As filed with the Securities and Exchange Commission on July 20, 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. 2 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 2 [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
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box):
[ ] when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT BEING PRICE PER OFFERING REGISTRATION
TITLE OF SECURITIES REGISTERED UNIT PRICE FEES
BEING REGISTERED (1) (1) (1) (1)(2)(3)
--------------------------------------------------------------------------------
Common Shares of
Beneficial
Interest, $0.01
par value 75,000,000 $20.00 $1,500,000,000 $46,050.00
================================================================================
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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 JULY 19, 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)
--------- ------------
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.
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
State Street Bank and Trust Company ("State Street"), 200 Clarendon Street, Boston, Massachusetts 02116, is the custodian of the Fund and will maintain custody of the securities and cash of the Fund. State Street maintains the Fund's general ledger, and computes net asset value per share daily. State Street 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. State Street 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 JULY 19, 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
cemeteries)
|
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
------------- -------------------- ------------- --------------------------- ------------- ------------------
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
Formerly, President and provider) and
Contributing Editor, Worth Aviva USA
Magazine (2004); Formerly, (insurance
Executive Vice President provider)
and Global Head 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........ Chairman of the Chairman of Consultant and private 172 None
1/26/43 Board and Trustee(4) the Board investor.
since 7/1/07
and Trustee
since 4/23/07
Three Years
|
(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.
Mmes. Stout (Chair) and Steiger, and Messrs. Esty Freedman, Park, Pearlman, Reamer and Verni 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), Park and Verni, and Mmes. Steiger and Stout are
members of the Audit Committee of the Board of Trustees of the Fund. The Board
of Trustees has designated Messrs. 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. Verni (Chair), Esty, Freedman, Park, Pearlman and Reamer 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 Audit Committee has met once and the Governance Committee and Special Committee have not met.
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
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.
** Mr. Freedman and Ms. Steiger were appointed Trustees on April 23, 2007.
Then beneficial ownership information is as of May 9, 2007.
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 BENJAMIN C. ALLEN R. WILLIAM H. RONALD A. NORTON H. HEIDI L. LYNN A. RALPH F. COMPENSATION OF ESTY FREEDMAN(1) PARK PEARLMAN REAMER STEIGER(1) STOUT VERNI --------------- ----------- ----------- ---------- --------- --------- ---------- -------- -------- Fund*................ $ 267 $284 $ 264(2) $ 269 $ 289 $285 $ 298(3) $ 416(4) Fund Complex(1)...... $185,000 $ 0 $185,000(5) $185,000 $195,000 $ 0 $195,000(6) $185,000(7) |
* Estimated
(1) As of July 1, 2007, the Eaton Vance fund complex consisted of 172 registered investment companies or series thereof. Mr. Freedman and Ms. Steiger were appointed Trustees of the Eaton Vance Fund Complex effective April 23, 2007 and thus did not receive compensation from the Eaton Vance Fund Complex prior to such date.
(2) Includes $128 of deferred compensation.
(3) Includes $75 of deferred compensation.
(4) Includes $206 of deferred compensation.
(5) Includes $133,680 of deferred compensation.
(6) Includes $45,000 of deferred compensation.
(7) Includes $92,500 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, State Street Bank and Trust Company. It is Eaton Vance's opinion that the terms and conditions of such transactions were not and will not be influenced by existing or potential custodial or other relationships between the Fund and such banks.
THE SUB-ADVISER. 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 December 31, 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**........ 3 $2,812.0 0 $0
Other Pooled Investment Vehicles......... 0 $ 0 0 $0
Other Accounts........................... 0 $ 0 0 $0
RONALD M. EGALKA
Registered Investment Companies**........ 7 $9,166.8 0 $0
Other Pooled Investment Vehicles......... 0 $ 0 0 $0
Other Accounts........................... 378 $1,719.9 0 $0
WALTER A. ROW, III
Registered Investment Companies**........ 8 $9,170.5 0 $0
Other Pooled Investment Vehicles......... 0 $ 0 0 $0
Other Accounts........................... 0 $ 0 0 $0
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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 State Street Bank and Trust Company, 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
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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
State Street Bank and 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 is incorporated herein by reference to the Pre-Effective Amendment No. 1 to the Registrant's Initial Common Shares Registration Statement as filed with the Commission on June 22, 2007 (Accession No. 0000950135-07- 003798) ("Pre-Effective Amendment No. 1").
(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 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(c) Not applicable.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(e) Dividend Reinvestment Plan is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(f) Not applicable.
(g) (1) Investment Advisory Agreement dated June 4, 2007 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(2) Sub-Advisory Agreement with Rampart Investment Management Company, Inc. dated June 4, 2007 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(h) (1) Form of Underwriting Agreement filed herewith.
(2) Master Agreement Among Underwriters is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(3) Master Selected Dealers Agreement is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(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 State Street Bank and Trust Company dated June 4, 2007 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(2) Extension Agreement dated August 31, 2005 to Master Custodian Agreement with State Street Bank and 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 State Street Bank and 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 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(2) Administration Agreement dated June 4, 2007 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(3) Organizational and Expense Reimbursement Agreement dated June 4, 2007 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(4) Form of Structuring Fee Agreement with Citigroup Global Markets Inc. filed herewith.
(5) Form of Structuring Fee Agreement with UBS Securities LLC filed herewith.
(6) Form of Structuring Fee Agreement with Wachovia Capital Markets, LLC filed herewith.
(7) Form of Structuring Fee Agreement with A.G. Edwards & Sons, Inc. filed herewith.
(8) Form of Additional Compensation Agreement with Merrill Lynch, Pierce, Fenner & Smith filed herewith.
(9) Form of Additional Compensation Agreement with certain qualifying underwriters filed herewith.
(l) Opinion and Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP as to Registrant's Common Shares filed herewith.
(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 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
(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 is incorporated herein by reference to the Registrant's Pre-Effective Amendment No. 1.
ITEM 26. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement filed herewith.
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
Registration and Filing Fees $ 46,050
National Association of Securities Dealers, Inc. Fees 76,500
New York Stock Exchange Fees 40,000
Costs of Printing and Engraving 965,000
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 300,000
----------
Total $1,442,550
==========
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ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of July 19, 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 filed herewith contains, provisions limiting the liability, and providing for indemnification, of the Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment company errors and omissions insurance policy covering loss incurred by reason of negligent errors and omissions committed in their official capacities as such. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in this Item 30, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption Investment advisory and other services" in the Statement of Additional Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File No. 001-8100); and (iii) the Form ADV of Eaton Vance Management (File No. 801-15930) filed with the Commission, all of which are incorporated herein by reference.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by the Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are in the possession and custody of the Registrant's custodian, State Street Bank and 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. 2 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 19th day of July 2007.
EATON VANCE RISK-MANAGED DIVERSIFIED
EQUITY INCOME FUND
By: /s/ Barbara E. Campbell
------------------------------------
Barbara E. Campbell
Treasurer (and Principal Financial
and Accounting Officer)
|
Pursuant to the requirements of the Securities Act of 1933, as amended this Pre-Effective Amendment No. 2 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 July 19, 2007 -------------------------------- Officer Duncan W. Richardson /s/ Barbara E. Campbell Treasurer (and Principal July 19, 2007 -------------------------------- Financial and Accounting Officer) Barbara E. Campbell /s/ Thomas E. Faust Jr. Trustee July 19, 2007 -------------------------------- Thomas E. Faust Jr. /s/ James B. Hawkes Trustee July 19, 2007 -------------------------------- James B. Hawkes /s/ Benjamin C. Esty* Trustee July 19, 2007 -------------------------------- Benjamin C. Esty /s/ Allen R. Freedman* Trustee July 19, 2007 -------------------------------- Allen R. Freedman /s/ William H. Park* Trustee July 19, 2007 -------------------------------- William H. Park /s/ Ronald A. Pearlman* Trustee July 19, 2007 -------------------------------- Ronald A. Pearlman |
/s/ Norton H. Reamer* Trustee July 19, 2007 -------------------------------- Norton H. Reamer /s/ Heidi L. Steiger* Trustee July 19, 2007 -------------------------------- Heidi L. Steiger /s/ Lynn A. Stout* Trustee July 19, 2007 -------------------------------- Lynn A. Stout /s/ Ralph F. Verni* Trustee July 19, 2007 -------------------------------- Ralph F. Verni |
*By: /s/ Alan R. Dynner
---------------------------
Alan R. Dynner
(As Attorney-in-Fact)
|
INDEX TO EXHIBITS
(h)(1) Form of Underwriting Agreement
(k)(4) Form of Structuring Fee Agreement with Citigroup Global Markets Inc.
(k)(5) Form of Structuring Fee Agreement with UBS Securities LLC
(k)(6) Form of Structuring Fee Agreement with Wachovia Capital Markets, LLC
(k)(7) Form of Structuring Fee Agreement with A.G. Edwards & Sons, Inc.
(k)(8) Form of Additional Compensation Agreement with Merrill Lynch, Pierce, Fenner & Smith
(k)(9) Form of Additional Compensation Agreement with certain qualifying underwriters
(l) Opinion and Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP as to Registrant's Common Shares
(n) Consent of Independent Registered Public Accounting Firm
Exhibit (h)(1)
EATON VANCE RISK-MANAGED DIVERSIFIED EQUITY INCOME FUND
______ COMMON SHARES OF BENEFICIAL INTEREST
($0.01 par value)
FORM OF UNDERWRITING AGREEMENT
New York, New York
July __, 2007
Citigroup Global Markets Inc.
[Others]
As Representatives of the several Underwriters
listed on Schedule I hereto
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
The undersigned, Eaton Vance Risk-Managed Diversified Equity Income Fund, a Massachusetts business trust (the "Fund"), Eaton Vance Management, a Massachusetts business trust (the "Investment Adviser"), and Rampart Investment Management Company, Inc., a Massachusetts corporation (the "Sub-Adviser" and together with the Investment Adviser, the "Advisers"), address you as underwriters and as the representatives (the "Representatives") of each of the several underwriters named in Schedule I hereto (the "Underwriters"). The Fund proposes to sell to the Underwriters _____ shares of its common shares of beneficial interest, par value $0.01 per share (the "Common Shares") (said shares to be issued and sold by the Fund being hereinafter called the "Underwritten Securities"). The Fund also proposes to grant to the Underwriters an option to purchase up to _______ additional Common Shares to cover over-allotments (the "Option Securities"; the Option Securities, together with the Underwritten Securities, being hereinafter called the "Securities"). Unless otherwise stated, the term "you" as used herein means Citigroup Global Markets Inc. individually on its own behalf and on behalf of the other Representatives. Certain terms used herein are defined in Section 21 hereof.
The Fund has entered into an Investment Advisory Agreement with the Investment Adviser dated as of ______, 2007, a Custodian Agreement with Investors Bank & Trust Company dated as of ____, 2007, an Administration Agreement with the Investment Adviser dated as of ________, 2007, and a Transfer Agency Agreement with Investors Bank & Trust Company dated as of _____, 2007, and such agreements are herein referred to as the
"Management Agreement," the "Custodian Agreement," the "Administration Agreement," and the "Transfer Agency Agreement", respectively. The Investment Adviser has entered into a Sub-Advisory Agreement with the Sub-Adviser dated as of ____, 2007, a Structuring Fee Agreement with Citigroup Global Markets Inc. dated as of _____, 2007 and an Additional Compensation Agreement with _________ dated as of ____, 2007, and such agreements are herein referred to as the "Sub-Advisory Agreement," the "Structuring Fee Agreement" and the "____ Additional Compensation Agreement." Collectively, the Management Agreement, the Custodian Agreement, the Administration Agreement and the Transfer Agency Agreement are herein referred to as the "Fund Agreements." In addition, the Fund has adopted a dividend reinvestment plan (the "Dividend Reinvestment Plan") pursuant to which holders of Common Shares shall have their dividends automatically reinvested in additional Common Shares of the Fund unless they elect to receive such dividends in cash.
