments of the Adviser. Parametric has developed specialized programs and systems that allow for efficient implementation of the Fund's strategies. Parametric's principal office is located at 1151 Fairview Avenue North, Seattle, WA 98109. Parametric was founded in 1987. In September of 2003, Eaton Vance Corp, the parent company of Eaton Vance, acquired an 80% interest in the firm with the remaining 20% owned primarily by Parametric employees. Parametric specializes in managing broadly diversified, risk controlled and tax-efficient portfolios for high net worth investors and investment company clients. Parametric managed approximately $9.2 billion in assets as of January 31, 2005.
Under the terms of the Sub-Advisory Agreement (a "Sub-Advisory Agreement") between Eaton Vance and Parametric, Eaton Vance (and not the Fund) will pay Parametric a fee at an annual rate equal to .25% of the average daily gross assets of the Fund. Pursuant to the terms of the Advisory Agreement, Eaton Vance, upon approval by the Board, may terminate the Sub-Advisory Agreement and Eaton Vance may assume full responsibility for the services provided by Parametric without the need for approval by shareholders of the Fund.
David Stein, Ph.D. and Thomas Seto are the Parametric portfolio managers responsible for the day-to-day management of the Fund's common stock portfolio. Mr. Stein and Mr. Seto manage one other Eaton Vance closed-end investment company that utilizes a buy-write investment strategy.
Mr. Stein is Managing Director and Chief Investment Officer at Parametric, where he leads the investment, research and technology activities. Prior to joining Parametric, Mr. Stein held senior research, development and portfolio management positions at GTE Investment Management Corp., the Vanguard Group and IBM Retirement Funds.
Mr. Seto is a Vice President and the Director of Portfolio Management at Parametric where he is responsible for all portfolio management, including taxable, tax-exempt, quantitative-active and international strategies. Prior to joining Parametric, Mr. Seto served as the Head of U.S. Equity Index Investments at Barclays Global Investors.
Eaton Vance has engaged Rampart to serve as a sub-adviser to the Fund to provide advice on and execution of the Fund's options strategy. Rampart's principal office is located at One International Place, Boston, Massachusetts 02110. Founded in 1983, Rampart provides customized investment management services within its core competency in options program management to a spectrum of institutional, high net worth and investment company clients. Rampart managed approximately $2.7 billion in assets as of February 28, 2005.
Ronald M. Egalka is the portfolio manager at Rampart responsible for the development and implementation of the options strategy utilized in managing the Fund.
Mr. Egalka is President and CEO of Rampart. He is also President of Rampart Securities, Inc., an affiliate of Rampart and a NASD member broker/dealer. Mr. Egalka oversees the development and
implementation of investment strategies and tactics for Rampart. Mr. Egalka is responsible for the development and implementation of the options strategies utilized by three other Eaton Vance closed-end investment companies.
Under the terms of the Sub-Advisory Agreement (a "Sub-Advisory Agreement") between Eaton Vance and Rampart, Eaton Vance (and not the Fund) will pay Rampart a fee at an annual rate equal to .05% of the average daily gross assets of the Fund. Pursuant to the terms of the Advisory Agreement, Eaton Vance, upon approval by the Board, may terminate the Sub-Advisory Agreement and Eaton Vance may assume full responsibility for the services provided by Rampart without the need for approval by shareholders of the Fund.
The Fund, the Adviser and the Sub-Advisers have adopted codes of ethics relating to personal securities transactions (the "Codes of Ethics"). The Codes of Ethics permit Adviser and Sub-Adviser personnel to invest in securities (including securities that may be purchased or held by the Fund) for their own accounts, subject to certain pre-clearance, reporting and other restrictions and procedures contained in such Codes of Ethics.
ADDITIONAL INFORMATION REGARDING PORTFOLIO MANAGERS
The Statement of Additional Information provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers, and the portfolio managers' ownership of securities in the Fund.
THE ADMINISTRATOR
Eaton Vance serves as administrator of the Fund. Under an Administration Agreement with the Fund (the "Administration Agreement"), Eaton Vance is responsible for managing the business affairs of the Fund, subject to the supervision of the Fund's Board. Eaton Vance will furnish to the Fund all office facilities, equipment and personnel for administering the affairs of the Fund. Eaton Vance's administrative services include recordkeeping, preparation and filing of documents required to comply with federal and state securities laws, supervising the activities of the Fund's custodian and transfer agent, providing assistance in connection with the Board and shareholders' meetings, providing service in connection with any repurchase offers and other administrative services necessary to conduct the Fund's business. Eaton Vance currently receives no compensation for providing administrative services to the Fund. In addition to the management fee, the Fund pays all costs and expenses of its operation, including compensation of its Trustees (other than those affiliated with the Adviser), custodial expenses, dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of preparing Fund documents and reports to governmental agencies, and taxes and filing or other fees, if any.
DISTRIBUTIONS
Commencing with the Fund's first distribution, the Fund intends to make regular quarterly distributions to Common Shareholders sourced from the Fund's cash available for distribution. "Cash available for distribution" will consist of the Fund's net option premiums, net realized and unrealized gains on stock investments, and dividends and interest income, after payment of Fund expenses. The Fund's distribution rate may be adjusted from time to time. The Board may modify this distribution policy at any time without obtaining the approval of Common Shareholders. The initial distribution is expected to be declared approximately 75 days and paid approximately 90 to 120 days after the completion of this offering, depending on market conditions.
The Fund's annual distributions will likely differ from annual net
investment income. The investment income of the Fund will consist of all
dividend and interest income accrued on portfolio investments, short-term
capital gain (including short-term gains on option positions and gains on the
sale of portfolio investments held for one year or less) in excess of long-term
capital loss and income from certain hedging transactions, less all expenses of
the Fund. Expenses of the Fund will be accrued each day. To the extent that that
Fund's net investment income for any year exceeds the total quarterly
distributions
paid during the year, the Fund will make a special distribution at or near year-end of such excess amount as may be required. Over time, all of the Fund's investment company taxable income will be distributed.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) or, alternatively, to retain all or a portion of the year's net capital gain and pay federal income tax on the retained gain. As provided under federal tax law, Common Shareholders of record as of the end of the Fund's taxable year will include their attributable share of the retained gain in their income for the year as a long-term capital gain, and will be entitled to a tax credit or refund for the tax paid on their behalf by the Fund. The Fund may treat the cash value of tax credit and refund amounts in connection with retained capital gains as a substitute for equivalent cash distributions.
If, for any calendar year, as discussed above, the total distributions made exceed the Fund's net investment taxable income and net capital gains, the excess generally will be treated as a tax-free return of capital to each Common Shareholder (up to the amount of the Common Shareholder's basis in his or her Common Shares) and thereafter as gain from the sale of Common Shares. The amount treated as a tax-free return of capital will reduce the Common Shareholder's adjusted basis in his or her Common Shares, thereby increasing his or her potential gain or reducing his or her potential loss on the subsequent sale of his or her Common Shares. Distributions in any year may include a substantial return of capital component. Under the 1940 Act, for any distribution that includes amounts from sources other than net income, the Fund is required to provide Common Shareholders a written statement regarding the components of such distribution. Such a statement will be provided at the time of any distribution believed to include any such amounts.
To permit the Fund to maintain more stable distributions, distribution rates will be based on projected annual cash available for distribution. As a result, the distributions paid by the Fund for any particular quarter may be more or less than the amount of cash available for distribution for that quarterly period. In certain circumstances, the Fund may be required to sell a portion of its investment portfolio to fund distributions. Distributions will reduce the Common Shares' net asset value.
Common Shareholders may elect automatically to reinvest some or all of their distributions in additional Common Shares under the Fund's dividend reinvestment plan. See "Dividend Reinvestment Plan."
The Fund has applied for an order from the Securities Exchange Commission granting it an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder to permit the Fund to include realized long-term capital gains as a part of its regular distributions to Common Shareholders more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year). In the event that such an exemptive order is obtained, the Fund will consider increasing the frequency of its regular distributions to Common Shareholders from quarterly to monthly. The Fund does not intend to designate more than the permitted number of capital gain distributions until it receives such an exemptive order. The staff of the Securities Exchange Commission has indicated that it has suspended the processing of exemptive applications requesting the type of relief referenced above, pending review by the staff of the results of an industry-wide Securities Exchange Commission inspection focusing on the dividend practices of closed-end investment companies. There can be no assurance as to when that review might be completed or whether, following that review, the staff would process such applications or grant such relief. As a result of this development, the Fund has no current expectation that it will be in a position to include long-term capital gains in Fund distributions more frequently than is permitted under the 1940 Act, thus leaving the Fund with the possibility of variability in distributions (and their tax attributes) as discussed above. Failure to receive exemptive relief would increase the likelihood that in certain taxable years the Fund would retain all or a portion of the year's net capital gain and pay tax on the retained gain as described above. The Adviser does not believe that retaining capital gains and paying tax thereon would have a material adverse affect on the Fund or the Common Shareholders.
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based on the advice of Kirkpatrick & Lockhart Nicholson Graham LLP, counsel to the Fund. The Fund intends to elect to be treated and to qualify each year as a regulated investment company under the Code. Accordingly, the Fund intends to satisfy certain requirements relating to sources of its income and diversification of its assets and to distribute substantially all of its net income and net short-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 regulated investment company status and to avoid paying federal income or excise tax thereon. To the extent it qualifies for treatment as a regulated investment company and satisfies the above-mentioned distribution requirements, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gains distributions.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) or, alternatively, to retain all or a portion of the year's net capital gain and pay federal income tax on the retained gain. As provided under federal tax law, Common Shareholders of record as of the end of the Fund's taxable year will include their attributable share of the retained gain in their income for the year as long-term capital gain (regardless of holding period in the Common Shares), and will be entitled to a tax credit or refund for the tax paid on their behalf by the Fund. Common Shareholders of record for the retained capital gain will also be entitled to increase their tax basis in their Common Shares by 65 percent of the allocated gain. Distributions of the Fund's net capital gain ("capital gain distributions"), if any, are taxable to Common Shareholders as long-term capital gain, regardless of their holding period in the Common Shares. Distributions of the Fund's net realized short-term gains will be taxable as ordinary income.
If, for any calendar year, the Fund's total distributions exceed the Fund's current and accumulated earnings and profits, the excess will be treated as a tax-free return of capital to each Common Shareholder (up to the amount of the Common Shareholder's basis in his or her Common Shares) and thereafter as gain from the sale of Common Shares (assuming the Common Shares are held as a capital asset). The amount treated as a tax-free return of capital will reduce the Common Shareholder's adjusted basis in his or her Common Shares, thereby increasing his or her potential gain or reducing his or her potential loss on the subsequent sale or other disposition of his or her Common Shares. See below for a summary of the maximum tax rates applicable to long-term capital gain (including capital gain distributions). A corporation that owns Fund shares generally will not be entitled to the dividends received deduction with respect to all (or any prescribed percentage) of the distributions it receives from the Fund. Fund distributions that are attributable to qualified dividend income received by the Fund from certain domestic corporations may be designated by the Fund as being eligible for the dividends received deduction.
If the Fund does not qualify as a RIC for any taxable year, the Fund'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. Such distributions generally would be eligible (i) to be treated as qualified dividend income in the case of individual and other noncorporate shareholders and (ii) for the dividends received deduction ("DRD") in the case of corporate shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.
Certain of the Fund's investment practices are subject to special and complex federal income tax provisions that may, among other things, (i) convert dividends that would otherwise constitute qualified dividend income into ordinary income, (ii) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gain into short-term capital gain or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited), (vi) cause the Fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur and (viii) adversely alter the characterization of certain complex financial
transactions. While it may not always be successful in doing so, the Fund will seek to avoid or minimize any adverse tax consequences of its investment practices.
In the case of Fund transactions involving S&P 500 and NASDAQ-100 call
options (or other listed options on broad-based securities indices), Code
Section 1256 generally will require any gain or loss arising from the lapse,
closing out or exercise of such positions to be treated as 60% long-term and 40%
short-term capital gain or loss. In addition, the Fund generally will be
required to "mark to market" (i.e., treat as sold for fair market value) each
outstanding index option position at the close of each taxable year (and on
October 31 of each year of excise tax purposes). If a Section 1256 Contract held
by the Fund at the end of a taxable year is sold in the following year, the
amount of any gain or loss realized on such sale will be adjusted to reflect the
gain or loss previously taken into account under the "mark to market" rules. In
addition to most index call options, Section 1256 Contracts include certain
other options contracts, certain regulated futures contracts, and certain other
financial contracts.
The Code contains special rules that apply to "straddles," defined generally as the holding of "offsetting positions with respect to personal property." For example, the straddle rules normally apply when a taxpayer holds stock and an offsetting option with respect to such stock or substantially identical stock or securities. In general, investment positions will be offsetting if there is a substantial diminution in the risk of loss from holding one position by reason of holding one or more other positions. The Fund expects that the index call options it writes will not be considered straddles for this purpose because the Fund's portfolio of common stocks will be sufficiently dissimilar from the components of the S&P 500 and the NASDAQ-100 under applicable guidance established by the IRS. Under certain circumstances, however, the Fund may enter into options transactions or certain other investments that may constitute positions in a straddle. If two or more positions constitute a straddle, recognition of a realized loss from one position must generally be deferred to the extent of unrecognized gain in an offsetting position. In addition, long-term capital gain may be recharacterized as short-term capital gain, or short-term capital loss as long-term capital loss. Interest and other carrying charges allocable to personal property that is part of a straddle are not currently deductible but must instead be capitalized. Similarly, "wash sale" rules apply to prevent the recognition of loss by the Fund from the disposition of stock or securities at a loss in a case in which identical or substantially identical stock or securities (or an option to acquire such property) is or has been acquired within a prescribed period.
The Code allows a taxpayer to elect to offset gains and losses from positions that are part of a "mixed straddle." A "mixed straddle" is any straddle in which one or more but not all positions are Section 1256 Contracts. The Fund may be eligible to elect to establish one or more mixed straddle accounts for certain of its mixed straddle trading positions. The mixed straddle account rules require a daily "marking to market" of all open positions in the account and a daily netting of gains and losses from all positions in the account. At the end of a taxable year, the annual net gains or losses from the mixed straddle account are recognized for tax purposes. The net capital gain or loss is treated as 60% long-term and 40% short-term capital gain or loss if attributable to the Section 1256 Contract positions, or all short-term capital gain or loss if attributable to the non-Section 1256 Contract positions.
The Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in stock and certain other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end of the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at least the next sixty days after the hedging transaction is closed.
Gain or loss from a short sale of property is generally considered as capital gain or loss to the extent the property used to close the short sale constitutes a capital asset in the Fund's hands. Except with respect to certain situations where the property used to close a short sale has a long-term holding period on the date the short sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated as a long-term capital loss if, on the date of the short sale, "substantially
identical property" has been held by the Fund for more than one year. In addition, entering into a short sale may result in suspension of the holding period of "substantially identical property" held by the Fund.
Gain or loss on a short sale will generally not be realized until such time as the short sale is closed. However, as described above in the discussion of constructive sales, if the Fund holds a short sale position with respect to securities that have appreciated in value, and it then acquires property that is the same as or substantially identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the short sale were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to securities and then enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain as if the appreciated financial position were sold at its fair market value on the date it enters into the short sale. The subsequent holding period for any appreciated financial position that is subject to these constructive sale rules will be determined as if such position were acquired on the date of the constructive sale.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax Act"), certain dividend distributions paid by the Fund (whether paid in cash or reinvested in additional Common Shares) to individual taxpayers are taxed at rates applicable to net long-term capital gains (15%, or 5% for individuals in the 10% or 15% tax brackets). This tax treatment applies only if certain holding period and other requirements are satisfied by the Common Shareholder and the dividends are attributable to qualified dividend income received by the Fund itself. For this purpose, "qualified dividend income" means dividends received by the Fund from United States corporations and "qualified foreign corporations," provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations. In order for qualified dividends paid by the Fund to a Common Shareholder to be taxable at long-term capital gains rates, the Common Shareholder must hold his or her Common Shares for more than 60 days during the 121-day period surrounding the ex-dividend date. For the Fund to receive tax-advantaged dividend income, the Fund must hold stock paying qualified dividend income for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (or more than 90 days during the associated 181-day period, in the case of certain preferred stocks). In addition, the Fund cannot be obligated to make related payments (pursuant to a short sale or otherwise) with respect to positions in any security that is substantially similar or related property with respect to such stock. Gains on option positions treated as short-term and other short-term gains, interest income and non-qualified dividends are not eligible for the lower tax rate. The special rules relating to the taxation of ordinary income dividends paid by the Fund generally apply to taxable years beginning before January 1, 2009. Thereafter, the Fund's distributions that are characterized as dividends, other than capital gain distributions, will be fully taxable at ordinary income tax rates unless further Congressional action is taken. There can be no assurance as to what portion of the Fund's dividend distributions will qualify for favorable treatment under the Tax Act. The Fund's investment program and the tax treatment of Fund distributions may be affected by IRS interpretations of the Code and future changes in tax laws and regulations, including changes resulting from the "sunset" provisions described above that would have the effect of repealing the favorable treatment of qualified dividend income and reimposing the higher tax rates applicable to ordinary income in 2009 unless further legislative action is taken.
The Fund will inform Common Shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
Selling Common Shareholders will generally recognize gain or loss in an
amount equal to the difference between the Common Shareholder's adjusted tax
basis in the Common Shares sold and the sale proceeds. 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, or (ii) 15% for gains recognized on the sale of capital assets held for
more than one year (as well as any capital gain distributions) (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 distributions 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 Common 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 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 distribution (including a capital gain distribution), the purchase price likely will reflect the value of the distribution and the investor then would receive a taxable distribution that is 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 certain individuals and certain other non-corporate Common Shareholders, including those who have not provided their correct 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 2005, 28%).
An investor should also be aware that the benefits of the reduced tax rate applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative minimum tax to individual shareholders.
The foregoing briefly summarizes some of the important federal income tax consequences to Common 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. Unless otherwise noted, this discussion assumes that an investor is a U.S. person and holds Common Shares as a capital asset. This discussion is based upon current provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the IRS retroactively or prospectively. 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 Fund's dividend reinvestment plan (the "Plan"), a Common Shareholder may elect to have all distributions (including capital gain distributions) automatically reinvested in Common Shares. Common Shareholders may elect to participate in the Plan by completing the dividend reinvestment plan application form.
PFPC Inc. (the "Plan Agent") serves as agent for the Common Shareholders in administering the Plan. Common Shareholders who elect not to participate in the Plan will receive all Fund distributions in cash paid by check mailed directly to the Common 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 distribution 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 Fund ("newly issued Common Shares") or (ii)
by purchase of outstanding Common Shares on the open market ("open-market
purchases") on the New York Stock Exchange or elsewhere. If, on the payment date
for the distribution, 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 distribution 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 distribution 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 distribution
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 distribution amount in Common Shares acquired on behalf of the participants in open-market purchases.
In the event of a market discount on the distribution payment date, the Plan Agent will have up to 30 days after the distribution payment date to invest the distribution 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 could exceed the net asset value of the Fund's Common Shares, resulting in the acquisition of fewer Common Shares than if the distribution had been paid in newly issued Common Shares on the distribution payment date. Therefore, the Plan provides that if the Plan Agent is unable to invest the full distribution 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 distribution amount in newly issued Common Shares.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by Common 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 Common Shareholder's 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 Common 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 Common Shareholder's name and held for the account of beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to Common Shares issued directly by the Fund as a result of distributions payable either in Common Shares or in cash. However, each Plan 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 distributions.
Common Shareholders participating in the Plan may receive benefits not available to Common Shareholders not participating in the Plan. If the market price (plus commissions) of the Fund's Common Shares is above their net asset value, participants in the Plan will receive Common Shares of the Fund purchased at a discount to market price and having a current value that exceeds the cash distributions they would have otherwise received on their Common Shares. If the market price (plus commissions) of the Fund's Common Shares is below their net asset value, Plan participants will receive Common Shares with a net asset value that exceeds the cash distributions they would have otherwise received on their Common Shares. There may, however, be insufficient Common Shares available in the market at prices below net asset value to satisfy the Plan's requirements, in which case the Plan Agent will acquire newly issued Common Shares. Also, since the Fund does not redeem its Common Shares, the price on resale of Common Shares may be more or less than their net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly, upon 30 days' notice to Plan participants, the Fund reserves the right to amend or terminate the Plan. A Plan participant will be charged a $5.00 service charge and pay brokerage charges whenever he or she directs the Plan Agent to sell Common Shares held in a distribution reinvestment account.
All correspondence concerning the Plan should be directed to the Plan Agent at PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027. Please call 1-800-331-1710 between the hours of 9:00 a.m. and 5:00 p.m. Eastern Time if you have questions regarding the Plan.
DESCRIPTION OF CAPITAL STRUCTURE
The Fund is an unincorporated business trust established under the laws of The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated and filed with the Secretary of The Commonwealth on March 30, 2005 (the "Declaration of Trust"). The Declaration of Trust provides that the Board may authorize separate classes of shares of beneficial interest. The Board has authorized an unlimited number of Common Shares. The Fund intends to hold annual meetings of Common Shareholders in compliance with the requirements of the New York Stock Exchange.
COMMON SHARES
The Declaration of Trust permits the Fund to issue an unlimited number of full and fractional common shares of beneficial interest, $.01 par value per share. Each Common Share represents an equal proportionate interest in the assets of the Fund with each other Common Share in the Fund. Holders of Common Shares will be entitled to the payment of distributions when, as and if declared by the Board. The 1940 Act or the terms of any future borrowings or issuance of preferred shares may limit the payment of distributions 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 Securities Exchange Commission. Upon liquidation of the Fund, after paying or adequately providing for the payment of all liabilities of the Fund 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 Board may distribute the remaining assets of the Fund among the holders of the Common Shares. The Declaration of Trust provides that Common Shareholders are not liable for any liabilities of the Fund, and requires inclusion of a clause to that effect in agreements entered into by the Fund and, in coordination with the Fund's By-laws, indemnifies shareholders against any such liability. Although shareholders of an unincorporated business trust established under Massachusetts law may, in certain limited circumstances, be held personally liable for the obligations of the business trust as though they were general partners, the provisions of the Fund's Declaration of Trust and By-laws described in the foregoing sentence make the likelihood of such personal liability remote.
The Fund has no current intention to issue preferred shares or to borrow money. However, if at some future time there are any borrowings or preferred shares outstanding, the Fund may not be permitted to declare any cash distribution on its Common Shares, unless at the time of such declaration, (i) all accrued distributions on preferred shares or accrued interest on borrowings have been paid and (ii) the value of the Fund's total assets (determined after deducting the amount of such distribution), less all liabilities and indebtedness of the Fund 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. In addition to the requirements of the 1940 Act, the Fund may be required to comply with other asset coverage requirements as a condition of the Fund obtaining a rating of preferred shares from a nationally recognized statistical rating agency (a "Rating Agency"). These requirements may include an asset coverage test more stringent than under the 1940 Act. This limitation on the Fund's ability to make distributions on its Common Shares could in certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company for federal income tax purposes. If the Fund were in the future to issue preferred shares or borrow money, it would intend, 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 distributions to the holders of the preferred shares in certain circumstances in connection with any potential impairment of the Fund's status as a regulated investment company. See "Federal Income Tax Matters." Depending on the timing of any such redemption or repayment, the Fund may be required to pay a premium in addition to the liquidation preference of the preferred shares to the holders thereof.
The Fund 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 Common
Shareholders or with the consent of a majority of the Fund's outstanding Common Shares. The Common Shares have no preemptive rights.
The Fund generally will not issue Common Share certificates. However, upon written request to the Fund'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.
REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT METHODS
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 Common Shareholders for the Fund to take corrective actions to reduce trading discounts in the Common Shares. 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 Fund, the effect on the Fund's expenses, whether such transactions would impair the Fund'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 that may have a material effect on the Fund'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 Common Shares trading at a price equal to or approximating their net asset value. The Board, in consultation with Eaton Vance, may from time to time review other possible actions to reduce trading discounts in the Common Shares.
PREFERRED SHARES
The Fund has no current intention of issuing any shares other than the Common Shares. However, the Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest with preference rights (the "preferred shares") in one or more series, with rights as determined by the Board, by action of the Board without the approval of the Common Shareholders.
Under the requirements of the 1940 Act, the Fund 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 Fund, less all liabilities 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 Fund, if any, plus the aggregate liquidation preference of the preferred shares. If the Fund seeks a rating for preferred shares, asset coverage requirements in addition to those set forth in the 1940 Act may be imposed. The liquidation value of any preferred shares would be expected to equal their aggregate original purchase price plus redemption premium, if any, together with any accrued and unpaid distributions thereon (on a cumulative basis), whether or not earned or declared. The terms of any preferred shares, including their distribution rate, voting rights, liquidation preference and redemption provisions, will be determined by the Board (subject to applicable law and the Fund's Declaration of Trust) if and when it authorizes preferred shares. The Fund may issue preferred shares that provide for the periodic redetermination of the distribution rate at relatively short intervals through an auction or remarketing procedure, although the terms of such preferred shares may also enable the Fund to lengthen such intervals. At times, the distribution rate as redetermined on any preferred shares could exceed the Fund's return after expenses on the investment of proceeds from the preferred shares and the Fund's leveraged capital structure would result in a lower rate of return to Common Shareholders than if the Fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Fund, 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 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 Common Shareholders. 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 Fund. Holders of preferred shares, voting as a class, would be entitled to elect two of the Fund's Trustees, if any preferred shares are issued. 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 entitled to elect a majority of the Board until all dividends in default have been paid or declared and set apart for payment. In addition, if required by a Rating Agency rating the preferred shares or if the Board determines it to be in the best interests of the Common Shareholders, issuance of the preferred shares may result in more restrictive provisions than required under the 1940 Act. In this regard, holders of preferred shares may, for example, be entitled to elect a majority of the Fund's Board if only one dividend on the preferred shares is in arrears.
In the event of any future issuance of preferred shares, the Fund likely would seek a credit rating for such preferred shares from a Rating Agency. In such event, as long as preferred shares are outstanding, the composition of its portfolio will reflect guidelines established by such Rating Agency. Based on previous guidelines established by Rating Agencies for the securities of other issuers, the Fund anticipates that the guidelines with respect to any preferred shares would 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 no assurance can be given as to the nature or extent of the guidelines that may be imposed in connection with obtaining a rating of any preferred shares, the Fund anticipates that such guidelines would include asset coverage requirements that are more restrictive than those under the 1940 Act, restrictions on certain portfolio investments and investment practices and certain mandatory redemption requirements relating to any preferred shares. No assurance can be given that the guidelines actually imposed with respect to any preferred shares by a Rating Agency would be more or less restrictive than those described in this prospectus.
CREDIT FACILITY/COMMERCIAL PAPER PROGRAM
The Fund has no current intention to borrow money for the purpose of obtaining investment leverage. If, in the future, the Fund determines to engage in investment leverage using borrowings, the Fund may enter into definitive agreements with respect to a credit facility/commercial paper program or other borrowing program, pursuant to which the Fund would expect to be entitled to borrow up to a specified amount. Any such borrowings would constitute financial leverage. Borrowings under such a facility/commercial paper program would not be expected to be convertible into any other securities of the Fund. Outstanding amounts would be expected to be prepayable by the Fund prior to final maturity without significant penalty, and no sinking fund or mandatory retirement provisions would be expected to apply. Outstanding amounts would be payable at maturity or such earlier times as required by the agreement. The Fund 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 Fund 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 Fund expects that any such credit facility/program would contain covenants that, among other things, likely would limit the Fund's ability to pay distributions 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 Fund 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 Fund expects that any credit facility/program would have customary covenant, negative covenant and default provisions. There can be no assurance that the Fund 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.
EFFECTS OF POSSIBLE FUTURE LEVERAGE
As discussed above, the Fund has no current intention to issue preferred shares or to borrow money for the purpose of obtaining investment leverage. In the event that the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy would be successful during any period in which it is employed. Leverage creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares and the risk that fluctuations in distribution rates on any preferred shares or fluctuations in borrowing costs may affect the return to Common Shareholders. To the extent that amounts available for distribution derived from securities purchased with the proceeds of leverage exceed the cost of such leverage, the Fund's distributions would be greater than if leverage had not been used. Conversely, if the amounts available for distribution derived from securities purchased with leverage proceeds are not sufficient to cover the cost of leverage, distributions to Common Shareholders would 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 Fund's leveraged position if it deems such action to be appropriate. The costs of an offering of preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of the net asset value of Common Shares. See "Risk Factors -- Financial Leverage Risk."
In addition, the fee paid to Eaton Vance will be calculated on the basis of the Fund's average daily gross assets, including proceeds from the issuance of preferred shares and/or borrowings, so the fees would be higher if leverage is utilized. In this regard, holders of preferred shares would not bear the investment advisory fee. Rather, Common Shareholders would bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of the preferred shares offering. See "Risk Factors -- Financial Leverage Risk."
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 Fund or to change the composition of its Board and could have the effect of depriving Common Shareholders of an opportunity to sell their Common Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions may have the effect of discouraging attempts to acquire control of the Fund, which attempts could have the effect of increasing the expenses of the Fund and interfering with the normal operation of the Fund. 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 Fund 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 Fund,
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 Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Fund or any
subsidiary of the Fund with or into any Principal Shareholder; (ii) the issuance
of any securities of the Fund to any Principal Shareholder for cash; (iii) the
sale, lease or exchange of all or any substantial part of the assets of the Fund
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 Fund
or any subsidiary thereof, in exchange for securities of the Fund, 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 Common Shareholders generally. Reference should be made to the Declaration of Trust on file with the Securities Exchange Commission for the full text of these provisions.
CONVERSION TO OPEN-END FUND
The Fund 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 Fund'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 Fund 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. Conversion of the Fund 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 any future leveraged capital structure of the Fund with respect to the Common Shares. In the event of conversion, the Common Shares would cease to be listed on the New York Stock Exchange or other national securities exchange or market system. The Board believes that the closed-end structure is desirable, given the Fund's investment objectives and policies. Investors should assume, therefore, that it is unlikely that the Board would vote to convert the Fund 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 Fund were to convert to an open-end investment company, the Fund expects it would pay all such redemption requests in cash, but would likely 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 Fund 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.
UNDERWRITING
Subject to the terms and conditions stated in the purchase agreement dated , 2005, each Underwriter named below, for which Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative, has severally agreed to purchase, and the Fund has agreed to sell to such Underwriter, the number of Common Shares set forth opposite the name of such Underwriter.
NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
UBS Securities LLC..........................................
Wachovia Capital Markets, LLC...............................
A.G. Edwards & Sons, Inc. ..................................
Raymond James & Associates, Inc. ...........................
Advest, Inc. ...............................................
Robert W. Baird & Co. Incorporated..........................
Banc of America Securities LLC..............................
Ferris, Baker Watts, Incorporated...........................
J.J.B. Hilliard, W.L. Lyons, Inc. ..........................
Janney Montgomery Scott LLC.................................
KeyBanc Capital Markets, a division of McDonald Investments
Inc. .....................................................
Legg Mason Wood Walker, Incorporated........................
Oppenheimer & Co. Inc. .....................................
RBC Capital Markets Corporation.............................
TD Waterhouse Investor Services, Inc. ......................
Wedbush Morgan Securities Inc. .............................
Wells Fargo Securities, LLC.................................
-------------
Total..........................................
=============
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The purchase agreement provides that the obligations of the Underwriters to purchase the Common Shares included in this offering are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to purchase all the Common Shares sold under the purchase agreement if any of the Common Shares are purchased. In the purchase agreement, the Fund and the Adviser have jointly agreed to indemnify the Underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute payments the underwriters may be required to make for any of those liabilities.
COMMISSIONS AND DISCOUNTS
The Underwriters propose to initially offer some of the Common Shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the Common Shares to certain dealers at the public offering price less a concession not in excess of $ per Common Share. The sales load the Fund will pay of $.90 per Common Share is equal to 4.5% of the initial offering price. The Underwriters may allow, and the dealers may reallow, a discount not in excess of $ per Common Share on sales to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. Investors must pay for any Common Shares purchased on or before , 2005.
The following table shows the public offering price, sales load, estimated offering expenses and proceeds, after expenses, to the Fund. The information assumes either no exercise or full exercise by the Underwriters of their overallotment option.
WITHOUT WITH
PER SHARE OVERALLOTMENT OVERALLOTMENT
--------- ------------- -------------
Public offering price...................... $20.00 $ $
Sales load................................. $.90 $ $
Estimated offering expenses................ $.04 $ $
Proceeds, after expenses, to the Fund...... $19.06 $ $
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The expenses of the offering are estimated at $ and are payable by the Fund. The Fund has agreed to pay the Underwriters $.00667 per Common Share as a partial reimbursement of expenses incurred in connection with the offering. The amount paid by the Fund as this partial reimbursement to the Underwriters will not exceed .03335% of the total price to the public of the Common Shares sold in this offering. The Adviser has agreed to reimburse all of the Fund's organizational expenses and to pay the amount by which the aggregate offering expenses (other than the sales load, but including the reimbursement of expenses described above) exceed $.04 per Common Share.
OVERALLOTMENT OPTION
The Fund has granted the underwriters an option to purchase up to additional Common Shares at the public offering price, less the sales load, within 45 days from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional Common Shares proportionate to that Underwriter's initial amount reflected in the above table.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the Common Shares is complete, Securities and Exchange Commission rules may limit Underwriters and selling group members from bidding for and purchasing the Fund's Common Shares. However, the representative may engage in transactions that stabilize the price of Common Shares, such as bids or purchases to peg, or maintain, that price.
If the Underwriters create a short position in the Common Shares in connection with the offering (i.e., if they sell more Common Shares than are listed on the cover of this prospectus), the representative may reduce that short position by purchasing Common Shares in the open market. The representative may also elect to reduce any short position by exercising all or part of the overallotment option described above. 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. Purchases of Common Shares to stabilize its price or to reduce a short position may cause the price of the Fund's Common Shares to be higher than it might be in the absence of such purchases.
Neither the Fund nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither the Fund nor any of the Underwriters makes any representation that the representative will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
The Fund has agreed not to offer or sell any additional Common Shares for a period of 180 days after the date of the purchase agreement without the prior written consent of the Underwriters, except for the sale of Common Shares to the Underwriters pursuant to the purchase agreement and certain transactions relating to the Plan.
The Fund anticipates that the Underwriters may from time to time act as brokers or dealers in connection with the Fund's portfolio transactions. The Underwriters are active underwriters of, and dealers in, securities and act as market makers in a number of such securities and, therefore, can be expected to engage in portfolio transactions with the Fund.
One or more of the Underwriters of the Common Shares may also act as an underwriter of the Fund's preferred shares, if any, and as a broker-dealer in connection with auctions of the preferred shares.
The Common Shares will be sold in such a manner as to ensure that New York Stock Exchange distribution standards (that is, round lots, public shares and aggregate market value) will be met.
ADDITIONAL COMPENSATION TO UNDERWRITERS AND OTHER RELATIONSHIPS
The Adviser (and not the Fund) has agreed to pay a quarterly fee to Merrill Lynch at the annual rate of .15% of the Fund's average total assets during the continuance of the Advisory Agreement between the Adviser and the Fund. The total amount of these additional compensation payments to Merrill Lynch will not exceed % of the total price to the public of the Common Shares sold in this offering. The Adviser (and not the Fund) has also agreed to pay to , quarterly in arrears, an annual fee of up to % of the Fund's average total assets attributable to the Common Shares sold by . The total amount of the additional compensation payments paid to will not exceed % of the total price to the public of the Common Shares sold in this offering.
These fee payments will remain in effect only so long as the Advisory Agreement remains in effect between the Fund 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. Merrill Lynch and have agreed to provide, upon the request of the Adviser, certain after-market support services to the Adviser designed to maintain the visibility of the Fund on an ongoing basis, information, studies or reports regarding the Fund and the closed-end investment company industry, and advice as to strategies for addressing any discount of the market value of the Fund's Common Shares to its net asset value.
The total amount of these additional compensation payments paid to Merrill Lynch and , plus the amount paid by the Fund as the $.00667 per Common Share reimbursement to the Underwriters, will not exceed 4.5% of the total price to the public of the Common Shares offered hereby. The sum total of all compensation to the Underwriters in connection with this public offering of Common Shares, including sales load and all forms of additional compensation to the Underwriters, will be limited to not more than 9.0% of the total price to the public of the Common Shares sold in this offering.
The principal business address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is 4 World Financial Center, New York, New York 10080.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, Massachusetts 02116 is the custodian of the Fund and will maintain custody of the securities and cash of the Fund. IBT maintains the Fund's general ledger and computes net asset value per share daily. IBT also attends to details in connection with the sale, exchange, substitution, transfer and other dealings with the Fund'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 Securities Exchange Commission.
PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 is the transfer agent and dividend disbursing agent of the Fund.
LEGAL OPINIONS
Certain legal matters in connection with the Common Shares will be passed upon for the Fund by Kirkpatrick & Lockhart Nicholson Graham LLP, Boston, Massachusetts, and for the Underwriters by Clifford Chance US LLP, New York, New York. Clifford Chance US LLP may rely on the opinion of Kirkpatrick & Lockhart Nicholson Graham LLP as to certain matters of Massachusetts law.
REPORTS TO SHAREHOLDERS
The Fund will send to Common Shareholders unaudited semi-annual and audited annual reports, including a list of investments held.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP, Boston, Massachusetts is the independent registered public accounting firm for the Fund and will audit the Fund'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 Fund has filed with the Securities Exchange Commission. The complete Registration Statement may be obtained from the Securities Exchange Commission 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.
