As filed with the Securities and Exchange Commission on June 22, 2007
1933 Act File No. 333-141981
1940 Act File No. 811-22044
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)
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
NAME AND ADDRESS (OF AGENT FOR SERVICE)
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COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ. SARAH E. COGAN, ESQ.
KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP SIMPSON THACHER & BARTLETT LLP
STATE STREET FINANCIAL CENTER 425 LEXINGTON AVENUE
ONE LINCOLN STREET NEW YORK, NEW YORK 10017
BOSTON, MASSACHUSETTS 02111
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
MAXIMUM MAXIMUM
AMOUNT BEING OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES REGISTERED PRICE OFFERING REGISTRATION FEES
BEING REGISTERED (1) PER UNIT (1) PRICE (1) (1)(2)(3)
------------------- ------------ ------------ ---------- -----------------
Common Shares of
Beneficial
Interest,
$0.01 par value 50,000 $20.00 $1,000,000 $30.70
================================================================================
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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 $30.70 was previously paid in connection with the initial filing filed on April 9, 2007.
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. THESE SECURITIES MAY NOT BE SOLD 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 JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 22, 2007
PROSPECTUS
SHARES
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
COMMON SHARES
$20.00 PER SHARE
(EATON VANCE LOGO)
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Investment objectives. Eaton Vance Risk-Managed Diversified Equity Income 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. Relative to other equity income funds, the Fund seeks to provide less volatile returns and reduced exposure to loss of value during stock market declines. 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 owning a diversified portfolio of common stocks and employing a variety of options strategies. The Fund will seek to earn high levels of tax-advantaged income and gains by (1) investing in stocks that pay dividends that qualify for favorable federal income tax treatment, (2) writing (selling) put options on individual stocks deemed attractive for purchase, and (3) writing (selling) stock index call options with respect to a portion (initially approximately two-thirds) of its common stock portfolio value. To reduce the Fund's risk of loss due to a decline in the value of the general equity market, the Fund intends to purchase index put options with respect to a substantial portion (initially approximately 100%) of the value of its common stock holdings and stocks subject to written put options. Options on broad-based stock indices generally qualify for treatment as "section 1256 contracts," as defined in the Internal Revenue Code of 1986, as amended, on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period. For purposes of the Fund's investment objectives, gains are an increase in the value of an investment from the purchase price.
(continued on inside front cover)
This Prospectus sets forth information you should know before investing in the shares of the Fund.
BECAUSE THE FUND IS NEWLY ORGANIZED, ITS COMMON SHARES ("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.
INVESTING IN THE FUND'S COMMON SHARES INVOLVES CERTAIN RISKS. SEE "INVESTMENT OBJECTIVES, POLICIES AND RISKS -- RISK CONSIDERATIONS" BEGINNING ON PAGE 40.
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.
PER SHARE TOTAL(1)(2)
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Public Offering Price $20.00 $
Sales Load(3) $ 0.90 $
Estimated Offering Expenses(1)(2) $ 0.04 $
Proceeds to the Fund $19.06 $
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(See notes on inside cover page)
The underwriters expect to deliver the Common Shares to purchasers on or about
, 2007.
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CITI
MERRILL LYNCH & CO.
UBS INVESTMENT BANK
WACHOVIA SECURITIES
A.G. EDWARDS
ROBERT W. BAIRD & CO. BANC OF AMERICA SECURITIES LLC BB&T CAPITAL MARKETS H&R BLOCK FINANCIAL ADVISORS, CROWELL, WEEDON & CO. FERRIS, BAKER WATTS INC. INCORPORATED J.J.B. HILLIARD, W.L. LYONS, HSBC JANNEY MONTGOMERY SCOTT LLC INC. LADENBURG THALMANN & CO. INC. OPPENHEIMER & CO. RAYMOND JAMES RBC CAPITAL MARKETS RYAN BECK & CO. SOUTHWEST SECURITIES STIFEL NICOLAUS WEDBUSH MORGAN SECURITIES INC. WELLS FARGO SECURITIES |
, 2007
(Notes continued from previous page)
(1) In addition to the sales load, the Fund will pay offering costs of up to $0.04 per share, estimated to total $ , which will reduce the "Proceeds to the Fund" (above). Eaton Vance or an affiliate has agreed to pay the amount by which the aggregate of all of the Fund's offering costs (other than sales loads) exceeds $0.04 per share. Eaton Vance or an affiliate has agreed to reimburse all organizational costs.
(2) The Fund has granted the underwriters an option to purchase up to an additional Common Shares at the public offering price, less the sales load, within 45 days from the date of this Prospectus to cover over-allotments, if any. If such option is exercised in full, the total public offering price, sales load, estimated offering expenses and proceeds to the Fund will be $ , $ , $ , and $ , respectively.
(3) Eaton Vance (not the Fund) has agreed to pay from its own assets a structuring fee to each of Citigroup Global Markets Inc., UBS Securities LLC, Wachovia Capital Markets, LLC and A.G. Edwards & Sons, Inc., and additional compensation to Merrill Lynch, Pierce, Fenner & Smith Incorporated. Eaton Vance (not the Fund) also may pay certain qualifying underwriters a marketing and structuring fee, additional compensation or a sales incentive fee in connection with the offering. See "Underwriting".
(continued from previous page)
Investment Adviser and Sub-Adviser. The Fund's investment adviser is Eaton Vance Management ("Eaton Vance" or the "Adviser"). As of March 31, 2007, Eaton Vance and its subsidiaries managed $144.3 billion on behalf of funds, institutional clients and individuals, including approximately $91.4 billion in equity assets. Eaton Vance has engaged Rampart Investment Management Company, Inc. ("Rampart" or the "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 $9.6 billion in assets as of March 31, 2007. Eaton Vance will be responsible for the Fund's overall investment program, structuring and managing the Fund's common stock portfolio, developing and monitoring the Fund's options strategies, providing consultation to the Sub-Adviser and supervising the performance of the Sub-Adviser. Rampart will be responsible for providing advice on and execution of the Fund's options strategies.
Portfolio contents. Under normal market conditions, the Fund will invest at least 80% of its total assets in a combination of (1) dividend-paying common stocks, (2) common stocks the value of which is subject to written put options on individual stocks, and (3) common stocks the value of which is subject to written index call options. In addition, under normal market conditions, the Fund will purchase index put options with respect to at least 80% of the value of its investments in common stocks. The Fund will invest primarily in common stocks of United States issuers, but may invest up to 40% of its total assets in common stocks of foreign issuers, including up to 5% of its total assets in securities of issuers located in emerging markets. The Fund may not invest 25% or more of its total assets in the securities of issuers in any single industry. The Fund will emphasize investments in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains. However, the Fund is unable to predict what percentage of its overall income will consist of such qualifying dividends. The Fund will emphasize writing put options on individual stocks that the Adviser believes are attractive for purchase at prices at or above the exercise price of the put options written.
The Fund generally intends to buy put options and write call options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of its common stock portfolio (or that portion of its portfolio against which options are purchased and written). The Fund intends initially to buy put options and write call options primarily on the S&P 500 Composite Stock Price Index(R) ("S&P 500"), and may also initially buy put options and write call options on other domestic and foreign stock indices. Over time, the indices on which the Fund buys put options and writes call options may vary as a result of changes in the availability and liquidity of various listed index options, changes in stock portfolio holdings, the Adviser's evaluation of equity market conditions and other factors. The Fund intends initially to purchase index put options with respect to approximately 100% of the value of its common stock holdings and stocks subject to written put options. The buying of index put options will reduce the Fund's cash available for distribution from other sources, including from selling put options on individual stocks and index call options.
Writing put options on individual stocks involves a tradeoff between the options premiums received and exposure to declines in value of the stocks against which put options are written. Writing index call options involves a tradeoff between the options premiums received and reduced participation in potential stock market appreciation. Purchasing index put options is a risk management technique that involves a tradeoff between the options premiums paid and a potential increase in value of the options positions in a stock
market decline. To the extent that the individual stocks held by the Fund and/or the stocks subject to written put options decrease in value more than the index or indices on which the Fund has purchased put options, the strategy of purchasing index put options will provide only limited protection with respect to the value of the Fund's assets and may result in worse performance for the Fund than if it did not buy index put options.
Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an ongoing basis. The Fund's stock holdings will normally include stocks not included in the indices on which it purchases put options and writes call options.
THE FUND SEEKS TO GENERATE CURRENT EARNINGS FROM DIVIDENDS ON STOCKS HELD AND FROM OPTION PREMIUMS. 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 (other than qualified dividend income) and net realized short-term capital gains in excess of net realized long-term capital losses and Fund expenses. To the extent that the Fund's ordinary income (other than qualified dividend 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 holders of the Common Shares ("Common Shareholders") will be taxable as ordinary income.
Exchange listing. The Common Shares have been authorized for listing on the New York Stock Exchange, subject to notice of issuance, under the symbol "ETJ." 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 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, the use of risk management techniques to protect against loss of principal value in a stock market decline and 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, dividend rates, option premiums 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.
Please read and retain this Prospectus for future reference. A Statement of Additional Information dated , 2007 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 68 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 and 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 and Exchange Commission's internet site (http://www.sec.gov), upon payment of copying fees by writing to the Securities and 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.
The Fund is not sponsored, endorsed, sold or promoted by any index sponsor. No index sponsor has passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and disclosures relating to the Fund. No index sponsor has made any representation or warranty, express or implied, to the Common Shareholders or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of any index to track general stock market performance. The indices are determined, composed and calculated by the respective index sponsors without regard to the Fund or its use of the indices in its options program. The index sponsors have no obligation to take the needs of the Fund
or its Common Shareholders into consideration in determining, composing or calculating the indices. No index sponsor is responsible for or has participated in the determination of the timing of, price of, or number of Common Shares of the Fund to be issued. No index sponsor has any liability in connection with the management, administration, marketing or trading of the Fund.
THE INDEX SPONSORS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE INDICES OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSORS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, THE COMMON SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES IN THE FUND'S OPTIONS PROGRAM. IN PUBLISHING THE INDICES, THE INDEX SPONSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL AN INDEX SPONSOR HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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 DURING THE PERIOD THE FUND IS REQUIRED TO DELIVER THE PROSPECTUS. THE FUND'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
PAGE
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Prospectus Summary...................................................... 1
Summary of Fund Expenses................................................ 27
The Fund................................................................ 28
Use of Proceeds......................................................... 28
Investment Objectives, Policies and Risks............................... 28
Management of the Fund.................................................. 49
Distributions........................................................... 51
Federal Income Tax Matters.............................................. 52
Dividend Reinvestment Plan.............................................. 56
Description of Capital Structure........................................ 58
Underwriting............................................................ 63
Custodian and Transfer Agent............................................ 66
Legal Opinions.......................................................... 66
Reports to Shareholders................................................. 67
Independent Registered Public Accounting Firm........................... 67
Additional Information.................................................. 67
Table of Contents for the Statement of Additional Information........... 68
The Fund's Privacy Policy............................................... 69
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Until , 2007 (25 days after the date of this Prospectus), all dealers that buy, sell or trade the Common Shares, whether or not participating in this offering, may be required to deliver a Prospectus. This is in addition to the dealers' obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the information that you should consider before investing in the Eaton Vance Risk-Managed Diversified Equity Income Fund's common shares of beneficial interest ("Common Shares"). You should review the more detailed information contained in this Prospectus and in the Statement of Additional Information, especially the information set forth under the heading "Investment Objectives, Policies and
Risks."
THE FUND................. Eaton Vance Risk-Managed Diversified Equity Income
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") and Rampart Investment Management Company, Inc.'s ("Rampart" or the "Sub-Adviser") internal research and management. An investment in the Fund may not be appropriate for all investors.
THE OFFERING............. The Fund is offering Common Shares, par value $0.01 per share, through a group of underwriters (the "Underwriters") led by Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, Wachovia Capital Markets, LLC, and A.G. Edwards & Sons, Inc. 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 $0.04 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. Relative to other equity
income funds, the Fund seeks to provide less volatile
returns and reduced exposure to loss of value during
stock market declines. 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. The Fund's investment objectives are
considered non-fundamental policies that may be
changed by the Fund's Board of Trustees (the "Board")
without approval of the Fund's shareholders.
Under normal market conditions, the Fund's investment
program will consist primarily of owning a
diversified portfolio of common stocks and employing
a variety of options strategies. The Fund will seek
to earn high levels of tax-advantaged income and
gains by (1) investing in stocks that pay dividends
that qualify for favorable federal income tax
treatment, (2) writing (selling) put options on
individual stocks, and (3) writing (selling) stock
index call options with respect to a portion
(initially approximately two-thirds) of its common
stock portfolio value. To reduce the Fund's risk of
loss due to a decline in the value of the general
equity market, the Fund intends to purchase index put
options with
1
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respect to a substantial portion (initially
approximately 100%) of the value of its common stock
holdings and stocks subject to written put options.
Options on broad-based stock indices generally
qualify for treatment as "section 1256 contracts" as
defined in the Internal Revenue Code of 1986, as
amended (the "Code"), on which capital gains and
losses are generally treated as 60% long-term and 40%
short-term, regardless of holding period. For
purposes of the Fund's investment objectives, gains
are an increase in the value of an investment from
the purchase price.
Under normal market conditions, the Fund will invest
at least 80% of its total assets in a combination of
(1) dividend-paying common stocks, (2) common stocks
the value of which is subject to written put options
on individual stocks, and (3) common stocks the value
of which is subject to written index call options. In
addition, under normal market conditions, the Fund
will purchase index put options with respect to at
least 80% of the value of its investments in common
stocks. The Fund will emphasize investments in stocks
that pay dividends that qualify for federal income
taxation at rates applicable to long-term capital
gains. However, the Fund is unable to predict what
percentage of its overall income will consist of such
qualifying dividends. The Fund will emphasize writing
put options on individual stocks that the Adviser
believes are attractive for purchase at prices at or
above the exercise price of the put options written.
The Fund will invest primarily in common stocks of
United States issuers. The Fund may invest up to 40%
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. 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 April 30, 2007, the median market
capitalization of companies in the S&P MidCap 400 was
approximately $2.75 billion.
The Fund generally intends to buy put options and
write call options on one or more broad-based stock
indices that the Adviser believes collectively
approximate the characteristics of its common stock
portfolio (or that portion of its portfolio against
which options are purchased and written). The Fund
intends initially to buy put options and write call
options primarily on the S&P 500 Composite Stock
Price Index(R) ("S&P 500"), and may also initially
buy put options and write call options on other
domestic and foreign stock indices. Over time, the
indices on which the Fund buys put options and writes
call options may vary
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as a result of changes in the availability and
liquidity of various listed index options, changes in
stock portfolio holdings, the Adviser's evaluation of
equity market conditions and other factors.
Under normal market circumstances, the Fund will
purchase index put options with respect to at least
80% of the value of its investments in common stocks
to reduce the Fund's risk of loss due to a decline in
the value of the general equity market. The Fund
intends initially to purchase index put options with
respect to approximately 100% of the value of its
common stock holdings and stocks subject to written
put options.
Writing put options on individual stocks involves a
tradeoff between the options premiums received and
exposure to declines in value of the stocks against
which put options are written. Writing index call
options involves a tradeoff between the option
premiums received and reduced participation in
potential stock market appreciation. Purchasing index
put options is a risk management technique that
involves a tradeoff between the options premiums paid
and a potential increase in value of the options
positions in a stock market decline. To the extent
that the individual stocks held by the Fund and/or
the stocks subject to written put options decrease in
value more than the index or indices on which the
Fund has purchased put options, the strategy of
purchasing index put options will provide only
limited protection with respect to the value of the
Fund's assets and may result in worse performance for
the Fund than if it did not buy index put options. To
implement its put options program most effectively,
the Fund anticipates that a substantial portion of
its put writing activity on individual stocks will be
conducted in over-the counter ("OTC") markets. OTC
options involve an enhanced risk that the issuer or
counterparty will fail to perform its contractual
obligations. In implementing its options strategies,
the Fund generally will use premiums earned on
writing put options on individual stocks and on
selling index call options to purchase index put
options. Accordingly, the buying of index put options
will reduce the Fund's earnings available for
distribution from other sources, including from
selling index call options and put options on
individual stocks.
As the seller of put options on individual stocks,
the Fund will receive cash (the premiums) from option
purchasers. The purchaser of a put option assumes the
right to sell (put) the stock to the seller of the
option at a specified price (the exercise price) on
or before the expiration date of the option. If the
value of the stock on the option expiration date is
above the exercise price, the option will generally
expire worthless and the Fund, as option seller, will
have no obligation to the option holders. If the
value of the stock on the option expiration date is
at or below the exercise price of the option, the
Fund may be obligated to purchase the stock at the
exercise price. Generally, the Fund intends to sell
put options on individual stocks that are "out-of-
the-money" (i.e., the exercise price generally will
be below the current level of the
3
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applicable stock when the option is sold). The Fund
will emphasize writing put options on individual
stocks that the Adviser believes are attractive for
purchase at prices at or above the exercise price of
the put options written.
As the seller of index call options, the Fund will
receive cash (the premiums) from option purchasers.
The purchaser of an index 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 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." In
writing index 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 index 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
received, 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.
As the purchaser of index put options, the Fund will
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seek to benefit from a decline in the market prices of the underlying index, thereby hedging the Fund's exposure to market risk. The Fund will pay a premium to the seller of the option for the right to receive payments of cash to the extent that the value of the applicable index declines below a fixed price (the exercise price) as of a specified date in the future (the option valuation date). If the index price is above the exercise price of the option as of the option valuation date, the option expires worthless and the Fund will not be able to recover the option premium paid to the seller. Generally, the Fund intends to buy index put options that are somewhat (initially, approximately 2-3%) "out-of-the-money" (i.e., the exercise price generally will be slightly below the current level of the applicable index (or, for index put options bought with respect to put options written on individual stocks, slightly lower in relation to the current level of the applicable index than the exercise price of the put options written is to the price of the associated stock) when the option is purchased). The Fund may also buy index put options that are more or less "out-of-the-money." Options that are more "out-of-the-money" provide the Fund with less protection against a decline in the applicable index, but generally would be less expensive than put options that are slightly "out-of- the-money." In buying index put options, the Fund will, in effect, acquire protection against a decline in the value of the applicable index below the exercise price in exchange for the option premium paid. If, at expiration, an index put option purchased by the Fund is exercised, the Fund will receive from the option seller the difference between the exercise price of the option and the value of the applicable index. The premium paid,
the exercise price and the market value of the applicable index will determine the gain or loss realized by the Fund as the buyer of the index put option.
The Fund's policies that, under normal market conditions, the Fund will invest at least 80% of its total assets in a combination of (1) dividend-paying common stocks, (2) common stocks the value of which is subject to written put options on individual stocks, and (3) common stocks the value of which is subject to written index call options and that the Fund will purchase index put options with respect to at least 80% of the value of its investments in common stocks are non-fundamental policies that may be changed by 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-Adviser 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 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.
The Fund is not sponsored, endorsed, sold or promoted by any index sponsor. No index sponsor has passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to the Fund. No index sponsor has made any representation or warranty, express or implied, to the Common Shareholders or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of any index to track general stock market performance. The indices are determined, composed and calculated by the respective index sponsors without regard to the Fund or its use of the indices in its options program. The index sponsors have no obligation to take the needs of the Fund or its Common Shareholders into consideration in determining, composing or calculating the indices. No index sponsor is responsible for or has participated in the determination of the timing of, price of, or number of Common Shares of the Fund to be issued. No index sponsor has any liability in connection with the management, administration, marketing or trading of the Fund.
THE INDEX SPONSORS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE INDICES OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSORS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, THE COMMON SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES IN THE FUND'S OPTIONS PROGRAM. IN PUBLISHING THE INDICES, THE INDEX SPONSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDICES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL AN INDEX SPONSOR HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT SELECTION
STRATEGIES............... Eaton Vance will be responsible for the Fund's
overall investment program, structuring and managing
the Fund's common stock portfolio, developing and
monitoring the Fund's options strategies, providing
consultation to the Sub-Adviser and supervising the
performance of the Sub-Adviser. 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 strategies.
A team of Eaton Vance investment professionals is
responsible for the overall management of the Fund's
investments, including decisions about asset
allocation, securities selection and the options
strategies to be employed. The portfolio managers
utilize information provided by, and the expertise
of, the Adviser's research staff in making investment
decisions. Investment decisions are made primarily on
the basis of fundamental research, which involves
consideration of the various company-specific and
general business, economic and market factors that
may influence the future performance of individual
companies and equity investments therein. The Adviser
will also consider a variety of other factors in
constructing and maintaining the Fund's stock
portfolio, including, but not limited to, stock
dividend yields and payment schedules, overlap
between the Fund's stock holdings and the indices on
which it has outstanding options positions,
realization of tax loss harvesting opportunities and
other tax management considerations.
The Adviser believes that a strategy of owning a
portfolio of common stocks, writing (selling) put
options on individual stocks deemed attractive for
purchase, selling index call options with respect to
a portion of portfolio value, and purchasing index
put options on a substantial portion of portfolio
value can provide current income and gains and an
attractive risk-return profile during a variety of
equity market conditions. The Fund will sell only
"covered" call and put options. A written 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 at least equal to the contract value of
the index. A written 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. In order for put
options written on individual stocks to be considered
"covered" the Fund must (i) maintain with its
custodian assets determined to be liquid (in
accordance with procedures established by the Board)
in an amount at least equal to the exercise price of
the
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option, (ii) own an equivalent number of puts of the
same "series" (that is, puts on the same underlying
security having the same exercise prices and
expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that
is, puts on the same underlying security) with
exercise prices greater than those it has written
(or, if the exercise prices of the puts it holds are
less than the exercise prices of those it has
written, it will maintain the difference in
segregated assets determined to be liquid in
accordance with procedures established by the Board)
or (iii) sell short the securities underlying the put
option at the same or a higher price than the
exercise price on the put option written. On an
overall basis, the Fund expects that its annual
turnover rate will exceed 100%.
Compared to buying put options and selling call
options on individual stocks, the Adviser believes
that buying and selling index options can achieve
better tax and transactional efficiency because
listed options on broad-based securities indices
generally qualify as "section 1256 contracts" under
the Code which are subject to specialized tax
treatment and because the markets for index options
are generally deeper and more liquid than options on
individual stocks. Although the Fund intends
initially to purchase index put options with respect
to approximately 100% of the value of its common
stock holdings and stocks subject to written put
options, the Fund may in certain circumstances hold
stock index put options with respect to only a
portion of such amount, subject to the condition
that, under normal market conditions, the Fund will
hold index put options with respect to at least 80%
of the value of its investments in common stocks.
Although the Fund expects initially to write stock
index call options with respect to approximately two-
thirds of its common stock portfolio value, the Fund
may in market circumstances deemed appropriate by the
Adviser write index call options on up to 100% of its
assets. In certain market circumstances, the Fund may
forego writing index call options.
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 index on which it has outstanding
options positions 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 neither the
index call options it writes nor the index put
options it buys will, together with the Fund's
portfolio of common stocks, be considered straddles
because its stock holdings will be sufficiently
dissimilar from the components of each index on which
it has open options positions 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.
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The Fund's options strategies are designed to produce current cash flow from options premiums, to moderate the volatility of the Fund's returns and to reduce the Fund's exposure to loss of value during stock market declines.
The Adviser does not intend to sell index call options or put options on individual stocks collectively representing amounts greater than the value of the Fund's common stocks and other liquid assets (i.e., take a "naked" position). The Adviser generally intends to buy index put options and sell index call options that are exchange-listed and "European style," meaning that the options may only be exercised on the expiration date of the option. Options on individual stocks sold by the Fund may be either "European style" or "American style," meaning the options may be exercised at any time during the option period. The Fund may sell both exchange-traded and OTC put options on individual stocks. To implement its put options program most effectively, the Fund anticipates that a substantial portion of its put writing activity on individual stocks will be conducted in OTC markets. OTC options involve risk that the issuer or counterparty will fail to perform its contractual obligations. 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. Put options on individual stocks may be physically settled, requiring the underlying stock to be delivered upon exercise of the option or, alternatively, may have cash settlement provisions.
In implementing the Fund's investment strategy, the Adviser intends 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) investing in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains and complying with the holding period and other requirements for favorable tax treatment; (2) selling index call options and purchasing index put options that qualify for treatment as "section 1256 contracts" under the Code on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period; (3) limiting the overlap between the Fund's stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an ongoing basis so that the Fund's stock holdings and index call options are not subject to the "straddle rules;" (4) 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 (5) 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. 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.
As described above, the Fund intends to emphasize investments in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains. 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 dividend income generally includes dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria. The Fund generally can pass through to Common Shareholders the tax treatment of qualified dividend income it receives. For dividends the Fund receives to qualify for tax-advantaged treatment, 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 2010. 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 2011 unless further legislative action is taken.
Options on broad-based equity indices that trade on a national securities exchange registered with the Securities and Exchange Commission (the "SEC") or a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission generally qualify for treatment as "section 1256 contracts" under the Code. Options on broad-based equity indices that trade on other exchanges, boards of trade or markets designated by the United States Secretary of Treasury also qualify for treatment as "section 1256 contracts" under the Code. OTC options and options on individual stocks do not qualify for treatment as "section 1256 contracts." Because only a small number of exchanges, boards and markets outside the United States have
to date received the necessary designation, most foreign-traded stock index options do not currently qualify for treatment as "section 1256 contracts" under the Code. To the extent that the Fund writes options on indices based upon foreign stocks, the Fund generally intends to sell options on broad-based foreign country and/or regional stock indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts" under the Code. Options on foreign indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts" under the Code may trade in substantially lower volumes and with substantially wider bid-ask spreads than other options contracts on the same or similar indices that trade on other markets outside the United States. To implement its options program most effectively, the Fund may buy and sell index options that do not qualify as "section 1256 contracts" under the Code. Gain or loss on index options not qualifying as "section 1256 contracts" under the Code would be realized upon disposition, lapse or settlement of the positions, and, generally, would be treated as short- term gain or loss.
The foregoing policies relating to investments in common stocks and options 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 buying index put options and writing index call options, the Fund may buy put options and/or write call options on up to 20% of the value of its total assets on futures contracts based upon broad-based securities indices. The Fund's use of such options on index futures would be substantially similar to its use of options directly on indices. In addition to the Fund's primary options strategies as described herein, the Fund may also 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, market indices and/or currencies consistent with its investment objectives and policies). However, excluding the Fund's primary options strategies, no more than 10% of the Fund's total assets may be invested in such other derivative instruments for speculative purposes. The loss on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments. 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 federal 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 "Federal Income Tax Matters" and "Investment
Objectives, Policies and Risks."
LISTING.................. The Common Shares have been authorized for listing on
the New York Stock Exchange, subject to notice of
issuance, under the symbol "ETJ."
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INVESTMENT ADVISER,
ADMINISTRATOR AND SUB-
ADVISER.................. Eaton Vance, a wholly owned subsidiary of Eaton Vance
Corp., is the Fund's investment adviser and
administrator. The Adviser and its affiliates managed
$144.3 billion on behalf of funds, institutional
clients and individuals as of March 31, 2007,
including approximately $91.4 billion in equity
assets. 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 $9.6 billion in assets
as of March 31, 2007. Eaton Vance will be responsible
for the Fund's overall investment program,
structuring and managing the Fund's common stock
portfolio, developing and monitoring the Fund's
options strategies, providing consultation to the
Sub-Adviser and supervising the performance of the
Sub-Adviser. Rampart will be responsible for
providing advice on and execution of the Fund's
options strategies. 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 dividends
and interest income after payment of Fund expenses,
net option premiums received, and net realized and
unrealized gains on stock investments. The Fund's net
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
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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 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 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 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 intends to apply for an order from the SEC
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 or twice 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. There is no
assurance that the SEC will grant the Fund's request
for such an exemptive order.
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Common Shareholders may automatically 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, unless a Common
Shareholder elects to receive distributions in cash,
all distributions will be 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 who intend to hold their Common
Shares through a broker or nominee should contact
such broker or nominee regarding 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-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 "Investment Objectives, Policies and
Risks -- Risk Considerations" 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
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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
normally intends to sell stock index call options on
a portion of its common stock portfolio value, the
Fund's appreciation potential from equity market
performance will be more limited than if the Fund did
not engage in selling stock index call options.
Because the Fund normally intends to sell put options
on individual stocks, the Fund's exposure to loss
from a decline in the value of such stocks will
increase. To the extent that the individual stocks
held by the Fund and/or the stocks subject to written
put options decrease in value more than the index or
indices on which the Fund has purchased put options,
the strategy of purchasing index put options will
provide only limited protection with respect to the
value of the Fund's assets and may result in worse
performance for the Fund than if it did not buy index
put options. 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's investment program will consist primarily of
owning a diversified portfolio of common stocks and
employing a variety of options strategies. 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
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 reduces or eliminates
its dividend or fails to make anticipated dividend
increases. 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
14
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prices may be sensitive to rising interest rates, as
the costs of capital rise and borrowing costs
increase.
Limitations on Equity Market Risk Management
Strategy. To manage the risk of a decline in the
value of the general equity market, the Fund will
purchase index put options on a substantial portion
of the value of its common stock holdings and stocks
subject to written put options. As the purchaser of
an index put option, the Fund would pay to the writer
(seller) of the option cash (the premium), and the
Fund has the right to receive from the seller the
amount by which the cash value of the index is below
the exercise price as of the valuation date of the
option. If the Fund exercises the index put option,
the seller would pay the Fund the difference between
the exercise price and the value of the index. There
are a number of limitations on the extent to which
Common Shareholders of the Fund may benefit from this
risk management strategy.
First, holding an index put option generally provides
a hedge against a decline in the applicable index to
levels below the exercise price on the option. A
decline in the index to a level above the exercise
price would result in the option expiring worthless
if held until expiration. Generally, the Fund intends
to buy index put options that are somewhat
(initially, approximately 2-3%) "out-of-the-money"
(i.e., the exercise price generally will be slightly
below the current level of the applicable index (or,
for index put options bought with respect to put
options written on individual stocks, slightly lower
in relation to the current level of the applicable
index than the exercise price of the put options
written is to the price of the associated stock) when
the option is purchased). The Fund may also buy index
put options that are more or less "out-of-the-money."
Options that are more "out-of-the-money" provide the
Fund with less protection against a decline in the
applicable index.
Second, there is a risk that the value of the stock
indices subject to purchased put options will not
correlate with the value of the Fund's portfolio
holdings. The Fund intends to buy put options on one
or more broad-based stock indices that the Adviser
believes collectively approximate the characteristics
of the Fund's common stock portfolio (or that portion
of its portfolio against which put options are
acquired). The Fund will not, however, hold stocks
that fully replicate the indices on which it buys put
options. Due to tax considerations, the Fund intends
to limit the overlap between its stock holdings (and
any subset thereof) and each index on which it has
outstanding options positions to less than 70% on an
ongoing basis. The Fund's stock holdings will
normally include stocks not included in the indices
on which it buys put options. Accordingly, the value
of the indices may remain flat or increase in value
at times when the Fund's portfolio holdings are
decreasing in value. Similarly, the indices may
decrease in value but to a lesser extent than the
Fund's portfolio holdings. In such cases, the index
put options would provide only a limited hedge
against a decline in the value of the Fund's
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portfolio holdings and may result in worse
performance for the Fund than if it did not buy index
put options. The use of index put options cannot
serve as a complete hedge since the price movement of
the indices underlying the options will not
necessarily follow the price movements of the Fund's
portfolio holdings. Correlation risks are also
presented in connection with the Fund's selling of
put options on individual stocks and purchasing index
puts to hedge the associated increase in market risk.
