As filed with the Securities and Exchange Commission on May 19, 2004
1933 Act File No. 333-
1940 Act File No. 811-21519
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 [X]
(CHECK APPROPRIATE BOX OR BOXES)
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
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ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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NAME AND ADDRESS (OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ.
KIRKPATRICK & LOCKHART LLP
75 STATE STREET
BOSTON, MASSACHUSETTS 02109
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis in reliance on Rule 415 under the Securities
Act of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box):
[X] when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
==============================================================================================
PROPOSED PROPOSED
AMOUNT BEING MAXIMUM MAXIMUM AMOUNT OF
REGISTERED OFFERING AGGREGATE REGISTRATION
(1) PRICE PER OFFERING FEES (1)
TITLE OF SECURITIES BEING UNIT PRICE (1)
REGISTERED (1)
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Common Shares of Beneficial 40 $25,000 $1,000,000 $126.70
Interest, $0.01 par value
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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.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
May 19, 2004
________________________________________________________________________________
$[ ] EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
[EATON VANCE LOGO] SHARES, SERIES A
SHARES, SERIES B
SHARES, SERIES C
AUCTION PREFERRED SHARES
LIQUIDATION PREFERENCE $25,000 PER SHARE
________________________________________________________________________________
INVESTMENT OBJECTIVE. Eaton Vance Tax-Advantaged Global Dividend Opportunities
Fund (the "Fund") is a recently organized, diversified, closed-end management
investment company. The Fund's investment objective is to provide a high level
of after-tax total return. The Fund's return is expected to consist primarily of
tax-advantaged dividend income and capital appreciation. In its investment
program, the Fund will consider the potential effects of inflation on
shareholder capital.
INVESTMENT ADVISER. The Fund's investment adviser is Eaton Vance Management
("Eaton Vance" or the "Adviser"). As of April 30, 2004, Eaton Vance and its
subsidiaries managed approximately $[ ] billion on behalf of funds,
institutional clients and individuals, including approximately $[ ] billion in
tax-managed equity fund assets.
PORTFOLIO CONTENTS. Under normal market conditions, the Fund will invest at
least 80% of its total managed assets in dividend-paying common and preferred
stocks of U.S. and foreign issuers that Eaton Vance believes at the time of
investment are eligible to pay dividends that qualify for federal income
taxation at rates applicable to long-term capital gains, which reach a maximum
of 15% ("tax-advantaged dividends"). In selecting securities, the Adviser will
seek common and preferred stocks of issuers that are, in the opinion of the
Adviser, undervalued or inexpensive relative to the overall market. During
periods of high or rising concern about inflation, the Fund may emphasize
investments in common stocks of issuers whose businesses are related to "hard
assets," such as energy, other natural resources and real estate ("Hard Asset
Stocks"). Initially, the Fund expects to invest approximately 30%-40% of its
total managed assets in Hard Asset Stocks. The Fund may invest in common and
preferred stocks of both U.S. and foreign issuers. Under normal market
conditions, the Fund will invest at least 25% of its total managed assets in the
securities of U.S. issuers and at least 35% of its total managed assets in the
securities of issuers located in countries other than the United States
("Non-U.S. Issuers"). Initially, the Fund intends to invest approximately
45%-55% of its total managed assets in Non-U.S. Issuers. The Fund may invest up
to 15% of its total managed assets in issuers located in emerging market
countries. The Adviser retains broad discretion to allocate the Fund's
investments between common and preferred stocks in a manner that it believes
will best effectuate the Fund's objective. Initially, the Fund expects to invest
approximately 75%-85% of its total managed assets in common stocks and
approximately 15%-25% of its total managed assets in preferred stocks.
(CONTINUED ON INSIDE COVER PAGE)
INVESTING IN AUCTION PREFERRED SHARES ("APS") INVOLVES CERTAIN RISKS. SEE
"INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISKS CONSIDERATIONS," BEGINNING ON
PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PRICE TO PUBLSALES LOAD PROCEEDS TO FUND(1)
--------------------------------------------------------------------------------
Per Share $ $ $
Total
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(1) PLUS ACCUMULATED DIVIDENDS, IF ANY, FROM THE DATE THE AUCTION PREFERRED
SHARES ARE ISSUED, BUT BEFORE OFFERING EXPENSES PAYABLE BY THE FUND
ESTIMATED TO BE APPROXIMATELY $[ ]. THE FUND AND ADVISER HAVE AGREED TO
INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN LIABILITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
The Underwriters are offering the APS subject to various conditions. The
Underwriters expect to deliver the APS in book-entry form, through the
facilities of The Depository Trust Company to purchasers on or about
[ ], 2004.
(CONTINUED FROM THE PREVIOUS PAGE)
The Fund seeks dividend income that qualifies for favorable federal income tax
treatment. Under federal income tax law enacted on May 28, 2003, tax-advantaged
dividends received by individual shareholders are taxed at long-term capital
gain tax rates, which reach a maximum of 15%. Tax-advantaged dividends generally
include dividends from domestic corporations and dividends from foreign
corporations that meet certain specified criteria.
Capitalized terms not otherwise defined are defined in the Glossary that appears
at the end of this Prospectus. The APS are offered at a price per share of
$25,000 subject to a sales load of $250 per share.
Dividends on the APS of the Fund offered hereby will be cumulative from the Date
of Original Issue and payable commencing on the dates specified below (an
"Initial Dividend Payment Date") and thereafter generally on the days specified
below, subject to certain exceptions. The cash dividend rate (the "Applicable
Rate") on the APS for the Initial Dividend Period on such dates will be the per
annum rate specified below:
INITIAL DIVIDEND INITIAL
PAYMENT DATE APPLICABLE RATE
------------------ -----------------
Series A
Series B
Series C
The APS will not be registered on any stock exchange or on any automated
quotation system. APS may only be bought or sold through an order at an Auction
with or through a broker-dealer that has entered into an agreement with the
Auction Agent of the Fund or in a secondary market that may be maintained by
certain broker-dealers. These broker-dealers are not required to maintain this
market and it may not provide you with liquidity. An increase in the level of
interest rates, particularly during any Special Dividend Period that is a Long
Term Dividend Period as discussed in "Description of APS--Dividends and dividend
periods--General," likely will have an adverse effect on the secondary market
price of the APS, and a selling shareholder may sell APS between Auctions at a
price per share of less than $25,000.
Each prospective purchaser should review carefully the detailed information
regarding the Auction Procedures which appears in this Prospectus and the Fund's
Statement of Additional Information and should note that (i) an Order
constitutes an irrevocable commitment to hold, purchase or sell APS based upon
the results of the related Auction, (ii) the Auctions will be conducted through
telephone communications, (iii) settlement for purchases and sales will be on
the Business Day following the Auction and (iv) ownership of APS will be
maintained in book-entry form by or through the Securities Depository. In
certain circumstances, holders of APS may be unable to sell their APS in an
Auction and thus may lack liquidity of investment. The APS may only be
transferred pursuant to a Bid or a Sell Order placed in an Auction through a
Broker-Dealer to the Auction Agent or in the secondary market, if any.
This Prospectus sets forth concisely information you should know before
investing in the APS. Please read and retain this Prospectus for future
reference. A Statement of Additional Information for the Fund dated [ ], 2004
has been filed with the SEC and can be obtained without charge by calling
1-800-225-6265 or by writing to the Fund. The table of contents to the Statement
of Additional Information is located at page 58 of this Prospectus. This
Prospectus incorporates by reference the entire Statement of Additional
Information of the Fund. The Statement of Additional Information is available
along with other Fund-related materials at the SEC's internet web site
(http://www.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 APS do not represent a deposit or obligation of, and are not guaranteed or
endorsed by, any bank or other insured depository institution and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
You should rely only on the information contained or incorporated by reference
in this Prospectus. The Fund has not authorized any other person to provide you
with different information. The Fund is not making an offer of these securities
in any state where the offer is not permitted.
2
TABLE OF CONTENTS
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Prospectus summary
Financial highlights
The Fund
Use of proceeds
Capitalization
Portfolio composition
Investment objective, policies and risks
Management of the Fund
Description of APS
The Auctions
Taxes
Description of capital structure
Certain provisions of the Declaration of Trust
Underwriting
Shareholder Servicing Agent, custodian and transfer agent
Legal opinions
Independent auditors
Additional information
Table of contents for the Statement of Additional Information
The Fund's privacy policy
Glossary
3
Prospectus summary
THIS IS ONLY A SUMMARY. YOU SHOULD REVIEW THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION.
THE FUND
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (the "Fund") is a
recently organized, diversified, closed-end management investment company. The
Fund was organized as a Massachusetts business trust on February 27, 2004. The
Fund has registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). 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. The Fund commenced operations on April 30, 2004 upon the closing
of an initial public offering of its common shares of beneficial interest, par
value $0.01 per share ("Common Shares"). The Common Shares of the Fund are
traded on the New York Stock Exchange ("NYSE") under the symbol "ETO." In
connection with the initial public offering of the Fund's Common Shares, the
underwriters of the Common Shares offering were granted an option to purchase
additional shares to cover over-allotments.
Certain of the capitalized terms used in this Prospectus are defined in the
Glossary that appears at the end of this Prospectus.
THE OFFERING
The Fund is offering, pursuant to this Prospectus, preferred shares of
beneficial interest, par value $0.01 per share, which have been designated
Auction Preferred Shares, Series A, Series B and Series C (collectively, the
"APS"). Issuance of the APS represents the leveraged financing contemplated in
connection with the offering of the Common Shares of the Fund.
The Fund is offering [ ] Auction Preferred Shares, Series A, [ ] Auction
Preferred Shares, Series B and [ ] Auction Preferred Shares, Series C at a
purchase price of $25,000 per share plus accumulated dividends, if any, from the
Date of Original Issue. The APS are being offered through a group of
underwriters (collectively, the "Underwriters") led by [ ], [ ], and [ ]. See
"Underwriting."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level of after-tax total
return. The Fund's return is expected to consist primarily of tax-advantaged
dividend income and capital appreciation. In its investment program, the Fund
will consider the potential effects of inflation on shareholder capital.
Under normal market conditions, the Fund will invest at least 80% of its total
managed assets in dividend-paying common and preferred stocks of U.S. and
foreign issuers that Eaton Vance believes at the time of investment are eligible
to pay dividends that qualify for federal income taxation at rates applicable to
long-term capital gains, which reach a maximum of 15% ("tax-advantaged
dividends"). The remainder of the Fund's portfolio may be invested in stocks and
other investments that pay dividends, distributions or other amounts taxable for
federal income tax purposes at rates applicable to ordinary income. The Adviser
retains broad discretion to allocate the Fund's investments between common and
preferred stocks in a manner that it believes will best effectuate the Fund's
objective. Initially, the Fund expects to invest approximately 75%-85% of its
total managed assets in common stocks and approximately 15%-25% of its total
managed assets in preferred stocks. The Fund may invest in common and preferred
stocks of both domestic and foreign issuers. Under normal market conditions, the
Fund will invest at least 25% of its total managed assets in the securities of
U.S. issuers and at least 35% of its total managed assets in the securities of
issuers located in countries other than the United States ("Non-U.S. Issuers").
This means, at times, the Fund may invest up to 65% of its total managed assets
in securities of U.S. issuers and, at other times, the Fund may invest up to 75%
of its total managed assets in securities of Non-U.S. Issuers. Initially, the
Fund intends to invest approximately 45%-55% of its total managed assets in
Non-U.S. Issuers. The Fund may invest up to 15% of its total managed assets in
issuers located in emerging market countries. Under normal market conditions,
the Fund will invest in issuers located in at least three countries, including
the United States. Under normal market conditions, the Fund expects, with
respect to that portion of its total assets invested in preferred stocks, to
invest primarily in preferred stocks of investment grade quality (which is at
least BBB- as determined by Standard & Poor's Ratings Group ("S&P") or Fitch
Ratings ("Fitch"), Baa3 as determined by Moody's Investors Service, Inc.
("Moody's") or, if unrated, determined to be of comparable quality by Eaton
Vance). However, the Fund may from time to time purchase preferred stocks of
below investment grade quality that, at the time of purchase, are rated at least
B as determined by S&P, Fitch or Moody's or, if unrated, are determined to be of
comparable quality by Eaton Vance. Securities of below investment grade quality
commonly are referred to as "junk" preferred stocks and bonds, as the case may
be. 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.