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
Additional Investment Information and Restrictions.......... 2
Trustees and Officers....................................... 6
Investment Advisory and Other Services...................... 14
Determination of Net Asset Value............................ 20
Portfolio Trading........................................... 21
Taxes....................................................... 24
Other Information........................................... 29
Independent Registered Public Accounting Firm............... 30
Statement of Assets and Liabilities......................... 32
Notes to Financial Statements............................... 33
Appendix A: Proxy Voting Policies and Procedures............ A-1
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THE FUND'S PRIVACY POLICY
The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy ("Privacy Policy") with respect to nonpublic personal information about its customers:
- Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions.
- 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). In the normal course of servicing a customer's account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker/dealers.
- Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information.
- We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com.
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Boston Management and Research, and Eaton Vance Distributors, Inc.
In addition, our Privacy Policy only applies to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer's account (i.e., fund shares) is held in the name of a third-party financial adviser/broker-dealer, it is likely that only such adviser's privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures.
For more information about Eaton Vance's Privacy Policy, please call 1-800-262-1122.
Until , 2005 (the 25th day after the date of this prospectus),
all dealers effecting transactions in these securities, 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.
SHARES
(EATON VANCE LOGO)
EATON VANCE TAX-MANAGED
BUY-WRITE OPPORTUNITIES FUND
SUBJECT TO COMPLETION MAY 25, 2005
STATEMENT OF ADDITIONAL INFORMATION
, 2005
EATON VANCE TAX-MANAGED BUY-WRITE
OPPORTUNITIES FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265
TABLE OF CONTENTS
PAGE
----
Additional Investment Information and Restrictions.......... 2
Trustees and Officers....................................... 6
Investment Advisory and Other Services...................... 14
Determination of Net Asset Value............................ 20
Portfolio Trading........................................... 21
Taxes....................................................... 24
Other Information........................................... 29
Independent Registered Public Accounting Firm............... 30
Statement of Assets and Liabilities......................... 32
Notes to Financial Statements............................... 33
Appendix A: Proxy Voting Policies and Procedures............ A-1
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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 TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND (THE "FUND") DATED , 2005 (THE "PROSPECTUS"), 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 FUND 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 Fund'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 and the Sub-Advisers may not buy any of the following instruments or use any of the following techniques unless they believe that doing so will help to achieve the Fund's investment objectives.
Equity Investments. As described in the Prospectus, the Fund invests primarily in common stocks.
Preferred Stocks. The Fund may invest in preferred stocks of both domestic and foreign issuers. Under normal market conditions, the Fund expects, with respect to that portion of its total assets invested in preferred stocks, to invest only in preferred stocks of investment grade quality as determined by S&P, Fitch or Moody's or, if unrated, determined to be of comparable quality by Eaton Vance. The foregoing credit quality policies apply only at the time a security is purchased, and the Fund 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. Preferred stocks involve credit risk, which is the risk that a preferred stock will decline in price, or fail to pay dividends when expected, because the issuer experiences a decline in its financial status. In addition to credit risk, investment in preferred stocks involves certain other risks as more fully described in the Prospectus.
Derivative Instruments. Derivative instruments (which are instruments that derive their value from another instrument, security or index) will be acquired for hedging, risk management and investment purposes (to gain exposure to securities, securities markets, markets indices and/or currencies consistent with the Fund's investment objectives and policies), provided that no more than 10% of the Fund's total assets may be invested in such derivative instruments acquired for non-hedging purposes. These strategies may be executed through the use of derivative contracts in the United States or abroad. In the course of pursuing these investment strategies, the Fund may: purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other instruments; purchase and sell futures contracts and options thereon; and enter into various transactions such as swaps, caps, floors or collars. In addition, derivatives may include new techniques, instruments or strategies that are permitted as regulatory changes occur. Transactions in derivative instruments involve a risk of loss or depreciation due to: unanticipated adverse changes in securities prices, interest rates, indices, or 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 an investment in these instruments. In addition, the entire premium paid for purchased options may be lost before they can be profitably exercised. Transaction costs are incurred in opening and closing positions. Derivative instruments may sometimes increase or leverage exposure to a particular market risk, thereby increasing price volatility. Over-the-counter ("OTC") derivative instruments, equity swaps and forward sales of stocks involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in an exchange-traded derivative instrument, which may make the contract temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or futures option can vary from the previous day's settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the closing out of positions to limit losses. The staff of the Securities Exchange Commission (the "SEC") takes the position that certain purchased OTC options, and assets used as cover for written OTC options, are illiquid. The
ability to terminate OTC derivative instruments may depend on the cooperation of the counterparties to such contracts. For thinly traded derivative instruments, the only source of price quotations may be the selling dealer or counterparty. In addition, certain provisions of the Internal Revenue Code of 1986, as amended (the "Code") limit the use of derivative instruments. The Fund has claimed an exclusion from the definition of a Commodity Pool Operator ("CPO") under the Commodity Exchange Act and therefor is not subject to registration or regulation as a CPO. There can be no assurance that the use of derivative instruments will be advantageous.
Foreign exchange traded futures contracts and options thereon may be used only if the Adviser determines that trading on such foreign exchange does not entail risks, including credit and liquidity risks, that are materially greater than the risks associated with trading on CFTC-regulated exchanges.
SHORT SALES
The Fund may sell a security short if it owns at least an equal amount of the security sold short or another security convertible or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box).
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 Fund 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 Fund reserves the right to utilize short sales, the Adviser is under no obligation to utilize short sales at all.
SECURITIES LENDING
As described in the Prospectus, the Fund may lend a portion of its portfolio 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, 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 Fund 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 Fund may also seek to earn income on securities loans by reinvesting cash collateral in securities consistent with its investment objectives 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.
Securities loans 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 Fund 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 Fund or the borrower at any time. Upon termination and the return of the loaned securities, the Fund 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 Fund realizing a loss at a time when it would not otherwise do so. The Fund 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 Fund will receive amounts equivalent to any interest or other distributions paid on securities while they are on loan, and the Fund will not be entitled to exercise voting or other beneficial rights on loaned securities. The Fund will exercise its right to terminate loans and thereby regain these rights whenever the Adviser considers it to be in the Fund's interest to do so, taking into account the related loss of reinvestment income and other factors.
TEMPORARY INVESTMENTS
The Fund 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 Fund are designated as fundamental policies and as such cannot be changed without the approval of the holders of a majority of the Fund's outstanding voting securities, which as used in this SAI means the lesser of (a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders of more than 50% of the outstanding shares are present or represented at the meeting or (b) more than 50% of outstanding shares of the Fund. As a matter of fundamental policy the Fund may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940, as amended (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 (a) preferred shares which immediately after issuance will have asset coverage of at least 200%, (b) indebtedness which immediately after issuance will have asset coverage of at least 300% or (c) 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 Fund 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, as amended, in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan interests, debt securities and other obligations in which the Fund is authorized to invest in accordance with its investment objectives and policies, (b) entering into repurchase agreements and (c) lending its portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell securities which are secured by interests in real estate and securities of issuers which invest or deal in real estate. The Fund reserves the freedom of action to hold and to sell real estate acquired as a result of the ownership of securities;
(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, currencies, interest or other financial instruments;
(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 Fund 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 Fund securities. The 1940 Act currently requires that the Fund have 300% asset coverage with respect to all borrowings other than temporary borrowings.
For purposes of construing restriction (9), a large economic or market sector shall not be construed as a group of industries.
The Fund has adopted the following nonfundamental investment policy which may be changed by the Board without approval of the Fund's shareholders. As a matter of nonfundamental policy, the Fund may not make short sales of securities or maintain a short position, unless at all times when a short position is open the Fund either owns an equal amount of such securities or owns securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short.
Upon the Board's approval, the Fund 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 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 assets or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as a result of the Fund's 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 Fund to dispose of such security or other asset. Notwithstanding the foregoing, the Fund must always be in compliance with the borrowing policies set forth above.
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. Eaton Vance has engaged Parametric Portfolio Associates LLC ("Parametric" or the "Sub-Adviser") to serve as sub-adviser to the Fund to structure and manage the Fund's common stock portfolio, including tax harvesting and other tax management techniques, pursuant to an investment sub-advisory agreement (the "Sub-Advisory Agreement") between the Adviser and Parametric. Eaton Vance has also engaged Rampart Investment Management Company, Inc. ("Rampart" or the "Sub-Adviser") to serve as sub-adviser to the Fund to provide advice on and execution of the construction of the Fund's equity portfolio and options strategy, pursuant to an investment sub-advisory agreement (the "Sub-Advisory Agreement") between the Adviser and Rampart.
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME AND POSITION(S) AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER
DATE OF BIRTH WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) DIRECTORSHIPS HELD
------------- ------------- ----------------- ----------------------- ------------- ------------------
INTERESTED TRUSTEES
James B. Hawkes......... Trustee(2) and Since 3/30/05 Chairman, President and 197 Director of EVC
11/9/41 Vice President Three Years Chief Executive Officer of
BMR, Eaton Vance, EVC and
EV; Director of EV; Vice
President and Director of
EVD. Trustee and/or
officer of 195 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.
NONINTERESTED TRUSTEES
Benjamin C. Esty........ Trustee(2) Since 4/29/05 Professor, Harvard 135 None
1/2/63 Three Years University Graduate School
of Business Administration
(since 2003). Formerly
Associate Professor,
Harvard University
Graduate School of
Business Administration
(2000-2003).
Samuel L. Hayes, III.... Chairman of Chairman of the Jacob H. Schiff Professor 197 Director of
2/23/35 the Board and Board since 2005 of Investment Banking Tiffany & Co.
Trustee(2) and Trustee since Emeritus, Harvard (specialty
4/15/05. Three University Graduate School retailer) and
Years of Business Telect, Inc.
Administration. (telecommunication
services company)
|
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME AND POSITION(S) AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER
DATE OF BIRTH WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) DIRECTORSHIPS HELD
------------- ------------- ----------------- ----------------------- ------------- ------------------
William H. Park......... Trustee(3) Since 4/15/05 President and Chief 197 None
9/19/47 Three Years Executive Officer, Prizm
Capital Management, LLC
(investment management
firm) (since 2002).
Executive Vice President
and Chief Financial
Officer, United Asset
Management Corporation (a
holding company owning
institutional investment
management firms
(1982-2001).
Ronald A. Pearlman...... Trustee(3) Since 4/15/05 Professor of Law, 197 None
7/10/40 Three Years Georgetown University Law
Center (since 1999). Tax
Partner, Covington and
Burling, Washington, DC
(1991-2000).
Norton A. Reamer........ Trustee(4) Since 4/15/05 President, Chief Executive 197 None
9/21/35 Three Years Officer and a Director of
Asset Management Finance
Corp. (a specialty finance
company serving the
investment management
industry) (since October
2003). President, Unicorn
Corporation (an investment
and financial services
company) (since September
2000). Formerly, Chairman,
Hellman, Jordan Management
Co., Inc. (an investment
management company)
(2000-2003). Formerly,
Advisory Director of
Berkshire Capital
Corporation (investment
banking firm) (2002-2003).
Formerly, Chairman of the
Board, United Asset
Management Corporation (a
holding company owning
institutional investment
management firms) and
Chairman, President and
Director, UAM Funds
(mutual funds)
(1980-2000).
Lynn A. Stout........... Trustee(4) Since 4/15/05 Professor of Law, 197 None
9/14/57 Three Years University of California
at Los Angeles School of
Law (since July 2001).
Formerly, Professor of
Law, Georgetown University
Law Center
|
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME AND POSITION(S) AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER
DATE OF BIRTH WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) DIRECTORSHIPS HELD
------------- ------------- ----------------- ----------------------- ------------- ------------------
Ralph F. Verni.......... Trustee(4) Since 4/29/05 Consultant and private 135 Director of W.P.
1/26/43 Three Years investor (since 2000). Carey & Company
Formerly, President and LLC (manager of
Chief Executive Officer, real estate
Redwood Investment investment trusts)
Systems, Inc. (software
developer) (2000).
Formerly President and
Chief Executive Officer,
State Street Research &
Management (investment
adviser), SSRM Holdings
(parent of State Street
Research & Management),
and SSR Realty
(institutional realty
manager) (1992-2000).
|
(1) Includes both master and feeder funds in master-feeder structure.
(2) Class I Trustees whose term expires in 2006.
(3) Class II Trustees whose term expires in 2007.
(4) Class III Trustees whose term expires in 2008.
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF OFFICE AND PRINCIPAL OCCUPATIONS DURING
NAME AND DATE OF BIRTH POSITION(S) WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS
---------------------- ------------------------- ------------------ ----------------------------
Duncan W. Richardson.... President and Chief Since 3/30/05 Senior Vice President and
10/26/57 Executive Officer Chief Equity Investment
Officer of Eaton Vance and
BMR. Officer of 48
registered investment
companies managed by Eaton
Vance or BMR.
Thomas E. Faust Jr...... Vice President Since 3/30/05 Executive Vice President of
5/31/58 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 61 registered
investment companies managed
by Eaton Vance or BMR.
Michael R. Mach......... Vice President Since 3/30/05 Vice President of Eaton
7/15/47 Vance and BMR. Officer of 31
registered investment
companies managed by Eaton
Vance or BMR.
Judith A. Saryan........ Vice President Since 3/30/05 Vice President of Eaton
8/21/54 Vance and BMR. Officer of 30
registered investment
companies managed by Eaton
Vance or BMR.
Alan R. Dynner.......... Secretary Since 3/30/05 Vice President, Secretary
10/10/40 and Chief Legal Officer of
BMR, Eaton Vance, EVD EV and
EVC. Officer of 197
registered investment
companies managed by Eaton
Vance or BMR.
James L. O'Connor....... Treasurer and Principal Since 3/30/05 Vice President of Eaton
4/1/45 Financial and Accounting Vance, BMR and EVD. Officer
Officer of 121 registered investment
companies managed by Eaton
Vance or BMR.
|
TERM OF OFFICE AND PRINCIPAL OCCUPATIONS DURING
NAME AND DATE OF BIRTH POSITION(S) WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS
---------------------- ------------------------- ------------------ ----------------------------
Paul M. O'Neil.......... Chief Compliance Officer Since 3/30/05 Vice President of Eaton
7/11/53 Vance and BMR. Officer of
197 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.
Messrs. Hayes, Park, Pearlman and Reamer and Ms. Stout are members of the Governance Committee of the Board of Trustees of the Fund. Ms. Stout 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 a Chairperson of the Board of Trustees and compensation of such persons.
The Governance Committee will, when a vacancy exists or is anticipated, consider any nominee for noninterested Trustee recommended by a shareholder if such recommendation is submitted in writing to the Governance Committee, contains sufficient background information concerning the candidate including evidence the candidate is willing to serve as a noninterested Trustee if selected for the position and is received in a sufficiently timely manner.
Messrs. Reamer (Chairman), Hayes, Park, Verni and Ms. Stout are members
of the Audit Committee of the Board of Trustees of the Fund. The Board of
Trustees has designated Messrs. Hayes, Park and Reamer, each a noninterested
Trustee, as audit committee financial experts. The Audit Committee's purposes
are to (i) oversee the Fund's accounting and financial reporting processes, its
internal control over financial reporting, and, as appropriate, the internal
control over financial reporting of certain service providers; (ii) oversee or,
as appropriate, assist Board oversight of the quality and integrity of the
Fund's financial statements and the independent audit thereof; (iii) oversee,
or, as appropriate, assist Board oversight of, the Fund's compliance with legal
and regulatory requirements that relate to the Fund's accounting and financial
reporting, internal control over financial reporting and independent audits;
(iv) approve prior to appointment the engagement and, when appropriate,
replacement of the independent registered public accounting firm, and, if
applicable, nominate the independent registered public accounting firm to be
proposed for shareholder ratification in any proxy statement of the Fund; (v)
evaluate the qualifications, independence and performance of the independent
registered public accounting firm and the audit partner in charge of leading the
audit; and (vi) prepare, as necessary, audit committee reports consistent with
the requirements of Rule 306 of Regulation S-K for inclusion in the proxy
statement of the Fund.
Messrs. Hayes (Chairman), Esty, Park, Pearlman, Reamer and Ms. Stout 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, sub-advisory, 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 the interests of the Fund, or investors therein; and (iii) any other matter appropriate for review by the non-interested Trustees, unless the matter is within the responsibilities of the Audit Committee or the Governance Committee of the Fund.
As of the date of this SAI, the Governance Committee has met times, the Audit Committee and Special Committee have met times.
When considering approval of the Advisory Agreement between the Fund and the Adviser, and the Sub-Advisory Agreements between the Adviser and Parametric, and the Adviser and Rampart, 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, Rampart and Parametric;
- 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, and Parametric's results and financial condition and the overall organization of the Adviser and the Sub-Adviser;
- Eaton Vance's and Rampart's results and financial condition and the overall organization of the Adviser and the Sub-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 and the benefits received by the Adviser and the Sub-Advisers as the result of brokerage allocation, 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;
- Parametric's compliance efforts with respect to the accounts it manages;
- Rampart's compliance efforts with respect to the accounts it manages;
- The quality, nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance and its affiliates and by Parametric and Rampart;
- The terms of the Advisory Agreement and the Sub-Advisory Agreements, and the reasonableness and appropriateness of the particular fee paid by the Fund for the services described therein;
- 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 Sub-Advisory Agreement between the Adviser and Parametric, and the Sub-Advisory Agreement between the Adviser and Rampart, the Special Committee reviewed material furnished by Eaton Vance, Rampart and Parametric at the initial Board meeting held on April 18, 2005, 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 and under the Sub-Advisory Agreements. The Special Committee 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 Special Committee 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 Special Committee also considered the business reputation of the 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 Special Committee also considered the business reputations of Parametric and Rampart, Parametric's and Rampart's respective investment strategies and their past experience in implementing these strategies.
The Special Committee received information concerning the investment philosophy and investment process to be applied by Eaton Vance, Rampart and Parametric in managing the Fund. In this regard, the Special Committee 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 Special Committee concluded that Eaton Vance's, Parametric's and Rampart'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 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 Special Committee considered the other profits realized by Eaton Vance and its affiliates in connection with the operation of the Fund. The Special Committee also considered profit margins of Eaton Vance in comparison with available industry data. In addition, the Special Committee considered the fiduciary duty assumed by the Adviser in connection with the service rendered to the Fund and the business reputation of the Adviser, its financial resources and its professional liability insurance coverage. In evaluating the fees to be paid to Parametric and Rampart, the Special Committee considered and discussed fees paid to other investment sub-advisers in similar circumstances, as well as fees charged by Parametric and Rampart to their other clients.
The Special Committee did not consider any single factor as controlling in determining whether or not to approve the Advisory Agreement and the Sub-Advisory Agreements. Nor are the items described herein all encompassing of the matters considered by the Special Committee. In assessing the information provided by Eaton Vance, Parametric, Rampart and their affiliates, the Special Committee 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 Special Committee concluded that the approval of the Advisory Agreement and the Sub-Advisory Agreements, including the fee structure (described herein) is in the interests of shareholders. The Special Committee also considered that the Adviser would enter into an additional compensation agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, whereby the Adviser (and not the Fund) would pay Merrill Lynch, Pierce, Fenner & Smith Incorporated to provide upon request certain market data and reports to support shareholder services pursuant to the agreement.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the Trustee as of December 31, 2004.
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE OF EQUITY
EQUITY SECURITIES SECURITIES OWNED IN ALL REGISTERED
OWNED IN THE FUNDS OVERSEEN BY TRUSTEE IN THE
NAME OF TRUSTEE FUND EATON VANCE FUND COMPLEX
--------------- ----------------- ----------------------------------
INTERESTED TRUSTEE
James B. Hawkes.................................. None Over $100,000
NON-INTERESTED TRUSTEES
Benjamin C. Esty**............................... None None
Samuel L. Hayes, III............................. None Over $100,000
William H. Park.................................. None Over $100,000
Ronald A. Pearlman............................... None Over $100,000
Norton H. Reamer................................. None Over $100,000
Lynn A. Stout.................................... None Over $100,000*
Ralph F. Verni**................................. None None
|
* Includes shares which may be deemed to be beneficially owned through a Trustee Deferred Compensation Plan.
** Messrs. Esty and Verni were elected Trustees on April 29, 2005 and thus had no beneficial ownership of securities in the Fund or in the Eaton Vance Fund Complex as of December 31, 2004.
As of December 31, 2004, no non-interested Trustee or any of their immediate family members owned beneficially or of record any class of securities of EVC, EVD, Parametric or any person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric.
During the calendar years ended December 31, 2003 and December 31, 2004, no non-interested Trustee (or their immediate family members) had:
1. Any direct or indirect interest in Eaton Vance, EVC, EVD, Parametric, Rampart or any person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric;
2. Any direct or indirect material interest in any transaction or series of similar transactions with (i) the Fund; (ii) another fund managed by EVC, Rampart or Parametric, distributed by EVD or a person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric; (iii) EVC, EVD, Rampart or Parametric; (iv) a person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric; or (v) an officer of any of the above; or
3. Any direct or indirect relationship with (i) the Fund; (ii) another fund managed by EVC, Rampart or Parametric, distributed by EVD or a person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric; (iii) EVC, EVD, Rampart or Parametric; (iv) a person controlling, controlled by or under common control with EVC, EVD, Rampart or Parametric; or (v) an officer of any of the above.
During the calendar years ended December 31, 2003 and December 31, 2004 no officer of EVC, EVD, Parametric, Rampart or any person controlling, controlled by or under common control with EVC, EVD, Parametric or Rampart served on the Board of Directors of a company where a noninterested Trustee of the Fund or any of their immediate family members served as an officer.
Trustees of the Fund 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 Fund 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 Fund's assets, liabilities, and net income per share, and will not obligate the Fund to retain the services of any Trustee or obligate the Fund to pay any particular level of compensation to the Trustee. The Fund does not have a retirement plan for its Trustees.
The fees and expenses of the Trustees of the Fund are paid by the Fund. (A Trustee of the Fund who is a member of the Eaton Vance organization receives no compensation from the Fund.) For the Fund's fiscal year ending December 31, 2005, it is anticipated that the Trustees of the Fund will earn the following compensation in their capacities as Trustees. For the year ended December 31, 2004, the Trustees earned the compensation set forth below in their capacities as Trustees from the funds in the Eaton Vance fund complex(1).
SAMUEL L. WILLIAM H. RONALD A. NORTON H. LYNN A. BENJAMIN C. RALPH F.
SOURCE OF COMPENSATION HAYES, III PARK PEARLMAN REAMER STOUT ESTY VERNI
---------------------- ---------- ---------- --------- --------- -------- ----------- --------
Fund*................. $ $ $ $ $ $ $
Fund Complex**........ $200,000 $180,000(2) $180,000 $190,000 $190,000(3) $0 $0
|
* Estimated
** Mssers. Esty and Verni were elected on April 29, 2005 and they did not receive fees for the period.
(1) As of , 2005, the Eaton Vance fund complex consisted of 197 registered investment companies or series thereof.
(2) Includes $107,008 of deferred compensation.
(3) Includes $45,000 of deferred compensation.
PROXY VOTING POLICY. The Fund is subject to the Eaton Vance Funds Proxy Voting Policy and Procedures, 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 attached as Appendix A to this SAI. The Trustees will review the Fund'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 Fund's shareholders and the Adviser or any of its affiliates or any affiliate of the Fund, 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 Fund, except as contemplated under the Policies. The Board's Special Committee will instruct the Adviser on the appropriate course of action. The Fund's and the Adviser's Proxy Voting Policies and Procedures are attached as Appendix A to this SAI.
Information on how the Fund voted proxies relating to portfolio securities during the 12 month period ended June 30, 2005 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.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER. 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 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. 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, including corporations, hospitals, retirement plans, universities, foundations and trusts.
The Fund will be responsible for all of its costs and expenses not expressly stated to be payable by Eaton Vance under the Advisory Agreement or the Administration Agreement. Such costs and expenses to be borne by the Fund 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 Fund shares; and investment advisory and administration fees. The Fund will also bear expenses incurred in connection with any litigation in which the Fund is a party and any legal obligation to indemnify its officers and Trustees with respect thereto, to the extent not covered by insurance.
Pursuant to an investment advisory agreement between the Adviser and the Fund, the Fund has agreed to pay an investment advisory fee, payable on a monthly basis, at an annual rate of 1.00% of the average daily gross assets of the Fund. Gross assets of the Fund means total assets of the Fund, including any form of investment leverage that the Fund may in the future determine to utilize, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to any future investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility/commercial paper program or the issuance debt securities), (ii) the issuance of preferred shares or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund's investment objectives and policies and/or (iv) any other means.
The Advisory Agreement with the Adviser continues in effect for an initial period of two years until April 18, 2007, and from year to year thereafter so long as such continuance is approved at least annually (i) by the vote of a majority of the noninterested Trustees of the Fund or of the Adviser, such vote being 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 Fund or by vote of a majority of the outstanding shares of the Fund. The Fund's Administration Agreement continues in effect from year to year so long as such continuance is approved at least annually by the vote of a majority of the Fund's Trustees. Each agreement may be terminated at any time without penalty on sixty (60) days' written notice by the Trustees of the Fund or Eaton Vance, as applicable, or by vote of the majority of the outstanding shares of the Fund. Each agreement will terminate automatically in the event of its assignment. Each agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties to the Fund under such agreements on the part of Eaton Vance, Eaton Vance shall not be liable to the Fund for any loss incurred, to the extent not covered by insurance.
The Advisory Agreement provides that Eaton Vance may engage one or more investment sub-advisers to assist with some or all aspects of the management of the Fund's investments subject to such approvals as are required under the 1940 Act. Pursuant to these provisions, Eaton Vance has engaged Rampart, as a sub-adviser to provide assistance with the development, implementation and execution of the Fund's options strategy and Parametric, as a sub-adviser to structure and manage the Fund's common stock portfolio, including tax harvesting and other tax management techniques. The Advisory Agreement provides that Eaton Vance may terminate any sub-advisory agreement entered into and directly assume any functions performed by the sub-adviser, upon approval of the Board of Trustees, without the need for approval of the shareholders of the Fund.
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. Through its subsidiaries
and affiliates EVC 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., Vincent M. O'Reilly, Winthrop H.
Smith, Jr. and Ralph Z.
Sorenson. All shares of the outstanding Voting Common Stock of EVC are deposited in a voting trust, the voting trustees of which are Messrs. Hawkes, Faust, Jeffrey P. Beale, Alan R. Dynner, Thomas J. Fetter, Scott H. Page, Duncan W. Richardson, William M. Steul, Payson F. Swaffield, Michael W. Weilheimer and Wharton P. Whitaker (all of whom are officers of Eaton Vance). The voting trustees have unrestricted voting rights for the election of Directors of EVC. All of the outstanding voting trust receipts issued under said voting trust are owned by certain of the officers of BMR and Eaton Vance who are also officers, or officers and Directors of EVC and EV. As indicated under "Trustees and officers", all of the officers of the Fund (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 enter into transactions with various banks, including the custodian of the Fund, Investors Bank & Trust Company ("IBT"). It is Eaton Vance's opinion that the terms and conditions of such transactions were not and will not be influenced by existing or potential custodial or other relationships between the Fund and such banks.
THE SUB-ADVISER. Parametric acts as an investment sub-adviser to the Fund and structures and manages the Fund's common stock portfolio, including tax harvesting and other tax management techniques, pursuant to a sub-advisory agreement between the Adviser and Parametric (the "Sub-Advisory Agreement"). Parametric's principal office is located at 1151 Fairview Avenue North, Seattle, WA 98109. Parametric was founded in 1987. In September of 2003, Eaton Vance Corp, the parent company of Eaton Vance, acquired an 80% interest in the firm with the remaining 20% owned primarily by Parametric employees. Parametric specializes in managing broadly diversified, risk controlled and tax-efficient portfolios for institutional, high net worth investors and investment company clients and their advisers. Parametric managed approximately $9.2 billion in assets as of January 31, 2005.
Under the terms of its Sub-Advisory Agreement, Parametric provides structure and manages the Fund's common stock portfolio, including tax harvesting and other tax management techniques, all subject to the supervision and direction of the Fund's Board of Trustees and the Adviser. For services rendered by Parametric under its Sub-Advisory Agreement, Eaton Vance pays Parametric a fee, payable monthly, in an annual amount equal to 0.25% of the average daily gross assets of the Fund.
The Sub-Advisory Agreement with Parametric continues until April 18, 2007 and from year to year thereafter if approved annually (i) by the Fund's Board of Trustees or by the holders of a majority of its outstanding voting securities and (ii) by a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to the Sub-Advisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The Sub-Advisory Agreement terminates automatically on its assignment and may be terminated without penalty on 60 days written notice at the option of either the Adviser, by the Fund's Board of Trustees or by a vote of a majority (as defined in the 1940 Act) of the Fund's outstanding shares or by Parametric upon three months notice. As discussed above, Eaton Vance may terminate the Sub-Advisory Agreement with Parametric and directly assume responsibility for the services provided by Parametric upon approval by the Board of Trustees without the need for approval of the shareholders of the Fund.
The Sub-Advisory Agreement with Parametric provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, Parametric is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund.
Rampart acts as the Fund's investment sub-adviser and provides advice and assistance in pursuing the Fund's options strategy pursuant to a sub-advisory agreement between the Adviser and Rampart (the "Sub-Advisory Agreement"). Rampart, a Massachusetts corporation, was founded in 1983 by its current owners Ronald M. Egalka and David R. Fraley. The Sub-Adviser provides customized investment management services within a core competency in options to a spectrum of institutional clients. Since its inception, the Sub-Adviser has expanded its computer modeling and analytical capabilities and created tools to capitalize on opportunities in the capital markets. Rampart's principal office is located at One International Place, Boston, MA 02110. As of February 28, 2005 Rampart had approximately $2.7 billion of assets under management.
Under the terms of its Sub-Advisory Agreement, Rampart provides advice and assistance with the development, implementation and execution of the Fund's options strategy, all subject to the supervision and direction of the Fund's Board of Trustees and the Adviser. For services rendered by Rampart under the Sub-Advisory Agreement, Eaton Vance pays Rampart a fee, payable monthly, in an annual amount equal to 0.05% of the average daily gross assets of the Fund.
The Sub-Advisory Agreement with Rampart continues until April 18, 2007 and from year to year thereafter if approved annually (i) by the Fund's Board of Trustees or by the holders of a majority of its outstanding voting securities and (ii) by a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to the Sub-Advisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The Sub-Advisory Agreement terminates automatically on its assignment and may be terminated without penalty on 60 days' written notice at the option of either the Adviser, by the Fund's Board of Trustees or by a vote of a majority (as defined in the 1940 Act) of the Fund's outstanding shares or by Rampart upon three months notice. As discussed above, Eaton Vance may terminate the Sub-Advisory Agreement with Rampart and directly assume responsibility for the services provided by Rampart upon approval by the Board of Trustees without the need for approval of the shareholders of the Fund.
The Sub-Advisory Agreement with Rampart provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, Rampart is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund.
PORTFOLIO MANAGERS. The portfolio managers of the Fund are Walter A. Row of Eaton Vance, David Stein and Thomas Seto of Parametric and Ronald M. Egalka of Rampart. Each portfolio manager manages other investment companies and/or investment accounts in addition to the Fund. The following tables show, as of February 28, 2005, the number of accounts each portfolio manager managed in each of the listed categories and the total assets in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets in those accounts.
NUMBER OF TOTAL ASSETS
ACCOUNTS OF ACCOUNTS
NUMBER PAYING A PAYING A
OF TOTAL ASSETS OF PERFORMANCE PERFORMANCE
ACCOUNTS ACCOUNTS* FEE FEE
-------- --------------- ----------- ------------
WALTER A. ROW, III
Registered Investment Companies**.............. 3 $1,623 0 $0
Other Pooled Investment Vehicles............... 0 $ 0 0 $0
Other Accounts................................. 0 $ 0 0 $0
DAVID STEIN
Registered Investment Companies................ 7 $ 949 0 $0
Other Pooled Investment Vehicles............... 0 $ 0 0 $0
Other Accounts................................. 5,268 $8,650 0 $0
THOMAS SETO
Registered Investment Companies................ 7 $ 949 0 $0
Other Pooled Investment Vehicles............... 0 $ 0 0 $0
Other Accounts................................. 5,268 $8,650 0 $0
RONALD M. EGALKA
Registered Investment Companies................ 2 $1,701 0 $0
Other Pooled Investment Vehicles............... 0 $ 0 0 $0
Other Accounts................................. 307 $1,041 0 $0
|
* In millions of dollars.
** For registered investment companies, assets represent net assets of all open-end investment companies and gross assets of all closed-end investment companies.
None of the portfolio managers beneficially owned shares of the Fund as of the date of this SAI.
It is possible that conflicts of interest may arise in connection with the portfolio managers' management of the Fund's investments on the one hand and the investments of other accounts for which the Fund manager is responsible for on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he advises. In addition due to differences in the investment strategies or restrictions between the Fund and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance-based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his discretion in a manner that he believes is equitable to all interested persons.
EATON VANCE'S COMPENSATION STRUCTURE AND METHOD TO DETERMINE COMPENSATION. Compensation of the Adviser's portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus and (3) annual stock-based compensation consisting of options to purchase shares of EVC's nonvoting common stock and/or restricted shares of EVC's nonvoting common stock. The Adviser's investment professionals also receive certain retirement, insurance and other benefits that are broadly available to all the Adviser's employees. Compensation of the Adviser's investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year-end of EVC.
The Adviser compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus appropriate peer groups or benchmarks. Performance is normally based on periods ending on the September 30th preceding fiscal year-end. Fund performance is evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. In evaluating the performance of a fund and its manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to risk-adjusted performance. For funds with an investment objective other than total return (such as current income), consideration will also be given to the fund's success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance.
The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers' performance in meeting them.
The Adviser seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. The Adviser participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of the Adviser and its parent company. The overall annual cash bonus pool is based on a substantially fixed percentage of pre-bonus operating income. While the salaries of the Adviser's portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.
Parametric's Compensation Structure and Method to Determine Compensation. Compensation of Parametric portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) a quarterly cash bonus and (3) annual stock-based compensation consisting of options to purchase shares of EVC's nonvoting common stock. Parametric investment professionals also receive certain retirement, insurance and other benefits that are broadly available to Parametric employees. Compensation of Parametric investment professionals is reviewed primarily on an annual basis. Stock-based compensation awards and adjustments in base salary and bonus are typically paid and/or put into effect at or shortly after calendar year-end.
Parametric seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. The performance of portfolio managers is evaluated primarily based on success in achieving portfolio objectives for managed funds and accounts. The compensation of portfolio managers with other job responsibilities (such as product development) will include consideration of the scope of such responsibilities and the managers' performance in meeting them.
Salaries, bonuses and stock-based compensation are also influenced by the operating performance of Parametric and EVC, its parent company. Cash bonuses are determined based on a target percentage of Parametric profits. While the salaries of Parametric portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate substantially from year to year, based on changes in financial performance and other factors.
Rampart's Compensation Structure and Method to Determine Compensation. The identified Rampart portfolio manager is a founding shareholder. The compensation of the identified portfolio manager has two primary components: (1) a base salary, and (2) an annual cash bonus. There are also certain retirement, insurance and other benefits that are broadly available to all Rampart employees. Compensation of Rampart investment professionals is reviewed primarily on an annual basis. Cash bonuses and adjustments in base salary are typically paid or put into effect at or shortly after the June 30 fiscal year-end of Rampart.
Method to Determine Compensation. Rampart compensates its founding shareholders/identified portfolio managers based primarily on the scale and complexity of their responsibilities. The performance of portfolio managers is evaluated primarily based on success in achieving portfolio objectives for managed funds and accounts. Rampart seeks to compensate all portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. This is reflected in the founding shareholders/identified portfolio managers' salaries.
Salaries and profit participations are also influenced by the operating performance of Rampart. While the salaries of Rampart's founding shareholders/identified portfolio managers are comparatively fixed, profit participations may fluctuate substantially from year to year, based on changes in financial performance.
CODES OF ETHICS
The Adviser, Parametric, Rampart and the Fund have adopted Codes of Ethics governing personal securities transactions. Under the Codes of Ethics, Eaton Vance, Rampart and Parametric employees may purchase and sell securities (including securities held or eligible for purchase by the Fund) subject to certain pre-clearance and reporting requirements and other procedures.
The Codes of Ethics 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 by sending a written request and payment of copying fees to the SEC's public reference section, at Washington, DC 20549-0102, or by electronic mail at publicinfo@sec.gov.
INVESTMENT ADVISORY SERVICES
Under the general supervision of the Fund's Board of Trustees, Eaton Vance will carry out the investment and reinvestment of the assets of the Fund, will furnish continuously an investment program with respect to the Fund, will determine which securities should be purchased, sold or exchanged, and will implement such determinations and will supervise the overall activities of the Sub-Advisers. Eaton Vance will furnish to the Fund investment advice and provide related office facilities and personnel for servicing the investments of the Fund. Eaton Vance will compensate all Trustees and officers of the Fund who are members of the Eaton Vance organization and who render investment services to the Fund, and will also compensate all other Eaton Vance personnel who provide research and investment services to the Fund.
ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the business affairs of the Fund, subject to the supervision of the Fund's Board of Trustees. Eaton Vance will furnish to the Fund all office facilities, equipment and personnel for administering the affairs of the Fund. Eaton Vance will compensate all Trustees and officers of the Fund who are members of the Eaton Vance organization and who render executive and administrative services to the Fund, and will also compensate all other Eaton Vance personnel who perform management and administrative services for the Fund. Eaton Vance's administrative services include recordkeeping, preparation and filing of documents required to comply with federal and state securities laws, supervising the activities of the Fund's custodian and transfer agent, providing assistance in connection with the Trustees' and shareholders' meetings, providing services in connection with repurchase offers, if any, and other administrative services necessary to conduct the Fund's business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined no less frequently than daily, on each day 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 Fund's net asset value per share is determined by IBT, in the manner authorized by the Trustees of the Fund. Net asset value is computed by dividing the value of the Fund's total assets, less its liabilities, by the number of shares outstanding.