Purchasing index put options with respect to single
stock put options written does not protect the Fund
against the risk that the stocks against which put
options are written decrease in value relative to the
index on which put options are purchased and may
result in greater costs and losses to the Fund than a
strategy that does not involve such hedging.
Third, although the Fund intends initially to
purchase index put options with respect to
approximately 100% of the value of its common stock
holdings and stocks subject to written put options,
the Fund may in certain circumstances hold stock
index put options with respect to only a portion of
such amount, subject to the condition that, under
normal market conditions, the Fund will hold index
put options with respect to at least 80% of the value
of its investments in common stocks. The portion of
the Fund's portfolio value against which index put
options are not acquired will not benefit from this
risk management strategy.
Index put options can be highly volatile instruments.
This may cause options positions held to react to
market changes differently than the Fund's portfolio
securities and stocks subject to written put options.
A put option acquired by the Fund and not sold prior
to expiration will expire worthless if the price of
the index at expiration exceeds the exercise price of
the option, thereby causing the Fund to lose its
entire investment in the option. If restrictions on
exercise were imposed, the Fund might be unable to
exercise an option it had purchased. If the Fund were
unable to close out an option that it had purchased,
it would have to exercise the option in order to
realize any profit or the option may expire
worthless.
Risk of Selling Index Call Options. Under normal
market conditions, a portion of the Fund's common
stock portfolio value will be subject to written
index call options. 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 options
activities by writing options on one or more broad-
based stock indices that the Adviser believes
collectively approximate the characteristics of the
Fund's common stock portfolio (or that portion of its
portfolio against which options are written). The
Fund will not, however, hold stocks that fully
replicate the indices on which it writes call
options. Due to tax considerations,
16
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the Fund intends to limit the overlap between its
stock holdings (and any subset thereof) and each
index on which it has outstanding options positions
to less than 70% on an ongoing basis. The Fund's
stock holdings will normally include stocks not
included in the indices on which it writes call
options. Consequently, the Fund bears the risk that
the performance of its stock portfolio will vary from
the performance of the indices on which it writes
call options. As the writer of index 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.
Risks of Selling Put Options on Individual
Stocks. The Fund will write put options on
individual stocks that the Adviser believes are
attractive for purchase at prices at or above the
exercise price of the put options written. The
purchaser of a put option assumes the right to sell
(put) the stock to the seller of the option at a
specified price (the exercise price) on or before the
expiration date of the option. If the value of the
stock on the option expiration date is at or below
the exercise price of the option, the Fund may be
obligated to purchase the stock at the exercise
price. In the event of a substantial depreciation in
the value of the underlying stock, the Fund may incur
a substantial loss. To implement its put options
program most effectively, the Fund anticipates that a
substantial portion of its put writing activity on
individual stocks will be conducted in OTC markets.
Options Risks Generally. 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.
Successful options strategies may require the
anticipation of future movements in securities
prices, interest rates and other economic factors. No
assurances can be given that the Adviser's judgments
in this respect will be correct.
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 written
option position by buying the option instead of
letting it expire or be exercised. Similarly, the
Fund may close out a purchased option position by
selling the option instead of holding until exercise.
There can be no assurance that a liquid market will
exist when the Fund seeks to close out an option
position by buying or selling 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
17
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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 Fund's options positions will be marked to market
daily. 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. The
value of index options 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. Similarly, the
value of single stock options is affected by changes
in the value and dividend rate of the underlying
stock, changes in interest rates, changes in the
actual or perceived volatility of the associated
stock and the remaining time to the options'
expiration, as well as options market trading
conditions.
The Fund's options transactions will be subject to
limitations established by each of the exchanges,
boards of trade or other trading facilities on which
such options are traded. These limitations govern the
maximum number of options in each class which may be
written or purchased by a single investor or group of
investors acting in concert, regardless of whether
the options are written or purchased on the same or
different exchanges, boards of trade or other trading
facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the
number of options which the Fund may write or
purchase may be affected by options written or
purchased by other investment advisory clients of the
Adviser or Sub-Adviser. An exchange, board of trade
or other trading facility may order the liquidation
of positions found to be in excess of these limits,
and may impose certain other sanctions. The Fund will
not write "naked" or uncovered call options.
To the extent that the Fund buys or writes options on
indices based upon foreign stocks, the Fund generally
intends to buy or
18
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sell options on broad-based foreign country and/or
regional stock indices that are listed for trading in
the United States or which otherwise qualify as
"section 1256 contracts" under the Code. Options on
foreign indices that are listed for trading in the
United States or which otherwise qualify as "section
1256 contracts" under the Code may trade in
substantially lower volumes and with substantially
wider bid-ask spreads than other options contracts on
the same or similar indices that trade on other
markets outside the United States. To implement its
options program most effectively, the Fund may buy or
sell index options that do not qualify as "section
1256 contracts" under the Code. Gain or loss on index
options not qualifying as "section 1256 contracts"
under the Code would be realized upon disposition,
lapse or settlement of the positions and, generally,
would be treated as short-term gain or loss.
OTC Options Risks. To implement its put options
program most effectively, the Fund anticipates that a
substantial portion of its put writing activity on
individual stocks will be conducted in OTC markets.
The Fund may also write index call options and buy
index put options that trade in OTC markets. OTC
options involve risk that the issuer or counterparty
will fail to perform its contractual obligations.
Participants in these markets are typically not
subject to credit evaluation and regulatory oversight
as are members of "exchange based" markets. Options
traded in OTC markets will not be issued, guaranteed
or cleared by the OCC. By engaging in option
transactions in these markets, the Fund may take a
credit risk with regard to parties with which it
trades and also may bear the risk of settlement
default. These risks may differ materially from those
involved in exchange-traded transactions, which
generally are characterized by clearing organization
guarantees, daily marking-to-market and settlement,
and segregation and minimum capital requirements
applicable to intermediaries. Transactions entered
into directly between two counterparties generally do
not benefit from these protections, which in turn may
subject the Fund to the risk that a counterparty will
not settle a transaction in accordance with agreed
terms and conditions because of a dispute over the
terms of the contract or because of a credit or
liquidity problem. Such "counterparty risk" is
increased for contracts with longer maturities when
events may intervene to prevent settlement. The
ability of the Fund to transact business with any one
or any number of counterparties, the lack of any
independent evaluation of the counterparties or their
financial capabilities, and the absence of a
regulated market to facilitate a settlement may
increase the potential for losses to the Fund.
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
19
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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. The provisions of the
Code applicable to qualified dividend income are set
to expire at the close of 2010. Thereafter, the
Fund's distributions to Common Shareholders of
qualified dividend income will be subject to tax at
the higher rates that apply to ordinary income unless
further legislative action is taken. There can be no
assurances that after 2010, the current favorable tax
treatment of qualified dividend income will be
available to the Fund and its Common Shareholders.
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
beginning in 2011 unless further legislative action
is taken. Distributions paid on the Common Shares may
be characterized variously as non-qualified dividends
(taxable at ordinary income rates), qualified
dividends (generally taxable at long-term capital
gains rates), capital gains dividends (taxable at
long-term capital gains rates) or return of capital
(generally 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 extent 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." This discussion does
not constitute tax or legal advice, and it is
important to consult with a tax or legal advisor
before investing.
Distribution Risk. The quarterly distributions
Common Shareholders will receive from the Fund will
be sourced from the Fund's dividends and interest
income after payment of Fund expenses, net option
premiums received, and net realized and unrealized
gains on stock investments. The Fund's cash available
for distribution may vary widely over the short- and
long-term. Dividends on common stocks are not fixed
but are declared at the discretion of the issuer's
board of directors. If stock market
20
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volatility and/or stock prices decline, the premiums
available from writing call options and writing put
options on individual stocks will likely decrease as
well. Payments to purchase put options and to close
written call and put options will reduce amounts
available for distribution. Net realized and
unrealized gains on the Fund's stock investments will
be determined primarily by the direction and movement
of the United States stock market and the particular
stocks held. 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.
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.
Foreign Security Risk. The Fund may invest up to 40%
of its total assets in securities of foreign issuers.
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 United States exchanges or in the
United States over-the-counter market (including
depositary receipts, which evidence ownership in
underlying foreign securities). Since the Fund may
invest in securities denominated or
21
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quoted in currencies other than the United States
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
United States dollars. Changes in foreign currency
exchange rates relative to the United States dollar
will affect the United States 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 may not be subject to
accounting, auditing and financial reporting
standards, practices and requirements comparable to
those applicable to United States companies, there
may be less or less reliable publicly available
information about a foreign company than about a
domestic company. There is generally less government
supervision and regulation of foreign securities
exchanges, broker-dealers and listed companies than
in the United States. Mail service and other
communications 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 in
foreign securities. Payment for securities before
delivery may be required. In addition, with respect
to certain foreign countries, there is the
possibility of expropriation or confiscatory
taxation, political or social instability, or
diplomatic developments that could adversely affect
investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably
from the United States 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 United States 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 may be limited.
Many emerging countries have experienced
22
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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 dividend and 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
options and amounts available for distribution from
the Fund's options activities 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 the Fund's primary
options strategies, 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.
However, excluding the Fund's primary options
strategies, no more than 10% of the Fund's total
assets may be invested in such other derivative
instruments for speculative 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
23
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transactions are based. Derivatives can be illiquid,
may disproportionately increase losses, and may have
a potentially large impact on the Fund's performance.
The loss on derivative instruments (other than
purchased options) may substantially exceed an
investment in these instruments. 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, including
offsetting gains realized in the Fund's common stock
holdings.
Liquidity Risk. The Fund may invest without
limitation in OTC options that may be deemed to be
illiquid. In addition, the Fund may invest up to 15%
of its total assets in other 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 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.
Portfolio Turnover Risk. The Fund will buy and sell
securities to seek to accomplish its 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. On an overall
basis, the Fund expects that its annual turnover rate
will exceed 100%. A high turnover rate (100% or more)
necessarily involves greater trading costs to the
Fund.
Market Price of Common Shares. The Fund's share
price will fluctuate and, at the time of sale, shares
may be worth more or less than the original
investment or the Fund's then current net asset
value. The Fund cannot predict whether its shares
will trade at a price at, above or below its net
asset value. Shares of closed-end funds frequently
trade at a discount to net asset value.
Financial Leverage Risk. Although the Fund has no
current intention to do so, the Fund is authorized
and reserves the
24
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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 utilizes 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 are 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, which may create
an incentive for the Adviser to employ financial
leverage. 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.
Management Risk. The Fund is subject to management
risk because it is an actively managed portfolio.
Eaton Vance, 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, 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, Rampart and the individual portfolio
managers will be successful in developing and
implementing the Fund's investment strategy.
Subjective decisions made by Eaton Vance, 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 war in Iraq, instability in
the Middle East and terrorist attacks around the
world may adversely affect the performance of U.S.
and worldwide financial markets and may cause
economic uncertainties in the U.S. and worldwide. The
Fund cannot predict the future course of world
affairs or the
25
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effects of significant future events on the U.S.
economy and securities markets. Given these risks, an
investment in the Common Shares may not be
appropriate for all investors. You should carefully
consider your ability to assume these risks before
making an investment in the Fund.
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
"Investment Objectives, Policies and Risks" and
"Description of Capital Structure -- Anti-Takeover
Provisions in the Agreement and 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. See "Management of the Fund."
SHAREHOLDER TRANSACTION EXPENSES
Sales load paid by you (as a percentage of offering price)..... 4.50%
Offering Costs borne by Common Shareholders (as a percentage of
offering price)............................................. 0.20%(1)(2)
Dividend reinvestment plan fees................................ None(3)
|
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE TO
COMMON SHARES
---------------
ANNUAL EXPENSES
Management fees........................................... 1.00%(4)
Other expenses............................................ 0.20%(5)
----
Total annual expenses..................................... 1.20%
====
|
The Other 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 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 $45.00 and estimated offering expenses of this offering of $2.00), assuming (i) total annual expenses of 1.20% of net assets attributable to Common Shares and (ii) a 5% annual return*:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $59 $83 $110 $186 |
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE HIGHER OR LOWER.
* 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.
(1) Eaton Vance or an affiliate has agreed to reimburse all organizational costs and pay all offering costs (other than sales loads) that exceed $0.04 per Common Share (0.20% of the offering price).
(2) Eaton Vance (not the Fund) has agreed to pay from its own assets a structuring fee to each of Citigroup Global Markets Inc., UBS Securities LLC, Wachovia Capital Markets, LLC and A.G. Edwards & Sons, Inc., and additional compensation to Merrill Lynch, Pierce, Fenner & Smith Incorporated. Eaton Vance (not the Fund) also may pay certain qualifying underwriters a marketing and structuring fee, additional compensation or a sales incentive fee in connection with the offering. See "Underwriting".
(3) You will be charged a $5.00 service charge and pay brokerage charges if you direct the plan agent to sell your Common Shares held in a dividend reinvestment account.
(4) The advisory fee paid by the Fund to the Adviser is based on the average daily gross assets of the Fund, including all assets attributable to any form of investment leverage that the Fund may utilize. Accordingly, if the Fund were to utilize investment leverage in the future, the advisory fee will increase as a percentage of net assets. The Fund has no current intention to use investment leverage. See "Management of the Fund."
(5) Estimated other expenses based on the current fiscal year.
THE FUND
Eaton Vance Risk-Managed Diversified Equity Income 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"). The Fund was organized as a Massachusetts business trust on April 4, 2007 pursuant to an Agreement and 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 $0.04 per Common Share.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation. Relative to other equity income funds, the Fund seeks to provide less volatile returns and reduced exposure to loss of value during stock market declines. 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. The Fund's investment objectives are considered non-fundamental policies that may be changed by the Fund's Board of Trustees (the "Board") without approval of the Fund's shareholders.
Under normal market conditions, the Fund's investment program will consist primarily of owning a diversified portfolio of common stocks and employing a variety of options strategies. The Fund will seek to earn high levels of tax- advantaged income and gains by (1) investing in stocks that pay dividends that qualify for favorable federal income tax treatment, (2) writing (selling) put options on individual stocks deemed attractive for purchase, and (3) writing (selling) stock index call options with respect to a portion (initially approximately two-thirds) of its common stock portfolio value. To reduce the Fund's risk of loss due to a decline in the value of the general equity market, the Fund intends to purchase index put options with respect to a substantial portion (initially approximately 100%) of the value of its common stock holdings and stocks subject to written put options. Options on broad-based stock indices generally qualify for treatment as "section 1256 contracts," as defined in the Internal Revenue Code of 1986, as amended (the "Code"), on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period. For purposes of the Fund's investment objectives, gains are an increase in the value of an investment from the purchase price.
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 combination of (1) dividend- paying common stocks, (2) common stocks the value of which is subject to written put options on individual stocks, and (3) common stocks the value of which is subject to written index call options. In addition, under normal market conditions, the Fund will purchase
index put options with respect to at least 80% of the value of its investments in common stocks. The Fund will emphasize investments in stocks that pay dividends that qualify for federal income taxation at rates applicable to long- term capital gains. However, the Fund is unable to predict what percentage of its overall income will consist of such qualifying dividends. The Fund will emphasize writing put options on individual stocks that the Adviser believes are attractive for purchase at prices at or above the exercise price of the put options written.
The Fund will invest primarily in common stocks of United States issuers. The Fund may invest up to 40% 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. 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 April 30, 2007, the median market capitalization of companies in the S&P MidCap 400 was approximately $2.75 billion.
The Fund generally intends to buy put options and write call options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of its common stock portfolio (or that portion of its portfolio against which options are purchased and written). The Fund intends initially to buy put options and write call options primarily on the S&P 500 Composite Stock Price Index(R) ("S&P 500"), and may also initially buy put options and write call options on other domestic and foreign stock indices. Over time, the indices on which the Fund buys put options and writes call options may vary as a result of changes in the availability and liquidity of various listed index options, changes in stock portfolio holdings, the Adviser's evaluation of equity market conditions and other factors.
Under normal market circumstances, the Fund will purchase index put options with respect to at least 80% of the value of its investments in common stocks to reduce the Fund's risk of loss due to a decline in the value of the general equity market. The Fund intends initially to purchase index put options with respect to approximately 100% of the value of its common stock holdings and stocks subject to written put options.
Writing put options on individual stocks involves a tradeoff between the options premiums received and exposure to declines in value of the stocks against which put options are written. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential stock market appreciation. Purchasing index put options is a risk management technique that involves a tradeoff between the options premiums paid and a potential increase in value of the options positions in a stock market decline. To the extent that the individual stocks held by the Fund and/or the stocks subject to written put options decrease in value more than the index or indices on which the Fund has purchased put options, the strategy of purchasing index put options will provide only limited protection with respect to the value of the Fund's assets and may result in worse performance for the Fund than if it did not buy index put options.
The Fund's policies that, under normal market conditions, the Fund will invest at least 80% of its total assets in a combination of (1) dividend-paying common stocks, (2) common stocks the value of which is subject to written put options on individual stocks, and (3) common stocks the value of which is subject to written index call options and that the Fund will purchase index put options with respect to at least 80% of the value of its investments in common stocks are non-fundamental policies that may be changed by the Board without Common Shareholder approval following the provision of 60 days' prior written notice to Common Shareholders.
Investments are based on Eaton Vance Management's ("Eaton Vance" or the "Adviser") and Rampart Investment Management Company, Inc.'s ("Rampart" or the "Sub-Adviser") internal research and management. In implementing the Fund's investment strategy, the Adviser and Sub-Adviser 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 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.
The Fund is not sponsored, endorsed, sold or promoted by any index sponsor. No index sponsor has passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to the Fund. No index sponsor has made any representation or warranty, express or implied, to the Common Shareholders or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of any index to track general stock market performance. The indices are determined, composed and calculated by the respective index sponsors without regard to the Fund or its use of the indices in its options program. The index sponsors have no obligation to take the needs of the Fund or its Common Shareholders into consideration in determining, composing or calculating the indices. No index sponsor is responsible for or has participated in the determination of the timing of, price of, or number of Common Shares of the Fund to be issued. No index sponsor has any liability in connection with the management, administration, marketing or trading of the Fund.
THE INDEX SPONSORS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE INDICES OR ANY DATA INCLUDED THEREIN. THE INDEX SPONSORS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, THE COMMON SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES IN THE FUND'S OPTIONS PROGRAM. IN PUBLISHING THE INDICES, THE INDEX SPONSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL AN INDEX SPONSOR HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT STRATEGY. Eaton Vance will be responsible for the Fund's overall investment program, structuring and managing the Fund's common stock portfolio, developing and monitoring the Fund's options strategies, providing consultation to the Sub-Adviser and supervising the performance of the Sub- Adviser. Rampart will be responsible for providing advice on and execution of the Fund's options strategies. The Fund's investments will be actively managed, and securities may be bought or sold on a daily basis.
A team of Eaton Vance investment professionals is responsible for the overall management of the Fund's investments, including decisions about asset allocation, securities selection and the options strategies to be employed. The portfolio managers utilize information provided by, and the expertise of, the Adviser's research staff in making investment decisions. Investment decisions are made primarily on the basis of fundamental research, which involves consideration of the various company-specific and general business, economic and market factors that may influence the future performance of individual companies and equity investments therein. The Adviser will also consider a variety of other factors in constructing and maintaining the Fund's stock portfolio, including, but not limited to, stock dividend yields and payment schedules, overlap between the Fund's stock holdings and the indices on which it has outstanding options positions, realization of tax loss harvesting opportunities and other tax management considerations.
The Adviser believes that a strategy of owning a portfolio of common stocks, writing (selling) put options on individual stocks deemed attractive for purchase, selling index call options with respect to a portion of portfolio value, and purchasing index put options on a substantial portion of portfolio value can provide current income and gains and an attractive risk-return profile during a variety of equity market conditions. The Fund does not intend to sell index call options or put options on individual stocks collectively representing amounts greater than the value of the Fund's common stocks and other liquid assets (i.e., take a "naked" position). On an overall basis, the Fund expects that its annual turnover rate will exceed 100%.
The Fund's options strategies are designed to produce current cash flow from options premiums, to moderate the volatility of the Fund's returns and to reduce the Fund's exposure to loss of value during stock market declines. These options strategies are generally of a hedging nature, and are not designed to speculate on equity market performance. The Fund will emphasize writing put options on individual stocks that the Adviser believes are attractive for purchase at prices at or above the exercise price of the put
options written. Generally, the Fund intends to sell put options on individual stocks that are "out-of-the-money" (i.e., the exercise price generally will be below the current level of the applicable stock when the option is sold). In writing index 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. Generally, the Fund intends to sell index 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." In buying index put options, the Fund will, in effect, acquire protection against a decline in the value of the applicable index below the exercise price in exchange for the option premium paid. Generally, the Fund intends to buy index put options that are somewhat (initially, approximately 2-3%) "out-of-the-money" (i.e., the exercise price generally will be slightly below the current level of the applicable index (or, for index put options bought with respect to put options written on individual stocks, slightly lower in relation to the current level of the applicable index than the exercise price of the put options written is to the price of the associated stock) when the option is purchased). The Fund may also buy index put options that are more or less "out-of-the-money." Options that are more "out-of- the-money" provide the Fund with less protection against a decline in the applicable index, but generally would be less expensive than put options that are slightly "out-of-the-money."
Compared to buying put options and selling call options on individual stocks, the Adviser believes that buying and selling index options can achieve better tax and transactional efficiency because listed options on broad-based securities indices generally qualify as "section 1256 contracts" under the Code which are subject to specialized tax treatment and because the markets for index options are generally deeper and more liquid than options on individual stocks. Although the Fund intends initially to purchase index put options with respect to approximately 100% of the value of its common stock holdings and stocks subject to written put options, the Fund may in certain circumstances hold stock index put options with respect to only a portion of such amount, subject to the condition that, under normal market conditions, the Fund will hold index put options with respect to at least 80% of the value of its investments in common stocks. Although the Fund expects initially to write stock index call options with respect to approximately two-thirds of its common stock portfolio value, the Fund may in market circumstances deemed appropriate by the Adviser write index call options on up to 100% of its assets. In certain market circumstances, the Fund may forego writing index call options.
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 index on which it has outstanding options positions 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 neither the index call options it writes nor the index put options it buys will, together with the Fund's portfolio of common stocks, be considered straddles because its stock holdings will be sufficiently dissimilar from the components of each index on which it has open options positions 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.
The foregoing policies relating to investments in common stocks and options 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 buying index put options and writing index call options, the Fund may buy put options and/or write call options on up to 20% of the value of its total assets on futures contracts based upon broad-based securities indices. The Fund's use of such options on index futures would be substantially similar to its use of options directly on indices. In addition to the Fund's primary options strategies as described herein, the Fund may also 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, market indices and/or currencies consistent with its investment objectives and policies). However, excluding the Fund's primary options strategies, no
more than 10% of the Fund's total assets may be invested in such other derivative instruments for speculative purposes. The loss on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments. 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 currently realizing substantial capital gains under current federal 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 "Federal Income Tax Matters."
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 (provided, in the case of qualified dividend income, that certain holding period and other requirements are met). Generally, returns 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 amount realized on the 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 intends 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) investing in stocks that pay dividends that qualify for federal income taxation at rates applicable to long- term capital gains and complying with the holding period and other requirements for favorable tax treatment; (2) selling index call options and purchasing index put options that qualify for treatment as "section 1256 contracts" under the Code, on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period; (3) limiting the overlap between the Fund's stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an ongoing basis so that the Fund's stock holdings and index options are not subject to the "straddle rules;" (4) 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 (5) 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. 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. The Fund may also seek to offset short-term gains and non- qualified dividend investment income with Fund expenses and/or realized losses allocated against short-term gains.
The Fund intends to emphasize investments in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains. 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 dividend income generally includes dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria. The Fund generally can pass through to Common Shareholders the tax treatment of qualified dividend income it receives. For dividends the Fund receives to qualify for tax-advantaged treatment, 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 2010. 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 2011 unless further legislative action is taken.
Options on broad-based equity indices that trade on a national securities exchange registered with the SEC or a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission generally will qualify for treatment as "section 1256 contracts." Options on broad-based equity indices that trade on other exchanges, boards of trade or markets designated by the United States Secretary of Treasury also qualify for treatment as "section 1256 contracts." OTC options and options on individual stocks do not qualify for treatment as "section 1256 contracts." Because only a small number of exchanges, boards and markets outside the United States have to date received the necessary designation, most foreign-traded stock index options do not currently qualify for treatment as "section 1256 contracts." To the extent that the Fund writes options on indices based upon foreign stocks, the Fund generally intends to sell options on broad-based foreign country and/or regional stock indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts." Options on foreign indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts" under the Code may trade in substantially lower volumes and with substantially wider bid- ask spreads than other options contracts on the same or similar indices that trade on other markets outside the United States. To implement its options program most effectively, the Fund may buy and sell index options that do not qualify as "section 1256 contracts." Gain or loss on index options not qualifying as "section 1256 contracts" under the Code would be realized upon disposition, lapse or settlement of the positions, and, generally, would be treated as 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 currently realizing substantial capital gains under current federal 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.
COMMON STOCKS. Under normal market conditions, the Fund's investment program will consist primarily of owning a diversified portfolio of common stocks and employing a variety of options strategies as described herein. 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 40% 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 United States exchanges or in the United States 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" as defined in the Code.
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.
STOCK AND EQUITY INDEX OPTIONS. The Fund's investment program will include three principal options strategies: (1) writing (selling) put options on individual stocks deemed attractive for purchase, (2) writing (selling) stock index call options with respect to a portion (initially approximately two- thirds) of its common stock portfolio value and (3) purchasing index put options with respect to a substantial portion (initially 100%) of the value of its common stock holdings and stocks subject to written put options. Writing put options on individual stocks involves a tradeoff between the options premiums received and exposure to declines in value of the stocks against which put options are written. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential stock market appreciation. Purchasing index put options is a risk management technique that involves a tradeoff
between the options premiums paid and a potential increase in value of the options positions in a stock market decline.
As the seller of put options on individual stocks, the Fund will receive cash (the premiums) from option purchasers. The purchaser of a put option assumes the right to sell (put) the stock to the seller of the option at a specified price (the exercise price) on or before the expiration date of the option. If the value of the stock on the option expiration date is above the exercise price, the option will generally expire worthless and the Fund, as option seller, will have no obligation to the option holders. If the value of the stock on the option expiration date is at or below the exercise price of the option, the Fund may be obligated to purchase the stock at the exercise price. The Fund may write put options on individual stocks to a significant extent.
As the seller of index call options, the Fund will receive cash (the premiums) from option purchasers. The purchaser of an index 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). In writing index 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 index 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 received, 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.
As the purchaser of index put options, the Fund will seek to benefit from a decline in the market prices of the underlying index, thereby hedging the Fund's exposure to market risk. The Fund will pay a premium to the seller of the option for the right to receive payments of cash to the extent that the value of the applicable index declines below a fixed price (the exercise price) as of a specified date in the future (the option valuation date). If the index price is above the exercise price of the option as of the option valuation date, the option expires worthless and the Fund will not be able to recover the option premium paid. In buying index put options, the Fund will, in effect, acquire protection against a decline in the value of the applicable index below the exercise price in exchange for the option premium paid. If, at expiration, an index put option purchased by the Fund is exercised, the Fund will receiver from the option seller the difference between the cash value of the applicable index and the exercise price of the option. The premium paid, the exercise price and the market value of the applicable index will determine the gain or loss realized by the Fund as the buyer of the index put option.
The Fund will sell only "covered" options. A written 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 at least equal to the contract value of the index. A written 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. In order for put options written on individual stocks to be considered "covered" the Fund must (i) maintain with its custodian assets determined to be liquid (in accordance with procedures established by the Board) in an amount at least equal to the exercise price of the option, (ii) own an equivalent number of puts of the same "series" (that is, puts on the same underlying security having the same exercise prices and expiration dates as those written by the Fund), or an equivalent number of puts of the same "class" (that is, puts on the same underlying security) with exercise prices greater than those it has written (or, if the exercise prices of the puts it holds are less than the exercise prices of those it has written, it will maintain the difference in segregated assets determined to be liquid in accordance with procedures established by the Board) or (iii) sell short the securities underlying the put option at the same or a higher price than the exercise price on the put option written.
The Adviser generally intends to buy index put options and sell index call options that are exchange-listed and "European style," meaning that the options may only be exercised on the expiration date of the option. Index options differ from options on individual stocks 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. Exchange- traded index options are typically settled in cash and provide, in the case of a call option, 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. In the case of a put option, the holder of the option has the right to receive an amount of cash determined by the excess of the exercise price of the option over the exercise-settlement value of the index. 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. United States listed options contracts are originated and standardized by the Options Clearing Corporation (the "OCC"). Currently, United States listed index options are available on approximately 89 indices, with new listings added periodically. In the United States, the Fund generally intends to buy and sell index options that are issued, guaranteed and cleared by the OCC. The Fund may also buy and sell index options in the United States and outside the United States that are not issued, guaranteed or cleared by the OCC. The Adviser believes that there exists sufficient liquidity in the index options markets to fulfill the Fund's requirements to implement its strategy.
Options on individual stocks sold by the Fund may be either "European style" or "American style," meaning the options may be exercised at any time during the option period. The Fund may sell both exchange-traded and OTC put options on individual stocks. To implement its put options program most effectively, the Fund anticipates that a substantial portion of its put writing activity on individual stocks will be conducted in OTC markets. Put options on individual stocks written by the Fund may be physically settled, requiring the underlying stock to be delivered upon exercise of the option or, alternatively, may have cash settlement provisions.
OTC options are purchased from or sold to securities dealers, financial institutions or other parties (each, a "Counterparty" and, together, the "Counterparties") through direct bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees and security, are set by negotiation of the parties. Unless the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails to make or take delivery of the security, or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash settlement payment due in accordance with the terms of that option, the Fund will lose any anticipated benefit of the transaction. Accordingly, the Adviser must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be satisfied.
For the Fund's index call options and index put options that qualify as "section 1256 contracts," 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 or closed out 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 exchange-listed index options, "section 1256 contracts" under the Code include certain other options contracts, certain regulated futures contracts, and certain other financial contracts.
The Fund's positions in single stock options and index options that do not qualify as "section 1256 contracts" under the Code generally will be treated as equity options governed by Code Section 1234. Pursuant to Code Section 1234, if a written option expires unexercised, the premium received is short-term capital gain to the Fund. If the Fund enters into a closing transaction with respect to a written option, the difference between the premium received and the amount paid to close out its position is short-term capital gain or loss. If an option written by the Fund that is not a "section 1256 contract" is cash settled, any resulting gain or loss will be short-term. For an option purchased by the Fund that is not a "section 1256
contract" any gain or loss resulting from sale of the option will be a capital gain or loss, and will be short-term or long-term, depending upon the holding period for the option. If the option expires, the resulting loss is a capital loss and is short-term or long-term, depending upon the holding period for the option. If a put option written by the Fund is exercised and physically settled, the premium received is treated as a reduction in the amount paid to acquire the underlying securities, increasing the gain or decreasing the loss to be realized by the Fund upon sale of the securities. If a call option written by the Fund is exercised and physically settled, the premium received is included in the sale proceeds, increasing the gain or decreasing the loss realized by the Fund at the time of option exercise.