Securities rated in the lowest investment grade rating (BBB- or Baa3) may have
certain speculative characteristics. Below investment grade quality securities
are considered to be predominantly speculative because of the credit risk of the
issuers. See 'Investment Objective, policies and risks--Additional Risk
Considerations--Non-investment grade securities risk."
4
The Fund seeks to invest in securities expected to generate dividend income that
qualifies for favorable federal income tax treatment. Under federal income tax
law enacted on May 28, 2003, tax-advantaged dividends received by individual
shareholders are taxed at long-term capital gain tax rates, which reach a
maximum of 15%. Tax-advantaged dividends generally include dividends from
domestic corporations and dividends from foreign corporations that meet certain
specified criteria. The Fund generally can pass the tax treatment of
tax-advantaged dividends it receives through to Common Shareholders. For the
Fund to receive tax-advantaged dividend income, the Fund must hold stock paying
an otherwise tax-advantaged dividend 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).
Although current law only provides a 120-day and 180-day period of holding such
stock, a proposed technical correction to the law would extend such periods to
121 days and 181 days. The Treasury Department and the Internal Revenue Service
("IRS") have announced that taxpayers may apply the extended period as if the
legislation were already enacted in filing their federal income tax returns. 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 otherwise tax-advantaged dividends from the Fund received by 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 Internal
Revenue Code of 1986, as amended (the "Code"), applicable to tax-advantaged
dividends are effective through 2008. Thereafter, higher tax rates will apply
unless further legislative action is taken.
In addition to investing in stocks that pay tax-advantaged dividends, the Fund
may also invest a portion of its assets in stocks and other securities that
generate fully taxable ordinary income (i.e., income other than tax-advantaged
dividends). For any year, so long as the Fund's fully taxable ordinary income
and net realized short-term gains are offset by expenses of the Fund, all of the
Fund's income distributions would be characterized as tax-advantaged dividends.
There can be no assurance that a portion of the Fund's income distributions will
not be fully taxable as ordinary income.
Eaton Vance currently believes that the U.S. and global economies may be in the
early stages of transitioning from a more than twenty year cycle of
disinflation, characterized by generally low and moderating inflation, to a new
cycle of generally rising inflation. Eaton Vance believes that, during periods
of high or rising concern about inflation, investments in common stocks of
certain types of issuers whose businesses are related to "hard assets" ("Hard
Asset Stocks") can support the Fund's objective to achieve high after-tax total
return. The value of such businesses and hence their common stock prices
normally appreciate in higher inflationary environments. Hard Asset Stocks may
include those of issuers whose businesses are related to energy, other natural
resources and real estate. Reflecting Eaton Vance's current outlook on
inflation, the Fund expects initially to invest approximately 30%-40% of its
total managed assets in Hard Asset Stocks.
The Fund may not invest 25% or more of its total managed assets in the
securities of issuers in any single industry. The Fund may invest a significant
portion of its assets in securities of issuers in any single industry or sector
of the economy if companies in that industry or sector meet the Fund's
investment criteria. The Fund may invest a significant portion of its assets in
each of the energy, raw materials, real estate, utilities and financial services
sectors.
The Fund anticipates making significant investments in natural resource-related
common stocks in the energy and raw materials sectors. Natural resource-related
common stocks are issued by companies engaged in exploring for, developing,
processing, fabricating, producing, distributing, dealing in or owning natural
resources, companies engaged in the creation or development of technologies for
the production or use of natural resources, and companies engaged in the
furnishing of technology, equipment, supplies or services to the natural
resource area. Natural resources include substances, materials and energy
derived from natural sources that have economic value. Examples of natural
resources include precious metals (e.g., gold, silver and platinum), ferrous and
nonferrous metals (e.g., iron, aluminum, copper, nickel, lead and zinc),
minerals, energy resources (e.g., coal, oil, natural gas, uranium, hydropower),
timber and timberland, agricultural land and commodities, water, marine
resources and alternative energy resources (e.g., solar, wind, geothermal and
tidal energy).
The Fund may also make significant investments in the real estate, utilities and
financial services sectors. Companies in the real estate sector include, for
example, real estate investment trusts ("REITs") that either own properties or
make construction or mortgage loans, real estate developers, companies with
substantial real estate holdings, and other companies whose products and
services are related to the real estate industry, such as building supply
manufacturers, mortgage lenders, or mortgage servicing companies. The utilities
sector includes companies engaged in the manufacture, production, generation,
transmission, sale or distribution of water, gas, and electric energy as well as
companies that provide communication services. Companies in the financial
services sector include, for example, commercial banks, savings and loan
associations, brokerage and investment companies, insurance companies, and
consumer and industrial finance companies.
5
If the Fund is focused in an industry or sector, it may present more risks than
if it were broadly diversified over numerous industries or sectors of the
economy. To the extent that the Fund's portfolio is composed significantly of
stocks in the energy, raw materials, real estate, utilities, and financial
services sectors, the Fund will be more exposed to the particular risks
associated with those sectors. However, if market conditions change, the Fund's
portfolio would not necessarily be so composed of stocks in these sectors, but
could be composed significantly of stocks of issuers in other market sectors.
See "Investment objective, policies and risks--Additional Risk
Considerations--Sector risk."
The Fund may seek to enhance the level of 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 period of time than if
it held a single stock. Receipt of a greater number of dividend payments during
a given time period could augment the total amount of dividend income the Fund
receives over this period. For example, during the course of a single year it
may be possible through dividend capture trading for the Fund to receive five or
more dividend payments with respect to Fund assets attributable to dividend
capture trading where it may only have received four payments in a hold only
strategy. In order for dividends received by the Fund to qualify as
tax-advantaged dividends, the Fund must comply with the holding period
requirements described herein. Dividend capture trading by the Fund will take
account of this consideration. The use of dividend capture strategies will
expose the Fund to increased trading costs and potential for capital loss or
gain, particularly in the event of significant short-term price movements of
stocks subject to dividend capture trading.
INVESTMENT STRATEGY
A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments, including the allocation between common
and preferred stocks and between U.S. and non-U.S. investments. Individual
members of this team with specialized expertise are responsible for the
day-to-day management of different portions of the Fund's portfolio. The Fund's
investments are actively managed, and securities may be bought or sold on a
daily basis.
In selecting securities, the Fund invests primarily in dividend-paying common
and preferred stocks of U.S. and non-U.S. companies that produce attractive
levels of tax-advantaged dividend income and are, in the opinion of the Adviser,
undervalued or inexpensive relative to the overall market. Stocks may be
undervalued in relation to other investments due to adverse economic or other
near-term difficulties that cause them not to achieve their expected financial
potential. Undervaluation may also arise because companies are misunderstood by
investors or because they are out of step with favored market themes. For its
investments in common stocks, the Fund also generally seeks to invest in
positions that the Adviser believes have the potential for growth of income and
capital appreciation over time. The Fund will take into consideration the
Adviser's expectations for inflation and may, during periods of high or rising
concern about inflation, make substantial investments in Hard Asset Stocks. For
its investments in preferred stocks, the Fund will also take into consideration
the interest rate sensitivity of the investments and the Adviser's interest rate
expectations.
Investment decisions are made primarily on the basis of fundamental research.
The portfolio managers utilize information provided by, and the expertise of,
the Adviser's research staff in making investment decisions. In selecting
stocks, the portfolio managers consider (among other factors) a company's
earnings or cash flow capabilities, dividend prospects and tax treatment of a
company's dividends, the strength of the company's business franchises and
estimates of the company's net value. Many of these considerations are
subjective.
The Fund seeks to achieve high after-tax returns for Common Shareholders in part
by minimizing the taxes they incur in connection with the Fund's investment
income and realized capital gains. The Fund seeks to minimize distributions that
are taxed as ordinary income by investing principally in common and preferred
stocks that pay tax-advantaged dividends and generally by avoiding net realized
short-term capital gains and fully taxable ordinary income in excess of the
Fund's expenses. The Fund seeks to minimize distributions taxed as long-term
capital gains by avoiding or minimizing the sale of portfolio securities with
large accumulated capital gains. When a decision is made to sell a particular
appreciated security, the portfolio managers will 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 portfolio managers may sell securities to realize
capital losses that can be used to offset realized gains (but not tax-advantaged
dividends or other ordinary income).
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, the purchase of put options and the sale of call options on securities
held, 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
6
can, within certain limitations, reduce its exposure to price declines in the
securities without realizing substantial capital gains under current tax law. In
order to seek to protect against adverse changes in the value of the Fund's
portfolio from changes in the value of foreign currencies, the Fund may purchase
and sell foreign currency on a spot (i.e., cash) basis in connection with the
settlement of transactions in securities traded in such foreign currency, may
enter into forward contracts to purchase or sell securities or foreign
currencies at a future date, or may buy or sell a foreign currency option or
futures contract for such amount. Derivative instruments may also be used by the
Fund to enhance returns or as a substitute for the purchase or sale of
securities. 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. The Fund may invest up to 20% of its total managed assets in
derivative instruments acquired for hedging, risk management and investment
purposes (to gain exposure to securities, securities markets, markets indices
and/or currencies consistent with its investment objective and policies),
provided that no more than 10% of the Fund's total managed assets may be
invested in such derivative instruments acquired for speculative purposes.
The foregoing policies relating to investment in common and in preferred stocks
are the Fund's primary investment policies. In addition to its primary
investment policies involving investments in common and preferred stocks, the
Fund may invest to a limited extent in bonds and other debt securities and
engage in certain other investment practices. For federal income tax purposes,
the Fund's income from bonds, other debt securities and most derivative
instruments would be taxable as ordinary income and would not be eligible for
treatment as tax-advantaged dividends. See "Investment objective, policies and
risks--Additional investment practices."
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance, an indirect wholly-owned subsidiary of Eaton Vance Corp., is the
Fund's investment adviser and administrator. See "Management of the Fund." As of
April 30, 2004, Eaton Vance and its subsidiaries managed approximately $[ ]
billion on behalf of funds, institutional clients and individuals, including
approximately $[ ] billion in tax-managed equity fund assets.
RISK FACTORS SUMMARY
Risk is inherent in all investing. Therefore, before investing in the Fund you
should consider certain risks carefully. The primary risks of investing in APS
are:
+ If an Auction fails, you may not be able to sell some or all of your APS;
+ Because of the nature of the market for APS, you may receive less than the
price you paid for your shares if you sell them outside of the Auction,
especially when market interest rates are rising;
+ A Rating Agency could downgrade APS, which could affect liquidity;
+ The Fund may be forced to redeem your APS to meet regulatory or Rating Agency
requirements or may elect to redeem your APS in certain circumstances;
+ In extraordinary circumstances, the Fund may not earn sufficient income from
its investments to pay dividends;
+ If long-term interest rates rise, the value of the Fund's investment in
preferred stock, paying fixed dividends and debt securities will decline,
reducing the asset coverage for its APS;
+ Due to market fluctuations, the value of the Fund's investments in common
stock may fall, reducing the asset coverage for its APS;
+ The Fund will invest a significant portion of its assets in foreign
securities. Under normal market conditions, the Fund will invest at least 25%
of its total managed assets in securities of issuers located in the United
States and at least 35% of its total managed assets in securities of issuers
located in countries other than the United States. The Fund may invest up to
15% of its total managed assets in issuers located in emerging market
countries. 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.
+ The Fund may invest a significant portion of its assets in securities of
issuers in any single industry or sector of the economy if companies in that
industry or sector meet the Fund's investment criteria. If the Fund is focused
in an industry or sector, it may present more risks than if it were broadly
diversified over numerous industries or sectors of the economy. The Fund may
invest a significant portion of its assets in each of the energy, raw
materials, real estate, utilities and financial services sectors. This may
make the Fund more susceptible to adverse economic, political, or regulatory
occurrences affecting these sectors. As the percentage of the Fund's assets
invested in a particular sector increases, so does the potential for
fluctuation in Fund's investments and therefore reduced asset coverage for its
APS;
+ If an issuer of an obligation in which the Fund invests is downgraded or
defaults, there may be a negative impact on the income and/or asset value of
the Fund's portfolio; and
7
+ The Fund's investments in preferred stock and bonds of below investment grade
quality are predominantly speculative because of the credit risk of their
issuers. While offering a greater potential opportunity for capital
appreciation and higher yields, non-investment grade quality securities
typically entail greater potential price volatility and may be less liquid
than higher-rated securities. Issuers of non-investment grade quality
securities are more likely to default on their payments of interest and
principal owed to the Fund, and such defaults will reduce the Fund's net asset
value and income distributions. The prices of these lower rated obligations
are more sensitive to negative developments than higher rated securities.