The Trustees of the Fund have established the following procedures for fair valuation of the Fund's assets under normal market conditions. Marketable securities listed on foreign or U.S. securities exchanges generally are valued at closing sale prices or, if there were no sales, at the mean between the closing bid and asked prices therefor on the exchange where such securities are principally traded (unless an active over-the-counter market in an exchange listed security better reflects current market value). Marketable securities listed on the NASDAQ National Market System are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sale prices are not available are valued at the mean between the latest bid and asked prices. An exchange-traded option is valued on the valuation day at the "Primary Market" quote reported by the Option Price Reporting Authority ("OPRA"). OPRA gathers options quotations from the six major U.S. options exchanges and reports the last sale price from any exchange on which the option is listed. If no such sales are reported, such option will be valued at the mean of the closing bid and asked prices on the valuation day on the exchange on which the options are primarily traded. When the Fund writes a call option it records the premium as an asset and equivalent liability and thereafter adjusts the liability to the market value of the option determined in accordance with the preceding sentence.
The Adviser and the valuation committee may implement new pricing methodologies or expand mark-to-market valuation of debt securities whose market prices are not readily available in the future, which may result in a change in the Fund's net asset value per share. The Fund's net asset value per share will also be affected by fair value pricing decisions and by changes in the market for such debt securities. In determining the fair value of a debt security, the Adviser will consider relevant factors, data, and information, including: (i) the characteristics of and fundamental analytical data relating to the debt
security, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate of the debt security, the
terms and conditions of the debt security and any related agreements, and the
position of the debt security in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Fund'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
debt security, including price quotations for and trading in the debt security
and interests in similar debt securities and the market environment and investor
attitudes towards the debt security and interests in similar debt securities;
(v) the experience, reputation, stability and financial condition of the agent
and any intermediate participants in the debt security; and (vi) general
economic and market conditions affecting the fair value of the debt security.
The fair value of each debt security is reviewed and approved by the Adviser's
valuation committee and the Fund's Trustees.
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 prices obtained from a broker (typically the counterparty to the options) on the valuation day. 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 which 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 Fund's Trustees considering relevant factors, data and information, including the market value of freely tradable securities of the same class in the principal market on which such securities are normally traded.
All other securities are valued at fair value as determined in good faith by or at the direction of the Trustees.
The daily valuation of foreign equity securities held by the Fund generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the Exchange. The Fund may rely on an independent pricing service in making any such adjustment. Foreign securities held by the Fund 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 security transactions, including the selection of the market and the executing firm, are made by Eaton Vance, the Fund's Adviser, Parametric or Rampart as the Sub-Advisers. As used below, "Adviser" refers to Eaton Vance, Parametric, and Rampart, as applicable. The Adviser is also responsible for the execution of transactions for all other accounts managed by it. The Adviser places the portfolio security transactions for execution with many firms. The Adviser uses its best efforts to obtain execution of portfolio security transactions at prices which are advantageous to the Fund 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. In addition, the Advisers may consider the receipt of Proprietary Research Services (as defined below), provided it does not compromise the Advisers' obligations to seek best overall execution. The Adviser may engage in portfolio brokerage transaction with a broker-dealer firm that sells shares of Eaton Vance funds, provided such transactions are not directed to that firm as compensation for the promotion or sale of such shares.
Transactions on stock exchanges and other agency transactions involve the payment of negotiated brokerage commissions. Such transactions will be conducted in conformity with the rules under the 1940 Act. Such commissions vary among different broker-dealer firms, and a particular broker-dealer may charge different commissions according to such factors as the difficulty and size of the transaction and the volume of business done with such broker-dealer. Transactions in foreign securities often involve the payment of brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid or received usually includes an undisclosed dealer markup or markdown. In an underwritten offering the price paid often includes a disclosed fixed commission or discount retained by the underwriter or dealer.
Although spreads or commissions paid on portfolio security transactions will, in the judgment of the Adviser, be reasonable in relation to the value of the services provided, commissions exceeding those which another firm might charge may be paid to broker-dealers who were selected to execute transactions on behalf of the 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, as amended, a broker or dealer who executes a portfolio transaction on behalf of the Fund may receive a commission which 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. Brokerage and research services may include advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; effecting securities transactions and performing functions incidental thereto (such as clearance and settlement); and the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the advisers of investment companies, institutions and other investors to receive research, analytical, statistical and quotation services, data, information and other services, products and materials which assist such advisers in the performance of their investment responsibilities ("Research Services") from broker-dealer firms which execute portfolio transactions for the clients of such advisers and from affiliates of executing broker-dealers. Advisers also commonly receive Research Services from research providers that are not affiliated with an executing broker-dealer, but which have entered into payment arrangements involving an executing broker-dealer ("Third Party Research Services"). Under a typical Third Party Research Services payment arrangement, the research provider agrees to provide services to an Adviser in exchange for specified payments to the research provider by a broker-dealer that executes portfolio transactions for clients of the Adviser. The Adviser and the executing broker-dealer enter into a related agreement specifying the amount of brokerage business the Adviser will direct to the executing broker-dealer to offset payments made by the executing broker-dealer for Third Party Research Services received by the Adviser. For example, the Adviser may agree to direct brokerage business generating $45,000 in commissions on portfolio transactions to a broker-dealer firm as consideration for the executing broker-dealer making payments of $30,000 to a provider of Third Party Research Services. The ratio of the commissions to be paid to an executing broker-dealer as consideration for Third Party Research Services over the cost borne by the executing broker-dealer in
connection with providing such services to the Adviser is referred to herein as the "Third Party Research Services Payment Ratio."
Consistent with the foregoing practices, the Adviser receives Research Services from many broker-dealer firms with which the Adviser places the Fund's transactions and from third parties with which these broker-dealers have arrangements. The Fund 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.
Research Services received by the Advisers 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, pricing and quotation equipment and services, and research oriented computer hardware, software, databases 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 which 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 Fund 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 which the Adviser believes are useful or of value to it in rendering investment advisory services to its clients.
In the event that the Adviser executes Fund securities transactions with a broker-dealer and the associated commission is consideration for Third Party Research Services (as described above), the Adviser has agreed to reduce the advisory fee payable by the Fund by an amount equal to the commission payment associated with the transaction divided by the applicable Third Party Research Services Payment Ratio.
Some executing broker-dealers develop and make available directly to their brokerage customers proprietary Research Services ("Proprietary Research Services"). As a general matter, broker-dealers bundle the cost of Proprietary Research Services with trade execution services rather than charging separately for each. In such circumstances, the independent cost or other value of the Proprietary Research Services cannot be determined. The advisory fee paid by the Fund will not be reduced in connection with the receipt of Proprietary Research Services by the Adviser.
The investment companies sponsored by the Adviser or its affiliates may allocate brokerage commissions to acquire information relating to the performance, fees and expenses of such companies and other mutual funds, which information is used by the Directors or Trustees of such companies to fulfill their responsibility to oversee the quality of the services provided by various entities, including the Adviser. Such companies may also pay cash for such information.
Securities considered as investments for the Fund 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 Fund 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 Fund 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 Fund from time to time, it is the
opinion of the Trustees of the Fund that the 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 Nicholson Graham LLP, counsel to the Fund. The Fund intends to elect to be treated and to qualify each year as a regulated investment company ("RIC") under the Code.
Qualification as a RIC requires, among other things, that the Fund: (i)
derive in each taxable year at least 90% of its gross income from: (a)
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gain from options,
futures and forward contracts) derived with respect to its business of investing
in such stock, securities or foreign currencies; and (b) net income derived from
interests in certain publicly traded partnerships that are treated as
partnerships for U.S. federal income tax purposes and that derive less than 90%
of their gross income for the items described in (a) above (each a "Qualified
Publicly Traded Partnership"); and (ii) diversify its holdings so that, at the
end of each quarter of each taxable year: (a) at least 50% of the value of the
Fund's total assets is represented by (I) cash and cash items, U.S. government
securities, the securities of other regulated investment companies and (II)
other securities, with such other securities limited, in respect to any one
issuer, to an amount not greater than 5% of the value of the Fund's total assets
and not more than 10% of the outstanding voting securities of such issuer and
(b) not more than 25% of the value of the Fund's total assets is invested in the
securities (other than U.S. government securities and the securities of other
regulated investment companies) of (i) any one issuer, (ii) any two or more
issuers that the Fund controls and that are determined to be engaged in the same
or similar trades or businesses or related trades or businesses or (iii) any one
or more Qualified Publicly Traded Partnerships.
As a RIC, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income (as that term is defined in the Code, but without regard to the deductions for dividends paid)and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes in each taxable year to its shareholders, provided that it distributes at least 90% of its investment company taxable income for such taxable year. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gain. In order to avoid incurring a nondeductible 4% federal excise tax obligation, the Code requires that the Fund 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, (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, and (iii) 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 Fund paid no federal income tax. Under current law, provided that the Fund qualifies as a RIC for federal income tax purposes, the Fund should not be liable for any income, corporate excise or franchise tax in The Commonwealth of Massachusetts.
If the Fund does not qualify as a RIC for any taxable year, the Fund'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. Such distributions generally would be eligible (i) to be treated as qualified dividend income in the case of individual and other noncorporate shareholders and (ii) for the dividends received deduction ("DRD") in the case of
corporate shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.
For U.S. federal income tax purposes, distributions paid out of the Fund's current or accumulated earnings and profits will, except in the case of distributions of qualified dividend income and capital gain dividends described below, be taxable as ordinary dividend income. Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax Act"), certain income distributions paid by the Fund (whether paid in cash or reinvested in additional Fund shares) to individual taxpayers are taxed at rates applicable to net long-term capital gains (15%, or 5% for individuals in the 10% or 15% tax brackets). This tax treatment applies only if certain holding period requirements and other requirements are satisfied by the shareholder and the dividends are attributable to qualified dividend income received by the Fund itself. For this purpose, "qualified dividend income" means dividends received by the Fund from United States corporations and "qualified foreign corporations," provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations. These special rules relating to the taxation of ordinary income dividends paid by RICs generally apply to taxable years beginning after December 31, 2002 and beginning before January 1, 2009. Thereafter, the Fund's dividends, other than capital gain dividends, will be fully taxable at ordinary income tax rates unless further Congressional action is taken. There can be no assurance as to what portion of the Fund's dividend distributions will qualify for favorable treatment under the Tax Act.
Shareholders receiving any distribution from the Fund in the form of additional shares pursuant to the dividend reinvestment plan will be treated as receiving a taxable distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.
Dividends of investment company taxable income designated by the Fund and
received by corporate shareholders of the Fund will qualify for the DRD to the
extent of the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A dividend received by the Fund will not be
treated as a qualifying dividend (i) if the stock on which the dividend is paid
is considered to be "debt-financed" (generally, acquired with borrowed funds),
(ii) if the Fund fails to meet certain holding period requirements for the stock
on which the dividend is paid or (iii) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property. Moreover, the
DRD may be disallowed or reduced if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or by
application of the Code.
Distributions of net capital gain, if any, designated as capital gains dividends are taxable to a shareholder as long-term capital gains, regardless of how long the shareholder has held Fund shares. A distribution of an amount in excess of the Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income.
The Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount retained. In such case, it may designate the retained amount as undistributed capital gains in a notice to its shareholders who will be treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will (i) be required to report his pro rata share of such gain on his tax return as long-term capital gain, (ii) receive a refundable tax credit for his pro rata share of tax paid by the Fund on the gain and (iii) increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit.
Selling shareholders will generally recognize gain or loss in an amount
equal to the difference between the shareholder's adjusted tax basis in the
shares sold and the sale proceeds. If the 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, or (ii) 15% for gains recognized on the sale of capital assets held for more than one year (as well as certain capital gain distributions) (5% for individuals in the 10% or 15% tax brackets).
Any loss realized upon the sale or exchange of Fund shares with a holding period of six 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 sale or other disposition of Fund shares may be disallowed under "wash sale" rules to the extent the shareholder acquires other shares of the same Fund (whether through the reinvestment of distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the common shares. 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 Fund (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 Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund'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 Fund'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 Fund'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 Fund may be "spilled back" and treated as paid by the Fund (except for purposes of the non-deductible 4% federal 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.
The Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
The benefits of the reduced tax rates applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative minimum tax to individual shareholders.
In the case of Fund transactions involving S&P 500 call options (or other listed options on broad-based securities indices), Code Section 1256 generally will require any gain or loss arising from the lapse, closing out or exercise of such positions to be treated as 60% long-term and 40% short-term capital gain or loss. In addition, the Fund generally will be required to "mark to market" (i.e., treat as sold for fair market value) each outstanding index option position at the close of each taxable year (and on October 31 of each year for excise tax purposes). If a Section 1256 Contract held by the Fund at the end of a taxable year is sold in the following year, the amount of any gain or loss realized on such sale will be adjusted to reflect the gain or loss previously taken into account under the "mark to market" rules. In addition to most index call options, Section 1256 Contracts include certain other options contracts, certain regulated futures contracts, and certain other financial contracts.
The Code contains special rules that apply to "straddles," defined generally as the holding of "offsetting positions with respect to personal property." For example, the straddle rules normally apply when a taxpayer holds stock and an offsetting option with respect to such stock or substantially identical stock or securities. In general, investment positions will be offsetting if there is a substantial diminution in the risk of loss from holding one position by reason of holding one or more other positions. The Fund expects that the index call options it writes will not be considered straddles for this purpose because the Fund's portfolio of common stocks will be sufficiently dissimilar from the components of the S&P 500 and
the NASDAQ-100 under applicable guidance established by the Internal Revenue Service ("the Service"). Under certain circumstances, however, the Fund may enter into options transactions or certain other investments that may constitute positions in a straddle. If two or more positions constitute a straddle, recognition of a realized loss from one position must generally be deferred to the extent of unrecognized gain in an offsetting position. In addition, long-term capital gain may be recharacterized as short-term capital gain, or short-term capital loss as long-term capital loss. Interest and other carrying charges allocable to personal property that is part of a straddle are not currently deductible but must instead be capitalized. Similarly, "wash sale" rules apply to prevent the recognition of loss by the Fund from the disposition of stock or securities at a loss in a case in which identical or substantially identical stock or securities (or an option to acquire such property) is or has been acquired within a prescribed period.
The Code allows a taxpayer to elect to offset gains and losses from positions that are part of a "mixed straddle." A "mixed straddle" is any straddle in which one or more but not all positions are Section 1256 Contracts. The Fund may be eligible to elect to establish one or more mixed straddle accounts for certain of its mixed straddle trading positions. The mixed straddle account rules require a daily "marking to market" of all open positions in the account and a daily netting of gains and losses from all positions in the account. At the end of a taxable year, the annual net gains or losses from the mixed straddle account are recognized for tax purposes. The net capital gain or loss is treated as 60% long-term and 40% short-term capital gain or loss if attributable to the Section 1256 Contract positions, or all short-term capital gain or loss if attributable to the non-Section 1256 Contract positions.
The Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in stock and certain other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end of the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at least the next sixty days after the hedging transaction is closed.
Gain or loss from a short sale of property is generally considered as capital gain or loss to the extent the property used to close the short sale constitutes a capital asset in the Fund's hands. Except with respect to certain situations where the property used to close a short sale has a long-term holding period on the date the short sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated as a long-term capital loss if, on the date of the short sale, "substantially identical property" has been held by the Fund for more than one year. In addition, entering into a short sale may result in suspension of the holding period of "substantially identical property" held by the Fund.
Gain or loss on a short sale will generally not be realized until such time as the short sale is closed. However, as described above in the discussion of constructive sales, if the Fund holds a short sale position with respect to securities that have appreciated in value, and it then acquires property that is the same as or substantially identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the short sale were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to securities and then enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain as if the appreciated financial position were sold at its fair market value on the date it enters into the short sale. The subsequent holding period for any appreciated financial position that is subject to these constructive sale rules will be determined as if such position were acquired on the date of the constructive sale.
The Fund's transactions in futures contracts and options will be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital, or short-term or long-term), may accelerate recognition of income to the Fund and may defer Fund losses. These rules could, therefore, affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they
were closed out), and (b) may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the 90% distribution requirement for qualifying to be taxed as a RIC and the 98% distribution requirement for avoiding excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate entries in its books and records when it acquires any futures contract, option or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the Fund from being taxed as a regulated investment company.
Further, certain of the Fund's investment practices are subject to
special and complex federal income tax provisions that may, among other things,
(i) convert dividends that would otherwise constitute qualified dividend income
into short-term capital gain or ordinary income taxed at the higher rate
applicable to ordinary income, (ii) treat dividends that would otherwise be
eligible for the corporate dividends received deduction as ineligible for such
treatment, (iii) disallow, suspend or otherwise limit the allowance of certain
losses or deductions, (iv) convert long-term capital gain into short-term
capital gain or ordinary income, (v) convert an ordinary loss or deduction into
a capital loss (the deductibility of which is more limited) and (vi) cause the
Fund to recognize income or gain without a corresponding receipt of cash; (vii)
adversely affect the time as to when a purchase or sale of stock or securities
is deemed to occur, (viii) adversely alter the characterization of certain
complex financial transactions, and (ix) produce income that will not qualify as
good income for purposes of the 90% annual gross income requirement described
above.
Dividends and interest received, and gains realized, by the Fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (collectively "foreign taxes") that would reduce the return on its securities. Tax conventions between certain countries and the United States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. Shareholders will generally not be entitled to claim a credit or deduction with respect to foreign taxes paid by the Fund.
The Fund may invest in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, the Fund will be subject to federal income tax on a portion of any "excess distribution" received on the stock of a PFIC or of any gain from disposition of that stock (collectively "PFIC income"), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and interest obligation, the Fund will be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain -- which it may have to distribute to satisfy the distribution requirement and avoid imposition of the excise tax -- even if the QEF does not distribute those earnings and gain to the Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain of its requirements.
The Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC's stock over the Fund's adjusted basis therein as of the end of that year. Pursuant to the election, the Fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains (reduced by any prior deductions) with respect to that stock included by the Fund for prior taxable years under the election. The Fund's adjusted basis in each PFIC's stock with respect to which it has made this election will be adjusted to reflect the amounts of income included and deductions taken thereunder.
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss.
Amounts paid by the Fund to individuals and certain other shareholders who have not provided the Fund with their correct taxpayer identification number ("TIN") and certain certifications required by the Service as well as shareholders with respect to whom the Fund has received certain information from the Service or a broker may be subject to "backup" withholding of federal income tax arising from the Fund's taxable dividends and other distributions as well as the gross proceeds of sales of shares, at a rate of 28% for amounts paid during 2005. 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 federal income tax liability, if any, provided that the required information is furnished to the Service.
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 Statement of Additional Information, and does not address special tax rules applicable to certain types of investors, such as corporate and foreign investors. Unless otherwise noted, this discussion assumes that an investor is a U.S. person and holds Common Shares as a capital asset. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the Service retroactively or prospectively. Investors should consult their tax advisors regarding other federal, state or local tax considerations that may be applicable to their particular circumstances, as well as any proposed tax law changes.
OTHER INFORMATION
The Fund 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 Fund property or the acts, obligations or affairs of the Fund. The Declaration of Trust, together with the Fund's By-laws, also provides for indemnification out of Fund property of any shareholder held personally liable for the claims and liabilities to which a shareholder may become subject by sole reason of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself is unable to meet its obligations. The Fund has been advised by its counsel that the risk of any shareholder incurring any liability for the obligations of the Fund is remote.
The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law; but nothing in the Declaration of Trust protects a Trustee against any liability to the Fund or its shareholders to which he or she 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 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 Fund's custodian or by votes cast at a meeting called for that purpose. The Declaration of Trust further provides that the Trustees of the Fund shall promptly call a meeting of the shareholders for the purpose of voting upon a question of removal of any such Trustee or Trustees when requested in writing to do so by the record holders of not less than 10% of the outstanding shares.
The Fund's Prospectus and this SAI do not contain all of the information set forth in the Registration Statement that the Fund 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 REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP, Boston, Massachusetts is the independent registered public accounting firm for the Fund, providing audit services, tax return preparation, and assistance and consultation with respect to the preparation of filings with the SEC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO BE ADDED BY AMENDMENT
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF , 2005
ASSETS
Cash...................................................... $
Offering costs............................................
Receivable from Adviser...................................
----
Total assets.............................................. $
====
LIABILITIES
Accrued offering costs.................................... $
Accrued organizational costs..............................
Total liabilities......................................... $
====
Net assets applicable to common shares of
beneficial interest issued and outstanding................ $
====
NET ASSET VALUE AND OFFERING PRICE PER SHARE................ $
====
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STATEMENT OF OPERATIONS
PERIOD FROM MARCH 30, 2005 (DATE OF ORGANIZATION) THROUGH , 2005
INVESTMENT INCOME........................................... $ --
----
EXPENSES
Organization costs........................................ $
Expense reimbursement..................................... $( )
----
Net expenses........................................... $ --
----
NET INVESTMENT INCOME....................................... $ --
====
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See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION
The Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") was organized as a Massachusetts business trust on March 30, 2005 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 Fund'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, directly provided certain organizational services to the Fund at no expense. The costs of such services are not material.
Eaton Vance Management, or an affiliate, has agreed to pay all offering costs (other than sales loads) that exceed $0.04 per common share. The total estimated fund offering costs are $ , of which the Fund would pay $ and Eaton Vance Management would pay $ based on such estimate. The total estimated Fund offering costs includes the $.00667 per common share the Fund has agreed to pay the underwriters as a partial reimbursement of expenses incurred in connection with the offering.
The Fund's primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the Fund will evaluate returns on an after-tax basis, seeking to minimize and defer shareholder federal income taxes. Under normal market conditions, the Fund's investment program will consist primarily of (1) owning a diversified portfolio of common stocks, a segment of which (the "S&P 500 Segment") seeks to exceed the total return performance of the S&P 500 Composite Stock Price Index (the "S&P 500") and a segment of which (the "NASDAQ-100 Segment") seeks to exceed the total return performance of the NASDAQ-100 Index (the NASDAQ-100") and (2) selling on a continuous basis S&P 500 call options on at least 80% of the value of the S&P 500 Segment and NASDAQ-100 call options on at least 80% of the value of the NASDAQ-100 Segment.
NOTE 2: ACCOUNTING POLICIES
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates. Actual results may differ from those estimates.
The Fund'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 Fund 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 Fund, the Fund has agreed to pay an investment advisory fee, payable on a monthly basis, at an annual rate of 1.00% of the average daily gross assets of the Fund. Gross assets of the Fund 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.
Pursuant to a sub-advisory agreement among the Fund, the Adviser and Parametric Portfolio Associates LLC ("Parametric"), the Adviser has agreed to pay a sub-advisory fee to Parametric, in an annual amount equal to 0.25% of the average daily gross assets of the Fund.
Pursuant to a sub-advisory agreement among the Fund, the Adviser and Rampart Investment Management Company, Inc. ("Rampart"), the Adviser has agreed to pay a sub-advisory fee to Rampart, in an annual amount equal to 0.05% of the average daily gross assets of the Fund.
NOTE 4: FEDERAL INCOME TAXES
The Fund 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.
APPENDIX A
EATON VANCE FUNDS
Proxy Voting Policy and Procedures
I. OVERVIEW
The Boards of Trustees (the "Boards") of the Eaton Vance Funds (the "Funds") recognize that it is their fiduciary responsibility to actively monitor the Funds' operations. The Boards have always placed paramount importance on their oversight of the implementation of the Funds' investment strategies and the overall management of the Funds' investments. A critical aspect of the investment management of the Funds continues to be the effective assessment and voting of proxies relating to the Funds' portfolio securities. While the Boards will continue to delegate the day-to-day responsibilities relating to the management of the proxy-voting process to the relevant investment adviser or sub-adviser, if applicable, of the Fund (or its underlying portfolio in the case of a master-feeder arrangement), the Boards have determined that it is in the interests of the Funds' shareholders to adopt these written proxy voting policy and procedures (the "Policy"). For purposes of this Policy the term "Fund" shall include a Fund's underlying portfolio in the case of a master-feeder arrangement and the term "Adviser" shall mean the adviser to a Fund or its sub-adviser if a sub-advisory relationship exists.
II. DELEGATION OF PROXY VOTING RESPONSIBILITIES
Pursuant to investment advisory agreements between each Fund and its Adviser, the Adviser has long been responsible for reviewing proxy statements relating to Fund investments and, if the Adviser deems it appropriate to do so, to vote proxies on behalf of the Funds. The Boards hereby formally delegate this responsibility to the Adviser, except as otherwise described in this Policy. In so doing, the Boards hereby adopt on behalf of each Fund the proxy voting policies and procedures of the Adviser(s) to each Fund as the proxy voting policies and procedures of the Fund. The Boards recognize that the Advisers may from time to time amend their policies and procedures. The Advisers will report material changes to the Boards in the manner set forth in Section IV below. In addition, the Boards will annually review and approve the Advisers' proxy voting policies and procedures.
III. DELEGATION OF PROXY VOTING DISCLOSURE RESPONSIBILITIES
The Securities and Exchange Commission (the "Commission") recently enacted certain new reporting requirements for registered investment companies. The Commission's new regulations require that funds (other than those which invest exclusively in non-voting securities) make certain disclosures regarding their proxy voting activities. The most significant disclosure requirement for the Funds is the duty pursuant to Rule 30b1-4 promulgated under the Investment Company Act of 1940, as amended (the "1940 Act"), to file Form N-PX no later than August 31st of each year beginning in 2004.
Under Form N-PX, each Fund will be required to disclose, among other things, information concerning proxies relating to the Fund's portfolio investments, whether or not the Fund (or its Adviser) voted the proxies relating to securities held by the Fund and how it voted in the matter and whether it voted for or against management.
The Boards hereby delegate to each Adviser the responsibility for recording, compiling and transmitting in a timely manner all data required to be filed on Form N-PX to Eaton Vance Management, which acts as administrator to each of the Funds (the "Administrator"), for each Fund that such Adviser manages. The Boards hereby delegate the responsibility to file Form N-PX on behalf of each Fund to the Administrator.
IV. CONFLICTS OF INTEREST
The Boards expect each Adviser, as a fiduciary to the Fund(s) it manages, to put the interests of each Fund and its shareholders above those of the Adviser. In the event that in connection with its proxy
voting responsibilities a conflict of interest arises between a Fund's shareholders and the Fund's Adviser or the Administrator (or any of their affiliates) or any affiliated person of the Fund, the Adviser, to the extent it is aware or reasonably should have been aware of the conflict, will refrain from voting any proxies related to companies giving rise to such conflict until it notifies and consults with the appropriate Board(s) concerning the conflict.
Once the Adviser notifies the relevant Board(s) of the conflict, the Board(s) shall convene a meeting of the Boards' Fund Special Committee (the "Committee") to review and consider all relevant materials related to the proxies involved. In considering such proxies, the Adviser shall make available all materials requested by the Committee and make reasonably available appropriate personnel to discuss the matter with the Committee upon the Committee's request. The Committee will instruct the Adviser on the appropriate course of action. If the Committee is unable to meet and the failure to vote a proxy would have a material adverse impact on the Fund(s) involved, each Adviser will have the right to vote such proxy, provided that it discloses the existence of the conflict to the Committee at its next meeting.
V. REPORTS
The Administrator shall make copies of each Form N-PX filed on behalf of the Funds available for the Boards' review upon the Boards' request. The Administrator (with input from the Adviser for the relevant Fund(s)) shall also provide any reports reasonably requested by the Boards regarding the proxy voting records of the Funds.
Each Adviser shall annually report any material changes to such Adviser's proxy voting policies and procedures to the relevant Board(s) and the relevant Board(s) will annually review and approve the Adviser's proxy voting policies and procedures. Each Adviser shall report any changes to such Adviser's proxy voting policies and procedures to the Administrator prior to implementing such changes in order to enable the Administrator to effectively coordinate the Funds' disclosure relating to such policies and procedures.
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
Proxy Voting Policies And Procedures
I. INTRODUCTION
Eaton Vance Management, Boston Management and Research and Eaton Vance Investment Counsel (each an "Adviser" and collectively the "Advisers") have each adopted and implemented policies and procedures that each Adviser believes are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with its fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Advisers' authority to vote the proxies of their clients is established by their advisory contracts or similar documentation, such as the Eaton Vance Funds Proxy Voting Policies and Procedures. These proxy policies and procedures reflect the Securities and Exchange Commission ("SEC") requirements governing advisers and the long-standing fiduciary standards and responsibilities for ERISA accounts set out in the Department of Labor Bulletin 94-2 C.F.R. 2509.94-2 (July 29, 1994).
OVERVIEW
Each Adviser manages its clients' assets with the overriding goal of seeking to provide the greatest possible return to such clients consistent with governing laws and the investment policies of each client. In pursuing that goal, each Adviser seeks to exercise its clients' rights as shareholders of voting securities to support sound corporate governance of the companies issuing those securities with the principle aim of maintaining or enhancing the companies' economic value.
The exercise of shareholder rights is generally done by casting votes by proxy at shareholder meetings on matters submitted to shareholders for approval (for example, the election of directors or the approval of a company's stock option plans for directors, officers or employees). Each Adviser is adopting the formal written guidelines described in detail below and will utilize such guidelines in voting proxies on behalf of its clients. These guidelines are designed to promote accountability of a company's management and board of directors to its shareholders and to align the interests of management with those of shareholders.
In seeking to ensure a level of consistency and rationality in the proxy voting process, the guidelines contained in these policies and procedures are designed to address the manner in which certain matters that arise regularly in proxies will generally be voted. However, each Adviser takes the view that these guidelines should not be used as mechanical instructions for the exercise of this important shareholder right. Except in the instance of routine matters related to corporate administrative matters which are not expected to have a significant economic impact on the company or its shareholders (on which the Advisers will routinely vote with management), the Advisers will review each matter on a case-by-case basis and reserve the right to deviate from these guidelines when they believe the situation warrants such a deviation. In addition, no set of guidelines can anticipate all situations that may arise. In special cases, the Proxy Administrator (the person specifically charged with the responsibility to review and vote proxies on behalf of each Adviser's clients) may seek insight from the Adviser's analysts, portfolio managers and/or Chief Equity Investment Officer on how a particular proxy proposal will impact the financial prospects of a company, and vote accordingly. The guidelines are just that: guidelines rather than hard and fast rules, simply because corporate governance issues are so varied.
PROXY VOTING GUIDELINES
The following guidelines relate to the types of proposals that are most frequently presented in proxy statements to shareholders. Absent unusual circumstances, each Adviser will utilize these guidelines when voting proxies on behalf of its clients.
A. ELECTION OF BOARD OF DIRECTORS
The Advisers believe that a Board of Directors should primarily be independent, not have significant ties to management and consist of members who are all elected annually. In addition, the Advisers believe that important Board committees (e.g., audit, nominating and compensation committees) should be entirely independent. In general,
- The Advisers will support the election of directors that result in a Board made up of a majority of independent directors.
- The Advisers will support the election for independent directors to serve on the audit, compensation, and/or nominating committees of a Board of Directors.
- The Advisers will hold all directors accountable for the actions of the Board's committees. For example, the Advisers will consider withholding votes for nominees who have recently approved compensation arrangements that the Advisers deem excessive or propose equity-based compensation plans that unduly dilute the ownership interests of shareholders.
- The Advisers will support efforts to declassify existing Boards, and will vote against proposals by companies to adopt classified Board structures.
- The Advisers will vote against proposals for cumulative voting, confidential stockholder voting and the granting of pre-emptive rights.
B. APPROVAL OF INDEPENDENT AUDITORS
The Advisers believe that the relationship between the company and its auditors should be limited primarily to the audit engagement and closely allied audit-related and tax services, although non-audit services may be provided so long as they are consistent with the requirements of the Sarbanes-Oxley Act and, if required, have been approved by an independent audit committee. The Advisers will also consider the reputation of the auditor and any problems that may have arisen in the auditor's performance of services.
C. EXECUTIVE COMPENSATION
The Advisers believe that appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of shareholders and the interests of management, employees, and directors. However, the Advisers are opposed to plans that substantially dilute shareholders' ownership interests in the company or have objectionable structural features.
- The Advisers will generally vote against plans where total potential dilution (including all equity-based plans) seems likely to exceed 15% of shares outstanding over ten years and extends longer than ten years.
- The Advisers will generally vote against plans if annual option grants exceed 2% of shares outstanding.
These total and annual dilution thresholds are guidelines, not ceilings, and when assessing a plan's impact on client shareholdings the Advisers will consider other factors such as specific industry practices, company and stock performance and management credibility. The Proxy Administrator may consult with the relevant analyst(s) or portfolio manager(s) or, if appropriate, the Chief Equity Investment Officer, to determine when or if it may be appropriate to exceed these guidelines.
- The Advisers will typically vote against plans that have any of the following structural features:
- Ability to re-price underwater options without shareholder approval.
- The unrestricted ability to issue options with an exercise price below the stock's current market price.
- Automatic share replenishment ("evergreen") feature.
- The Advisers are supportive of measures intended to increase long-term stock ownership by executives. These may include:
- Requiring senior executives to hold a minimum amount of stock in the company (frequently expressed as a certain multiple of the executive's salary).
- Using restricted stock grants instead of options.
- Utilizing phased vesting periods or vesting tied to company specific milestones or stock performance.
- The Advisers will generally support the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value.
In assessing a company's executive compensation plan, the Advisers will weigh all components of the plan. For example, the grant of stock options to executives of a company in a particular year may appear excessive if that grant goes above 2% of the shares outstanding of the company. However, such grants may be appropriate if the senior management of the company has accepted significantly reduced cash compensation for the year in lieu of receiving a greater number of options.
D. CORPORATE STRUCTURE MATTERS/ANTI-TAKEOVER DEFENSES
As a general matter, the Advisers oppose anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions. In general,
- Because a classified board structure prevents shareholders from electing a full slate of directors annually, the Advisers will typically vote against proposals to create classified boards and vote in favor of shareholder proposals to declassify a board.
- The Advisers will vote for proposals to subject shareholder rights plans ("poison pills") to a shareholder vote.
- The Advisers will vote for shareholder proposals that seek to eliminate supermajority voting requirements and oppose proposals seeking to implement supermajority voting requirements.
- The Advisers will generally vote against proposals to authorize preferred stock whose voting, conversion, dividend and other rights are determined at the discretion of the board of directors when the stock is issued, when used as an anti-takeover device. However, such "blank check" preferred stock may be issued for legitimate financing needs and the Adviser may vote for proposals to issue such preferred stock when it believes such circumstances exist.
- The Advisers will vote for proposals to lower barriers to shareholder action (for example, limiting rights to call special meetings or act by written consent).
- The Advisers will vote against proposals for a separate class of stock with disparate voting rights.
- The Advisers will consider on a case-by-case basis on board approved proposals regarding changes to a company's capitalization; however, the Advisers will generally vote in favor of proposals authorizing the issuance of additional common stock (except in the case of a merger, restructuring or another significant corporate event which will be handled on a case-by-case basis), provided that such issuance does not exceed three times the number of currently outstanding shares.
E. STATE OF INCORPORATION/OFFSHORE PRESENCE
Under ordinary circumstances, the Advisers will not interfere with a choice to reincorporate or reorganize a company in a different jurisdiction, provided that management's decision has been approved by the board of directors. The Advisers recognize that there may be benefits to reincorporation (such as tax benefits and more developed business laws in the jurisdiction of reincorporation). Each proposal to reincorporate in offshore tax havens will be reviewed on a case-by-case basis to determine whether such actions are in the best interests of the shareholders of the company, including the Advisers' clients.
F. ENVIRONMENTAL/SOCIAL POLICY ISSUES
The Advisers believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the company's board of directors. The Advisers recognize that certain social and environmental issues raised in shareholder proposals are the subject of vigorous public debate and many are the subject of legal statutes or regulation by federal and/or state agencies. The Advisers generally support management on these types of proposals, although they may make exceptions where they believe a proposal has substantial economic implications. The Advisers expect that the companies in which they invest their clients' assets will act as responsible corporate citizens.
G. CIRCUMSTANCES UNDER WHICH THE ADVISERS WILL ABSTAIN FROM VOTING
The Advisers will seek to vote all proxies for clients who have delegated the responsibility to vote such proxies to the Advisers. Under certain circumstances, the costs to their clients associated with voting such proxies would far outweigh the benefit derived from exercising the right to vote. In those circumstances, the Advisers will make a case-by-case determination on whether or not to vote such proxies. In the case of countries which required so-called "share blocking," the Adviser may also abstain from voting. The Advisers will not seek to vote proxies on behalf of their clients unless they have agreed to take on that responsibility on behalf of a client. Finally, the Advisers may be required to abstain from voting on a particular proxy in a situation where a conflict exists between the Adviser and its client. The policy for resolution of such conflicts is described below in Section V.
RECORDKEEPING
The Advisers will maintain records relating to the proxies they vote on behalf of their clients in accordance with Section 204-2 of the Investment Advisers Act of 1940, as amended. Those records will include:
- A copy of the Advisers' proxy voting policies and procedures;
- Proxy statements received regarding client securities (if such proxies are available on the SEC's EDGAR system or a third party undertakes to promptly provide a copy of such documents to the Advisers, the Advisers do not need to retain a separate copy of the proxy statement);
- A record of each vote cast;
- A copy of any document created by the Advisers that was material to making a decision on how to vote a proxy for a client or that memorializes the basis for such a decision; and
- Each written client request for proxy voting records and the Advisers' written response to any client request (whether written or oral) for such records.
All records described above will be maintained in an easily accessible place for five years and will be maintained in the offices of the Advisers for two years after they are created.
IDENTIFICATION AND RESOLUTION OF CONFLICTS WITH CLIENTS
As fiduciaries to their clients, each Adviser puts the interests of its clients ahead of its own. In order to ensure that relevant personnel of the Advisers are able to identify potential conflicts of interest, each Adviser will take the following steps:
- Quarterly, the Eaton Vance Legal and Compliance Departments will seek information from the department heads of each department of the Advisers and of Eaton Vance Distributors, Inc. ("EVD") (an affiliate of the Advisers and principal underwriter of the Eaton Vance Funds). Each department head will be asked to provide a list of significant clients or prospective clients of the Advisers or EVD. For example, a department head would report the fact that EVD was in discussions with a corporate client considering management of the corporation's 401(k) plan assets.