1. Representations and Warranties of the Fund and the Advisers. The Fund and the Advisers, jointly and severally, represent and warrant to, and agree with, each Underwriter as set forth below in this Section 1.
(a) The Fund has prepared and filed with the Commission a registration statement (file numbers 333-141981 and 811-22044) on Form N-2, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), for registration under the Act and the 1940 Act of the offering and sale of the Securities. Such Registration Statement, including any amendments thereto filed prior to the Execution Time, has become effective. The Fund may have filed one or more amendments thereto, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), each of which has previously been furnished to you. The Fund will file with the Commission a final prospectus (including the statement of additional information incorporated by reference therein) in accordance with Rule 497. As filed, such final prospectus (including the statement of additional information incorporated by reference therein) shall contain all information required by the Act and the 1940 Act and the Rules and Regulations and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Fund has advised you, prior to the Execution Time, will be included or made therein.
(b) Each Preliminary Prospectus complied when filed with the Commission in all material respects with the provisions of the Act, the 1940 Act and the Rules and Regulations, and the Preliminary Prospectus and the Rule 430A Information, when taken together as a whole, as of the Execution Time, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Fund makes no representations or warranties as to the information contained in or omitted from a Preliminary Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Fund by or on behalf of any Underwriter specifically for inclusion therein, it being
understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(b) hereof.
(c) On the Effective Date, the Registration Statement did, and when the Prospectus is first filed in accordance with Rule 497 and on the Closing Date (as defined herein) and on any date on which Option Securities are purchased, if such date is not the Closing Date (a "settlement date"), the Prospectus (and any supplements thereto) will, and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission did or will, comply in all material respects with the applicable requirements of the Act, the 1940 Act and the Rules and Regulations; on the Effective Date and at the Execution Time, the Registration Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and on the date of any filing pursuant to Rule 497 and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Fund makes no representations or warranties as to the information -------- ------- contained in or omitted from the Registration Statement, or the Prospectus (or any supplement thereto), in reliance upon and in conformity with information furnished in writing to the Fund by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto), it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(b) hereof. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus.
(d) The Fund has been duly formed and is validly existing in good standing as a business trust under the laws of the Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, each Preliminary Prospectus and the Prospectus and is duly qualified to do business and is in good standing under the laws of each jurisdiction which requires such qualification. The Fund has no subsidiaries.
(e) The Fund's authorized equity capitalization is as set forth in each Preliminary Prospectus and the Prospectus; the capital stock of the Fund conforms in all material respects to the description thereof contained in each Preliminary Prospectus and the Prospectus; all outstanding Common Shares have been duly and validly authorized and issued and are fully paid and nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the Securities are duly listed, and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution, on the NYSE; the certificates for the Securities are in valid and sufficient form; the holders of outstanding Common Shares are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in each Preliminary Prospectus and the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Fund are outstanding.
(f) The Fund's registration statement on Form 8-A under the Exchange Act has become effective.
(g) The Fund, subject to the Registration Statement having been declared effective and the filing of the Prospectus under Rule 497, has taken all required action under the Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Securities as contemplated by this Agreement.
(h) There are no agreements, contracts, indentures, leases, permits or other instruments of a character required to be described in the Registration Statement, any Preliminary Prospectus or the Prospectus, or to be filed as an exhibit to the Registration Statement, which are not described or filed as required; the statements in the Registration Statement, each Preliminary Prospectus and the Prospectus under the headings "Management of the Fund - Regulatory and Litigation Matters," "Description of Shares," "Anti-Takeover and Other Provisions in the Declaration of Trust" and "Tax Matters," insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal maters, agreements, documents or proceedings.
(i) The execution and delivery of and the performance by the Fund of its obligations under this Agreement and the Fund Agreements have been duly and validly authorized by the Fund and this Agreement and the Fund Agreements have been duly executed and delivered by the Fund and constitute the valid and legally binding agreements of the Fund, enforceable against the Fund in accordance with their terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Fund's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(j) The Fund is duly registered under the 1940 Act as a closed-end, diversified management investment company and the 1940 Act Notification has been duly filed with the Commission. The Fund has not received any notice from the Commission pursuant to Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the Registration Statement.
(k) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Fund Agreements, except such as have been made or obtained under the Act, the 1940 Act, the Exchange Act, the Advisers Act, the rules and regulations of the NASD and the NYSE, and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities
by the Underwriters in the manner contemplated herein and in each Preliminary Prospectus and the Prospectus.
(l) Neither the issuance and sale of the Securities, the execution, delivery or performance of this Agreement or any of the Fund Agreements, nor the consummation of the transactions herein or therein contemplated, nor the fulfillment of the terms hereof or thereof or the adoption of the Dividend Reinvestment Plan, conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, (i) the Declaration of Trust or by-laws of the Fund, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Fund is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Fund of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Fund or any of its properties.
(m) No holders of securities of the Fund have rights to the registration of such securities under the Registration Statement.
(n) The financial statements, together with related schedules and notes, included or incorporated by reference in each Preliminary Prospectus, the Prospectus and the Registration Statement present fairly the financial condition, results of operations and cash flows of the Fund as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act and the 1940 Act and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein); and the other financial and statistical information and data included in the Registration Statement, each Preliminary Prospectus and the Prospectus are accurately derived from such financial statements and the books and records of the Fund.
(o) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Fund or its property is pending or, to the best knowledge of the Fund, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions herein contemplated or (ii) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto).
(p) The Fund owns or leases all such properties as are necessary to the conduct of its operations as presently conducted.
(q) The Fund is not in violation or default of (i) any provision of its Declaration of Trust or by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Fund or any of its properties.
(r) Since the date as of which information is given in each
Preliminary Prospectus and Prospectus, except as otherwise stated therein,
(i) there has been no material, adverse change in the condition (financial
or other), prospects, earnings, business or properties of the Fund, whether
or not arising in the ordinary course of business, (ii) there have been no
transactions entered into by the Fund which are material to the Fund other
than those in the ordinary course of its business as described in each
Preliminary Prospectus and the Prospectus and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Fund on
any class of its Common Shares.
(s) _______, who have certified the financial statements of the Fund and delivered their report with respect to the audited financial statements included or incorporated by reference in the Registration Statement, each Preliminary Prospectus and the Prospectus, is an independent registered public accounting firm with respect to the Fund within the meaning of the Act, the 1940 Act and the Rules and Regulations.
(t) The Fund has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the
Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Registration
Statement, each Preliminary Prospectus, the Prospectus or other materials
permitted by the Act, the 1940 Act or the Rules and Regulations.
(u) All advertising, sales literature or other promotional material (including "prospectus wrappers", "broker kits", "road show slides" and "road show scripts"), whether in printed or electronic form, authorized in writing by or prepared by the Fund or the Advisers for use in connection with the offering and sale of the Securities (collectively, "sales material") complied and comply in all material respects with the applicable requirements of the Act, the 1940 Act, the Rules and Regulations and the rules and interpretations of the NASD and if required to be filed with the NASD under the NASD's conduct rules were provided to Simpson Thacher & Bartlett LLP, counsel for the Underwriters, for filing. No sales material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(v) The Fund's trustees and officers errors and omissions insurance policy and its fidelity bond required by Rule 17g-1 of the 1940 Act Rules and Regulations are in full force and effect; the Fund is in compliance with the terms of such policy and fidelity bond in all material respects; and there are no claims by the Fund under any such policy or fidelity bond as to which any insurance company is denying liability or defending under a reservation of rights clause; the Fund has not been refused any insurance coverage sought or applied for; and the Fund has no reason to believe that it will not be able to renew its existing insurance coverage and fidelity bond as and when such coverage and fidelity bond expires or to obtain similar coverage and fidelity bond from
similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto).
(w) The Fund possesses all licenses, certificates, permits and other authorizations issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, and the Fund has not received any notice of proceedings relating to the revocation or modification of any such license, certificate, permit or authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto).
(x) The Fund maintains and will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization and with the investment objectives, policies and restrictions of the Fund and the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, to calculate net asset value, to maintain accountability for assets and to maintain material compliance with the books and records requirements under the 1940 Act and the 1940 Act Rules and Regulations; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Fund's internal controls over financial reporting are effective and the Fund is not aware of any material weakness in its internal control over financial reporting.
(y) The Fund maintains "disclosure controls and procedures" (as such term is defined in Rule 30a-3 under the 1940 Act); such disclosure controls and procedures are effective.
(z) The Fund has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities, and the Fund is not aware of any such action taken or to be taken by any affiliates of the Fund.
(aa) This Agreement and each of the Fund Agreements complies in all material respects with all applicable provisions of the Act, the 1940 Act, the Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(bb) Except as disclosed in each Preliminary Prospectus and the Prospectus, no trustee of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of any Underwriter listed in Schedule I hereto.
(cc) The Fund intends to direct the investment of the proceeds of the offering of the Securities in such a manner as to comply with the requirements of Subchapter M of the Code.
(dd) The conduct by the Fund of its business (as described in each Preliminary Prospectus and the Prospectus) does not require it to be the owner, possessor or licensee of any patents, patent licenses, trademarks, service marks or trade names which it does not own, possess or license.
(ee) The Fund has filed all foreign, federal, state and local tax returns required to be filed or has properly requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto)) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto); and the Fund has been and is currently in compliance with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.
(ff) There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance by the Fund or sale by the Fund of the Securities.
(gg) Except as disclosed in the Registration Statement, each Preliminary Prospectus and the Prospectus, the Fund (i) does not have any material lending or other relationship with any bank or lending affiliate of Citigroup Global Markets Holdings Inc. and (ii) does not intend to use any of the proceeds from the sale of the Securities hereunder to repay any outstanding debt owed to any affiliate of Citigroup Global Markets Holdings Inc.
(hh) There is and has been no failure on the part of the Fund and any of the Fund's trustees or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection
therewith (the "Sarbanes-Oxley Act"), including Sections 302 and 906 related to certifications.
(ii) The Fund has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Federal Securities Laws (as that term is defined in Rule 38a-1 under the 1940 Act) by the Fund, including policies and procedures that provide oversight of compliance by each investment adviser, administrator and transfer agent of the Fund.
Any certificate signed by any officer of the Fund and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Fund, as to matters covered therein, to each Underwriter.
2. Representations and Warranties of the Advisers. Each of the Investment Adviser and the Sub-Adviser, severally as to itself only and not jointly or as to any other party, represents and warrants to, and agrees with, each Underwriter as follows:
(a) Such Adviser has been duly formed and is validly existing in good standing under the laws of the jurisdiction of its organization, with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, each Preliminary Prospectus and the Prospectus, and is duly qualified to do business and is in good standing under the laws of each jurisdiction which requires such qualification.
(b) The Investment Adviser is duly registered as an investment adviser under the Advisers Act and the Investment Adviser is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the ________ Additional Compensation Agreement, and the Sub-Adviser is duly registered as an investment adviser under the Advisers Act and the Sub-Adviser is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act rules and Regulations from acting under the Sub-Advisory Agreement, as contemplated by each Preliminary Prospectus and the Prospectus.