Adverse business conditions, such as a decline in the issuer's revenues or an
economic downturn, generally lead to a higher non-payment rate. In addition, a
security may lose significant value before a default occurs as the market
adjusts to expected higher non-payment rates.
For additional general risks of investing in APS of the Fund, see "Investment
objectives, policies and risks--Risk considerations."
TRADING MARKET
APS are not listed on an exchange. Instead, you may buy or sell APS at an
Auction that normally is held on the dates set forth below by submitting orders
to a broker-dealer that has entered into an agreement with the Auction Agent (a
"Broker-Dealer") or to a broker-dealer that has entered into a separate
agreement with a Broker-Dealer. In addition to the Auctions, Broker-Dealers and
other broker-dealers may maintain a secondary trading market in APS outside of
Auctions but may discontinue this activity at any time. There is no assurance
that a secondary market will develop, or if it does develop, that it will
provide shareholders with liquidity. You may transfer APS outside of auctions
only to or through a Broker-Dealer or a broker-dealer that has entered into a
separate agreement with a Broker-Dealer.
The table below shows the first Auction Date for each series of APS of the Fund
and the day on which each subsequent Auction will normally be held for each such
series. The first Auction Date for each series of APS of the Fund will be the
Business Day before the Dividend Payment Date for the Initial Dividend Period
for each such series. The start date for Subsequent Dividend Periods normally
will be the Business Day following the Auction Date unless the then-current
Dividend Period is a Special Dividend Period, or the day that normally would be
the Auction Date or the first day of the Subsequent Dividend Period is not a
Business Day.
FIRST AUCTION SUBSEQUENT
DATE AUCTIONS
---- --------
Series A
Series B
Series C
DIVIDENDS AND DIVIDEND PERIODS
The table below shows the dividend rate for the Initial Dividend Period of the
APS offered in this Prospectus. For Subsequent Dividend Periods, APS will pay
dividends based on a rate set at Auctions. For Series A, Series B and Series C
APS, dividends are generally paid on the day following the end of the Dividend
Period. The rate set at Auction will not exceed the Maximum Applicable Rate. See
"The Auctions--Auction procedures."
Finally, the table below shows the numbers of days of the Initial Dividend
Period for the APS. Subsequent Dividend Periods generally will be [ ] days for
Series A, Series B, and Series C APS. The Dividend Payment Date for Special
Dividend Periods of other than [ ] days in the cases of Series A, Series B and
Series C APS, will be set out in the notice designating a Special Dividend
Period. See "Description of APS--Dividends and Dividend Periods."
NUMBER OF
DAYS OF
INITIAL DATE OF DIVIDEND PAYMENT SUBSEQUENT INITIAL
DIVIDEND ACCUMULATION DATE FOR INITIAL DIVIDEND PAYMENT DIVIDEND
RATE OF INITIAL RATE DIVIDEND PERIOD DATE PERIOD
---- --------------- --------------- ---- ------
Series A
Series B
Series C
TAXATION
Dividends paid with respect to APS should constitute dividends for federal
income tax purposes to the extent attributable to the Fund's current or
accumulated earnings and profits. For a further discussion of the tax treatment
of dividends paid by the Fund see "Taxes--General." Distributions of net capital
gain, to the extent so designated, will be treated as long-term capital gains.
There can be no assurances as to what percentage of the dividends paid on the
APS will consist of tax-advantaged dividends on long-term capital gains, both of
which are taxed at more favorable tax rates than ordinary income.
8
REDEMPTION
Although the Fund will not ordinarily redeem APS, it may be required to redeem
APS if, for example, the Fund does not meet an asset coverage ratio required by
law or in order to correct a failure to meet a Rating Agency guideline in a
timely manner. See "Description of APS--Redemption--Mandatory redemption." The
Fund may voluntarily redeem APS in certain circumstances. See "Description of
APS--Redemption--Optional redemption."
LIQUIDATION PREFERENCE
The liquidation preference of the APS of each series is $25,000 per share, plus
an amount equal to accumulated but unpaid dividends (whether or not earned or
declared). See "Description of APS--Liquidation rights."
RATING
Shares of APS of the Fund will be issued with a credit quality rating of AAA or
Aaa from both [ ] and [ ]. The Fund may at some future time look to have its APS
rated by additional or Substitute Rating Agencies. Because the Fund is required
to maintain at least two ratings, it must own portfolio securities of sufficient
value with adequate credit quality to meet the Rating Agency's guidelines. See
"Description of APS--Rating Agency guidelines and asset coverage."
VOTING RIGHTS
The 1940 Act requires that the holders of APS and any other Preferred Shares of
the Fund, voting as a separate class, have the right to elect at least two
Trustees of the Fund at all times and to elect a majority of the Trustees at any
time when two years' dividends on the APS or any other Preferred Shares are
unpaid. The holders of APS and any other Preferred Shares of the Fund will vote
as a separate class on certain other matters as required under the Fund's
Agreement and Declaration of Trust ("Declaration of Trust") and the 1940 Act.
See "Description of APS--Voting rights" and "Certain provisions of the
Declaration of Trust."
9
Financial highlights
Information contained in the tables below under the headings "Income (loss) from
operations" and "Ratios/Supplemental data" shows the unaudited operating
performance of the Fund from the commencement of the Fund's investment
operations on April 30, 2004 until [ ] 2004. Since the Fund commenced operations
on April 30, 2004, the tables cover approximately [ ] weeks of operations,
during which a substantial portion of the Fund's assets were invested in
high-quality, short-term debt securities. Accordingly, the information presented
may not provide a meaningful picture of the Fund's operating performance.
FINANCIAL STATEMENTS (UNAUDITED)
FINANCIAL HIGHLIGHTS
AS OF [ ], 2004
PERIOD ENDED
[ ], 2004(2)(3)
--------------------------------------------------------------------------------
Net asset value--Beginning of period(4) $
INCOME (LOSS) FROM OPERATIONS
Net investment income $
Net realized and unrealized gain $
________
Total income from operations $
________
Common share offering costs $( )
________
Net asset value--End of period $
________
Market value--End of period $
________
Total Investment Return on Net Asset Value(5) %
Total Investment Return on Market Value(5) %
RATIOS/SUPPLEMENTAL DATA(1)
Net assets, end of period (000's omitted) $
Ratios (As a percentage of average daily net assets):
Net expenses %(6)
Net investment income %(6)
Portfolio Turnover %
____________
(1) THE OPERATING EXPENSES OF THE FUND REFLECT A REDUCTION OF THE INVESTMENT
ADVISER FEE AND A REIMBURSEMENT OF EXPENSES BY THE ADVISER. HAD SUCH ACTION
NOT BEEN TAKEN, THE RATIOS AND NET INVESTMENT INCOME PER SHARE WOULD HAVE
BEEN AS FOLLOWS: RATIOS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
EXPENSES %(6) NET INVESTMENT INCOME %(6) NET INVESTMENT INCOME PER SHARE $
(2) FOR THE PERIOD FROM THE START OF BUSINESS, APRIL 30, 2004, TO [ ], 2004.
(3) COMPUTED USING AVERAGE COMMON SHARES OUTSTANDING.
(4) NET ASSET VALUE AT BEGINNING OF PERIOD REFLECTS THE DEDUCTION OF THE SALES
LOAD OF $0.90 PER SHARE PAID BY THE SHAREHOLDER FROM THE $20.00 OFFERING
PRICE.
(5) TOTAL INVESTMENT RETURN ON NET ASSET VALUE IS CALCULATED ASSUMING A PURCHASE
AT THE OFFERING PRICE OF $20.00 LESS THE SALES LOAD OF $0.90 PER SHARE PAID
BY THE SHAREHOLDER ON THE FIRST DAY AND A SALE AT THE NET ASSET VALUE ON THE
LAST DAY OF THE PERIOD REPORTED. TOTAL INVESTMENT RETURN ON MARKET VALUE IS
CALCULATED ASSUMING A PURCHASE AT THE OFFERING PRICE OF $20.00 LESS THE
SALES LOAD OF $0.90 PER SHARE PAID BY THE SHAREHOLDER ON THE FIRST DAY AND A
SALE AT THE CURRENT MARKET PRICE ON THE LAST DAY OF THE PERIOD REPORTED.
TOTAL INVESTMENT RETURN ON NET ASSET VALUE AND TOTAL INVESTMENT RETURN ON
MARKET VALUE ARE NOT COMPUTED ON AN ANNUALIZED BASIS.
(6) ANNUALIZED.
10
The Fund
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (the "Fund") is a
diversified, closed-end management investment company. The Fund was organized as
a Massachusetts business trust on February 27, 2003. The Fund has registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Fund's principal office is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109, and its telephone number is 1-800-225-6265.
The Fund commenced operations on April 30, 2004 upon the closing of an initial
public offering of shares of its common shares of beneficial interest, $0.01 par
value (the "Common Shares"). The proceeds of such offering were $276,950,000
after the payment of offering expenses. The Common Shares of the Fund are traded
on the New York Stock Exchange ("NYSE") under the symbol "ETO." In connection
with the initial public offering of the Fund's Common Shares, the underwriters
of the Common Shares offering were granted an option to purchase, at a price of
$20.00 per Common Share, [ ] additional Common Shares to cover over-allotments.
On [ ], 2004, the Fund issued [ ] Common Shares pursuant to a partial exercise
of the over-allotment option.
Certain of the capitalized terms used in this Prospectus are defined in the
Glossary that appears at the end of this Prospectus.
Use of proceeds
The net proceeds of this offering will be approximately $[ ] after the payment
of the sales load and expected offering costs. See "Underwriting." The Fund will
invest the net proceeds of the offering in accordance with its investment
objective and policies stated below. It is presently anticipated that the Fund
will be able to invest substantially all of the net proceeds in obligations that
meet the investment objective and policies during a period estimated not to
exceed three months from the completion of the offering of the APS depending on
market conditions and the availability of appropriate securities. Pending such
investment, the proceeds may be invested in high quality, short-term debt
securities.
11
Capitalization
The following table sets forth the unaudited capitalization of the Fund as of [
], 2004 and as adjusted to give effect to the issuance of the APS offered
hereby. The APS offering costs to be borne by the Fund and thus Common
Shareholders are estimated to be $[ ].
ACTUAL AS ADJUSTED
--------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
Preferred shares, par value, $0.01 per share (no
shares issued; [ ] as adjusted, at $25,000
per share liquidation preference) $ -- $
============ ============
SHAREHOLDERS' EQUITY:
Common Shares, par value, $0.01 per share
([ ] shares issued and outstanding) $ $
Capital in excess of par value attributable to Common
Shares
Net undistributed investment income
Net accumulated realized gain (loss) ( ) ( )
Net unrealized appreciation on investments ------------ ------------
Net Assets $ $
============ ============
Portfolio composition
As of [ ], 2004, the following table indicates the approximate percentage of the
Fund's portfolio invested in common stock, preferred stock and short-term
obligations. Also included in the table is other information with respect to the
portion of the Fund's investment portfolio invested in preferred stock as of the
same date.
NUMBER
INVESTMENT S&P(1) MOODY'S(1) FITCH(1) OF ISSUES VALUE PERCENT
------------ ------ ---------- -------- --------- ----- -------
Common Stock -- -- -- -- %
Preferred Stock AA Aa AA 3 %
A A A 14 %
BBB Baa BBB 2 %
BB Ba BB -- %
Unrated -- %
Cash and
cash
equivalents -- -- -- -- %
--- ---------- -
Total $ %
========== -
____________
(1) RATINGS: USING THE HIGHER OF S&P'S, MOODY'S OR FITCH'S RATINGS ON THE FUND'S
INVESTMENTS. S&P AND FITCH RATING CATEGORIES MAY BE MODIFIED FURTHER BY A
PLUS (+) OR MINUS (--) IN AA, A, BBB, BB, B, AND CCC RATINGS. MOODY'S RATING
CATEGORIES MAY BE MODIFIED FURTHER BY A 1, 2 OR 3 IN AA, A, BAA, BA, B, AND
CAA RATINGS.