- A representative of the Legal and Compliance Departments will compile a list of the companies identified (the "Conflicted Companies") and provide that list to the Proxy Administrator.
- The Proxy Administrator will compare the list of Conflicted Companies with the names of companies for which he or she expects to receive or has received proxy statements (the "Proxy Companies"). If a Conflicted Company is also a Proxy Company, the Proxy Administrator will report that fact to the Eaton Vance Chief Legal Officer and the Chief Equity Investment Officer.
The Chief Legal Officer and Chief Equity Investment Officer will then determine if a conflict of interest exists between the relevant Adviser and its client. If they determine that a conflict exists, they or their designees will take the following steps to seek to resolve such conflict prior to voting any proxies relating to these Conflicted Companies.
- For clients other than a Fund, if the Proxy Administrator expects to vote the proxy of the Conflicted Company strictly according to the guidelines contained in these Proxy Voting Policies and Procedures (the "Policies"), she will (i) inform the Chief Legal Officer and Chief Equity Investment Officer (or their designees) of that fact, (ii) vote the proxies and (iii) record the existence of the conflict and the resolution of the matter.
- If (i) the client involved is a Fund, or (ii) the Proxy Administrator intends to vote in a manner inconsistent with the guidelines contained herein or, if the issues raised by the proxy are not contemplated by these Policies, and the matters involved in such proxy could have a material economic impact on the client(s) involved, the Adviser will seek instruction on how the proxy should be voted from:
- The client, in the case of an individual or corporate client;
- In the case of a Fund its board of directors, or any committee identified by the board; or
- The adviser, in situations where the Adviser acts as a sub-adviser to such adviser.
The Adviser will provide all reasonable assistance to each party to enable such party to make an informed decision.
If the client, fund board or adviser, as the case may be, fails to instruct the Adviser on how to vote the proxy, the Adviser will generally abstain from voting in order to avoid the appearance of impropriety. If however, the failure of the Adviser to vote its clients' proxies would have a material adverse economic impact on the Advisers' clients' securities holdings in the Conflicted Company, the Adviser may vote such proxies in order to protect its clients' interests. In either case, the Proxy Administrator will record the existence of the conflict and the resolution of the matter.
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2005
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
SUB-ADVISER
Parametric Portfolio Associates LLC
1151 Fairview Avenue North
Seattle, WA 98109
SUB-ADVISER
Rampart Investment Management Company, Inc. One International Place Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PART C
OTHER INFORMATION
ITEM 25. 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*
(2) EXHIBITS:
(a) Agreement and Declaration of Trust dated March 30, 2005 is incorporated herein by reference to the Registrant's initial Registration Statement on Form N-2 (File Nos. 333-123770 and 811-21735) as to the Registrant's common shares of beneficial interest ("Common Shares") filed with the Securities and Exchange Commission on April 1, 2005 (Accession No. 0000898432-05-000288) ("Initial Common Shares Registration Statement").
(b) By-Laws are incorporated herein by reference to the Registrant's Initial Common Shares Registration Statement.
(c) Not applicable.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest filed herewith.
(e) Form of Dividend Reinvestment Plan filed herewith.
(f) Not applicable.
(g) (1) Investment Advisory Agreement dated April 18, 2005 filed herewith.
(2) Sub-Advisory Agreement with Rampart Investment Company, Inc. dated April 18, 2005 filed herewith.
(3) Sub-Advisory Agreement with Parametric Portfolio Associates LLC dated April 18, 2005 filed herewith.
(h) Form of Purchase Agreement filed herewith.
(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 April 18, 2005 filed herewith.
(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 April 18, 2005 filed herewith.
(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) Administration Agreement dated April 18, 2005 filed herewith.
(4) Organizational and Expense Reimbursement Arrangement filed herewith.
(5) Form of Additional Compensation Agreement filed herewith.
(l) Opinion and Consent of Kirkpatrick & Lockhart Nicholson Graham LLP as to Registrant's Common Shares to be filed by amendment.
(m) Not applicable.
(n) Consent of Independent Registered Public Accounting Firm filed herewith.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management to be filed by amendment.
(q) Not applicable.
(r) (1) Code of Ethics adopted by Eaton Vance Corp., Eaton Vance Management Boston Management and Research, Eaton Vance Distributors, Inc. and the Eaton Vance Funds effective September 1, 2000, as revised February 1, 2005 filed as Exhibit (r)(1) to the Registration Statement on Form N-2 of Eaton Vance Global Enhanced Equity Income Fund (File Nos. 33-122540, 811-21711) filed February 4, 2005 (Accession No. 0000898432-05-000098) and incorporated herein by reference.
(2) Code of Ethics for Rampart Investment Management Company, Inc. effective September 1, 2004, filed as Exhibit (r)(2) to Pre-Effective Amendment No. 1 of Eaton Vance Enhanced Equity Income Fund (File Nos. 333-118180, 811-21614) filed September 24, 2004 (Accession No. 0000950135-04-004565) and incorporated herein by reference.
(3) Code of Ethics for Parametric Portfolio Associates LLC effective January 1, 2005, filed as Exhibit (r)(3) to Pre-Effective Amendment No. 1 of Eaton Vance Tax-Managed Buy-Write Income Fund (File Nos. 333-120666, 811-21676) filed March 23, 2005 (Accession No. 0000950135-05-001628) and incorporated herein by reference.
(s) (1) Power of Attorney dated April 18, 2005 filed herewith.
(2) Power of Attorney dated April 29, 2005 filed herewith.
ITEM 26. MARKETING ARRANGEMENTS
See Form of Purchase Agreement filed herewith.
ITEM 27. 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 $
----------------
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ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of May 19, 2005, of each class of securities of the Registrant:
Title of Class Number of Record Holders -------------- ------------------------ Common Shares of Beneficial interest, par value $0.01 per share 0 |
ITEM 30. INDEMNIFICATION
The Registrant's By-Laws incorporated herein by reference contain, and the form of Purchase Agreement filed herewith contains 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 30, 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 31. 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 32. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by the Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are in the possession and custody of the 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 33. MANAGEMENT SERVICES
Not applicable.
ITEM 34. 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 Tax-Managed Buy-Write Opportunities Fund 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.
[Remainder of page left intentionally blank]
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended and the Investment Company Act of 1940, as amended the Registrant has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boston and the Commonwealth of Massachusetts, on the 24th day of May 2005.
EATON VANCE TAX-MANAGED BUY-WRITE
OPPORTUNITIES FUND
By: /s/ Duncan W. Richardson
-------------------------------------
Duncan W. Richardson
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as amended this Pre-Effective Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
----------------------------- ------------------------------ ---------------
/s/ Duncan W. Richardson President and Chief Executive May 24, 2005
----------------------------- Officer
Duncan W. Richardson
/s/ James L. O'Connor Treasurer and Principal May 24, 2005
----------------------------- Financial and Accounting
James L. O'Connor
/s/ James B. Hawkes Trustee May 24, 2005
-----------------------------
James B. Hawkes
Benjamin C. Esty* Trustee May 24, 2005
-----------------------------
Benjamin C. Esty
Samuel L. Hayes, III* Trustee May 24, 2005
-----------------------------
Samuel L. Hayes, III
William H. Park* Trustee May 24, 2005
-----------------------------
William H. Park
Ronald A. Pearlman* Trustee May 24, 2005
-----------------------------
Ronald A. Pearlman
Norton H. Reamer* Trustee May 24, 2005
-----------------------------
Norton H. Reamer
Lynn A. Stout* Trustee May 24, 2005
-----------------------------
Lynn A. Stout
Ralph F. Verni* Trustee May 24, 2005
-----------------------------
Ralph F. Verni
*By: /s/Alan R. Dynner
------------------------
Alan R. Dynner
(As Attorney-in-Fact)
|
INDEX TO EXHIBITS
(d) Specimen Certificate for Common Shares of Beneficial Interest
(e) Dividend Reinvestment Plan
(g)(1) Investment Advisory Agreement
(g)(2) Sub-Advisory Agreement with Rampart Investment Management Company, Inc.
(g)(3) Sub-Advisory Agreement with Parametric Portfolio Associates LLC
(h) Form of Purchase Agreement
(j)(1) Master Custodian Agreement
(k)(1) Supplement to Transfer Agency Agreement
(k)(3) Administration Agreement
(k)(4) Organizational and Expense Reimbursement Arrangement
(k)(5) Form of Additional Compensation Agreement
(n) Consent of Independent Registered Public Accounting Firm
(s)(1) Power of Attorney dated April 18, 2005
(s)(2) Power of Attorney dated April 29, 2005
Exhibit (d)
SPECIMEN CERTIFICATE ONLY
CERTIFICATE NUMBER OF
NUMBER SHARES
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
Organized Under the Laws of The Commonwealth of Massachusetts Common Shares $.01 Par Value Per Share
Cusip No. _________________
This certifies that ______________________ is the owner of _______________ fully paid and non-assessable shares of Common Shares, $.01 par value per share, of Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") transferable only on the books of the Fund by the holder thereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of each class authorized to be issued, will be furnished by the Fund to any shareholders upon request and without charge.
IN WITNESS WHEREOF, the Fund has caused this Certificate to be signed by its duly authorized officers and its Seal to be hereunto affixed this __________ day of __________________________ A.D. 2005.
INVESTORS BANK & TRUST COMPANY EATON VANCE TAX-MANAGED BUY-WRITE
As Transfer Agent and Registrar OPPORTUNITIES FUND
By: _____________________________ By: __________________________
Authorized Signature President
Attest: _________________________
|
Secretary
FOR VALUE RECEIVED, ____________________________________ hereby sells, assigns and transfers unto _____________________________ Shares represented by this Certificate, and do hereby irrevocably constitute and appoint ____________________________________ Attorney to transfer the said Shares on the books of the within named Fund with full power of substitution in the premises.
Dated ______________________________, ________________
In presence of
Shares of Common Shares evidenced by this Certificate may be sold, transferred, or otherwise disposed of only pursuant to the provisions of the Fund's Agreement and Declaration of Trust, as amended, a copy of which may be at the office of the Secretary of the Commonwealth of Massachusetts.
The Fund will furnish to any shareholder, upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class of series of capital stock of the Fund authorized to be issued, so far as they have been determined, and the authority of the Board of Trustees to determine the relative rights and preferences of subsequent classes or series. Any such request should be addressed to the Secretary of the Fund.
Exhibit (e)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
Holders of common shares (the "Shares") of Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") who participate (the "Participants") in the Fund's Dividend Reinvestment Plan (the "Plan") are advised as follows:
1. The Plan Agent. PFPC Inc. (the "Agent") will act as Agent for each Participant. The Agent will open an account for each Participant under the Plan in the same name as his or her outstanding Shares are registered.
2. Election to Participate. A Shareholder may elect to receive all distributions ("Distributions") payable with respect to his or her Shares in additional Shares. To participate in the Plan and receive all Distributions in Shares, a Shareholder must indicate his or her election to do so by completing and returning to the Plan Agent a Dividend Reinvestment Plan Application Form. Shareholders who do not elect to participate in the Plan by completing and returning such Form will receive Distributions in cash paid directly by the Plan Agent as dividend disbursing agent for the applicable Fund.
3. Market Premium Issuances. If on the payment date for a Distribution, the net asset value per Share is equal to or less than the market price per Share plus estimated brokerage commissions, the Agent shall receive newly issued Shares, including fractions, from the Fund for each Participant's account. The number of additional Shares to be credited shall be determined by dividing the dollar amount of the Distribution by the greater of the net asset value per Share on the payment date, or 95% of the then current market price per Share.
4. Market Discount Purchases. If the net asset value per Share exceeds the market price plus estimated brokerage commissions on the payment date for a Distribution, the Agent (or a broker-dealer selected by the Agent) shall endeavor, for a purchase period of 30 days, to apply the amount of such Distribution on each Participant's Shares (less their pro rata share of brokerage commissions incurred) to purchase Shares on the open market. The weighted average price (including brokerage commissions) of all Shares purchased by the Agent as Agent shall be the price per Share allocable to each Participant. If, at the close of business on any day during the purchase period on which net asset value per Share is calculated such net asset value equals or is less than the market price per Share plus estimated brokerage commissions, the Agent will cease open-market purchases, and the uninvested portion of such Distribution shall be filled through the issuance of new Shares from the Fund at the price set forth in Paragraph 3 above. Open-market purchases may be made on any securities exchange where Shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Agent shall determine.
5. Valuation. The market price of Shares on a particular date shall be the last sales price on the Exchange where the Shares are listed on that date, or, if there is no sale on such Exchange on that date, then the mean between the closing bid and asked quotations on such Exchange on such date. The net asset value per Share on a particular date shall be the amount most recently calculated by or on behalf of the Fund as required by law.
6. Liability of Agent. The Agent shall at all times act in good faith and agree to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Agent's negligence, bad faith, or willful misconduct or that of its employees. Each Participant's uninvested funds
held by the Agent will not bear interest. The Agent shall have no liability in connection with any inability to purchase Shares within the time provided, or with the timing of any purchases effected. The Agent shall have no responsibility for the value of Shares acquired. For the purpose of cash investments, the Agent may commingle Participants' funds (of the same Fund).
7. Recordkeeping. The Agent may hold each Participant's Shares acquired pursuant to the Plan together with the Shares of other shareholders of the Fund acquired pursuant to the Plan in noncertificated form in the Agent's name or that of the Agent's nominee. Upon a Participant's written request, the Agent will deliver to the Participant, without charge, a certificate or certificates for the full shares. Each Participant will be sent a confirmation by the Agent of each acquisition made for their account as soon as practicable, but not later than 60 days after the date thereof. Although each Participant may from time to time have an undivided fractional interest in a share of the Fund, no certificates for a fractional share will be issued. Distributions on fractional shares will be credited to each Participant's account. In the event of termination of a Participant's account under the Plan, the Agent will adjust for any such undivided fractional interest in cash at the market value of Shares at the time of termination.
Any share dividends or split shares distributed by the Fund on Shares held by the Agent for Participants will be credited to their accounts. In the event that the Fund makes available to its shareholders rights to purchase additional shares of other securities, the Shares held for each Participant under the Plan will be added to other shares held by the Participant in calculating the number of rights to be issued to each Participant.
8. Proxy Materials. The Agent will forward to each Participant any proxy solicitation material and will vote any shares so held for each Participant first in accordance with the instructions set forth on proxies returned by the Participant to the Fund, and then with respect to any proxies not returned by the Participant to the Fund in the same portion as the Agent votes proxies returned by the Participants to the Fund.
9. Fees. The Agent's service fee for handling Distributions will be paid by the Fund. Each Participant will be charged their pro rata share of brokerage commissions on all open-market purchases. If a Participant elects by notice to the Agent to have the Agent sell part or all of his or her Shares and remit the proceeds, the Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.
10. Termination in the Plan. Each registered Participant may terminate his or her account under the Plan by notifying the Agent in writing at P.O. Box 43027, Providence, RI 02940-3027, or by telephone at 800-331-1710. Such termination will be effective with respect to a Distribution if the Participant's notice is received by the Agent prior to the Distribution record date. The Plan may be terminated by the Agent or the Fund upon notice in writing mailed to each Participant at least 30 days prior to any record date for the payment of any Distribution. Upon any termination, the Agent will cause a certificate or certificates to be issued for the full shares held for each Participant under the Plan and cash adjustment for any fraction to be delivered to them without charge.
11. Amendment of the Plan. These terms and conditions may be amended by the Agent, or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Agent receives notice of the termination of the Participant's account under the Plan. Any such amendment may include an appointment by the Agent of a successor Agent.
12. Applicable Law. These terms and conditions shall be governed by the laws of The Commonwealth of Massachusetts.
Exhibit (g)(1)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 18th day of April, 2005, between Eaton Vance Tax-Managed Buy-Write Opportunities Fund, a Massachusetts business trust (the "Trust"), and Eaton Vance Management, a Massachusetts business trust (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the Adviser to act as investment adviser for and to manage the investment and reinvestment of the assets of the Trust and to administer its affairs, subject to the supervision of the Trustees of the Trust, for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment, and undertakes to afford to the Trust the advice and assistance of the Adviser's organization in the choice of investments and in the purchase and sale of securities for the Trust and to furnish for the use of the Trust office space and all necessary office facilities, equipment and personnel for servicing the investments of the Trust and to pay the salaries and fees of all officers and Trustees of the Trust who are members of the Adviser's organization and all personnel of the Adviser performing services relating to research and investment activities. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust.
The Adviser shall provide the Trust with such investment management and supervision as the Trust may from time to time consider necessary for the proper supervision of the Trust. As investment adviser to the Trust, the Adviser shall furnish continuously an investment program and shall determine from time to time what securities and other investments shall be acquired, disposed of or exchanged and what portion of the Trust's assets shall be held uninvested, subject always to the applicable restrictions of the Declaration of Trust, By-Laws and registration statement of the Trust. Should the Trustees of the Trust at any time, however, make any specific determination as to investment policy for the Trust and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Adviser shall take, on behalf of the Trust, all actions that it deems necessary or desirable to implement the investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of portfolio securities for the account of the Trust either directly with the issuer or with brokers or dealers selected by the Adviser, and, to that end, the Adviser is authorized, as the agent of the Trust, to give instructions to the custodian of the Trust as to deliveries of securities and payments of cash for the account of the Trust. In connection with the selection of such brokers or dealers and the placing of such orders, the Adviser shall adhere to procedures adopted by the Board of Trustees of the Trust.
The Adviser shall not be responsible for providing certain special administrative services to the Trust under this Agreement. Eaton Vance Management, in its capacity as Administrator of the Trust, shall be responsible for providing such services to the Trust under the Trust's separate Administration Agreement.
2. Compensation of the Adviser. For the services, payments and facilities to be furnished hereunder by the Adviser, the Adviser shall be entitled to receive from the Trust compensation in an amount equal to 1.00% annually of the average daily gross assets of the Trust. (For purposes of this calculation, "gross assets" of the Trust shall mean total assets of the Trust, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance debt securities), (ii) the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Trust's investment objectives and policies, and/or (iv) any other means.)
Such compensation shall be paid monthly in arrears on the last business day of each month. The Trust's net assets shall be computed in accordance with the Declaration of Trust of the Trust and any applicable votes and determinations of the Trustees of the Trust.
In case of initiation or termination of the Agreement during any month, the fee for that month shall be reduced proportionately on the basis of the number of calendar days during which the Agreement is in effect and the fee shall be computed upon the basis of the average gross assets for the business days the Agreement is so in effect for that month.
The Adviser may, from time to time, waive all or a part of the above compensation.
3. Allocation of Charges and Expenses. It is understood that the Trust will
pay all expenses other than those expressly stated to be payable by the Adviser
hereunder, which expenses payable by the Trust shall include, without implied
limitation (i) expenses of maintaining the Trust and continuing its existence;
(ii) registration of the Trust under the Investment Company Act of 1940; (iii)
commissions, spreads, fees and other expenses connected with the acquisition,
holding and disposition of securities and other investments; (iv) auditing,
accounting and legal expenses; (v) taxes and interest; (vi) governmental fees;
(vii) expenses of listing shares of the Trust with a stock exchange, and
expenses of issue, sale, repurchase and redemption (if any) of interests in the
Trust, including expenses of conducting tender offers for the purpose of
repurchasing Trust interests; (viii) expenses of registering and qualifying the
Trust and its shares under federal and state securities laws and of preparing
and filing registration statements and amendments for such purposes; (ix)
expenses of reports and notices to shareholders and of meetings of shareholders
and proxy solicitations therefore; (x) expenses of reports to governmental
officers and commissions; (xi) insurance expenses; (xii) association membership
dues; (xiii) fees, expenses and disbursements of custodians and subcustodians
for all services to the Trust (including, without limitation, safekeeping of
funds, securities and other investments, keeping of books, accounts and records,
and determination of net asset values); (xiv) fees, expenses and disbursements
of transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Trust; (xv) expenses for servicing
shareholder accounts; (xvi) any direct charges to shareholders approved by the
Trustees of the Trust; (xvii) compensation and expenses of Trustees of the Trust
who are not members of the Adviser's organization; (xviii) pricing and valuation
services employed by the Trust; (xix) all expenses incurred in connection with
leveraging of Trust's assets through a line of credit, or issuing and
maintaining preferred shares; and (xx) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees, officers and
shareholders with respect thereto.
4. Other Interests. It is understood that Trustees and officers of the Trust and shareholders of the Trust are or may be or become interested in the Adviser as trustees, officers, employees, shareholders or otherwise and that trustees, officers and shareholders of the Adviser are or may be or become similarly interested in the Trust, and that the Adviser may be or become interested in the Trust as a shareholder or otherwise. It is also understood that trustees, officers, employees and shareholders of the Adviser may be or become interested (as directors, trustees, officers, employees, shareholders or otherwise) in other companies or entities (including, without limitation, other investment companies) that the Adviser may organize, sponsor or acquire, or with which it may merge or consolidate, and which may include the words "Eaton Vance" or any combination thereof as part of their name, and that the Adviser or its subsidiaries or affiliates may enter into advisory or management agreements or other contracts or relationships with such other companies or entities.
5. Limitation of Liability of the Adviser. The services of the Adviser to the Trust are not to be deemed to be exclusive, the Adviser being free to render services to others and engage in other business activities. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Adviser, the Adviser shall not be subject to liability to the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the acquisition, holding or disposition of any interest in a Loan or of any security, investment or other asset.
6. Sub-Investment Advisers. The Adviser may employ one or more sub-investment advisers from time to time to perform such of the acts and services of the Adviser provided for by this Agreement, including the selection of brokers or dealers to execute the Trust's portfolio security transactions, and upon such terms and conditions as may be agreed upon between the Adviser and such sub-investment adviser and approved by the Trustees of the Trust, all as permitted by the Investment Company Act of 1940. This provision does not limit the Adviser's ability, pursuant to this Agreement, to provide the services contemplated without the assistance of a sub-investment adviser. Moreover, subject to approval of the Trust's Board of Trustees, the Adviser retains complete authority at any time immediately to assume direct responsibility for any function delegated to a sub-investment adviser pursuant to this Section 6 without the need for any approval by the holders of the voting securities of the Trust.
7. Duration and Termination of this Agreement. This Agreement shall become effective upon the date of its execution, and, unless terminated as herein provided, shall remain in full force and effect through and including April 18, 2007 and shall continue in full force and effect indefinitely thereafter, but only so long as such continuance after April 18, 2007 is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Trust and (ii) by the vote of a majority of those Trustees of the Trust who are not interested persons of the Adviser or the Trust cast in person at a meeting called for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior written notice to the other, terminate this Agreement without the payment of any penalty, by action of Trustees of the Trust or the trustees of the Adviser, as the case may be, and the Trust may, at any time upon such written notice to the Adviser, terminate this Agreement by vote of a majority of the outstanding voting securities of the Trust. This Agreement shall terminate automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be amended by a writing signed by both parties hereto, provided that no amendment to this Agreement shall be effective until approved (i) by the vote of a majority of those Trustees of the Trust who are not interested persons of the Adviser or the Trust cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the outstanding voting securities of the Trust, except for any such amendment as may be effected in the absence of such approval without violating the Investment Company Act of 1940.
9. Limitation of Liability. The Adviser expressly acknowledges the provision in the Declaration of Trust of the Trust limiting the personal liability of the Trustees, officers and shareholders of the Trust, and the Adviser hereby agrees that it shall have recourse to the Trust for payment of claims or obligations as between the Trust and the Adviser arising out of this Agreement and shall not seek satisfaction from any Trustee, officer or shareholders of the Trust.
10. Use of the Name "Eaton Vance". The Adviser hereby consents to the use by the Trust of the name "Eaton Vance" as part of the Trust's name; provided, however, that such consent shall be conditioned upon the employment of the Adviser or one of its affiliates as the investment adviser of the Trust. The name "Eaton Vance" or any variation thereof may be used from time to time in other connections and for other purposes by the Adviser and its affiliates and other investment companies that have obtained consent to the use of the name "Eaton Vance". The Adviser shall have the right to require the Trust to cease using the name "Eaton Vance" as part of the Trust's name if the Trust ceases, for any reason, to employ the Adviser or one of its affiliates as the Trust's investment adviser. Future names adopted by the Trust for itself, insofar as such names include identifying words requiring the consent of the Adviser, shall be the property of the Adviser and shall be subject to the same terms and conditions.
11. Certain Definitions. The terms "assignment" and "interested persons" when used herein shall have the respective meanings specified in the Investment Company Act of 1940 as now in effect or as hereafter amended subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order. The term "vote of a majority of the outstanding voting securities" shall mean the vote, at a meeting of shareholders, of the lesser of (a) 67 per centum or more of the shares of the Trust present or represented by proxy at the meeting if the shareholders of more than 50 per centum of the shares of the Trust are present or represented by proxy at the meeting, or (b) more than 50 per centum of the shares of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.
EATON VANCE TAX-MANAGED BUY-WRITE
OPPORTUNITIES FUND
By: /s/ Duncan W. Richardson
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Duncan W. Richardson
President, and not Individually
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EATON VANCE MANAGEMENT
By: /s/ Frederick S. Marius
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Frederick S. Marius
Vice President, and not Individually
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Exhibit (g)(2)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT effective this 18th day of April, 2005 between Eaton Vance Management, a Massachusetts business trust (the "Adviser"), and Rampart Investment Management Company, Inc., a Massachusetts corporation (the "Sub-Adviser").
WHEREAS, Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, management investment company; and
WHEREAS, pursuant to an Investment Advisory Agreement, dated April 18, 2005 (the "Advisory Agreement"), a copy of which has been provided to the Sub-Adviser, the Trust has retained the Adviser to render advisory and management services with regard to the Trust's options strategy; and
WHEREAS, pursuant to authority granted to the Adviser in the Advisory Agreement, the Adviser wishes to retain the Sub-Adviser to furnish investment advisory services to the Trust related to the Trust's options strategy, and the Sub-Adviser is willing to furnish such services to the Trust and the Adviser.
NOW, THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Adviser and the Sub-Adviser as follows:
1. Appointment. The Adviser hereby appoints the Sub-Adviser to act as the investment adviser for and to manage the investment and reinvestment of the assets of the Trust related to the Trust's option strategy on the terms set forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish the services herein set forth herein for the compensation herein provided. The Sub-Adviser shall not be responsible for aspects of the Trust's investment program other than its option strategy, including without limitation purchases and sales of securities other than options, selection of brokers to conduct such purchases and sales of securities other than options, compliance with investment policies and restrictions other than those concerning options, or proxy voting.
2. Sub-Adviser Duties. Subject to the supervision of the Trust's Board of Trustees (the "Board") and the Adviser, the Sub-Adviser will provide a continuous investment program relating to the Trust's purchase or sale of options for the Trust's portfolio. Subject to approval of the Trust's Board and notice to the Sub-Adviser, the Adviser retains complete authority immediately to assume direct responsibility for any function delegated to the Sub-Adviser under this Agreement. Subject to the foregoing, the Sub-Adviser will provide options investment research and conduct a continuous program of options evaluation, investment, sales, and reinvestment of the Trust's assets by determining the options strategy that the Trust shall pursue, including which options shall be purchased, entered into, sold, closed, or exchanged for the Trust, when these transactions should be executed, and what portion of the assets of the Trust shall have options written against. The Sub-Adviser will provide the services under this Agreement in accordance with the Trust's investment objective or objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission ("SEC"), as amended (the "Registration Statement"), copies of which shall be sent to the Sub-Adviser by the Adviser prior to the commencement of this Agreement and promptly following any such amendment. The Adviser and the Sub-Adviser further agree as follows:
a. Each of the Adviser and the Sub-Adviser will conform with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of which the Sub-Adviser has been sent a copy, and the provisions
of the Registration Statement, of which the Sub-Adviser has received a copy and with the Sub-Adviser's portfolio manager operating policies and procedures as are approved by the Adviser. Each of the Adviser and the Sub-Adviser shall exercise reasonable care in the performance of its duties under the Agreement.
b. In connection with any purchase and sale of securities for the Trust related to the implementation of the options strategy developed by the Sub-Adviser, the Sub-Adviser will arrange for the transmission to the custodian for the Trust (the "Custodian") on a daily basis such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Cedel, or other numbers that identify options to be purchased or sold on behalf of the Trust, as may be reasonably necessary to enable the Custodian to perform its administrative and recordkeeping responsibilities with respect to the Trust. With respect to options to be settled through the Trust's Custodian, the Sub-Adviser will arrange for the prompt transmission of the confirmation of such options trades to the Trust's Custodian.
c. The Sub-Adviser will assist the Custodian in determining or confirming, consistent with the procedures and policies stated in the Registration Statement or adopted by the Board, the value of any options or other assets of the Trust for which the Sub-Adviser is responsible and for which the Custodian seeks assistance from or identifies for review by the Sub-Adviser; provided that the Sub-Adviser shall be responsible for determining in good faith, consistent with the procedures and policies stated in the Registration Statement or adopted by the Board, the fair value of the Trust's portfolio of options for which the Sub-Adviser is responsible and shall obtain at its own expense pricing services for the Trust's portfolio of options from Interactive Data ("IDS"), Bloomberg, or another pricing service to be mutually agreed. The parties acknowledge that the Sub-Adviser is not a custodian of the Trust's assets and will not take possession or custody of such assets.
d. Following the end of the Trust's semi-annual period and fiscal year, the Sub-Adviser will assist the Adviser in preparing a letter to shareholders containing a discussion of relevant investment factors in respect of both the prior quarter and the fiscal year to date.
e. The Sub-Adviser will complete and deliver to the Adviser for each quarter by the 5th business day of the following quarter a written compliance checklist in a form provided by the Adviser relating to the performances of the Sub-Adviser under this Agreement.
f. The Sub-Adviser will make available to the Trust and the Adviser, promptly upon request, any of the Trust's investment records and ledgers maintained by the Sub-Adviser (which shall not include the records and ledgers maintained by the Custodian or portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Adviser to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules under each, as well as other applicable laws. The Sub-Adviser will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services in respect to the Trust which may be requested by such authorities in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations.
g. The Sub-Adviser will provide reports to the Board for consideration at meetings of the Board on the options portion of the investment program for the Trust and the options purchased and sold for the Trust's portfolio, and will furnish the Board with such periodic and special reports as the Board and the Adviser may reasonably request.
h. The Adviser shall assure that the Trust complies with its investment policies and restrictions as set forth in the Registration Statement, except for policies and restrictions concerning implementation of the Trust's options strategy, and the Adviser acknowledges that the Sub-Adviser shall not be responsible for the Trust's compliance with its investment policies and restrictions other than those concerning implementation of the Trust's option strategy.
i. The Adviser acknowledges that the Sub-Adviser shall not be responsible for meeting or monitoring compliance with the income and asset diversification requirements of Section 851 of the Internal Revenue Code, and the Adviser acknowledges that the Adviser is responsible for the same.
3. Broker-Dealer Selection. The Sub-Adviser is authorized to make decisions to buy and sell options for the Trust's portfolio, and to select broker-dealers and to negotiate brokerage commission rates in effecting an option transaction. The Sub-Adviser's primary consideration in effecting an option transaction will be to obtain the best execution for the Trust, taking into account the factors specified in the prospectus and/or statement of additional information for the Trust, and determined in consultation with the Adviser, which include price (including the applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the option, the timing of the transaction, the reputation, experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, and the execution capabilities and operational facilities of the firm involved, and the firm's risk in positioning a block of options. Accordingly, the price to the Trust in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified, in the judgment of the Sub-Adviser in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. The Sub-Adviser shall not receive any research service from any broker-dealer or from any third party that is paid by such broker-dealer in return for placing trades through such broker-dealer on behalf of the Trust. The Sub-Adviser will consult with the Adviser to ensure that portfolio transactions on behalf of the Trust are directed to broker-dealers on the basis of criteria reasonably considered appropriate by the Adviser. To the extent consistent with these standards, the Sub-Adviser is further authorized to allocate the orders placed by it on behalf of the Trust to an affiliated broker-dealer. Such allocation shall be in such amounts and proportions as the Sub-Adviser shall determine consistent with the above standards, and the Sub-Adviser will report on said allocation regularly to the Trust's Board indicating the broker-dealers to which such allocations have been made and the basis therefore.
4. Disclosure about Sub-Adviser. The Sub-Adviser has reviewed the most recent Amendment to the Registration Statement for the Trust filed with the SEC (the "Registration Statement") that contain disclosure about the Sub-Adviser, and represents and warrants that, with respect only to the disclosure expressly concerning the Sub-Adviser, its business, operations, or employees, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and do not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The Sub-Adviser further represents and warrants that it is a duly registered investment adviser under the Advisers Act and will maintain such registration so long as this Agreement remains in effect. The Adviser hereby acknowledges that it has received a copy of the Sub-Adviser's Form ADV, Part II at least 48 hours prior to entering into this Agreement.
5. Expenses. During the term of this Agreement, the Sub-Adviser will pay all expenses incurred by it and its staff and for their activities in connection with its duties under this Agreement including, but not limited to, rental and overhead expenses, expenses of the Sub-Adviser's personnel, pricing services in accordance with Section 2, insurance of the Sub-Adviser and its personnel, research services, and taxes of the Sub-Adviser. The Adviser or the Trust shall
be responsible for all other expenses of the Trust's or the Adviser's operations, including without limitation costs of marketing or distributing shares of the Trust, brokerage expenses and commissions, custody and banking expenses, administration expenses, legal, audit and other professional expenses, governmental filing fees, and costs of communications with shareholders.
6. Compensation. For the services provided to the Trust, the Adviser will pay the Sub-Adviser an annual fee equal to the amount specified in Schedule A hereto, payable monthly in arrears on the last business day of each month. The fee will be appropriately prorated to reflect any portion of a calendar month that this Agreement is not in effect among the parties. The Adviser is solely responsible for the payment of fees to the Sub-Adviser, and the Sub-Adviser agrees to seek payment of its fees solely from the Adviser. The Trust shall have no liability for Sub-Adviser's fee hereunder.
7. Materials. During the term of this Agreement, the Adviser agrees to furnish the Sub-Adviser at its principal office all prospectuses, proxy statements, and reports to shareholders prepared for distribution to shareholders of the Trust, all sales literature or advertisements for the Trust, and all other communications with the public of the Trust, or the Adviser that refer to the Sub-Adviser in any way, prior to the use thereof, and the Adviser shall not use any such materials if the Sub-Adviser reasonably objects in writing within 2 business days (or such other period as may be mutually agreed) after receipt thereof. The Sub-Adviser's right to object to such materials is limited to reasonable objections related to the portions of such materials that expressly relate to the Sub-Adviser, its services and its clients. The Adviser agrees to use its reasonable best efforts to ensure that materials prepared by its employees or agents or its affiliates that refer to the Sub-Adviser or its clients in any way are consistent with those materials previously approved by the Sub-Adviser as referenced in the first sentence of this paragraph.
8. Compliance.
a. As required by Rule 206(4)-7 under the Advisers Act, the Sub-Adviser has adopted written policies and procedures reasonably designed to prevent violation by it, or any of its supervised persons, of the Advisers Act and the rules under the Advisers Act and all other laws and regulations relevant to the performance of its duties under this Agreement. The Sub-Adviser has designated a chief compliance officer responsible for administering these compliance policies and procedures. The chief compliance officer at the Sub-Adviser's expense shall provide such written compliance reports relating to the operations and compliance procedures of the Sub-Adviser to the Adviser and/or the Trust and their respective chief compliance officers as may be required by law or regulation or as are otherwise reasonably requested. Moreover, the Sub-Adviser agrees to use such other or additional compliance techniques as the Adviser or the Board may reasonably adopt or approve, including written compliance procedures.
b. The Sub-Adviser agrees that it shall promptly notify, if legally permitted, the Adviser and the Trust (1) in the event that the SEC has censured the Sub-Adviser; placed limitations upon its activities, functions or operations; suspended or revoked its registration as an investment adviser; commenced proceedings or an investigation (formally or informally) that may result in any of these actions; or corresponded with the Sub-Adviser on a non-routine basis concerning either the Sub-Adviser's performances under this Agreement or any other matter that might materially affect the ability of the Sub-Adviser to perform its duties under this Agreement, including sending a deficiency letter or raising issues about the business, operations, or practices of the Sub-Adviser, (2) in the event of any notice of investigation, examination, inquiry, audit or subpoena of the Sub-Adviser or any of its officers or employees by any federal, state, municipal or other governmental department, commission, bureau, board, agency or instrumentality. If legally permitted, the Sub-Adviser will furnish the Adviser, upon request, copies of any
and all documents relating to the foregoing. The Sub-Adviser further agrees to notify the Adviser and the Trust promptly of any material fact known to the Sub-Adviser respecting or relating to the Sub-Adviser that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto that is required to be so contained, or if any statement contained therein concerning the Sub-Adviser that becomes untrue in any material respect.
c. The Adviser agrees that it shall promptly notify, if legally permitted, the Sub-Adviser (1) in the event that the SEC has censured the Adviser or the Trust; placed limitations upon either of their activities, functions, or operations; suspended or revoked the Adviser's registration as an investment adviser; suspended or revoked the Trust's registration under the 1940 Act, issued any stop order concerning any offering of the Trust's securities, or has commenced proceedings or an investigation that may result in any of these actions, or corresponded with the Adviser or the Trust on a non-routine basis concerning the management or operations of the Trust or the advisory services provided by the Adviser to the Trust that would have a material adverse impact on the Sub-Adviser or (2) upon having a reasonable basis for believing that the Trust has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. If legally permitted, the Adviser will furnish the Sub-Adviser, upon request, copies of any and all documents relating to the foregoing.
d. The Sub-Adviser will provide the Adviser with such reports, presentations, certifications and other information as the Adviser may reasonably request from time to time concerning the business and operations of the Sub-Adviser in performing services hereunder or generally concerning the Sub-Adviser's investment advisory services, the Sub-Adviser's compliance with applicable federal, state and local law and regulations, and changes in the Sub-Adviser's key personnel, investment strategies, policies and procedures, and other matters that are likely to have a material impact on the Sub-Advisers duties hereunder. The Adviser and the Trust shall provide the Sub-Adviser with such reports as the Sub-Adviser may from time to time reasonably request concerning their compliance with applicable federal, state and local law and regulations.