The principal factors affecting the market value of an option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the actual or perceived volatility of the underlying security or index, and the time remaining until the expiration date. A purchased option is an asset of the Fund and an option written by the Fund is a Fund liability. The value of an option purchased or written is marked to market daily and is 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, exercise and assignment 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 options 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, such as spreads or straddles. Transaction costs may be different for transactions effected in foreign markets than for transactions effected in U.S. markets.
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 United States 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.
DIVIDEND CAPTURE TRADING. The Fund may seek to enhance the level of tax- advantaged dividend income it receives 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 that apply to qualified dividend income. 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 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.
WRITING CALL OPTIONS ON INDIVIDUAL STOCKS. The Fund may write (sell) covered call options on individual common stocks held. A call option on a security is a contract that gives the holder of the option, in return for paying a premium, the right to buy from the writer of the option the security underlying the option at a specified exercise price. The writer of a call option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price. "American style" options may be exercised at any time during the term of the option, whereas "European style" options may be exercised only on the expiration date of the option. The Fund may not sell "naked" call options, i.e., options representing more shares of the stock than are held in the portfolio.
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 without limitation in OTC options that may be deemed to be illiquid. In addition, the Fund may invest up to 15% of its total assets in other 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 Fund's primary options strategies as described herein, 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). However, excluding the Fund's primary options strategies, no more than 10% of the Fund's total assets may be invested in such other derivative instruments for speculative purposes. As a result of the Fund's primary options strategies and the ability to invest in other derivative instruments as described herein, 100% of the Fund's total assets may be subject to derivative instruments. 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 not currently available. Derivative instruments may be used by the Fund to enhance returns or as a substitute for the purchase or sale of securities. The loss on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments.
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. It is expected that most futures contracts and options on futures entered into by the Fund will be treated as "section 1256 contracts" under the Code.
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 investment grade and when the expected return, 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. When the Fund loans securities, it transfers the right to vote such securities to the borrower. The Fund has no current intention to engage in securities lending, although it reserves the right to do so in the future.
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 returns and cash available for distribution.
PORTFOLIO TURNOVER. The Fund will buy and sell securities to seek to accomplish its 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. On an overall basis, the Fund expects that its annual turnover rate will exceed 100%. A high turnover rate (100% or more) necessarily involves greater trading costs to the Fund.
RISK CONSIDERATIONS
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 normally intends to sell stock index call options on a portion of its common stock portfolio value, the Fund's appreciation potential from equity market performance will be more limited than if the Fund did not engage in selling stock index call options. Because the Fund normally intends to sell put options on individual
stocks, the Fund's exposure to loss from a decline in the value of such stocks will increase. To the extent that the individual stocks held by the Fund and/or the stocks subject to written put options decrease in value more than the index or indices on which the Fund has purchased put options, the strategy of purchasing index put options will provide only limited protection with respect to the value of the Fund's assets and may result in worse performance for the Fund than if it did not buy index put options. 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's investment program will consist primarily of owning a diversified portfolio of common stocks and employing a variety of options strategies. 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 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 reduces or eliminates its dividend or fails to make anticipated dividend increases. 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.
LIMITATIONS ON EQUITY MARKET RISK MANAGEMENT STRATEGY. To manage the risk of a decline in the value of the general equity market, the Fund will purchase index put options on a substantial portion of the value of its common stock holdings and stocks subject to written put options. As the purchaser of an index put option, the Fund would pay to the writer (seller) of the option cash (the premium), and the Fund has the right to receive from the seller the amount by which the cash value of the index is below the exercise price as of the valuation date of the option. If the Fund exercises the index put option, the seller would pay the Fund the difference between the exercise price and the value of the index. There are a number of limitations on the extent to which Common Shareholders of the Fund may benefit from this risk management strategy.
First, holding an index put option generally provides a hedge against a decline in the applicable index to levels below the exercise price on the option. A decline in the index to a level above the exercise price would result in the option expiring worthless if held until expiration. Generally, the Fund intends to buy index put options that are somewhat (initially, approximately 2- 3%) "out-of-the-money" (i.e., the exercise price generally will be slightly below the current level of the applicable index (or, for index put options bought with respect to put options written on individual stocks, slightly lower in relation to the current level of the applicable index than the exercise price of the put options written is to the price of the associated stock) when the option is purchased). The Fund may also buy index put options that are more or less "out-of-the-money." Options that are more "out-of-the-money" provide the Fund with less protection against a decline in the applicable index.
Second, there is a risk that the value of the stock indices subject to purchased put options will not correlate with the value of the Fund's portfolio holdings. The Fund intends to buy put options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of the Fund's common stock portfolio (or that portion of its portfolio against which put options are acquired). The
Fund will not, however, hold stocks that fully replicate the indices on which it buys put options. Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an ongoing basis. The Fund's stock holdings will normally include stocks not included in the indices on which it buys put options. Accordingly, the value of the indices may remain flat or increase in value at times when the Fund's portfolio holdings are decreasing in value. Similarly, the indices may decrease in value but to a lesser extent than the Fund's portfolio holdings. In such cases, the index put options would provide only a limited hedge against a decline in the value of the Fund's portfolio holdings and may result in worse performance for the Fund than if it did not buy index put options. The use of index put options cannot serve as a complete hedge since the price movement of the indices underlying the options will not necessarily follow the price movements of the Fund's portfolio holdings. Correlation risks are also presented in connection with the Fund's selling of put options on individual stocks and purchasing index puts to hedge the associated increase in market risk. Purchasing index put options with respect to single stock put options written does not protect the Fund against the risk that the stocks against which put options are written decrease in value relative to the index on which put options are purchased and may result in greater costs and losses to the Fund than a strategy that does not involve such hedging.
Third, although the Fund intends initially to purchase index put options with respect to approximately 100% of the value of its common stock holdings and stocks subject to written put options, the Fund may in certain circumstances hold stock index put options with respect to only a portion of such amount, subject to the condition that, under normal market conditions, the Fund will hold index put options with respect to at least 80% of the value of its investments in common stocks. The portion of the Fund's portfolio value against which index put options are not acquired will not benefit from this risk management strategy.
Index put options can be highly volatile instruments. This may cause options positions held to react to market changes differently than the Fund's portfolio securities and stocks subject to written put options. A put option acquired by the Fund and not sold prior to expiration will expire worthless if the price of the index at expiration exceeds the exercise price of the option, thereby causing the Fund to lose its entire investment in the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it had purchased. If the Fund were unable to close out an option that it had purchased, it would have to exercise the option in order to realize any profit or the option may expire worthless.
RISK OF SELLING INDEX CALL OPTIONS. Under normal market conditions, a portion of the Fund's common stock portfolio value will be subject to written index call options. 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 options activities by writing options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of the Fund's common stock portfolio (or that portion of its portfolio against which options are written). The Fund will not, however, hold stocks that fully replicate the indices on which it writes call options. Due to tax considerations, the Fund intends to limit the overlap between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an ongoing basis. The Fund's stock holdings will normally include stocks not included in the indices on which it writes call options. Consequently, the Fund bears the risk that the performance of its stock portfolio will vary from the performance of the indices on which it writes call options. As the writer of index 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.
RISKS OF SELLING PUT OPTIONS ON INDIVIDUAL STOCKS. The Fund will write put options on individual stocks that the Adviser believes are attractive for purchase at prices at or above the exercise price of the put options written. The purchaser of a put option assumes the right to sell (put) the stock to the seller of the option at a specified price (the exercise price) on or before the expiration date of the option. If the value of the stock on the option expiration date is at or below the exercise price of the option, the Fund may be obligated to purchase the stock at the exercise price. In the event of a substantial depreciation in the value of the underlying stock, the Fund may incur a substantial loss. To implement its put options program most effectively, the Fund anticipates that a substantial portion of its put writing activity on individual stocks will be conducted in OTC markets.
OPTIONS RISKS GENERALLY. 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. Successful options strategies may require the anticipation of future movements in securities prices, interest rates and other economic factors. No assurances can be given that the Adviser's judgments in this respect will be correct.
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 written
option position by buying the option instead of letting it expire or be
exercised. Similarly, the Fund may close out a purchased option position by
selling the option instead of holding until exercise. There can be no assurance
that a liquid market will exist when the Fund seeks to close out an option
position by buying or selling 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 Fund's options positions will be marked to market daily. 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. The value of index options 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. Similarly, the value of single stock options is affected by changes in the value and dividend rate of the underlying stock, changes in interest rates, changes in the actual or perceived volatility of the associated stock and the remaining time to the options' expiration, as well as options market trading conditions.
The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Adviser or Sub-Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and may impose certain other sanctions. The Fund will not write "naked" or uncovered call options.
To the extent that the Fund buys or writes options on indices based upon foreign stocks, the Fund generally intends to buy or sell options on broad-based foreign country and/or regional stock indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts" under the Code. Options on foreign indices that are listed for trading in the United States or which otherwise qualify as "section 1256 contracts" under the Code may trade in substantially lower volumes and with substantially wider bid-ask spreads than other options contracts on the same or similar indices that trade on other markets outside the United States. To implement its options program most effectively, the Fund may buy or sell index options that do not qualify as "section 1256 contracts" under the Code. Gain or loss on index options not qualifying as "section 1256 contracts" under the Code would be realized upon disposition, lapse or settlement of the positions and, generally, would be treated as short-term gain or loss.
OTC OPTIONS RISKS. To implement its put options program most effectively, the Fund anticipates that a substantial portion of its put writing activity on individual stocks will be conducted in OTC markets. The Fund may also write index call options and buy index put options that trade in OTC markets. OTC options involve risk that the issuer or counterparty will fail to perform its contractual obligations. Participants in these markets are typically not subject to credit evaluation and regulatory oversight as are members of "exchange based" markets. Options traded in OTC markets will not be issued, guaranteed or cleared by the OCC. By engaging in option transactions in these markets, the Fund may take a credit risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from these protections, which in turn may subject the Fund to the risk that a counterparty will not settle a transaction in accordance with agreed terms and conditions because of a dispute over the terms of the contract or because of a credit or liquidity problem. Such "counterparty risk" is increased for contracts with longer maturities when events may intervene to prevent settlement. The ability of the Fund to transact business with any one or any number of counterparties, the lack of any independent evaluation of the counterparties or their financial capabilities, and the absence of a regulated market to facilitate a settlement may increase the potential for losses to the Fund.
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. The provisions of the Code applicable to qualified dividend income are set to expire at the close of 2010. Thereafter, the Fund's distributions to Common Shareholders of qualified dividend income will be subject to tax at the higher rates that apply to ordinary income unless further legislative action is taken. There can be no assurances that after 2010, the current favorable tax treatment of qualified dividend income will be available to the Fund and its Common Shareholders. 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 beginning in 2011 unless further legislative action is taken. Distributions paid on the Common Shares may be characterized variously as non-qualified dividends (taxable at ordinary income rates), qualified dividends (generally taxable at long-term capital gains rates), capital gains dividends (taxable at long-term capital gains rates) or return of capital (generally 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 extent 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." This discussion does not constitute tax or legal advice, and it is important to consult with a tax or legal advisor before investing.
DISTRIBUTION RISK. The quarterly distributions Common Shareholders will receive from the Fund will be sourced from the Fund's dividends and interest income after payment of Fund expenses, net option premiums received, and net realized and unrealized gains on stock investments. The Fund's cash available for distribution may vary widely over the short- and long-term. Dividends on common stocks are not fixed but are declared at the discretion of the issuer's board of directors. If stock market volatility and/or stock prices decline, the premiums available from writing call options and writing put options on individual stocks will likely decrease as well. Payments to purchase put options and to close written call and put options will reduce amounts available for distribution. Net realized and unrealized gains on the Fund's stock investments will be determined primarily by the direction and movement of the United States stock market and the particular stocks held. 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.
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.
FOREIGN SECURITY RISK. The Fund may invest up to 40% of its total assets in securities of foreign issuers. 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 United States exchanges or in the United States 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 United States 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 United States dollars. Changes in foreign currency exchange rates relative to the United States dollar will affect the United States 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 may not be subject to accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies, there may be less or less reliable publicly available information about a foreign company than about a domestic company. There is generally less government supervision and regulation of foreign securities exchanges, broker-dealers and listed companies than in the United States. Mail service and other communications 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 in foreign securities. Payment for securities before delivery may be required. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could adversely affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the United States 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 United States 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 may be 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 dividend and 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 options and amounts available for distribution from the Fund's options activities 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 the Fund's primary options strategies, 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. However, excluding the Fund's primary options
strategies, no more than 10% of the Fund's total assets may be invested in such other derivative instruments for speculative 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. Derivatives can be illiquid, may disproportionately increase losses, and may have a potentially large impact on the Fund's performance. The loss on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments. 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, including offsetting gains realized in the Fund's common stock holdings.
LIQUIDITY RISK. The Fund may invest without limitation in OTC options that may be deemed to be illiquid. In addition, the Fund may invest up to 15% of its total assets in other 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 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.
PORTFOLIO TURNOVER RISK. The Fund will buy and sell securities to seek to accomplish its 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. On an overall basis, the Fund expects that its annual turnover rate will exceed 100%. A high turnover rate (100% or more) necessarily involves greater trading costs to the Fund.
MARKET PRICE OF COMMON SHARES. The Fund's share price will fluctuate and, at the time of sale, shares may be worth more or less than the original investment or the Fund's then current net asset value. The Fund cannot predict whether its shares will trade at a price at, above or below its net asset value. Shares of closed-end funds frequently trade at a discount to net asset value.
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 utilizes 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 are 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, which may create an incentive for the Adviser to employ financial leverage. 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.
MANAGEMENT RISK. The Fund is subject to management risk because it is an actively managed portfolio. Eaton Vance, 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, 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, Rampart and the individual portfolio managers will be successful in developing and implementing the Fund's investment strategy. Subjective decisions made by Eaton Vance, 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 war in Iraq, instability in the Middle East and terrorist attacks around the world may adversely affect the performance of U.S. and worldwide financial markets and may cause economic uncertainties in the U.S. and worldwide. The Fund cannot predict the future course of world affairs or the effects of significant future events on the U.S. economy and securities markets. Given these risks, an investment in the Common Shares may not be appropriate for all investors. You should carefully consider your ability to assume these risks before making an investment in the Fund.
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 "Investment Objectives, Policies and Risks" and "Description of Capital Structure -- Anti-Takeover Provisions in the Agreement and 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-Adviser under the 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, Massachusetts 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 and its affiliates currently serve as investment adviser to investment funds and individual and institutional clients with combined assets under management of $144.3 billion as of March 31, 2007, including approximately $91.4 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 the Fund's overall investment program, structuring and managing the Fund's common stock portfolio, developing and monitoring the Fund's options strategies, providing consultation to the Sub-Adviser and supervising the performance of the Sub-Adviser. As described below under the caption "The Sub- Adviser," Rampart will be responsible for providing advice on and execution of the Fund's options strategies. 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 the Sub-Advisory Agreement, gross assets of the Fund means total assets of the Fund, including any form of investment leverage that the Fund may 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 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 amounts attributable to financial leverage.
Walter A. Row and Michael A. Allison are the Fund's portfolio managers and together are responsible for managing the Fund's overall investment program, structuring and managing the Fund's common stock portfolio, developing and monitoring the Fund's options strategies, providing consultation to the Sub- Adviser and supervising the performance of the Sub-Adviser. Mr. Row and Mr. Allison are the portfolio managers responsible for the day-to-day management of Eaton Vance's responsibilities with respect to the Fund's investment portfolio.
Mr. Row is Vice President and Director of Equity Research at Eaton Vance. He is a member of Eaton Vance's Equity Strategy Committee and co-manager of seven other Eaton Vance registered closed-end funds. He has been a member of Eaton's Vance's equity investment team since 1996, and has 26 years of investment experience.
Mr. Allison is a Vice President of Eaton Vance, a member of the Equity Strategy Committee and co-manager of two other Eaton Vance registered closed-end fund and a privately offered equity fund sponsored by Eaton Vance. He has been a member of Eaton Vance's equity investment team since 2000, and has 19 years of investment experience.
THE SUB-ADVISER
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 strategies. Rampart's principal office is located at One International Place, Boston, Massachusetts 02110. Founded in 1983, Rampart provides customized options program management utilizing stock and equity index options to a spectrum of institutional, high net worth and investment company clients. Rampart managed approximately $9.6 billion in assets as of March 31, 2007.
Ronald M. Egalka is the portfolio manager at Rampart responsible for implementation of the options strategies 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 options investment strategies employed by Rampart clients. Mr. Egalka is co-manager of seven other Eaton Vance registered closed-end funds.
Under the terms of the Sub-Advisory Agreement (the "Sub-Advisory Agreement") between Eaton Vance and Rampart, Eaton Vance (and not the Fund) will pay Rampart an annual fee at a rate of 0.20% on the assets of the Fund against which puts on individual stocks are written and 0.05% on the remaining 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-Adviser 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.
The Fund's shareholder reports will contain information regarding the basis for the Trustees' approval of the Fund's Advisory and Sub-Advisory Agreements.
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 dividends and interest income after payment of Fund expenses, net option premiums received, and net realized and unrealized gains on stock investments. The Fund's net 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. Distributions are not expected to depend on financial leverage.
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.
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. The Adviser does not believe that retaining net capital gains and paying tax thereon would have a material adverse effect on the Fund or the Common Shareholders.
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 automatically reinvest some or all of their distributions in additional Common Shares under the Fund's dividend reinvestment plan. See "Dividend Reinvestment Plan."
The Fund intends to apply for an order from the SEC 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 or twice 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. There is no assurance that the SEC will grant the Fund's request for such an exemptive order.
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based on the advice of Kirkpatrick & Lockhart Preston Gates Ellis LLP, counsel to the Fund. The Fund intends to elect to be treated and to qualify each year as a regulated investment company (a "RIC") 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 net long term capital losses and any available capital loss carryforwards) in accordance with the timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying federal income or excise tax thereon. To the extent it qualifies for treatment as a RIC 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 ("DRD") 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 DRD.
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 DRD in the case of corporate shareholders. To later 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 DRD 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, (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 income requirement that applies to RICs. While it may not always be successful in doing so, the Fund will seek to avoid or minimize the adverse tax consequences of its investment practices.
For the Fund's index call options and index put options that qualify as "section 1256 contracts," 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 or closed out 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 exchange-listed index options, "section 1256 contracts" under the Code include certain other options contracts, certain regulated futures contracts, and certain other financial contracts.
The Fund's positions in single stock options and index options that do not qualify as "section 1256 contracts" under the Code generally will be treated as equity options governed by Code Section 1234. Pursuant to Code Section 1234, if a written option expires unexercised, the premium received is short-term capital gain to the Fund. If the Fund enters into a closing transaction with respect to a written option, the difference between the premium received and the amount paid to close out its position is short-term capital gain or loss. If an option written by the Fund that is not a "section 1256 contract" is cash settled, any resulting gain or loss will be short-term. For an option purchased by the Fund that is not a "section 1256 contract" any gain or loss resulting from sale of the option will be a capital gain or loss, and will be short-term or long-term, depending upon the holding period for the option. If the option expires, the resulting loss is a capital loss and is short-term or long-term, depending upon the holding period for the option. If a put option written by the Fund is exercised and physically settled, the premium received is treated as a reduction in the amount paid to acquire the underlying securities, increasing the gain or decreasing the loss to be realized by the Fund upon sale of the securities. If a call option written by the Fund is exercised and physically settled, the premium received is included in the sale proceeds, increasing the gain or decreasing the loss realized by the Fund at the time of option exercise.
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 neither the index call options it writes nor the index put options it buys will, together with the Fund's portfolio of common stocks, be considered straddles for this purpose because the Fund's portfolio of common stocks will be sufficiently dissimilar from the components of each index on which it has outstanding options positions 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 acquired within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the stock or securities.
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." Alternatively, 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 has 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 "2003 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, as discussed below, 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.
Subject to certain exceptions, a "qualified foreign corporation" is any foreign corporation that is either (i) incorporated in a possession of the United States (the "possessions test"), or (ii) eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary of the Treasury determines is satisfactory for these purposes and which includes an exchange of information program (the "treaty test").
The Secretary of the Treasury has currently identified tax treaties between the United States and 55 other countries that satisfy the treaty test. Subject to the same exceptions, a foreign corporation that does not satisfy either the possessions test or the treaty test will still be considered a "qualified foreign corporation" with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States. The Treasury Department has issued a notice stating that common or ordinary stock, or an ADR in respect of such stock, is considered "readily tradable" if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934, as amended, or on the National Association of Securities Dealers Automated Quotations system. Foreign corporations that are passive foreign investment companies will not be "qualified foreign 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 dividends the Fund receives to qualify for tax-advantaged treatment, 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, neither a Common Shareholder nor the Fund can 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 his or her Common Shares or such stock, respectively. 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 that are attributable to the Fund's qualified income only apply to taxable years beginning before January 1, 2011. Thereafter, all of 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 2003 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 2011 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 amount realized on the sale and the Common Shareholder's adjusted tax basis in the Common Shares sold. 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 noncorporate 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 (in 2007, 35%), 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 noncorporate 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 2007, 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. A more complete discussion of the tax rules applicable to the Fund and the Common Shareholders can be found in the Statement of Additional Information that is incorporated by reference into this Prospectus. Unless otherwise noted, this discussion assumes that an investor is a United States 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. The Fund has not received a formal opinion of tax counsel. However, the Adviser previously received an opinion from tax counsel with respect to certain tax matters presented by the Fund in connection with the offering of a similar closed-end fund managed by the Adviser and has been informed by such counsel that there have not been intervening changes in the law relating to these matters.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's dividend reinvestment plan (the "Plan"), unless a Common Shareholder elects to receive distributions in cash, all distributions (including capital gain dividends) will be automatically reinvested in Common Shares.
American Stock Transfer & Trust Company ("AST" or 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 AST, 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 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 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 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 American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038. Please call 1-800-937-5449 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 April 4, 2007 (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, $0.01 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 SEC. 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 Common Shareholders. 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 RIC 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 RIC. 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 METHODS TO ADDRESS POTENTIAL DISCOUNT
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 RIC 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 ("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 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 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 Program against liabilities they may incur in connection with the Program.
In addition, the Fund expects that any such 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. Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after such borrowings the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund's total assets, including the amount borrowed). The Fund expects that any 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 Program on terms and conditions representative of the foregoing, or that additional material terms will not apply. In addition, if entered into, any such 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 "Investment Objectives, Policies and Risks -- Risk Considerations -- 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 "Investment Objectives, Policies and Risks -- Risk Considerations -- Financial Leverage Risk."
ANTI-TAKEOVER PROVISIONS IN THE AGREEMENT AND 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 SEC 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
Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, Wachovia Capital Markets, LLC and A.G. Edwards & Sons, Inc. are acting as the representatives of the underwriters ("Underwriters") named below. Subject to the terms and conditions stated in the underwriting agreement, dated the date of this Prospectus, each Underwriter named below has agreed to purchase, and the Fund has agreed to sell to that Underwriter, the number of Common Shares set forth opposite the Underwriter's name.
NUMBER OF
UNDERWRITERS COMMON SHARES
------------ -------------
Citigroup Global Markets Inc................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
UBS Securities LLC..........................................
Wachovia Capital Markets, LLC...............................
A.G. Edwards & Sons, Inc....................................
Robert W. Baird & Co. Incorporated..........................
Banc of America Securities LLC..............................
BB&T Capital Markets, a division of Scott & Stringfellow,
Inc.......................................................
H&R Block Financial Advisors, Inc...........................
Crowell, Weedon & Co........................................
Ferris, Baker Watts, Incorporated...........................
J.J.B. Hilliard, W.L. Lyons, Inc............................
HSBC Securities (USA) Inc...................................
Janney Montgomery Scott LLC.................................
Ladenburg Thalmann & Co. Inc................................
Oppenheimer & Co. Inc.......................................
Raymond James & Associates, Inc.............................
RBC Capital Markets Corporation.............................
Ryan Beck & Co., Inc........................................
Southwest Securities, Inc...................................
Stifel, Nicolaus & Company, Incorporated....................
Wedbush Morgan Securities Inc...............................
Wells Fargo Securities, LLC.................................
Total.......................................................
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The underwriting agreement provides that the obligations of the Underwriters to purchase the Common Shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The Underwriters are obligated to purchase all the Common Shares (other than those covered by the over-allotment option described below) if they purchase any of the Common Shares.
The Underwriters propose to 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 dealers at the public offering price less a concession not to exceed $ per share. The sales load the Fund will pay of $0.90 per share is equal to 4.5% of the initial public offering price. The Underwriters may allow, and dealers may reallow, a concession not to exceed $ per share on sales to other dealers. If all of the Common Shares are not sold at the initial public offering price, the representatives may change the public offering price and other selling terms. Investors must pay for any Common Shares purchased on or before , 2007. The representatives have advised the Fund that the Underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.
ADDITIONAL COMPENSATION
The Adviser (and not the Fund) has agreed to pay to Citigroup Global Markets Inc., from its own assets, a structuring fee for advice relating to the structure, design and organization of the Fund as well as services related to the sale and distribution of the Common Shares in the amount of $ . The structuring fee paid to Citigroup Global Markets Inc. will not exceed % of the total public offering price of the Common Shares sold in this offering.
The Adviser (and not the Fund) has agreed to pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated, from its own assets, additional compensation for advice relating to the structure, design and organization of the Fund as well as services related to the sale and distribution of the Common Shares in the amount of $ . The additional compensation paid to Merrill Lynch, Pierce, Fenner & Smith Incorporated will not exceed % of the total public offering price of the Common Shares sold in this offering.
The Adviser (and not the Fund) has agreed to pay to UBS Securities LLC, from its own assets, a structuring fee for certain financial advisory services in assisting the Adviser in structuring and organizing the Fund in the amount of $ . The structuring fee paid to UBS Securities LLC will not exceed % of the total public offering price of the Common Shares sold in this offering.
The Adviser (and not the Fund) has agreed to pay to Wachovia Capital Markets, LLC, from its own assets, a structuring fee for advice relating to the structure, design and organization of the Fund as well as services related to the sale and distribution of the Common Shares in the amount of $ . The structuring fee paid to Wachovia Capital Markets, LLC will not exceed % of the total public offering price of the Common Shares sold in this offering.
The Adviser (and not the Fund) has agreed to pay to A.G. Edwards & Sons, Inc., from its own assets, a structuring fee for advice relating to the structure, design and organization of the Fund as well as services related to the sale and distribution of the Common Shares in the amount of $ . The structuring fee paid to A.G. Edwards & Sons, Inc. will not exceed % of the total public offering price of the Common Shares sold in this offering.
In contrast to the underwriting discounts and commissions (earned under the underwriting agreement by the underwriting syndicate as a group), these structuring fees and additional compensation will be earned by and paid to Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, Wachovia Capital Markets, LLC and A.G. Edwards & Sons, Inc., as applicable, by the Adviser (and not the Fund) for advice to the Adviser on the design and structuring of, and marketing assistance with respect to, the Fund and the distribution of its Common Shares, as described above.
The Adviser (and not the Fund) may also pay certain qualifying Underwriters a marketing and structuring fee, a sales incentive fee or additional compensation in connection with the offering.
The total amount of the Underwriter compensation payments described above will not exceed 4.5% of the total public offering price 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 the sales load and all forms of additional compensation or structuring or sales incentive fee payments to the Underwriters and other expenses, will be limited to not more than 9.0% of the total public offering price of the Common Shares sold in this offering.
The Fund has granted to the Underwriters an option, exercisable for 45 days from the date of this Prospectus, to purchase up to additional Common Shares at the public offering price less the sales load. The Underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent such option is exercised, each Underwriter will be obligated, subject to certain conditions, to purchase a number of additional Common Shares approximately proportionate to that Underwriter's initial purchase commitment.
Each of the Fund, the Adviser and the Sub-Adviser has agreed that, for a period of 180 days from the date of this Prospectus, it will not, without the prior written consent of Citigroup Global Markets Inc., on
behalf of the Underwriters, dispose of or hedge any Common Shares or any securities convertible into or exchangeable for Common Shares. Citigroup Global Markets Inc., in its sole discretion, may release any of the securities subject to these agreements at any time without notice.
Prior to this offering, there has been no public market for the Common Shares. Consequently, the initial public offering price for the Common Shares was determined by negotiation among the Fund, the Adviser and the representatives. There can be no assurance, however, that the price at which the Common Shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in the Common Shares will develop and continue after this offering. The Common Shares have been authorized for listing on the New York Stock Exchange, subject to official notice of issuance, under the trading or "ticker" symbol "ETJ."
In connection with the requirements for listing the Common Shares on the New York Stock Exchange, the Underwriters have undertaken to sell lots of 100 or more Common Shares to a minimum of 2,000 beneficial owners in the United States. The minimum investment requirement is 100 Common Shares.
The following table shows the sales load that the Fund will pay to the Underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase additional Common Shares.
PAID BY FUND
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per Share............................................ $ $
Total................................................ $ $
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The Fund has agreed to pay the Underwriters $0.005 per Common Share as a partial reimbursement of expenses incurred in connection with the offering, which reimbursement will not exceed 0.0250% of the total public offering price of the Common Shares sold in this offering. The Adviser or an affiliate has agreed to pay the amount by which the Fund's offering costs (other than the sales load, but inclusive of such $0.005 per Common Share reimbursement of Underwriter expenses) exceed $0.04 per share. The Adviser or an affiliate has agreed to reimburse all of the Fund's organizational expenses.
Certain Underwriters may make a market in the Common Shares after trading in the Common Shares has commenced on the New York Stock Exchange. No Underwriter, however, is obligated to conduct market-making activities and any such activities may be discontinued at any time without notice, at the sole discretion of the Underwriter. No assurance can be given as to the liquidity of, or the trading market for, the Common Shares as a result of any market-making activities undertaken by any Underwriter. This Prospectus is to be used by any Underwriter in connection with the offering and, during the period in which a prospectus must be delivered, with offers and sales of the Common Shares in market-making transactions in the over-the-counter market at negotiated prices related to prevailing market prices at the time of the sale.
In connection with the offering, certain Underwriters may purchase and sell Common Shares in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of Common Shares in excess of the number of Common Shares to be purchased by the Underwriters in the offering, which creates a syndicate short position. "Covered" short sales are sales of Common Shares made in an amount up to the number of Common Shares represented by the Underwriters' over-allotment option. In determining the source of Common Shares to close out the covered syndicate short position, the Underwriters will consider, among other things, the price of Common Shares available for purchase in the open market as compared to the price at which they may purchase Common Shares through the over-allotment option. Transactions to close out the covered syndicate short position involve either purchases of Common Shares in the open market after the distribution has been completed or the exercise of the over-allotment option. The Underwriters may also make "naked" short sales of Common Shares in excess of the over-allotment option. The Underwriters must close out any naked short position by purchasing Common Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of Common Shares in the open market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of bids for or purchases of Common Shares in the open market while the offering is in progress.