(c) The Investment Adviser has full power and authority to enter into this Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the ________ Additional Compensation Agreement and the Sub-Adviser has full power and authority to enter into this Agreement and the Sub-Advisory Agreement; the execution and delivery of, and the performance by the Investment Adviser of its obligations under, this Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement have been duly and validly authorized by the Investment Adviser and the execution and delivery of, and the performance by the Sub-Adviser of its obligations under, this Agreement and the Sub-Advisory Agreement, have been duly and validly authorized by
the Sub-Adviser; and this Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement have been duly executed and delivered by the Investment Adviser and this Agreement and the Sub-Advisory Agreement have been duly executed and delivered by the Sub-Adviser, and each such agreement constitutes the valid and legally binding agreement of such Adviser, enforceable against such Adviser in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of such Adviser's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(d) Such Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in each Preliminary Prospectus and the Prospectus and under this Agreement, the Management Agreement, the Sub-Advisory Agreement, the Structuring Fee Agreement and the ______ Additional Compensation Agreement, as applicable.
(e) The description of such Adviser and its business, and the statements attributable to such Adviser, in the Registration Statement, each Preliminary Prospectus and the Prospectus complied and comply in all material respects with the provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(f) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving such Adviser or its property is pending or, to the best knowledge of such Adviser, threatened that (i) is required to be described in each Preliminary Prospectus and the Prospectus that is not so described as required, (ii) could reasonably be expected to have a material adverse effect on the ability of such Adviser to fulfill its obligations hereunder or under the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the ______ Additional Compensation Agreement, as applicable or (iii) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of such Adviser, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto); and there are no agreements, contracts, indentures, leases, permits or other instruments relating to such Adviser that are required to be described in the Registration Statement, each Preliminary Prospectus or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act, the 1940 Act or the Rules and Regulations.
(g) Since the date as of which information is given in each Preliminary Prospectus and the Prospectus, except as otherwise stated therein, (i) there has been no material, adverse change in the condition (financial or other), prospects, earnings,
business or properties of such Adviser, whether or not arising from the ordinary course of business and (ii) there have been no transactions entered into by such Adviser which are material to such Adviser other than those in the ordinary course of its business as described in each Preliminary Prospectus and the Prospectus.
(h) Such Adviser possesses all licenses, certificates, permits and other authorizations issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, and has not received any notice of proceedings relating to the revocation or modification of any such license, certificate, permit or authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of such Adviser, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto).
(i) This Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement comply in all material respects with all applicable provisions of the Act, the 1940 Act, the Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(j) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement, except such as have been made or obtained under the Act and the 1940 Act, the Exchange Act, the Advisers Act, the rules and regulations of the NASD and the NYSE, and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in each Preliminary Prospectus and the Prospectus.
(k) Neither the execution, delivery or performance of this Agreement or the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement, as applicable, nor the consummation of the transactions herein or therein contemplated, nor the fulfillment of the terms hereof or thereof, conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of either Adviser pursuant to, (i) the organizational documents of such Adviser, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which such Adviser is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to such Adviser of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over such Adviser or any of its properties.
(l) Such Adviser has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the
Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities, and such Adviser is not aware of any such action taken or to be taken by any affiliates of such Adviser.
(m) In the event that the Fund or such Adviser makes available any promotional materials related to the Securities or the transactions contemplated hereby intended for use only by registered broker-dealers and registered representatives thereof by means of an Internet web site or similar electronic means, such Adviser will install and maintain pre-qualification and password-protection or similar procedures which are reasonably designed to effectively prohibit access to such promotional materials by persons other than registered broker-dealers and registered representatives thereof.
Any certificate signed by any officer of such Adviser and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by such Adviser, as to matters covered therein, to each Underwriter.
3. Purchase and Sale. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Fund agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Fund, at a purchase price of $______ per share, the amount of the Underwritten Securities set forth opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Fund hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to ________ Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time on or before the 45th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Fund setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.
4. Delivery and Payment. Delivery of and payment for the Underwritten Securities and the Option Securities (if the option provided for in Section 3(b) hereof shall have been exercised on or before the third Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on ________, 2007 or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Fund or as provided in Section 10 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the
several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Fund by wire transfer payable in same-day funds to an account specified by the Fund. Delivery of the Underwritten Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 3(b) hereof is exercised after the third Business Day prior to the Closing Date, the Fund will deliver the Option Securities (at the expense of the Fund) to the Representatives, at 388 Greenwich Street, New York, New York, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Fund by wire transfer payable in same-day funds to an account specified by the Fund. If settlement for the Option Securities occurs after the Closing Date, the Fund will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 7 hereof.
5. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus.
6. Agreements of the Fund and the Advisers. The Fund and the Advisers, jointly and severally, agree with the several Underwriters that:
(a) Prior to the termination of the offering of the Securities, the Fund will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Fund has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. The Fund will cause the Prospectus, properly completed, and any supplement thereto to be filed in a form approved by the Representatives with the Commission pursuant to the applicable paragraph of Rule 497 within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Fund will promptly advise the Representatives (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 497 or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (ii) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any notice objecting to its use or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Fund of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Fund will use its best efforts to prevent the issuance of any such stop order or the occurrence of any such suspension or objection to
the use of the Registration Statement and, upon such issuance, occurrence or notice of objection, to obtain as soon as possible the withdrawal of such stop order or relief from such occurrence or objection, including, if necessary, by filing an amendment to the Registration Statement or a new registration statement and using its best efforts to have such amendment or new registration statement declared effective as soon as practicable.
(b) If, at any time when a prospectus relating to the Securities is required to be filed or delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made at such time not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act, the 1940 Act and the Rules and Regulations, the Fund promptly will (i) notify the Representatives of any such event; (ii) prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 6, an amendment or supplement which will correct such statement or omission or effect such compliance; and (iii) supply any supplemented Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Fund will make generally available to its security holders and to the Representatives an earnings statement or statements of the Fund which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Fund will furnish to the Representatives and counsel for the Underwriters signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Representatives may reasonably request.
(e) The Fund will arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may designate and will maintain such qualifications in effect so long as required for the distribution of the Securities; provided that in no event shall the Fund be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject.
(f) The Fund will not, without the prior written consent of Citigroup Global Markets Inc., offer, sell, contract to sell, pledge, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Fund or any affiliate of the Fund or any person in privity with the Fund, directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other Common Shares or any securities
convertible into, or exercisable, or exchangeable for, Common Shares; or publicly announce an intention to effect any such transaction for a period of 180 days after the date of this Agreement, provided, however, that the Fund may issue and sell Common Shares pursuant to any dividend reinvestment plan of the Fund in effect at the Execution Time.
(g) The Fund will comply with all applicable securities and other applicable laws, rules and regulations, including, without limitation, the Sarbanes-Oxley Act, and will use its best efforts to cause the Fund's trustees and officers, in their capacities as such, to comply with such laws, rules and regulations, including, without limitation, the provisions of the Sarbanes-Oxley Act.
(h) The Fund and the Advisers will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities.
(i) The Fund agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus and the 1940 Act Notification and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, any sales material and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp or transfer taxes in connection with the original issuance and sale of the Securities; (iv) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum, dealer agreements and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the registration of the Securities under the Exchange Act and the listing of the Securities on the NYSE; (vi) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such registration and qualification); (vii) any filings required to be made with the NASD (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such filings); (viii) the transportation and other expenses incurred by or on behalf of Fund representatives in connection with presentations to prospective purchasers of the Securities; (ix) the fees and expenses of the Fund's accountants and the fees and expenses of counsel (including local and special counsel) for the Fund; (x) all other costs and expenses incident to the performance by the Fund of its obligations hereunder; and (xi) an amount equal to $0.005 per Common Share for each Common Share sold pursuant to this Agreement, payable no later than 45 days from the date of this Agreement to the Underwriters in partial reimbursement of their expenses in connection with the offering. To the extent that the foregoing costs and expenses incidental to the performance of the obligations of the Fund under this Agreement, as
well as the Fund's other costs associated with the offering of the Securities (other than the sales load) exceed $0.04 per Security, the Investment Adviser or an affiliate will pay all such costs and expenses.
(j) The Fund will direct the investment of the net proceeds of the offering of the Securities in such a manner as to comply with the investment objectives, policies and restrictions of the Fund as described in each Preliminary Prospectus and the Prospectus.
(k) The Fund will comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.
(l) The Fund and the Advisers will use their reasonable best efforts to perform all of the agreements required of them by this Agreement and discharge all conditions of theirs to closing as set forth in this Agreement.
7. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Fund and the Advisers contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 4 hereof, to the accuracy of the statements of the Fund and the Advisers made in any certificates pursuant to the provisions hereof, to the performance by the Fund or the Advisers of their obligations hereunder and to the following additional conditions:
(a) The Prospectus and any supplements thereto have been filed in the manner and within the time period required by Rule 497; and no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use or order pursuant to Section 8(e) of the 1940 Act shall have been issued and no proceedings for that purpose shall have been instituted or threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been complied with in all material respects.
(b) The Fund shall have requested and caused Kirkpatrick & Lockhart Preston Gates Ellis LLP, counsel for the Fund, to have furnished to the Representatives its opinion, dated the Closing Date and addressed to the Representatives, to the effect that:
(i) The Fund has been duly formed and is validly existing in good standing as a business trust under the laws of the Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in each Preliminary Prospectus and the Prospectus, and is duly qualified to do business and is in good standing under the laws of each jurisdiction which requires such qualification. The Fund has no subsidiaries;
(ii) The Fund is duly registered under the 1940 Act as a closed-end, diversified management investment company and the 1940 Act Notification has been duly filed with the Commission; all action has been taken by the Fund as required by the Act, the 1940 Act and the Rules and Regulations in connection
with the issuance and consummation and sale of the Securities as contemplated by this Agreement; this Agreement and each of the Fund Agreements complies in all material respects with all applicable provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations; and the Fund has not received any notice from the Commission pursuant to Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the Registration Statement;
(iii) This Agreement has been duly authorized, executed and delivered by the Fund;
(iv) Each of the Fund Agreements has been duly authorized, executed and delivered by the Fund, and constitutes a valid and legally binding agreement of the Fund, enforceable against the Fund in accordance with its terms, subject to the qualification that the enforceability of the Fund's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles;
(v) Neither the issuance and sale of the Securities, the execution, delivery or performance of this Agreement or any of the Fund Agreements, nor the consummation of the transactions herein or therein contemplated, nor the fulfillment of the terms hereof or thereof or the adoption of the Dividend Reinvestment Plan, conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, (i) the Declaration of Trust or by-laws of the Fund, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Fund is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Fund of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Fund or any of its properties;
(vi) The Fund's authorized equity capitalization is as set forth in each Preliminary Prospectus and the Prospectus; the capital stock of the Fund conforms in all material respects to the description thereof contained in the Registration Statement, each Preliminary Prospectus and the Prospectus; all outstanding Common Shares have been duly and validly authorized and issued and are fully paid and nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the Securities are duly listed, and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution, on the NYSE; the certificates for the Securities are in valid and sufficient form; the holders of outstanding Common Shares are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in each Preliminary Prospectus and the Prospectus, no options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Fund are outstanding;
(vii) There is no pending or, to the knowledge of such counsel, threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Fund or its property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in each Preliminary Prospectus and the Prospectus, and there are no agreements, contracts, indentures, leases, permits or other instruments of a character required to be described in the Registration Statement, each Preliminary Prospectus or the Prospectus, or to be filed as an exhibit to the Registration Statement, which are not described or filed as required; and the statements included in each Preliminary Prospectus and the Prospectus under the headings "Description of Capital Structure", "Federal Income Tax Matters" and "Taxes", insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings;
(viii) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Fund Agreements, except such as have been made or obtained under the Act, the 1940 Act, the Exchange Act, the Advisers Act, the rules and regulations of the NASD and the NYSE and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated in this Agreement and in each Preliminary Prospectus and the Prospectus;
(ix) No holders of securities of the Fund have rights to the registration of such securities under the Registration Statement; and
(x) The Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 497 have been made in the manner and within the time period required by Rule 497; to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement, each Preliminary Prospectus and the Prospectus (other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act, the 1940 Act and the Rules and Regulations; and such counsel has no reason to believe that (a) the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (b) the Preliminary Prospectus and the price to the public, the number of
Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, when taken together as a whole, as of the time of the pricing of the offering of the Underwritten Securities, included any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (c) the Prospectus as of its date and on the Closing Date included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the Commonwealth of Massachusetts or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of ________________________ or other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Fund and public officials. References to the Prospectus in this paragraph (b) shall also include any supplements thereto at the Closing Date.