9. Books and Records. The Sub-Adviser hereby agrees that all records which it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Adviser's request in compliance with the requirements of Rule 31a-3 under the 1940 Act, although the Sub-Adviser may, at its own expense, make and retain a copy of such records. The Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-l under the 1940 Act.
10. Cooperation; Confidentiality; Proprietary Rights. Each party to this Agreement agrees to cooperate with the other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC) in connection with any investigation or inquiry relating to this Agreement or the Trust. Subject to the foregoing, the Sub-Adviser shall treat as confidential and use only in connection with the Trust in accordance with this Agreement all information pertaining to the Trust, actions of the Trust or the Adviser, and the Adviser shall treat as confidential and use only in connection with the Trust in accordance with this Agreement all information furnished to the Trust or the Adviser by the Sub-Adviser (and all derivative works produced therefrom), in connection with its duties under this Agreement except that the aforesaid information need not be treated as confidential if required to be disclosed under applicable law, if generally available to the public through means that do not involve a breach of this section by the Sub-Adviser or the Adviser, or if available from a source other than the Adviser, Sub-Adviser or the Trust. The parties acknowledge that any breach of the undertaking in the immediately preceding sentence might result in immediate, irreparable injury to another party and that, accordingly, equitable remedies, including ex parte remedies, are appropriate in the event of any actual, apparent, or threatened breach of such undertaking.
The Adviser acknowledges that the Sub-Adviser is the sole owner of the names "Rampart Investment Management" and "ROMS", and all related names, marks, and trade dress (the "Rampart Marks") and all associated goodwill. The Adviser shall not take any action inconsistent with such ownership, including, without
limitation, contesting the Sub-Adviser's ownership of or validity of the Rampart Marks. The Adviser agrees that all use of the Rampart Marks under this Agreement inures to the benefit of the Sub-Adviser. Apart from the license granted in the next paragraph, the Adviser shall acquire no right, title or interest of any kind or nature whatsoever in the Rampart Marks and the goodwill associated therewith by virtue of this Agreement. The Adviser shall upon request execute and deliver such documents as the Sub-Adviser may reasonably require to further evidence, assure, and confirm the rights of the Sub-Adviser in the Rampart Marks.
The Sub-Adviser hereby grants to the Adviser and the Trust a non-exclusive worldwide license to use, publish, reproduce, modify, and distribute the Rampart Marks solely in connection with the conduct of the business of the Trust and in accordance with this Agreement (the "License"). The Adviser and the Trust shall not use, publish, reproduce, modify or distribute any Rampart Marks for any other purpose. The Adviser and the Trust shall comply with the reasonable written instructions of the Sub-Adviser concerning the use of the Rampart Marks under the License, including instructions concerning trademark notices and updates of the Rampart Marks. The Sub-Adviser shall have the right to monitor and observe the Adviser's and the Trust's use of the Rampart Marks pursuant to the License for the purpose of protecting and maintaining its control over the nature and quality of the Rampart Marks, and the Adviser shall upon request supply Rampart with a written accounting of such use.
The Adviser acknowledges that the Sub-Adviser is the sole owner of the
Rampart Options Management System ("ROMS"). The Adviser shall not take any
action inconsistent with such ownership, including, without limitation,
contesting the Sub-Adviser's ownership of ROMS. The Adviser shall acquire no
right, title or interest of any kind or nature whatsoever in ROMS under this
Agreement. This section does not prohibit the Advisor, for the Trust or other
clients, or the Trust from either (1) contesting what constitutes part of ROMS;
(2) from using any systems, methods or processes for selecting or trading
options that are not proprietary to the Sub-Adviser; or (3)without the use of
any proprietary processes, methods, or systems of the Sub-Adviser, managing the
options strategy of the Trust where a portion of the stocks in the portfolio
have options written on them with the intention of generating income.
11. Control. Notwithstanding any other provision of the Agreement, it is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement and has reserved the right to reasonably direct any action hereunder taken on its behalf by the Sub-Adviser.
12. Liability.
a. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Adviser agrees that the Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), controls the Sub-Adviser shall not be liable for, or subject to, any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Sub-Adviser's duties, or any breach by the Sub-Adviser of its obligations or duties under this Agreement.
b. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Sub-Adviser agrees that the Adviser, any affiliated person of the Adviser, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls the Adviser shall not be liable for, or subject to, any damages, expenses, or losses in connection with, any act
or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Adviser's duties, or any breach by the Adviser of its obligations or duties under this Agreement.
13. Indemnification.
a. The Adviser agrees to indemnify and hold harmless the Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls ("controlling person") the Sub-Adviser (all of such persons being referred to as "Sub-Adviser Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Sub-Adviser Indemnified Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of the Adviser's responsibilities to the Sub-Adviser which (1) may be based upon the Adviser's gross negligence, willful misfeasance, or bad faith in the performance of its duties, or by reason of the Adviser's disregard of its obligations and duties under this Agreement and to the Trust, or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or prospectus covering shares of the Trust, or any amendment thereof or any supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon and conformity with information furnished by the Sub-Adviser to the Adviser or the Trust expressly for inclusion in such Registration Statements, prospectuses, amendments, or supplements either in writing or orally with a subsequent confirmation by the Sub-Adviser of the information as it appears in the Registration Statement or prospectus; provided however, that in no case shall the indemnity in favor of the Sub-Adviser Indemnified Person be deemed to protect such person against any liability to which such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its breach or reckless disregard of its obligations or duties under this Agreement.
b. Notwithstanding Section 12 of this Agreement, the Sub-Adviser
agrees to indemnify and hold harmless the Adviser, any affiliated person of the
Adviser, and any controlling person of the Adviser (all of such persons being
referred to as "Adviser Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and other expenses)
to which an Adviser Indemnified Person may become subject under the 1933 Act,
1940 Act, the Advisers Act, under any other statute, at common law or otherwise,
arising out of the Sub-Adviser's responsibilities as Sub-Adviser of the Trust
which (1) may be based upon the Sub-Adviser's gross negligence, willful
misfeasance, or bad faith in the performance of its duties, or by reason of the
Sub-Adviser's disregard of its obligations or duties under this Agreement, or
(2) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or prospectus covering the
shares of the Trust, or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact known or which should have
been known to the Sub-Adviser and was required to be stated therein or necessary
to make the statements therein not misleading, if such a statement or omission
was made in reliance upon and conformity with information furnished by the
Sub-Adviser to the Adviser or the Trust expressly for inclusion in such
Registration Statements, prospectuses, amendments, or supplements either in
writing or orally with a subsequent confirmation by the Sub-Adviser of the
information as it appears in the Registration Statement or prospectus; provided,
however, that in no case shall the indemnity in favor of an Adviser Indemnified
Person be deemed to protect such person against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties, or by reason of its breach or
reckless disregard of its obligations and duties under this Agreement.
c. The Adviser shall not be liable under Paragraph (a) of this Section 13 with respect to any claim made against a Sub-Adviser Indemnified Person unless such Sub-Adviser Indemnified Person shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Sub-Adviser Indemnified Person (or after such Sub-Adviser Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Sub-Adviser Indemnified Person against whom such action is brought except to the extent the Adviser is prejudiced by the failure or delay in giving such notice. In case any such action is brought against the Sub-Adviser Indemnified Person, the Adviser will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Sub-Adviser Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Sub-Adviser Indemnified Person. If the Adviser assumes the defense of any such action and the selection of counsel by the Adviser to represent the Adviser and the Sub-Adviser Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Sub-Adviser Indemnified Person, adequately represent the interests of the Sub-Adviser Indemnified Person, the Adviser will, at its own expense, assume the defense with counsel to the Adviser and, also at its own expense, with separate counsel to the Sub-Adviser Indemnified Person, which counsel shall be satisfactory to the Adviser and to the Sub-Adviser Indemnified Person. The Sub-Adviser Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Adviser shall not be liable to the Sub-Adviser Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Sub-Adviser Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation; provided however, the Adviser shall be responsible for the additional counsel of Sub-Adviser in the event the Adviser is determined to have made the fraudulent representations, by the final decision of a court of competent jurisdiction (that is not subject to appeal or as to which the time for appeal has elapsed), and such representations are the basis for which Sub-Adviser's liability is based. The Adviser shall not have the right to compromise on or settle the litigation without the prior written consent of the Sub-Adviser Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Sub-Adviser Indemnified Person.
d. The Sub-Adviser shall not be liable under Paragraph (b) of this
Section 13 with respect to any claim made against an Adviser Indemnified Person
unless such Adviser Indemnified Person shall have notified the Sub-Adviser in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Adviser Indemnified Person (or after such Adviser Indemnified Person shall have
received notice of such service on any designated agent), but failure to notify
the Sub-Adviser of any such claim shall not relieve the Sub-Adviser from any
liability which it may have to the Adviser Indemnified Person against whom such
action is brought except to the extent the Sub-Adviser is prejudiced by the
failure or delay in giving such notice. In case any such action is brought
against the Adviser Indemnified Person, the Sub-Adviser will be entitled to
participate, at its own expense, in the defense thereof or, after notice to the
Adviser Indemnified Person, to assume the defense thereof, with counsel
satisfactory to the Adviser Indemnified Person. If the Sub-Adviser assumes the
defense of any such action and the selection of counsel by the Sub-Adviser to
represent both the Sub-Adviser and the Adviser Indemnified Person would result
in a conflict of interests and therefore, would not, in the reasonable judgment
of the Adviser Indemnified Person, adequately represent the interests of the
Adviser Indemnified Person, the Sub-Adviser will, at its own expense, assume the
defense with counsel to the Sub-Adviser and, also at its own expense, with
separate counsel to the Adviser Indemnified Person, which counsel shall be
satisfactory to the Sub-Adviser and to the Adviser Indemnified Person. The
Adviser Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Sub-Adviser shall not be liable to the Adviser Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Adviser Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Sub-Adviser shall not have the right to compromise on or settle the litigation without the prior written consent of the Adviser Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Adviser Indemnified Person.
14. Duration and Termination.
a. This Agreement shall become effective on the date first indicated above, subject to the condition that the Trust's Board, including a majority of those Trustees who are not interested persons (as such term is defined in the 1940 Act) of the Adviser or the Sub-Adviser, and the Holders of Interests in the Trust, shall have approved this Agreement in the manner required by the 1940 Act. Unless terminated as provided herein, this Agreement shall remain in full force and effect through and including April 18, 2007 and shall continue in full force and affect indefinitely thereafter, but only so long as such continuance is specifically approved at least annually by (a) the Board, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Trust, and (b) the vote of a majority of those Trustees who are not interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval.
b. Notwithstanding the foregoing, this Agreement may be terminated:
(a) by the Adviser at any time without payment of any penalty, upon 60 days'
prior written notice to the Sub-Adviser and the Trust; (b) at any time without
payment of any penalty by the Trust, by the Trust's Board or a majority of the
outstanding voting securities of the Trust, upon 60 days' prior written notice
to the Adviser and the Sub-Adviser, or (c) by the Sub-Adviser upon 3 months'
prior written notice unless the Trust or the Adviser requests additional time to
find a replacement for the Sub-Adviser, in which case the Sub-Adviser shall
allow the additional time requested by the Trust or Adviser not to exceed 3
additional months beyond the initial three-month notice period; provided,
however, that the Sub-Adviser may terminate this Agreement at any time without
penalty, effective upon written notice to the Adviser and the Trust, in the
event either the Sub-Adviser (acting in good faith) or the Adviser ceases to be
registered as an investment adviser under the Advisers Act or otherwise becomes
legally incapable of providing investment management services pursuant to its
respective contract with the Trust.
c. In the event of termination for any reason, all records of the Trust shall promptly be returned to the Adviser or the Trust, free from any claim or retention of rights in such record by the Sub-Adviser, although the Sub-Adviser may, at its own expense, make and retain a copy of such records. This Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described above, the Sections or Paragraphs numbered 9, 10, 11, 12, and 13 of this Agreement shall remain in effect, as well as any applicable provision of this Section 14 and, to the extent that only amounts are owed to the Sub-Adviser as compensation for services rendered while the agreement was in effect, Section 6.
15. Notices. Any notice must be in writing and shall be sufficiently given
(1) when delivered in person, (2) when dispatched by electronic mail or
electronic facsimile transfer (confirmed in writing by postage prepaid first
class air mail simultaneously dispatched), (3) when sent by internationally
recognized overnight courier service (with receipt confirmed by such overnight
courier service), or (4) when sent by registered or certified mail, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party.
If to the Trust:
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Attn: Chief Legal Officer
If to the Adviser:
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Attn: Chief Legal Officer
If to the Sub-Adviser:
Rampart Investment Management, Inc.
One International Place, 14th Floor
Boston, Massachusetts 02110
Attn: Ronald M. Egalka
16. Amendments. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved as required by applicable law.
17. Miscellaneous.
a. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder, and without regard for the conflicts of laws principles thereof. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
b. The Adviser and the Sub-Adviser acknowledge that the Trust enjoys the rights of a third-party beneficiary under this Agreement, and the Adviser acknowledges that the Sub-Adviser enjoys the rights of a third party beneficiary under the Advisory Agreement.
c. The Sub-Adviser expressly acknowledges the provision in the Declaration of Trust of the Adviser limiting the personal liability of the Trustee and officers of the Adviser, and the Sub-Adviser hereby agrees that it shall have recourse to the Adviser for payment of claims or obligations as between the Adviser and the Sub-Adviser arising out of this Agreement and shall not seek satisfaction from the Trustee or any officer of the Adviser.
d. The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
e. To the extent permitted under Section 14 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other party. This Agreement shall terminate upon its assignment, and for purposes of this section the term "assignment" shall have the meaning assigned to it in the 1940 Act.
f. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable.
g. Nothing herein shall be construed as constituting the Sub-Adviser as an agent or co-partner of the Adviser, or constituting the Adviser as an agent or co-partner of the Sub-Adviser.
h. This Agreement may be executed in counterparts.
i. The Sub-Adviser shall not be responsible for any failure to perform its duties under this Agreement as a result of war, acts of terrorism, natural disasters, failures of electricity, telephone lines, and other utility services, closures of securities and options markets, and other events beyond the reasonable control of the Sub-Adviser provided the Sub-Adviser has maintained contingency procedures reasonably designed, where possible, to prevent and mitigate the effect of such events.
[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written.
EATON VANCE MANAGEMENT
By: /s/ Frederick S. Marius
-----------------------------------
Name: Frederick S. Marius
Vice President, and not individually
|
RAMPART INVESTMENT MANAGEMENT COMPANY, INC.
By: /s/ Ronald M. Egalka
-----------------------------------
Name: Ronald M. Egalka
President
|
SCHEDULE A
Annual Investment Sub-Advisory Fee
0.05% of Assets under Management
The Trust's daily net assets shall be computed in accordance with the Declaration of Trust of the Trust and any applicable votes and determinations of the Board of the Trust.
Exhibit (g)(3)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT effective this 18th day of April, 2005 between Eaton Vance Management, a Massachusetts business trust (the "Adviser"), and Parametric Portfolio Associates, LLC., a Delaware corporation (the "Sub-Adviser").
WHEREAS, Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, management investment company; and
WHEREAS, pursuant to an Investment Advisory Agreement, dated April 18, 2005 (the "Advisory Agreement"), a copy of which has been provided to the Sub-Adviser, the Trust has retained the Adviser to render advisory and management services with regard to the Trust's investment strategy; and
WHEREAS, pursuant to authority granted to the Adviser in the Advisory Agreement, the Adviser wishes to retain the Sub-Adviser to furnish investment advisory services to the Trust related to the Trust's tax-managed investment strategy, and the Sub-Adviser is willing to furnish such services to the Trust and the Adviser.
NOW, THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Adviser and the Sub-Adviser as follows:
1. Appointment. The Adviser hereby appoints the Sub-Adviser to act as the investment adviser for and to manage the investment and reinvestment of the assets of the Trust related to the Trust's tax-managed investment strategy on the terms set forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish the services herein set forth herein for the compensation herein provided.
2. Sub-Adviser Duties. Subject to the supervision of the Trust's Board of Trustees (the "Board") and the Adviser, the Sub-Adviser will provide a continuous investment program relating to the Trust's purchase or sale of securities for the Trust's portfolio. Subject to approval of the Trust's Board and notice to the Sub-Adviser, the Adviser retains complete authority immediately to assume direct responsibility for any function delegated to the Sub-Adviser under this Agreement. Subject to the foregoing, the Sub-Adviser will provide a continuous program of investment evaluation, investment, sales, and reinvestment of the Trust's assets by determining the investment strategy that the Trust shall pursue, including which investments shall be purchased or sold for the Trust. The Sub-Adviser will provide the services under this Agreement in accordance with the Trust's investment objectives, policies, and restrictions as stated in the Trust's Registration Statement filed with the Securities and Exchange Commission ("SEC"), as amended (the "Registration Statement"), copies of which shall be sent to the Sub-Adviser by the Adviser prior to the commencement of this Agreement and promptly following any such amendment. The Adviser and the Sub-Adviser further agree as follows:
a. Each of the Adviser and the Sub-Adviser will conform materially with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Trust's Board of which the Sub-Adviser has been sent a copy, and the provisions of the Registration Statement, of which the Sub-Adviser has received a copy and with the Sub-Adviser's portfolio manager operating policies and procedures as are approved by the Adviser. Each of the Adviser and the Sub-Adviser shall exercise reasonable care in the performance of its duties under the Agreement.
b. In connection with any purchase and sale of securities for the Trust related to the implementation of the investment strategy developed by the Sub-Adviser, the Sub-Adviser will arrange for the transmission to the custodian for the Trust (the "Custodian") on a daily basis such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Cedel, or other numbers that identify investments to be purchased or sold on behalf of the Trust, as may be reasonably necessary to enable the Custodian to perform its administrative and recordkeeping responsibilities with respect to the Trust. With respect to investments to be settled through the Trust's Custodian, the Sub-Adviser will arrange for the prompt transmission of the confirmation of such trades to the Trust's Custodian.
c. The Sub-Adviser will assist the Custodian in determining or confirming, consistent with the procedures and policies stated in the Registration Statement or adopted by the Board, the value of any investment or other assets of the Trust for which the Sub-Adviser is responsible and for which the Custodian seeks assistance from or identifies for review by the Sub-Adviser; provided that the Sub-Adviser shall be responsible for determining in good faith, consistent with the procedures and policies stated in the Registration Statement or adopted by the Board, the fair value of the Trust's portfolio of investment for which the Sub-Adviser is responsible and shall obtain at its own expense pricing services for the Trust's portfolio of investment from Bloomberg, or another pricing service to be mutually agreed. The parties acknowledge that the Sub-Adviser is not a custodian of the Trust's assets and will not take possession or custody of such assets.
d. Following the end of the Trust's semi-annual period and fiscal year, the Sub-Adviser will assist the Adviser in preparing a letter to shareholders containing a discussion of relevant investment factors in respect of both the prior quarter and the fiscal year to date.
e. The Sub-Adviser will complete and deliver to the Adviser for each quarter by the 5th business day of the following quarter a written compliance checklist in a form provided by the Adviser relating to the performances of the Sub-Adviser under this Agreement.
f. The Sub-Adviser will make available to the Trust and the Adviser, promptly upon request, any of the Trust's investment records and ledgers maintained by the Sub-Adviser (which shall not include the records and ledgers maintained by the Custodian or portfolio accounting agent for the Trust) as are necessary to assist the Trust and the Adviser to comply with requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules under each, as well as other applicable laws. The Sub-Adviser will furnish to regulatory authorities having the requisite authority any information or reports in connection with such services in respect to the Trust which may be requested by such authorities in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations.
g. The Sub-Adviser will provide reports to the Board for consideration at meetings of the Board on the investment program for the Trust and the investment purchased and sold for the Trust's portfolio, and will furnish the Board with such periodic and special reports as the Board and the Adviser may reasonably request.
h. The Sub-Adviser shall assure that the Trust complies with its investment policies and restrictions as set forth in the Registration Statement.
3. Broker-Dealer Selection. The Sub-Adviser is authorized to make decisions to buy and sell investment for the Trust's portfolio, and to select broker-dealers and to negotiate brokerage commission rates in effecting the Trust's investments. The Sub-Adviser's primary consideration in effecting an investment on behalf of the Trust will be to obtain the best execution for the Trust, taking into account the factors specified in the prospectus and/or statement of additional information for the Trust, and determined in consultation with the Adviser, which include price (including the applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the security, the timing of the transaction, the reputation, experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, and the execution capabilities and operational facilities of the firm involved, and the firm's risk in positioning a block of investment. Accordingly, the price to the Trust in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified, in the judgment of the Sub-Adviser in the exercise of its fiduciary obligations to the Trust, by other aspects of the portfolio execution services offered. The Sub-Adviser shall not receive any research service from any broker-dealer or from any third party that is paid by such broker-dealer in return for placing trades through such broker-dealer on behalf of the Trust. The Sub-Adviser will consult with the Adviser to ensure that portfolio transactions on behalf of the Trust are directed to broker-dealers on the basis of criteria reasonably considered appropriate by the Adviser. To the extent consistent with these standards, the Sub-Adviser is further authorized to allocate the orders placed by it on behalf of the Trust to an affiliated broker-dealer. Such allocation shall be in such amounts and proportions as the Sub-Adviser shall determine consistent with the above standards, and the Sub-Adviser will report on said allocation regularly to the Trust's Board indicating the broker-dealers to which such allocations have been made and the basis therefore.
4. Disclosure about Sub-Adviser. The Sub-Adviser has reviewed the most recent Amendment to the Registration Statement that contains disclosure about the Sub-Adviser, and represents and warrants that, with respect only to the disclosure expressly concerning the Sub-Adviser, its business, operations, or employees, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The Sub-Adviser further represents and warrants that it is a duly registered investment adviser under the Advisers Act and will maintain such registration so long as this Agreement remains in effect. The Adviser hereby acknowledges that it has received a copy of the Sub-Adviser's Form ADV, Part II at least 48 hours prior to entering into this Agreement.
5. Expenses. During the term of this Agreement, the Sub-Adviser will pay all expenses incurred by it and its staff and for their activities in connection with its duties under this Agreement including, but not limited to, rental and overhead expenses, expenses of the Sub-Adviser's personnel, pricing services in accordance with Section 2, insurance of the Sub-Adviser and its personnel, research services, and taxes of the Sub-Adviser.
6. Compensation. For the services provided to the Trust, the Adviser will pay the Sub-Adviser an annual fee equal to the amount specified in Schedule A hereto, payable monthly in arrears on the last business day of each month. The fee will be appropriately prorated to reflect any portion of a calendar month that this Agreement is not in effect among the parties. The Adviser is solely responsible for the payment of fees to the Sub-Adviser, and the Sub-Adviser agrees to seek payment of its fees solely from the Adviser. The Trust shall have no liability for Sub-Adviser's fee hereunder.
7. Materials. During the term of this Agreement, the Adviser agrees to furnish the Sub-Adviser at its principal office all prospectuses, proxy statements, and reports to shareholders prepared for distribution to shareholders of the Trust, all sales literature or advertisements for the Trust, and all other communications with the public of the Trust, or the Adviser that refer to the Sub-Adviser in any way. The Sub-Adviser's right to object to such materials is limited to reasonable objections related to the portions of such materials that expressly relate to the Sub-Adviser, its services and its clients. The Adviser agrees to use its reasonable best efforts to ensure that materials prepared by its employees or agents or its affiliates that refer to the Sub-Adviser or its clients in any way are consistent with those materials previously approved by the Sub-Adviser as referenced in the first sentence of this paragraph.
8. Compliance.
a. As required by Rule 206(4)-7 under the Advisers Act, the Sub-Adviser has adopted written policies and procedures reasonably designed to prevent violation by it, or any of its supervised persons, of the Advisers Act and the rules under the Advisers Act and all other laws and regulations relevant to the performance of its duties under this Agreement. The Sub-Adviser has designated a chief compliance officer responsible for administering these compliance policies and procedures. The chief compliance officer at the Sub-Adviser's expense shall provide such written compliance reports relating to the operations and compliance procedures of the Sub-Adviser to the Adviser and/or the Trust and their respective chief compliance officers as may be required by law or regulation or as are otherwise reasonably requested. Moreover, the Sub-Adviser agrees to use such other or additional compliance techniques as the Adviser or the Board may reasonably adopt or approve, including written compliance procedures.
b. The Sub-Adviser agrees that it shall promptly notify, if legally permitted, the Adviser and the Trust (1) in the event that the SEC has censured the Sub-Adviser; placed limitations upon its activities, functions or operations; suspended or revoked its registration as an investment adviser; commenced proceedings or an investigation (formally or informally) that may result in any of these actions; or corresponded with the Sub-Adviser on a non-routine basis concerning either the Sub-Adviser's performances under this Agreement or any other matter that might materially affect the ability of the Sub-Adviser to perform its duties under this Agreement, including sending a deficiency letter or raising issues about the business, operations, or practices of the Sub-Adviser, (2) in the event of any notice of investigation, examination, inquiry, audit or subpoena of the Sub-Adviser or any of its officers or employees by any federal, state, municipal or other governmental department, commission, bureau, board, agency or instrumentality. If legally permitted, the Sub-Adviser will furnish the Adviser, upon request, copies of any and all documents relating to the foregoing. The Sub-Adviser further agrees to notify the Adviser and the Trust promptly of any material fact known to the Sub-Adviser respecting or relating to the Sub-Adviser that is not contained in the Registration Statement or prospectus for the Trust, or any amendment or supplement thereto that is required to be so contained, or if any statement contained therein concerning the Sub-Adviser that becomes untrue in any material respect.
c. The Sub-Adviser will provide the Adviser with such reports, presentations, certifications and other information as the Adviser may reasonably request from time to time concerning the business and operations of the Sub-Adviser in performing services hereunder or generally concerning the Sub-Adviser's investment advisory services, the Sub-Adviser's compliance with applicable federal, state and local law and regulations, and changes in the Sub-Adviser's key personnel, investment strategies, policies and procedures, and other matters that are likely to have a material impact on the Sub-Advisers duties hereunder. The Adviser and the Trust shall provide the Sub-Adviser with such reports as the Sub-Adviser may from time to time reasonably request concerning their compliance with applicable federal, state and local law and regulations.
9. Books and Records. The Sub-Adviser hereby agrees that all records which it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Adviser's request in compliance with the requirements of Rule 31a-3 under the 1940 Act, although the Sub-Adviser may, at its own expense, make and retain a copy of such records. The Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-l under the 1940 Act.
10. Cooperation; Confidentiality; Proprietary Rights. Each party to this Agreement agrees to cooperate with the other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC) in connection with any investigation or inquiry relating to this Agreement or the Trust. Subject to the foregoing, the Sub-Adviser shall treat as confidential and use only in connection with the Trust in accordance with this Agreement all information pertaining to the Trust, actions of the Trust or the Adviser. The parties acknowledge that any breach of the undertaking in the immediately preceding sentence might result in immediate, irreparable injury to another party and that, accordingly, equitable remedies, including ex parte remedies, are appropriate in the event of any actual, apparent, or threatened breach of such undertaking.
11. Control. Notwithstanding any other provision of the Agreement, it is understood and agreed that the Trust shall at all times retain the ultimate responsibility for and control of all functions performed pursuant to this Agreement and has reserved the right to reasonably direct any action hereunder taken on its behalf by the Sub-Adviser.
12. Liability.
a. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Adviser agrees that the Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), controls the Sub-Adviser shall not be liable for, or subject to, any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or negligence in the performance of the Sub-Adviser's duties, or any breach by the Sub-Adviser of its obligations or duties under this Agreement.
b. Except as may otherwise be required by the 1940 Act or the rules thereunder or other applicable law, the Sub-Adviser agrees that the Adviser, any affiliated person of the Adviser, and each person, if any, who, within the meaning of Section 15 of the 1933 Act, controls the Adviser shall not be liable for, or subject to, any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or negligence in the performance of the Adviser's duties, or any breach by the Adviser of its obligations or duties under this Agreement.
13. Indemnification.
a. The Adviser agrees to indemnify and hold harmless the Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any, who, within the meaning of Section 15 of the 1933 Act controls ("controlling person") the Sub-Adviser (all of such persons being referred to as "Sub-Adviser Indemnified Persons") against any and all losses, claims, damages, liabilities, or litigation (including legal and other expenses) to which a Sub-Adviser Indemnified Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of the Adviser's responsibilities to the Sub-Adviser which (1) may be based upon
the Adviser's gross negligence, willful misfeasance, or bad faith in the performance of its duties, or by reason of the Adviser's disregard of its obligations and duties under this Agreement and to the Trust, or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or prospectus covering shares of the Trust, or any amendment thereof or any supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon and conformity with information furnished by the Sub-Adviser to the Adviser or the Trust expressly for inclusion in such Registration Statements, prospectuses, amendments, or supplements either in writing or orally with a subsequent confirmation by the Sub-Adviser of the information as it appears in the Registration Statement or prospectus; provided however, that in no case shall the indemnity in favor of the Sub-Adviser Indemnified Person be deemed to protect such person against any liability to which such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of its breach or reckless disregard of its obligations or duties under this Agreement.
b. Notwithstanding Section 12 of this Agreement, the Sub-Adviser
agrees to indemnify and hold harmless the Adviser, any affiliated person of the
Adviser, and any controlling person of the Adviser (all of such persons being
referred to as "Adviser Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and other expenses)
to which an Adviser Indemnified Person may become subject under the 1933 Act,
1940 Act, the Advisers Act, under any other statute, at common law or otherwise,
arising out of the Sub-Adviser's responsibilities as Sub-Adviser of the Trust
which (1) may be based upon the Sub-Adviser's gross negligence, willful
misfeasance, or bad faith in the performance of its duties, or by reason of the
Sub-Adviser's disregard of its obligations or duties under this Agreement, or
(2) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or prospectus covering the
shares of the Trust, or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact known or which should have
been known to the Sub-Adviser and was required to be stated therein or necessary
to make the statements therein not misleading, if such a statement or omission
was made in reliance upon and conformity with information furnished by the
Sub-Adviser to the Adviser or the Trust expressly for inclusion in such
Registration Statements, prospectuses, amendments, or supplements either in
writing or orally with a subsequent confirmation by the Sub-Adviser of the
information as it appears in the Registration Statement or prospectus; provided,
however, that in no case shall the indemnity in favor of an Adviser Indemnified
Person be deemed to protect such person against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties, or by reason of its breach or
reckless disregard of its obligations and duties under this Agreement.
c. The Adviser shall not be liable under Paragraph (a) of this Section 13 with respect to any claim made against a Sub-Adviser Indemnified Person unless such Sub-Adviser Indemnified Person shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Sub-Adviser Indemnified Person (or after such Sub-Adviser Indemnified Person shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Sub-Adviser Indemnified Person against whom such action is brought except to the extent the Adviser is prejudiced by the failure or delay in giving such notice. In case any such action is brought against the Sub-Adviser Indemnified Person, the Adviser will be entitled to participate, at its own expense, in the defense thereof or, after notice to the Sub-Adviser Indemnified Person, to assume the defense thereof, with counsel satisfactory to the Sub-Adviser Indemnified Person. If the Adviser assumes the defense of any such action and the selection of counsel by the Adviser to represent the Adviser and the Sub-Adviser Indemnified Person would result in a conflict of interests and therefore, would not, in the reasonable judgment of the Sub-Adviser Indemnified Person, adequately represent the interests of the Sub-Adviser Indemnified Person, the Adviser will, at its own expense, assume the defense with counsel to the Adviser and, also at its own expense, with separate counsel to the Sub-Adviser Indemnified Person, which counsel shall be satisfactory to the Adviser and to the Sub-Adviser Indemnified Person. The Sub-Adviser Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Adviser shall not be liable to the Sub-Adviser Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Sub-Adviser Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation; provided however, the Adviser shall be responsible for the additional counsel of Sub-Adviser in the event the Adviser is determined to have made the fraudulent representations, by the final decision of a court of competent jurisdiction (that is not subject to appeal or as to which the time for appeal has elapsed), and such representations are the basis for which Sub-Adviser's liability is based. The Adviser shall not have the right to compromise on or settle the litigation without the prior written consent of the Sub-Adviser Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Sub-Adviser Indemnified Person.
d. The Sub-Adviser shall not be liable under Paragraph (b) of this
Section 13 with respect to any claim made against an Adviser Indemnified Person
unless such Adviser Indemnified Person shall have notified the Sub-Adviser in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Adviser Indemnified Person (or after such Adviser Indemnified Person shall have
received notice of such service on any designated agent), but failure to notify
the Sub-Adviser of any such claim shall not relieve the Sub-Adviser from any
liability which it may have to the Adviser Indemnified Person against whom such
action is brought except to the extent the Sub-Adviser is prejudiced by the
failure or delay in giving such notice. In case any such action is brought
against the Adviser Indemnified Person, the Sub-Adviser will be entitled to
participate, at its own expense, in the defense thereof or, after notice to the
Adviser Indemnified Person, to assume the defense thereof, with counsel
satisfactory to the Adviser Indemnified Person. If the Sub-Adviser assumes the
defense of any such action and the selection of counsel by the Sub-Adviser to
represent both the Sub-Adviser and the Adviser Indemnified Person would result
in a conflict of interests and therefore, would not, in the reasonable judgment
of the Adviser Indemnified Person, adequately represent the interests of the
Adviser Indemnified Person, the Sub-Adviser will, at its own expense, assume the
defense with counsel to the Sub-Adviser and, also at its own expense, with
separate counsel to the Adviser Indemnified Person, which counsel shall be
satisfactory to the Sub-Adviser and to the Adviser Indemnified Person. The Adviser Indemnified Person shall bear the fees and expenses of any additional counsel retained by it, and the Sub-Adviser shall not be liable to the Adviser Indemnified Person under this Agreement for any legal or other expenses subsequently incurred by the Adviser Indemnified Person independently in connection with the defense thereof other than reasonable costs of investigation. The Sub-Adviser shall not have the right to compromise on or settle the litigation without the prior written consent of the Adviser Indemnified Person if the compromise or settlement results, or may result in a finding of wrongdoing on the part of the Adviser Indemnified Person.
14. Duration and Termination.
a. This Agreement shall become effective on the date first indicated above, subject to the condition that the Trust's Board, including a majority of those Trustees who are not interested persons (as such term is defined in the 1940 Act) of the Adviser or the Sub-Adviser, and the Holders of Interests in the Trust, shall have approved this Agreement in the manner required by the 1940 Act. Unless terminated as provided herein, this Agreement shall remain in full force and effect through and including April 18, 2007 and shall continue in full force and affect indefinitely thereafter, but only so long as such continuance is specifically approved at least annually by (a) the Board, or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Trust, and (b) the vote of a majority of those Trustees who are not interested persons (as such term is defined in the 1940 Act) of any such party to this Agreement cast in person at a meeting called for the purpose of voting on such approval.
b. Notwithstanding the foregoing, this Agreement may be terminated:
(a) by the Adviser at any time without payment of any penalty, upon 60 days'
prior written notice to the Sub-Adviser and the Trust; (b) at any time without
payment of any penalty by the Trust, by the Trust's Board or a majority of the
outstanding voting securities of the Trust, upon 60 days' prior written notice
to the Adviser and the Sub-Adviser, or (c) by the Sub-Adviser upon 3 months'
prior written notice unless the Trust or the Adviser requests additional time to
find a replacement for the Sub-Adviser, in which case the Sub-Adviser shall
allow the additional time requested by the Trust or Adviser not to exceed 3
additional months beyond the initial three-month notice period; provided,
however, that the Sub-Adviser may terminate this Agreement at any time without
penalty, effective upon written notice to the Adviser and the Trust, in the
event either the Sub-Adviser (acting in good faith) or the Adviser ceases to be
registered as an investment adviser under the Advisers Act or otherwise becomes
legally incapable of providing investment management services pursuant to its
respective contract with the Trust.
c. In the event of termination for any reason, all records of the Trust shall promptly be returned to the Adviser or the Trust, free from any claim or retention of rights in such record by the Sub-Adviser, although the Sub-Adviser may, at its own expense, make and retain a copy of such records. This Agreement shall automatically terminate in the event of its assignment (as such term is described in the 1940 Act). In the event this Agreement is terminated or is not approved in the manner described above, the Sections or Paragraphs numbered 9, 10, 11, 12, and 13 of this Agreement shall remain in effect, as well as any applicable provision of this Section 14 and, to the extent that only amounts are owed to the Sub-Adviser as compensation for services rendered while the agreement was in effect, Section 6.
15. Notices. Any notice must be in writing and shall be sufficiently given
(1) when delivered in person, (2) when dispatched by electronic mail or
electronic facsimile transfer (confirmed in writing by postage prepaid first
class air mail simultaneously dispatched), (3) when sent by internationally
recognized overnight courier service (with receipt confirmed by such overnight
courier service), or (4) when sent by registered or certified mail, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party.
If to the Trust:
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Attn: Chief Legal Officer
If to the Adviser:
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Attn: Chief Legal Officer
If to the Sub-Adviser:
Parametric Portfolio Associates, LLC.