The Underwriters also may impose a penalty bid. Penalty bids permit the Underwriters to reclaim a selling concession from a syndicate member when Citigroup Global Markets Inc. repurchases Common Shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a decline in the market price of Common Shares. They may also cause the price of Common Shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The Underwriters may conduct these transactions on the New York Stock Exchange or in the over-the-counter market, or otherwise. If the Underwriters commence any of these transactions, they may discontinue them at any time.
A prospectus in electronic format may be made available on the websites maintained by one or more of the Underwriters. Other than the prospectus in electronic format, the information on any such Underwriter's website is not part of this Prospectus. The representatives may agree to allocate a number of Common Shares to Underwriters for sale to their online brokerage account holders. The representatives will allocate Common Shares to Underwriters that may make Internet distributions on the same basis as other allocations. In addition, Common Shares may be sold by the Underwriters to securities dealers who resell Common Shares to online brokerage account holders.
The Fund anticipates that, from time to time, certain Underwriters may act as brokers or dealers in connection with the execution of the Fund's portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as brokers while they are Underwriters. Certain Underwriters have performed investment banking and advisory services for the Adviser, Sub-Adviser and their affiliates from time to time, for which they have received customary fees and expenses. Certain Underwriters may, from time to time, engage in transactions with or perform services for the Adviser, Sub- Adviser and their affiliates in the ordinary course of business.
The Fund, the Adviser and the Sub-Adviser have each agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make because of any of those liabilities.
Prior to the initial public offering of Common Shares, the Adviser purchased Common Shares from the Fund in an amount satisfying the net worth requirements of Section 14(a) of the 1940 Act.
The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013.
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 SEC.
American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, New York 10038, 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 Preston Gates Ellis LLP, Boston, Massachusetts, and for the Underwriters by Simpson Thacher & Bartlett LLP, New York, New York. Simpson Thacher & Bartlett LLP may rely as to
certain matters of Massachusetts law on the opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP, Boston, Massachusetts.
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, are 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 SEC. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations. The Statement of Additional Information can be obtained without charge by calling 1- 800-225-6265.
Statements contained in this Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference.
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.......................................... 11
Determination of Net Asset Value................................................ 15
Portfolio Trading............................................................... 17
Taxes........................................................................... 19
Other Information............................................................... 25
Independent Registered Public Accounting Firm................................... 25
Report of Independent Registered Public Accounting Firm......................... 26
Financial Statements............................................................ 27
Notes to Financial Statements................................................... 28
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.
SHARES
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
COMMON SHARES
$20.00 PER SHARE
(EATON VANCE LOGO)
PROSPECTUS
, 2007
CITI
MERRILL LYNCH & CO.
UBS INVESTMENT BANK
WACHOVIA SECURITIES
A.G. EDWARDS
ROBERT W. BAIRD & CO.
BANC OF AMERICA SECURITIES LLC
BB&T CAPITAL MARKETS
H&R BLOCK FINANCIAL ADVISORS, INC.
CROWELL, WEEDON & CO.
FERRIS, BAKER WATTS
INCORPORATED
J.J.B. HILLIARD, W.L. LYONS, INC.
HSBC
JANNEY MONTGOMERY SCOTT LLC
LADENBURG THALMANN & CO. INC.
OPPENHEIMER & CO.
RAYMOND JAMES
RBC CAPITAL MARKETS
RYAN BECK & CO.
SOUTHWEST SECURITIES
STIFEL NICOLAUS
WEDBUSH MORGAN SECURITIES INC.
WELLS FARGO SECURITIES
CE-ETJRH
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.
SUBJECT TO COMPLETION JUNE 22, 2007
STATEMENT OF ADDITIONAL INFORMATION
, 2007
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME 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.................................. 11
Determination of net asset value........................................ 15
Portfolio trading....................................................... 17
Taxes................................................................... 19
Other information....................................................... 25
Independent registered public accounting firm........................... 25
Report of independent registered public accounting firm................. 26
Financial statements.................................................... 27
Notes to financial statements........................................... 28
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 RISK-MANAGED DIVERSIFIED EQUITY
INCOME FUND (THE "FUND") DATED , 2007 (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.
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-Adviser 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. In addition to the intended strategy of buying and selling put options and 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). However, excluding the Fund's strategy of buying and selling put options and selling index call options, no more than 10% of the Fund's total assets may be invested in such other derivative instruments for speculative purposes. As a result of the Fund's primary options strategies and the ability to invest in other derivative instruments as described herein, 100% of the Fund's total assets may be subject to derivative instruments. 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 exchange-listed and 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. Derivative instruments may be used by the Fund to enhance returns or as a substitute for the purchase or sale of securities. 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 SEC takes
the position that certain purchased OTC options, and assets used as cover for certain 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") may limit the Fund's 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 therefore 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 seek to earn income by lending portfolio securities to broker-dealers and other institutional investors. Cash collateral received by the Fund in respect of loaned securities is invested in Eaton Vance Cash Collateral Fund, LLC ("Cash Collateral Fund"), a privately offered investment company holding high quality, U.S. dollar denominated money market instruments. As compensation for its services as manager, Eaton Vance is paid a fee at a rate of 0.08% annually of the average daily net assets of Cash Collateral Fund. Eaton Vance pays all of Cash Collateral Fund's custody, audit and other ordinary operating expenses, excluding extraordinary, non-recurring items such as expenses incurred in connection with litigation, proceedings, claims and reorganization expenses. Payments to Eaton Vance for managing Cash Collateral Fund are in addition to the investment advisory fee paid by the Fund to Eaton Vance.
CASH EQUIVALENTS
The Fund may invest in cash equivalents to invest daily cash balances or for temporary defensive purposes. Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations and may include Cash Management Portfolio, an affiliated money market fund which invests in such short-term securities.
EXCHANGE-TRADED FUNDS
The Fund may invest in shares of exchange-traded funds (collectively, "ETFs"), which are designed to provide investment results corresponding to an index. These indexes may be either broad-based, sector or international and may include Standard & Poor's Depositary Receipts ("SPDRs"), DIAMONDS, Nasdaq-100 Index Tracking Stock (also referred to as "Nasdaq-100 Shares"), iShares exchange-traded funds ("iShares"), such as iShares Russell 2000 Growth Index Fund and HOLDRS (Holding Company Depositary Receipts). ETFs usually are units of beneficial interest in an investment trust or represent undivided ownership interests in a portfolio of securities, in each case with respect to a portfolio of all or substantially all of the component securities of, and in substantially the same weighting as, the relevant benchmark index. The benchmark indices of SPDRs, DIAMONDS and Nasdaq-100 Shares are the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average and the Nasdaq-100 Index,
respectively. The benchmark index for iShares varies, generally corresponding to the name of the particular iShares fund. ETFs are designed to provide investment results that generally correspond to the price and yield performance of the component securities (or commodities) of the benchmark index. ETFs are listed on an exchange and trade in the secondary market on a per-share basis.
Investments in ETFs are generally subject to limits in the 1940 Act on investments in other investment companies. The values of ETFs are subject to change as the values of their respective component securities (or commodities) fluctuate according to market volatility. Investments in ETFs that are designed to correspond to an equity index involve certain inherent risks generally associated with investments in a broadly based portfolio of common stocks, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of ETFs invested in by the Fund. Moreover, the Fund's investments in ETFs may not exactly match the performance of a direct investment in the respective indices to which they are intended to correspond due to the temporary unavailability of certain index securities in the secondary market or other extraordinary circumstances, such as discrepancies with respect to the weighting of securities.
Typically, ETF programs bear their own operational expenses, which are deducted from the dividends paid to investors. To the extent that the Fund invests in ETFs, the Fund must bear these expenses in addition to the expenses of its own operation.
POOLED INVESTMENT VEHICLES
The Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of pooled investment vehicles including other investment companies unaffiliated with the Adviser. The Fund will indirectly bear its proportionate share of any management fees paid by pooled investment vehicles in which it invests in addition to the advisory fee paid by the Fund. Please refer to "Cash Equivalents" for additional information about investment in other investment companies. The 10% limitation does not apply to the Fund's investment in money market funds and certain other pooled investment vehicles. If the Fund invests in Cash Management Portfolio, an affiliated money market fund, the management fee paid on such investment will be credited against the Fund's management fee.
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
(i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after
issuance will have asset coverage of at least 300%, or (iii) the borrowings
permitted by investment restriction (1) above. The 1940 Act currently
defines "senior security" as any bond, debenture, note or similar
obligation or instrument constituting a security and evidencing
indebtedness and any stock of a class having priority over any other class
as to distribution of assets or payment of dividends. Debt and equity
securities issued by a closed-end investment company meeting the foregoing
asset coverage provisions are excluded from the general 1940 Act
prohibition on the issuance of senior securities;
(3) Purchase securities on margin (but the 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 loans, 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, currency 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).
In regard to 5(c), the value of the securities loaned by the Fund may not exceed 33 1/3% of its total assets.
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), securities of the U.S. Government, its agencies, or instrumentalities are not considered to represent industries. Municipal obligations backed by the credit of a governmental entity are also not considered to represent 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 asset or describes a policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as a result of the Fund's 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 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. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with Eaton Vance listed below.
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX OTHER
NAME AND POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
------------- -------------------- ------------- --------------------------- ------------- ------------------
INTERESTED TRUSTEES
Thomas E. Faust Jr.... Trustee(2) and Since 4/23/07 President of EVC, Eaton 164 Director of EVC
5/31/58 Vice President Three Years Vance,
BMR and EV, and Director of
EVD.
Chief Investment Officer of
EVC,
Eaton Vance and BMR.
Trustee and/or officer of
164 registered investment
companies and 5 private
investment companies
managed by Eaton Vance or
BMR. Mr. Faust is an
interested person because
of his positions with BMR,
Eaton Vance, EVC, EVD and
EV, which are affiliates of
the Fund.
James B. Hawkes....... Trustee(2) and Since 4/23/07 Chairman, and Chief 172 Director of EVC
11/9/41 Vice President Three Years Executive Officer of BMR,
Eaton Vance, EVC and EV;
Director of EV; Chief
Executive Officer and
Director of EVD. Trustee
and/or officer of 172
registered investment
companies in the Eaton
Vance Fund Complex. Mr.
Hawkes is an interested
person because of his
positions with BMR, Eaton
Vance, EVC, EVD and EV,
which are affiliates of the
Fund.
NONINTERESTED TRUSTEES
Benjamin C. Esty...... Trustee(2) Since 4/23/07 Roy and Elizabeth Simmons 172 None
1/2/63 Three Years Professor of Business
Administration, Harvard
University Graduate School
of Business Administration
(since 2003). Formerly
Associate Professor,
Harvard University Graduate
School of Business
Administration (2000-2003).
Allen R. Freedman..... Trustee(2) Since 4/23/07 Former Chairman and Chief 169 Director of
4/3/40 Three Years Executive Officer of Assurant, Inc. and
Assurant, Inc. (insurance Stonemor Partners
provider) (1978-2000). L.P. (owner and
operator of
cementeries)
|
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX OTHER
NAME AND POSITION(S) LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
------------- -------------------- ------------- --------------------------- ------------- ------------------
Samuel L. Hayes, III.. Chairman of the Since 4/23/07 Jacob H. Schiff Professor 172 Director of
2/23/35 Board and Trustee(3) Three Years of Investment Banking Tiffany & Co.
Emeritus, Harvard (specialty
University Graduate School retailer)
of Business Administration.
Director of Yakima
Products, Inc.
(manufacturer of automotive
accessories) (since 2001)
and Director of Telect,
Inc. (telecommunication
services company).
William H. Park....... Trustee(3) Since 4/23/07 Vice Chairman, Commercial 172 None
9/19/47 Three Years Industrial Finance Corp.
(specialty finance company)
(since 2005). Formerly,
President and Chief
Executive Officer, Prizm
Capital Management, LLC
(investment management
firm) (2002-2005).
Ronald A. Pearlman.... Trustee(3) Since 4/23/07 Professor of Law, 172 None
7/10/40 Three Years Georgetown University Law
Center.
Norton H. Reamer...... Trustee(3) Since 4/23/07 President, Chief Executive 172 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
and Chief Operating
Officer, Hellman, Jordan
Management Co., Inc. (an
investment management
company) (2000-2003).
Formerly, Advisory Director
of Berkshire Capital
Corporation (investment
banking firm) (2002-2003).
Heidi L. Steiger...... Trustee(4) Since 4/23/07 President, Lowenhaupt 169 Director of
7/8/53 Three Years Global Advisors, LLC Nuclear Electric
(global wealth management Insurance Ltd.
firm) (since 2005); (nuclear insurance
President and Contributing provider) and
Editor, Worth Magazine Aviva USA
(2004); Executive Vice (insurance
President and Global Head provider)
of Private Asset Management
(and various other
positions), Neuberger
Berman (investment firm)
(1986-2004).
Lynn A. Stout......... Trustee(4) Since 4/23/07 Professor of Law, 172 None
9/14/57 Three Years University of California at
Los Angeles School of Law.
Ralph F. Verni........ Trustee(4) Since 4/23/07 Consultant and private 172 None
1/26/43 Three Years investor.
|
(1) Includes both master and feeder funds in master-feeder structure.
(2) Class I Trustees whose term expires in 2008.
(3) Class II Trustees whose term expires in 2009.
(4) Class III Trustees whose term expires in 2010.
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF OFFICE
POSITION(S) AND LENGTH PRINCIPAL OCCUPATIONS DURING PAST FIVE
NAME AND DATE OF BIRTH WITH THE FUND OF SERVICE YEARS
---------------------- ------------------- -------------- ---------------------------------------
Duncan W. Richardson.... President and Chief Since 4/4/07 Executive Vice President and Chief
10/26/57 Executive Officer Equity Investment Officer of EVC, Eaton
Vance and BMR. Officer of 71 registered
investment companies managed by Eaton
Vance or BMR.
Michael A. Allison...... Vice President Since 4/4/07 Vice President of Eaton Vance and BMF.
10/26/64 Officer of two registered investment
companies managed by Eaton Vance or
BMR.
Walter A. Row, III...... Vice President Since 4/4/07 Director of Equity Research and a Vice
7/20/57 President of Eaton Vance and BMR.
Officer of 33 registered investment
companies managed by Eaton Vance or
BMR.
Barbara E. Campbell..... Treasurer and Since 4/4/07 Vice President of BMR and Eaton Vance.
6/19/57 Principal Financial Officer of 172 registered investment
and Accounting companies managed by Eaton Vance or
Officer BMR.
Paul M. O'Neil.......... Chief Compliance Since 4/4/07 Vice President of Eaton Vance and BMR.
7/11/53 Officer Officer of 172 registered investment
companies managed by Eaton Vance or
BMR.
Alan R. Dynner.......... Secretary Since 4/4/07 Vice President, Secretary and Chief
11/9/41 Legal Counsel of BMR, Eaton Vance, EVD,
EV and EVC. Officer of 172 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.
Ms. Stout (Chair) and Messrs. Esty Freedman, Hayes, Park, Pearlman, Reamer and Verni, and Ms. Steiger are members of the Governance Committee of the Board of Trustees of the Fund. 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 (Chair), Hayes, Park and Verni, and Ms. Steiger 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 (Chair), Esty, Freedman, Park, Pearlman, Reamer and Verni 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 , the Audit Committee has met and the Special Committee has .
The Fund's shareholder reports will contain information regarding the basis for the Trustees' approval of the Advisory Agreement and the Sub-Advisory 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, 2006. None of the Trustees own shares of the Fund since the Fund has not commenced operations.
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES OWNED IN ALL REGISTERED
EQUITY SECURITIES FUNDS OVERSEEN BY TRUSTEE IN THE
NAME OF TRUSTEE OWNED IN THE FUND EATON VANCE FUND COMPLEX
--------------- ----------------- ----------------------------------
INTERESTED TRUSTEES
Thomas E. Faust Jr. ................. None Over $100,000
James B. Hawkes...................... None Over $100,000
NON-INTERESTED TRUSTEES
Benjamin C. Esty..................... None Over $100,000
Allen R. Freedman.................... None Over $100,000*
Samuel L. Hayes, III................. None Over $100,000
William H. Park...................... None Over $100,000
Ronald A. Pearlman................... None Over $100,000
Norton H. Reamer..................... None Over $100,000
Heidi L. Steiger..................... None Over $100,000
Lynn A. Stout........................ None Over $100,000*
Ralph F. Verni....................... None Over $100,000*
|
* Includes shares which may be deemed to be beneficially owned through the Trustee Deferred Compensation Plan.
As of December 31, 2006, no non-interested Trustee or any of their immediate family members owned beneficially or of record any class of securities of EVC, EVD, Rampart or any person controlling, controlled by or under common control with EVC, EVD or Rampart.
During the calendar years ended December 31, 2005 and December 31, 2006, no non-interested Trustee (or their immediate family members) had:
1. Any direct or indirect interest in Eaton Vance, EVC, EVD, Rampart or any person controlling, controlled by or under common control with EVC, EVD or Rampart;
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 or Rampart, distributed by EVD or a person controlling, controlled by or under common control with EVC, EVD or Rampart; (iii) EVC, EVD or Rampart; (iv) a person controlling, controlled by or under common control with EVC, EVD or Rampart; 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 or Rampart, distributed by EVD or a person controlling, controlled by or under common control with EVC, EVD or Rampart; (iii) EVC, EVD or Rampart; (iv) a person controlling, controlled by or under common control with EVC, EVD or Rampart; or (v) an officer of any of the above.
During the calendar years ended December 31, 2005 and December 31, 2006 no officer of EVC, EVD, Rampart or any person controlling, controlled by or under common control with EVC, EVD 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. (Trustees of the Fund who are members of the Eaton Vance organization receives no compensation from the Fund.) During the Fund's fiscal year ending October 31, 2007, it is anticipated that the Trustees of the Fund will earn the following compensation in their capacities as Trustees of the Fund. For the year ended December 31, 2006, the Trustees earned the following compensation in their capacities as Trustees of the funds in the Eaton Vance fund complex(1).
SOURCE OF COMPENSATION BENJAMIN C. ALLEN R. SAMUEL L. WILLIAM H. RONALD A. NORTON H. HEIDI L. LYNN A. RALPH F. OF ESTY FREEDMAN HAYES, III PARK PEARLMAN REAMER STEIGER STOUT VERNI ---------------------- ----------- -------- ---------- ---------- --------- --------- -------- ------- -------- Fund*.................. $ $ $ $ $ $ $ $ $ Fund Complex(1)........ $ $ $ $ $ $ $ $ $ |
* Estimated
(1) As of , 2007, the Eaton Vance fund complex consisted of 172 registered investment companies or series thereof.
(2) Includes $ 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"). 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. An independent proxy voting service has been retained to assist in the voting of the Fund proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. 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 Fund Policy. 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, 2007 will be available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the SEC'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 fixed-income group focuses on all kinds of taxable investment-grade and high-yield securities, tax-exempt investment- grade and high-yield securities, and U.S. Government securities. The senior loan group focuses on senior floating rate loans, unsecured loans and other floating rate debt securities such as notes, bonds and asset backed securities. The equity group covers stocks ranging from blue chip to emerging growth companies. Eaton Vance and its affiliates act as adviser to a family of mutual funds, and individual and various institutional accounts, including corporations, hospitals, retirement plans, universities, foundations and trusts.
The 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 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.
The Advisory Agreement with the Adviser continues in effect for an initial period of two years, 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. 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.
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 mean total assets of the Fund, including any form of investment leverage that the Fund may in the future determine to utilize, minus all 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 of 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.
Eaton Vance is a business trust organized under the laws of the Commonwealth of Massachusetts. EV serves as trustee of Eaton Vance. Eaton Vance and EV are wholly-owned subsidiaries of EVC, a Maryland corporation and publicly-held holding company. EVC through its subsidiaries and affiliates engages primarily in investment management, administration and marketing activities. The Directors of EVC are James B. Hawkes, Thomas E. Faust Jr., Ann E. Berman, John G.L. Cabot, Leo I. Higdon, Jr., Vincent M. O'Reilly, Dorothy E. Puhy and Winthrop H. Smith, Jr. All shares of the outstanding Voting Common Stock of EVC are deposited in a Voting Trust, the Voting Trustees of which are Messrs. Hawkes and Faust, Jeffrey P. Beale, Cynthia J. Clemson, Alan R. Dynner, Michael R. Mach, Robert B. Macintosh, Thomas M. Metzold, Scott H. Page, Duncan W. Richardson, G. West Saltonstall, Judith A. Saryan, William M. Steul, Payson F. Swaffield, and Michael W. Weilheimer (all of whom are officers of Eaton Vance). The Voting Trustees have unrestricted voting rights for the election of Directors of EVC. All of the outstanding voting trust receipts issued under said Voting Trust are owned by certain of the officers of BMR and Eaton Vance who are also officers, or officers and Directors of EVC and EV. As indicated under "Trustees and Officers," all of the officers of the Fund (as well as Messrs. Faust and Hawkes who are also Trustees) hold positions in the Eaton Vance organization.
EVC and its affiliates and their officers and employees from time to time have transactions with various banks, including the custodian of the Fund, 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. In July 2007 it is anticipated that IBT will consummate a transaction whereby it will be acquired by State Street Bank & Trust Company (2 Avenue de Lafayette, Boston, Massachusetts 20111). Upon completion of the transaction State Street Bank & Trust Company will assume the operations, obligations and contracts of IBT. There are no assurances that the transaction will be completed during such period.
THE SUB-ADVISER. 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 continuously 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 March 31, 2007 Rampart had approximately $9.6 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, the Adviser (and not the Fund) will pay Rampart an annual fee at a rate of 0.20% of the assets of the Fund against which puts on individual stocks are written and 0.05% on the remaining assets of the Fund.
The Sub-Advisory Agreement with Rampart continues in effect for an initial period of two years, and from year to year thereafter so long as such continuance is approved at least 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 3 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 and Michael A. Allison of Eaton Vance 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 , 2006, the number of accounts each portfolio manager managed in each of the listed categories and the total assets in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets in those accounts.
NUMBER OF TOTAL ASSETS OF
ACCOUNTS ACCOUNTS
NUMBER PAYING A PAYING A
OF TOTAL ASSETS OF PERFORMANCE PERFORMANCE
ACCOUNTS ACCOUNTS* FEE FEE*
-------- --------------- ----------- ---------------
MICHAEL A. ALLISON
Registered Investment Companies**........ $ $
Other Pooled Investment Vehicles......... $ $
Other Accounts........................... $ $
RONALD M. EGALKA
Registered Investment Companies**........ $ $
Other Pooled Investment Vehicles......... $ $
Other Accounts........................... $ $
WALTER A. ROW, III
Registered Investment Companies**........ $ $
Other Pooled Investment Vehicles......... $ $
Other Accounts........................... $ $
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* 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, emphasis is normally placed on three-year performance, with consideration of performance over longer and shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to risk-adjusted performance. For funds with an investment objective other than total return (such as current income), consideration will also be given to the 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.
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.
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, Rampart and the Fund have adopted Codes of Ethics governing personal securities transactions. Under the Codes of Ethics, Eaton Vance and Rampart 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, upon payment of copying fees, by writing, to the SEC's public reference section, Washington, DC 20549-0102, or by electronic mail at publicinfo@sec.gov.
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-Adviser. 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 United States 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 in the NASDAQ Global or Global Select 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 as the "Primary Market" quote reported by the Option Pricing Authority ("OPRA"). OPRA gathers options quotations from the six major United States Options exchanges and reports the last sale price from any exchange on which the option is listed. If no such sales are reported, such portion 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, or if such option is reported by the Option Clearing Corporation ("OCC") the Fund will use the last reported sales price reported on the OCC at the time of pricing or such other method the Trustees determine is appropriate. 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 or Rampart as the Sub-Adviser. As used below, "Adviser" refers to Eaton Vance 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 of the Fund and of all other accounts managed by it for execution with many firms. The Adviser uses its best efforts to obtain execution of portfolio security transactions at prices 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.
Transactions on stock exchanges and other agency transactions involve the payment of negotiated brokerage commissions. Such commissions vary among different broker-dealer firms, and a particular broker-dealer may charge different commissions according to such factors as the difficulty and size of the transaction and the volume of business done with such broker-dealer. Transactions in foreign securities often involve the payment of brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the- counter markets, but the price paid or received usually includes an undisclosed dealer markup or markdown. In an underwritten offering the price paid often includes a disclosed fixed commission or discount retained by the underwriter or dealer.
Although spreads or commissions paid on portfolio security transactions will, in the judgment of the 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. In making any such determination, the Adviser will not attempt to place a specific dollar value on the brokerage and research services provided or to determine what portion of the commission should be related to such services. Brokerage and research services may include advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; effecting securities transactions and performing functions incidental thereto (such as clearance and settlement); and the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the advisers of investment companies, institutions and other investors to receive research, analytical, statistical and quotation services, data, information and other services, products and materials 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 may include, but are not limited to, such matters as general economic, political, business and market information, industry and company reviews, evaluations of securities and portfolio strategies and transactions, certain proxy voting data and analysis services, technical analysis of various aspects of the securities market, recommendations as to the purchase and sale of securities and other portfolio transactions, financial, industry and trade publications, news and information services, certain pricing and quotation equipment and services, and research oriented computer 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 Preston Gates Ellis 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 United States federal income tax purposes and that derive less than 90% of their gross income from 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, United States 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 United States 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 United States federal income tax on its investment company taxable income (as that term is defined in the Code, but without regard to the deductions for dividend 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 United States federal income tax. Under current law, provided that the Fund qualifies as a RIC for United States 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 or fails to satisfy the 90% distribution requirement for any taxable year, the Fund's taxable income will be subject to United States federal 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 United States 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 current law, 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 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 domestic 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 before January 1, 2011. 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 the favorable treatment described above.
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) to the extent 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) but only for taxable years beginning on or before December 31, 2010. Thereafter, the maximum rate will increase to 20%, unless Congress enacts legislation providing otherwise.
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 (or amounts designated as undistributed capital gains) 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 United States 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 to Shareholders of record of such month 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.
For the Fund's index call options that qualify as "section 1256 contracts," 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 "section 1256 contract" which it holds 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 Fund's index call options that do not qualify as "section 1256 contracts" generally will be treated as equity options governed by Code Section 1234. Pursuant to Code Section 1234, if a written option expires unexercised, the premium received is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received for writing the option is generally short- term capital gain or loss. If a call option written by the Fund that is not a "section 1256 contract" is cash settled, any resulting gain or loss will be short-term capital gain or loss.
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 indices on which it has outstanding options positions 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." Alternatively, 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 United States federal 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 DRD 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, (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. 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.
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 United States 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 United States 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. Dividends paid by PFICs will not be treated as qualified dividend income.
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. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt securities denominated in a foreign currency, to the extent attributable to fluctuations in exchange rate between the acquisition and disposition dates, are also 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 2007. 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 United States 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 common shareholders of investing in common shares, reflects the United States 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 United States 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 consultation with respect to the preparation of filings with the SEC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of
Eaton Vance Risk-Managed Diversified Equity Income Fund:
We have audited the accompanying statement of assets and liabilities of Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund") as of June 6, 2007 and the related statement of operations for the period from April 4, 2007 (date of organization) through June 6, 2007. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of June 6, 2007, and the results of its operations for the period from April 4, 2007 (date of organization) through June 6, 2007 in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP Boston, Massachusetts June 7, 2007 |
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 6, 2007
ASSETS
Cash............................................................... $100,000
Offering costs..................................................... 500,000
Receivable from Adviser............................................ 15,000
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Total assets....................................................... $615,000
========
LIABILITIES
Accrued offering costs............................................. $500,000
Accrued organizational costs....................................... 15,000
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Total liabilities.................................................. $515,000
========
Net assets applicable to 5,000 common shares of beneficial interest
issued and outstanding............................................. $100,000
========
NET ASSET VALUE AND OFFERING PRICE PER SHARE......................... $ 20.00
========
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STATEMENT OF OPERATIONS
PERIOD FROM APRIL 4, 2007 (DATE OF ORGANIZATION) THROUGH JUNE 6, 2007
INVESTMENT INCOME.................................................... $ --
--------
EXPENSES
Organization costs................................................. $ 15,000
Expense reimbursement.............................................. (15,000)
--------
Net expenses.................................................... $ --
--------
NET INVESTMENT INCOME................................................ $ --
========
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See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION
The Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund") was organized as a Massachusetts business trust on April 4, 2007, 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 5,000 common shares to Eaton Vance Management, the Fund's investment adviser (the "Adviser").
Eaton Vance Management, or an affiliate, has agreed to reimburse all organizational costs, estimated at approximately $15,000. Eaton Vance Management, or an affiliate, directly provided certain organizational services to the Fund at no expense.
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 $637,675, of which the Fund would pay $500,000 and Eaton Vance Management would pay $137,675 based on such estimate.
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.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in a combination of (1) dividend-paying common stocks, (2) common stocks
the value of which is subject to written put options on individual stocks, and
(3) common stocks the value of which is subject to written index call options.
In addition, under normal market conditions, the Fund will purchase index put
options with respect to at least 80% of the value of its investments in common
stocks. The Fund will invest primarily in common stocks of United States
issuers, but may invest up to 40% of its assets in common stocks of foreign
issuers, including up to 5% of its total assets in securities of issuers located
in emerging markets. The Fund may not invest 25% or more of its total assets in
the securities of issuers in any single industry. The Fund will emphasize
investments in stocks that pay dividends that qualify for federal income
taxation at rates applicable to long-term capital gains. The Fund will emphasize
writing put options on individual stocks that the Adviser believes are
attractive for purchase at prices at or above the exercise price of the put
options written.
The Fund will seek to generate current earnings in part by employing an option strategy of writing (selling) index call options on a portion of the value of the Fund's total assets and writing put options on individual stocks under normal market conditions. In addition, the Fund will purchase index put options as a risk management technique. Writing index call options involves a tradeoff between the option premiums received and reduced participation in potential future stock price appreciation. Writing put options on individual stocks involves a tradeoff between the options premiums received and exposure to declines in value of the stocks against which put options are written. Purchasing index put options involves a tradeoff between the options premiums paid and a potential increase in value of the options positions in a stock market decline. Writing index call options, writing put options on individual stocks and buying index put options are a specialized investment practices that involves certain related risks and tax consequences. Upon the writing of a call or put option, an amount equal to the premium received by the Fund is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written in accordance with the Fund's policies on investment valuation. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When a call or put 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 or the individual stock at contract termination over the exercise price of the option. Thus, the exercise of index call options or put options on individual stocks sold by the Fund may require the Fund to sell portfolio securities to generate cash at inopportune times or for unattractive prices.
Although, the Fund has no current intention to do so, the Fund is authorized and reserves the flexibility to use leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt securities. The costs of issuing preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of 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 fees will be higher when leverage is utilized.
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 12,500,000 common shares or $238,750,000 after taking account of the Fund's sales load.
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 between the Adviser and Rampart Investment Management Company, Inc. ("Rampart"), the Adviser (and not the Fund) will pay Rampart an annual fee at a rate of 0.20% on the assets of the Fund against which puts on individual stocks are written and 0.05% on the remaining 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. 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, for any distribution that includes amounts from sources other than net income, the Fund is required to notify Common Shareholders regarding the components of such distribution. Such notification will be provided at the time of any payment believed to include any such amounts.