12
Investment objective, policies and risks
INVESTMENT OBJECTIVE
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund's investment
objective is to provide a high level of after-tax total return. Such return is
expected to consist primarily of tax-advantaged dividend income and capital
appreciation. The Fund's investment objective is fundamental and cannot be
changed without the approval of the Shareholders, as required under the 1940
Act.
PRIMARY INVESTMENT POLICIES
GENERAL COMPOSITION OF THE FUND
Under normal market conditions, the Fund will invest at least 80% of its total
managed assets in dividend-paying common and preferred stocks of U.S. and
foreign issuers that Eaton Vance believes at the time of investment are eligible
to pay dividends that qualify for federal income taxation at rates applicable to
long-term capital gains, which reach a maximum of 15% ("tax-advantaged
dividends"). The remainder of the Fund's portfolio may be invested in stocks and
other investments that pay dividends, distributions or other amounts taxable for
federal income tax purposes at rates applicable to ordinary income. The Fund's
policy of investing, in normal market conditions, at least 80% of its total
managed assets in dividend-paying common and preferred stocks of U.S. and
foreign issuers that Eaton Vance believes at the time of investment are eligible
to pay tax-advantaged dividends may only be changed by the Fund's Board
following the provision of 60 days prior written notice to holders of common
shares of beneficial interest of the Fund ("Common Shareholders"). The Adviser
retains broad discretion to allocate the Fund's investments between common and
preferred stocks in a manner that it believes will best effectuate the Fund's
objective. Initially, the Fund expects to invest approximately 75%-85% of its
total managed assets in common stocks and approximately 15%-25% of its total
managed assets in preferred stocks. The Fund may invest in common and preferred
stocks of both domestic and foreign issuers. Under normal market conditions, the
Fund will invest at least 25% of its total managed assets in the securities of
U.S. issuers and at least 35% of its total managed assets in the securities of
issuers located in countries other than the United States ("Non-U.S. Issuers").
This means, at times, the Fund may invest up to 65% of its total managed assets
in securities of U.S. issuers and, at other times, the Fund may invest up to 75%
of its total managed assets in securities of Non-U.S. Issuers. Initially, the
Fund intends to invest approximately 45%-55% of its total managed assets in
Non-U.S. Issuers. The Fund may invest up to 15% of its total managed assets in
issuers located in emerging market countries. Under normal market conditions,
the Fund will invest in issuers located in at least three countries, including
the United States.
Under normal market conditions, with respect to that portion of its assets
invested in preferred stocks, the Fund expects to invest primarily in preferred
stocks of investment grade quality (which is at least BBB- as determined by
Standard & Poor's Ratings Group ("S&P") or Fitch Ratings ("Fitch"), Baa3 as
determined by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
determined to be of comparable quality by Eaton Vance). However, the Fund may
from time to time purchase preferred stocks of below investment grade quality
that at the time of purchase are rated at least B as determined by S&P, Fitch or
Moody's or, if unrated, are determined to be of comparable quality by Eaton
Vance. Securities of below investment grade quality commonly are referred to as
"junk" preferred stocks and bonds, as the case may be. The Fund will not invest
more than 10% of its total managed assets in preferred stocks and bonds of below
investment grade quality. 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. Securities rated in the lowest investment grade rating
(BBB- or Baa3) may have certain speculative characteristics. Below investment
grade quality securities are considered to be predominantly speculative because
of the credit risk of the issuers. See "Investment objective, policies and
risks--Additional Risk Considerations--Non-investment grade securities risk."
The Fund seeks to invest in securities expected to generate dividend income that
qualifies for favorable federal income tax treatment. Under federal income tax
law enacted on May 28, 2003, tax-advantaged dividends received by individual
shareholders are taxed at long-term capital gain tax rates, which reach a
maximum of 15%. Tax-advantaged dividends generally include dividends from
domestic corporations and dividends from foreign corporations that meet certain
specified criteria. The Fund generally can pass the tax treatment of
tax-advantaged dividends it receives through to Common Shareholders. For the
Fund to receive tax-advantaged dividend income, the Fund must hold stock paying
an otherwise tax-advantaged dividend 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).
Although current law only provides a 120-day and 180-day period for holding such
stock, a proposed technical correction to the law would extend such periods to
121 days and 181 days. The Treasury Department and the Internal Revenue Service
have announced that taxpayers may apply the extended period as if the
legislation were already enacted in filing their federal income tax returns. 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 otherwise tax-advantaged dividends from the Fund received by 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
13
applicable to tax-advantaged dividends are effective through 2008. Thereafter,
higher tax rates will apply unless further legislative action is taken.
In addition to investing in stocks that pay tax-advantaged dividends, the Fund
may also invest a portion of its assets in stocks and other securities that
generate fully taxable ordinary income. For any year, so long as the Fund's
fully taxable ordinary income and net realized short-term gains are offset by
expenses of the Fund, all of the Fund's income distributions would be
characterized as tax-advantaged dividends. There can be no assurance that a
portion of the Fund's income distributions will not be fully taxable as ordinary
income.
Eaton Vance currently believes that the U.S. and global economies may be in the
early stages of transitioning from a more than twenty year cycle of
disinflation, characterized by generally low and moderating inflation, to a new
cycle of generally rising inflation. Eaton Vance believes that, during periods
of high or rising concern about inflation, investments in common stocks of
certain types of issuers whose businesses are related to "hard assets" ("Hard
Asset Stocks") can support the Fund's objective to achieve high after-tax total
return. The value of such businesses and hence their common stock prices
normally appreciate in higher inflationary environments. Hard Asset Stocks may
include those of issuers whose businesses are related to energy, other natural
resources and real estate. Reflecting this outlook, the Fund expects initially
to invest approximately 30%-40% of its total managed assets in Hard Asset
Stocks.
The Fund may seek to enhance the level of 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 period of time than if
it held a single stock. Receipt of a greater number of dividend payments during
a given time period could augment the total amount of dividend income the Fund
receives over this period. For example, during the course of a single year it
may be possible through dividend capture trading for the Fund to receive five or
more dividend payments with respect to Fund assets attributable to dividend
capture trading where it may only have received four payments in a hold only
strategy. In order for dividends received by the Fund to qualify as
tax-advantaged dividends, the Fund must comply with the holding period
requirements described herein. Dividend capture trading by the Fund will take
account of this consideration.
The use of dividend capture strategies will expose the Fund to increased trading
costs and potential for capital loss or gain, particularly in the event of
significant short-term price movements of stocks subject to dividend capture
trading.
INVESTMENT STRATEGY
A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments, including the allocation between common
and preferred stocks and between U.S. and non-U.S. investments. Individual
members of this team with specialized expertise are responsible for the
day-to-day management of different portions of the Fund's portfolio. The Fund's
investments are actively managed and securities may be bought or sold on a daily
basis.
In selecting securities, the Fund invests primarily in dividend-paying common
and preferred stocks of U.S. and non-U.S. companies that produce attractive
levels of tax-advantaged dividend income and are, in the opinion of the Adviser,
undervalued or inexpensive relative to the overall market. Stocks may be
undervalued in relation to other investments due to adverse economic or other
near-term difficulties that cause them not to achieve their expected financial
potential. Undervaluation may also arise because companies are misunderstood by
investors or because they are out of step with favored market themes. For its
investments in common stocks, the Fund also generally seeks to invest in
positions that the Adviser believes have the potential for growth of income and
capital appreciation over time. The Fund will take into consideration the
Adviser's expectations for inflation and may, during periods of high or rising
concern about inflation, make substantial investments in certain types of
issuers whose businesses are related to Hard Asset Stocks. For its investment in
preferred stocks, the Fund will also take into consideration the interest rate
sensitivity of the investments and the Adviser's interest rate expectations.
Investment decisions are made primarily on the basis of fundamental research.
The portfolio managers utilize information provided by, and the expertise of,
the Adviser's research staff in making investment decisions. In selecting
stocks, the portfolio managers consider (among other factors) a company's
earnings or cash flow capabilities, dividend prospects and tax treatment of a
company's dividends, the strength of the company's business franchises and
estimates of the company's net value. Many of these considerations are
subjective.
The Fund may not invest 25% or more of its total managed assets in the
securities of issuers in any single industry. The Fund may invest a significant
portion of its assets in securities of issuers in any single industry or sector
of the economy if companies in that industry or sector meet the Fund's
investment criteria. The Fund may invest a significant portion of its assets in
each of energy, raw materials, real estate, utilities and financial services
sectors.
The Fund anticipates making significant investments in natural resource-related
14
common stocks in the energy and raw materials sectors. Natural resource-related
common stocks are issued by companies engaged in exploring for, developing,
processing, fabricating, producing, distributing, dealing in or owning natural
resources, companies engaged in the creation or development of technologies for
the production or use of natural resources, and companies engaged in the
furnishing of technology, equipment, supplies or services to the natural
resource sector. Natural resources include substances, materials and energy
derived from natural sources that have economic value. Examples of natural
resources include precious metals (e.g., gold, silver and platinum), ferrous and
nonferrous metals (e.g., iron, aluminum, copper, nickel, lead and zinc),
minerals, energy resources (e.g., coal, oil, natural gas, uranium, hydropower),
timber and timberland, agricultural land and commodities, water, marine
resources and alternative energy resources (e.g., solar, wind, geothermal and
tidal energy).
The Fund may also make significant investments in the real estate, utilities and
financial services sectors. Companies in the real estate industry and real
estate related investments may include, for example, real estate investment
trusts ("REITs") that either own properties or make construction or mortgage
loans, real estate developers, companies with substantial real estate holdings,
and other companies whose products and services are related to the real estate
industry, such as building supply manufacturers, mortgage lenders, or mortgage
servicing companies. The utilities sector includes companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
water, gas, and electric energy as well as companies that provide communication
services. Companies in the financial services sector include, for example,
commercial banks, savings and loan associations, brokerage and investment
companies, insurance companies, and consumer and industrial finance companies.
If the Fund is focused in an industry or sector, it may present more risks than
if it were broadly diversified over numerous industries or sectors of the
economy. To the extent that the Fund's portfolio is composed significantly of
stocks in the energy, raw materials, real estate, utilities, and financial
services sectors, the Fund will be more exposed to the particular risks
associated with those sectors. However, if market conditions change, the Fund's
portfolio would not necessarily be so composed of stocks in these sectors, but
could be composed significantly of stocks of issuers in other market sectors.
See "Investment objective, policies and risks--Additional Risk
Considerations--Sector risk."
TAX-MANAGED INVESTING
The Fund seeks to achieve high after-tax returns for Common Shareholders in part
by minimizing the taxes they incur in connection with the Fund's investment
income and realized capital gains. The Fund seeks to minimize distributions that
are taxed as ordinary income by investing principally in common and preferred
stocks that pay tax-advantaged dividends and generally by avoiding net realized
short-term capital gains and fully taxable ordinary income in excess of the
Fund's expenses. The Fund seeks to minimize distributions taxed as long-term
capital gains by avoiding or minimizing the sale of portfolio securities with
large accumulated capital gains. When a decision is made to sell a particular
appreciated security, the portfolio managers will 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 portfolio managers may sell securities to realize
capital losses that can be used to offset realized gains (but not tax-advantaged
dividends or other ordinary income).
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, the purchase of put options and the sale of call options on securities
held, equity swaps, covered short sales, forward sales of stocks and the
purchase and sale of forward currency exchange contracts and currency futures).
By using these techniques rather than selling appreciated securities, the Fund
can, within certain limitations, reduce its exposure to price declines in the
securities without realizing substantial capital gains under current tax law. In
order to seek to protect against adverse changes in the value of the Fund's
portfolio from changes in the value of foreign currencies, the Fund may purchase
and sell foreign currency on a spot (i.e., cash) basis in connection with the
settlement of transactions in securities traded in such foreign currency, may
enter into forward contracts to purchase or sell securities or foreign
currencies at a future date, or may buy or sell a foreign currency option or
futures contract for such amount. 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. The Fund may
invest up to 20% of its total managed assets in derivative instruments acquired
for hedging, risk management and investment purposes (to gain exposure to
securities, securities markets, markets indices and/or currencies consistent
with its investment objective and policies), provided that no more than 10% of
the Fund's total managed assets may be invested in such derivative instruments
acquired for speculative purposes.