1151 Fairview Avenue N.
Seattle, WA 98109
Attn: Aaron Singleton
16. Amendments. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved as required by applicable law.
17. Miscellaneous.
a. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder, and without regard for the conflicts of laws principles thereof. The term "affiliate" or "affiliated person" as used in this Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
b. The Adviser and the Sub-Adviser acknowledge that the Trust enjoys the rights of a third-party beneficiary under this Agreement, and the Adviser acknowledges that the Sub-Adviser enjoys the rights of a third party beneficiary under the Advisory Agreement.
c. The Sub-Adviser expressly acknowledges the provision in the Declaration of Trust of the Adviser limiting the personal liability of the Trustee and officers of the Adviser, and the Sub-Adviser hereby agrees that it shall have recourse to the Adviser for payment of claims or obligations as between the Adviser and the Sub-Adviser arising out of this Agreement and shall not seek satisfaction from the Trustee or any officer of the Adviser.
d. The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
e. To the extent permitted under Section 14 of this Agreement, this Agreement may only be assigned by any party with the prior written consent of the other party. This Agreement shall terminate upon its assignment, and for purposes of this section the term "assignment" shall have the meaning assigned to it in the 1940 Act.
f. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable.
g. Nothing herein shall be construed as constituting the Sub-Adviser as an agent or co-partner of the Adviser, or constituting the Adviser as an agent or co-partner of the Sub-Adviser.
h. This Agreement may be executed in counterparts.
i. The Sub-Adviser shall not be responsible for any failure to perform its duties under this Agreement as a result of war, acts of terrorism, natural disasters, failures of electricity, telephone lines, and other utility services, closures of securities and investment markets, and other events beyond the reasonable control of the Sub-Adviser provided the Sub-Adviser has maintained contingency procedures reasonably designed, where possible, to prevent and mitigate the effect of such events.
[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written.
EATON VANCE MANAGEMENT
By: /s/ Frederick S. Marius
---------------------------------------
Name: Frederick S. Marius
Vice President, and not individually
|
PARAMETRIC PORTFOLIO ASSOCIATES, LLC.
By: /s/ Brian Langstraat
---------------------------------------
Name: Brian Langstraat
President
|
SCHEDULE A
Annual Investment Sub-Advisory Fee
0.25% of Assets under Management
The Trust's daily net assets shall be computed in accordance with the Declaration of Trust of the Trust and any applicable votes and determinations of the Board of the Trust.
Exhibit (h)
CC US DRAFT 05/11/05
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
(a Massachusetts business trust)
Common Shares of Beneficial Interest
($0.01 Par Value)
FORM OF PURCHASE AGREEMENT
June [___], 2005
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
[other co-managers]
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
Each of Eaton Vance Tax-Managed Buy-Write Opportunities Fund, a
Massachusetts business trust (the "Fund"), the Fund's investment adviser, Eaton
Vance Management, a Massachusetts business trust ("Eaton Vance" or the
"Investment Adviser"), the Fund's sub-adviser, Parametric Portfolio Associates
LLC, a [_____] limited liability company ("Parametric") and the Fund's
sub-adviser, Rampart Investment Management Company, Inc., a [_______]
corporation ("Rampart"; and together with Parametric, the "Sub-Advisers" and
each a "Sub-Adviser"; and together with Eaton Vance and Parametric, the
"Investment Advisers"), confirm their agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), [other
co-managers] and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch and [other co-managers] are acting as representatives (in such capacity,
the "Representatives"), with respect to the issue and sale by the Fund and the
purchase by the Underwriters, acting severally and not jointly, of the
respective number of common shares of beneficial interest, $0.01 par value, of
the Fund ("Common Shares") set forth in said Schedule A, and with respect to the
grant by the Fund to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of [______]
additional Common Shares to cover overallotments, if any. The aforesaid [______]
Common Shares (the "Initial Securities") to be purchased by the Underwriters and
all or any part of the [______] Common Shares subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities."
The Fund understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.
The Fund has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form N-2 (No. 333-123770 and No. 811-21735) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses, and a notification on Form N-8A of registration of the Fund as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and the
rules and regulations of the Commission under the 1933 Act and the 1940 Act (the
"Rules and Regulations"). Promptly after execution and delivery of this
Agreement, the Fund will either (i) prepare and file a prospectus in accordance
with the provisions of Rule 430A ("Rule 430A") of the Rules and Regulations and
paragraph (c) or (h) of Rule 497 ("Rule 497") of the Rules and Regulations or
(ii) if the Fund has elected to rely upon Rule 434 ("Rule 434") of the Rules and
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with
the provisions of Rule 434 and Rule 497. The information included in any such
prospectus or in any such Term Sheet, as the case may be, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective, if
applicable, (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each prospectus used before such registration statement
became effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, including in each
case any statement of additional information incorporated therein by reference,
is herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto and schedules thereto at the time it became
effective and including the Rule 430A Information and the Rule 434 Information,
as applicable, is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The final prospectus in the form first furnished to the Underwriters
for use in connection with the offering of the Securities, including the
statement of additional information incorporated therein by reference, is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated May [__], 2005 together with the Term
Sheet and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Fund and the Investment Advisers. The Fund and the Investment Advisers jointly and severally represent and warrant to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agree with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act, or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act, and no proceedings for any such purpose have been instituted or are pending or, to the knowledge of the Fund or the Investment Advisers, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time
(and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement, the notification of Form N-8A and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Fund will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different," as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective.
Each preliminary prospectus and the prospectus filed as part of the effective Registration Statement or as part of any amendment thereto, or filed pursuant to Rule 497 under the 1933 Act, complied when so filed in all material respects with the Rules and Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
If a Rule 462(b) Registration Statement is required in connection with the offering and sale of the Securities, the Fund has complied or will comply with the requirements of Rule 111 under the 1933 Act Regulations relating to the payment of filing fees thereof.
(ii) Independent Registered Public Accounting Firm. The accountants who certified the financial statements and supporting schedules, if any, included in the Registration Statement are from an independent registered public accounting firm as required by the 1933 Act and the Rules and Regulations.
(iii) Financial Statements. The statement of assets and liabilities included in the Registration Statement and the Prospectus, together with the related notes, presents fairly the financial position of the Fund at the date indicated; said statement has been prepared in conformity with generally accepted accounting principles ("GAAP").
(iv) Expense Summary. The information set forth in the Prospectus in the Fee Table has been prepared in accordance with the requirements of Form N-2 and to the extent estimated or projected, such estimates or projections are reasonably believed to be attainable and reasonably based.
(v) No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Fund, other than those in the ordinary course of business, which are material with respect to the Fund, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Fund on any class of its capital shares.
(vi) Good Standing of the Fund. The Fund has been duly organized and is validly existing as a business trust under the laws of The Commonwealth of Massachusetts and has power and authority to own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Fund is duly qualified as a foreign business trust to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(vii) No Subsidiaries. The Fund has no subsidiaries.
(viii) Investment Company Status. The Fund is duly registered with the Commission under the 1940 Act as a closed-end, diversified management investment company, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission.
(ix) Officers and Trustees. No person is serving or acting as an officer, trustee or investment adviser of the Fund except in accordance with the provisions of the 1940 Act and the Rules and Regulations and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission promulgated under the Advisers Act (the "Advisers Act Rules and Regulations"). Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), no trustee of the Fund is (A) an "interested person" (as defined in the 1940 Act) of the Fund or (B) an "affiliated person" (as defined in the 1940 Act) of any Underwriter.
(x) Capitalization. The authorized, issued and outstanding shares of beneficial interest of the Fund is as set forth in the Prospectus. All issued and outstanding common shares of beneficial interest of the Fund have been duly authorized and validly issued and are fully paid and non-assessable (except as described in the Registration Statement) and have been offered and sold or exchanged by the Fund in compliance with all applicable laws (including, without limitation, federal and state securities laws); none of the outstanding common shares of beneficial interest of the Fund was issued in violation of the preemptive or other similar rights of any securityholder of the Fund.
(xi) Authorization and Description of Securities. The Securities to be purchased by the Underwriters from the Fund have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable (except as described in the Registration Statement). The Common Shares conform to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same, to the extent such rights are set forth; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Fund.
(xii) Absence of Defaults and Conflicts. The Fund is not in violation of its agreement and declaration of trust or by-laws, each as amended from time to time, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which it is a party or by which it may be bound, or to which any of the property or assets of the Fund is subject (collectively, "Agreements and Instruments") except for such violations or defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Investment Advisory Agreement, the Administration Agreement, the Custodian Agreement and the Transfer Agency and Service Agreement referred to in the Registration Statement (as used herein, the "Advisory Agreement," the "Administration Agreement," the "Custodian Agreement" and the "Transfer Agency
Agreement," respectively) and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Fund with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the agreement and declaration of trust or by-laws of the Fund, each as amended from time to time, or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Fund or any of its assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Fund.
(xiii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund, threatened, against or affecting the Fund, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets of the Fund or the consummation of the transactions contemplated in this Agreement or the performance by the Fund of its obligations hereunder. The aggregate of all pending legal or governmental proceedings to which the Fund is a party or of which any of its property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto by the 1933 Act, the 1940 Act or by the Rules and Regulations which have not been so described and filed as required.
(xv) Possession of Intellectual Property. The Fund owns or possesses, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by the Fund, and the Fund has not received any notice or is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Fund therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Fund of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the
consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act, the 1940 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the rules of the New York Stock Exchange (the "NYSE") or state securities laws.
(xvii) Possession of Licenses and Permits. The Fund possesses such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to operate its properties and to conduct the business as contemplated in the Prospectus, except where the absence of such possession would not result in a Material Adverse Effect; the Fund is in compliance with the terms and conditions of all such Governmental Licenses; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and the Fund has not received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.
(xviii) Advertisements. Any advertising, sales literature or other promotional material (including "prospectus wrappers," "broker kits," "road show slides" and "road show scripts") authorized in writing by or prepared by the Fund or the Investment Adviser used in connection with the public offering of the Securities (collectively, "sales material") does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Moreover, all sales material complied and will comply in all material respects with the applicable requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and the rules and interpretations of the National Association of Securities Dealers, Inc. ("NASD").
(xix) Subchapter M. The Fund intends to direct the investment of the proceeds of the offering described in the Registration Statement in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the Code" and the "Code," respectively), and intends to qualify as a regulated investment company under Subchapter M of the Code.
(xx) Distribution of Offering Materials. The Fund has not distributed and, prior to the later to occur of (A) the Closing Time and (B) completion of the distribution of the Common Shares, will not distribute any offering material in connection with the offering and sale of the Common Shares other than the Registration Statement, a preliminary prospectus, the Prospectus or the sales materials.
(xxi) Accounting Controls. The Fund maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization and with the applicable
requirements of the 1940 Act, the Rules and Regulations and the Code;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain
accountability for assets and to maintain compliance with the books and
records requirements under the 1940 Act and the Rules and Regulations;
(C) access to assets is permitted only in accordance with the
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxii) Absence of Undisclosed Payments. To the Fund's knowledge, neither the Fund nor any employee or agent of the Fund has made any payment of funds of the Fund or received or
retained any funds, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus.
(xxiii) Material Agreements. This Agreement, the Advisory Agreement referred to in the Registration Statement, the Administration Agreement, the Custodian Agreement and the Transfer Agency Agreement have each been duly authorized by all requisite action on the part of the Fund, executed and delivered by the Fund, as of the dates noted therein and each complies with all applicable provisions of the 1940 Act. Assuming due authorization, execution and delivery by the other parties thereto, each such Agreement constitutes a valid and binding agreement of the Fund, enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing and except as rights to indemnify or contribute thereunder may be limited by federal or state laws.
(xxiv) Registration Rights. There are no persons with registration rights or other similar rights to have any securities of the Fund registered pursuant to the Registration Statement or otherwise registered by the Fund under the 1933 Act.
(xxv) NYSE Listing. The Securities have been duly authorized for listing, upon notice of issuance, on the NYSE and the Fund's registration statement on Form 8-A under the 1934 Act has become effective.
(b) Representations and Warranties by the Investment Adviser. The Investment Adviser represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:
(i) Good Standing of the Investment Advisers. The Investment Adviser has been duly organized and is validly existing and in good standing as a business trust under the laws of The Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign business trust to transact business and is in good standing in each other jurisdiction in which such qualification is required.
(ii) Investment Adviser Status. The Investment Adviser is duly registered and in good standing with the Commission as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the 1940 Act, or the rules and regulations under such acts, from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus.
(iii) Description of the Investment Adviser. The description of the Investment Adviser in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(iv) Capitalization. The Investment Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus, this Agreement and under the Advisory Agreement, each of the Sub-Advisory Agreements between the Investment Adviser and the Sub-Advisors (the "Sub-Advisory Agreements"), the Additional Compensation Agreement between the Investment Adviser and Merrill Lynch dated
June [_], 2005 (the "Additional Compensation Agreement") and the [other additional compensation agreements] (collectively, the "Additional Compensation Agreements").
(v) Authorization of Agreements; Absence of Defaults and Conflicts. This Agreement, the Advisory Agreement, the Sub-Advisory Agreements and the Additional Compensation Agreement[s] have each been duly authorized, executed and delivered by the Investment Adviser, and, assuming due authorization, execution and delivery by the other parties thereto, the Advisory Agreement, the Sub-Advisory Agreements and the Additional Compensation Agreement[s] constitute valid and binding obligations of the Investment Adviser, each enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law); and neither the execution and delivery of this Agreement, the Advisory Agreement, the Sub-Advisory Agreements or the Additional Compensation Agreement[s] nor the performance by the Investment Adviser of its obligations hereunder or thereunder will conflict with, or result in a breach of any of the terms and provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under, any agreement or instrument to which the Investment Adviser is a party or by which it is bound, the declaration of trust, by-laws or other organizational documents of the Investment Adviser, or by any law, order, decree, rule or regulation applicable to it of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over the Investment Adviser or its properties or operations; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by the Investment Adviser of the transactions contemplated by this Agreement, the Advisory Agreement, the Sub-Advisory Agreements or the Additional Compensation Agreement[s], except as have been obtained or may be required under the 1933 Act, the 1940 Act, the 1934 Act, NYSE or state securities laws.
(vi) No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there has not occurred any event which should reasonably be expected to have a material adverse effect on the ability of the Investment Adviser to perform its obligations under this Agreement, the Advisory Agreement, the Sub-Advisory Agreements or the Administration Agreement.
(vii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Investment Adviser, threatened against or affecting either the Investment Adviser or any parent or subsidiary of the Investment Adviser or any partners, trustees, officers or employees of the foregoing, whether or not arising in the ordinary course of business, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, or earnings, business affairs or business prospects of the Investment Adviser, materially and adversely affect the properties or assets of the Investment Adviser or materially impair or adversely affect the ability of the Investment Adviser to function as an investment adviser or perform its obligations under the Advisory Agreement, the Sub-Advisory Agreements or the Additional Compensation Agreements, or which is required to be disclosed in the Registration Statement and the Prospectus (and has not been so disclosed).
(viii) Absence of Violation or Default. The Investment Adviser is not in violation of its organizational documents or in default under any agreement, indenture or instrument, where such violation or default would reasonably be expected to have a Material Adverse Effect on the ability of the Investment Adviser to function as an investment adviser or perform its obligations under the Advisory Agreement.
(c) Representations and Warranties by Parametric. Parametric represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:
(i) Good Standing of Parametric. Parametric has been duly organized and is validly existing and in good standing as a limited liability company under the laws of the State of [________], with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus, and Parametric is duly qualified to transact business and is in good standing in each other jurisdiction in which such qualification is required.
(ii) Parametric's Status. Parametric is duly registered and in good standing with the Commission as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the 1940 Act, or the rules and regulations under such acts, from acting under the Sub-Advisory Agreement to which it is a party for the Fund as contemplated by the Prospectus.
(iii) Descriptions of Parametric. The descriptions of Parametric in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(iv) Capitalization. Parametric has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus, this Agreement and the Sub-Advisory Agreement to which it is a party.
(v) Authorization of Agreements; Absence of Defaults and Conflicts. This Agreement and the Sub-Advisory Agreement to which it is a party have each been duly authorized, executed and delivered by Parametric, and, assuming due authorization, execution and delivery by the other parties thereto, such agreements constitute valid and binding obligations of Parametric, enforceable in accordance with their respective terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law); and neither the execution and delivery of this Agreement or the Sub-Advisory Agreement to which it is a party nor the performance by Parametric of its obligations hereunder or thereunder will conflict with, or result in, a breach of any of the terms and provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under any agreement or instrument to which Parametric is a party or by which it is bound, the organizational documents of Parametric or by any law, order, decree, rule or regulation applicable to it of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over Parametric or its properties or operations; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by Parametric of the transactions contemplated by this Agreement or the Sub-Advisory Agreement to which it is a party, except as have been obtained or may be required under the 1933 Act, the 1940 Act, the 1934 Act or state securities laws.
(vi) No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there has not occurred any event which should reasonably be expected to have a material adverse effect
on the ability of Parametric to perform its obligations under this Agreement and the Sub-Advisory Agreement to which it is a party.
(vii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of Parametric, threatened against or affecting Parametric or any "affiliated person" (as such term is defined in the 1940 Act) of Parametric or any partners, directors, officers or employees of the foregoing, whether or not arising in the ordinary course of business, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, or earnings, business affairs or business prospects of Parametric, to materially and adversely affect the properties or assets of Parametric or to materially impair or adversely affect the ability of Parametric to function as an investment adviser or perform its obligations under the Sub-Advisory Agreement to which it is a party, or which is required to be disclosed in the Registration Statement and the Prospectus.
(viii) Absence of Violation or Default. Parametric is not in violation of its organizational documents or in default under any agreement, indenture or instrument, where such violation or default would reasonably be expected to have a material adverse effect on the ability of Parametric to function as an investment adviser or perform its obligations under the Sub-Advisory Agreement to which it is a party.
(d) Representations and Warranties by Rampart. Rampart represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:
(i) Good Standing of Rampart. Rampart has been duly organized and is validly existing and in good standing as a corporation under the laws of the State of [_______], with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus, and Rampart is duly qualified to transact business and is in good standing in each other jurisdiction in which such qualification is required.
(ii) Rampart's Status. Rampart is duly registered and in good standing with the Commission as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the 1940 Act, or the rules and regulations under such acts, from acting under the Sub-Advisory Agreement to which it is a party for the Fund as contemplated by the Prospectus.
(iii) Descriptions of Rampart. The descriptions of Rampart in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(iv) Capitalization. Rampart has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus, this Agreement and the Sub-Advisory Agreement to which it is a party.
(v) Authorization of Agreements; Absence of Defaults and Conflicts. This Agreement and the Sub-Advisory Agreement to which it is a party have each been duly authorized, executed and delivered by Rampart, and, assuming due authorization, execution and delivery by the other parties thereto, such agreements constitute valid and binding obligations of Rampart, enforceable in accordance with their respective terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law); and neither the execution and delivery of this Agreement or the Sub-Advisory Agreement to which it is a party nor the performance by Rampart of its obligations hereunder or thereunder will conflict with, or result in, a breach of any of the terms and provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under any agreement or instrument to which Rampart is a party or by which it is bound, the organizational documents of Rampart or by any law, order, decree, rule or regulation applicable to it of any jurisdiction, court, federal or state regulatory body, administrative agency or other governmental body, stock exchange or securities association having jurisdiction over Rampart or its respective properties or operations; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by Rampart of the transactions contemplated by this Agreement or the Sub-Advisory Agreement to which it is a party, except as have been obtained or may be required under the 1933 Act, the 1940 Act, the 1934 Act or state securities laws.
(vi) No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there has not occurred any event which should reasonably be expected to have a material adverse effect on the ability of Rampart to perform its obligations under this Agreement and the Sub-Advisory Agreement to which it is a party.
(vii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of Rampart, threatened against or affecting Rampart or any "affiliated person" (as such term is defined in the 1940 Act) of Rampart or any partners, directors, officers or employees of the foregoing, whether or not arising in the ordinary course of business, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, or earnings, business affairs or business prospects of Rampart, to materially and adversely affect the properties or assets of Rampart or to materially impair or adversely affect the ability of Rampart to function as an investment adviser or perform its obligations under the Sub-Advisory Agreement to which it is a party, or which is required to be disclosed in the Registration Statement and the Prospectus.
(viii) Absence of Violation or Default. Rampart is not in violation of its organizational documents or in default under any agreement, indenture or instrument, where such violation or default would reasonably be expected to have a material adverse effect on the ability of Rampart to function as an investment adviser or perform its obligations under the Sub-Advisory Agreement to which it is a party.
(e) Officer's Certificates. Any certificate signed by any officer of the Fund or the Investment Advisers delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Fund or the Investment Advisers, as the case may be, to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Fund, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [____] Common Shares in the aggregate at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Fund and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 45 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering overallotments which may be made in connection with the offering and distribution of the Initial Securities upon written notice by the Representatives to the Fund setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be earlier than the third day after the date on which the option is being exercised nor later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as Merrill Lynch in its discretion shall make to eliminate any sales or purchases of a fractional number of Option Securities plus any additional number of Option Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Kirkpatrick & Lockhart Nicholson Graham LLP, 75 State Street, Boston,
Massachusetts 02109, or at such other place as shall be agreed upon by the
Representatives and the Fund, at 10:00 A.M. (Eastern time) on the third (fourth,
if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Fund (such time and date
of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Fund, on each Date of Delivery as specified in the notice from the Representatives to the Fund.
Payment shall be made to the Fund by wire transfer of immediately available funds to a bank account designated by the Fund, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in the City of New York not later than 10:00 A.M.
(Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants.
The Fund and the Investment Advisers, jointly and severally, covenant with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The Fund, subject to Section 3(b) will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Fund will promptly effect the filings necessary pursuant to Rule 497 and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 497 was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Fund will make every reasonable effort to prevent the issuance of any stop order, or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act, and, if any such stop order or order of suspension or revocation of registration is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Fund will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Fund has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Fund has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Fund hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Fund will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Fund, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the Rules and Regulations, the Fund will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Fund will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Fund will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Fund shall not be obligated to file any general consent to service of process or to qualify as a foreign business trust or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Fund will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Fund will make generally available to its securityholders as soon as practicable an earnings statement, if applicable, for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Fund will use the net proceeds received by it from the sale of the Securities substantially in the manner specified in the Prospectus under "Use of Proceeds."
(i) Listing. The Fund will use its reasonable best efforts to cause the Securities to be duly authorized for listing by the NYSE, prior to the date the Securities are issued.
(j) Restriction on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Fund will not, without the prior written consent of Merrill Lynch, (A) directly or indirectly, offer, pledge, sell, contract to sell, sell any option, rights or warrant to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares or file any registration statement under the 1933 Act with respect to any of the foregoing or (B) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Shares, whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (1) the Securities to be sold hereunder or (2) Common Shares issued or, for avoidance of doubt, purchased in the open market pursuant to any dividend reinvestment plan.
(k) Reporting Requirements. The Fund, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1940 Act and the 1934 Act within the time periods required by the 1940 Act
and the Rules and Regulations and the 1934 Act and the rules and regulations of the Commission thereunder, respectively.
(l) Subchapter M. The Fund will use its best efforts to comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.
(m) No Manipulation of Market for Securities. The Fund will not take, directly or indirectly, any action designed to cause or to result in, or that might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities in violation of federal or state securities laws, until the Closing Date, or the Date of Delivery, if any, (a) sell, bid for or purchase the Securities or pay any person any compensation for soliciting purchases of the Securities or (b) pay or agree to pay to any person any compensation for soliciting another to purchase any other securities of the Fund.
(n) Rule 462(b) Registration Statement. If the Fund elects to rely upon Rule 462(b), the Fund shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Fund shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the 1933 Act.
SECTION 4. Payment of Expenses.
(a) Expenses. The Fund will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Fund's counsel, the independent registered public accounting firm and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities, (x) the fees and expenses incurred in connection with the listing of the Securities on the NYSE and (xi) the printing of any sales material. Also, the Fund shall pay the Underwriters $.00667 per common share as partial reimbursement of expenses incurred in connection with the offering. The amount paid by the Fund as this partial reimbursement to the Underwriters will not exceed .03335% of the total price to the public of the common stock sold in this offering. The Fund's Investment Adviser or an affiliate has agreed to pay the Fund's offering costs (other than sales load) that exceed $.04 per common share and to reimburse all of the Fund's organizational costs.
(b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a) hereof, the Fund and each of the Investment Advisers, jointly and severally, agree that they shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Fund and each of the Investment Advisers contained in Section 1 hereof or in certificates of any officer of the Fund or any of the Investment Advisers delivered pursuant to the provisions hereof, to the performance by the Fund and each of the Investment Advisers of their respective covenants and other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective or will have become effective by 5:30 p.m., New York City time on the date hereof, and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act, no notice or order pursuant to Section 8(e) of the 1940 Act shall have been issued, and no proceedings with respect to either shall have been initiated or, to the knowledge of counsel to the Underwriters and counsel to the Fund, threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with or waived to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 497 (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A or a certificate must have been filed in accordance with Rule 497(j)) or, if the Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 497.
(b) Opinion of Counsel for Fund and the Investment Advisers. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Kirkpatrick & Lockhart Nicholson Graham LLP, counsel for the Fund and the Investment Advisers, together with signed or reproduced copies of such letter for each of the other Underwriters substantially to the effect set forth in Exhibit A hereto or in such other forms and substance reasonably satisfactory to counsel to the Underwriters.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Clifford Chance US LLP, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (A) (i), (ii), (vi), (vii)
(solely as to preemptive or other similar rights arising by operation of law or
under the charter or by-laws of the Fund), (viii) through (x), inclusive, (xii),
(xiv) (solely as to the information in the Prospectus under "Description of
Capital Structure") and the last paragraph of Exhibit A hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of
the United States, upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Fund and certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Fund, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of a duly authorized officer
of the Fund and of the chief financial or chief accounting officer of the Fund
and of the President or a Vice President or Managing Director of each Investment
Adviser, dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Sections
1(a), (b), (c) and (d) hereof, as applicable, are true and correct with the same
force and effect as though expressly made at and as of Closing Time, (iii) each
of the Fund and the Investment Advisers, respectively, has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
pursuant to this Agreement at or prior to Closing Time, (iv) with respect to
each Investment Adviser only, there has been no material
adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of such Investment Adviser, whether or not arising in the ordinary course of business, and (v) with respect to the Fund only, no stop order suspending the effectiveness of the Registration Statement, or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act, has been issued and no proceedings for any such purpose have been instituted or are pending or are contemplated by the Commission.
(e) Independent Registered Public Accounting Firm's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from Deloitte & Touche LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in independent registered public accounting firm's "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from Deloitte & Touche LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the NYSE, subject only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.
(i) Execution of Additional Compensation Agreement[s]. At Closing Time,
Merrill Lynch shall have received the Additional Compensation Agreement, dated
as of the Closing Date, as executed by the Investment Adviser. At Closing Time,
[____] shall have received the [other additional compensation agreement], dated
as of the Closing Date, as executed by the Investment Adviser.
(j) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Fund contained herein and the statements in any certificates furnished by the Fund hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificates. Certificates, dated such Date of Delivery, of a duly authorized officer of the Fund and of the chief financial or chief accounting officer of the Fund and of the President or a Vice President or Managing Director of each Investment Adviser confirming that the information contained in the certificate delivered by each of them at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for the Fund and the Investment Advisers. The favorable opinion of counsel for the Fund and the Investment Advisers, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for the Underwriters. The favorable opinion of Clifford Chance US LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Deloitte &
Touche LLP, in form and substance satisfactory to the Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representatives pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Fund and the Investment Advisers in connection with the organization and registration of the Fund under the 1940 Act and the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Fund at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7, 8 and 13
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Fund and the Investment Advisers, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(e) below) any such settlement is effected with the written consent of the Fund; and
(iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Fund or an Investment Adviser by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto).
(b) Indemnification of the Fund, Investment Advisers, Trustees and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Fund and the Investment Advisers, their respective trustees and shareholders, each of the Fund's officers who signed the Registration Statement, and each person, if any, who controls the Fund or an Investment Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Fund or the Investment Advisers by such Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Indemnification for Marketing Materials. In addition to the foregoing indemnification, the Fund and the Investment Advisers also, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 6(a), as limited by the proviso set forth therein, with respect to any sales material.
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund or an Investment Adviser, as
applicable. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying party be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from its own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of
each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) (through, if applicable, the provisions of Section 6(b))
effected without its written consent if (i) such settlement is entered into more
than 60 days after receipt by such indemnifying party of the aforesaid request,
(ii) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
SECTION 7. Contribution.
If the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then, in lieu of indemnifying such indemnified party, each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities,
claims, damages and expenses incurred by such indemnified party, as incurred,
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Fund or the Investment Advisers on the one hand and the
Underwriters on the other hand from the offering of the Securities pursuant to
this Agreement or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Fund and the Investment Advisers on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Fund and the Investment Advisers on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Fund and the total underwriting discount received by the Underwriters (whether from the Fund or otherwise), in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover.
The relative fault of the Fund and the Investment Advisers on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Fund or the Investment Advisers or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Fund, the Investment Advisers and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director and shareholder of the Fund and each director of an Investment Adviser, respectively, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund or any Investment Adviser, within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Fund and such Investment Adviser, respectively. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and covenants contained in this Agreement or in certificates of officers of the Fund or an Investment Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Fund or the Investment Adviser, and shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this Agreement, by notice to the Fund, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund or an Investment Adviser, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Shares of the Fund has been suspended or materially limited by the Commission or the NYSE, or if trading generally on the American Stock Exchange or the NYSE or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the NASD or any other governmental authority, or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (iv) if a banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8 and 13 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters.
If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Fund to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Fund to sell the relevant Option Securities, as the case may be, either the Representatives or the Fund shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Tax Disclosure.
Notwithstanding any other provision of this Agreement, from the commencement of discussions with respect to the transactions contemplated hereby, the Fund and the Investment Adviser (and each employee, representative or other agent of the Fund) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are used in Sections 6011, 6111 and 6112 of the U.S. Code and the Treasury Regulations promulgated thereunder) of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided relating to such tax treatment and tax structure.
SECTION 12. Notices.
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives, Merrill Lynch & Co., 4 World Financial Center, New York, New York 10080, attention of Equity Capital Markets; notices to the Fund or the Investment Adviser shall be directed, as appropriate, to the office of Eaton Vance Management, The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109, Attention: Fred Marius, Esq.; notices to
Parametic shall be directed to it at [_______________], Attention: [_______];
and notices to Rampart shall be directed to it at [_______________], Attention:
[___________].
SECTION 13. Parties.
This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Fund, the Investment Advisers and their respective partners and successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Fund, the Investment Advisers and their respective successors and the controlling persons and officers, trustees, shareholders and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Fund, the Investment Advisers and their respective partners and successors, and said controlling persons and officers, shareholders and trustees and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. UNLESS OTHERWISE EXPLICITLY PROVIDED, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. DISCLAIMER OF LIABILITY OF TRUSTEES AND BENEFICIARIES.
A copy of the Agreement and Declaration of Trust of each of the Fund and the Investment Adviser is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice hereby is given that this Purchase Agreement is executed on behalf of the Fund and the Investment Adviser, respectively, by an officer or trustee of the Fund or the Investment Advisers, as the case may be, in his or her capacity as an officer or trustee of the Fund or the Investment Advisers, as the case may be, and not individually and that the obligations under or arising out of this Purchase Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and properties of the Fund or the Investment Advisers, as the case may be.
SECTION 16. Effect of Headings.
The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
[signatures on following page]
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Fund and the Investment Advisers in accordance with its terms.
Very truly yours,
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Title:
Eaton Vance Management
Title:
Parametric Portfolio Associates, LLC
Title:
Rampart Investment Company, Inc.
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
[OTHER CO-MANAGERS]
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-----------------------------------------
Authorized Signatory
|
For themselves and as Representatives of the other Underwriters named in Schedule A hereto.
SCHEDULE A
NUMBER OF
NAME OF UNDERWRITER INITIAL SECURITIES
------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... [____________]
[other Underwriters]............................. [____________]
Total............. [____________]
|
Sch A-1
SCHEDULE B
Eaton Vance Short Duration Diversified Income Fund Common Shares of Beneficial Interest
($0.01 Par Value)
1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[20.00].
2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $[19.10], being an amount equal to the initial public offering price set forth above less $[.90] per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the overallotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Fund and payable on the Initial Securities but not payable on the Option Securities.
Sch B-1
Exhibit A
FORM OF OPINION OF FUND'S AND INVESTMENT ADVISERS'
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(A) With respect to the Fund:
(i)The Fund has been duly organized and is validly existing as a business trust in good standing under the laws of the State of Massachusetts.
(ii) The Fund has power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement.
(iii) The Fund is duly qualified as a foreign business trust to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(iv) To the best of our knowledge, the Fund does not have any subsidiaries.
(v) The authorized, issued and outstanding shares of beneficial interest of the Fund are as set forth in the Prospectus under the caption "Description of Capital Structure" (except for subsequent issuances, if any, pursuant to the Purchase Agreement); all issued and outstanding shares of beneficial interest of the Fund have been duly authorized and validly issued and are fully paid and non-assessable and have been offered and sold or exchanged by the Fund in compliance with all applicable laws (including, without limitation, federal and state securities laws); the Common Shares conform as to legal matters to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; and none of the outstanding shares of beneficial interest of the Fund was issued in violation of the preemptive or other similar rights of any security holder of the Fund.
(vi) The Securities to be purchased by the Underwriters from the Fund have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Fund pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder.
(vii) The issuance of the Securities is not subject to preemptive or other similar rights of any security holder of the Fund.
(viii) The Purchase Agreement has been duly authorized, executed and delivered by the Fund.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 497(c) or Rule
497(h) has been made in the manner and within the time period required
by Rule 497; and, to the best of our knowledge, no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act, and,
to the best of our knowledge, no order of suspension or revocation of
registration pursuant to Section 8(e) of the 1940 Act has been issued,
and no proceedings for any such purpose have been instituted or are
pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need express no opinion), and the notification on Form N-8A complied as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not "materially different," as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Shares complies in all material respects with all applicable statutory requirements, with any applicable requirements of the declaration of trust and by-laws of the Fund and the requirements of the NYSE.
(xiii) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Fund is a party, or to which the property of the Fund is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets of the Fund or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Fund of its obligations thereunder.
(xiv) The information in the Prospectus under "Description of Capital Structure" and "Tax Matters" and in the Registration Statement under Item 29 (Indemnification), to the extent that it constitutes matters of law, summaries of legal matters, the Fund's declaration of trust and by-laws or legal proceedings, or legal conclusions, has been reviewed by us and is correct in all material respects.
(xv) Each of the Advisory Agreement, the Sub-Advisory Agreements, the Administration Agreement, the Custodian Agreement, the Transfer Agency Agreement, the Purchase Agreement and the Additional Compensation Agreement[s] comply in all material respects with all applicable provisions of the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations.
(xvi) The Fund is duly registered with the Commission under the 1940 Act as a closed-end, diversified management investment company; and, to the best of our knowledge, no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission.
(xvii) To the best of our knowledge, no person is serving as an officer, director or investment adviser of the Fund except in accordance with the 1940 Act and the Rules and Regulations and the Investment Advisers Act and the Advisers Act Rules and Regulations. Except as disclosed in the Registration Statement and Prospectus (or any amendment or supplement to either of them), to the best of our knowledge, no director of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of an Underwriter.
(xviii) There are no statutes or regulations that are required to be described in the Prospectus that are not described as required.
(xix) All descriptions in the Registration Statement of contracts and other documents to which the Fund is a party are accurate in all material respects. To the best of our knowledge,
there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects.
(xx) To the best of our knowledge, the Fund is not in violation of its declaration of trust or by-laws and no default by the Fund exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement.
(xxi) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency (other than under the 1933 Act, the 1934 Act, the 1940 Act and the Rules and Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance or sale of the Securities or the consummation of the transactions contemplated by this Agreement.
(xxii) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Fund with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Fund is a party or by which it or any of them may be bound, or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Fund, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Fund or any of its properties, assets or operations.
(xxiii) The Purchase Agreement, the Advisory Agreement, the Administration Agreement, the Custodian Agreement and the Transfer Agency Agreement have each been duly authorized by all requisite action on the part of the Fund, executed and delivered by the Fund, as of the dates noted therein. Assuming due authorization, execution and delivery by the other parties thereto with respect to the Administration Agreement, the Custodian Agreement and the Transfer Agency Agreement, each of the Advisory Agreement, the Administration Agreement, the Custodian Agreement and the Transfer Agency Agreement constitutes a valid and binding agreement of the Fund, enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
(B) With respect to the Investment Adviser:
(i) The Investment Adviser has been duly organized and is validly existing as a business trust in good standing under the laws of the State of Massachusetts.
(ii) The Investment Adviser has power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement.
(iii) The Investment Adviser is duly qualified as a foreign business trust to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not result in a Material Adverse Effect.
(iv) The Investment Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the Rules and Regulations from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus.
(v) The Purchase Agreement, the Advisory Agreement, the Sub-Advisory Agreements, the Administration Agreement and the Additional Compensation Agreement[s] have been duly authorized, executed and delivered by the Investment Adviser, and the Advisory Agreement, the Sub-Advisory Agreements, the Administration Agreement and the Additional Compensation Agreement[s] each constitute a valid and binding obligation of the Investment Adviser, enforceable in accordance with their terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
(vi) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Investment Adviser is a party, or to which the property of the Investment Adviser is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, in the earnings, business affairs or business prospects of the Investment Adviser, materially and adversely affect the properties or assets of the Investment Adviser or materially impair or adversely affect the ability of the Investment Adviser to function as an investment adviser or perform its obligations under the Advisory Agreement, the Sub-Advisory Agreements, the Administration Agreement and the Additional Compensation Agreement[s] or which is required to be disclosed in the Registration Statement or the Prospectus.
(vii) To the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects.
(viii) To the best of our knowledge, the Investment Adviser is not in violation of its declaration of trust, by-laws or other organizational documents and no default by the Investment Adviser exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement.
(ix) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than under the 1933 Act, the 1940 Act and the Rules and Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement.