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 V below. In addition, the Boards will annually review and approve the Advisers' proxy voting policies and procedures.
III. DELEGATION OF PROXY VOTING DISCLOSURE RESPONSIBILITIES
The Securities and Exchange Commission (the "Commission") recently enacted certain new reporting requirements for registered investment companies. The 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 material 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 and the Proxy Administrator intends to vote the proxy in a manner inconsistent with the guidelines approved by the Board,
the Adviser, to the extent it is aware or reasonably should have been aware of the material conflict, will refrain from voting any proxies related to companies giving rise to such material conflict until it notifies and consults with the appropriate Board(s), or a committee or sub-committee of such Board, concerning the material conflict.
Once the Adviser notifies the relevant Board(s), committee or sub-committee of the Board, of the material conflict, the Board(s), committee or sub- committee, shall convene a meeting to review and consider all relevant materials related to the proxies involved. In considering such proxies, the Adviser shall make available all materials requested by the Board, committee or sub-committee and make reasonably available appropriate personnel to discuss the matter upon request. The Board, committee or sub-committee will instruct the Adviser on the appropriate course of action. If the Board, committee or sub-committee is unable to meet and the failure to vote a proxy would have a material adverse impact on the Fund(s) involved, each Adviser will have the right to vote such proxy, provided that it discloses the existence of the material conflict to the Board, committee or sub-committee at its next meeting. Any determination regarding the voting of proxies of each Fund that is made by the committee or sub-committee shall be deemed to be a good faith determination regarding the voting of proxies by the full Board.
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 Policy and Procedures. These proxy policies and procedures reflect the U.S. Securities and Exchange Commission ("SEC") requirements governing advisers and the long-standing fiduciary standards and responsibilities for ERISA accounts set out in the Department of Labor Bulletin 94-2 C.F.R. 2509.94-2 (July 29, 1994).
II. 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.
Each Adviser will vote any proxies received by a client for which it has sole investment discretion through a third-party proxy voting service ("Agent") in accordance with customized policies, as approved by the Boards of Trustees of the Eaton Vance Funds and, with respect to proxies referred back to the Adviser by the Agent pursuant to the Guidelines, in a manner that is reasonably designed to eliminate any potential conflicts of interest, as described more fully below. The Agent is currently Institutional Shareholder Services Inc. Proxies will be voted in accordance with client-specific guidelines and an Eaton Vance Fund's sub-adviser's proxy voting policies and procedures, if applicable.
No set of Guidelines can anticipate all situations that may arise. In special cases, the Proxy Administrator (the person specifically charged with the responsibility to oversee the Agent and coordinate the voting of proxies referred back to the Adviser by the Agent) may seek insight from the Proxy Group established by the Advisers. The Proxy Group will assist in the review of the Agent's recommendation when a proxy voting issue is referred to the Proxy Group through the Proxy Administrator. The members of the Proxy Group, which may include employees of the Advisers' affiliates, may change at the Advisers' discretion.
III. ROLES AND RESPONSIBILITIES
A. PROXY ADMINISTRATOR
The Proxy Administrator will assist in the coordination of the voting of each client's proxy in accordance with the Guidelines below and the Funds' Proxy Voting Policy and Procedures. The Proxy Administrator is authorized to direct the Agent to vote a proxy in accordance with the Guidelines. Responsibilities assigned herein to the Proxy Administrator, or activities in support thereof, may be performed by such members of the Proxy Group or employees of the Advisers' affiliates as are deemed appropriate by the Proxy Group.
B. AGENT
An independent proxy voting service (the "Agent"), as approved by the Board of each Fund, shall be engaged to assist in the voting of proxies. The Agent is currently Institutional Shareholder Services Inc. The Agent is responsible for coordinating with the clients' custodians and the Advisers to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed in a timely fashion. The Agent is required to vote and/or refer all proxies in accordance with the Guidelines below. The Agent shall retain a record of all proxy votes handled by the Agent. Such record must reflect all of the information required to be disclosed in a Fund's Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act of 1940, as amended. In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to an Adviser upon request.
Subject to the oversight of the Advisers, the Agent shall establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services to the Advisers, including methods to reasonably ensure that its analysis and recommendations are not influenced by a conflict of interest, and shall disclose such controls and policies to the Advisers when and as provided for herein. Unless otherwise specified, references herein to recommendations of the Agent shall refer to those in which no conflict of interest has been identified.
C. PROXY GROUP
The Adviser shall establish a Proxy Group which shall assist in the review of the Agent's recommendations when a proxy voting issue has been referred to the Proxy Administrator by the Agent. The members of the Proxy Group, which may include employees of the Advisers' affiliates, may be amended from time to time at the Advisers' discretion.
For each proposal referred to the Proxy Group, the Proxy Group will review the (i) Guidelines, (ii) recommendations of the Agent, and (iii) any other resources that any member of the Proxy Group deems appropriate to aid in a determination of the recommendation.
If the Proxy Group recommends a vote in accordance with the Guidelines, or the recommendation of the Agent, where applicable, it shall instruct the Proxy Administrator to so advise the Agent.
If the Proxy Group recommends a vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, or if the proxy statement relates to a conflicted company of the Agent, as determined by the Advisers, it shall follow the procedures for such voting outlined below.
The Proxy Administrator shall use best efforts to convene the Proxy Group with respect to all matters requiring its consideration. In the event the Proxy Group cannot meet in a timely manner in connection with a voting deadline, the Proxy Administrator shall follow the procedures for such voting outlined below.
IV. PROXY VOTING GUIDELINES ("GUIDELINES")
A. GENERAL POLICIES
It shall generally be the policy of the Advisers to take no action on a proxy for which no client holds a position or otherwise maintains an economic interest in the relevant security at the time the vote is to be cast.
In all cases except those highlighted below, it shall generally be the policy of the Advisers to vote in accordance with the recommendation by the Agent, Institutional Shareholder Services Inc.
When a fund client participates in the lending of its securities and the securities are on loan at the record date, proxies related to such securities generally will not be forwarded to the relevant Adviser by the fund's custodian and therefore will not be voted. In the event that the Adviser determines that the matters involved would have a material effect on the applicable fund's investment in the loaned securities, the fund will exercise its best efforts to terminate the loan in time to be able to cast such vote or exercise such consent.
Interpretation and application of these Guidelines is not intended to supersede any law, regulation, binding agreement or other legal requirement to which an issuer may be or become subject. The Guidelines relate to the types of proposals that are most frequently presented in proxy statements to shareholders. Absent unusual circumstances, each Adviser will utilize these Guidelines when voting proxies on behalf of its clients. The Guidelines may be revised at any time, provided such revisions are reported to the Boards of Trustees of the Eaton Vance Funds.
B. PROPOSALS REGARDING MERGERS AND CORPORATE RESTRUCTURINGS
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to Mergers and Corporate Restructurings.
C. PROPOSALS REGARDING MUTUAL FUND PROXIES -- DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION AND MERGERS
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Administrator for all proposals relating to the Disposition of Assets/Termination/Liquidation and Mergers contained in mutual fund proxies.
D. CORPORATE STRUCTURE MATTERS/ANTI-TAKEOVER DEFENSES
As a general matter, the Advisers will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions (except in the case of closed-end management investment companies).
E. SOCIAL AND ENVIRONMENTAL ISSUES
The Advisers generally support management on social and environmental proposals.
F. VOTING PROCEDURES
Upon receipt of a referral from the Agent or upon advice from an Eaton Vance investment professional, the Proxy Administrator may solicit additional research from the Agent, as well as from any other source or service.
1. WITHIN-GUIDELINES VOTES: Votes in Accordance with the Guidelines and/or, where applicable, Agent Recommendation
In the event the Proxy Administrator recommends a vote within the Guidelines and/or, where applicable, in accordance with the Agent's recommendation, the Proxy Administrator will instruct the Agent to vote in this manner.
2. NON-VOTES: Votes in Which No Action is Taken
The Proxy Administrator may recommend that a client refrain from voting under the following circumstances: (i) if the economic effect on shareholders' interests or the value of the portfolio holding is indeterminable or insignificant, e.g., proxies in connection with securities no longer held in the portfolio of a client or proxies being considered on behalf of a client that is no longer in existence; or (ii) if the cost of voting a proxy outweighs the benefits, e.g., certain international proxies, particularly in cases in which share blocking practices may impose trading restrictions on the relevant portfolio security. In such instances, the Proxy Administrator may instruct the Agent not to vote such proxy.
Reasonable efforts shall be made to secure and vote all other proxies for the clients, but, particularly in markets in which shareholders' rights are limited, Non-Votes may also occur in connection with a client's related inability to timely access ballots or other proxy information in connection with its portfolio securities.
Non-Votes may also result in certain cases in which the Agent's recommendation has been deemed to be conflicted, as provided for herein.
3. OUT-OF-GUIDELINES VOTES: Votes Contrary to the Guidelines, or Agent Recommendation, where applicable, Where No Recommendation is Provided by Agent, or Where Agent's Recommendation is Conflicted
If the Proxy Administrator recommends that a client vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, if the Agent has made no recommendation on a matter requiring case-by-case consideration and the Guidelines are silent, or the Agent's recommendation on a matter requiring case-by-case consideration is deemed to be conflicted, the Proxy Administrator will forward the Agent's analysis and recommendation and any research obtained from the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent as it deems necessary. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group. The Adviser will provide a report to the Boards of Trustees of the Eaton Vance Funds reflecting any votes cast contrary to the Guidelines or Agent Recommendation, as applicable, and shall do so no less than annually.
The Proxy Administrator will maintain a record of all proxy questions that have been referred by the Agent, all applicable recommendations, analysis and research received and any resolution of the matter.
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. Such proxy statements received from issuers are either in the SEC's EDGAR database or are kept by the Agent and are available upon request;
- 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 or their Agent for two years after they are created.
VI. ASSESSMENT OF AGENT AND IDENTIFICATION AND RESOLUTION OF CONFLICTS WITH CLIENTS
A. ASSESSMENT OF AGENT
The Advisers shall establish that the Agent (i) is independent from the Advisers, (ii) has resources that indicate it can competently provide analysis of proxy issues, and (iii) can make recommendations in an impartial manner and in the best interests of the clients and, where applicable, their beneficial owners. The Advisers shall utilize, and the Agent shall comply with, such methods for establishing the foregoing as the Advisers may deem reasonably appropriate and shall do so not less than annually as well as prior to engaging the services of any new proxy voting service. The Agent shall also notify the Advisers in writing within fifteen (15) calendar days of any material change to information previously provided to an Adviser in connection with establishing the Agent's independence, competence or impartiality.
B. CONFLICTS OF INTEREST
As fiduciaries to their clients, each Adviser puts the interests of its clients ahead of its own. In order to ensure that relevant personnel of the Advisers are able to identify potential material conflicts of interest, each Adviser will take the following steps:
- Quarterly, the Eaton Vance Legal and Compliance Department will seek information from the department heads of each department of the Advisers and of Eaton Vance Distributors, Inc. ("EVD") (an affiliate of the Advisers and principal underwriter of certain Eaton Vance Funds). Each department head will be asked to provide a list of significant clients or prospective clients of the Advisers or EVD.
- A representative of the Legal and Compliance Department will compile a list of the companies identified (the "Conflicted Companies") and provide that list to the Proxy Administrator.
- The Proxy Administrator will compare the list of Conflicted Companies with the names of companies for which he or she has been referred a proxy statement (the "Proxy Companies"). If a Conflicted Company is also a Proxy Company, the Proxy Administrator will report that fact to the Proxy Group.
- If the Proxy Administrator expects to instruct the Agent to vote the proxy of the Conflicted Company strictly according to the Guidelines contained in these Proxy Voting Policies and Procedures (the "Policies") or the recommendation of the Agent, as applicable, he or she will (i) inform the Proxy Group of that fact, (ii) instruct the Agent to vote the proxies and (iii) record the existence of the material conflict and the resolution of the matter.
- If the Proxy Administrator intends to instruct the Agent to vote in a manner inconsistent with the Guidelines contained herein or, the recommendation of the Agent, as applicable, the Proxy Group, in consultation with Eaton Vance senior management, will then determine if a material conflict of interest exists between the relevant Adviser and its clients. If the Proxy Group, in consultation with Eaton Vance senior management, determines that a material conflict exists, prior to instructing the Agent to vote any proxies relating to these Conflicted Companies the Adviser will seek instruction on how the proxy should be voted from:
- The client, in the case of an individual or corporate client;
- In the case of a Fund its board of directors, or any committee or sub- committee identified by the board; or
- The adviser, in situations where the Adviser acts as a sub-adviser to such adviser.
The Adviser will provide all reasonable assistance to each party to enable such party to make an informed decision.
If the client, Fund board or adviser, as the case may be, fails to instruct the Adviser on how to vote the proxy, the Adviser will generally instruct the Agent, through the Proxy Administrator, to abstain from voting in order to avoid the appearance of impropriety. If however, the failure of the Adviser to vote its clients' proxies would have a material adverse economic impact on the Advisers' clients' securities holdings in the Conflicted Company, the Adviser may instruct the Agent, through the Proxy Administrator, to vote such proxies in order to protect its clients' interests. In either case, the Proxy Administrator will record the existence of the material conflict and the resolution of the matter.
The Advisers shall also identify and address conflicts that may arise from time to time concerning the Agent. Upon the Advisers' request, which shall be not less than annually, and within fifteen (15) calendar days of any material change to such information previously provided to an Adviser, the Agent shall provide the Advisers with such information as the Advisers deem reasonable and appropriate for use in determining material relationships of the Agent that may pose a conflict of interest with respect to the Agent's proxy analysis or recommendations. Such information shall include, but is not limited to, a monthly report from the Agent detailing the Agent's Corporate Securities Division clients and related revenue data. The Advisers shall review such information on a monthly basis. The Proxy Administrator shall instruct the Agent to refer any proxies for which a material conflict of the Agent is deemed to be present to the Proxy Administrator. Any such proxy referred by the Agent shall be referred to the Proxy Group for consideration accompanied by the Agent's written analysis and voting recommendation. The Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Proxy Group.
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2007
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
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
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
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:
Report of Independent Registered Public Accounting Firm
Statement of Assets and Liabilities
Notes to Financial Statement
(2) EXHIBITS:
(a) (1) Agreement and Declaration of Trust dated April 4, 2007 is incorporated herein by reference to the Registrant's initial Registration Statement on Form N-2 (File Nos. 333-141981 and 811-22044) as to the Registrant's common shares of beneficial interest ("Common Shares") filed with the Securities and Exchange Commission on April 9, 2007 (Accession No. 0000898432-07-000310) ("Initial Common Shares Registration Statement").
(2) Amendment to Declaration of Trust dated April 9, 2007 filed herewith.
(b) (1) By-Laws are incorporated herein by reference to the Registrant's Initial Common Shares Registration Statement.
(2) Amendment to By-Laws dated April 9, 2007 filed herewith.
(c) Not applicable.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest filed herewith.
(e) Dividend Reinvestment Plan filed herewith.
(f) Not applicable.
(g) (1) Investment Advisory Agreement dated June 4, 2007 filed herewith.
(2) Sub-Advisory Agreement with Rampart Investment Management Company, Inc. dated June 4, 2007 filed herewith.
(h) (1) Form of Underwriting Agreement to be filed by amendment.
(2) Master Agreement Among Underwriters filed herewith.
(3) Master Selected Dealers 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 June 4, 2007 filed herewith.
(2) Extension Agreement dated August 31, 2005 to Master Custodian
Agreement with Investors Bank & Trust Company filed as Exhibit
(j)(2) to the Pre-Effective Amendment No. 2 of Eaton Vance
Tax-Managed Global Buy-Write Opportunities Fund (File Nos.
333-123961, 811-21745) filed with the Commission on September 26,
2005 (Accession No. 0000950135-05-005528) 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, 2001 (Accession No. 0000940394-01-500126) and incorporated herein by reference.
(k) (1) Transfer Agency and Services Agreement dated June 4, 2007 filed herewith.
(2) Administration Agreement dated June 4, 2007 filed herewith.
(3) Organizational and Expense Reimbursement Agreement dated June 4, 2007 filed herewith.
(4) Form of Structuring Fee Agreement with Citigroup Global Markets Inc. to be filed by amendment.
(5) Form of Structuring Fee Agreement with UBS Securities LLC to be filed by amendment.
(6) Form of Structuring Fee Agreement with Wachovia Capital Markets, LLC to be filed by amendment.
(7) Form of Structuring Fee Agreement with A.G. Edwards & Sons, Inc. to be filed by amendment.
(8) Form of Additional Compensation Agreement with Merrill Lynch, Pierce, Fenner & Smith to be filed by amendment.
(9) Form of Additional Compensation Agreement with certain qualifying underwriters to be filed by amendment.
(l) Opinion and Consent of Kirkpatrick & Lockhart Preston Gates Ellis 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 dated June 6, 2007 filed herewith.
(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, as modified February 1, 2005, filed as Exhibit (r)(2) to Pre-Effective Amendment No. 2 of Eaton Vance Tax- Managed Global Buy-Write Opportunities Fund (File Nos. 333-123961, 811-21745) filed September 26, 2005 (Accession No. 0000950135-05- 005528) and incorporated herein by reference.
(s) Power of Attorney dated April 23, 2007 filed herewith.
ITEM 26. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement to be filed by amendment.
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 $______________
|
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 June 20, 2007, 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 1 |
ITEM 30. INDEMNIFICATION
The Registrant's By-Laws filed in the Registrant's Initial Common Shares Registration Statement contain, and the Form of Underwriting Agreement to be filed by amendment is expected to contain, provisions limiting the liability, and providing for indemnification, of the Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment company errors and omissions insurance policy covering loss incurred by reason of negligent errors and omissions committed in their official capacities as such. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in this Item 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, American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, New York 10038, 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 Risk-Managed Diversified Equity Income 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.
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 20th day of June 2007.
EATON VANCE RISK-MANAGED DIVERSIFIED
EQUITY INCOME FUND
By: /s/ Alan R. Dynner
------------------------------------
Alan R. Dynner
Secretary
|
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 June 20, 2007 --------------------------- Officer Duncan W. Richardson /s/ Barbara E. Campbell* Treasurer (and Principal June 20, 2007 --------------------------- Financial and Barbara E. Campbell Accounting Officer) /s/ Thomas E. Faust Jr.* Trustee June 20, 2007 --------------------------- Thomas E. Faust Jr. /s/ James B. Hawkes Trustee June 20, 2007 --------------------------- James B. Hawkes /s/ Benjamin C. Esty* Trustee June 20, 2007 --------------------------- Benjamin C. Esty /s/ Allen R. Freedman* Trustee June 20, 2007 --------------------------- Allen R. Freedman /s/ Samuel L. Hayes, III* Trustee June 20, 2007 --------------------------- Samuel L. Hayes, III /s/ William H. Park* Trustee June 20, 2007 --------------------------- William H. Park |
/s/ Ronald A. Pearlman* Trustee June 20, 2007 --------------------------- Ronald A. Pearlman /s/ Norton H. Reamer* Trustee June 20, 2007 --------------------------- Norton H. Reamer /s/ Heidi L. Steiger* Trustee June 20, 2007 --------------------------- Heidi L. Steiger /s/ Lynn A. Stout* Trustee June 20, 2007 --------------------------- Lynn A. Stout /s/ Ralph F. Verni* Trustee June 20, 2007 --------------------------- Ralph F. Verni |
*By: /s/ Alan R. Dynner
----------------------
Alan R. Dynner
(As Attorney-in-Fact)
|
INDEX TO EXHIBITS
(a)(2) Amendment to Declaration of Trust dated April 9, 2007
(b)(2) Amendment to By-Laws dated April 9, 2007
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest
(e) Dividend Reinvestment Plan
(g)(1) Investment Advisory Agreement dated June 4, 2007
(g)(2) Sub-Advisory Agreement with Rampart Investment Management Company, Inc. dated June 4, 2007
(h)(2) Master Agreement Among Underwriters
(h)(3) Master Selected Dealers Agreement
(j)(1) Master Custodian Agreement with Investors Bank & Trust Company dated June 4, 2007
(k)(1) Transfer Agency and Services Agreement dated June 4, 2007
(k)(2) Administration Agreement dated June 4, 2007
(k)(3) Organizational and Expense Reimbursement Agreement dated June 4, 2007
(n) Consent of Independent Registered Public Accounting Firm
(p) Letter Agreement with Eaton Vance Management dated June 6, 2007
(s) Power of Attorney dated April 23, 2007.
EXHIBIT (a)(2)
EATON VANCE RISK-MANAGED EQUITY INCOME FUND
AMENDMENT TO DECLARATION OF TRUST
AMENDMENT, made, to the Agreement and Declaration of Trust made April 4, 2007 hereinafter called the "Declaration") of EATON VANCE RISK-MANAGED EQUITY INCOME FUND, a Massachusetts business trust (hereinafter called the "Trust"), by the undersigned being at least a majority of the Trustees of the Trust in office.
WHEREAS, Section 8.3 of Article VIII of the Declaration empowers the Trustees of the Trust to amend the Declaration without the vote or consent of Shareholders to change the name of the Trust;
WHEREAS, the Trustees of the Trust have deemed it desirable to amend the Declaration in the following manner to change the name of the Trust, and a majority of the Trustees are empowered to make, execute and file this Amendment to the Declaration;
NOW, THEREFORE, the undersigned Trustees do hereby amend the Declaration in the following manner:
1. The caption at the head of the Declaration is hereby amended to read as follows:
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
2. Article I Section 1.1 of the Declaration is hereby amended to read as follows:
ARTICLE I
Section 1.1. Name. The name of the trust created hereby is Eaton Vance Risk-Managed Diversified Equity Income Fund.
This amendment shall be effective upon execution by all of the Trustees.
IN WITNESS WHEREOF, the undersigned Trustees have executed this instrument in full this 9th day of April, 2007.
/s/ Alan R. Dynner /s/ Frederick S. Marius ------------------------------------- ---------------------------------------- Alan R. Dynner Frederick S. Marius |
EXHIBIT (b)(2)
AMENDMENT TO
BY-LAWS
OF
EATON VANCE RISK-MANAGED EQUITY INCOME FUND
April 9, 2007
Pursuant to ARTICLE XIII of the BY-LAWS of Eaton Vance Risk-Managed Equity Income Fund (the "Trust"), upon the unanimous written consent of the Trustees of the Trust, the BY-LAWS of the Trust are amended to reflect the change of name of the Trust to Eaton Vance Risk-Managed Diversified Equity Income Fund.
*******************
EXHIBIT (d)
SPECIMEN CERTIFICATE ONLY
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME 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 Risk-Managed Diversified Equity Income 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. 2007.
AMERICAN STOCK TRANSFER & TRUST EATON VANCE RISK-MANAGED DIVERSIFIED
COMPANY EQUITY INCOME FUND
As Transfer Agent and Registrar
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 RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
Holders of common shares (the "Shares") of Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund") who participate (the "Participants") in the Fund's Dividend Reinvestment Plan (the "Plan") are advised as follows:
1. THE PLAN AGENT. American Stock Transfer & Trust Company (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. CASH OPTION. The Fund will declare all distributions ("Distributions") payable in Shares, or, at the option of Shareholders, in cash. Therefore, each Participant not choosing cash distributions will receive Shares.
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 or shares sold. 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 to three decimal places. 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. Transaction processing may either be curtailed or suspended until completion of any Stock Dividend, Stock Split or Corporate Action.
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 922, Wall Street Station, New York, New York 10269-0560, or by telephone at 1-866-706-0514. 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. You may also process transactions online at www.amstock.com; you will need to know your AST ten (10) digit account number and your social security number to gain access to your account.
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 RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 4th day of June, 2007, between Eaton Vance Risk-Managed Diversified Equity Income 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 the second anniversary of the execution of this Agreement and shall continue in full force and effect indefinitely thereafter, but only so long as such continuance after such date 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 RISK-MANAGED DIVERSIFIED
EQUITY INCOME FUND
By: /s/ Duncan W. Richardson
------------------------------------
Duncan W. Richardson
President, and not Individually
|
EATON VANCE MANAGEMENT
By: /s/ Frederick S. Marius
------------------------------------
Frederick S. Marius
Vice President, and not Individually
|
EXHIBIT (g)(2)
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT effective the 4th day of June, 2007, 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 Risk-Managed Diversified Equity Income 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 June 4, 2007 (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 materially with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with materially 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 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 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 upon the date of its execution, 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 the second anniversary of the execution of this Agreement 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 Risk-Managed Diversified Equity Income 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 Company, 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 copartner 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
0.20% annually of the Trust's average net assets that are subject to a written put strategy on individual stocks as determined by the Adviser from time to time and 0.05% annually of the Trust's average net assets not subject to such written put strategy on individual stocks.
EXHIBIT (h)(2)
S[LOGO]
MASTER AGREEMENT AMONG UNDERWRITERS
REGISTERED SEC OFFERINGS
(INCLUDING MULTIPLE SYNDICATE OFFERINGS),
STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)
July 1, 1999
Ladies and Gentlemen:
From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH BARNEY") may invite you (and others) to participate on the terms set forth herein as an underwriter or an initial purchaser, or in a similar capacity, in connection with certain offerings of securities that are managed solely by us or with one or more other co-managers. If we invite you to participate in a specific offering and sale (an "OFFERING") to which this Master Agreement Among Underwriters (the "SALOMON SMITH BARNEY MASTER AAU") shall apply, we will send the information set forth below in Section 1.1 to you by one or more wires, telexes, facsimile or electronic data transmissions or other written communications (each a "WIRE" and collectively, an "AAU"). Each Wire will indicate that it is a Wire pursuant to the SALOMON SMITH BARNEY MASTER AAU. The Wire inviting you to participate in an Offering is referred to herein as the "INVITATION WIRE". You and we hereby agree that by the terms hereof the provisions of this SALOMON SMITH BARNEY MASTER AAU automatically shall be incorporated by reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE OR REVISE ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN SUCH ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.
I. GENERAL
1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU shall relate to an Offering and shall identify (i) the securities to be offered in the Offering (the "SECURITIES"), their principal terms, the issuer or issuers (each an "ISSUER") and any guarantor (each a "GUARANTOR") thereof and, if different from the Issuer, the seller or sellers (each a "SELLER") of the Securities, (ii) the underwriting agreement, purchase agreement, standby underwriting agreement, distribution agreement or similar agreement (as identified in such AAU and as amended or supplemented, including a terms agreement or pricing agreement pursuant to any of the foregoing, collectively, the "UNDERWRITING AGREEMENT") providing for the purchase, on a several and not joint basis, of the Securities by the several underwriters, initial purchasers or others acting in a similar capacity on whose behalf the Manager (as defined below) executes the Underwriting Agreement (including the Manager and the Co-Managers (as defined below), the "UNDERWRITERS"), (iii) if applicable, that the Underwriting Agreement includes an option (an "OVER-ALLOTMENT OPTION") to purchase Additional Securities (as defined
below) to cover over-allotments, if any, (iv) if applicable, that the Offering is part of an offering that includes concurrent offerings by two or more syndicates (an "INTERNATIONAL OFFERING"), each of which will offer and sell Securities subject to such restrictions as shall be specified in any Intersyndicate Agreement (as defined below) referred to in such AAU, (v) the price at which the Securities are to be purchased by the several Underwriters from any Issuer or Seller thereof (the "PURCHASE PRICE"), (vi) the offering terms, including, if applicable, the price or prices at which the Securities initially will be offered by the Underwriters (the "OFFERING PRICE"), any selling concession to dealers (the "SELLING CONCESSION"), reallowance (the "REALLOWANCE"), management fee, global coordinators' fee, praecipium or other similar fees, discounts or commissions (collectively, the "FEES AND COMMISSIONS") with respect to the Securities, (vii) the proposed pricing date ("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii) any contractual restrictions on the offer and sale of the Securities pursuant to the Underwriting Agreement, Intersyndicate Agreement or otherwise, (ix) any co-managers for such Offering (the "CO-MANAGERS"), (x) your proposed participation in the Offering, (xi) if applicable, the trustee, fiscal agent or similar agent (the "TRUSTEE") for the indenture, trust agreement, fiscal agency agreement or similar agreement (the "INDENTURE") under which such Securities will be issued and (xii) any other principal terms of the Offering.
The term "MANAGER" means SALOMON SMITH BARNEY. The term "UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM SECURITIES" means the number or amount of Securities that the several Underwriters are initially committed to purchase under the Underwriting Agreement (which may be expressed as a percentage of an aggregate number or amount of Securities to be purchased by the Underwriters as in the case of a standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means the Securities, if any, that the several Underwriters have an option to purchase under the Underwriting Agreement to cover over-allotments, if any. The number, amount or percentage of Firm Securities set forth opposite each Underwriter's name in the Underwriting Agreement plus any additional Firm Securities that such Underwriter has become obligated to purchase under the Underwriting Agreement or Article XI hereof is hereinafter referred to as the "ORIGINAL PURCHASE OBLIGATION" of such Underwriter and the ratio which such Original Purchase Obligation bears to the total of all Firm Securities set forth in the Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to 100%) is hereinafter referred to as the "UNDERWRITING PERCENTAGE" of such Underwriter.
References herein to statutory sections, rules, regulations, forms and interpretive materials shall be deemed to include any successor provisions.
1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an Offering if we receive your acceptance, prior to the time specified in the Invitation Wire for such Offering, by wire, telex, facsimile or electronic data transmission or other written communication (any such manner of communication being deemed "IN WRITING") (or orally, if promptly confirmed In Writing) in the manner specified in the Invitation Wire, of our invitation to participate in the Offering. If we receive your timely acceptance of the invitation to participate, such AAU shall constitute a valid and binding contract between us. Your acceptance of the Invitation Wire shall also constitute acceptance by you of
the terms of subsequent Wires to you relating to the Offering unless we receive In Writing, within the time and in the manner specified in such subsequent Wire, a notice from you to the effect that you do not accept the terms of such subsequent Wire, in which case you shall be deemed to have elected not to participate in the Offering.
1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the Invitation Wire shall confirm that you have no exceptions to the Underwriters' Questionnaire attached as Exhibit A hereto (or to any other questions addressed to you in any Wires relating to the Offering previously sent to you), other than exceptions noted by you In Writing in connection with the Offering and received from you by us before the time specified in the Invitation Wire or any subsequent Wire.
II. OFFERING MATERIALS
2.1. REGISTERED OFFERINGS. In the case of an Offering that will be registered in whole or in part (a "REGISTERED OFFERING") under the United States Securities Act of 1933, as amended (the "1933 ACT"), you understand that the Issuer has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement including a prospectus relating to the Securities. The term "REGISTRATION STATEMENT" means such registration statement as amended or deemed to be amended to the effective date of the Underwriting Agreement and, in the event that the Issuer files an abbreviated registration statement to register additional Securities pursuant to Rule 462(b) under the 1933 Act, such abbreviated registration statement. The term "PROSPECTUS" means the prospectus, together with the final prospectus supplement, if any, relating to the Offering first used to confirm sales of Securities and, in the case of a Registered Offering that is an International Offering, the term "PROSPECTUS" shall mean, collectively, each prospectus or offering circular, together with each final prospectus supplement or final offering circular supplement, if any, relating to the Offering, in the respective forms first used or made available for use to confirm sales of Securities. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus relating to the Offering or any preliminary prospectus supplement together with a prospectus relating to the Offering and, in the case of a Registered Offering that is an International Offering, the term "PRELIMINARY PROSPECTUS" shall mean, collectively, each preliminary prospectus or preliminary offering circular relating to the Offering or each preliminary prospectus supplement or preliminary offering circular supplement, together with a prospectus or offering circular, respectively, relating to the Offering. As used herein the terms "REGISTRATION STATEMENT", "PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall include in each case the material, if any, incorporated by reference therein. The Manager will furnish to you, or make arrangements for you to obtain, copies of each Prospectus and Preliminary Prospectus (but excluding for this purpose, unless otherwise required pursuant to regulations under the 1933 Act, documents incorporated therein by reference) as soon as practicable after sufficient quantities thereof have been made available by the Issuer.