(c) You shall have received on the Closing Date an opinion of ___________________________, ___________________ of the Investment Adviser, dated the Closing Date and addressed to the Representatives, to the effect that:
(i) The Investment Adviser has been duly formed and is validly existing in good standing as a business trust under the laws of the Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in each Preliminary Prospectus and the Prospectus, and is duly qualified to do business and is in good standing under the laws of each jurisdiction which requires such qualification;
(ii) The Investment Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the __________________ Additional Compensation Agreement as contemplated by each Preliminary Prospectus and the Prospectus;
(iii) The Investment Adviser has full power and authority to enter into this Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement, and the ________________ Additional Compensation Agreement;
(iv) This Agreement has been duly authorized, executed and delivered by the Investment Adviser;
(v) The Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the ______________ Additional Compensation Agreement have been duly authorized, executed and delivered by the Investment Adviser and the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the __________________ Additional Compensation Agreement are each a valid and legally binding agreement of the Investment Adviser, enforceable against the Investment Adviser in accordance with its terms subject to the qualification that the enforceability of the Investment Adviser's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles;
(vi) This Agreement, the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _____________ Additional Compensation Agreement comply in all material respects with all applicable provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations;
(vii) Neither the execution, delivery or performance of this Agreement or the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the _______ Additional Compensation Agreement nor the consummation of the transactions herein or therein contemplated, nor the fulfillment of the terms hereof or thereof, conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Investment Adviser pursuant to, (i) the organizational documents of the Investment Adviser, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Investment Adviser is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Adviser of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Investment Adviser or any of its properties;
(viii) The description of the Investment Adviser and its business in each Preliminary Prospectus and the Prospectus complies in all material respects with the provisions of the Act, the 1940 Act and the Rules and Regulations;
(ix) There is no pending or, to the knowledge of such counsel, threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Investment Adviser or its property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in each Preliminary Prospectus and the
Prospectus, and there are no agreements, contracts, indentures, leases, permits or other instruments of a character required to be described in the Registration Statement, each Preliminary Prospectus or the Prospectus, or to be filed as an exhibit to the Registration Statement, which are not described or filed as required;
(x) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Management Agreement, the Sub-Advisory Agreement, the Administration Agreement, the Structuring Fee Agreement and the ___________ Additional Compensation Agreement, except such as have been made or obtained under the Act, the 1940 Act, the Exchange Act and the Advisers Act, the rules and regulations of the NASD and the NYSE and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated in this Agreement and in the Prospectus and each Preliminary Prospectus; and
(xi) Such counsel has no reason to believe that (a) the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (b) the Preliminary Prospectus and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, when taken together as a whole, as of the time of the pricing of the offering of the Underwritten Securities, included any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (c) the Prospectus as of its date and on the Closing Date included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the Commonwealth of Massachusetts or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of ________________________ or other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Investment Adviser and public officials. References to the Prospectus in this paragraph (c) shall also include any supplements thereto at the Closing Date.
(d) You shall have received on the Closing Date an opinion of _______________, _________ for the Sub-Adviser, dated the Closing Date and addressed to the Representatives, to the effect that:
(i) The Sub-Adviser has been duly formed and is validly existing in good standing as a corporation under the laws of the Commonwealth of Massachusetts, with full power and authority to own, lease and operate its properties and to conduct its business as described in each Preliminary Prospectus and the Prospectus, and is duly qualified to do business and is in good standing under the laws of each jurisdiction which requires such qualification;
(ii) The Sub-Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Sub-Advisory Agreement as contemplated by each Preliminary Prospectus and the Prospectus;
(iii) The Sub-Adviser has full power and authority to enter into this Agreement and the Sub-Advisory Agreement;
(iv) This Agreement has been duly authorized, executed and delivered by the Sub-Adviser;
(v) The Sub-Advisory Agreement has been duly authorized, executed and delivered by the Sub-Adviser and the Sub-Advisory Agreement is a valid and legally binding agreement of the Sub-Adviser, enforceable against the Sub-Adviser in accordance with its terms subject to the qualification that the enforceability of the Sub-Adviser's obligations thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles;
(vi) This Agreement and the Sub-Advisory Agreement comply in all material respects with all applicable provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations;
(vii) Neither the execution, delivery or performance of this Agreement or the Sub-Advisory Agreement nor the consummation of the transactions herein or therein contemplated, nor the fulfillment of the terms hereof or thereof, conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Sub-Adviser pursuant to, (i) the organizational documents of the Sub-Adviser, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Sub-Adviser is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Sub-Adviser of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Sub-Adviser or any of its properties;
(viii) The description of the Sub-Adviser and its business in each Preliminary Prospectus and the Prospectus complies in all material respects with all requirements of the Act, the 1940 Act and the Rules and Regulations;
(ix) There is no pending or, to the knowledge of such counsel, threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Sub-Adviser or its property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in each Preliminary Prospectus or the Prospectus, and there are no agreements, contracts, indentures, leases, permits or other instruments of a character required to be described in the Registration Statement, each Preliminary Prospectus or the Prospectus, or to be filed as an exhibit to the Registration Statement, which are not described or filed as required;
(x) No consent, approval, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Sub-Advisory Agreement, except such as have been made or obtained under the Act, the 1940 Act, the Exchange Act and the Advisers Act, the rules and regulations of the NASD and the NYSE and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated in this Agreement and in each Preliminary Prospectus and the Prospectus; and
(xi) Such counsel has no reason to believe that (a) the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (b) the Preliminary Prospectus and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, when taken together as a whole, as of the time of the pricing of the offering of the Underwritten Securities, included any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (c) the Prospectus as of its date and on the Closing Date included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the Commonwealth of Massachusetts or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of ________________________ or other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Sub-Adviser and public officials. References to the Prospectus in this paragraph (d) shall also include any supplements thereto at the Closing Date.
(e) The Representatives shall have received from Simpson Thacher & Bartlett LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Preliminary Prospectus and the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Fund and the Advisers shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(f) Each of the Fund and the Advisers shall have furnished to the Representatives a certificate, signed by the Chairman of the Board or the President or Executive Vice President and the principal financial or accounting officer of each of the Fund and the Advisers, as the case may be, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, each Preliminary Prospectus and the Prospectus, any amendments or supplements thereto and this Agreement and that:
(i) The representations and warranties of the Fund or the Advisers, as the case may be, in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and the Fund or the Advisers, as the case may be, have complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use has been issued and no proceedings for that purpose have been instituted or, to the Fund's or each of the Adviser's knowledge, as the case may be, threatened; and
(iii) Since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto) (with respect to the certificate of the Fund) and since the date of the Prospectus (exclusive of any supplements thereto) (with respect to the certificate of the Advisers), there has been no material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund or each of the Advisers, as the case may be, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in each Preliminary Prospectus and the Prospectus (exclusive of any supplement thereto).
(g) The Fund shall have requested and caused ______ to have furnished to the Representatives, at the Execution Time and at the Closing Date, letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the 1940 Act and the Rules and Regulations and stating in effect that:
(i) in their opinion the audited financial statements and financial statement schedules included in the Registration Statement, Preliminary Prospectus and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Act, the 1940 Act and the Rules and Regulations; and
(ii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Fund) set forth in the Registration Statement, each Preliminary Prospectus and the Prospectus, including the information set forth under the captions "Summary of Fund Expenses" in the Prospectus, agrees with the accounting records of the Fund, excluding any questions of legal interpretation.
References to the Prospectus in this paragraph (g) include any supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (g) of this Section 7 or
(ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), prospects, earnings,
business or properties of the Fund and each of the Advisers, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in each Preliminary Prospectus and the Prospectus
(exclusive of any supplement thereto) the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof), each Preliminary Prospectus and the Prospectus (exclusive of any
supplement thereto).
(i) The Securities shall have been listed and admitted and authorized for trading on the NYSE, and satisfactory evidence of such actions shall have been provided to the Representatives.
(j) Prior to the Closing Date, the Fund and the Advisers shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request.
(k) If any of the conditions specified in this Section 7 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at
any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Fund in writing or by telephone or facsimile confirmed in writing.
(l) The documents required to be delivered by this Section 7 shall be delivered at the office of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, at 425 Lexington Avenue, New York, New York 10017, on the Closing Date.
8. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied, because of any termination pursuant to Section 11 hereof or because of any refusal, inability or failure on the part of the Fund or the Advisers to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Advisers will reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
9. Indemnification and Contribution. (a) The Fund and the Advisers, jointly and severally, agree to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof (and including any post-effective amendment, any Rule 462(b) Registration Statement and any Rule 430A Information deemed to be included or incorporated therein), or in any Preliminary Prospectus, the Prospectus, any sales material or in any amendment thereof or supplement thereto, or arise out of or are based upon 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, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Fund and the Advisers will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Fund and the Advisers by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Fund and the Advisers may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless each of the Fund and the Advisers, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Fund or the Advisers within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Fund and the Advisers to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Fund or the Advisers by or on behalf of
such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Fund and the Advisers acknowledge that the statements set forth in the [last paragraph of the cover page regarding delivery of the Securities and, under the heading "Underwriting", (i) the list of Underwriters and their respective participation in the sale of the Securities, (ii) the sentences related to concessions and reallowances and (iii) the paragraphs related to stabilization, syndicate covering transactions and penalty bids] in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters specifically for inclusion in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a), (b) or
(c) of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Fund, the Advisers and the Underwriters
severally agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively, "Losses") to which the Fund, the Advisers and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Advisers on the one hand (treated jointly for this purpose as one person) and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Fund, the Advisers and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Fund and the Advisers on the one hand (treated jointly for this purpose as one person) and of the Underwriters on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Fund and the Advisers (treated jointly for this purpose as one person) shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by the Fund, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Fund and the Advisers on the one hand (treated jointly for this purpose as one person) or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Fund, the Advisers and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Fund or the Advisers within the meaning of either the Act or the Exchange Act, each officer of the Fund and the Advisers who shall have signed the Registration Statement and each director or trustee of the Fund and the Advisers shall have the same rights to contribution as the Fund and the Advisers, subject in each case to the applicable terms and conditions of this paragraph (d).