(x) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement and compliance by the Investment Adviser with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Investment Adviser pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Investment Adviser is a party or by which it or any of them may be bound, or to which any of the property or assets of the Investment Adviser is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Investment Adviser, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Investment Adviser or any of its properties, assets or operations.
(C) With respect to each of the Sub-Advisers:
(i) The Sub-Adviser has been duly organized and is validly existing as a [limited liability company/corporation] in good standing under the laws of the State of [____/_____]. -
(ii) The Sub-Adviser has full [limited liability company/corporate] power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement.
(iii) The Sub-Adviser is duly qualified as a foreign [limited liability company/corporation] to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not result in a Material Adverse Effect.
(iv) The Sub-Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the Rules and Regulations from acting under the Sub-Advisory Agreement.
(v) The Purchase Agreement and the Sub-Advisory Agreement to which the Sub-Adviser is a party have been duly authorized, executed and delivered by the Sub-Adviser, and the Sub-Advisory Agreement constitutes a valid and binding obligation of the Sub-Adviser, enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
(vi) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Sub-Adviser is a party, or to which the property
of the Sub-Adviser is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, in the earnings, business affairs or business prospects of the Sub-Adviser, materially and adversely affect the properties or assets of the Sub-Adviser or materially impair or adversely affect the ability of the Sub-Adviser to function as an investment adviser or perform its obligations under the Sub-Advisory Agreement to which it is a party, or which is required to be disclosed in the Registration Statement or the Prospectus.
(vii) To the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects.
(viii) To the best of our knowledge, the Sub-Adviser is not in violation of its [certificate of formation/incorporation], by-laws or other organizational documents and no default by the Sub-Adviser exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement.
(ix) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than under the 1933 Act, the 1940 Act and the Rules and Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement.
(x) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement and compliance by the Sub-Adviser with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Sub-Adviser pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Sub-Adviser is a party or by which it may be bound, or to which any of the property or assets of the Sub-Adviser is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Sub-Adviser, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Sub-Adviser or any of its properties, assets or operations.
In addition, we have participated in the preparation of the Registration Statement and the Prospectus and participated in discussions with certain officers, trustees and employees of the Fund and the Investment Advisers, representatives of Deloitte & Touche LLP, the independent registered public accounting firm who examined the statement of assets and liabilities of the Fund included or incorporated by reference in the Registration Statement and the Prospectus, and you and your representatives and we have reviewed certain Fund records and documents. While we have not independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the information contained in the Registration Statement and the Prospectus, except to the extent necessary to
enable us to give the opinions with respect to the Fund in paragraphs (A)(v),
(xiv) and (xix), on the basis of such participation and review, nothing has come
to our attention that would lead us to believe that the Registration Statement
(except for financial statements, supporting schedules and other financial data
included therein or omitted therefrom, supporting schedules or other financial
data, as to which we do not express any belief), at the time such Registration
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus (except for
financial statements, supporting schedules and other financial data included
therein or omitted therefrom, supporting schedules or other financial data, as
to which we do not express any belief), at the time the Prospectus was issued,
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Exhibit (j)(1)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
April 18, 2005
Eaton Vance Tax-Managed Buy-Write Opportunities Fund hereby adopts and agrees to become a party to the attached Custodian Agreement as amended and extended with Investors Bank & Trust Company.
EATON VANCE TAX-MANAGED BUY-WRITE
OPPORTUNITIES FUND
By: /s/ James L. O'Connor
------------------------------------
James L. O'Connor
Treasurer, and not Individually
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Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
------------------------------------
Andrew M. Nesvet
Managing Director
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MASTER CUSTODIAN AGREEMENT
between
EATON VANCE GROUP OF FUNDS
and
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
1. Definitions............................................................1-2
2. Employment of Custodian and Property to be held by it..................2-3
3. Duties of the Custodian with Respect to Property of the Fund.............3
A. Safekeeping and Holding of Property..................................3
B. Delivery of Securities.............................................3-6
C. Registration of Securities...........................................6
D. Bank Accounts........................................................6
E. Payments for Shares of the Fund....................................6-7
F. Investment and Availability of Federal Funds.........................7
G. Collections........................................................7-8
H. Payment of Fund Moneys.............................................8-9
I. Liability for Payment in Advance of Receipt of
Securities Purchased.................................................9
J. Payments for Repurchases of Redemptions of Shares
of the Fund.......................................................9-10
K. Appointment of Agents by the Custodian..............................10
L. Deposit of Fund Portfolio Securities in Securities Systems.......10-12
M. Deposit of Fund Commercial Paper in an Approved Book-Entry
System for Commercial Paper....................................12-13
N. Segregated Account..................................................14
O. Ownership Certificates for Tax Purposes.............................14
P. Proxies.............................................................14
Q. Communications Relating to Fund Portfolio Securities................14
R. Exercise of Rights; Tender Offers..................................15
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S. Depository Receipts.................................................15
T. Interest Bearing Call or Time Deposits...........................15-16
U. Options, Futures Contracts and Foreign Currency Transactions.....16-17
V. Actions Permitted Without Express Authority.........................17
W. Advances by the Bank................................................18
4. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value......................................................18
5. Records and Miscellaneous Duties.....................................18-19
6. Opinion of Fund's Independent Public Accountants........................19
7. Compensation and Expenses of Bank.......................................19
8. Responsibility of Bank...............................................19-20
9. Persons Having Access to Assets of the Fund.............................20
10. Effective Period, Termination and Amendment; Successor Custodian.....20-21
11. Interpretive and Additional Provisions..................................21
12. Notices.................................................................21
13. Massachusetts Law to Apply..............................................22
14. Adoption of the Agreement by the Fund...................................22
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MASTER CUSTODIAN AGREEMENT
This Agreement is made between each investment company advised by Eaton Vance Management which has adopted this Agreement in the manner provided herein and Investors Bank & Trust Company (hereinafter called "Bank", "Custodian" and "Agent"), a trust company established under the laws of Massachusetts with a principal place of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the Investment Company Act of 1940 and has appointed the Bank to act as Custodian of its property and to perform certain duties as its Agent, as more fully hereinafter set forth; and
Whereas, the Bank is willing and able to act as each such investment company's Custodian and Agent, subject to and in accordance with the provisions hereof;
Now, therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, each such investment company and the Bank agree as follows:
1. DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
(a) "Fund" shall mean the investment company which has adopted this Agreement. If the Fund is a Massachusetts business trust, it may in the future establish and designate other separate and distinct series of shares, each of which may be called a "portfolio"; in such case, the term "Fund" shall also refer to each such separate series or portfolio.
(b) "Board" shall mean the board of directors/trustees/managing general partners/director general partners of the Fund, as the case may be.
(c) "The Depository Trust Company", a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository and which has been specifically approved as a securities depository for the Fund by the Board.
(d) "Participants Trust Company", a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository and which has been specifically approved as a securities depository for the Fund by the Board.
(e) "Approved Clearing Agency" shall mean any other domestic clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository BUT ONLY if the Custodian has received a certified copy of a vote of the Board approving such clearing agency as a securities depository for the Fund.
(f) "Federal Book-Entry System" shall mean the book-entry system referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United States and federal agency securities (i.e., as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry regulations of federal agencies substantially in the form of Subpart O).
(g) "Approved Foreign Securities Depository" shall mean a foreign securities depository or clearing agency referred to in Rule 17f-4 under the Investment Company Act of 1940 for foreign securities BUT ONLY if the Custodian has received a certified copy of a vote of the Board approving such depository or clearing agency as a foreign securities depository for the Fund.
(h) "Approved Book-Entry System for Commercial Paper" shall mean a system maintained by the Custodian or by a subcustodian employed pursuant to Section 2 hereof for the holding of commercial paper in book-entry form BUT ONLY if the Custodian has received a certified copy of a vote of the Board approving the participation by the Fund in such system.
(i) The Custodian shall be deemed to have received "proper instructions" in respect of any of the matters referred to in this Agreement upon receipt of written or facsimile instructions signed by such one or more person or persons as the Board shall have from time to time authorized to give the particular class of instructions in question. Electronic instructions for the purchase and sale of securities which are transmitted by Eaton Vance Management to the Custodian through the Eaton Vance equity trading system and the Eaton Vance fixed income trading system shall be deemed to be proper instructions; the Fund shall cause all such instructions to be confirmed in writing. Different persons may be authorized to give instructions for different purposes. A certified copy of a vote of the Board may be received and accepted by the Custodian as conclusive evidence of the authority of any such person to act and may be considered as in full force and effect until receipt of written notice to the contrary. Such instructions may be general or specific in terms and, where appropriate, may be standing instructions. Unless the vote delegating authority to any person or persons to give a particular class of instructions specifically requires that the approval of any person, persons or committee shall first have been obtained before the Custodian may act on instructions of that class, the Custodian shall be under no obligation to question the right of the person or persons giving such instructions in so doing. Oral instructions will be considered proper instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. The Fund authorizes the Custodian to tape record any and all telephonic or other oral instructions given to the Custodian. Upon receipt of a certificate signed by two officers of the Fund as to the authorization by the President and the Treasurer of the Fund accompanied by a detailed description of the communication procedures approved by the President and the Treasurer of the Fund, "proper instructions" may also include communications effected directly between electromechanical or electronic devices provided that the President and Treasurer of the Fund and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. In performing its duties generally, and more particularly in connection with the purchase, sale and exchange of securities made by or for the Fund, the Custodian may take cognizance of the provisions of the governing documents and registration statement of the Fund as the same may from time to time be in effect (and votes, resolutions or proceedings of the shareholders or the Board), but, nevertheless, except as otherwise expressly provided herein, the Custodian may assume unless and until notified in writing to the contrary that so-called proper instructions received by it are not in conflict with or in any way contrary to any provisions of such governing documents and registration statement, or votes, resolutions or proceedings of the shareholders or the Board.
2. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby appoints and employs the Bank as its Custodian and Agent in accordance with and subject to the provisions hereof, and the Bank hereby accepts such appointment and employment. The Fund agrees to deliver to the Custodian all securities, participation interests, cash and other assets owned
by it, and all payments of income, payments of principal and capital distributions and adjustments received by it with respect to all securities and participation interests owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held by the Fund and not delivered by the Fund to the Custodian. The Fund will also deliver to the Bank from time to time copies of its currently effective charter (or declaration of trust or partnership agreement, as the case may be), by-laws, prospectus, statement of additional information and distribution agreement with its principal underwriter, together with such resolutions, votes and other proceedings of the Fund as may be necessary for or convenient to the Bank in the performance of its duties hereunder.
The Custodian may from time to time employ one or more subcustodians to perform such acts and services upon such terms and conditions as shall be approved from time to time by the Board of Directors. Any such subcustodian so employed by the Custodian shall be deemed to be the agent of the Custodian, and the Custodian shall remain primarily responsible for the securities, participation interests, moneys and other property of the Fund held by such subcustodian. Any foreign subcustodian shall be a bank or trust company which is an eligible foreign custodian within the meaning of Rule 17f-5 under the Investment Company Act of 1940, and the foreign custody arrangements shall be approved by the Board of Directors and shall be in accordance with and subject to the provisions of said Rule. For the purposes of this Agreement, any property of the Fund held by any such subcustodian (domestic or foreign) shall be deemed to be held by the Custodian under the terms of this Agreement.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND
A. FEKEEPING AND HOLDING OF PROPERTY. The Custodian shall keep safely all
property of the Fund and on behalf of the Fund shall from time to time
receive delivery of Fund property for safekeeping. The Custodian shall
hold, earmark and segregate on its books and records for the account
of the Fund all property of the Fund, including all securities,
participation interests and other assets of the Fund (1) physically
held by the Custodian, (2) held by any subcustodian referred to in
Section 2 hereof or by any agent referred to in Paragraph K hereof,
(3) held by or maintained in The Depository Trust Company or in
Participants Trust Company or in an Approved Clearing Agency or in the
Federal Book-Entry System or in an Approved Foreign Securities
Depository, each of which from time to time is referred to herein as a
"Securities System", and (4) held by the Custodian or by any
subcustodian referred to in Section 2 hereof and maintained in any
Approved Book-Entry System for Commercial Paper.
B. DELIVERY OF SECURITIES. The Custodian shall release and deliver securities or participation interests owned by the Fund held (or deemed to be held) by the Custodian or maintained in a Securities System account or in an Approved Book-Entry System for Commercial Paper account only upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities or participation interests for the account of the Fund, BUT ONLY against receipt of payment therefor; if delivery is made in Boston or New York City, payment therefor shall be made in accordance with generally accepted clearing house procedures or by use of Federal
Reserve Wire System procedures; if delivery is made elsewhere payment therefor shall be in accordance with the then current "street delivery" custom or in accordance with such procedures agreed to in writing from time to time by the parties hereto; if the sale is effected through a Securities System, delivery and payment therefor shall be made in accordance with the provisions of Paragraph L hereof; if the sale of commercial paper is to be effected through an Approved Book-Entry System for Commercial Paper, delivery and payment therefor shall be made in accordance with the provisions of Paragraph M hereof; if the securities are to be sold outside the United States, delivery may be made in accordance with procedures agreed to in writing from time to time by the parties hereto; for the purposes of this subparagraph, the term "sale" shall include the disposition of a portfolio security (i) upon the exercise of an option written by the Fund and (ii) upon the failure by the Fund to make a successful bid with respect to a portfolio security, the continued holding of which is contingent upon the making of such a bid;
2) Upon the receipt of payment in connection with any repurchase agreement or reverse repurchase agreement relating to such securities and entered into by the Fund;
3) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund;
4) To the issuer thereof or its agent when such securities or participation interests are called, redeemed, retired or otherwise become payable; PROVIDED that, in any such case, the cash or other consideration is to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name or
nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED that, in
any such case, the new securities or participation interests
are to be delivered to the Custodian or any subcustodian
employed pursuant to Section 2 hereof;
6) To the broker selling the same for examination in accordance with the "street delivery" custom; PROVIDED that the Custodian shall adopt such procedures as the Fund from time to time shall approve to ensure their prompt return to the Custodian by the broker in the event the broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the Issuer of such securities, or pursuant to provisions for conversion of such securities, or pursuant to any deposit agreement; provided
that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities, the surrender thereof in connection with the exercise of such warrants, rights or similar securities, or the surrender of interim receipts or temporary securities for definitive securities; PROVIDED that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof;
9) For delivery in connection with any loans of securities made by the Fund (such loans to be made pursuant to the terms of the Fund's current registration statement), BUT ONLY against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities; except that in connection with any securities loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of Treasury, the Custodian will not be held liable or responsible for the delivery of securities loaned by the Fund prior to the receipt of such collateral;
10) For delivery as security in connection with any borrowings by the Fund requiring a pledge or hypothecation of assets by the Fund (if then permitted under circumstances described in the current registration statement of the Fund), provided, that the securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, further securities may be released for that purpose; upon receipt of proper instructions, the Custodian may pay any such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan;
11) When required for delivery in connection with any redemption or repurchase of Shares of the Fund in accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any agreement between the Custodian (or a subcustodian employed pursuant to Section 2 hereof) and a broker-dealer registered under the Securities Exchange Act of 1934 and, if necessary, the Fund, relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange, or of any similar organization or organizations, regarding deposit or escrow or other arrangements in connection with options transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian (or a subcustodian employed pursuant to Section 2 hereof), and a futures commissions merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or of any contract market or commodities exchange or similar organization, regarding futures margin account deposits or payments in connection with futures transactions by the Fund;
14) For any other proper corporate purpose, BUT ONLY upon receipt of, in addition to proper instructions, a certified copy of a vote of the Board specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made.
C. REGISTRATION OF SECURITIES. Securities held by the Custodian (other than bearer securities) for the account of the Fund shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian, or in the name or nominee name of any agent appointed pursuant to Paragraph K hereof, or in the name or nominee name of any subcustodian employed pursuant to Section 2 hereof, or in the name or nominee name of The Depository Trust Company or Participants Trust Company or Approved Clearing Agency or Federal Book-Entry System or Approved Book-Entry System for Commercial Paper; provided, that securities are held in an account of the Custodian or of such agent or of such subcustodian containing only assets of the Fund or only assets held by the Custodian or such agent or such subcustodian as a custodian or subcustodian or in a fiduciary capacity for customers. All certificates for securities accepted by the Custodian or any such agent or subcustodian on behalf of the Fund shall be in "street" or other good delivery form or shall be returned to the selling broker or dealer who shall be advised of the reason thereof.
D. BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting in pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as the Custodian may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved in writing by two officers of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be subject to withdrawal only by the Custodian in that capacity.
E. PAYMENT FOR SHARES OF THE FUND. The Custodian shall make appropriate arrangements with the Transfer Agent and the principal underwriter of the Fund to enable the Custodian to make certain it promptly receives the cash or other consideration due to the Fund for such new or treasury Shares as may be issued or sold from time to time by the
Fund, in accordance with the governing documents and offering prospectus and statement of additional information of the Fund. The Custodian will provide prompt notification to the Fund of any receipt by it of payments for Shares of the Fund.
F. INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties,
1) invest in such securities and instruments as may be set forth in such instructions on the same day as received all federal funds received after a time agreed upon between the Custodian and the Fund; and
2) make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account.
G. COLLECTIONS. The Custodian shall promptly collect all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall promptly collect all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or agent thereof and shall credit such income, as collected, to the Fund's custodian account.
The Custodian shall do all things necessary and proper in connection with such prompt collections and, without limiting the generality of the foregoing, the Custodian shall
1) Present for payment all coupons and other income items requiring presentations;
2) Present for payment all securities which may mature or be called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the Fund, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a Securities System or in an Approved Book-Entry System for Commercial Paper at the time funds become available to the Custodian; in the case of securities maintained in The Depository Trust Company funds shall be deemed available to the Fund not later than the opening of business on the first business day after receipt of such funds by the Custodian.
The Custodian shall notify the Fund as soon as reasonably practicable whenever income due on any security is not promptly collected. In any case in which the Custodian does not receive any due and unpaid income after it has made demand for the same, it shall immediately so notify the Fund in writing, enclosing copies of any demand letter, any
written response thereto, and memoranda of all oral responses thereto and to telephonic demands, and await instructions from the Fund; the Custodian shall in no case have any liability for any nonpayment of such income provided the Custodian meets the standard of care set forth in Section 8 hereof. The Custodian shall not be obligated to take legal action for collection unless and until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends, rights and other items of like nature, and deal with the same pursuant to proper instructions relative thereto.
H. PAYMENT OF FUND MONEYS. Upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out moneys of the Fund in the following cases only:
1) Upon the purchase of securities, participation interests, options, futures contracts, forward contracts and options on futures contracts purchased for the account of the Fund but only (a) against the receipt of
(i) such securities registered as provided in Paragraph C hereof or in proper form for transfer or
(ii) detailed instructions signed by an officer of the Fund regarding the participation interests to be purchased or
(iii) written confirmation of the purchase by the Fund of the options, futures contracts, forward contracts or options on futures contracts
by the Custodian (or by a subcustodian employed pursuant to
Section 2 hereof or by a clearing corporation of a national
securities exchange of which the Custodian is a member or by
any bank, banking institution or trust company doing
business in the United States or abroad which is qualified
under the Investment Company Act of 1940 to act as a
custodian and which has been designated by the Custodian as
its agent for this purpose or by the agent specifically
designated in such instructions as representing the
purchasers of a new issue of privately placed securities);
(b) in the case of a purchase effected through a Securities
System, upon receipt of the securities by the Securities
System in accordance with the conditions set forth in
Paragraph L hereof; (c) in the case of a purchase of
commercial paper effected through an Approved Book-Entry
System for Commercial Paper, upon receipt of the paper by
the Custodian or subcustodian in accordance with the
conditions set forth in Paragraph M hereof; (d) in the case
of repurchase agreements entered into between the Fund and
another bank or a broker-dealer, against receipt by the
Custodian of the securities underlying the repurchase
agreement either in certificate form or through an entry
crediting the Custodian's segregated, non-proprietary
account at the Federal Reserve Bank of Boston with such
securities along with written evidence of the agreement by
the bank or broker-dealer to repurchase such securities from the Fund; or (e) with respect to securities purchased outside of the United States, in accordance with written procedures agreed to from time to time in writing by the parties hereto;
2) When required in connection with the conversion, exchange or surrender of securities owned by the Fund as set forth in Paragraph B hereof;
3) When required for the redemption or repurchase of Shares of the Fund in accordance with the provisions of Paragraph J hereof;
4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: advisory fees, distribution plan payments, interest, taxes, management compensation and expenses, accounting, transfer agent and legal fees, and other operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions to holders of Shares declared or authorized by the Board; and
6) For any other proper corporate purpose, BUT ONLY upon receipt of, in addition to proper instructions, a certified copy of a vote of the Board, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made.
I. LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
In any and every case where payment for purchase of securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions signed by two officers of the Fund to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian; EXCEPT that in the case of a repurchase agreement
entered into by the Fund with a bank which is a member of the Federal
Reserve System, the Custodian may transfer funds to the account of
such bank prior to the receipt of (i) the securities in certificate
form subject to such repurchase agreement or (ii) written evidence
that the securities subject to such repurchase agreement have been
transferred by book-entry into a segregated non-proprietary account of
the Custodian maintained with the Federal Reserve Bank of Boston or
(iii) the safekeeping receipt, PROVIDED that such securities have in
fact been so transferred by book-entry and the written repurchase
agreement is received by the Custodian in due course; AND EXCEPT that
if the securities are to be purchased outside the United States,
payment may be made in accordance with procedures agreed to in writing
from time to time by the parties hereto.
J. PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND. From such funds as may be available for the purpose, but subject to any applicable votes of the Board and the current redemption and repurchase procedures of the Fund, the Custodian shall, upon receipt of written instructions from the Fund or from the Fund's transfer agent or from the principal underwriter, make funds and/or portfolio
securities available for payment to holders of Shares who have caused their Shares to be redeemed or repurchased by the Fund or for the Fund's account by its transfer agent or principal underwriter.
The Custodian may maintain a special checking account upon which special checks may be drawn by shareholders of the Fund holding Shares for which certificates have not been issued. Such checking account and such special checks shall be subject to such rules and regulations as the Custodian and the Fund may from time to time adopt. The Custodian or the Fund may suspend or terminate use of such checking account or such special checks (either generally or for one or more shareholders) at any time. The Custodian and the Fund shall notify the other immediately of any such suspension or termination.
K. APPOINTMENT OF AGENTS BY THE CUSTODIAN. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company (provided such bank or trust company is itself qualified under the Investment Company Act of 1940 to act as a custodian or is itself an eligible foreign custodian within the meaning of Rule 17f-5 under said Act) as the agent of the Custodian to carry out such of the duties and functions of the Custodian described in this Section 3 as the Custodian may from time to time direct; providED, however, that the appointment of any such agent shall not relieve the Custodian of any of its responsibilities or liabilities hereunder, and as between the Fund and the Custodian the Custodian shall be fully responsible for the acts and omissions of any such agent. For the purposes of this Agreement, any property of the Fund held by any such agent shall be deemed to be held by the Custodian hereunder.
L. DEPOSIT OF FUND PORTFOLIO SECURITIES IN SECURITIES SYSTEMS The Custodian may deposit and/or maintain securities owned by the Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
in each case only in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, and at all times subject to the following provisions:
(a) The Custodian may (either directly or through one or more subcustodians employed pursuant to Section 2 keep securities of the Fund in a Securities System provided that such securities are maintained in a non-proprietary account ("Account") of the Custodian
or such subcustodian in the Securities System which shall not include any assets of the Custodian or such subcustodian or any other person other than assets held by the Custodian or such subcustodian as a fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund, and the Custodian shall be fully and completely responsible for maintaining a recordkeeping system capable of accurately and currently stating the Fund's holdings maintained in each such Securities System.
(c) The Custodian shall pay for securities purchased in book-entry form for the account of the Fund only upon (i) receipt of notice or advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of any entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund only upon (i) receipt of notice or advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all notices or advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be promptly provided to the Fund at its request. The Custodian shall promptly send to the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice of each such transaction, and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day.
(d) The Custodian shall promptly send to the Fund any report or other communication received or obtained by the Custodian relating to the Securities System's accounting system, system of internal accounting controls or procedures for safeguarding securities deposited in the Securities System; the Custodian shall promptly send to the Fund any report or other communication relating to the Custodian's internal accounting controls and procedures for safeguarding securities deposited in any Securities System; and the Custodian shall ensure that any agent appointed pursuant to Paragraph K hereof or any subcustodian employed pursuant to Section 2 hereof shall promptly send to the Fund and to the Custodian any report or other communication relating to such agent's or sub custodian's internal accounting controls and procedures for safeguarding securities deposited in any Securities System. The Custodian's books and records relating to the Fund's participation in each Securities System will at all times during regular business hours be open to the inspection of the Fund's authorized officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L in the absence of receipt of a certificate of an officer of the Fund that the Board has approved the use of a particular Securities System; the Custodian shall also obtain appropriate assurance from the officers of the Fund that the Board has annually reviewed the continued use by the Fund of each Securities System, and the Fund shall promptly notify the Custodian if the use of a Securities System is to be discontinued; at the request of the Fund, the Custodian will terminate the use of any such Securities System as promptly as practicable.
(f) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or subcustodians or of any of its or their employees or from any failure of the Custodian or any such agent or subcustodian to enforce effectively such rights as it may have against the Securities System or any other person; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage.
M. DEPOSIT OF FUND COMMERCIAL PAPER IN AN APPROVED BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Upon receipt of proper instructions with respect to each issue of direct issue commercial paper purchased by the Fund, the Custodian may deposit and/or maintain direct issue commercial paper owned by the Fund in any Approved Book-Entry System for Commercial Paper, in each case only in accordance with applicable Securities and Exchange Commission rules, regulations, and no-action correspondence, and at all times subject to the following provisions:
(a) The Custodian may (either directly or through one or more subcustodians employed pursuant to Section 2) keep commercial paper of the Fund in an Approved Book-Entry System for Commercial Paper, provided that such paper is issued in book entry form by the Custodian or subcustodian on behalf of an issuer with which the Custodian or subcustodian has entered into a book-entry agreement and provided further that such paper is maintained in a non-proprietary account ("Account") of the Custodian or such subcustodian in an Approved Book-Entry System for Commercial Paper which shall not include any assets of the Custodian or such subcustodian or any other person other than assets held by the Custodian or such subcustodian as a fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to commercial paper of the Fund which is maintained in an Approved Book-Entry System for Commercial Paper shall identify by book-entry each specific issue of commercial paper purchased by the Fund which is included in the System and shall at all times during regular business hours be open for inspection by authorized officers, employees or agents of the Fund. The Custodian shall be fully and completely responsible for maintaining a recordkeeping system capable of accurately and currently stating the Fund's holdings of commercial paper maintained in each such System.
(c) The Custodian shall pay for commercial paper purchased in
book-entry form for the account of the Fund only upon contemporaneous
(i) receipt of notice or advice from the issuer that such paper has
been issued, sold and transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect such purchase,
payment and transfer for the account of the Fund. The Custodian shall
transfer such commercial paper which is sold or cancel such commercial
paper which is redeemed for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice that payment for such
paper has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer or
redemption and payment for the account of the Fund. Copies of all
notices, advices and confirmations of transfers of commercial paper for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be promptly provided to the Fund at its request. The Custodian shall promptly send to the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice of each such transaction, and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the System for the account of the Fund on the next business day.
(d) The Custodian shall promptly send to the Fund any report or other communication received or obtained by the Custodian relating to each System's accounting system, system of internal accounting controls or procedures for safeguarding commercial paper deposited in the System; the Custodian shall promptly send to the Fund any report or other communication relating to the Custodian's internal accounting controls and procedures for safeguarding commercial paper deposited in any Approved Book-Entry System for Commercial Paper; and the Custodian shall ensure that any agent appointed pursuant to Paragraph K hereof or any subcustodian employed pursuant to Section 2 hereof shall promptly send to the Fund and to the Custodian any report or other communication relating to such agent's or sub custodian's internal accounting controls and procedures for safeguarding securities deposited in any Approved Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M in the absence of receipt of a certificate of an officer of the Fund that the Board has approved the use of a particular Approved Book-Entry System for Commercial Paper; the Custodian shall also obtain appropriate assurance from the officers of the Fund that the Board has annually reviewed the continued use by the Fund of each Approved Book-Entry System for Commercial Paper, and the Fund shall promptly notify the Custodian if the use of an Approved Book-Entry System for Commercial Paper is to be discontinued; at the request of the Fund, the Custodian will terminate the use of any such System as promptly as practicable.
(f) The Custodian (or subcustodian, if the Approved Book-Entry System for Commercial Paper is maintained by the subcustodian) shall issue physical commercial paper or promissory notes whenever requested to do so by the Fund or in the event of an electronic system failure which impedes issuance, transfer or custody of direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of any Approved Book-Entry System for Commercial Paper by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or subcustodians or of any of its or their employees or from any failure of the Custodian or any such agent or subcustodian to enforce effectively such rights as it may have against the System, the issuer of the commercial paper or any other person; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the System, the issuer of the commercial paper or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage.
N. SEGREGATED ACCOUNT. The Custodian shall upon receipt of proper instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Paragraph L hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and any registered broker-dealer (or any futures commission merchant), relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or of the Commodity Futures Trading Commission or of any contract market or commodities exchange), or of any similar organization or organizations, regarding escrow or deposit or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or U.S. Government securities in connection with options purchased, sold or written by the Fund or futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in addition to proper instructions, a certificate signed by two officers of the Fund, setting forth the purpose such segregated account and declaring such purpose to be a proper purpose.
O. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities.
P. PROXIES. The Custodian shall, with respect to the securities held by it hereunder, cause to be promptly delivered to the Fund all forms of proxies and all notices of meetings and any other notices or announcements or other written information affecting or relating to the securities, and upon receipt of proper instructions shall execute and deliver or cause its nominee to execute and deliver such proxies or other authorizations as may be required. Neither the Custodian nor its nominee shall vote upon any of the securities or execute any proxy to vote thereon or give any consent or take any other action with respect thereto (except as otherwise herein provided) unless ordered to do so by proper instructions.
Q. COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian shall deliver promptly to the Fund all written information (including, without limitation, pendency of call and maturities of securities and participation interests and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers and other persons relating to the securities and participation interests being held for the Fund. With respect to tender or exchange offers, the Custodian shall deliver promptly to the Fund all written information received by the Custodian from issuers and other persons relating to the securities and participation interests whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer.
R. EXERCISE OF RIGHTS; TENDER OFFERS. In the case of tender offers, similar offers to purchase or exercise rights (including, without limitation, pendency of calls and maturities of securities and participation interests and expirations of rights in connection therewith and notices of exercise of call and put options and the maturity of futures contracts) affecting or relating to securities and participation interests held by the Custodian under this Agreement, the Custodian shall have responsibility for promptly notifying the Fund of all such offers in accordance with the standard of reasonable care set forth in Section 8 hereof. For all such offers for which the Custodian is responsible as provided in this Paragraph R, the Fund shall have responsibility for providing the Custodian with all necessary instructions in timely fashion. Upon receipt of proper instructions, the Custodian shall timely deliver to the issuer or trustee thereof, or to the agent of either, warrants, puts, calls, rights or similar securities for the purpose of being exercised or sold upon proper receipt therefor and upon receipt of assurances satisfactory to the Custodian that the new securities and cash, if any, acquired by such action are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof. Upon receipt of proper instructions, the Custodian shall timely deposit securities upon invitations for tenders of securities upon proper receipt therefor and upon receipt of assurances satisfactory to the Custodian that the consideration to be paid or delivered or the tendered securities are to be returned to the Custodian or subcustodian employed pursuant to Section 2 hereof. Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary by proper instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall thereafter promptly notify the Fund in writing of such action.
S. DEPOSITORY RECEIPTS. The Custodian shall, upon receipt of proper instructions, surrender or cause to be surrendered foreign securities to the depository used by an issuer of American Depository Receipts or International Depository Receipts (hereinafter collectively referred to as "ADRs") for such securities, against a written receipt therefor adequately describing such securities and written evidence satisfactory to the Custodian that the depository has acknowledged receipt of instructions to issue with respect to such securities ADRs in the name of a nominee of the Custodian or in the name or nominee name of any subcustodian employed pursuant to Section 2 hereof, for delivery to the Custodian or such subcustodian at such place as the Custodian or such subcustodian may from time to time designate. The Custodian shall, upon receipt of proper instructions, surrender ADRs to the issuer thereof against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the securities underlying such ADRs to the Custodian or to a subcustodian employed pursuant to Section 2 hereof.
T. INTEREST BEARING CALL OR TIME DEPOSITS. The Custodian shall, upon receipt of proper instructions, place interest bearing fixed term and call deposits with the banking department of such banking institution (other than the Custodian) and in such amounts as the Fund may designate. Deposits may be denominated in U.S. Dollars or other currencies. The Custodian shall include in its records with respect to the assets of the Fund appropriate notation as to the amount and currency of each such deposit, the accepting banking institution and other appropriate details and shall retain such forms of advice or
receipt evidencing the deposit, if any, as may be forwarded to the Custodian by the banking institution. Such deposits shall be deemed portfolio securities of the applicable Fund for the purposes of this Agreement, and the Custodian shall be responsible for the collection of income from such accounts and the transmission of cash to and from such accounts.
U. OPTIONS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS.
1. OPTIONS. The Custodians shall, upon receipt of proper instructions and in accordance with the provisions of any agreement between the Custodian, any registered broker-dealer and, if necessary, the Fund, relating to compliance with the rules of the Options Clearing Corporation or of any registered national securities exchange or similar organization or organizations, receive and retain confirmations or other documents, if any, evidencing the purchase or writing of an option on a security or securities index or other financial instrument or index by the Fund; deposit and maintain in a segregated account for each Fund separately, either physically or by book-entry in a Securities System, securities subject to a covered call option written by the Fund; and release and/or transfer such securities or other assets only in accordance with a notice or other communication evidencing the expiration, termination or exercise of such covered option furnished by the Options Clearing Corporation, the securities or options exchange on which such covered option is traded or such other organization as may be responsible for handling such options transactions. The Custodian and the broker-dealer shall be responsible for the sufficiency of assets held in each Fund's segregated account in compliance with applicable margin maintenance requirements.
2. FUTURES CONTRACTS. The Custodian shall, upon receipt of proper instructions, receive and retain confirmations and other documents, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by the Fund; deposit and maintain in a segregated account, for the benefit of any futures commission merchant, assets designated by the Fund as initial, maintenance or variation "margin" deposits (including mark-to-market payments) intended to secure the Fund's performance of its obligations under any futures contracts purchased or sold or any options on futures contracts written by Fund, in accordance with the provisions of any agreement or agreements among the Fund, the Custodian and such futures commission merchant, designed to comply with the rules of the Commodity Futures Trading Commission and/or of any contract market or commodities exchange or similar organization regarding such margin deposits or payments; and release and/or transfer assets in such margin accounts only in accordance with any such agreements or rules. The Custodian and the futures commission merchant shall be responsible for the sufficiency of assets held in the segregated account in compliance with the applicable margin maintenance and mark-to-market payment requirements.
3. FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, pursuant to proper instructions, enter into or cause a subcustodian to enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund. Such transactions may be undertaken by the Custodian or subcustodian with such banking or financial institutions or other currency brokers, as set forth in proper instructions. Foreign exchange contracts and options shall be deemed to be portfolio securities of the Fund; and accordingly, the responsibility of the Custodian therefor shall be the same as and no greater than the Custodian's responsibility in respect of other portfolio securities of the Fund. The Custodian shall be responsible for the transmittal to and receipt of cash from the currency broker or banking or financial institution with which the contract or option is made, the maintenance of proper records with respect to the transaction and the maintenance of any segregated account required in connection with the transaction. The Custodian shall have no duty with respect to the selection of the currency brokers or banking or financial institutions with which the Fund deals or for their failure to comply with the terms of any contract or option. Without limiting the foregoing, it is agreed that upon receipt of proper instructions and insofar as funds are made available to the Custodian for the purpose, the Custodian may (if determined necessary by the Custodian to consummate a particular transaction on behalf and for the account of the Fund) make free outgoing payments of cash in the form of U.S. dollars or foreign currency before receiving confirmation of a foreign exchange contract or confirmation that the counter value currency completing the foreign exchange contact has been delivered or received. The Custodian shall not be responsible for any costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange; provided that the Custodian shall nevertheless be held to the standard of care set forth in, and shall be liable to the Fund in accordance with, the provisions of Section 8.
V. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, PROVIDED, that all such payments shall be accounted for by the Custodian to the Treasurer of the Fund;
2) surrender securities in temporary form for securities in definitive form;
3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Fund.
W. ADVANCES BY THE BANK. The Bank may, in its sole discretion, advance funds on behalf of the Fund to make any payment permitted by this Agreement upon receipt of any proper authorization required by this Agreement for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such overdraft or related indebtedness a loan made by the Bank to the Fund payable on demand. Such overdraft shall bear interest at the current rate charged by the Bank for such secured loans unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest to the extent of any overdraft or indebtedness or the extent required by law, whichever is greater, in and to any property at any time held by it for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the Fund on the Bank's books.