2.2. UNREGISTERED OFFERINGS. In the case of an Offering other than a Registered Offering, you understand that no registration statement has been filed with the Commission. The term "OFFERING CIRCULAR" means an offering circular or
memorandum, if any, or any other written materials authorized by the Issuer to be used in connection with an Offering that is not a Registered Offering. The term "PRELIMINARY OFFERING CIRCULAR" means any preliminary offering circular or memorandum, if any, or any other written preliminary materials authorized by the Issuer to be used in connection with such an Offering. As used herein, the terms "OFFERING CIRCULAR" and "PRELIMINARY OFFERING CIRCULAR" shall include the material, if any, incorporated by reference therein. We will either, as soon as practicable after the later of the date of the Invitation Wire or the date made available to us by the Issuer, furnish to you (or make available for your review in our office) a copy of any Preliminary Offering Circular or any proof or draft of the Offering Circular. In any event, in any Offering involving an Offering Circular, the Manager will furnish to you, or make arrangements for you to obtain, as soon as practicable after sufficient quantities thereof are made available by the Issuer, copies of the final Offering Circular, as amended or supplemented, if applicable (but excluding for this purpose documents incorporated therein by reference).
III. MANAGER'S AUTHORITY
3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS, TERMS OF
OFFERING, ETC. You authorize the Manager to act as lead manager of the Offering
of the Securities by the Underwriters (the "UNDERWRITERS' SECURITIES") or by the
Issuer or Seller pursuant to delayed delivery contracts (the "CONTRACT
SECURITIES"), if any, contemplated by the Underwriting Agreement. You authorize
the Manager, on your behalf, (a) to determine the form of the Underwriting
Agreement, (b) to execute and deliver the Underwriting Agreement to the Issuer,
Guarantor or Seller, (c) to determine the form of any agreement or agreements
between or among the syndicates participating in the International Offering of
which the Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to
execute and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all the
Additional Securities for the accounts of the several Underwriters pursuant to
the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the
Co-Managers, to any addition to, change in or waiver of any provision of, or the
termination of, the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your Original Purchase
Obligation to purchase Securities, in either case from that contemplated by the
applicable AAU), (iii) to add or remove prospective Underwriters to or from the
syndicate, (iv) to exercise, in the Manager's discretion, all the authority
vested in the Manager in the Underwriting Agreement and (v) except as described
below in this Section 3.1, to take any other action as may seem advisable to the
Manager in respect of the Offering (including, without limitation, actions and
communications with the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), state blue sky or securities commissions, stock
exchanges and other regulatory bodies or organizations). If, in accordance with
the terms of the applicable AAU, the Offering of the Securities is at varying
prices based on prevailing market prices or prices related to prevailing market
prices or at negotiated prices, you authorize the Manager to determine, on your
behalf in the Manager's discretion, any Offering Price and the Fees and
Commissions applicable to the Offering from time to time. You authorize the
Manager on your behalf to arrange for any currency transactions (including
forward and hedging currency transactions) as
the Manager deems necessary to facilitate settlement of the purchase of the
Securities, but you do not authorize the Manager on your behalf to engage in any
other forward or hedging transactions in connection with the Offering unless
such transactions are specified in an applicable AAU or are otherwise consented
to by you. You further authorize the Manager, subject to the provisions of
Section 1.2 hereof, (i) to vary the offering terms of the Securities in effect
at any time, including, if applicable, the Offering Price and Fees and
Commissions set forth in the applicable AAU, (ii) to determine, on your behalf,
the Purchase Price and (iii) to increase or decrease the number, amount or
percentage of Securities being offered. Notwithstanding the foregoing provisions
of this Section 3.1, the Manager shall notify the Underwriters, prior to the
signing of the Underwriting Agreement, of any provision in the Underwriting
Agreement that could result in an increase in the amount or percentage of Firm
Securities set forth opposite each Underwriter's name in the Underwriting
Agreement by more than 25% (or such other percentage as shall have been
specified in the applicable Invitation Wire or otherwise consented to by you) as
a result of the failure or refusal of another Underwriter or Underwriters to
perform its or their obligations thereunder.
3.2. OFFERING DATE. The Offering is to be made as soon after the Underwriting Agreement is entered into by the Issuer, Guarantor or Seller and the Manager as in the Manager's judgment is advisable, on the terms and conditions set forth in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU. You agree not to sell any Securities prior to the time the Manager releases such Securities for sale to purchasers. The date on which such Securities are released for sale is referred to herein as the "OFFERING DATE".
3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public advertisement of the Offering shall be made by the Manager on behalf of the Underwriters on such date as the Manager shall determine. You agree not to advertise the Offering prior to the date of the Manager's advertisement thereof without the Manager's consent. If the offering is made in whole or in part in reliance on Rule 144A (or upon another exemption from registration), you agree not to engage in any general solicitation and to abide by any other restrictions in the AAU or the Underwriting Agreement in connection therewith relating to any advertising or publicity. Any advertisement you may make of the Offering after such date will be your own responsibility and at your own expense and risk. In addition to your agreement to comply with restrictions on the Offering pursuant to Sections 10.10 and 10.11 hereof, you also agree that you will not, in connection with the offer and sale of the Securities in the Offering, without the consent of the Manager, give to any prospective purchaser of the Securities or other person not in your employ any written information concerning the Offering, the Issuer, the Guarantor or the Seller, other than information contained in any Preliminary Prospectus, Prospectus, Preliminary Offering Circular or Offering Circular or in any computational materials ("COMPUTATIONAL MATERIALS") or other offering materials prepared by or with the consent of the Manager for use by the Underwriters in connection with the Offering and, in the case of a Registered Offering, filed with the Commission or the NASD, as applicable (the "SUPPLEMENTAL OFFERING MATERIALS"). You further agree to cease distribution of any COMPUTATIONAL MATERIALS on the Offering Date.
3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager to sell to institutions or retail purchasers such Securities purchased by you pursuant to the Underwriting Agreement as the Manager shall determine. The Selling Concession on any such sales shall be credited to the accounts of the Underwriters as the Manager shall determine.
3.5. SALES TO DEALERS. You authorize the Manager to sell to Dealers
(as defined below) such Securities purchased by you pursuant to the Underwriting
Agreement as the Manager shall determine. A "DEALER" shall be a person who is
(a) a broker or dealer (as defined in the By-Laws of the NASD) actually engaged
in the investment banking or securities business and (i) a member in good
standing of the NASD or (ii) a foreign bank, broker, dealer or other institution
not eligible for membership in the NASD that, in the case of either clause
(a)(i) or (a)(ii), makes the representations and agreements applicable to such
institutions contained in Section 10.6 hereof or (b) in the case of Offerings of
Securities that are exempt securities under Section 3(a)(12) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), and such other Securities as
from time to time may be sold by a "bank" (as defined in Section 3(a)(6) of the
1934 Act (a "BANK")), a Bank that is not a member of the NASD and that makes the
representations and agreements applicable to such institutions contained in
Section 10.6 hereof. If the price for any such sales by the Manager to Dealers
exceeds an amount equal to the Offering Price less the Selling Concession set
forth in the applicable AAU, the amount of such excess, if any, shall be
credited to the accounts of the Underwriters as the Manager shall determine.
3.6. DIRECT SALES. The Manager will advise you promptly, on the date of the Offering, as to the Securities purchased by you pursuant to the Underwriting Agreement that you shall retain for direct sale. At any time prior to the termination of the applicable AAU, any such Securities that are held by the Manager for sale but not sold, may, on your request and at the Manager's discretion, be released to you for direct sale, and Securities so released to you shall no longer be deemed held for sale by the Manager. You may allow, and Dealers may reallow, a discount on sales to Dealers in an amount not in excess of the Reallowance set forth in the applicable AAU. You may not purchase Securities from, or sell Securities to, any other Underwriter or Dealer at any discount or concession other than the Reallowance, except with the consent of the Manager.
3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to the
termination of the applicable AAU, on the request of the Manager, you shall
advise the Manager of the amount of Securities remaining unsold which were
retained by or released to you for direct sale and of the amount of Securities
and Other Securities (as defined below) purchased for your account remaining
unsold which were delivered to you pursuant to Article V hereof or pursuant to
any Intersyndicate Agreement, and, on the request of the Manager, you shall
release to the Manager any such Securities and Other Securities remaining unsold
(i) for sale by the Manager to institutions, Dealers or retail purchasers, (ii)
for sale by the Issuer or Seller pursuant to delayed delivery contracts or (iii)
if, in the Manager's opinion, such Securities or Other Securities are needed to
make delivery against sales made pursuant to Article V hereof or any
Intersyndicate Agreement.
3.8. INTERNATIONAL OFFERINGS. In the case of an International
Offering, you authorize the Manager (i) to make representations on your behalf
as set forth in any Intersyndicate Agreement or Underwriting Agreement and (ii)
to purchase or sell for your account pursuant to the Intersyndicate Agreement
(a) Securities, (b) any other securities of the same class and series, or any
securities into which the Securities may be converted or for which the
Securities may be exchanged or exercised and (c) any other securities designated
in the applicable AAU or applicable Intersyndicate Agreement (the securities
referred to in clauses (b) and (c) above being referred to collectively as the
"OTHER SECURITIES").
IV. DELAYED DELIVERY CONTRACTS
4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for sales of Contract Securities will be made only through the Manager acting either directly or through Dealers (including Underwriters acting as Dealers), and you authorize the Manager to act on your behalf in making such arrangements. The aggregate amount of Securities to be purchased by the several Underwriters shall be reduced by the respective amounts of Contract Securities attributed to such Underwriters as hereinafter provided. Subject to the provisions of Section 4.2, the aggregate amount of Contract Securities shall be attributed to the Underwriters as nearly as practicable in their respective Underwriting Percentages, except that, as determined by the Manager in its discretion, (i) Contract Securities directed and allocated by a purchaser to specific Underwriters shall be attributed to such Underwriters and (ii) Contract Securities for which arrangements have been made for sale through Dealers shall be attributed to each Underwriter approximately in the proportion that Securities of such Underwriter held by the Manager for sales to Dealers bear to all Securities so held. The fee with respect to Contract Securities payable to the Manager for the accounts of the Underwriters pursuant to the Underwriting Agreement shall be credited to the accounts of the respective Underwriters in proportion to the Contract Securities attributed to such Underwriters pursuant to the provisions of this Section 4.1, less, in the case of each Underwriter, the concession to Dealers on Contract Securities sold through Dealers and attributed to such Underwriter.
4.2. EXCESS SALES. If the amount of Contract Securities attributable to an Underwriter pursuant to Section 4.1 would exceed such Underwriter's Original Purchase Obligation reduced by the amount of Underwriters' Securities sold by or on behalf of such Underwriter, such excess shall not be attributed to such Underwriter, and such Underwriter shall be regarded as having acted only as a Dealer with respect to, and shall receive only the concession to Dealers on, such excess.
V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION
5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION. In order to facilitate the distribution and sale of the Securities, you authorize the Manager
to buy and sell Securities and any Other Securities, in addition to Securities sold pursuant to Article III hereof, in the open market or otherwise (including, without limitation, pursuant to any Intersyndicate Agreement), for long or short account, on such terms as it shall deem advisable, and to over-allot in arranging sales. Such purchases and sales and over-allotments shall be made for the accounts of the several Underwriters as nearly as practicable in their respective Underwriting Percentages or, in the case of an International Offering, such purchases and sales shall be for such accounts as set forth in the applicable Intersyndicate Agreement. Any securities which may have been purchased by the Manager for stabilizing purposes in connection with the Offering prior to the execution of the applicable AAU shall be treated as having been purchased pursuant to this Section 5.1 for the accounts of the several Underwriters or, in the case of an International Offering, for such accounts as are set forth in the applicable Intersyndicate Agreement. Your net commitment pursuant to the foregoing authorization shall not exceed at the close of business on any day an amount equal to 20% of your Underwriting Percentage of the aggregate initial Offering Price of the Firm Securities, it being understood that, in calculating such net commitment, the initial Offering Price shall be used with respect to the Securities so purchased or sold and, in the case of all Other Securities, shall be the purchase price thereof. Your net commitment for short account (i.e., "naked short") shall be calculated by assuming that all Securities that may be purchased upon exercise of any over-allotment option then exercisable are acquired (whether or not actually acquired) and, in the case of an International Offering, after giving effect to the purchase of any Securities or Other Securities that the Manager has agreed to purchase for your account pursuant to any applicable Intersyndicate Agreement. On demand you shall take up and pay for any Securities or Other Securities so purchased for your account and any Securities released to you pursuant to Section 3.7 hereof and you shall deliver to the Manager against payment any Securities or Other Securities so sold or over-allotted for your account or released to you. The Manager agrees to notify you if it engages in any stabilization transaction requiring reports to be filed pursuant to Rule 17a-2 under the 1934 Act and to notify you of the date of termination of stabilization. You agree not to stabilize or engage in any syndicate covering transaction (as defined in Rule 100 of Regulation M under the 1934 Act ("Regulation M")) in connection with the Offering without the prior consent of the Manager. You further agree to provide to Salomon Smith Barney any reports required of you pursuant to Rule 17a-2 not later than the date specified therein and you authorize Salomon Smith Barney to file on your behalf with the Commission any reports required by such Rule.
If the limitations of Rule 101 of Regulation M ("Rule 101") do not apply to you with respect to the Securities, Other Securities or other reference securities (as defined in Rule 100 of Regulation M) because they satisfy the exception for actively-traded securities in subsection (c)(1) of Rule 101 or the exception for Rule 144A securities in subsection (b)(10) of Rule 101, you agree that promptly upon notice from the Manager (or, if later, at the time stated in the notice) you will comply with Rule 101 as though such exception were not available but the other provisions of Rule 101 (as interpreted by the Commission and after giving effect to any applicable exemptions) did apply. If the securities in question are NASDAQ securities (as defined in Rule 100 of Regulation M) you may engage in passive market making in accordance with Rule 103 of Regulation M (except that the daily net purchase volume limitation will not apply and the maximum
displayed bid size shall be 5,000 shares excluding transactions effected in the SOES system) unless the notice from the Manager also states that passive market making is not permitted.
5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE MANAGER. If pursuant to the provisions of Section 5.1 and prior to the termination of the Manager's authority to cover any short position incurred under the applicable AAU or such other date as the Manager shall specify in a Wire, either (A) the Manager purchases or contracts to purchase for the account of any Underwriter in the open market or otherwise any Securities which were retained by, or released to, you for direct sale or any Securities sold pursuant to Section 3.4 for which you received a portion of the Selling Concession set forth in the applicable AAU, or any Securities which may have been issued on transfer or in exchange for such Securities, and which Securities were therefore not effectively placed for investment or (B) if the Manager has advised you by Wire that trading in the Securities will be reported to the Manager pursuant to the "Initial Public Offering Tracking System" of The Depository Trust Company ("DTC") and the Manager determines, based on notices from DTC, that your customers sold an amount of Securities during any day that exceeds the amount previously notified to you by Wire, then you authorize the Manager either to charge your account with an amount equal to such portion of the Selling Concession set forth in the applicable AAU received by you with respect to such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire or to require you to repurchase such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire, at a price equal to the total cost of such purchase, including transfer taxes, accrued interest, dividends and commissions, if any.
5.3. COMPLIANCE WITH REGULATION M. You represent that, at all times since you were invited to participate in the Offering, you have complied with the provisions of Regulation M applicable to such Offering, in each case as interpreted by the Commission and after giving effect to any applicable exemptions. If you have been notified in a Wire that the Underwriters may conduct passive market making in compliance with Rule 103 of Regulation M in connection with the Offering, you represent that, at all times since your receipt of such Wire, you have complied with the provisions of such Rule applicable to such Offering, as interpreted by the Commission and after giving effect to any applicable exemptions.
5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its discretion, at any time on, or from time to time prior to, the expiration of the conversion right of convertible securities identified in the applicable AAU in the case of securities called for redemption, or the expiration of rights to acquire securities in the case of rights offerings, for which, in either case, standby underwriting arrangements have been made: (i) to purchase convertible securities or rights to acquire Securities for your account, in the open market or otherwise, on such terms as the Manager determines and to convert convertible securities or exercise rights so purchased; and (ii) to offer and sell the underlying common stock or depositary shares for your account, in the open market or otherwise, for long or short account (for purposes of such commitment, such common stock or depositary shares being considered the equivalent of convertible securities or rights), on such terms consistent with the terms of the Offering set forth in
the Prospectus or Offering Circular as the Manager determines. On demand you shall take up and pay for any securities so purchased for your account or you shall deliver to the Manager against payment any securities so sold, as the case may be. During such period you may offer and sell the underlying common stock or depositary shares, but only at prices set by the Manager from time to time, and any such sales shall be subject to the Manager's right to sell to you the underlying common stock or depositary shares as above provided and to the Manager's right to reserve your Securities purchased, received or to be received upon conversion. You agree not to bid for, purchase, attempt to induce others to purchase, or sell, directly or indirectly, any convertible securities or rights or underlying common stock or depositary shares, provided, however, that no Underwriter shall be prohibited from (a) selling underlying common stock owned beneficially by such Underwriter on the day the convertible securities were first called for redemption, (b) converting convertible securities owned beneficially by such Underwriter on such date or selling underlying common stock issued upon conversion of convertible securities so owned, (c) exercising rights owned beneficially by such Underwriter on the record date for a rights offering or selling the underlying common stock or depositary shares issued upon exercise of rights so owned or (d) purchasing or selling convertible securities or rights or underlying common stock or depositary shares as a broker pursuant to unsolicited orders.
VI. PAYMENT AND SETTLEMENT
6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager on the date and at the place and time specified in the applicable AAU (or on such later date and at such place and time as may be specified by the Manager in a subsequent Wire) the funds specified in the applicable AAU, payable to the order of Salomon Smith Barney Inc., for (i) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of the Firm Securities to be purchased by you, (ii) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of such of the Firm Securities to be purchased by you as shall have been retained by or released to you for direct sale as contemplated by Section 3.6 hereof or (iii) the amount set forth or indicated in the applicable AAU, as the Manager shall advise. You shall make similar payment as the Manager may direct for Additional Securities, if any, to be purchased by you on the date specified by the Manager for such payment. The Manager will make payment to the Issuer or Seller against delivery to the Manager for your account of the Securities to be purchased by you, and the Manager will deliver to you the Securities paid for by you which shall have been retained by or released to you for direct sale. If the Manager determines that transactions in the Securities are to be settled through the facilities of DTC or other clearinghouse facility, payment for and delivery of Securities purchased by you shall be made through such facilities, if you are a member, or, if you are not a member, settlement shall be made through your ordinary correspondent who is a member.
VII. EXPENSES
7.1. MANAGEMENT FEE. You authorize the Manager to charge your account as compensation for the Manager's and Co-Managers' services in connection with the Offering, including the purchase from the Issuer or Seller of the Securities, as the case may be, and the management of the Offering, the amount, if any, set forth as the management fee, global coordinators fee, praecipium or other similar fee in the applicable AAU. Such amount shall be divided among the Manager and any Co-Managers named in the applicable AAU as they may determine.
7.2. GENERAL EXPENSES. You authorize the Manager to charge your account with your Underwriting Percentage of all expenses of a general nature incurred by the Manager and Co-Managers under the applicable AAU in connection with the Offering, including the negotiation and preparation thereof, or in connection with the purchase, carrying, marketing and sale of any securities under the applicable AAU and any Intersyndicate Agreement, including, without limitation, legal fees and expenses, transfer taxes, costs associated with approval of the Offering by the NASD and the costs of currency transactions (including forward and hedging currency transactions) entered into to facilitate settlement of the purchase of Securities permitted under Section 3.1 hereof.
VIII. MANAGEMENT OF SECURITIES AND FUNDS
8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to advance the Manager's own funds for your account, charging current interest rates, or to arrange loans for your account for the purpose of carrying out the provisions of the applicable AAU and any Intersyndicate Agreement and in connection therewith, to hold or pledge as security therefor all or any securities which the Manager may be holding for your account under the applicable AAU and any Intersyndicate Agreement, to execute and deliver any notes or other instruments evidencing such advances or loans and to give all instructions to the lenders with respect to any such loans and the proceeds thereof. The obligations of the Underwriters under loans arranged on their behalf shall be several in proportion to their respective Original Purchase Obligations and not joint. Any lender is authorized to accept the Manager's instructions as to the disposition of the proceeds of any such loans. In the event of any such advance or loan, repayment thereof shall, in the discretion of the Manager, be effected prior to making any remittance or delivery pursuant to Section 8.2, 8.3 or 9.2 hereof.
8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment received by the Manager for Securities sold for your account which have been paid for by you, the Manager will remit to you promptly an amount equal to the price paid by you for such Securities.
8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING PURPOSES. The Manager may deliver to you from time to time prior to the termination of the applicable AAU pursuant to Section 9.1 hereof against payment, for carrying purposes
only, any Securities or Other Securities purchased by you under the applicable AAU or any Intersyndicate Agreement which the Manager is holding for sale for your account but which are not sold and paid for. You shall redeliver to the Manager against payment any Securities or Other Securities delivered to you for carrying purposes at such times as the Manager may demand.
IX. TERMINATION; INDEMNIFICATION
9.1. TERMINATION. Each AAU shall terminate at the close of business on the later of the date on which the Underwriters pay the Issuer or Seller for the Securities and 45 full days after the applicable Offering Date, unless sooner terminated by the Manager. The Manager may in its discretion by notice to you prior to the termination of such AAU alter any of the terms or conditions of the Offering to the extent permitted by Articles III or IV hereof, or terminate or suspend the effectiveness of Article V hereof, or any part thereof. No termination or suspension pursuant to this paragraph shall affect the Manager's authority under Section 3.1 hereof to take actions in respect of the Offering or under Article V hereof to cover any short position incurred under such AAU or in connection with covering any such short position to require you to repurchase Securities as specified in Section 5.2 hereof.
9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS. Upon termination of each AAU or prior thereto at the Manager's discretion, the Manager shall deliver to you any Securities paid for by you pursuant to Section 6.1 hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5 hereof but not sold and paid for and any Securities or Other Securities that are held by the Manager for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the termination of such AAU, if the aggregate initial Offering Price of any such Securities and the aggregate purchase price of any Other Securities so held and not sold and paid for does not exceed an amount equal to 20% of the aggregate initial Offering Price of the Securities, the Manager may, in its discretion, sell such Securities and Other Securities for the accounts of the several Underwriters, at such prices, on such terms, at such times and in such manner as it may determine. Within the period specified by applicable NASD Rules or, if no period is so specified, as soon as practicable after termination of such AAU, your account shall be settled and paid. The Manager may reserve from distribution such amount as the Manager deems advisable to cover possible additional expenses. The determination by the Manager of the amount so to be paid to or by you shall be final and conclusive. Any of your funds in the Manager's hands may be held with the Manager's general funds without accountability for interest
Notwithstanding any provision of this Master AAU other than Section 10.12, upon termination of each AAU or prior thereto at the Manager's discretion, the Manager (i) may allocate to the accounts of the Underwriters the expenses described in Section 7.2 hereof and any losses incurred upon the sale of Securities or Other Securities pursuant to the applicable AAU or any Intersyndicate Agreement (including any losses incurred upon the sale of securities referred to in Section 5.4(ii) hereof), (ii) may deliver to the Underwriters any unsold Securities or Other Securities purchased
pursuant to Section 5.1 hereof or any Intersyndicate Agreement and (iii) may deliver to the Underwriters any unsold Securities purchased pursuant to the applicable Underwriting Agreement, in each case in the Manager's discretion. The Manager shall have full discretion to allocate expenses and Securities to the accounts of any Underwriter as the Manager decides, except that (a) no Underwriter (other than the Manager or a Co-Manager) shall bear more than its share of such expenses, losses or Securities (such share shall not exceed such Underwriter's Underwriting Percentage and shall be determined pro rata among all such Underwriters based on their Underwriting Percentages), (b) no such Underwriter shall receive Securities that, together with any Securities purchased by such Underwriter pursuant to Section 6.1 (but excluding any Securities that such Underwriter is required to repurchase pursuant to Section 5.2) exceed such Underwriter's Original Purchase Obligation and (c) no Co-Manager shall bear more than its share, as among the Manager and the other Co-Managers, of such expenses, losses or Securities (such share to be determined pro rata among the Manager and all Co-Managers based on (1) their relative Underwriting Percentages as a percentage of the total combined Underwriting Percentages of the Manager and all Co-Managers, or (2) if the Manager so determines, their relative Offering Economics (as hereinafter defined) as a percentage of the combined Offering Economics of the Manager and all Co-Managers together. The Manager's or a Co-Manager's "OFFERING ECONOMICS" equals the sum of its Management Fee Share, its Underwriting Fee Share and its Selling Concession Share (each as hereinafter defined). The Manager's or a Co-Manager's "MANAGEMENT FEE SHARE" is the dollar amount of its share, as agreed among the Manager and any Co-Managers, of the amount payable by all Underwriters to some or all of the Manager and any Co-Manager as a global coordinators' fee, praecipium, management fee or other fee. The Manager's or a Co-Manager's "UNDERWRITING FEE SHARE" is the dollar amount of its Underwriting Percentage of the aggregate initial Offering Price of the Firm Securities less the Purchase Price thereof, less the Selling Concession thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the dollar amount of any Selling Concession credited to it on sales from the institutional pot or on sales made for the account of any other Underwriter. If any Securities or Other Securities returned to you pursuant to clause (ii) or (iii) above were not paid for by you pursuant to Section 6.1 hereof, you shall pay to the Manager an amount per security equal to the amount set forth in Section 6.1(i), in the case of Securities returned to you pursuant to clause (iii) above, or the purchase price of such securities, in the case of Securities or Other Securities returned to you pursuant to clause (ii) above.
9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement on the termination of the applicable AAU, you agree to pay any transfer taxes which may be assessed and paid after such settlement on account of any sales or transfers under such AAU or any Intersyndicate Agreement for your account and your Underwriting Percentage of (i) all expenses incurred by the Manager in investigating, preparing to defend or defending against any action, claim or proceeding which is asserted or instituted by any party (including any governmental or regulatory body) relating to (a) the Registration Statement, any Preliminary Prospectus or Prospectus (or any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (or any amendment or supplement thereto) or Supplemental Offering Materials, (b) the violation of any applicable restrictions on the offer, sale, resale or purchase of Securities or Other
Securities imposed by United States Federal or state laws or foreign laws and
the rules and regulations of any regulatory body promulgated thereunder or
pursuant to the terms of such AAU, the Underwriting Agreement or any
Intersyndicate Agreement or (c) any claim that the Underwriters constitute a
partnership, an association or an unincorporated business or other separate
entity and (ii) any liability, including attorneys' fees, incurred by the
Manager in respect of any such action, claim or proceeding, whether such
liability shall be the result of a judgment or arbitrator's determination or as
a result of any settlement agreed to by the Manager, other than any such expense
or liability as to which the Manager actually receives indemnity pursuant to
Section 9.4, contribution pursuant to Section 9.5, indemnity or contribution
pursuant to the Underwriting Agreement or damages from an Underwriter for breach
of its representations, warranties, agreements, or covenants contained in the
applicable AAU. None of the foregoing provisions of this Section 9.3 shall
relieve any defaulting or breaching Underwriter from liability for its defaults
or breach.
9.4. INDEMNIFICATION. You agree to indemnify and hold harmless each other Underwriter and each person, if any, who controls any such Underwriter within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the extent and upon the terms which you agree to indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any person controlling the Issuer, the Guarantor, the Seller, its directors and, in the case of a Registered Offering, its officers who signed the Registration Statement and, in the case of an Offering other than a Registered Offering, its officers, in each case as set forth in the Underwriting Agreement. You further agree to indemnify and hold harmless any investment banking firm identified in a Wire as the qualified independent underwriter as defined in Rule 2720 of the NASD's Conduct Rules ("QIU") for an Offering and each person, if any, who controls such QIU within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all losses, claims, damages and liabilities related to, arising out of or in connection with such investment banking firm's activities as QIU for the Offering. You agree with the other Underwriters to reimburse such QIU for all expenses, including fees and expenses of counsel as they are incurred, in connection with investigating, preparing for, or defending any action, claim or proceeding related to, arising out of, or in connection with such QIU's activities as a QIU for the Offering. Each Underwriter shall be responsible for its Underwriting Percentage of any amount due to such QIU on account of the foregoing indemnity. You agree that such QIU shall have no additional liability to any Underwriter or otherwise as a result of its serving as QIU in connection with the Offering. You further agree that to the extent the indemnification provided to a QIU under this Section 9.4 is unavailable to such QIU or insufficient in respect of any losses, claims, damages or liabilities (and expenses relating thereto), whether as a matter of law or public policy or as a result of the default of any Underwriter in performing its obligations under this Section 9.4, you and each other Underwriter shall contribute to the amount paid or payable by such QIU as a result of such losses, claims, damages or liabilities (and expenses relating thereto) in proportion to your Underwriting Percentage.
9.5. CONTRIBUTION. Notwithstanding any settlement on the termination of the applicable AAU, you agree to pay upon request of the Manager, as contribution, your Underwriting Percentage of any losses, claims, damages or liabilities, joint or
several, paid or incurred by any Underwriter to any person other than an Underwriter, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus or Prospectus (or any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (or any amendment or supplement thereto) or Supplemental Offering Materials 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 (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter on whose behalf the request for contribution is being made expressly for use therein) and your Underwriting Percentage of any legal or other expenses reasonably incurred by the Underwriter (with the approval of the Manager) on whose behalf the request for contribution is being made in connection with investigating or defending any such loss, claim, damage or liability or any action in respect thereof; provided that no request shall be made on behalf of any Underwriter guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any Underwriter who was not guilty of such fraudulent misrepresentation. None of the foregoing provisions of this Section 9.5 shall relieve any defaulting or breaching Underwriter from liability for its defaults or breach.
9.6. SEPARATE COUNSEL. If any claim is asserted or action or proceeding commenced pursuant to which the indemnity provided in Section 9.4 may apply, the Manager may take such action in connection therewith as it deems necessary or desirable, including retention of counsel for the Underwriters, and in its discretion separate counsel for any particular Underwriter or group of Underwriters, and the fees and disbursements of any counsel so retained shall be allocated among the several Underwriters as determined by the Manager. Any Underwriter may elect to retain at its own expense its own counsel and, on advice of such counsel but only with the consent of the Manager, may settle or consent to the settlement of any such claim, action or proceeding. The Manager may settle or consent to the settlement of any such claim, action or proceeding. Whenever the Manager receives notice of the assertion of any claim, action or proceeding to which the provisions of Section 9.4 would apply, it will give prompt notice thereof to each Underwriter, and whenever you receive notice of the assertion of any claim or commencement of any action or proceeding to which the provisions of Section 9.4 would apply, you will give prompt notice thereof to the Manager. The Manager also will furnish each Underwriter with periodic reports, at such times as it deems appropriate, as to the status of such claim, action or proceeding, and the action taken by it in connection therewith.