10. Default by an Underwriter. If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Underwriter or Underwriters agreed
but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter, the Fund or the Advisers. In the event of a default by any Underwriter as set forth in this Section 10, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Fund and any nondefaulting Underwriter for damages occasioned by its default hereunder.
11. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, without liability on the part of the Underwriters to the Fund or the Advisers, by notice given to the Fund or the Advisers prior to delivery of and payment for the Securities, if at any time prior to such time (a) trading in the Fund's Common Shares shall have been suspended by the Commission or the NYSE or trading in securities generally on the NYSE shall have been suspended or limited or minimum prices shall have been established on the NYSE, (b) a banking moratorium shall have been declared either by Federal or New York State authorities or (c) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by each Preliminary Prospectus or the Prospectus (exclusive of any supplement thereto).
12. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of each of the Fund and the Advisers or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Fund or the Advisers or any of the officers, directors, trustees, employees, agents or controlling persons referred to in Section 9 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 8 and 9 hereof shall survive the termination or cancellation of this Agreement.
13. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Citigroup Global Markets Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Citigroup Global
Markets Inc., at 388 Greenwich Street, New York, New York, 10013, Attention:
General Counsel; or, if sent to the Fund or the Advisers, will be mailed,
delivered or telefaxed to the Fund (fax no.: (__) ______) and confirmed to it at
___________, attention of the Legal Department.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 9 hereof, and no other person will have any right or obligation
hereunder.
15. Applicable Law. This Agreement will 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.
16. Waiver of Jury Trial. Each of the Fund, the Investment Adviser, the Sub-Adviser and the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
17. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
18. Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) among the Fund, the Advisers and the Underwriters, or any of them, with respect to the subject matter thereof.
19. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
20. No Fiduciary Duty. Each of the Fund and Advisers hereby acknowledges that (a) the purchase and sale of the Securities pursuant to this Agreement is an arm's-length commercial transaction between the Fund and Advisers, on the one hand, and the Underwriters and any affiliate, through which they may be acting, on the other, (b) the Underwriters are acting as principal and not as an agent or fiduciary of the Fund or Advisers and (c) the Fund's and Advisers' engagement of the Underwriters in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, each of the Fund and Advisers agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Underwriters has advised or is currently advising the Fund or Advisers on related or other matters). Each of the Fund and Advisers agrees that it will not claim that the Underwriters have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Fund or Advisers, in connection with such transaction or the process leading thereto.
21. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"1940 Act Rules and Regulations" shall mean the rules and regulations of the Commission under the 1940 Act.
"1940 Act Notification" shall mean a notification of registration of the Fund as an investment company under the 1940 Act on Form N-8A, as the 1940 Act Notification may be amended from time to time.
"Act" shall mean the Securities Act of 1933, as amended.
"Act Rules and Regulations" shall mean the rules and regulations of the Commission under the Act.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as amended.
"Advisers Act Rules and Regulations" shall mean the rules and regulations of the Commission under the Advisers Act.
"Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NYSE" shall mean the New York Stock Exchange.
"Preliminary Prospectus" shall mean the preliminary prospectus (including the statement of additional information incorporated by reference therein) dated June ___, 2007 and any preliminary prospectus (including the statement of additional information incorporated by reference therein) included in the Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities that is first filed pursuant to Rule 497 after the Execution Time.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements and any prospectus supplement relating to the Securities that is
filed with the Commission pursuant to Rule 497 and deemed part of such
registration statement pursuant to Rule 430A, as amended at the Execution
Time and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing Date,
shall also mean such registration statement as so amended or such Rule
462(b) Registration Statement, as the case may be. Such term shall include
any Rule 430A Information deemed to be included therein at the Effective
Date as provided by Rule 430A.
"Rule 430A" and "Rule 462" refer to such rules under the Act.
"Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
"Rule 497" refers to Rule 497(c) or 497(h) under the Act, as applicable.
"Rules and Regulations" shall mean, collectively, the Act Rules and Regulations and the 1940 Act Rules and Regulations.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Fund, the Advisers and the several Underwriters.
Very truly yours,
EATON VANCE RISK-MANAGED DIVERSIFIED
EQUITY INCOME FUND
EATON VANCE MANAGEMENT
RAMPART INVESTMENT MANAGEMENT
COMPANY, INC.
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
Citigroup Global Markets Inc.
[Others]
By: Citigroup Global Markets Inc.
For themselves and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
SCHEDULE I
NUMBER OF UNDERWRITTEN
UNDERWRITERS SECURITIES TO BE PURCHASED
------------ --------------------------
Citigroup Global Markets Inc.
TOTAL
|
Exhibit (k)(4)
FORM OF STRUCTURING FEE AGREEMENT
July [__], 2007
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), by and among Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund"), Eaton Vance Management (the "Adviser") and Rampart Investment Management Company, Inc. and each of the Underwriters named therein, with respect to the issue and sale of the Fund's Common Shares, as described therein. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
1. Fee. In consideration of your services in offering advice relating to the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund's Common Shares, which services may be completed by your affiliate in your sole discretion, the Adviser shall pay a fee to you in the aggregate amount of $[__________] (the "Fee"). The Fee shall be paid on or before [___], 2007. The payment shall be made by wire transfer to the order of Citigroup Global Markets Inc.
2. Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof.
3. Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
4. Not an Investment Adviser; No Fiduciary Duty. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that your engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the
Adviser agrees that it is solely responsible for making its own judgments in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).
5. Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).
6. Assignment. This Agreement may not be assigned by any party without prior written consent of the other party.
7. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof.
[END OF TEXT]
This Agreement shall be effective as of the date first written above.
EATON VANCE MANAGEMENT
Agreed and Accepted:
CITIGROUP GLOBAL MARKETS INC.
INDEMNIFICATION AGREEMENT
July [__], 2007
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
In connection with the engagement of Citigroup Global Markets Inc. (the "Bank") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Structuring Fee Agreement dated July [__], 2007 between the Company and the Bank (the "Agreement"), in the event that the Bank becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") with respect to the services performed pursuant to and in accordance with the Agreement, the Company agrees to indemnify, defend and hold the Bank harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily from the gross negligence or willful misconduct of the Bank. In addition, in the event that the Bank becomes involved in any capacity in any Proceeding with respect to the services performed pursuant to and in accordance with the Agreement, the Company will reimburse the Bank for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by the Bank in connection therewith. Promptly after receipt by the Bank of notice of the commencement of any Proceeding, the Bank will, if a claim in respect thereof is to be made against the Company under this paragraph, notify the Company in writing of the commencement thereof; but the failure so to notify the Company (i) will not relieve it from liability under this paragraph unless and to the extent it did not otherwise learn of such Proceeding and such failure results in the forfeiture by the Company of substantial rights and defenses and (ii) will not, in any event, relieve the Company from any obligations to the Bank other than the indemnification obligation provided above. The Company shall be entitled to appoint counsel of the Company's choice at the Company's expense to represent the Bank in any Proceeding for which indemnification is sought (in which case the Company shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Bank or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the Bank. Notwithstanding the Company's election to appoint counsel to represent the Bank in a Proceeding, the Bank shall have the right to employ separate counsel (including local counsel), and the Company shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the Company to represent the Bank would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such Proceeding include both the Bank and the Company and the Bank shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the Company, (iii) the Company shall not have employed counsel satisfactory to the Bank to represent the Bank within a reasonable time after notice of the institution of such Proceeding or (iv) the Company shall authorize the Bank to employ separate counsel at the expense of the Company.
If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the Bank, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received by or paid to or contemplated to be received by or paid to the Company or its stockholders and affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the Bank is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the Bank, on the other hand. Notwithstanding the provisions of this paragraph, the Bank shall not be entitled to contribution from the Company if it is determined that the Bank was guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) and the Company was not guilty of such fraudulent misrepresentation. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not the Bank is an actual or potential party to such Proceeding, without the Bank's prior written consent. For purposes of this Indemnification Agreement, the Bank shall include the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither the Bank nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company with respect to the services performed pursuant to
and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted primarily from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE BANK CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH OF THE BANK AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Accepted and agreed to as of
the date first above written:
CITIGROUP GLOBAL MARKETS INC.
Exhibit (k)(5)
FORM OF STRUCTURING FEE AGREEMENT
July [__], 2007
UBS Securities LLC
299 Park Avenue
New York, New York 10171
Ladies and Gentlemen:
This agreement is between Eaton Vance Management (the "Company") and UBS Securities LLC ("UBS") with respect to the Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund").
1. Fee. In consideration of certain financial advisory services that UBS has provided to the Company in assisting the Company in structuring and organizing the Fund, the Company shall pay a fee to UBS of $[__________] (the "Fee"). The Fee shall be paid promptly upon the closing of the initial public offering of the Fund.
2. Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof.
3. Indemnification. The Company agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
4. Confidential Advice. Except to the extent legally required (after consultation with, and, in the case of UBS' advice, approval (not to be unreasonably withheld) as to form and substance by, UBS and its counsel), none of (i) the name of UBS, (ii) any advice rendered by UBS to the Company, or (iii) the terms of this Agreement or any communication from UBS in connection with the services performed by UBS pursuant to this Agreement will be quoted or referred to orally or in writing, or in the case of (ii) and (iii), reproduced or disseminated, by the Company or any of its affiliates or any of their agents, without UBS' prior written consent, which consent will not be unreasonably withheld in the case of clause (i) and (iii) (but not (ii)).
5. Information. The Company recognizes and confirms that UBS (a) has used and relied primarily on the information provided by the Company and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having assumed responsibility for independently verifying the same, (b) has not assumed responsibility for the accuracy, completeness or reasonableness of such information and (c) has not made an appraisal of any assets or liabilities (contingent or otherwise) of the Fund.
6. Not an Investment Advisor. The Company acknowledges that you have not provided any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. The Company acknowledges and agrees that UBS has been retained to act solely as an advisor to the Company, and the Company's engagement of UBS is not intended to confer rights upon any person (including the Fund or any shareholders, employees or creditors of the Company or the Fund) not a party hereto as against UBS or its affiliates, or their respective directors, officers, employees or agents, successors, or assigns. UBS has acted as an independent contractor under this Agreement, and not in any other capacity including as a fiduciary, and any duties arising out of its engagement shall be owed solely to the Company.
7. Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial advisor or in any other capacity for any other persons (including other registered investment companies or other investment managers).
8. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
9. Governing Law. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement ("Claim"), directly or indirectly, shall be governed by and construed in accordance with the laws of the State of New York. No Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and the Company and UBS consent to the jurisdiction of such courts and personal service with respect thereto. EACH OF UBS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT.
10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
[END OF TEXT]
This Agreement shall be effective as of the date first written above.