Taxes are a major influence on the net returns that investors receive on their
taxable investments. There are five components of the returns of the
Fund--appreciation in the value of the Common Shares, distributions of
tax-advantaged dividends, distributions of other investment income and
distributions of realized short-term and long-term capital gains--which are
15
treated differently for federal income tax purposes. Distributions of income
other than tax-advantaged dividends and distributions of net realized short-term
gains (on stocks held for one year or less) are taxed as ordinary income, at
rates as high as 35%. Distributions to individuals and other non-corporate
shareholders of tax-advantaged dividends and net realized long-term gains (on
stocks held for more than one year) are taxed at rates up to 15%. Generally,
returns derived from appreciation in the value of the Common Shares are not
taxable until the shareholder sells his or her Common Shares. Upon sale, a
capital gain or loss (short-term, if the shareholder has held his or her shares
for one year or less, otherwise long-term) equal to the difference between the
net proceeds of such sale and the shareholder's adjusted tax basis is realized.
As described above, the Fund seeks to achieve favorable after-tax returns for
Common Shareholders in part by minimizing the taxes they incur in connection
with the Fund's net investment income and net realized gains.
COMMON STOCKS
Common stock represents an equity ownership interest in an issuer. The Fund will
have substantial exposure to common stocks. 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
issuers occur. In addition, common stock prices may be sensitive to rising
interest rates, as the costs of capital rise and borrowing costs increase.
PREFERRED STOCKS
Preferred stock, like common stock, represents an equity ownership in an issuer.
Generally, preferred stock has a priority of claim over common stock in dividend
payments and upon liquidation of the issuer. Unlike common stock, preferred
stock does not usually have voting rights. Preferred stock in some instances is
convertible into common stock.
Although they are equity securities, preferred stocks have certain
characteristics of both debt and common stock. They are debt-like in that their
promised income is contractually fixed. They are common stock-like in that they
do not have rights to precipitate bankruptcy proceedings or collection
activities in the event of missed payments. Furthermore, they have many of the
key characteristics of equity due to their subordinated position in an issuer's
capital structure and because their quality and value are heavily dependent on
the profitability of the issuer rather than on any legal claims to specific
assets or cash flows.
In order to be payable, dividends on preferred stock must be declared by the
issuer's board of directors. In addition, distributions on preferred stock may
be subject to deferral and thus may not be automatically payable. Income
payments on some preferred stocks are cumulative, causing dividends and
distributions to accrue even if not declared by the board of directors or
otherwise made payable. Other preferred stocks are non-cumulative, meaning that
skipped dividends and distributions do not continue to accrue. There is no
assurance that dividends on preferred stocks in which the Fund invests will be
declared or otherwise made payable. The Fund may invest in non-cumulative
preferred stock, although the Adviser would consider, among other factors, their
non-cumulative nature in making any decision to purchase or sell such
securities. If the Fund owns preferred stock that is deferring its
distributions, the Fund may be required to report income for federal income tax
purposes while it is not receiving cash payments corresponding to such income.
Shares of preferred stock have a liquidation value that generally equals the
original purchase price at the date of issuance. The market values of preferred
stock may be affected by favorable and unfavorable changes impacting the
issuers' industries or sectors, including companies in the utilities and
financial services sectors, which are prominent issuers of preferred stock. See
"Investment objective, policies and risks--Additional Risk
Considerations--Sector risk." They may also be affected by actual and
anticipated changes or ambiguities in the tax status of the security and by the
availability of the actual and anticipated changes or ambiguities in tax laws,
such as changes in corporate and individual income tax rates, and in the
dividends received deduction for corporate taxpayers or the characterization of
dividends as tax-advantaged as described herein.
Because the claim on an issuer's earnings represented by preferred stock may
become onerous when interest rates fall below the rate payable on the stock or
for other reasons, the issuer may redeem preferred stock, generally after an
initial period of call protection in which the stock is not redeemable. Thus, in
declining interest rate environments in particular, the Fund's holdings of
higher dividend-paying preferred stocks may be reduced and the Fund may be
unable to acquire securities paying comparable rates with the redemption
proceeds.
FOREIGN SECURITIES
The Fund will invest a significant portion of its assets in foreign securities.
As discussed above, under normal market conditions, the Fund will invest at
least 25% of its total managed assets in securities of issuers located in the
United States and at least 35% of its total managed assets in securities of
issuers located in countries other than the United States. The Fund may invest
up to 15% of its total managed assets in issuers located in emerging market
countries.
16
GENERAL. The value of foreign securities is affected by changes in currency
rates, foreign tax (including withholding tax) laws, government policies (in
this country or abroad), relations between nations and trading, settlement,
custodial and other operational risks. In addition, the costs of investing
abroad are generally higher than in the United States, and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than markets in the United States. Foreign investments also could be
affected by other factors not present in the United States, including
expropriation, armed conflict, confiscatory taxation, lack of uniform accounting
and auditing standards, less publicly available financial and other information
and potential difficulties in enforcing contractual obligations. As an
alternative to holding foreign-traded securities, the Fund may invest in
dollar-denominated securities of foreign companies that trade on U.S. exchanges
or in the U.S. over-the-counter market (including depositary receipts, which
evidence ownership in underlying foreign securities).
Because foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a domestic company. Volume and liquidity in
most foreign debt markets are less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of securities exchanges, broker-dealers and listed companies than in
the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities before delivery
may be required. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments, which could affect investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Foreign securities markets,
while growing in volume and sophistication, are generally not as developed as
those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies.
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") may be purchased. ADRs, EDRs and GDRs are
certificates evidencing ownership of shares of 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, they may not pass-
through voting or other shareholder rights, and they may be less liquid.
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 U.S. and developed foreign
markets. Disclosure and regulatory standards in many respects are less stringent
than in the U.S. and developed foreign markets. There also may be a lower level
of monitoring and regulation of securities markets in emerging market countries
and the activities of investors in such markets and enforcement of existing
regulations has been extremely limited. Many emerging countries have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. The economies of
these countries also have been and may continue to be adversely affected by
economic conditions in the countries in which they trade. The economies of
countries with emerging markets may also be predominantly based on only a few
industries or dependent on revenues from particular commodities. In addition,
custodial services and other costs relating to investment in foreign markets may
be more expensive in emerging markets than in many developed foreign markets,
which could reduce the Fund's income from such securities.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as economic developments generally, may affect the Fund's
investments in those countries. In addition, there is a heightened possibility
of expropriation or confiscatory taxation, imposition of withholding taxes on
interest payments, or other similar developments that could affect investments
in those countries. There can be no assurance that adverse political changes
will not cause the Fund to suffer a loss of any or all of its investments.
ADDITIONAL INVESTMENT PRACTICES
17
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in companies that are treated as real estate investment
trusts for federal income tax purposes ("REITs"). REITs are financial vehicles
that pool investors' capital to purchase or finance real estate. REITs may
concentrate their investments in specific geographic areas or in specific
property types, i.e., hotels, shopping malls, residential complexes and office
buildings. The market value of REIT shares and the ability of REITs to
distribute income may be adversely affected by numerous factors, including
rising interest rates, changes in the national, state and local economic climate
and real estate conditions, perceptions of prospective tenants of the safety,
convenience and attractiveness of the properties, the ability of the owners to
provide adequate management, maintenance and insurance, the cost of complying
with the Americans with Disabilities Act, increasing competition and compliance
with environmental laws, changes in real estate taxes and other operating
expenses, adverse changes in governmental rules and fiscal policies, adverse
changes in zoning laws, and other factors beyond the control of the issuers. In
addition, distributions received by the Fund from REITs may consist of
dividends, capital gains and/or return of capital. As REITs generally pay a
higher rate of dividends than most other operating companies, to the extent
application of the Fund's investment strategy results in the Fund investing in
REIT shares, the percentage of the Fund's dividend income received from REIT
shares will likely exceed the percentage of the Fund's portfolio, that is
comprised of REIT shares. REIT income distributions received by the Fund
generally will not be treated as tax-advantaged dividends.
CORPORATE BONDS AND OTHER DEBT SECURITIES
In addition to its investments in common and preferred stocks, the Fund may
invest in a wide variety of bonds, debentures and similar debt securities of
varying maturities and durations issued by corporations and other business
entities, including limited liability companies. Debt securities in which the
Fund may invest may pay fixed or variable rates of interest. Bonds and other
debt securities generally are issued by corporations and other issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest and normally must repay the amount borrowed on or before maturity.
Certain debt securities are "perpetual" in that they have no maturity date. For
its investments in bonds and other debt securities, the Fund will only invest in
securities that are rated at least B by S&P, Fitch or Moody's or, if unrated,
determined to be of comparable quality by Eaton Vance. Debt securities of below
investment grade quality, commonly known as "junk bonds," are considered to be
predominantly speculative in nature because of the credit risk of the issuers.
See "Investment objective, policies and risks--Risk
considerations--Non-investment grade securities risk." Income payments on debt
securities received by the Fund will be fully taxable as ordinary income.
WARRANTS
The Fund may invest in equity and index warrants of domestic and international
issuers. Equity warrants are securities that give the holder the right, but not
the obligation, to subscribe for equity issues of the issuing company or a
related company at a fixed price either on a certain date or during a set
period. Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a warrant may be
more volatile than the price of its underlying security, and a warrant may offer
greater potential for capital appreciation as well as capital loss. Warrants do
not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercised prior to its
expiration date. These factors can make warrants more speculative than other
types of investments. The sale of a warrant results in a long- or short-term
capital gain or loss depending on the period for which a warrant is held.
CONVERTIBLE SECURITIES AND BONDS WITH WARRANTS ATTACHED
The Fund may invest in preferred stocks and fixed-income obligations that are
convertible into common stocks of domestic and foreign issuers, and bonds issued
as a unit with warrants. Convertible securities in which the Fund may invest,
comprised of both convertible debt and convertible preferred stock, may be
converted at either a stated price or at a stated rate into underlying shares of
common stock. Because of this feature, convertible securities generally enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities often provide higher yields than the
underlying equity securities, but generally offer lower yields than
non-convertible securities of similar quality. The value of convertible
securities fluctuates in relation to changes in interest rates like bonds, and,
in addition, fluctuates in relation to the underlying common stock. Income
payments on convertible fixed-income obligations will be taxable as ordinary
income; dividend payments on convertible preferred stocks may be tax-advantaged
dividends depending on the nature of the preferred stock.
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.
The ability to use short sales against-the-box, certain equity swaps and certain
equity collar strategies as a tax-efficient management technique with respect to
holdings of appreciated securities is limited to circumstances in which the
18
hedging transaction is closed out within thirty days of the end of the Fund's
taxable year 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. 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).
TEMPORARY INVESTMENTS
Interest generated by investments in cash or cash equivalents will be taxable
for federal income tax purposes at rates applicable to ordinary income. During
unusual market circumstances, the Fund may invest temporarily in cash or cash
equivalents, which may be inconsistent with the Fund's investment objective.
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. During such market circumstances, the Fund may not
pay tax-advantaged dividends.
FOREIGN CURRENCY TRANSACTIONS
The value of foreign assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency rates and exchange
control regulations. Currency exchange rates can also be affected unpredictably
by intervention by U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the U.S. or
abroad. The Fund may engage in transaction to hedge against changes in foreign
currency, and will use hedging techniques when the Adviser deems appropriate.
Foreign currency exchange transactions may be conducted on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or
through entering into derivative currency transactions. Currency futures
contracts are exchange-traded and change in value to reflect movements of a
currency or a basket of currencies. Settlement must be made in a designated
currency. Forward foreign currency exchange contracts are individually
negotiated and privately traded so they are dependent upon the creditworthiness
of the counterparty. Such contracts may be used when a security denominated in a
foreign currency is purchased or sold, or when the receipt in a foreign currency
of dividend or interest payments on such a security is anticipated. A forward
contract can then "lock in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such dividend or interest payment, as the case may be.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the securities
held that are denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible. In addition, it may not be possible to hedge against
long-term currency changes. Cross-hedging may be performed by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Adviser determines that there is an established historical pattern of
correlation between the two currencies (or the basket of currencies and the
underlying currency). Use of a different foreign currency magnifies exposure to
foreign currency exchange rate fluctuations. Forward contracts may also be used
to shift exposure to foreign currency exchange rate changes from one currency to
another. Short-term hedging provides a means of fixing the dollar value of only
a portion of portfolio assets. Income or gains earned on any of the Fund's
foreign currency transactions generally will be treated as fully taxable income
(I.E., income other than tax-advantaged dividends).