9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5, 9.6 and 11.2 shall remain operative and in full force and effect regardless of (i) any termination of the Underwriting Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Issuer, the Guarantor, the Seller, its directors or officers or any person controlling the Issuer, the Guarantor or the Seller and (iii) acceptance of any payment for any Securities.
X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS
10.1. KNOWLEDGE OF OFFERING. You understand that it is your responsibility to examine the Registration Statement, the Prospectus or the Offering Circular, as the case may be, relating to the Offering, any amendment or supplement thereto, any Preliminary Prospectus or Preliminary Offering Circular and the material, if any, incorporated by reference therein and any Supplemental Offering Materials and you will familiarize yourself with the terms of the Securities, any applicable Indenture and the other terms of the Offering thereof which are to be reflected in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU and Underwriting Agreement. The Manager is authorized, with the advice of counsel for the Underwriters, to approve on your behalf any amendments or supplements to the Registration Statement and the Prospectus or the Offering Circular, as the case may be.
10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate record of the names and addresses of all persons to whom you give copies of the Registration Statement, the Prospectus, any Preliminary Prospectus (or any amendment or supplement thereto) or any Offering Circular or any Preliminary Offering Circular and, when furnished with any subsequent amendment to the Registration Statement, any subsequent Prospectus, any subsequent Offering Circular or any memorandum outlining changes in the Registration Statement or any Prospectus or Offering Circular, you will, upon request of the Manager, promptly forward copies thereof to such persons.
10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that the information that you have given or are deemed to have given in response to the Underwriters' Questionnaire attached as Exhibit A hereto (and to any other questions addressed to you in the Invitation Wire or other Wires), which information has been furnished to the Issuer for use in the Registration Statement and the Prospectus or the Offering Circular, as the case may be, or has otherwise been relied upon in connection with the Offering, is complete and accurate. You shall notify the Manager immediately of any development before the termination of the applicable AAU which makes untrue or incomplete any information that you have given or are deemed to have given in response to the Underwriters' Questionnaire (or such other questions).
10.4. NAME; ADDRESS. Unless you have promptly notified the Manager in writing otherwise, your name as it should appear in the Prospectus or the Offering Circular and any advertisement, if different, and your address are as set forth on the signature pages hereof.
10.5. CAPITAL REQUIREMENTS. You represent that your commitment to purchase the Securities will not result in a violation of the financial responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar provision of any applicable rules of any securities exchange to which you are subject or, if you are a financial institution subject to regulation by the Board of Governors of the United States Federal Reserve System, the United States Comptroller of the Currency or the United States Federal Deposit Insurance Corporation, will not place you in violation of any applicable capital requirements or restrictions of such regulator or any other regulator to which you are subject.
10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that you are a
member in good standing of the NASD, a Bank that is not a member of the NASD or
a foreign bank or dealer not eligible for membership in the NASD. In making
sales of Securities, if you are such a member, you agree to comply with all
applicable interpretive material ("IM") and rules of the NASD, including,
without limitation, IM-2110-1 (the NASD's interpretation with respect to
free-riding and withholding) and Rule 2740 of the NASD's Conduct Rules, or, if
you are such a foreign bank or dealer, you agree to comply, as applicable, with
IM-2110-1 and Rules 2730, 2740 and 2750 of the NASD's Conduct Rules as though
you were such a member and Rule 2420 of the NASD's Conduct Rules as it applies
to a nonmember broker or dealer in a foreign country. If you are a Bank, you
agree, to the extent required by applicable law or the Conduct Rules of the
NASD, that you will not, in connection with the public offering of any
Securities that do not constitute "exempted securities" within the meaning of
Section 3(a)(12) of the 1934 Act or such other Securities as from time to time
may be sold by a Bank, purchase any Securities at a discount from the Offering
Price from any Underwriter or dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, and you agree to comply, as
applicable, with Rule 2420 of the NASD's Conduct Rules as though you were a
member.
10.7. FURTHER STATE NOTICE. The Manager will file a Further State Notice with the Department of State of New York, if required.
10.8. COMPLIANCE WITH RULE 15C2-8. In the case of a Registered Offering and any other Offering to which the provisions of Rule 15c2-8 under the 1934 Act are made applicable pursuant to the AAU or otherwise, you agree to comply with such Rule in connection with the Offering. In the case of an Offering other than a Registered Offering, you agree to comply with applicable Federal and state laws and the applicable rules and regulations of any regulatory body promulgated thereunder governing the use and distribution of offering circulars by underwriters.
10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered Offering of Securities issued by an Issuer that was not, immediately prior to the filing of the Registration Statement, subject to the requirements of Section 13(d) or 15(d) of the 1934 Act, you agree that you will not make sales to any account over which you exercise discretionary authority in connection with such sale except as otherwise permitted by the applicable AAU for such Offering.
10.10. OFFERING RESTRICTIONS. If you are a foreign bank or dealer and you are not registered as a broker-dealer under Section 15 of the 1934 Act, you agree that while you are acting as an Underwriter in respect of the Securities and in any event during the term of the applicable AAU, you will not directly or indirectly effect in, or with persons who are nationals or residents of, the United States, its territories or possessions any transactions (except for the purchases provided for in the Underwriting Agreement and transactions contemplated by Articles III and V hereof) in Securities or any Other Securities.
It is understood that, except as specified in the applicable AAU, no action
has been taken by the Manager, the Issuer, the Guarantor or the Seller to permit you to offer Securities in any jurisdiction other than the United States, in the case of a Registered Offering, where action would be required for such purpose.
10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree to make to each other Underwriter participating in an Offering the same representations, warranties and agreements, if any, made by the Underwriters to the Issuer, the Guarantor or the Seller in the applicable Underwriting Agreement or any Intersyndicate Agreement and you authorize the Manager to make such representations, warranties and agreements to the Issuer, the Guarantor or the Seller on your behalf.
10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS. Notwithstanding any provision of this AAU authorizing the Manager to purchase or sell any Securities or Other Securities (including arranging for the sale of Contract Securities) or over-allot in arranging sales of Securities for the accounts of the several Underwriters, the Manager may not, in connection with the Offering of any Securities, make any such purchases, sales and/or over-allotments for the account of any Underwriter that, not later than its acceptance of the Invitation Wire relating to such Offering, has advised the Manager that, due to its status as, or relationship to, a bank or bank holding company such purchases, sales and/or over-allotments are prohibited by applicable law. If any Underwriter so advises the Manager, the Manager may allocate any such purchases, sales and over-allotments (and the related expenses) which otherwise would have been allocated to your account based on your respective Underwriting Percentage to your account based on the ratio of your Original Purchase Obligation to the Original Purchase Obligations of all Underwriters other than the advising Underwriter or Underwriters or in such other manner as the Manager shall determine.
XI. DEFAULTING UNDERWRITERS
11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is terminated as permitted by the terms thereof, your obligations hereunder with respect to the Offering of the Securities shall immediately terminate except (i) as set forth in Section 9.7, (ii) that you shall remain liable for your Underwriting Percentage (or such other percentage as may be specified pursuant to Section 9.2) of all expenses and for any purchases or sales which may have been made for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement and (iii) that such termination shall not affect any obligations of any defaulting or breaching Underwriter.
11.2. SHARING OF LIABILITY. If any Underwriter shall default in its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay amounts charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii) pursuant to Section 9.2, 9.3, 9.4, 9.5, 9.6 or 11.1, you will assume your proportionate share (determined on the basis of the respective Underwriting Percentages of the non-defaulting Underwriters) of such obligations, but no such assumption shall relieve any defaulting Underwriter from liability to the non-defaulting Underwriters, the Issuer, the Guarantor or the Seller for its default.
11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to arrange for the purchase by others (including the Manager or any other Underwriter) of any Securities not purchased by any defaulting Underwriter in accordance with the terms of the applicable Underwriting Agreement or, if the applicable Underwriting Agreement does not provide arrangements for defaulting Underwriters, in the discretion of the Manager. If such arrangements are made, the respective amounts of Securities to be purchased by the remaining Underwriters and such other person or persons, if any, shall be taken as the basis for all rights and obligations hereunder, but this shall not relieve any defaulting Underwriter from liability for its default.
XII. MISCELLANEOUS
12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon Smith Barney Master AAU or any AAU constitutes you partners with the Manager or with the other Underwriters and the obligations of you and each of the other Underwriters are several and not joint. Each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the United States Internal Revenue Code of 1986, as amended. Each Underwriter authorizes the Manager, on behalf of such Underwriter, to execute such evidence of such election as may be required by the United States Internal Revenue Service.
12.2. LIABILITY OF MANAGER. The Manager shall be under no liability to you for any act or omission except for obligations expressly assumed by the Manager in the applicable AAU.
12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This SALOMON
SMITH BARNEY Master AAU may be terminated by either party hereto upon five
business days' written notice to the other party; provided that with respect to
any Offering for which an AAU was sent prior to such notice, this Salomon Smith
Barney Master AAU as it applies to such Offering shall remain in full force and
effect and shall terminate with respect to such Offering in accordance with
Section 9.1 hereof.
12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be amended from time to time by consent of the parties hereto. Your consent shall be deemed to have been given to an amendment to this Salomon Smith Barney Master AAU, and such amendment shall be effective, five business days following written notice to you of such amendment if you do not notify Salomon Smith Barney in writing prior to the close of business on such fifth business day that you do not consent to such amendment. Upon effectiveness, the provisions of this Salomon Smith Barney Master AAU as so amended shall apply to each AAU thereafter entered into except as
otherwise specifically provided in any such AAU.
12.6. NOTICES. Any notice to any Underwriter shall be deemed to have been duly given if mailed, sent by wire, telex, facsimile or electronic transmission or other written communication or delivered in person to such Underwriter at the address which shall have been provided to Salomon Smith Barney as provided in Section 10.4 hereof. Any such notice shall take effect upon receipt thereof.
Please confirm your acceptance of this Salomon Smith Barney Master AAU by signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
(If person signing is not an
officer or a partner, please attach
instrument of authorization)
EXHIBIT A
JUNE 1, 1999
SALOMON SMITH BARNEY INC.
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering covered by the Salomon Smith Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we confirm that except as set forth in a timely reply by us to the Invitation Wire:
(1) Neither we nor any of our directors, officers or partners have a material relationship (as "material" is defined in Regulation C under the 1933 Act) with the Issuer, the Guarantor or any Seller.
(2) (If the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 of Form F-1:) Neither we nor any "group" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of which we are a member is the beneficial owner (determined in accordance with Rule 13d-3 under the Exchange Act) of more than 5% of any class of voting securities of the Issuer or the Guarantor, nor do we have any knowledge that more than 5% of any class of voting securities of the Issuer or the Guarantor is held or to be held subject to any voting trust or other similar agreement.
(3) Other than as may be stated in the Salomon Smith Barney Master Agreement Among Underwriters dated June 1, 1999, the applicable AAU, the Intersyndicate Agreement or dealer agreement, if any, the Prospectus, the Registration Statement or the Offering Circular, we do not know and have no reason to believe that there is an intention to over-allot or that the price of any security may be stabilized to facilitate the offering of the Securities.
(4) Except as described in the Prospectus or Offering Circular, as the case may, be and the Invitation Wire, we do not know of any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts or other consideration to be received by any dealer in connection with the sale of the securities.
(5) We have not prepared any report or memorandum for external use in connection with the Offering. (If there are any exceptions, (i) furnish four (4) copies of each report and memorandum to Salomon Smith Barney Inc., 388 Greenwich Street, New York, N.Y. 10013, Attention: Investment Banking Department/Transaction Structuring Group, (ii) identify each class of person who received such material and the number of copies distributed to each such class, and (iii) indicate when such distribution commenced and ceased.)
(6) (If the offer and sale of the Securities are to be registered
under the 1933 Act pursuant to a Registration Statement on Form S-1 or Form
F-1:) We have not within the past twelve months prepared or had prepared
for us any engineering, management or similar report or memorandum relating
to broad aspects of the business, operations or products of the Issuer or
the Guarantor. (The immediately preceding sentence does not apply to
reports solely comprised of recommendations to buy, sell or hold the
Issuer's or the Guarantor's securities, unless such recommendations have
changed within the past six months or to information already contained in
documents filed with the Commission. If there are any exceptions, (i)
furnish four (4) copies of each report and memorandum to Salomon Smith
Barney Inc. 388 Greenwich Street, New York, N.Y. 10013, Attention:
Investment Banking Department/Transaction Structuring Group, (ii) identify
each class of persons who received such material and the number of copies
distributed to each such class, and (iii) indicate when such distribution
commenced and ceased.)
(7) We are not an "affiliate" of the Issuer or the Guarantor for purposes of Rule 2720 of the National Association of Securities Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule 2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities are "affiliates" of each other if one entity controls, is controlled by, or is under common control with, the second entity and that "control" is presumed to exist if one entity (or, in the case of an NASD member, the entity and all "persons associated with" it (as defined in the NASD By-Laws)) beneficially owns 10% or more of the second entity's outstanding voting securities or, if the second entity is a partnership, if the first entity has a partnership interest in 10% or more of the second entity's distributable profits or losses.
(8) (If the Securities are not investment grade debt securities or preferred stock, or equity securities for which there exists a "bona fide independent market" (as defined in Rule 2720(b)(3) of the NASD's Conduct Rules) or otherwise exempted under Rule 2720(b)(7)(D) of the NASD's Conduct Rules:) We do not have a "conflict of interest" with the Issuer or the Guarantor under Rule 2720 of the NASD's Conduct Rules. In that regard, we specifically confirm that we, our "parent" (as defined in Rule 2720), affiliates and "persons associated with" us (as defined in the NASD By-Laws), in the aggregate do not (i) beneficially own 10% or more of the Issuer's or the Guarantor's "common equity", "preferred equity", or "subordinated debt" (as each such term is defined in Rule 2720), or (ii) in the case of an Issuer or Guarantor which is a partnership, beneficially own a general, limited or special partnership interest in 10% or more of
the Issuer's or Guarantor's distributable profits or losses.
(9) (If filing with the NASD is required:) Neither we nor any of our directors, officers, partners or "persons associated with" us (as defined in the NASD By-Laws) nor, to our knowledge, any "related person" (defined by the NASD to include counsel, financial consultants and advisors, finders, members of the selling or distribution group, any NASD member participating in the offering and any other persons associated with or related to and members of the immediate family of any of the foregoing) or any other broker-dealer, (a) within the last 12 months have purchased in private transactions, or intend before, at or within six months after the commencement of the public offering of the Securities to purchase in private transactions, any securities of the Issuer, the Guarantor or any Issuer Related Party (as hereinafter defined), (b) within the last 12 months had any dealings with the Issuer, the Guarantor, any Seller or any subsidiary or controlling person thereof (other than relating to the proposed Underwriting Agreement) as to which documents or information are required to be filed with the NASD pursuant to its Corporate Financing Rule, or (c) during the 12 months immediately preceding the filing of the Registration Statement (or, if there is none, the Offering Circular), have entered into any arrangement which provided or provides for the receipt of any item of value (including, but not limited to, cash payments and expense reimbursements) and/or the transfer of any warrants, options or other securities from the Issuer, the Guarantor or any Issuer Related Party to us or any related person.
(10) (If filing with the NASD is required:) There is no association or affiliation between us and (i) any officer or director of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any securityholder of five percent or more (or, in the case of an initial public offering of equity securities, any securityholder) of any class of securities of the Issuer, the Guarantor or an Issuer Related Party; it being understood that for purposes of paragraph (9) above and this paragraph (10), the term "Issuer Related Party" includes any Seller, any affiliate of the Issuer the Guarantor or a Seller and the officers or general partners, directors, employees and securityholders thereof. (If there are any exceptions, state the identity of the person with whom the association or affiliation exists and, if relevant, the number of equity securities or the face value of debt securities owned by such person, the date such securities were acquired and the price paid for such securities).
(11) (If the Securities are not issued by a real estate investment trust:) No portion of the net offering proceeds from the sale of the Securities will be paid to us or any of our affiliates or "persons associated with" us (as defined in the NASD By-Laws) or members of the immediate family of any such person.
(12) (If the Securities are debt securities and their offer and sale is to be registered under the 1933 Act:) We are not an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the Trustee for the Securities or of its parent, if any. Neither the Trustee nor its parent, if any, nor any of their directors or executive officers is a "director, officer, partner, employee, appointee or
representative" of ours (as those terms are defined in the Trust Indenture Act of 1939 or in the relevant instructions to Form T-1). We and our directors, partners, and executive officers, taken as a group, did not on the date specified in the Invitation Wire, and do not, own beneficially 1% or more of the shares of any class of voting securities of the Trustee or of its parent, if any. If we are a corporation, we do not have outstanding and have not assumed or guaranteed any securities issued otherwise than in our present corporate name.
(13) (If the Issuer is a public utility:) We are not a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" or of a "public-utility company", each as defined in the Public Utility Holding Company Act of 1935.
(14) If we are, or we are affiliated with, a U.S. or non-U.S. bank, we hereby represent that our participation in the offering of the Securities on the terms contemplated in the applicable AAU and the proposed Underwriting Agreement does not contravene any U.S. or state banking law restricting the exercise of securities powers in the United States.
Capitalized terms used but not defined herein shall have the respective meanings given to them in the applicable AAU.
EXHIBIT (h)(3)
S[LOGO]
MASTER SELECTED DEALER AGREEMENT
July 1, 1999
Ladies and Gentlemen:
In connection with registered public offerings of securities for which we are acting as manager or co-manager of an underwriting syndicate or unregistered offerings of securities for which we are acting as manager or co-manager of the initial purchasers, you may be offered the right as a selected dealer to purchase as principal a portion of such securities. This will confirm our mutual agreement as to the general terms and conditions applicable to your participation in any such selected dealer group.
1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this Agreement shall be applicable to any offering of securities ("Securities"), whether pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), or exempt from registration thereunder, in respect of which Salomon Smith Barney Inc. (acting for its own account or for the account of any underwriting or similar group or syndicate) is responsible for managing or otherwise implementing the sale of the Securities to selected dealers ("Selected Dealers") and has expressly informed you that such terms and conditions shall be applicable. Any such offering of Securities to you as a Selected Dealer is hereinafter called an "Offering". In the case of any Offering where we are acting for the account of any underwriting or similar group or syndicate ("Underwriters"), the terms and conditions of this Agreement shall be for the benefit of, and binding upon, such Underwriters, including, in the case of any Offering where we are acting with others as representatives of Underwriters, such other representatives.
2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will be
subject to delivery of the Securities and their acceptance by us and any other
Underwriters, may be subject to the approval of all legal matters by counsel and
the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. We will advise
you by telecopy, telex or other form of written communication ("Written
Communication", which term, in the case of any Offering described in Section
3(a) or 3(b) hereof, may include a prospectus or offering circular) of the
particular method and supplementary terms and conditions (including, without
limitation, the information as to prices and the offering date referred to in
Section 3(c) hereof) of any Offering in which you are invited to participate. To
the extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision.
Unless otherwise indicated in any such Written Communication, acceptances and
other communications
by you with respect to an Offering should be sent to the appropriate Syndicate Department of Salomon Smith Barney Inc. We may close the subscription books at any time in our sole discretion without notice, and we reserve the right to reject any acceptance in whole or in part.
Unless notified otherwise by us, Securities purchased by you shall be paid for on such date as we shall determine, on one day's prior notice to you, by wire transfer payable in immediately available funds to the order of Salomon Smith Barney Inc., in an amount equal to the Public Offering Price (as hereinafter defined) or, if we shall so advise you, at such Public Offering Price less the Concession (as hereinafter defined). If Securities are purchased and paid for at such Public Offering Price, such Concession will be paid after the termination of the provisions of Section 3(c) hereof with respect to such Securities. Unless notified otherwise by us, payment for and delivery of Securities purchased by you shall be made through the facilities of The Depository Trust Company, if you are a member, unless you have otherwise notified us prior to the date specified in a Written Communication to you from us or, if you are not a member, settlement may be made through a correspondent who is a member pursuant to instructions which you will send to us prior to such specified date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) REGISTERED OFFERINGS. In the case of any Offering of Securities which are registered under the Securities Act ("Registered Offering"), we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary prospectus and of the final prospectus relating thereto as you may reasonably request for the purposes contemplated by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the applicable rules and regulations of the Securities and Exchange Commission thereunder.
You represent and warrant that you are familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus.
You agree that in purchasing Securities in a Registered Offering you will rely upon no statement whatsoever, written or oral, other than the statements in the final prospectus delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to a prospectus or by any Underwriters to give any information or to make any representation not contained in the prospectus in connection with the sale of such Securities.
(b) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any Offering of Securities, other than a Registered Offering, which is made pursuant to an offering circular or other document comparable to a prospectus in a Registered Offering, we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary offering circular and of the final offering circular relating thereto as you may reasonably request. You agree that you will comply with applicable Federal, state and other laws, and the
applicable rules and regulations of any regulatory body promulgated thereunder, governing the use and distribution of offering circulars by brokers or dealers.
You agree that in purchasing Securities pursuant to an offering circular you will rely upon no statements whatsoever, written or oral, other than the statements in the final offering circular delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to an offering circular or by any Underwriters to give any information or to make any representation not contained in the offering circular in connection with the sale of such Securities.
(c) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you by a
Written Communication of the public offering price, the selling concession, the
reallowance (if any) to dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance to
dealers. The offering price, selling concession and reallowance (if any) to
dealers at any time in effect with respect to an Offering are hereinafter
referred to, respectively, as the "Public Offering Price", the "Concession" and
the "Reallowance". With respect to each Offering of Securities, until the
provisions of this Section 3(c) shall be terminated pursuant to Section 4
hereof, you agree to offer Securities to the public only at the Public Offering
Price, except that if a Reallowance is in effect, a Reallowance from the Public
Offering Price not in excess of such Reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business who are either members in good
standing of the NASD who agree to abide by the applicable rules of the NASD (see
Section 3(e) below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer such
Securities at the Public Offering Price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in Section 3(e)
hereof.
(d) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with respect to any Offering, be authorized to over-allot in arranging sales to Selected Dealers, to purchase and sell Securities for long or short account and to stabilize or maintain the market price of the Securities. You agree that upon our request at any time and from time to time prior to the termination of the provisions of Section 3(c) hereof with respect to any Offering, you will report to us the amount of Securities purchased by you pursuant to such Offering which then remain unsold by you and will, upon our request at any such time, sell to us for our account or the account of one or more Underwriters such amount of such unsold Securities as we may designate at the Public Offering Price less an amount to be determined by us not in excess of the Concession. If, prior to the later of (a) the termination of the provisions of Section 3(c) hereof with respect to any Offering, or (b) the covering by us of any short position created by us in connection with such Offering for our account or the account of one or more Underwriters, we purchase or contract to purchase for our account or the account of one or more Underwriters in the open market or otherwise any Securities purchased by you under this Agreement as part of such Offering, you agree to pay us on demand for the account of the Underwriters an amount equal to the Concession with respect to such Securities (unless you shall have purchased such Securities pursuant to Section 2 hereof at the Public Offering Price and you have not received or been credited with any Concession, in which case we shall not
be obligated to pay such Concession to you pursuant to Section 2) plus transfer taxes and broker's commissions or dealer's mark-up, if any, paid in connection with such purchase or contract to purchase.
(e) NASD. You represent and warrant that you are actually engaged in the investment banking or securities business and either are a member in good standing of the NASD or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sales within the United State, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with the NASD's interpretation with respect to free-riding and withholding. You further represent, by your participation in an Offering, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of the NASD's interpretation with respect to review of corporate financing as such requirements relate to such Offering.
You agree that, in connection with any purchase or sale of the Securities wherein a selling concession, discount or other allowance is received or granted, you will (a) if you are a member of the NASD, comply with all applicable interpretive material ("IM") and Conduct Rules of the NASD, including, without limitation, IM 2110-1 (relating to Free-Riding and Withholding) and Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances) or (b) if you are a foreign bank or dealer or institution not eligible for such membership, comply with IM 2110-1 and with Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country.
You further agree that, in connection with any purchase of securities from us that is not otherwise covered by the terms of this Agreement (whether we are acting as manager, as member of an underwriting syndicate or a selling group or otherwise), if a selling concession, discount or other allowance is granted to you, clauses (a) and (b) of the preceding paragraph will be applicable.
(f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We may buy Securities from or sell Securities to any Underwriter or Selected Dealer and, with our consent, the Underwriters (if any) and the Selected Dealers may purchase Securities from and sell Securities to each other at the Public Offering Price less all or any part of the Concession. We shall have full authority to take such action as we deem advisable in all matters pertaining to any Offering under this Agreement. You are not authorized to act as agent for us, any Underwriter or the issuer or other seller of any Securities in offering Securities to the public or otherwise. Neither we nor any Underwriter shall be under any obligation to you except for obligations assumed hereby or in any Written Communication from us in connection with any Offering. Nothing contained herein or in any Written Communication from us shall constitute the Selected Dealers an association or partners with us or any Underwriter or with one another. If the Selected Dealers, among themselves or with the Underwriters, should be deemed to constitute a partnership for Federal income tax purposes, then you elect to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and agree not to take any position inconsistent with that election. You authorize us, in
our discretion, to execute and file on your behalf such evidence of that election as may be required by the Internal Revenue Service. In connection with any Offering you shall be liable for your proportionate amount of any tax, claim, demand or liability that may be asserted against you alone or against one or more Selected Dealers participating in such Offering, or against us or the Underwriters, based upon the claim that the Selected Dealers, or any of them constitute an association, an unincorporated business or other entity, including, in each case, your proportionate amount of any expense incurred in defending against any such tax, claim, demand or liability.
(g) BLUE SKY LAWS. Upon application to us, we shall inform you as to any advice we have received from counsel concerning the jurisdictions in which Securities have been qualified for sale or are exempt under the securities or blue sky laws of such jurisdictions, but we do not assume any obligation or responsibility as to your right to sell Securities in any such jurisdiction.
(h) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant to any Offering (which agreement shall also be for the benefit of the issuer or other seller of such Securities), you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act and the Exchange Act, the applicable rules and regulations of the Securities and Exchange Commission thereunder, the applicable rules and regulations of the NASD, the applicable rules and regulations of any securities exchange or other regulatory authority having jurisdiction over the Offering and the applicable laws, rules and regulations specified in Section 3(b) hereof. Without limiting the foregoing, (a) you agree that, at all times since you were invited to participate in an Offering of Securities, you have complied with the provisions of Regulation M applicable to such Offering, in each case after giving effect to any applicable exemptions and (b) you represent that your incurrence of obligations hereunder in connection with any Offering of Securities will not result in the violation by you of Rule 15c3-1 under the Exchange Act, if such requirements are applicable to you.
4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall continue in full force and effect until terminated by a written instrument executed by each of the parties hereto. This Agreement may be supplemented or amended by us by written notice thereof to you, and any such supplement or amendment to this Agreement shall be effective with respect to any Offering to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented. The terms and conditions set forth in Section 3(c) hereof with regard to any Offering will terminate at the close of business on the 30th day after the commencement of the public offering of the Securities to which such Offering relates, but in our discretion may be extended by us for a further period not exceeding 30 days and in our discretion, whether or not extended, may be terminated at any earlier time.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and other persons specified in Section 1 hereof, and the respective successors and assigns of each of them.
6. GOVERNING LAW. This Agreement and the terms and conditions set forth herein with respect to any Offering together with such supplementary terms and conditions with respect to such Offering as may be contained in any Written Communication from us to you in connection therewith shall be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts made and to be performed within the State of New York.
Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Securities pursuant to an Offering shall constitute (i) acceptance of and agreement to the terms and conditions of this Agreement (as supplemented and amended pursuant to Section 4 hereof; together with and subject to any supplementary terms and conditions contained in any Written Communication from us in connection with such Offering, all of which shall constitute a binding agreement between you and us, individually or as representative of any Underwriters, (ii) confirmation that your representations and warranties set forth in Section 3 hereof are true and correct at that time, (iii) confirmation that your agreements set forth in Sections 2 and 3 hereof have been and will be fully performed by you to the extent and at the times required thereby and (iv) in the case of any Offering described in Section 3(a) or 3(b) hereof, acknowledgment that you have requested and received from us sufficient copies of the final prospectus or offering circular, as the case may be, with respect to such Offering in order to comply with your undertakings in Section 3(a) or 3(b) hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
EXHIBIT (j)(1)
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND(3)
June 4, 2007(2)
Eaton Vance Risk-Managed Diversified Equity Income 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 RISK-MANAGED DIVERSIFIED
EQUITY INCOME FUND
By: /s/ Barbara E. Campbell
------------------------------------
Barbara E. Campbell
Treasurer, and not Individually
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Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
By: /s/ Stephen DaSaho
----------------------------------
Stephan DaSaho
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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 Calucations
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.
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EXHIBIT (k)(1)
Eaton Vance Risk-Managed Diversified Equity Income Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109
(617) 482-8260
June 4, 2007
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Attn: President
Re: Eaton Vance Risk-Managed Diversified Equity Income Fund
Dear Sirs:
Please be advised that, pursuant to Trustee action taken on April 23, 2007, your firm was appointed transfer and dividend disbursing agent for a new closed-end fund:
Eaton Vance Risk-Managed Diversified Equity Income Fund
Accordingly, pursuant to Section 10(e) of the Transfer Agency and Services Agreement dated February 5, 2007 by and between American Stock Transfer & Trust Company and each of the various Eaton Vance Funds listed on Exhibit 1 thereto (the "Agreement"), you are hereby notified that Eaton Vance Risk-Managed Diversified Equity Income Fund has been added as a party to the Agreement and that Exhibit 1 to the Agreement (as attached hereto) is hereby restated in its entirety.
Eaton Vance Risk-Managed Diversified Equity Income Fund
By: /s/ Barbara E. Campbell
------------------------------------
Barbara E. Campbell
Treasurer
|
Accepted and Acknowledged:
American Stock Transfer & Trust
Company
By: /s/ Herbert J. Lemmer
---------------------------------
Herbert J. Lemmer
Vice President
|
Exhibit 1
LIST OF FUNDS
Eaton Vance Risk-Managed Diversified Equity Income Fund
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
Dated: June 4, 2007
TRANSFER AGENCY AND SERVICES AGREEMENT
This Transfer Agency and Services Agreement (the "Agreement") dated as of February 5, 2007 is between each registered investment company listed on Exhibit 1 hereof (as may be amended from time to time) (each a "Fund"), each being a voluntary association commonly known as a "Massachusetts business trust" having its principal place of business at 255 State Street, Boston, MA 02109, and American Stock Transfer & Trust Company (the "Transfer Agent" or "AST"), a New York corporation with principal offices at 59 Maiden Lane, New York, NY 10038.