EATON VANCE MANAGEMENT
Agreed and Accepted:
UBS SECURITIES LLC
INDEMNIFICATION AGREEMENT
July [__], 2007
UBS Securities LLC
299 Park Avenue
New York, New York 10171
Ladies and Gentlemen:
In connection with the engagement of UBS Securities LLC ("UBS") to advise and assist the undersigned (the "Company") with the matters set forth in the Structuring Fee Agreement dated July [__], 2007 between the Company and UBS (the "Agreement"), in the event that the UBS becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in relating to or arising out of the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, the Company agrees to indemnify, defend and hold the UBS harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any such Proceeding, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily from the gross negligence or willful misconduct (including bad faith) of the UBS. In addition, in the event that the UBS becomes involved in any capacity in any such Proceeding, the Company will reimburse the UBS for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by the UBS in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the UBS, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the UBS has been retained to perform services bears to the fees paid to the UBS under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the UBS is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the UBS pursuant to the Agreement. Relative fault shall be determined by reference to,
among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the UBS, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not the UBS is an actual or potential party to such Proceeding, without the UBS' prior written consent. For purposes of this Indemnification Agreement, the UBS shall include the UBS Securities LLC, any of its affiliates, each other person, if any, controlling the UBS Securities LLC or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither the UBS nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either UBS' engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted primarily from the gross negligence or willful misconduct of the UBS in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE UBS CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE UBS OR ANY INDEMNIFIED PARTY. EACH OF THE UBS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the UBS' engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Accepted and agreed to as of
the date first above written:
UBS SECURITIES LLC
Exhibit (k)(6)
FORM OF STRUCTURING FEE AGREEMENT
July [__], 2007
Wachovia Capital Markets, LLC
375 Park Avenue
New York, NY 10152
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated July [__], 2007 (the "Underwriting Agreement"), by and among Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund"), Eaton Vance Management (the "Adviser"), Rampart Investment Management Company, Inc. (the Sub-Adviser) and each of the Underwriters named therein, with respect to the issue and sale of the Fund's Common Shares, as described therein. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
1. Fee. In consideration of your services in offering advice to the Advisor relating to the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund's Common Shares, the Adviser shall pay a fee to you in the aggregate amount of $[__________] (the "Fee"). The Fee shall be paid on or before July [__], 2007. The Fee shall be paid by wire transfer to the order of Wachovia Capital Markets, LLC.
2. Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof.
3. Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
4. Not an Investment Adviser; No Fiduciary Duty. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that your engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the Adviser agrees that it is solely responsible for making its own judgments in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).
5. Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).
6. Assignment. This Agreement may not be assigned by any party without prior written consent of the other party.
7. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
[END OF TEXT]
This Agreement shall be effective as of the date first written above.
EATON VANCE MANAGEMENT
Agreed and Accepted:
WACHOVIA CAPITAL MARKETS, LLC
INDEMNIFICATION AGREEMENT
July [__], 2007
Wachovia Capital Markets, LLC
375 Park Avenue
New York, NY 10152
Ladies and Gentlemen:
In connection with the engagement of Wachovia Capital Markets, LLC (the "Bank") to assist the undersigned, Eaton Vance Management (together with its affiliates and subsidiaries, the "Company") with respect to the matters set forth in the Structuring Fee Agreement dated July [__], 2007 between the Company and the Bank (the "Agreement"), in the event that the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, or the successors or assigns of any of the foregoing persons (the Bank and each such other person or entity being referred to as an "Indemnified Party") becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") with respect to the services performed pursuant to and in accordance with the Agreement, the Company agrees to indemnify, defend and hold each Indemnified Party harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses, including the fees and expenses of counsel to the Indemnified Parties, with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. In addition, in the event that an Indemnified Party becomes involved in any capacity in any Proceeding with respect to the services performed pursuant to and in accordance with the Agreement, the Company will reimburse such Indemnified Party for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by such Indemnified Party in connection therewith. Promptly as reasonably practicable after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party will, if a claim in respect thereof is to be made under this paragraph, notify the Company in writing of the commencement thereof; but the failure so to notify the Company (i) will not relieve the Company from liability under this paragraph to the extent it is not materially prejudiced as a result thereof and (ii) in any event shall not relieve the Company from any liability which it may have otherwise than on account of this Indemnification Agreement. Counsel to the Indemnified Parties shall be selected by the Bank. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Party. No indemnifying party shall, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder (whether or not the Indemnified Parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.
If such indemnification were not to be available for any reason, the
Company agrees to contribute to the losses, claims, damages, liabilities and
expenses involved (i) in the proportion appropriate to reflect the relative
benefits received or sought to be received by the Company and its stockholders
and affiliates, on the one hand, and the Indemnified Parties, on the other hand,
in the matters contemplated by the Agreement or (ii) if (but only if and to the
extent) the allocation provided for in clause (i) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
Company and its stockholders and affiliates, on the one hand, and the party
entitled to contribution, on the other hand, as well as any other relevant
equitable considerations. The Company agrees that for the purposes of this
paragraph the relative benefits received, or sought to be received, by the
Company and its stockholders and affiliates, on the one hand, and the party
entitled to contribution, on the other hand, of a transaction as contemplated
shall be deemed to be in the same proportion that the total value received or
paid or contemplated to be received or paid by the Company or its stockholders
or affiliates, as the case may be, as a result of or in connection with the
transaction (whether or not consummated) for which the Bank has been retained to
perform services bears to the fees paid to the Bank under the Agreement;
provided, that in no event shall the Company contribute less than the amount
necessary to assure that the Indemnified Parties are not liable for losses,
claims, damages, liabilities and expenses in excess of the amount of fees
actually received by the Bank pursuant to the Agreement. Relative fault shall be
determined by reference to, among other things, whether any alleged untrue
statement or omission or any other alleged conduct relates to information
provided by the Company or other conduct by the Company (or its employees or
other agents), on the one hand, or by the Bank, on the other hand.
Notwithstanding the provisions of this paragraph, an Indemnified Party shall not
be entitled to contribution from the Company if it is determined that such
Indemnified Party was guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act of 1933, as amended) and the Company was
not guilty of such fraudulent misrepresentation. The Company will not settle any
Proceeding in respect of which indemnity may be sought hereunder, whether or not
an Indemnified Party is an actual or potential party to such Proceeding, without
the Bank's prior written consent (which consent shall not be unreasonably
withheld). The foregoing indemnity and contribution agreement shall be in
addition to any rights that any Indemnified Party may have at common law or
otherwise.
The Company agrees that no Indemnified Party shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted primarily from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF
ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE
SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE INDEMNIFIED PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH INDEMNIFIED PARTY AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement under the Agreement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Agreed and Accepted:
WACHOVIA CAPITAL MARKETS, LLC
Exhibit (k)(7)
FORM OF STRUCTURING FEE AGREEMENT
July [__], 2007
A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated July [__], 2007 (the "Underwriting Agreement"), by and among Eaton Vance Risk-Managed Diversified Equity Income Fund (the "Fund"), Eaton Vance Management (the "Adviser") and Rampart Investment Management Company, Inc. and each of the Underwriters named therein, with respect to the issue and sale of the Fund's Securities, as described therein. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
1. Fee. In consideration of your services in offering advice relating to the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund's Securities, the Adviser shall pay a fee to you in the aggregate amount of up to $[__________] (the "Fee"). The Fee shall be paid on or before September 30, 2007. Such payments shall be made by wire transfer to the order of A.G. Edwards & Sons, Inc. The total amount of the Fee hereunder will equal [__]% of the total price to the public of the Securities sold by A.G. Edwards & Sons, Inc. in the offering of the Fund's Securities (the "Offering"), net of the total price of the Securities subject to a penalty bid imposed by the Underwriters (i.e., retraction of the selling concession) for any Securities sold back by A.G. Edwards & Sons, Inc. to the Underwriters during the underwriting stabilization period as determined by the tabulations provided by the Depository Trust Company's initial public offering tracking system (the "DTC Report"), which DTC Report shall become available immediately upon the completion of the tracking period up to 45 days commencing on July [__], 2007. The parties to this Agreement will review the DTC Report and will agree to the tabulations provided in the DTC Report or to such other tabulations as may be mutually agreed upon by the parties. The sum total of all of the compensation to the Underwriters in connection with the Offering, including sales load and other underwriting compensation in connection with the Offering, will be limited to not more than 9.0% of the total price to the public of the Fund's Securities offered by the prospectus dated July [__], 2007.
2. Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof.
3. Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are
incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
4. Not an Investment Adviser; No Fiduciary Duty. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that your engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the Adviser agrees that it is solely responsible for making its own judgments in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).
5. Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).
6. Assignment. This Agreement may not be assigned by any party without prior written consent of the other party.
7. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
[END OF TEXT]
This Agreement shall be effective as of the date first written above.
EATON VANCE MANAGEMENT
Agreed and Accepted:
A.G. EDWARDS & SONS, INC.
INDEMNIFICATION AGREEMENT
July [__], 2007
A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
Ladies and Gentlemen:
In connection with the engagement of A.G. Edwards & Sons, Inc. (the "Bank")
to advise and assist the undersigned (together with its affiliates and
subsidiaries, referred to as the "Company") with the matters set forth in the
Structuring Fee Agreement dated July [__], 2007 between the Company and the Bank
(the "Agreement"), in the event that the Bank becomes involved in any capacity
in any claim, suit, action, proceeding, investigation or inquiry (including,
without limitation, any shareholder or derivative action or arbitration
proceeding) (collectively, a "Proceeding") with respect to the services
performed pursuant to and in accordance with the Agreement, the Company agrees
to indemnify, defend and hold the Bank harmless to the fullest extent permitted
by law, from and against any losses, claims, damages, liabilities and expenses
with respect to the services performed pursuant to and in accordance with the
Agreement, except to the extent that it shall be determined by a court of
competent jurisdiction in a judgment that has become final in that it is no
longer subject to appeal or other review, that such losses, claims, damages,
liabilities and expenses resulted primarily from the gross negligence or willful
misconduct of the Bank. In addition, in the event that the Bank becomes involved
in any capacity in any Proceeding with respect to the services performed
pursuant to and in accordance with the Agreement, the Company will reimburse the
Bank for its legal and other expenses (including the cost of any investigation
and preparation) as such expenses are incurred by the Bank in connection
therewith. Promptly as reasonably practicable after receipt by the Bank of
notice of the commencement of any Proceeding, the Bank will, if a claim in
respect thereof is to be made against the Bank under this paragraph, notify the
Company in writing of the commencement thereof; but the failure so to notify the
Company (i) will not relieve the Company from liability under this paragraph
unless and to the extent it did not otherwise learn of such Proceeding and such
failure results in the forfeiture by the Company of substantial rights and
defenses and (ii) will not, in any event, relieve the Company from any
obligations to the Bank other than the indemnification obligation provided
above. The Company shall be entitled to appoint counsel of the Company's choice
at the Company's expense to represent the Bank in any Proceeding for which
indemnification is sought (in which case the Company shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by the
Bank or parties except as set forth below); provided, however, that such counsel
shall be satisfactory to the Bank. Notwithstanding the Company's election to
appoint counsel to represent the Bank in an Proceeding, the Bank shall have the
right to employ separate counsel (including local counsel), and the Company
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Company to represent the Bank would present
such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or
targets of, any such Proceeding include both the Bank and the Company and the Bank shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the Company, (iii) the Company shall not have employed counsel satisfactory to the Bank to represent the Bank within a reasonable time after notice of the institution of such Proceeding or (iv) the Company shall authorize the Bank to employ separate counsel at the expense of the Company.