Currency transactions are subject to the risk of a number of complex political
and economic factors applicable to the countries issuing the underlying
currencies. Furthermore, unlike trading in most other types of instruments,
there is no systematic reporting of last sale information with respect to the
foreign currencies underlying the derivative currency transactions. As a result,
available information may not be complete. In an over-the-counter trading
environment, there are no daily price fluctuation limits. There may be no liquid
secondary market to close out options purchased or written, or forward contracts
entered into, until their exercise, expiration or maturity. There is also the
risk of default by, or the bankruptcy of, the financial institution serving as a
counterparty.
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 securities that are the
subject of the transaction are subject to market fluctuations. In forward
commitment or when-issued transactions, if the seller or buyer, as the case may
be, fails to consummate the transaction, the counterparty may miss the
opportunity of obtaining a price or yield considered to be advantageous. Forward
commitment or when-issued transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made until payment is
received or delivery is made from the other party to the transaction. Forward
commitment or when-issued transactions are not entered into for the purpose of
investment leverage.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its total managed assets in securities for
which there is no readily available trading market or are otherwise illiquid.
19
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 such 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 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.
SWAPS
Swap contracts may be purchased or sold to hedge against fluctuations in
securities prices, interest rates or market conditions, to change the duration
of the overall portfolio, 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) to be exchanged or "swapped" between the
parties, which returns are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate or in a "basket" of securities representing a
particular index. 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. These instruments 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 investment performance of the Fund would be unfavorably affected.
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). Income payments
on interest rate swaps are taxable as ordinary income (I.E., income other than
tax-advantaged dividends).
Total Return Swaps. Total return swaps are contracts in which one party agrees
to make payments of the total return from the underlying asset(s), which may
include securities, baskets of securities, or securities indices during the
specified period, in return for payments equal to a fixed or floating rate of
interest or the total return from other underlying asset(s). Amounts realized on
total return swaps may be taxable as ordinary income (i.e., income other than
tax-advantaged dividends), capital gain or a combination thereof depending on
the nature of the swap contract.
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 unanticipated 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. There can be no assurance that Eaton Vance's use of futures
will be advantageous to the Fund. Nationally recognized statistical rating
organizations (each a "Rating Agency") guidelines on any preferred shares issued
by the Fund, including the APS, or covenants on Fund borrowings may limit use of
these transactions. Sales of futures contracts and related options generally
result in realization of short-term or long-term capital gain depending on the
period for which the investment is held. To the extent that any futures contract
or foreign currency contract held by the Fund is a "Section 1256 contract" under
the Code, the contract will be marked-to-market annually and any gain or loss
will be treated as 60% long-term and 40% short-term, regardless of the holding
period for such contract.
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. In the
judgment of the Adviser, the loans will be made only to organizations whose
credit quality or claims paying ability is considered to be at least investment
20
grade and when the expected returns, net of administrative expenses and any
finders' fees, justifies the attendant risk. Securities loans currently are
required to be secured continuously by collateral in cash, cash equivalents
(such as money market instruments) or other liquid securities held by the
custodian and maintained in an amount at least equal to the market value of the
securities loaned. The financial condition of the borrower will be monitored by
the Adviser on an ongoing basis. Income realized from securities lending and
payments in lieu of dividends on loaned stock will generally be fully taxable as
ordinary income (I.E., income other than tax-advantaged dividends). Under
current Rating Agency guidelines in connection with the APS, securities lending
by the Fund may not exceed 10% of the Fund's gross assets. Such limit is subject
to change by the Rating Agencies.
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. The Fund may from time to time borrow money to add leverage to the
portfolio. The Fund may also borrow money for temporary administrative purposes.
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
will be fully taxable as ordinary income (I.E., income other than tax-advantaged
dividends).
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. While there is a risk that large
fluctuations in the market value of the Fund's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,
they constitute a form of leverage. Such agreements will be treated as subject
to investment restrictions regarding "borrowings." If the 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 yield.
PORTFOLIO TURNOVER
As noted above, the Fund may sell securities to realize capital losses that can
be used to offset capital gains (but not tax-advantaged dividends or other
ordinary income) or in connection with dividend recapture strategies. Use of
these tax management strategies will increase portfolio turnover. Although the
Fund cannot accurately predict its portfolio turnover rate, it may exceed 100%
(excluding turnover of securities having a maturity of one year or less). A high
turnover rate (100% or more) necessarily involves greater trading costs to the
Fund and may result in realization of net short-term capital gains.
RISK CONSIDERATIONS
Risk is inherent in all investing. Investing in any investment company security
involves risk, including the risk that you may receive little or no return on
your investment or even that you may lose part or all of your investment.
Therefore, before investing you should consider carefully the following risks
that you assume when you invest in APS.
INTEREST RATE RISK
The Fund issues APS, which pay dividends based on short-term interest rates, and
uses part of the proceeds to buy preferred stock and fixed-rate debt securities,
which bear intermediate to longer-term dividend rates or interest rates. The
yield on preferred stocks are typically, although not always, higher than
short-term interest rates. Both long-term and short-term interest rates may
fluctuate. If short-term interest rates rise, APS rates may rise such that the
amount of dividends paid to APS holders exceeds the income from the portfolio
securities purchased with the proceeds from the sale of APS. Because income from
the Fund's entire investment portfolio (not just the portion purchased with the
proceeds of the APS offering) is available to pay APS dividends, however, APS
dividend rates would need to exceed greatly the Fund's net portfolio income
before the Fund's ability to pay APS dividends would be jeopardized. If
long-term rates rise, the value of the Fund's investment portfolio will decline,
reducing the amount of assets serving as asset coverage for the APS.
AUCTION RISK
Holders of APS may not be able to sell APS at an Auction if the Auction fails;
that is, if there are more APS offered for sale than there are buyers for those
APS. Also, if a Bid is placed at an Auction only at a specified rate, and that
bid rate exceeds the rate set at the Auction, the APS will not be retained.
Finally, if you elect to buy or retain APS without specifying a rate below which
you would not wish to continue to hold those APS, and the Auction sets a below
market rate, you may receive a lower rate of return on your APS then the market
rate. See "Description of APS" and "The Auctions--Auction procedures."
21
SECONDARY MARKET RISK
It may not be possible to sell APS between Auctions or it may only be possible
to sell them for a price of less than $25,000 per share plus any accumulated
dividends. If the Fund has designated a Special Dividend Period (a Dividend
Period of more than [ ] days in the cases of Series A, Series B and Series C
APS, changes in interest rates could affect the price of APS sold in the
secondary market. Broker-dealers may maintain a secondary trading market in the
APS outside of Auctions; however, they have no obligation to do so and there can
be no assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the broker-dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long-Term Dividend Period, likely will have an adverse
effect on the secondary market price of the APS, and a selling Shareholder may
sell APS between Auctions at a price per share of less than $25,000. Accrued APS
dividends, however, should at least partially compensate for the increased
market interest rate.
RATINGS AND ASSETS COVERAGE RISKS
While [ ] and [ ] assign a rating of "AAA" or "Aaa" to the APS, the ratings do
not eliminate or necessarily mitigate the risks of investing in APS. A Rating
Agency could downgrade APS, which may make APS less liquid at an Auction or in
the secondary market, although the downgrade would probably result in higher
dividend rates. If a Rating Agency downgrades APS of the Fund, the Fund will
alter its portfolio or redeem APS. The Fund may voluntarily redeem APS under
certain circumstances. A preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock obligations. The ratings on
the Preferred Shares are not recommendations to purchase, hold, or sell those
shares, inasmuch as the ratings do not comment as to market price or suitability
for a particular investor. The Rating Agency guidelines described above also do
not address the likelihood that an owner of the Preferred Shares will be able to
sell such shares in an Auction or otherwise. See "Description of APS--Rating
Agency guidelines and asset coverage" for a description of the asset maintenance
tests the Fund must meet.
ISSUER RISK
The value of common and preferred stocks held by the Fund may decline for a
number of reasons, which directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the issuer's goods and
services.
INCOME RISK
The income investors receive from the Fund is based primarily on the dividends
and interest it earns from its investments, which can vary widely over the short
and long term. If prevailing market interest rates drop, distribution rates of
the Fund's preferred stock holdings and any bond holdings could drop as well,
which could reduce the amount of income available to pay dividends with respect
to the APS.
COMMON STOCK RISK
The Fund will have substantial exposure to common stocks. 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 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 prices 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 issuers occur. In addition, common stock prices may be
sensitive to rising interest rates, as the costs of capital rise and borrowing
costs increase.
PREFERRED STOCK RISK
The Fund will have substantial exposure to preferred stocks. 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. Certain preferred stocks contain
provisions that allow an issuer under certain conditions to skip distributions
(in the case of "non-cumulative" preferred stocks) or defer distributions (in
the case of "cumulative" preferred stocks). If the Fund owns a preferred stock
that is deferring its distributions, the Fund may be required to report income
for federal income tax purposes while it is not receiving cash payments
corresponding to such income. Preferred stocks often contain provisions that
allow for redemption in the event of certain tax or legal changes or at the
issuers' call. In the event of redemption, the Fund may not be able to reinvest
the proceeds at comparable rates of return. Preferred stocks typically do not
provide any voting rights, except in cases when dividends are in arrears beyond
a certain time period, which varies by issue. Preferred stocks are subordinated
to bonds and other debt instruments in a company's capital structure in terms of
priority to corporate income and liquidation payments, and therefore will be
subject to greater credit risk than those debt instruments. Preferred stocks may
be significantly less liquid than many other securities, such as U.S. government
securities, corporate debt or common stock.
22
FOREIGN SECURITY RISK
The Fund will have substantial exposure to foreign securities. The value of
foreign securities is affected by changes in currency rates, foreign tax laws
(including withholding tax), government policies (in this country or abroad),
relations between nations and trading, settlement, custodial and other
operational risks. In addition, the costs of investing abroad are generally
higher than in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than markets
in the United States. Foreign investments also could be affected by other
factors not present in the United States, including expropriation, armed
conflict, confiscatory taxation, lack of uniform accounting and auditing
standards, less publicly available financial and other information and potential
difficulties in enforcing contractual obligations. As an alternative to holding
foreign-traded securities, the Fund may invest in dollar-denominated securities
of foreign companies that trade on U.S. exchanges or in the U.S.
over-the-counter market (including depositary receipts, which evidence ownership
in underlying foreign securities).
Because foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a domestic company. Volume and liquidity in
most foreign debt markets are less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of securities exchanges, broker-dealers and listed companies than in
the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities before delivery
may be required. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments, which could affect investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Foreign securities markets,
while growing in volume and sophistication, are generally not as developed as
those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies.
VALUE INVESTING RISK
The Fund focuses its investments on dividend-paying common and preferred stocks
that the Adviser believes are undervalued or inexpensive relative to other
investments. These types of securities may present risks in addition to the
general risks associated with investing in common and preferred stocks. These
securities generally are selected on the basis of an issuer's fundamentals
relative to current market price. Such securities are subject to the risk of
misestimation of certain fundamental factors. In addition, during certain time
periods market dynamics may favor "growth" stocks of issuers that do not display
strong fundamentals relative to market price based upon positive price momentum
and other factors. Disciplined adherence to a "value" investment mandate during
such periods can result in significant underperformance relative to overall
market indices and other managed investment vehicles that pursue growth style
investments and/or flexible equity style mandates.
NON-INVESTMENT GRADE SECURITIES RISK
The Fund's investments in preferred stocks and bonds of below investment grade
quality, if any, are predominantly speculative because of the credit risk of
their issuers. While offering a greater potential opportunity for capital
appreciation and higher yields, preferred stocks and bonds of below investment
grade quality entail greater potential price volatility and may be less liquid
than higher-rated securities. Issuers of below investment grade quality
preferred stocks and bonds are more likely to default on their payments of
dividends/interest and liquidation value/principal owed to the Fund, and such
defaults will reduce the Fund's net asset value and income distributions. The
prices of these lower quality preferred stocks and bonds are more sensitive to
negative developments than higher rated securities. Adverse business conditions,
such as a decline in the issuer's revenues or an economic downturn, generally
lead to a higher non-payment rate. In addition, such a security may lose
significant value before a default occurs as the market adjusts to expected
higher non-payment rates. The Fund will not invest in preferred stocks or bonds
that are rated, at the time of purchase, below B as determined by S&P, Moody's
or Fitch, or, if unrated, determined to be of comparable quality by Eaton Vance.