WITNESSETH:
WHEREAS, each Fund desires to retain AST as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and AST desires to provide such services on the terms herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, each Fund and AST 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) "Articles of Organization" shall mean the Articles of Organization, Declaration of Trust or other charter document of the Fund, as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to AST from time to time;
(c) "Commission" shall mean the Securities and Exchange Commission;
(d) "Counsel" shall mean (i) outside legal counsel of the Fund in its capacity as such and (ii) outside legal counsel of AST if such counsel has been specifically authorized by an Authorized Person of the Fund to render its opinion on the matter that has arisen;
(e) "Custodian" refers to the custodian and any sub-custodian of all securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such custodian duly engaged by the Fund;
(f) "Trustees" or "Board of Trustees" refers to the duly elected Trustees or Directors of the Fund;
(g) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by AST from a person reasonably believed by AST to be an Authorized Person;
(h) "Prospectus" shall mean the Fund's current prospectus and statement of additional information, including any supplements thereto, relating to the registration of the Fund's Shares under the Securities Act of 1933, as amended, and the 1940 Act;
(i) "Shares" refers to the shares of beneficial interest or common stock of the Fund (which may be divided into classes);
(j) "Shareholder" means a record owner of Shares;
(k) "Written Instructions" means any written communication signed by an Authorized Person and actually received by AST, and shall include manually executed originals and authorized electronic transmissions of such originals (including telefacsimile); and
(l) The "1940 Act" refers to the Investment Company Act of 1940 and the rules and regulations promulgated thereunder, all as amended from time to time.
2. Appointment of AST. The Fund hereby appoints AST as transfer agent for its Shares and as shareholder servicing agent for the Fund, and AST accepts such appointment and agrees to perform the duties hereinafter set forth.
In connection with the appointment of AST, the Fund shall upon request, on or before the date this Agreement goes into effect, but in any case within a reasonable period of time for AST to prepare to perform its duties hereunder, furnish AST with the following documents:
(a) If applicable, a specimen of the certificate for Shares of the Fund in the form approved by the Trustees, with a certificate of an Officer of the Fund as to such approval;
(b) Specimens of the signatures of the officers of the Fund authorized to sign stock certificates and specimens of the signatures of the individuals authorized to sign written instructions and requests;
(c) A certified copy of the Articles of Organization and By-Laws of the Fund, as amended; and
(d) All account application forms and other documents relating to Shareholder accounts or to any plan, program or service offered by the Fund;
(e) With respect to any Fund previously serviced by another transfer agent, to the extent practicable a certified list of Shareholders of the Fund with the name, address and taxpayer identification number of each Shareholder, and the number of shares of the Fund held by each, certificate numbers and denominations (if any certificates have been issued), lists of any accounts against which stop transfer orders have been placed, together with the reasons therefor, and the number of Shares redeemed by the Fund, and;
(f) A sufficient supply of blank certificates signed by (or bearing the facsimile signature of) the officers of the Fund authorized to sign stock certificates and bearing the Fund's corporate seal (if required). AST may use certificates bearing the signature of a person who at the time of use is no longer an officer of the Fund.
3. Duties of AST.
(a) AST shall be responsible for administering and/or performing transfer agent functions; for acting as service agent in connection with dividend and distribution functions; and for performing shareholder account and administrative agent functions in connection with the issuance and transfer (including coordination with the Custodian) of Shares. Such duties are described in the written Schedule of Duties of AST annexed hereto as Schedule A. AST shall also act in accordance with the terms of the Prospectus of the Fund, applicable law and the procedures established from time to time between AST and the Fund.
(b) AST shall record the issuance of Shares and maintain pursuant to Rule 17Ad-10(e) under the Securities Act of 1934 a record of the total number of Shares of the Fund which are authorized (with due authorization based upon data provided by the Fund), issued and outstanding. AST shall provide the Fund on a regular basis with such information but shall have no obligation, when recording the issuance of Shares, to monitor the legality of issuance of Shares or to take cognizance of any laws relating to the proper issue or sale of such Shares, which functions shall be the sole responsibility of the Fund (or its administrator).
(c) AST shall serve as agent for Shareholders pursuant to the Fund's dividend reinvestment plan, as amended from time to time.
(d) AST acknowledges that the Funds' administrator, Eaton Vance Management ("EVM"), currently employs personnel to provide shareholders with, among other things, information regarding their accounts and transaction procedures of AST. AST acknowledges that EVM is not responsible for transfer agency services to the Fund. In the event AST determines that a particular transaction requested by a shareholder cannot be processed because it is not permitted by law or procedures established hereby but EVM or Fund personnel desire the transaction to be so processed, then AST shall nonetheless process the transaction if EVM provides a standard form indemnification to AST. At the request of EVM, AST shall provide a written explanation for its decision.
4. Recordkeeping, and Other Information.
(a) AST shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule A in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act and the rules thereunder. Where applicable, such records shall be maintained by AST for the periods and the places required by Rule 31a-2 under the 1940 Act.
(b) AST agrees that all such records prepared or maintained by AST relating to the services to be performed by AST hereunder are the property of the Fund, and will be surrendered promptly to the Fund on and in accordance with the Fund's request.
(c) In case of any requests or demands for the inspection of Shareholder records of the Fund by third parties, AST will endeavor to notify the Fund of such request and secure Written Instructions as to the handling of such request. AST reserves the right, however, to exhibit the Shareholder records to any person whenever it is required to do so by law.
5. Fund Instructions - Limitations of Liability.
(a) AST will have no liability when acting in conformance with Written or Oral Instructions reasonably believed to have been executed or orally communicated by an Authorized Person and will not
be held to have any notice of any change of authority of any person until receipt of a Written Instruction thereof from the Fund. AST will also have no liability when processing Share certificates which it reasonably believes them to bear the proper manual or facsimile signatures of the Officers of the Fund and the proper countersignature of AST.
(b) At any time, AST may apply to any Authorized Person of the Fund for Written Instructions and may, after obtaining prior oral or written approval by an Authorized Person, seek advise from Counsel with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with this opinion of Counsel. Written Instructions requested by AST will be provided by the Fund within a reasonable period of time. In addition, AST, its Officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of the Fund only if said representative is known by AST, or its Officers, agents or employees, to be an Authorized Person. AST shall have no duty or obligation to inquire into, nor shall AST be responsible for, the legality of any act done by it upon the request or direction of an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this Agreement, AST shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the propriety of the amount per share to be paid on any redemption; (iii) the legality of the declaration of any dividend by the Trustees, or the legality of the issuance of any Shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares.
(d) AST will not be liable or responsible for delays or errors by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, fire, mechanical breakdown beyond its control, flood, acts of God, insurrection, war, riots, and loss of communication or power supply, provided, however, that AST shall have acted in accordance with its Disaster Recovery Plan previously provided to the Eaton Vance Group of Funds, which may be amended from time to time by agreement of the Fund and AST.
6. Compensation.
(a) The Fund agrees to pay AST fees for the services performed pursuant to this Agreement in the amount of $1,500 per month. Notwithstanding the foregoing, in the event that the scope of services to be provided by AST is increased substantially, the parties shall negotiate in good faith to determine reasonable compensation for such additional services. AST will bill the Fund as soon as practicable after the end of each calendar month. The Fund will promptly pay to AST the amount of such billing.
(b) Out-of-pocket disbursements shall mean the items specified in the written schedule of out-of-pocket charges annexed hereto as Schedule B and incorporated herein. Reimbursement by the Fund for such out-of-pocket disbursements incurred by AST in any month shall be made as soon as practicable after the receipt of an itemized bill from AST. AST reserves the right to request advance payment for substantial out-of-pocket expenditures. Reimbursement by the Fund for expenses other than those specified in Schedule B shall be upon mutual agreement of the parties as provided in Schedule B.
(c) Services required by legislation or regulatory mandate that become effective after the effective date of this Agreement shall not be part of the standard services, and shall be billed by agreement.
(d) The parties agree to review at least annually at a Trustees' meeting of the Fund the services provided, cost thereof, and fees and expenses charged, including comparative information regarding the transfer agency industry. The compensation agreed to hereunder may be adjusted from time to time by attaching to this Agreement a revised Schedule, dated and executed by the parties hereto.
8. Representations and Warranties.
(a) AST represents and warrants to the Fund that:
(i) it is a corporation duly organized, existing and in good standing under the laws of the State of New York;
(ii) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement;
(iii) all requisite corporate proceedings have been taken to authorize it to enter into this Agreement;
(iv) AST will maintain its registration as a transfer agent as provided in Section 17A(c) of the Securities Act of 1934, as amended, (the "1934 Act") and shall comply with all applicable provisions of Section 17A of the 1934 Act and the rules promulgated thereunder, as may be amended from time to time, including rules relating to record retention;
(v) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement;
(vi) to the best of its knowledge, the various procedures and systems which AST has implemented or will implement with regard to safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for 24 hours-a-day restricted access) of the Fund's records and other data and AST's records, data, equipment, facilities and other property used in the performance of its obligations hereunder are adequate and that it will make such changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. The parties shall review such systems and procedures on a periodic basis; and
(vii) it maintains adequate insurance to enable it to continue its operations as described herein. AST shall notify the Fund should any of its insurance coverage as set forth in Schedule F attached hereto be changed for any reason. Such notification shall include the date of change and reason or reasons therefor. AST shall notify the Fund of any claims against it whether or not they may be covered by insurance and shall notify the Fund from time to time as may be appropriate, and at least within 30 days following the end of each fiscal year of AST, of the total outstanding claims made by AST under its insurance coverage.
(b) The Fund represents and warrants to AST that:
(i) it is duly organized, existing and in good standing under the laws of the jurisdiction in which it is organized;
(ii) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into this Agreement;
(iii) all corporate proceedings required by said Articles of Incorporation, By-Laws and applicable laws have been taken to authorize it to enter into this Agreement;
(iv) a registration statement under the Securities Act of 1933, as amended, and/or the 1940 Act is currently effective and will remain effective, and all appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale; and
(v) all outstanding Shares are validly issued, fully paid and non-assessable and when Shares are hereafter issued in accordance with the terms of the Fund's Articles of Incorporation and its Prospectus, such Shares when issued shall be validly issued, fully paid and non-assessable.
9. Duty of Care and Indemnification.
(a) Each party shall fulfill its obligations hereunder by acting with reasonable care and in good faith;
(b) The Fund will indemnify AST against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting from the bad faith or negligence of AST, and arising out of, or in connection with, its duties on behalf of the Fund hereunder. In addition, the Fund will indemnify AST against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit as a result of : (i) any action taken in accordance with Written or Oral Instructions, or share certificates reasonably believed by AST to be genuine and to be signed, countersigned or executed, or orally communicated by an Authorized Person; (ii) any action taken in accordance with written or oral advice reasonably believed by AST to have been given by counsel for the Fund; or (iii) any action taken as a result of any error or omission in any record which AST had no reasonable basis to believe was inaccurate (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) and was delivered, or caused to be delivered, by the Fund to AST in connection with this Agreement;
(c) AST will indemnify the Fund against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting from the bad faith or negligence of the Fund, and arising out of, or in connection with, AST's breach of this Agreement;
(d) In any case in which a party may be asked to indemnify or hold the other party harmless, the indemnifying party shall be advised of all pertinent facts concerning the situation in question and the party seeking indemnification shall notify the indemnifying party promptly concerning any situation which presents or appears likely to present a claim for indemnification. The indemnifying party shall have the option to defend against any claim which may be the subject of this indemnification and, in the event that the indemnifying party so elects, such defense shall be conducted by counsel chosen by the indemnifying party, and thereupon the indemnifying party shall take over complete defense of the claim and the party seeking indemnification shall sustain no further legal or other expenses in such situation for which it seeks indemnification. The party seeking indemnification will not confess any claim or make any compromise in any case in which the indemnifying party will be asked to provide indemnification, except with the indemnifying party's prior written consent; and
(e) The obligations of the parties hereto under this Section shall survive the termination of this Agreement.
(f) AST shall not be responsible for the validity of the issuance, presentation or transfer of stock; the genuineness of endorsements; the authority of presentors; or the collection or payment of charges or taxes incident to the issuance or transfer of stock. AST may, however, delay or decline an issuance or transfer if it deems it to be in its or the Fund's best interests to receive evidence or assurance of such validity, authority, collection or payment. AST shall not be responsible for any discrepancies in its records or between its records and those of the Fund, if it is a successor transfer agent or successor registrar, unless no discrepancy existed in the records of the Fund and any predecessor transfer agent or predecessor registrar. AST shall not be deemed to have notice of, or to be required to inquire regarding, any provision of the Fund's Declaration of Trust or by-laws, any court or administrative order, or any other document, unless it is specifically advised of such in a writing from the Fund, which writing shall set forth the manner in which it affects the Shares. In no event shall AST be responsible for any transfer or issuance not effected by it.
(g) IN NO EVENT SHALL AST HAVE ANY LIABILITY FOR ANY INCIDENTAL, SPECIAL, STATUTORY, INDIRECT OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF PROFITS, REVENUE, DATA OR COST OF COVER.
10. Terms and Termination.
(a) Either party may terminate this Agreement without cause on or after the first year from the date first referenced above and by giving 180 days written notice to the other party;
(b) Either party may terminate this Agreement if the other party has materially breached the Agreement by giving the defaulting party 30 days written notice and the defaulting party has failed to cure the breach within 60 days thereafter; and
(c) Any written notice of termination shall specify the date of termination. The Fund shall provide notice of the successor transfer agent within 30 days of the termination date. Upon termination, AST will deliver to such successor a certified list of shareholders of the Fund (with names, addresses and taxpayer identification of Social Security numbers and such other federal tax information as AST may be required to maintain), an historical record of the account of each shareholder and the status thereof, and all other relevant books, records, correspondence, and other data established or maintained by the books, records, correspondence, and other data established or maintained by AST under this Agreement in the form reasonably acceptable to the Fund, and will cooperate in the transfer of such duties and responsibilities, including provisions for assistance from AST's personnel in the establishment of books, records and other data by such successor or successors. AST shall be entitled to its out-of-pocket expenses set forth in Schedule B incurred in the delivery of such records net of the fees owed to AST for the last month of service if this Agreement is terminated pursuant to paragraph (b) immediately above.
(d) If a majority of the non-interested trustees of any of the Funds
determines, in the exercise of their fiduciary duties and pursuant to their
reasonable business judgment after consultation with Eaton Vance Management,
that the performance of AST 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 AST of such determination and AST shall have
60 days (or such longer period if the non-interested Trustees so determine) 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
provided, however, that the provisions of Paragraph 11(c) shall remain
outstanding for an additional 30 days if necessary to transfer records to a
successor transfer agent.
(e) If the Board of Trustees hereafter establishes and designates a new Fund, if requested by a new Eaton Vance fund, AST agrees that it will act as transfer agent and shareholder servicing agent for such new Fund in accordance with the terms set forth herein. The Trustees shall cause a written notice to be sent to AST to the effect that it has established a new Fund and that it appoints AST as transfer agent and shareholder servicing agent for the new Fund. Such written notice must be received by AST in a reasonable period of time prior to the commencement of operations of the new Fund to allow AST, in the ordinary course of its business, to prepare to perform its duties.
11. Confidentiality of Records.
(a) AST agrees to treat all records and other information relative to the Fund and its prior, present or potential Shareholders in confidence except that, after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where AST may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund.
(b) AST shall make available during regular business hours all records and other data created and maintained pursuant to this Agreement for reasonable audit and inspection by the Fund, or any person retained by the Fund. Upon reasonable notice by the Fund, AST shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visitation by the Fund, or any person retained by the Fund, to inspect its operating capabilities or for any other reason.
(c) The Fund agrees to keep all records and information of AST (including trade secrets) in confidence, unless such is required to be divulged pursuant to law or where the Fund may be exposed to or criminal contempt proceedings for failure to comply. AST acknowledges that such records and information may be disclosed to Eaton Vance Management personnel and to Fund auditors consistent with the responsibilities of such parties, and in such cases the Fund shall take reasonable precautions to safeguard the confidentiality of such data to the extent practicable.
12. Amendment, Assignment and Subcontracting.
(a) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties.
(b) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that any assignment of this Agreement (as defined in the 1940 Act) to an entity shall require the written consent of the other party.
(c) The Fund agrees that AST may, in its discretion, subcontract for certain of the services described under this Agreement or the Schedules hereto; provided that the appointment of any such Agent shall not relieve AST of its responsibilities hereunder.
13. Use of Trade Names.
(a) AST shall approve all reasonable uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the Commission or a state securities commission.
(b) AST shall not use the name of the Fund or material relating to the Fund on any documents or forms for other than internal use in a manner not approved prior thereto in writing;
provided, that the Fund shall approve all reasonable uses of its name which merely refer in accurate terms to the appointment of AST or which are required by the Commission or a state securities commission.
14. Notice. Any notice or other instrument authorized or required by this Agreement to be given in writing to the Fund or AST, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing.
To the Fund:
The Eaton Vance Building
255 State Street
Boston, MA 02109
Attention: Fund Secretary
To AST:
Mr. George Karfunkel
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Telecopy No.: (718) 236-4588
With a copy to:
American Stock Transfer & Trust Company
Attn: General Counsel
59 Maiden Lane
New York, NY 10038
AST and the Fund may, by notice to the other, designate additional or different addresses for subsequent notices or communications.
15. Governing Law/Venue. The laws of the Commonwealth of Massachusetts, excluding the laws on conflicts of laws, shall govern the interpretation, validity, and enforcement of this agreement. All actions arising from or related to this Agreement shall be brought in the state and federal courts sitting in the City of Boston, and the parties hereby submit themselves to the exclusive jurisdiction of those courts.
16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument.
17. Captions. The captions of this Agreement are included for convenience or reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
18. Severability. The parties intend every provision of this Agreement to be severable. If a court of competent jurisdiction determines that any term or provision is illegal or invalid for any reason, the illegality or invalidity shall not affect the validity of the remainder of this Agreement. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties. Without limiting the generality of this paragraph, if a court determines that any remedy stated in
this Agreement failed of its essential purpose, then all provisions of this Agreement, including the limitations on liability and exclusion of damages, shall remain fully effective.
19. Liability of Trustees, Officers and Shareholders. The execution and delivery of this Agreement have been authorized by the Trustees of the Fund and signed by an authorized Officer of the Fund, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such Officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Fund, but bind only the property of the Fund. No class of the Fund shall be liable for the obligations of another class.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective Officers thereunder duly authorized as of the day and year first above written.
American Stock Transfer & Trust Company Each of the Funds listed on Exhibit 1, severally and not jointly
By: /s/ Michael Karfunkel By: /s/ Barbara Campbell
--------------------------------- ------------------------------------
Name: Michael Karfunkel Name: Barbara Campbell
Title: President Title: Treasurer
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SCHEDULE A
DUTIES OF AST
1. Shareholder Information. AST shall maintain a record of the number of Shares held by each Shareholder of record which shall include name, address, taxpayer identification and which shall indicate whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. AST will investigate all shareholder inquiries relating to Shareholder accounts and will answer all communications from Shareholders and others with respect to its duties hereunder. AST shall keep records of all Shareholder correspondence and replies thereto, and of lapse of time between the receipt of such correspondence and the mailing of such replies.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply AST with an adequate supply of blank share certificates to meet AST requirements therefor. Such Share certificates shall be properly signed by facsimile. The Fund agrees that, notwithstanding the death, resignation, or removal of any officer of the Fund whose signature appears on such certificates, AST or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions.
(b) AST shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by AST of properly executed affidavits and lost certificate bonds, in form satisfactory to AST, with the Fund and AST as obligees under the bond.
(c) AST shall also maintain a record of each certificate issued, the number of Shares represented thereby and the Shareholder of record. With respect to Shares held in open accounts or uncertificated form (i.e., no certificate being issued with respect thereto) AST shall maintain comparable records of the Shareholders thereof, including their names, addresses and taxpayer identification numbers. AST shall further maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. AST will address and mail to Shareholders of the Fund, all reports to Shareholders, dividend and distribution notices and proxy material for the Fund's meetings of Shareholders, and such other communications as the Fund may authorize. In connection with meetings of Shareholders, AST will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings.
5. Transfer of Shares.
(a) AST shall process all requests to transfer Shares in accordance with the transfer procedures set forth in the Fund's Prospectus.
(b) AST will transfer Shares upon receipt of Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer, accompanied by such documents as AST reasonably may deem necessary.
(c) AST reserves the right to refuse to transfer Shares until it is satisfied that the endorsement on the instructions is valid and genuine. AST also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for
the refusal, in good faith, to make transfers which AST in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer.
7. Dividends.
(a) Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of the Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be furnished to AST Written Instructions setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the Shareholders of record as of that date, the total amount payable on the payment date and whether such dividend or distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of the Board of Directors, the Fund will provide AST with sufficient cash to make payment to the Shareholders of record as of such payment date.
(c) If AST does not receive sufficient cash from the Fund to make total dividend and/or distribution payments to all Shareholders of the Fund as of the record date, AST will, upon notifying the Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to AST.
8. Miscellaneous
In addition to and neither in lieu nor in contravention of the services set forth above, AST shall perform all the customary services of a transfer agent registrar dividend disbursing agent and agent of the dividend reinvestment plan as described herein consistent with those requirements in effect as at the date of this Agreement. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all registered Shareholders.
SCHEDULE B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse AST monthly for applicable out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass through to the Fund
- Proxy solicitations, mailings and tabulations
- Shipping, Certified and Overnight mail
- Set-up charges for Internet and/or telephonic voting of proxies
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including, but not limited to exit fees charged by third party record keeping vendors
- Such other miscellaneous expenses reasonably incurred by AST in performing its duties and responsibilities under this Agreement as pre-approved in writing by the Fund
Exhibit 1
LIST OF FUNDS
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
Dated: February 5, 2007
EXHIBIT (k)(2)
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
ADMINISTRATION AGREEMENT
AGREEMENT made this 4th day of June, 2007, between Eaton Vance Risk-Managed Diversified Equity Income 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 the second anniversary of the execution of this Agreement and shall continue in full force and effect indefinitely thereafter, but only so long as such continuance after such date 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 RISK-MANAGED EATON VANCE MANAGEMENT
DIVERSIFIED EQUITY INCOME 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)(3)
As of June 4, 2007
To Eaton Vance Risk-Managed Diversified Equity Income Fund
With Reference to the Investment Advisory Agreement entered into by Eaton Vance Management ("Eaton Vance") with Eaton Vance Risk-Managed Diversified Equity Income 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) that exceeds $0.04 per share.
The instrument is executed under seal and shall be governed by Massachusetts Law.
Very truly yours,
EATON VANCE MANAGEMENT
By: /s/ Thomas E. Faust Jr.
------------------------------------
Name: Thomas E. Faust Jr.
Title: President, and not Individually
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ACCEPTED AND AGREED TO
ON BEHALF OF THE FUND
By: /s/ Barbara E. Campbell
---------------------------------
Name: Barbara E. Campbell
Title: Treasurer, and not Individually
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Pre-Effective Amendment No. 1 to the Registration Statement No. 333-141981, as amended, on Form N-2 of our report dated June 7, 2007 relating to the financial statements of Eaton Vance Risk-Managed Diversified Equity Income Fund appearing in the Statement of Additional Information, which is part of such Registration Statement and to references to us under the heading "Independent Registered Public Accounting Firm" in the Prospectus and Statement of Additional Information which are part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP Boston, Massachusetts June 21, 2007 |
EXHIBIT (p)
EATON VANCE MANAGEMENT
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Telephone: (617) 482-8260
Telecopy: (617) 338-8054
June 6, 2007
Eaton Vance Risk-Managed Diversified Equity Income Fund
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of $100,000 of 5,000 shares of beneficial interest, net asset value of $20.00 per share ("Initial Shares") in Eaton Vance Risk-Managed Diversified Equity Income Fund, we hereby advise you that we are purchasing such Initial Shares for investment purposes without any present intention of redeeming or reselling.
Very truly yours,
EATON VANCE MANAGEMENT
By: /s/ William M. Steul
------------------------------------
William M. Steul
Treasurer and Vice President
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EXHIBIT (s)
POWER OF ATTORNEY
We, the undersigned Trustees of
Eaton Vance Advisers Senior Floating-Rate Fund
Eaton Vance California Municipal Income Trust
Eaton Vance Credit Opportunities Fund
Eaton Vance Florida Municipal Income Trust
Eaton Vance Global Enhanced Equity Income Fund
Eaton Vance Growth Trust
Eaton Vance Institutional Senior Floating-Rate Fund
Eaton Vance Investment Trust
Eaton Vance Insured California Municipal Bond Fund
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 Municipal Bond Fund
Eaton Vance Insured Municipal Bond Fund II
Eaton Vance Insured New Jersey Bond Fund
Eaton Vance Insured New York Municipal Bond Fund
Eaton Vance Insured New York Municipal Bond Fund II
Eaton Vance Insured Ohio Municipal Bond Fund
Eaton Vance Insured Pennsylvania Municipal Bond Fund
Eaton Vance Limited Duration Income Fund
Eaton Vance Massachusetts Municipal Income Trust
Eaton Vance Michigan Municipal Income Trust
Eaton Vance Municipal Income Trust
Eaton Vance Municipals Trust
Eaton Vance Municipals Trust II
Eaton Vance Mutual Funds 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 Prime Rate Reserves
Eaton Vance Senior Income Trust
Eaton Vance Series Trust
Eaton Vance Series Trust II
EV Classic Senior Floating-Rate Fund
Eaton Vance Special Investment Trust
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Research Fund
Eaton Vance Tax-Managed Diversified Equity Income Fund
Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
Eaton Vance Tax-Managed International Diversified Equity Income Fund
Eaton Vance Variable Trust
Eaton Vance Risk-Managed Diversified Equity Income Fund
each a Massachusetts business trust (the "Trusts"), (do hereby severally constitute and appoint Barbra E. Campbell, Alan R. Dynner, Thomas E. Faust Jr., Maureen A. Gemma and James B. Hawkes, 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, any Registration Statement and any and all amendments (including post-effective amendments) to a Registration Statement filed with the Securities and Exchange Commission on behalf of each of the respective Trusts, in respect 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 23, 2007
-------------------------------------
Benjamin C. Esty
/s/ Thomas E. Faust Jr. Trustee April 23, 2007
-------------------------------------
Thomas E. Faust Jr.
/s/ Allen R. Freedman Trustee April 23, 2007
-------------------------------------
Allen R. Freedman
/s/ James B. Hawkes Trustee April 23, 2007
-------------------------------------
James B. Hawkes
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/s/ Samuel L. Hayes, III Trustee April 23, 2007 ------------------------------------- Samuel L. Hayes, III /s/ William H. Park Trustee April 23, 2007 ------------------------------------- William H. Park /s/ Ronald A. Pearlman Trustee April 23, 2007 ------------------------------------- Ronald A. Pearlman /s/ Norton H. Reamer Trustee April 23, 2007 ------------------------------------- Norton H. Reamer /s/ Heidi L. Steiger Trustee April 23, 2007 ------------------------------------- Heidi L. Steiger /s/ Lynn A. Stout Trustee April 23, 2007 ------------------------------------- Lynn A. Stout /s/ Ralph F. Verni Trustee April 23, 2007 ------------------------------------- Ralph F. Verni |
POWER OF ATTORNEY
The undersigned officer of:
Eaton Vance Enhanced Equity Income Fund
Eaton Vance Enhanced Equity Income Fund II
Eaton Vance Global Enhanced Equity Income Fund
Eaton Vance Series Trust
Eaton Vance Tax-Advantaged Global Dividend Income Fund
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Income Fund
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Research Fund
Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Diversified Equity Income Fund
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
Eaton Vance Tax-Managed International Diversified Equity Income Fund
Eaton Vance Risk-Managed Diversified Equity Income Fund
each a Massachusetts business trust (the "Trusts"), (does hereby severally constitute and appoint Barbara E. Campbell, Alan R. Dynner, Thomas E. Faust Jr., Maureen A. Gemma and James B. Hawkes, or any of them, to be true, sufficient and lawful attorneys, or attorney for me, to sign in the capacity indicated below, any Registration Statement and any and all amendments (including post-effective amendments) to a Registration Statement filed with the Securities and Exchange Commission on behalf of each of the respective Trusts, in respect of shares of beneficial interest and other documents and papers relating thereto:
IN WITNESS WHEREOF I have hereunto set my hand on the date set opposite my signature.
Signature Title Date
------------------------------------- --------- --------------
/s/ Duncan W. Richardson President April 23, 2007
-------------------------------------
Duncan W. Richardson
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POWER OF ATTORNEY
The undersigned officer of:
Eaton Vance California Municipal Income Trust
Eaton Vance Credit Opportunities Fund
Eaton Vance Enhanced Equity Income Fund
Eaton Vance Enhanced Equity Income Fund II
Eaton Vance Floating-Rate Income Trust
Eaton Vance Florida Municipal Income Trust
Eaton Vance Global Enhanced Equity Income Fund
Eaton Vance Growth Trust
Eaton Vance Insured California Municipal Bond Fund
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 Municipal Bond Fund
Eaton Vance Insured Municipal Bond Fund II
Eaton Vance Insured New Jersey Bond Fund
Eaton Vance Insured New York Municipal Bond Fund
Eaton Vance Insured New York Municipal Bond Fund II
Eaton Vance Insured Ohio Municipal Bond Fund
Eaton Vance Insured Pennsylvania Municipal Bond Fund
Eaton Vance Investment Trust
Eaton Vance Limited Duration Income Fund
Eaton Vance Massachusetts Municipal Income Trust
Eaton Vance Michigan Municipal Income Trust
Eaton Vance Municipal Income Trust
Eaton Vance Municipals Trust
Eaton Vance Municipals Trust II
Eaton Vance Mutual Funds 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 Senior Floating-Rate Trust
Eaton Vance Senior Income Trust
Eaton Vance Series Trust II
Eaton Vance Short Duration Diversified Income Fund
Eaton Vance Special Investment Trust
Eaton Vance Tax-Advantaged Dividend Income Fund
Eaton Vance Tax-Advantaged Global Dividend Income Fund
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Income Fund
Eaton Vance Tax-Managed Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Buy-Write Research Fund
Eaton Vance Tax-Managed Diversified Equity Income Fund
Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund
Eaton Vance Tax-Managed Global Diversified Equity Income Fund
Eaton Vance Tax-Managed International Diversified Equity Income Fund
Eaton Vance Variable Trust
Eaton Vance Risk-Managed Diversified Equity Income Fund
each a Massachusetts business trust (the "Trusts"), (does hereby severally constitute and appoint Barbara E. Campbell, Alan R. Dynner, Thomas E. Faust Jr., Maureen A. Gemma and James B. Hawkes, or any of them, to be true, sufficient and lawful attorneys, or attorney for me, to sign in the capacity indicated below, any Registration Statement and any and all amendments (including post-effective amendments) to a Registration Statement filed with the Securities and Exchange Commission on behalf of each of the respective Trusts, in respect of shares of beneficial interest and other documents and papers relating thereto:
IN WITNESS WHEREOF I have hereunto set my hand on the date set opposite my signature.
Signature Title Date
------------------------------------- ----------------------- --------------
/s/ Barbara E. Campbell Treasurer and Principal April 23, 2007
------------------------------------- Financial and
Barbara E. Campbell Accounting Officer
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