If such indemnification were not to be available for any reason, the
Company agrees to contribute to the losses, claims, damages, liabilities and
expenses involved (i) in the proportion appropriate to reflect the relative
benefits received or sought to be received by the Company and its stockholders
and affiliates and other constituencies, on the one hand, and the Bank, on the
other hand, in the matters contemplated by the Agreement or (ii) if (but only if
and to the extent) the allocation provided for in clause (i) is for any reason
held unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of the
Company and its stockholders and affiliates and other constituencies, on the one
hand, and the party entitled to contribution, on the other hand, as well as any
other relevant equitable considerations. The Company agrees that for the
purposes of this paragraph the relative benefits received, or sought to be
received, by the Company and its stockholders and affiliates, on the one hand,
and the party entitled to contribution, on the other hand, of a transaction as
contemplated shall be deemed to be in the same proportion that the total value
received or paid or contemplated to be received or paid by the Company or its
stockholders or affiliates and other constituencies, as the case may be, as a
result of or in connection with the transaction (whether or not consummated) for
which the Bank has been retained to perform services bears to the fees paid to
the Bank under the Agreement; provided, that in no event shall the Company
contribute less than the amount necessary to assure that the Bank is not liable
for losses, claims, damages, liabilities and expenses in excess of the amount of
fees actually received by the Bank pursuant to the Agreement. Relative fault
shall be determined by reference to, among other things, whether any alleged
untrue statement or omission or any other alleged conduct relates to information
provided by the Company or other conduct by the Company (or its employees or
other agents), on the one hand, or by the Bank, on the other hand.
Notwithstanding the provisions of this paragraph, the Bank shall not be entitled
to contribution from the Company if it is determined that the Bank was guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act of 1933, as amended) and the Company was not guilty of such
fraudulent misrepresentation. The Company will not settle any Proceeding in
respect of which indemnity may be sought hereunder, whether or not the Bank is
an actual or potential party to such Proceeding, without the Bank's prior
written consent. For purposes of this Indemnification Agreement, the Bank shall
include the Bank, any of its affiliates, each other person, if any, controlling
the Bank or any of its affiliates, their respective officers, current and former
directors, employees and agents, and the successors and assigns of all of the
foregoing persons. The foregoing indemnity and contribution agreement shall be
in addition to any rights that any indemnified party may have at common law or
otherwise.
The Company agrees that neither the Bank nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court
of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted primarily from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
For clarification, the parties to this Indemnification Agreement agree that the term "affiliate" as used in the definition of "Company" herein does not include any registered investment company for which Eaton Vance Management or any of its affiliates serves as investment adviser.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE BANK CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH OF THE BANK AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Accepted and agreed to as of
the date first above written:
A.G. EDWARDS & SONS, INC.
Exhibit (k)(8)
FORM OF ADDITIONAL COMPENSATION AGREEMENT
ADDITIONAL COMPENSATION AGREEMENT (the "Agreement"), dated as of July
[_], 2007, between Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Eaton Vance Management ("Eaton Vance").
WHEREAS, Eaton Vance Risk-Managed Diversified Equity Income Fund (including any successor by merger or otherwise, 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"), and its common shares of beneficial interest (the "Common Shares") are registered under the Securities Act of 1933, as amended;
WHEREAS, Eaton Vance is the investment adviser of the Fund;
WHEREAS, Merrill Lynch is acting as an underwriter in an offering of the Fund's Common Shares; and
WHEREAS, Eaton Vance desires to provide additional compensation to Merrill Lynch for providing the advice and services described below;
NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below, the parties hereto agree as follows:
1. In consideration of Merrill Lynch's providing advice relating to the
structure and design and the organization of the Fund as well as
services related to the sale and distribution of the Fund's Common
Shares, Eaton Vance shall pay Merrill Lynch a fee equal to [_]% of the
total price to the public of the Fund's Common Shares sold by Merrill
Lynch pursuant to the prospectus dated July [_], 2007 (the
"Prospectus") (including all Underwritten Securities and Option
Securities as such terms are described in the Underwriting Agreement,
dated July [_], 2007, by and among the Fund, Eaton Vance, Rampart
Investment Management Company, Inc. and each of the Underwriters named
therein (the "Underwriting Agreement")) (the "Fee"). The Fee shall be
paid within 30 days of the Closing Date (as defined in the Underwriting
Agreement) in an amount equal to [_]% of the total price to the public
of the common shares sold by Merrill Lynch on such Closing Date, or as
otherwise agreed to by the parties. The Fee hereunder shall not exceed
[_]% of the total price to the public of the Fund's common shares sold
by Merrill Lynch pursuant to the Prospectus. The sum total of all
compensation to or reimbursement of Underwriters in connection with the
offering, including sales load, will be limited to not more than 9.0%
of the total price of the Fund's Common Shares sold by the Fund
pursuant to the Prospectus.
2. Eaton Vance acknowledges that Merrill Lynch did not provide and is not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of Merrill Lynch, and Merrill Lynch is not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii)
render any opinions, valuations or recommendations of any kind or to perform any such similar services in connection with acting as a underwriter in an offering of the Fund's Common Shares.
3. Nothing herein shall be construed as prohibiting Merrill Lynch or its affiliates from acting as an underwriter to any other clients (including other registered investment companies or other investment advisers).
4. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof.
5. Eaton Vance will furnish Merrill Lynch with such information as Merrill Lynch believes appropriate to its assignment hereunder (all such information so furnished being the "Information"). Eaton Vance recognizes and confirms that Merrill Lynch (a) has used and relied primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same and (b) does not assume responsibility for the accuracy or completeness of the Information and such other information. The Information furnished by Eaton Vance was true and correct in all material respects and did not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. Eaton Vance will promptly notify Merrill Lynch if it learns of any material inaccuracy or misstatement in, or material omission from, any Information delivered to Merrill Lynch.
6. Eaton Vance agrees that Merrill Lynch shall have no liability to Eaton Vance or the Fund for any act or omission to act by Merrill Lynch in the course of its performance under this Agreement, in the absence of gross negligence or willful misconduct on the part of Merrill Lynch. Eaton Vance agrees to the terms set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
7. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement ("Claim") shall be governed by and construed in accordance with the laws of the State of New York.
8. No Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and Eaton Vance and Merrill Lynch consent to the jurisdiction of such courts and personal service with respect thereto. Each of Merrill Lynch and Eaton Vance waives all right to trial by jury in any proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. Eaton Vance agrees that a final judgment in any proceeding or counterclaim brought in any such court shall be conclusive and binding upon Eaton Vance and may be enforced in any other courts to the jurisdiction of which Eaton Vance is or may be subject, by suit upon such judgment.
9. This Agreement may not be assigned by either party without the prior written consent of the other party.
10. This Agreement (including the attached Indemnification Agreement) embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both Merrill Lynch and Eaton Vance.
11. All notices required or permitted to be sent under this Agreement shall be sent, if to Eaton Vance:
Eaton Vance Management
The Eaton Vance Building
225 State Street
Boston, Massachusetts 02109
Attention: [______________]
or if to Merrill Lynch:
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Attention: Tina Singh
or such other name or address as may be given in writing to the other parties. Any notice shall be deemed to be given or received on the third day after deposit in the U.S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier.
12. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Additional Compensation Agreement as of the date first above written.
EATON VANCE MANAGEMENT MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: By:
--------------------------- ---------------------------
Name: Name:
|
Title: Title:
MERRILL LYNCH & CO. INDEMNIFICATION AGREEMENT
July [_], 2007
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
In connection with the engagement of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Additional Compensation Agreement dated July [_], 2007 between the Company and Merrill Lynch (the "Agreement"), in the event that Merrill Lynch becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company agrees to indemnify, defend and hold Merrill Lynch harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence, bad faith or willful misconduct of Merrill Lynch. In addition, in the event that Merrill Lynch becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse Merrill Lynch for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by Merrill Lynch in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its shareholders and affiliates and other constituencies, on the one hand, and Merrill Lynch, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its shareholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its shareholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its shareholders or affiliates and other constituencies, as the case may be, as a
result of or in connection with the transaction (whether or not consummated) for which Merrill Lynch has been retained to perform financial services bears to the fees paid to Merrill Lynch under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that Merrill Lynch is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by Merrill Lynch pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by Merrill Lynch, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not Merrill Lynch is an actual or potential party to such Proceeding, without Merrill Lynch's prior written consent. For purposes of this Indemnification Agreement, Merrill Lynch shall include Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, any of its affiliates, each other person, if any, controlling Merrill Lynch or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither Merrill Lynch nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either Merrill Lynch's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence, bad faith or willful misconduct of Merrill Lynch in performing the services that are the subject of the Agreement. Nothing in this Indemnification Agreement shall be read or construed to limit any liability or obligations of any party arising under or in connection with the Underwriting Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND MERRILL LYNCH CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST MERRILL LYNCH OR ANY INDEMNIFIED PARTY.
EACH OF MERRILL LYNCH AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of Merrill Lynch's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Title:
Accepted and agreed to as of
the date first written above:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
Exhibit (k)(9)
July [ ], 2007
Eaton Vance Management
255 State Street
Boston, MA 02109
FORM OF ADDITIONAL COMPENSATION AGREEMENT
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated July [ ], 2007 (the "Underwriting Agreement"), by and among Eaton Vance Risk-Managed Diversified Equity Income Fund, a closed-end management investment company (the "Fund"), Eaton Vance Management ("Eaton Vance" or the "Adviser"), Rampart Investment Management Company, Inc. (the Sub-Advisor) and each of the respective Underwriters named therein, with respect to the issue and sale of the Fund's common shares of beneficial interest, par value $0.01 per share (the "Common Shares"), as described therein. Reference is also made to (i) the Investment Advisory Agreement, dated [ ] [ ], 2007 (the "Investment Advisory Agreement") between Eaton Vance and the Fund and (ii) the registration statement on Form N-2 regarding the Common Shares of the Fund (the "Registration Statement"). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
The Adviser hereby confirms its agreement with each Qualifying Underwriter (as defined in Section 1 hereof) with respect to the additional compensation referred to in the "Underwriting" section of the Registration Statement, payable by Eaton Vance to each of the Qualifying Underwriters. Eaton Vance agrees to pay to each Qualifying Underwriter additional compensation (collectively, the "Additional Compensation") as provided for in Section 3 hereof; provided, however, that such Additional Compensation shall not exceed an amount equal to [ ]% per annum of the aggregate average daily gross assets of the Fund (including assets attributable to any preferred shares of the Fund that may be outstanding); and provided, further, that such payments shall not exceed the "Maximum Additional Compensation Amount" (as defined in Section 4 hereof). The Additional Compensation shall be payable as set forth in Section 3 hereof.
SECTION 1. Qualifying Underwriters. For the purposes of this Additional
Compensation Agreement, each Underwriter (other than [ ]), which sells Common
Shares of the Fund with an aggregate purchase price to the public of at least
$50,000,000 shall be a "Class I Qualifying Underwriter" and each Underwriter
(other than [ ]) which sells Common Shares of the Fund with an aggregate
purchase price to the public of at least $100,000,000, shall be a "Class II
Qualifying Underwriter"; provided, however, that the amounts required to qualify
as a Class I Qualifying Underwriter or a Class II Qualifying Underwriter may be
reduced with respect to any Underwriter in the sole discretion of Eaton Vance.
Class I Qualifying Underwriters and Class II Qualifying Underwriters are
referred to collectively herein as "Qualifying Underwriters." A Qualifying
Underwriter which qualifies as a Class II Qualifying Underwriter shall not also
be a Class I Qualifying Underwriter. Within 60 days following the Closing Date,
the Qualifying Underwriters shall prepare or cause to be prepared and provide to
the Adviser a chart listing each of the Qualifying Underwriters, which chart
shall indicate the aggregate purchase price to the public of the Common Shares
sold by each Qualifying Underwriter and the Pro Rata Percentage (as defined in
Section 2 hereof) of each Qualifying Underwriter and shall be appended as
Schedule A to this Additional Compensation Agreement. Such Schedule A shall be
prepared in good faith by the Qualifying Underwriters and subject to
verification by the Adviser.