4. DUTIES OF BANK WITH RESPECT TO BOOKS OF ACCOUNT AND CALCULATIONS OF NET ASSET VALUE
The Bank shall as Agent (or as Custodian, as the case may be) keep such books of account (including records showing the adjusted tax costs of the Fund's portfolio securities) and render as at the close of business on each day a detailed statement of the amounts received or paid out and of securities received or delivered for the account of the Fund during said day and such other statements, including a daily trial balance and inventory of the Fund's portfolio securities; and shall furnish such other financial information and data as from time to time requested by the Treasurer or any executive officer of the Fund; and shall compute and determine, as of the close of business of the New York Stock Exchange, or at such other time or times as the Board may determine, the net asset value of a Share in the Fund, such computation and determination to be made in accordance with the governing documents of the Fund and the votes and instructions of the Board at the time in force and applicable, and promptly notify the Fund and its investment adviser and such other persons as the Fund may request of the result of such computation and determination. In computing the net asset value the Custodian may rely upon security quotations received by telephone or otherwise from sources or pricing services designated by the Fund by proper instructions, and may further rely upon information furnished to it by any authorized officer of the Fund relative (a) to liabilities of the Fund not appearing on its books of account, (b) to the existence, status and proper treatment of any reserve or reserves, (c) to any procedures established by the Board regarding the valuation of portfolio securities, and (d) to the value to be assigned to any bond, note, debenture, Treasury bill, repurchase agreement, subscription right, security, participation interests or other asset or property for which market quotations are not readily available.
5. RECORDS AND MISCELLANEOUS DUTIES
The Bank shall create, maintain and preserve all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All books of account and records maintained by the Bank in connection with the performance of its duties under this Agreement shall be the property of the Fund, shall at all times during the regular business hours of the Bank be open for inspection by authorized officers, employees or agents of the Fund, and in the event of
termination of this Agreement shall be delivered to the Fund or to such other person or persons as shall be designated by the Fund. Disposition of any account or record after any required period of preservation shall be only in accordance with specific instructions received from the Fund. The Bank shall assist generally in the preparation of reports to shareholders, to the Securities and Exchange Commission, including Forms N-SAR and N-1Q, to state "blue sky" authorities and to others, audits of accounts, and other ministerial matters of like nature; and, upon request, shall furnish the Fund's auditors with an attested inventory of securities held with appropriate information as to securities in transit or in the process of purchase or sale and with such other information as said auditors may from time to time request. The Custodian shall also maintain records of all receipts, deliveries and locations of such securities, together with a current inventory thereof, and shall conduct periodic verifications (including sampling counts at the Custodian) of certificates representing bonds and other securities for which it is responsible under this Agreement in such manner as the Custodian shall determine from time to time to be advisable in order to verify the accuracy of such inventory. The Bank shall not disclose or use any books or records it has prepared or maintained by reason of this Agreement in any manner except as expressly authorized herein or directed by the Fund, and the Bank shall keep confidential any information obtained by reason of this Agreement.
6. OPINION OF FUND'S INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall take all reasonable action, as the Fund may from time to time request, to enable the Fund to obtain from year to year favorable opinions from the Fund's independent public accountants with respect to its activities hereunder in connection with the preparation of the Fund's registration statement and Form N-SAR or other periodic reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission.
7. COMPENSATION AND EXPENSES OF BANK
The Bank shall be entitled to reasonable compensation for its services as Custodian and Agent, as agreed upon from time to time between the Fund and the Bank. The Bank shall be entitled to receive from the Fund on demand reimbursement for its cash disbursements, expenses and charges, including counsel fees, in connection with its duties as Custodian and Agent hereunder, but excluding salaries and usual overhead expenses.
8. RESPONSIBILITY OF BANK
So long as and to the extent that it is in the exercise of reasonable care, the Bank as Custodian and Agent shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of reasonable
care in carrying out the provisions of this Agreement but shall be liable only
for its own negligent or bad faith acts or failures to act. Notwithstanding the
foregoing, nothing contained in this paragraph is intended to nor shall it be
construed to modify the standards of care and responsibility set forth in
Section 2 hereof with respect to subcustodians and in subparagraph f of
Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as set forth with respect to subcustodians generally in Section 2 hereof, provided that, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody of any securities or cash of the Fund in a foreign county including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, revolution, military or usurped powers, nuclear fission, fusion or radiation, earthquake, storm or other disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Bank, result in the Bank or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.
9. PERSONS HAVING ACCESS TO ASSETS OF THE FUND
(i) No trustee, director, general partner, officer, employee or agent of the Fund shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer or director, employee or agent of the Custodian who holds any similar position with the Fund or the investment adviser of the Fund shall have access to the assets of the Fund.
(ii) Access to assets of the Fund held hereunder shall only be available to duly authorized officers, employees, representatives or agents of the Custodian or other persons or entities for whose actions the Custodian shall be responsible to the extent permitted hereunder, or to the Fund's independent public accountants in connection with their auditing duties performed on behalf of the Fund.
(iii) Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Fund or of the investment adviser of the Fund from giving
instructions to the Custodian or executing a certificate so long as it does not
result in delivery of or access to assets of the Fund prohibited by paragraph
(i) of this Section 9.
10. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT; SUCCESSOR CUSTODIAN
This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated by either party after August 31, 2000 by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; PROVIDED, that the Fund may at any time by action of its Board, (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian in the event the Custodian assigns this Agreement to another party without consent of the noninterested Trustees of the Funds, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Federal Deposit Insurance Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to
the Custodian such compensation as may be due as of the date of such termination (and shall likewise reimburse the Custodian for its costs, expenses and disbursements).
This Agreement may be amended at any time by the written agreement of the parties hereto. If a majority of the non-interested trustees of any of the Funds determines that the performance of the Custodian has been unsatisfactory or adverse to the interests of shareholders of any Fund or Funds or that the terms of the Agreement are no longer consistent with publicly available industry standards, then the Fund or Funds shall give written notice to the Custodian of such determination and the Custodian shall have 60 days to (1) correct such performance to the satisfaction of the non-interested trustees or (2) renegotiate terms which are satisfactory to the non-interested trustees of the Funds. If the conditions of the preceding sentence are not met then the Fund or Funds may terminate this Agreement on sixty (60) days written notice.
The Board of the Fund shall, forthwith, upon giving or receiving notice of termination of this Agreement, appoint as successor custodian, a bank or trust company having the qualifications required by the Investment Company Act of 1940 and the Rules thereunder. The Bank, as Custodian, Agent or otherwise, shall, upon termination of the Agreement, deliver to such successor custodian, all securities then held hereunder and all funds or other properties of the Fund deposited with or held by the Bank hereunder and all books of account and records kept by the Bank pursuant to this Agreement, and all documents held by the Bank relative thereto. In the event that no written order designating a successor custodian shall have been delivered to the Bank on or before the date when such termination shall become effective, then the Bank shall not deliver the securities, funds and other properties of the Fund to the Fund but shall have the right to deliver to a bank or trust company doing business in Boston, Massachusetts of its own selection meeting the above required qualifications, all funds, securities and properties of the Fund held by or deposited with the Bank, and all books of account and records kept by the Bank pursuant to this Agreement, and all documents held by the Bank relative thereto. Thereafter such bank or trust company shall be the successor of the Custodian under this Agreement.
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, PROVIDED that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the governing instruments of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
12. NOTICES
Notices and other writings delivered or mailed postage prepaid to the Fund addressed to 24 Federal Street, Boston, Massachusetts 02110, or to such other address as the Fund may have designated to the Bank, in writing, or to Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts 02110, shall be deemed to have been properly delivered or given hereunder to the respective addressees.
13. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts.
If the Fund is a Massachusetts business trust, the Custodian expressly acknowledges the provision in the Fund's declaration of Trust limiting the personal liability of the trustees and shareholders of the Fund; and the Custodian agrees that it shall have recourse only to the assets of the Fund for the payment of claims or obligations as between the Custodian and the Fund arising out of this Agreement, and the Custodian shall not seek satisfaction of any such claim or obligation from the trustees or shareholders of the Fund.
14. ADOPTION OF THE AGREEMENT BY THE FUND
The Fund represents that its Board has approved this Agreement and has duly authorized the Fund to adopt this Agreement, such adoption to be evidenced by a letter agreement between the Fund and the Bank reflecting such adoption, which letter agreement shall be dated and signed by a duly authorized officer of the Fund and duly authorized officer of the Bank. This Agreement shall be deemed to be duly executed and delivered by each of the parties in its name and behalf by its duly authorized officer as of the date of such letter agreement, and this Agreement shall be deemed to supersede and terminate, as of the date of such letter agreement, all prior agreements between the Fund and the Bank relating to the custody of the Fund's assets.
* * * * *
Exhibit (k)(1)
Eaton Vance Tax-Managed Buy-Write Opportunities Fund The Eaton Vance Building 255 State Street Boston, MA 02109 Tel: (617)482-8260
April 18, 2005
PFPC Inc.
4400 Computer Drive
Westborough, MA 01581-5120
Attn: President
Re: Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Dear Sirs:
Please be advised that, pursuant to Trustee action taken on April 18, 2005, your firm was appointed transfer and dividend disbursing agent for Eaton Vance Tax-Managed Buy-Write Opportunities Fund. Accordingly, pursuant to Sections 10(e) and 12(a) of that certain Amended and Restated Transfer Agency and Services Agreement dated as of June 16, 2003, by and between PFPC Inc. and each of the various Eaton Vance Funds listed on Exhibit 1 thereto (the "Agreement"), you are hereby notified that Eaton Vance Tax-Managed Buy-Write Opportunities Fund has been added as a party to the Agreement and that Exhibit 1 and Schedule B to the Agreement (as attached hereto) are hereby restated in their entirety.
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
By: /s/ Duncan W. Richardson
------------------------------------
Duncan W. Richardson
President
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Accepted and Acknowledged:
PFPC Inc.
By: /s/ Michael G. McCarthy
-----------------------------------
Michael G. McCarthy
Authorized Officer
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EXHIBIT 1
LIST OF FUNDS
RESTATED APRIL 18, 2005
Eaton Vance Municipal Income Trust
Eaton Vance California Municipal Income Trust
Eaton Vance Florida Municipal Income Trust
Eaton Vance Massachusetts Municipal Income Trust
Eaton Vance Michigan Municipal Income Trust
Eaton Vance New Jersey Municipal Income Trust
Eaton Vance New York Municipal Income Trust
Eaton Vance Ohio Municipal Income Trust
Eaton Vance Pennsylvania Municipal Income Trust
Eaton Vance Insured Municipal Bond Fund
Eaton Vance Insured California Municipal Bond Fund
Eaton Vance Insured New York Municipal Bond Fund
Eaton Vance Insured Municipal Bond Fund II Eaton Vance Insured California Municipal Bond Fund II Eaton Vance Insured Florida Municipal Bond Fund Eaton Vance Insured Massachusetts Municipal Bond Fund Eaton Vance Insured Michigan Municipal Bond Fund Eaton Vance Insured New Jersey Municipal Bond Fund Eaton Vance Insured New York Municipal Bond Fund II Eaton Vance Insured Ohio Municipal Bond Fund Eaton Vance Pennsylvania Municipal Bond Fund
Eaton Vance Limited Duration Income Fund
Eaton Vance Tax-Advantaged Dividend Income Fund
Eaton Vance Senior Floating-Rate Trust
Eaton Vance Tax-Advantaged Global Dividend Income Fund
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
Eaton Vance Floating-Rate Income Trust
Eaton Vance Enhanced Equity Income Fund
Eaton Vance Enhanced Equity Income Fund II
Eaton Vance Short Duration Diversified Income Fund
Eaton Vance Global Enhanced Equity Income Fund
Eaton Vance Tax-Managed Buy-Write Income Fund
Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
SCHEDULE B
RESTATED APRIL 18, 2005
FEE SCHEDULE
1. Initial Public Offering Fees
IPO Project Administration Fee: $3,000 per Fund
IPO Project Administration Fee covers:
Issuance of up to 1,000 certificates - Issuance of certificates in excess of 1,000 to be billed at $2.00 per certificate
Administration coordination with IPO client, underwriter and legal representatives
Attendance at closing (out of pocket expenses associated with such attendance will be billed as incurred)
Set-up, testing and implementation of electronic settlement and delivery of shares through The Depository Trust Company
2. Over-allotment Fee: $1,000 per Fund
Applies in the event that the underwriters elect to exercise an over-allotment option which requires a second closing
3. Standard Service Fee:
(a) The following standard service fees shall apply with respect to the shares offered by: Eaton Vance Insured Municipal Bond Fund;
Eaton Vance Insured California Municipal Bond Fund; Eaton Vance Insured New York Municipal Bond Fund; Eaton Vance Limited Duration Income Fund; Eaton Vance Tax-Advantaged Dividend Income Fund; Eaton Vance Senior Floating-Rate Trust; Eaton Vance Tax-Advantaged Global Dividend Income Fund; Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund; Eaton Vance Floating-Rate Income Trust; Eaton Vance Enhanced Equity Income Fund; and Eaton Vance Enhanced Equity Income Fund II Eaton Vance Short Duration Diversified Income Fund Eaton Vance Global Enhanced Equity Income Fund Eaton Vance Tax-Managed Buy-Write Income Fund Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Annual Service Fee: $15.00 Per Account Monthly Minimum Fee: $5,000.00
(b) The following standard service fees shall apply with respect to the shares offered by: Eaton Vance Municipal Income Trust;
Eaton Vance California Municipal Income Trust; Eaton Vance Florida Municipal Income Trust; Eaton Vance Massachusetts Municipal Income Trust; Eaton Vance Michigan Municipal Income Trust; Eaton Vance New Jersey Municipal Income Trust; Eaton Vance New York Municipal Income Trust; Eaton Vance Ohio Municipal Income Trust; and Eaton Vance Pennsylvania Municipal Income Trust.
Each Fund shall pay 9 basis points annually on the average daily net assets, paid monthly, in arrears, with respect to the shares offered by the Fund.
(c) The following standard service fees shall apply with respect to the shares offered by: Eaton Vance Insured Municipal Bond Fund II;
Eaton Vance Insured California Municipal Bond Fund II; Eaton Vance Insured Florida Municipal Bond Fund; Eaton Vance Insured Massachusetts Municipal Bond Fund; Eaton Vance Insured Michigan Municipal Bond Fund; Eaton Vance Insured New Jersey Municipal Bond Fund; Eaton Vance Insured New York Municipal Bond Fund II; Eaton Vance Insured Ohio Municipal Bond Fund; and Eaton Vance Insured Pennsylvania Municipal Bond Fund.
Each Fund shall pay 7.5 basis points annually on the average daily net assets, paid monthly, in arrears, with respect to the shares offered by the Fund.
After the one year anniversary of the effective date of this Agreement, PFPC may adjust the above fees once per calendar year, upon thirty (30) days prior written notice in an amount not to exceed the cumulative percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S. Department of Labor since the last such adjustment in the Fund's monthly fees (or the Effective Date absent a prior such adjustment).
Exhibit (k)(3)
EATON VANCE TAX-MANAGED BUY-WRITE OPPORTUNITIES FUND
ADMINISTRATION AGREEMENT
AGREEMENT made this 18th day of April, 2005, between Eaton Vance Tax-Managed Buy-Write Opportunities Fund, a Massachusetts business trust (the "Fund"), and Eaton Vance Management, a Massachusetts business trust (the "Administrator").
1. Duties of the Administrator. The Fund hereby employs the Administrator to act as administrator for and to administer the affairs of the Fund, subject to the supervision of the Trustees of the Fund for the period and on the terms set forth in this Agreement.
The Administrator hereby accepts such employment, and agrees to administer the Fund's business affairs and, in connection therewith, to furnish for the use of the Fund office space and all necessary office facilities, equipment and personnel for administering the affairs of the Fund. The Administrator shall also pay the salaries and compensation of all officers and Trustees of the Fund who are members of the Administrator's organization and who render executive and administrative services to the Fund, and the salaries and compensation of all other personnel of the Administrator performing management and administrative services for the Fund. The Administrator shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund.
In connection with its responsibilities as Administrator of the Fund, the Administrator (i) will assist in preparing all annual, semi-annual and other reports required to be sent to Fund shareholders, and arrange for the printing and dissemination of such reports to shareholders; (ii) will prepare and assemble all reports required to be filed by the Fund with the Securities and Exchange Commission ("SEC") on Forms N-SAR and N-CSR, or on such other form as the SEC may substitute for Form N-SAR or N-CSR, and file such reports with the SEC; (iii) will review the provision of services by the Fund's independent accountants, including, but not limited to, the preparation by such accountants of audited financial statements of the Fund and the Fund's federal, state and local tax returns; and make such reports and recommendations to the Trustees of the Fund concerning the performance of the independent accountants as the Trustees deem appropriate; (iv) will arrange for the filing with the appropriate authorities all required federal, state and local tax returns; (v) will arrange for the dissemination to shareholders of the Fund's proxy materials, and will oversee the tabulation of proxies by the Fund's transfer agent or other duly authorized proxy tabulator; (vi) will review and supervise the provision of custodian services to the Fund; and make such reports and recommendations to the Trustees concerning the provision of such services as the Trustees deem appropriate; (vii) will value all such portfolio investments and other assets of the Fund as may be designated by the Trustees (subject to any guidelines, directions and instructions of the Trustees), and review and supervise the calculation of the net asset value of the Fund's shares by the custodian; (viii) will negotiate the terms and conditions under which transfer agency and dividend disbursing services will be provided to the Fund, and the fees to be paid by the Fund in connection therewith; review and supervise the provision of transfer agency and dividend disbursing services to the Fund; and make such reports and recommendations to the Trustees concerning the performance of the Fund's transfer and dividend disbursing agent as the Trustees deem appropriate; (ix) will establish the accounting policies of the Fund; reconcile accounting issues which may arise with respect to the Fund's operations; and consult with the Fund's independent accountants, legal counsel, custodian, accounting and bookkeeping agents and transfer and dividend disbursing agent as necessary in connection therewith; (x) will determine the amount of all distributions to be paid by the Fund to its shareholders; prepare and arrange for the printing of notices to shareholders regarding such distributions and provide the Fund's transfer and dividend disbursing agent and custodian with such information as is required for such parties to effect the payment of distributions and to implement the Fund's dividend reinvestment plan; (xi) will review the Fund's bills and authorize payments of such bills by the Fund's custodian; (xii) will make recommendations to the Trustees as to whether the Fund should make repurchase or tender offers for its own shares; arrange for the preparation and filing of all documents required to be filed by the Fund with the SEC; arrange for the preparation and dissemination of all appropriate repurchase or tender offer documents and papers on behalf of the Fund; and supervise and conduct the
Fund's periodic repurchase or tender offers for its own shares; (xiii) monitor any variance between the market value and net asset value per share, and periodically report to the Trustees available actions that may conform such values; (xiv) monitor the activities of any shareholder servicing agent retained by the Administrator and periodically report to the Trustees about such activities; (xv) will arrange for the preparation and filing of all other reports, forms, registration statements and documents required to be filed by the Fund with the SEC, the National Association of Securities Dealers, Inc. and any securities exchange where Fund shares are listed; and (xvi) will provide to the Fund such other internal legal, auditing and accounting services and internal executive management and administrative services as the Trustees deem appropriate to conduct the Fund's business affairs.
Notwithstanding the foregoing, the Administrator shall not be deemed to have assumed any duties with respect to, and shall not be responsible for, the management of the Fund's assets or the rendering of investment advice and supervision with respect thereto or the distribution of shares of the Fund, nor shall the Administrator be deemed to have assumed or have any responsibility with respect to functions specifically assumed by any transfer agent, custodian or shareholder servicing agent of the Fund.
Sub-Administrators. The Administrator may 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-administrators and approved by the Trustees of the Fund.
2. Compensation of the Administrator. The Board of Trustees of the Fund have currently determined that, based on the current level of compensation payable to Eaton Vance Management by the Fund under the Fund's present Investment Advisory Agreement with Eaton Vance Management, the Administrator shall receive no compensation from the Fund in respect of the services to be rendered and the facilities to be provided by the Administrator under this Agreement. If the Trustees subsequently determine that the Fund should compensate the Administrator for such services and facilities, such compensation shall be set forth in a new agreement or in an amendment to this Agreement to be entered into by the parties hereto.
3. Allocation of Charges and Expenses. It is understood that the Fund will
pay all its expenses other than those expressly stated to be payable by the
Administrator hereunder, which expenses payable by the Fund shall include,
without implied limitation, (i) expenses of maintaining the Fund and continuing
its existence; (ii) registration of the Fund under the Investment Company Act of
1940; (iii) commissions, fees and other expenses connected with the acquisition,
holding and disposition of securities and other investments; (iv) auditing,
accounting and legal expenses; (v) taxes and interest; (vi) governmental fees;
(vii) expenses of repurchase and redemption (if any) of shares, including all
expenses incurred in conducting repurchase and tender offers for the purpose of
repurchasing Fund shares; (viii) expenses of registering and qualifying the Fund
and its shares under federal and state securities laws and of preparing
registration statements and amendments for such purposes; (ix) expenses of
reports and notices to shareholders and of meetings of shareholders and proxy
solicitations therefor; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Fund (including without limitation safekeeping of funds and
securities, keeping of books and accounts and determination of net asset value);
(xiv) fees, expenses and disbursements of transfer agents, dividend disbursing
agents, shareholder servicing agents and registrars for all services to the
Fund; (xv) expenses of listing shares with a stock exchange; (xvi) any direct
charges to shareholders approved by the Trustees of the Fund; (xvii)
compensation of and any expenses of Trustees of the Fund who are not members of
the Administrator's organization; (xviii) all payments to be made and expenses
to be assumed by the Fund in connection with the distribution of Fund shares;
(xix) any pricing and valuation services employed by the Fund; (xx) any
investment advisory fee payable to an investment adviser; (xxi) all expenses
incurred in connection with leveraging the Fund's assets through a line of
credit, or issuing and maintaining preferred shares; and (xxii) such
non-recurring items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and obligations of the Fund to indemnify its
shareholders, Trustees, officers and employees with respect thereto.
4. Other Interests. It is understood that Trustees, officers and shareholders of the Fund are or may be or become interested in the Administrator as trustees, officers, employees, shareholders or otherwise and that trustees, officers, employees and shareholders of the Administrator are or may be or become similarly interested in the Fund, and that the Administrator may be or become interested in the Fund as a shareholder or otherwise. It is also understood that trustees, officers, employees and shareholders of the Administrator may be or become interested (as directors, trustees, officers, employees, stockholders or otherwise) in other companies or entities (including, without limitation, other investment companies) that the Administrator may organize, sponsor or acquire, or with which it may merge or consolidate, and that the Administrator or its subsidiaries or affiliates may enter into advisory, management or administration agreements or other contracts or relationship with such other companies or entities.
5. Limitation of Liability of the Administrator. The services of the Administrator to the Fund are not to be deemed to be exclusive, the Administrator being free to render services to others and engage in other business activities. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Administrator, the Administrator shall not be subject to liability to the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses which may be sustained in the acquisition, holding or disposition of any security or other investment.
6. Duration and Termination of this Agreement. This Agreement shall become effective upon the date of its execution, and, unless terminated as herein provided, shall remain in full force and effect through and including April 18, 2007 and shall continue in full force and effect indefinitely thereafter, but only so long as such continuance after April 18, 2007 is specifically approved at least annually (i) by the Board of Trustees of the Fund, and (ii) by the vote of a majority of those Trustees of the Fund who are not interested persons of the Administrator or the Fund.
Either party hereto may, at any time on sixty (60) days' prior written notice to the other, terminate this Agreement by action of the Trustees of the Fund or the trustees of the Administrator, and the Fund may, at any time upon such written notice to the Administrator, terminate the Agreement by vote of a majority of the outstanding voting securities of the Fund. This Agreement shall terminate automatically in the event of its assignment.
7. Amendments of the Agreement. This Agreement may be amended by a writing signed by both parties hereto, provided that no amendment to this Agreement shall be effective until approved (i) by the vote of a majority of those Trustees of the Fund who are not interested persons of the Administrator or the Fund, and (ii) by vote of the Board of Trustees of the Fund.
8. Limitation of Liability. Each party expressly acknowledges the provision in the other party's Agreement and Declaration of Trust limiting the personal liability of its shareholders officers, and Trustees, and each party hereby agrees that it shall have recourse to the other party for payment of claims or obligations as between the Fund and the Administrator arising out of this Agreement and shall not seek satisfaction from the Trustees, officers or shareholders of the other party.
9. Use of the Name "Eaton Vance." The Administrator hereby consents to the use by the Fund of the name "Eaton Vance" as part of the Fund's name; provided, however, that such consent shall be conditioned upon the employment of the Administrator or one of its affiliates as the administrator of the Fund. The name "Eaton Vance" or any variation thereof may be used from time to time in other connections and for other purposes by the Administrator and its affiliates and other investment companies that have obtained consent to the use of the name "Eaton Vance." The Administrator shall have the right to require the Fund to cease using the name "Eaton Vance" as part of the Fund's name if the Fund ceases, for any reason, to employ the Administrator or one of its affiliates as the Fund's administrator. Future names adopted by the Fund for itself, insofar as such names include identifying words requiring the consent of the Administrator, shall be the property of the Administrator and shall be subject to the same terms and conditions.
10. Certain Definitions. The terms "assignment" and "interested persons" when used herein shall have the respective meanings specified in the Investment Company Act of 1940 as now in effect or as hereafter amended subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order. The term "vote of a majority of the outstanding voting securities" shall mean the vote of the lesser of (a) 67 per centum or more of the shares of the Fund present or represented by proxy at the meeting if the holders of more than 50 per centum of the outstanding shares of the Fund are present or represented by proxy at the meeting, or (b) more than 50 per centum of the outstanding shares of the Fund.
EATON VANCE TAX-MANAGED EATON VANCE MANAGEMENT
BUY-WRITE OPPORTUNITIES FUND
By: /s/ Duncan W. Richardson By: /s/ Jeffrey P. Beale
------------------------------ -------------------------------
Duncan W. Richardson Jeffrey P. Beale
President, and not Individually Vice President, and not Individually
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Exhibit (k) (4)
As of May 18, 2005
To Eaton Vance Tax-Managed Buy-Write Opportunities Fund
With Reference to the Investment Advisory Agreement entered into by Eaton Vance Management ("Eaton Vance") with Eaton Vance Tax-Managed Buy-Write Opportunities Fund (the "Fund") we hereby notify you of the following:
In connection with the organization and initial offering of the common shares of the Fund, Eaton Vance hereby agrees to (i) reimburse all organizational costs of the Fund and (ii) pay all offering costs of such offering of the Fund (other than sales load, but inclusive of the reimbursement of underwriter expenses of $0.00667 per share) that exceeds $0.04 per share.
This instrument is executed under seal and shall be governed by Massachusetts law.
Very truly yours,
EATON VANCE MANAGEMENT
By: /s/James B. Hawkes
------------------
Name: James B. Hawkes
Title: President, and not Individually
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ACCEPTED AND AGREED TO
ON BEHALF OF THE FUND
By: /s/James L. O'Connor
--------------------
Name: James L. O'Connor
Title: Treasurer, and not Individually
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Exhibit (k)(5)
CC US DRAFT: 05/11/05
ADDITIONAL COMPENSATION AGREEMENT
ADDITIONAL COMPENSATION AGREEMENT (the "Agreement"), dated as of June
[__], 2005, between Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Eaton Vance Management ("Eaton Vance").
WHEREAS, the Eaton Vance Tax-Managed Buy-Write Opportunities Fund (including any successor by merger or otherwise) (the "Fund") is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and its common shares are registered under the Securities Act of 1933, as amended; and
WHEREAS, Eaton Vance is the investment adviser of the Fund;
WHEREAS, Merrill Lynch is acting as lead underwriter in an offering of the Fund's common shares;
WHEREAS, Eaton Vance desires to provide additional compensation to Merrill Lynch for acting as lead underwriter in an offering of the Fund's common shares; and
WHEREAS, Eaton Vance desires to retain Merrill Lynch to provide after-market support services designed to maintain the visibility of the Fund on an ongoing basis, and Merrill Lynch is willing to render such services;
NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below, the parties hereto agree as follows:
1. (a) Eaton Vance hereby employs Merrill Lynch, for the period and on the terms and conditions set forth herein, to provide the following services at the reasonable request of Eaton Vance:
(1) after-market support services designed to maintain the visibility of the Fund on an ongoing basis;
(2) relevant information, studies or reports regarding general trends in the closed-end investment company and asset management industries, if reasonably obtainable, and consult with representatives of Eaton Vance in connection therewith; and
(3) information to and consult with Eaton Vance with respect to applicable strategies designed to address market value discounts, if any.
(b) At the request of Eaton Vance, Merrill Lynch shall limit or cease any action or service provided hereunder to the extent and for the time period requested by Eaton Vance; provided, however, that pending termination of this Agreement as provided for in Section 6 hereof, any such limitation or cessation shall not relieve Eaton Vance of its payment obligations pursuant to Section 2 hereof.
(c) Merrill Lynch will promptly notify Eaton Vance, as the case may be, if it learns of any material inaccuracy or misstatement in, or material omission from, any written information, as of the date such information was published, provided by Merrill Lynch to Eaton Vance in connection with the performance of services by Merrill Lynch under this Agreement.
2. Eaton Vance shall pay Merrill Lynch a fee computed weekly and payable
quarterly in arrears commencing June 30, 2005 at an annualized rate of
0.15% of the average daily Gross Assets (as defined below) of the Fund for
a term as described in Section 6 hereof; provided that the total amount of
the fee hereunder, shall not exceed [_____]% of the total price to the
public of the Fund's common shares offered by the Prospectus dated June
[__], 2005 (the "Prospectus") (including all Initial Securities and Option
Securities as such terms are described in the Purchase Agreement, dated
June [__], 2005, by and among the Fund, Eaton Vance and each of the
Underwriters named therein (the "Purchase Agreement")). The sum total of
this fee, [any other additional compensation], plus the amount of the
expense reimbursement of $.00667 per common share payable by the Fund to
the underwriters pursuant to the Purchase Agreement shall not exceed 4.5%
of the total price of the Fund's common shares offered by the Prospectus.
The sum total of all compensation to the Underwriters in connection with
the public offering of the common shares of the Fund, including sales load
and all forms of additional compensation to the Underwriters, shall not
exceed 9.0% of the total price of the Fund's common shares offered by the
Prospectus. "Gross Assets" is defined as total assets of the Fund,
including any form of investment leverage that the Fund may in the future
determine to utilize, minus all accrued expenses incurred in the normal
course of operations, but not excluding any liabilities or obligations
attributable to any future investment leverage obtained through (i)
indebtedness of any type (including, without limitation, borrowing through
a credit facility/commercial paper program or the issuance debt
securities), (ii) the issuance of preferred shares or other similar
preference securities, (iii) the reinvestment of collateral received for
securities loaned in accordance with the Fund's investment objectives and
policies, and/or (iv) any other means. All quarterly fees payable
hereunder shall be paid to Merrill Lynch within 15 days following the end
of each calendar quarter.
3. Eaton Vance shall be permitted to discharge all or a portion of its payment obligations hereunder upon prepayment in full or in part of the remaining balance due of the maximum additional commission amount described in Section 2 above.
4. Eaton Vance acknowledges that the services of Merrill Lynch provided for hereunder do not include any advice as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of Merrill Lynch, and Merrill Lynch is not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services in connection with providing the services described in Section 1 hereof.
5. Nothing herein shall be construed as prohibiting Merrill Lynch or its affiliates from providing similar or other services to any other clients (including other registered investment companies or other investment managers), so long as Merrill Lynch's services to Eaton Vance are not impaired thereby.
6. The term of this Agreement shall commence upon the date referred to above and shall be in effect so long as Eaton Vance acts as the investment manager to the Fund pursuant to the Investment Management Agreement (as such term is defined in the Purchase Agreement) or other subsequent advisory agreement.
7. Eaton Vance will furnish Merrill Lynch with such information as Merrill Lynch believes appropriate to its assignment hereunder (all such information so furnished being the "Information"). Eaton Vance recognizes and confirms that Merrill Lynch (a) will use and rely
primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same and (b) does not assume responsibility for the accuracy or completeness of the Information and such other information. To the best of Eaton Vance's knowledge, the Information to be furnished by Eaton Vance when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. Eaton Vance will promptly notify Merrill Lynch if it learns of any material inaccuracy or misstatement in, or material omission from, any Information delivered to Merrill Lynch.
8. Eaton Vance agrees that Merrill Lynch shall have no liability to Eaton Vance or the Fund for any act or omission to act by Merrill Lynch in the course of its performance under this Agreement, in the absence of gross negligence or willful misconduct on the part of Merrill Lynch. Eaton Vance agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
9. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement ("Claim") shall be governed by and construed in accordance with the laws of the State of New York.
10. No Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and Eaton Vance and Merrill Lynch consent to the jurisdiction of such courts and personal service with respect thereto. Each of Merrill Lynch and Eaton Vance waives all right to trial by jury in any proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. Eaton Vance agrees that a final judgment in any proceeding or counterclaim brought in any such court shall be conclusive and binding upon Eaton Vance and may be enforced in any other courts to the jurisdiction of which Eaton Vance is or may be subject, by suit upon such judgment.
11. This Agreement may not be assigned by either party without the prior written consent of the other party.
12. This Agreement (including the attached Indemnification Agreement) embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both Merrill Lynch and Eaton Vance.
13. All notices required or permitted to be sent under this Agreement shall be sent, if to Eaton Vance:
c/o Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Attention: Fund Administration
or if to Merrill Lynch:
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
Attention: Tina Singh
or such other name or address as may be given in writing to the other parties. Any notice shall be deemed to be given or received on the third day after deposit in the U.S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier.
14. A copy of the Agreement and Declaration of Trust of each of the Fund and Eaton Vance is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice hereby is given that this Additional Compensation Agreement is executed on behalf of Eaton Vance by an officer or trustee of Eaton Vance in his or her capacity as an officer or trustee of Eaton Vance and not individually and that the obligations under or arising out of this Additional Compensation Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and properties of Eaton Vance.
15. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have duly executed this Additional Compensation Agreement as of the date first above written.
EATON VANCE MANAGEMENT MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: By:
----------------------------------- ------------------------------------
Name: Name:
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Title: Title:
MERRILL LYNCH & CO. INDEMNIFICATION AGREEMENT
June [__], 2005
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
In connection with the engagement of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Agreement dated June [__], 2005 between the Company and Merrill Lynch (the "Agreement"), in the event that Merrill Lynch becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company agrees to indemnify, defend and hold Merrill Lynch harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of Merrill Lynch. In addition, in the event that Merrill Lynch becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse Merrill Lynch for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by Merrill Lynch in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and Merrill Lynch, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which Merrill Lynch has been retained to perform financial services bears to the fees paid to Merrill Lynch under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that Merrill Lynch is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by Merrill Lynch pursuant to the Agreement. Relative fault shall be determined by reference to, among other
things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by Merrill Lynch, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not Merrill Lynch is an actual or potential party to such Proceeding, without Merrill Lynch's prior written consent. For purposes of this Indemnification Agreement, Merrill Lynch shall include Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, any of its affiliates, each other person, if any, controlling Merrill Lynch or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither Merrill Lynch nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either Merrill Lynch's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of Merrill Lynch in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND MERRILL LYNCH CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST MERRILL LYNCH OR ANY INDEMNIFIED PARTY. EACH OF MERRILL LYNCH AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of Merrill Lynch's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Title:
Accepted and agreed to as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Exhibit (n)
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
We consent to the reference to our Firm under the heading "Independent Registered Public Accounting Firm" in the Prospectus and Statement of Additional Information in this Pre-Effective Amendment No. 1 to the Registration Statement of Eaton Vance Tax-Managed Buy-Write Opportunities Fund on Form N-2 filed by the Fund under the Securities Act of 1933, as amended (Registration No. 333-123770) and under the Investment Company Act of 1940, as amended (Registration No. 811 -21735).
/s/ Deloitte & Touche LLP ------------------------- Boston, Massachusetts May 25, 2005 |
Exhibit (s)(1)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Eaton Vance Tax-Managed Buy-Write Opportunities Fund, a Massachusetts business trust, do hereby severally constitute and appoint Alan R. Dynner, Thomas E. Faust Jr., James B. Hawkes or James L. O'Connor, or any of them, to be true, sufficient and lawful attorneys, or attorney for each of us, to sign for each of us, in the name of each of us in the capacities indicated below, Registration Statements and any and all amendments (including post-effective amendments) to such Registration Statements on Form N-2 filed by Eaton Vance Tax-Managed Buy-Write Opportunities Fund with the Securities and Exchange Commission in respect of any class of shares of beneficial interest and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set opposite our respective signatures.
Signature Title Date --------- ----- ---- /s/ Duncan W. Richardson President and Principal April 18, 2005 ----------------------------- Executive Officer Duncan W. Richardson /s/ James L. O'Connor Treasurer and Principal April 18, 2005 ----------------------------- Financial and Accounting James L. O'Connor Officer /s/ James B. Hawkes Trustee April 18, 2005 ----------------------------- James B. Hawkes /s/ Samuel L. Hayes, III Trustee April 18, 2005 ----------------------------- Samuel L. Hayes, III /s/ William H. Park Trustee April 18, 2005 ----------------------------- William H. Park /s/ Ronald A. Pearlman Trustee April 18, 2005 ----------------------------- Ronald A. Pearlman /s/ Norton H. Reamer Trustee April 18, 2005 ----------------------------- Norton H. Reamer /s/ Lynn A. Stout Trustee April 18, 2005 ----------------------------- Lynn A. Stout |
Exhibit (s)(2)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Eaton Vance Tax-Managed Buy-Write Opportunities Fund, a Massachusetts business trust, do hereby severally constitute and appoint Alan R. Dynner, Thomas E. Faust Jr., James B. Hawkes or James L. O'Connor, or any of them, to be true, sufficient and lawful attorneys, or attorney for each of us, to sign for each of us, in the name of each of us in the capacities indicated below, Registration Statements and any and all amendments (including post-effective amendments) to such Registration Statements on Form N-2 filed by Eaton Vance Tax-Managed Buy-Write Opportunities Fund with the Securities and Exchange Commission in respect of any class of shares of beneficial interest and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set opposite our respective signatures.
Signature Title Date --------- ----- ---- /s/ Benjamin C. Esty Trustee April 29, 2005 ---------------------------- Benjamin C. Esty /s/ Ralph F. Verni Trustee April 29, 2005 ---------------------------- Ralph F. Verni |