The Fund will not invest more than 10% of its gross assets in securities rated
below investment grade. The foregoing credit quality policies apply only at the
time a security is purchased, and the Fund is not required to dispose of
securities already owned by the Fund in the event of a change in assessment of
credit quality or the removal of a rating.
SECTOR RISK
The Fund may invest a significant portion of its assets in securities of issuers
in any single industry or sector of the economy if companies in that industry or
sector meet the Fund's investment criteria. The Fund may invest a significant
portion of its assets of issuers in each of the energy, raw materials, real
estate, utilities and financial services sectors. This may make the Fund more
susceptible to adverse economic, political, or regulatory occurrences affecting
these sectors. As concentration in a sector increases, so does the potential for
fluctuation in the net asset value of Common Shares.
ENERGY SECTOR RISK. The energy industry can be significantly affected by
23
fluctuations in energy prices and supply and demand of energy fuels, energy
conservation, the success of exploration projects, and tax and other government
regulations. The energy service industry can be significantly affected by the
supply of and demand for specific products or services, the supply of and demand
for oil and gas, the price of oil and gas, exploration and production spending,
government regulation, world events, and economic conditions. The energy sector
includes companies principally engaged in the energy field, including the
conventional areas of oil, gas, electricity, and coal, and newer sources of
energy such as nuclear, geothermal, oil shale, and solar power. These companies
may include, for example, companies that produce, generate, refine, control,
transmit, market, distribute, or measure energy or energy fuels such as
petro-chemicals; companies involved in providing products and services to
companies in the energy field; companies involved in energy research or
experimentation; and companies involved in the exploration of new sources of
energy, conservation, and energy-related pollution control.
RAW MATERIAL SECTOR RISK. The Fund's investments in natural resource-related
common stocks in the raw materials sector will be subject to the risk that the
prices of these securities may fluctuate widely due to the level and volatility
of commodity prices, the exchange value of the dollar, import controls,
worldwide competition, liability for environmental damage, depletion of
resources, and mandated expenditures for safety and pollution control devices.
Raw material industries can be significantly affected by events relating to
international political and economic developments, energy conservation, the
success of exploration projects, and tax and other government regulations. The
value of investments in the raw materials sector may be adversely affected by a
change in inflation. The raw materials sector includes companies principally
engaged in owning or developing non-energy natural resources and industrial
materials, or supplying goods and services to such companies. These companies
may include, for example, companies involved either directly or through
subsidiaries in exploring, mining, refining, processing, transporting,
fabricating, dealing in, or owning non-energy natural resources. Raw materials
include precious metals (e.g., gold, platinum, and silver), ferrous and
nonferrous metals (e.g., iron, aluminum, and copper), strategic metals (e.g.,
uranium and titanium), chemicals, paper and forest products and other basic
commodities.
REAL ESTATE SECTOR RISK. The real estate sector may include, for example, REITs
that either own properties or make construction or mortgage loans, real estate
developers, companies with substantial real estate holdings, and other companies
whose products and services are related to the real estate industry, such as
building supply manufacturers, mortgage lenders, or mortgage servicing
companies. To the extent the Fund invests in the securities of companies in the
real estate sector ("Real Estate Companies") and REITs the Fund's performance
may be linked to the performance of the real estate markets. Property values may
fall due to increasing vacancies or declining rents resulting from economic,
legal, cultural or technological developments. Values of the securities of Real
Estate Companies may fall, among other reasons, because of the failure of
borrowers from such Real Estate Companies to pay their loans or because of poor
management of the real estate properties owned by such Real Estate Companies.
Many Real Estate Companies, including REITs, utilize leverage (and some may be
highly leveraged), which increases investment risk and could adversely affect a
Real Estate Company's operations and market value in periods of rising interest
rates. Since interest rates are at or near historical lows, it is likely that
they will rise in the near future. The value of investments in the real estate
sector may be adversely affected by a change in inflation. Other factors such as
lack of adequate insurance or environmental issues may contribute to the risks
involved in a real estate investment.
Real Estate Companies may operate within particular sectors of the real estate
industry that are subject to specific sector-related risks. Real Estate
Companies tend to be small to medium-sized companies. Real Estate Company
shares, like other smaller company shares, may be more volatile than, and
perform differently from, larger company shares. REITs are subject to highly
technical and complex provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). There is a possibility that a REIT may fail to qualify for
conduit income tax treatment under the Code or may fail to maintain exemption
from registration under the 1940 Act, either of which could adversely affect its
operations.
UTILITIES SECTOR RISK. The utilities sector generally includes companies engaged
in the manufacture, production, generation, transmission, sale or distribution
of electric energy, gas, or water, or, in certain instances, the providing of
communications services. Certain segments of this sector and individual
companies within such segments may not perform as well as the sector as a whole.
Many utility companies historically have been subject to risks of increases in
fuel, purchased power and other operating costs, high interest costs on
borrowings needed for capital improvement programs and costs associated with
compliance with and changes in environmental and other governmental regulations.
In particular, regulatory changes with respect to nuclear and conventionally
fueled power generating and transmission facilities could increase costs or
impair the ability of the utility companies to operate and utilize such
facilities, thus reducing the utility companies' earnings or resulting in
losses. Rates of return on investment of certain utility companies are subject
to review by government regulators. There can be no assurance that changes in
regulatory policies or accounting standards will not negatively affect utility
companies' earnings or dividends. Costs incurred by utilities, such as fuel and
purchased power costs, often are subject to immediate market action resulting
from such things as political or military forces operating in geographic regions
where oil production is concentrated or global or regional weather conditions,
such as droughts, while the rate of return of utility companies generally is
subject to review and limitation by state public utility commissions, which
often results in a lag or an absence of correlation between costs and return. It
is also possible that costs may not be offset by return. Utilities have, in
recent years, been affected by increased competition, which could adversely
affect the profitability or viability of such utilities. Electric utilities may
24
also be subject to increasing economic pressures dues to deregulation of
generation, transmission and other aspects of their business.
FINANCIAL SERVICES SECTOR RISK. The industries within the financial services
sector are subject to extensive government regulation, which can limit both the
amounts and types of loans and other financial commitments they can make, and
the interest rates and fees they can charge. Profitability can be largely
dependent on the availability and cost of capital funds and the rate of
corporate and consumer debt defaults, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
borrowers can negatively affect the financial services industries. Insurance
companies can be subject to severe price competition. The financial services
industries are currently undergoing relatively rapid change as existing
distinctions between financial service segments become less clear. For example,
recent business combinations have included insurance, finance, and securities
brokerage under single ownership. Some primarily retail corporations have
expanded into securities and insurance industries.
The banking industry can be significantly affected by the relatively recent
adoption of legislation that has reduced the separation between commercial and
investment banking businesses and changed the laws governing capitalization and
the savings and loan industry. While providing diversification, this relatively
new legislation could expose banks to well-established competitors, particularly
as the historical distinctions between banks and other financial institutions
erode. Increased competition can also result from the broadening of regional and
national interstate banking powers, which has already reduced the number of
publicly traded banks. In addition, general economic conditions are important to
banks that face exposure to credit losses and can be significantly affected by
changes in interest rates.
The brokerage and investment management industries can be significantly affected
by changes in regulations, brokerage commission structure, and a competitive
environment combined with the high operating leverage inherent in companies in
this industry. The performance of companies in these industries can be closely
tied to the stock and bond markets and can suffer during market declines.
Revenues can depend on overall market activity.
The insurance industry can be significantly affected by interest rates, general
economic conditions, and price and marketing competition. Property and casualty
insurance profits can be affected by weather catastrophes and other natural
disasters. Life and health insurance profits can be affected by mortality and
morbidity rates. Insurance companies can be adversely affected by inadequacy of
cash reserves, the inability to collect from reinsurance carriers, liability for
the coverage of environmental clean-up costs from past years, and as yet
unanticipated liabilities. Also, insurance companies are subject to extensive
government regulation, including the imposition of maximum rate levels, and can
be adversely affected by proposed or potential tax law changes.
DERIVATIVES RISK
Derivative transactions (such as futures contracts and options thereon, options,
swaps and short sales) subject the Fund to increased risk of principal loss due
to imperfect correlation or unexpected price or interest rate movements. The
Fund also will be subject to credit risk with respect to the counterparties to
the derivatives contracts purchased 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 may obtain no recovery in such circumstances. As a general matter, dividends
received on hedged stock positions are characterized as ordinary income and are
not eligible for favorable tax treatment. In addition, use of derivatives may
give rise to short-term capital gains and other income that would not qualify
for payments by the Fund of tax-advantaged dividends.
LIQUIDITY RISK
The Fund may invest up to 15% of its total managed assets in securities for
which there is no readily available trading market or which are otherwise
illiquid. The Fund may not be able readily to dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund may
have to sell other investments or engage in borrowing transactions if necessary
to raise cash to meet its obligations. In addition, the limited liquidity could
affect the market price of the securities, thereby adversely affecting the
Fund's net asset value.
INFLATION RISK
Although the Fund, in its investment program, will consider the potential
effects of inflation on shareholder capital, there is no assurance that this
effort will be successful. Inflation risk is the risk that the purchasing power
of assets or income from investment will be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value
of the Common Shares and distributions thereon can decline. In addition, during
any periods of rising inflation, dividend rates of preferred shares of the Fund
and the costs of Fund borrowings would likely increase, which would tend to
reduce distributions to Common Shareholders.
25
MANAGEMENT RISK
The Fund is subject to management risk because it is an actively managed
portfolio. Eaton Vance and the individual portfolio managers will apply
investment techniques and risk analyses in making investment decisions for the
Fund, but there can be no guarantee that these will produce the desired results.
MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Fund cannot predict the effects
of similar events in the future on the U.S. economy and securities markets.
These terrorist attacks and related events, including the war in Iraq, its
aftermath and continuing occupation of Iraq by coalition forces, have led to
increased short-term market volatility and may have long-term effects on U.S.
and world economies and markets. A similar disruption of the financial markets
could impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares and the APS.
OTHER RISK CONSIDERATIONS
In addition to the risks referenced in this section, the Fund faces additional
risks associated with having a portfolio consisting primarily of common and
preferred stocks, which risks may have an adverse effect on the Fund's net asset
value per share and income. Such risks include: market risk, which is the risk
that the value of the securities owned by the Fund, which are generally traded
on a securities exchange or in the over-the-counter markets, like other market
investments, may move up or down, sometimes rapidly and unpredictably and tax
risk, which is the risk that the Fund's investment program and the tax treatment
of Fund distributions may be affected by Internal Revenue Service ("IRS")
interpretations of the Code and future changes in tax laws and regulations,
including changes resulting from the "sunset" provisions that currently apply to
the favorable tax treatment of tax-advantaged dividends that would have the
effect of repealing such favored treatment and reimposing higher tax rates
applicable to ordinary income in 2009 unless further legislative action is
taken. Any of the foregoing risks could, either alone or in the aggregate, have
an adverse effect on the Fund's ability to pay dividend on the APS if such
risk(s) adversely affects income form the Fund's portfolio securities to a
significant degree. Similarly, any of the foregoing risks, either alone or in
the aggregate, could cause the Fund's investment portfolio to decline, thereby
reducing asset covering for the APS, which could adversely affect Rating
Agencies' ratings of the APS. Additionally, if the Fund fails to maintain the
required asset coverage under the 1940 Act and the Rating Agencies'
requirements, the Fund may be required to redeem APS. See "Description of
APS--Redemption."
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), is the
responsibility of the Fund's Board under the laws of The Commonwealth of
Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Fund's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of
individuals and institutions since 1924 and of investment companies since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $[ ]billion as of April 30,
2004, including approximately $[ ] billion in tax-managed equity fund assets.
Eaton Vance is an indirect, wholly-owned subsidiary of Eaton Vance Corp., a
publicly-held holding company, which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities.