SECTION 2. Pro Rata Percentage. Each Qualifying Underwriter shall be assigned a "Pro Rata Percentage," the numerator of which shall equal the aggregate purchase price to the public of the
Common Shares sold by such Underwriter as set forth on Schedule A hereto and the denominator of which shall equal the aggregate purchase price to the public of all of the Common Shares purchased by the Underwriters pursuant to the Underwriting Agreement.
SECTION 3. Payment of Additional Compensation.
(a) The Adviser shall pay the Additional Compensation, quarterly in arrears, to each Class I Qualifying Underwriter in an amount equal to the product of such Qualifying Underwriter's Pro Rata Percentage multiplied by [ ]% of the aggregate average daily gross assets of the Fund for such quarter.
(b) The Adviser shall pay the Additional Compensation, quarterly in arrears, to each Class II Qualifying Underwriter in an amount equal to the product of such Qualifying Underwriter's Pro Rata Percentage multiplied by [ ]% of the aggregate average daily gross assets of the Fund for such quarter.
(c) All fees payable hereunder shall be paid to each Qualifying Underwriter by wire transfer of immediately available funds within 15 days following the end of each calendar quarter to the bank account designated by such Qualifying Underwriter. At the time of each payment of Additional Compensation hereunder, the Adviser shall deliver to each Qualifying Underwriter receiving an installment of Additional Compensation a statement indicating the amount of the of the aggregate average daily gross asset value of the Fund for such quarter (including assets attributable to any preferred shares of the Fund that may be outstanding) on which such payment was based.
(d) The initial payments of Additional Compensation hereunder shall be paid with respect to the calendar quarter ending September 30, 2007. In the event that this Additional Compensation Agreement terminates prior to the end of a calendar quarter, the Additional Compensation required to be paid hereunder shall be due and payable within 15 days following the termination hereof and shall be pro-rated in respect of the period prior to such termination. Notwithstanding the foregoing, if any payment hereunder would otherwise fall on a day which is not a business day, it shall be due on the next day which is a business day. All fees payable hereunder shall be in addition to any fees paid by the Investment Adviser pursuant to the Underwriting Agreement.
SECTION 4. Maximum Additional Compensation Amount. The "Maximum Additional Compensation Amount" payable by the Investment Adviser hereunder shall be [ ]% of the aggregate offering price of the Common Shares. [ ] will receive additional compensation which will not exceed [ ]% of the aggregate initial offering price of the Common Shares. [ ] will receive additional compensation which will not exceed [ ]% of the aggregate initial offering price of the Common Shares. [ ] will receive additional compensation which will not exceed [ ]% of the aggregate initial offering price of the Common Shares.
SECTION 5. Term. This Additional Compensation Agreement shall continue
coterminously with and so long as the Investment Advisory Agreement, dated [ ]
[ ], 2007, remains in effect between the Fund and the Adviser, or any similar
investment advisory agreement with a successor in interest or affiliate of the
Adviser remains in effect, as, and to the extent, that such investment advisory
agreement is renewed periodically in accordance with the Investment Company Act
of 1940, as amended. This Additional Compensation Agreement shall terminate on
the earliest to occur of (a) with respect to any Qualifying Underwriter, the
payment by Eaton Vance to such Qualifying Underwriter of the Maximum Additional
Compensation Amount, (b) with respect to the Fund, the dissolution and winding
up of the Fund and (c) with respect to the Fund, the date on which the
Investment Advisory Agreement or other investment advisory agreement between the
Fund and the Adviser or any successor in interest to the Adviser, including but
not limited to an affiliate of the Adviser, shall terminate.
SECTION 6. Not an Investment Adviser. The Adviser acknowledges that the Underwriters are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund. No provision of this Additional Compensation Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of any Underwriter, and the Underwriters are not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services.
SECTION 7. Not Exclusive. Nothing herein shall be construed as prohibiting any Underwriter or its respective affiliates from acting as such for any other clients (including other registered investment companies or other investment advisers).
SECTION 8. No Liability. Eaton Vance agrees that no Underwriter shall have liability to Eaton Vance or the Fund for any act or omission to act by such Underwriter in the course of its performance under this Additional Compensation Agreement, in the absence of gross negligence or willful misconduct on the part of such Underwriter. Eaton Vance agrees to indemnify and hold harmless each Underwriter and its respective officers, directors, agents and employees against any loss or expense arising out of or in connection with such Underwriter's performance under this Additional Compensation Agreement. This provision shall survive the termination, expiration or supersession of this Additional Compensation Agreement.
SECTION 9. Assignment. This Additional Compensation Agreement may not be assigned by any party without the prior written consent of each other party.
SECTION 10. Amendment; Waiver. No provision of this Additional Compensation Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
SECTION 11. Governing Law. This Additional Compensation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
SECTION 12. Counterparts. This Additional Compensation Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Additional Compensation Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Adviser and the Qualifying Underwriters in accordance with its terms.
Very truly yours,
[ ]
By:___________________________ Name:
Title:
[ ]
By:___________________________
Name:
Title:
[ ]
By:___________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
EATON VANCE MANAGEMENT
By:_____________________________________
Name:
Title:
SCHEDULE A
AGGREGATE
PURCHASE PRICE TO PUBLIC PRO RATA
NAME OF QUALIFYING UNDERWRITER CLASS OF COMMON SHARES SOLD PERCENTAGE
------------------------------ ----- --------------------- ----------
$[ ] [ ]
|
Indemnification Agreement
[ ] [ ], 2007
[ ]
[ADDRESS]
In connection with the additional compensation payments made to [ ], [ ], and
[ ] (each a "Bank" and together the "Banks") by the undersigned (the "Company")
as set forth in the Additional Compensation Agreement dated [ ] [ ], 2007,
between the Company and the Banks (the "Agreement"), in the event that a Bank
becomes involved in any capacity in any claim, suit, action, proceeding,
investigation or inquiry (including, without limitation, any shareholder or
derivative action or arbitration proceeding) (collectively, a "Proceeding") in
connection with or arising out of the Agreement, the Company agrees to
indemnify, defend and hold each Bank harmless to the fullest extent permitted
by law, from and against any losses, claims, damages, liabilities and expenses
in connection with or arising out of the Agreement (a "Covered Claim"), except
to the extent that it shall be determined by a court of competent jurisdiction
in a judgment that has become final in that it is no longer subject to appeal or
other review, that such losses, claims, damages, liabilities and expenses
resulted solely from the gross negligence, bad faith or willful misconduct of a
Bank. In addition, in the event that a Bank becomes involved in any capacity in
any Proceeding which relates to a Covered Claim, the Company will reimburse the
Bank for its legal and other expenses (including the reasonable cost of any
investigation and preparation) as such expenses are incurred by the Bank in
connection therewith. If such indemnification were not to be available for any
reason, the Company agrees to contribute to the losses, claims, damages,
liabilities and expenses involved (i) in the proportion appropriate to reflect
the relative benefits received or sought to be received by the Company and its
stockholders, on the one hand, and a Bank, on the other hand, in the matters
contemplated by the Agreement or (ii) if (but only if and to the extent) the
allocation provided for is for any reason held unenforceable, in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
Agreement but also the relative fault of the Company and its stockholders, on
the one hand, and the party entitled to contribution, on the other hand, as well
as any other relevant equitable considerations; provided, that in no event shall
the Company contribute less than the amount necessary to assure that the Banks
are not liable for losses, claims, damages, liabilities and expenses in excess
of the amount of fees actually received by a Bank pursuant to the Agreement.
Relative fault shall be determined by reference to, among other things, whether
any alleged untrue statement or omission or any other alleged conduct relates to
information provided by the Company or other conduct by the Company (or its
employees or other agents), on the one hand, or by each Bank, on the other hand.
The Company will not settle any Proceeding in respect of which indemnity may be
sought hereunder, whether or not a Bank is an actual or potential party to such
Proceeding, without that Bank's prior written consent. For purposes of this
Indemnification Agreement, a Bank shall include each Bank, any of its
affiliates, each other person, if any, controlling the Bank or any of its
affiliates, their respective officers, current and former directors, employees
and agents, and the successors and assigns of all of the foregoing persons. The
foregoing indemnity and contribution agreement shall be in addition to any
rights that any indemnified party may have at common law or otherwise.
If any Proceeding is brought against a Bank in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, the Bank shall promptly notify the Company in writing of the institution of such Proceeding and the Company shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to the Bank and payment of all fees and expenses; provided, however, that the omission to so notify the Company shall not relieve the Company from any liability which the Company may have to a Bank or otherwise, unless and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the Company. Each Bank
shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Bank unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such Proceeding or the Company shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or the Bank shall have reasonably concluded that there may be defenses available to it which are different from, additional to or in conflict with those available to the Company (in which case the Company shall not have the right to direct the defense of such Proceeding on behalf of a Bank), in any of which events such fees and expenses shall be borne by the Company and paid as incurred (it being understood, however, that the Company shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction). The Company shall not be liable for any settlement of any Proceeding effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless a Bank from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time a Bank shall have requested the Company to reimburse the Bank for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the Company agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by the Company of the aforesaid request, (ii) the Company shall not have reimbursed a Bank in accordance with such request prior to the date of such settlement and (iii) the Bank shall have given the Company at least 30 days' prior notice of its intention to settle.
The Company agrees that neither the Banks nor any of their affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of a Covered Claim, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence, bad faith or willful misconduct of a Bank in performing the Services.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND A BANK'S CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY AND THIRD PARTY AGAINST UBS SECURITIES OR ANY INDEMNIFIED PARTY. EACH OF THE BANKS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
EATON VANCE MANAGEMENT
Title:
Accepted and agreed to as of the date first above written:
[ ]
By: ___________________________________
Name:
Title:
[ ]
By:_____________________________________________
Name:
Title:
[ ]
By: ___________________________________
Name:
Title:
Exhibit (l)
[KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP LETTERHEAD]
July 19, 2007
Eaton Vance Risk-Managed Diversified Equity Income Fund
255 State Street
Boston, MA 02109
Dear Sirs:
This opinion is furnished in connection with the registration by Eaton Vance Risk-Managed Diversified Equity Income Fund, a business trust organized under the laws of the Commonwealth of Massachusetts ("Fund"), of 75,000,000 shares of beneficial interest, par value of $.01 per share ("Shares"), under the Securities Act of 1933, as amended, pursuant to a registration statement on Form N-2 (File No. 333-141981), as amended ("Registration Statement"), in the amounts set forth under "Amount Being Registered" on the facing page of the Registration Statement.
As counsel for the Fund, we are familiar with the proceedings taken by it in connection with the authorization, issuance and sale of the Shares. In addition, we have examined and are familiar with the Agreement and Declaration of Trust of the Fund, the By-Laws of the Fund, and such other documents as we have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon issuance and sale in the manner referred to in the Registration Statement, will be legally issued, fully paid and non-assessable (except as described in the Registration Statement) shares of beneficial interest of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Prospectus constituting a part thereof.
Very truly yours,
/s/ Kirkpatrick & Lockhart Preston Gates Ellis ---------------------------------------------- Kirkpatrick & Lockhart Preston Gates Ellis LLP |
Exhibit (n)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Pre-Effective Amendment No. 2 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 July 19, 2007 |