Under the general supervision of the Fund's Board, the Adviser 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. 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 a fee in the amount of 0.85% of the average daily gross
assets of the Fund, subject to the expense reimbursement arrangements described
below. Eaton Vance has contractually agreed to reimburse the Fund for fees and
other expenses in the amount of 0.20% of average daily total assets of the Fund
for the first 5 full years of the Fund's operations, 0.15% of average daily
total assets of the Fund in year 6, 0.10% in year 7 and 0.05% in year 8. Eaton
Vance may voluntarily reimburse additional fees and expenses but is under no
obligation to do so. Any such voluntary reimbursements may be terminated at any
time. Gross assets of the Fund means total assets of the Fund, including any
form of investment leverage, minus all accrued expenses incurred in the normal
course of operations, but not excluding any liabilities or obligations
attributable to investment leverage obtained through (i) indebtedness of any
26
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 objective and policies, and/or (iv) any other means. During
periods in which the Fund is using leverage, the fees paid to Eaton Vance for
investment advisory services will be higher than if the Fund did not use
leverage because the fees paid will be calculated on the basis of the Fund's
gross assets, including proceeds from any borrowings and from the issuance of
preferred shares
Duncan W. Richardson (Senior Vice President and Chief Equity Investment Officer
of Eaton Vance), Michael R. Mach, Judith A. Saryan, Thomas H. Luster and other
Eaton Vance investment professionals comprise the investment team responsible
for the overall management of the Fund's investments as well as allocations of
the Fund's assets between common and preferred stocks. Mr. Mach, Ms. Saryan, and
Mr. Luster are the portfolio managers responsible for the day-to-day management
of specific segments of the Fund's investment portfolio.
Mr. Mach has been an Eaton Vance portfolio manager since 1999 and is a Vice
President of Eaton Vance and Boston Management and Research, an Eaton Vance
subsidiary ("BMR"). He also manages other Eaton Vance value equity portfolios.
Prior to joining Eaton Vance, Mr. Mach was a Managing Director and Senior
Analyst for Robertson Stephens (1998-1999). Additionally, he served as managing
director and senior analyst of Piper Jaffray's Industrial Select research
product (1996-1998). Mr. Mach previously served as a Senior Vice President at
Putnam Investments, with responsibilities that included equity analysis, mutual
fund management and institutional account management (1989-1996).
Ms. Saryan has been an Eaton Vance portfolio manager since 1999 and is a Vice
President of Eaton Vance and BMR. She also manages Eaton Vance's utilities
portfolio. Prior to joining Eaton Vance, Ms. Saryan was a portfolio manager and
equity analyst for State Street Global Advisors (1980-1999).
Mr. Luster has been an Eaton Vance portfolio manager and analyst since 1994 and
is a Vice President of Eaton Vance and BMR. He is co-head of Eaton Vance's
Investment Grade Fixed Income Group. Prior to joining Eaton Vance, Mr. Luster
consulted for Deloitte & Touche (1990-1994).
Mr. Mach, Ms. Saryan and Mr. Luster currently co-manage Eaton Vance
Tax-Advantaged Dividend Income Fund and Eaton Vance Tax-Advantaged Global
Dividend Income Fund.
The Fund and the Adviser have adopted a Code of Ethics relating to personal
securities transactions. The Code of Ethics permits 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 Code of Ethics.
Eaton Vance serves as administrator of the Fund but currently receives no
compensation for providing administrative services to the Fund. Under an
Administration Agreement with the Fund ("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 Trustees' and Shareholders' meetings,
providing service in connection with any repurchase offers and other
administrative services necessary to conduct the Fund's business.
Description of APS
The following is a brief description of the terms of the APS. This description
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Fund's Declaration of Trust and Amended By-Laws, including
the provisions thereof establishing the APS. The Fund's Declaration of Trust and
the form of Amended By-Laws establishing the terms of the APS have been filed as
exhibits to or incorporated by reference in the Registration Statement of which
this Prospectus is a part. The Amended By-Laws for the Fund may be found in
Appendix B to the Fund's Statement of Additional Information.
GENERAL
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including Preferred
Shares, having a par value of $0.01 per share, in one or more series, with
rights as determined by the Board of Trustees, by action of the Board of
Trustees without the approval of the Shareholders. The Fund's Amended By-Laws
currently authorize the number of shares of APS of each series set forth below
in "Description of Capital Structure." The APS will have a liquidation
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preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared). See "Description of
APS--Liquidation rights."
The APS of each series will rank on parity with shares of any other series of
APS and with shares of other series of Preferred Shares of the Fund, as to the
payment of dividends and the distribution of assets upon liquidation. All shares
of APS carry one vote per share on all matters on which such shares are entitled
to be voted. APS, when issued, will be fully paid and, subject to matters
discussed in "Description of capital structure" non-assessable and have no
preemptive, conversion or cumulative voting rights. The APS will not be
convertible into Common Shares or other capital stock of the Fund, and the
holders thereof will have no preemptive or cumulative voting rights.
DIVIDENDS AND DIVIDEND PERIODS
GENERAL
After the Initial Dividend Period, each Subsequent Dividend Period for the APS
will generally consist of [ ] days, in the cases of Series A, Series B and
Series C APS (a "[ ]-Day Dividend Period"); provided, however, that prior to any
Auction, the Fund may elect, subject to certain limitations described herein,
upon giving notice to holders thereof, a Special Dividend Period as discussed
below. The holders of the Fund's APS will be entitled to receive, when, as and
if declared by the Fund's Board of Trustees, out of funds legally-available
therefor, cumulative cash dividends on their APS, at the Applicable Rate
determined as set forth below under "--Determination of Dividend Rate," payable
on the dates set forth below. Dividends on the APS of the Fund so declared and
payable shall be paid in preference to and in priority over any dividends
declared and payable on the Fund's Common Shares.
Dividends on the APS will accumulate from the date on which the Fund originally
issues the APS (the "Date of Original Issue") and will be payable on the APS on
the dates described below. Dividends on the APS with respect to the Initial
Dividend Period shall be payable on the applicable Initial Dividend Payment
Date. Following the Initial Dividend Payment Date, dividends on the APS will
generally be payable with respect to any [ ]-Day Dividend Period and any Special
Dividend Period of [ ] or fewer days, on the day next succeeding the last day
thereof each such date being referred to herein as a "Normal Dividend Payment
Date"), except that if such Normal Dividend Payment Date is not a Business Day,
the Dividend Payment Date shall be the first Business Day next succeeding such
Normal Dividend Payment Date. Although any particular Dividend Payment Date may
not occur on the originally scheduled date because of the exceptions discussed
above, the next succeeding Dividend Payment Date, subject to such exceptions,
will occur on the next Business Day following originally scheduled date. If for
any reason a Dividend Payment Date cannot be fixed as described above, then the
Board of Trustees shall fix the Dividend Payment Date. The Board of Trustees by
resolution prior to authorization of a dividend by the Board of Trustees may
change a Dividend Payment Date if such change does not adversely affect the
contract rights of the holders of APS set forth in the Amended By-Laws. The
Initial Dividend Period, [ ]-Day Dividend Periods and Special Dividend Periods
are hereinafter sometimes referred to as "Dividend Periods." Each dividend
payment date determined as provided above is hereinafter referred to as a
"Dividend Payment Date."
Each dividend will be paid to the record holder of the APS, which holder is
expected to be the nominee of the Securities Depository. See "The
Auctions--General--Securities Depository." The Securities Depository will credit
the accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in same-day
funds. The Agent Member of an Existing Holder will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
Existing Holder in accordance with the instructions of such Existing Holder.
Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the nominee
of the Securities Depository. Any dividend payment made on the APS first shall
be credited against the earliest declared but unpaid dividends accumulated with
respect to such shares.
Holders of the APS will not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends except as
described under "Non-payment period; late charge" below. No interest will be
payable in respect of any dividend payment or payments on the APS which may be
in arrears.
The amount of cash dividends per share of APS payable (if declared) on each
Dividend Payment Date shall be computed by multiplying the Applicable Rate for
such Dividend Period by a fraction, the numerator of which will be the number of
days in such Dividend Period or part thereof that such share was outstanding and
for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent.
NOTIFICATION OF DIVIDEND PERIOD
The Fund, at its sole option and to the extent permitted by law, by telephonic
and written notice (a "Request for Special Dividend Period") to the Auction
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Agent and to each Broker-Dealer, may request that the next succeeding Dividend
Period for the APS will be a number of days (other than [ ]) evenly divisible by
seven, and not fewer than seven nor more than three hundred sixty-four in the
case of a Short-Term Dividend Period or [one year] but not greater than five
years in the case of a Long-Term Dividend Period, specified in such notice,
provided that the Fund may not give a Request for Special Dividend Period of
greater than [ ] days (and any such request shall be null and void) unless, for
any Auction occurring after the initial Auction, Sufficient Clearing Bids shall
have existed in the last occurring Auction and unless full cumulative dividends
and any amounts due with respect to redemptions prior to such date have been
paid in full. Such Request for Special Dividend Period, in the case of a
Short-Term Dividend Period, shall be given on or prior to the second Business
Day but not more than seven Business Days prior to an Auction Date for the APS
and, in the case of a Long-Term Dividend Period, shall be given on or prior to
the second Business Day but not more than 28 days prior to an Auction Date for
the APS. Upon receiving such Request for Special Dividend Period, the
Broker-Dealers jointly shall determine whether, given the factors set forth
below, it is advisable that the Fund issue a Notice of Special Dividend Period
as contemplated by such Request for Special Dividend Period and shall determine
the Optional Redemption Price of the APS during such Special Dividend Period and
the Specific Redemption Provisions and shall give the Fund and the Auction Agent
written notice (a "Response") of such determination by no later than the second
Business Day prior to such Auction Date. In making such determination, the
Broker-Dealers will consider (i) existing short-term and long-term market rates
and indices of such short-term and long-term rates, (ii) existing market supply
and demand for short-term and long-term securities, (iii) existing yield curves
for short-term and long-term securities comparable to the APS, (iv) industry and
financial conditions which may affect the APS, (v) the investment objective of
the Fund and (vi) the Dividend Periods and dividend rates at which current and
potential beneficial holders of the APS would remain or become beneficial
holders.
If the Broker-Dealers shall not give the Fund and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Fund give a Notice of Special Dividend
Period for the APS, the Fund may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the Fund give a Notice of Special Dividend
Period for the APS, the Fund, by no later than the second Business Day prior to
such Auction Date, may give a notice (a "Notice of Special Dividend Period") to
the Auction Agent, the Securities Depository and each Broker-Dealer, which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price as specified in the related Response and (iii) the
Specific Redemption Provisions, if any, as specified in the related Response.
The Fund also shall provide a copy of such Notice of Special Dividend Period to
[ ] and [ ]. The Fund shall not give a Notice of Special Dividend Period, and,
if such Notice of Special Dividend Period shall have been given already, shall
give telephonic and written notice of its revocation (a "Notice of Revocation")
to the Auction Agent, each Broker-Dealer, and the Securities Depository on or
prior to the Business Day prior to the relevant Auction Date if (x) either the
1940 Act APS Asset Coverage is not satisfied or the Fund shall fail to maintain
[ ] Eligible Assets or [ ] Eligible Assets with an aggregate Discounted Value at
least equal to the APS Basic Maintenance Amount, on each of the two Valuation
Dates immediately preceding the Business Day prior to the relevant Auction Date
on an actual basis and on a pro forma basis giving effect to the proposed
Special Dividend Period (using as a pro forma dividend rate with respect to such
Special Dividend Period the dividend rate which the Broker-Dealers shall advise
the Fund is an approximately equal rate for securities similar to the APS with
an equal dividend period), (y) sufficient funds for the payment of dividends
payable on the immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of business on the
third Business Day preceding the related Auction Date or (z) the Broker-Dealers
jointly advise the Fund that, after consideration of the factors listed above,
they have concluded that it is advisable to give a Notice of Revocation. The
Fund also shall provide a copy of such Notice of Revocation to [ ] and [ ]. If
the Fund is prohibited from giving a Notice of Special Dividend Period as a
result of the factors enumerated in clause (x), (y) or (z) above or if the Fund
gives a Notice of Revocation with respect to a Notice of Special Dividend
Period, the next succeeding Dividend Period for that series will be a [ ]-Day
Dividend Period. In addition, in the event Sufficient Clearing Bids are not made
in any Auction, including an Auction held on the Auction Date immediately
preceding the first day of such proposed Special Dividend Period, or an Auction
is not held for any reason, the next succeeding Dividend Period will be a [
]-Day Dividend Period, and the Fund may not again give a Notice of Special
Dividend Period (and any such attempted notice shall be null and void) until
Sufficient Clearing Bids have been made in an Auction with respect to a [ ]-Day
Dividend Period.
DETERMINATION OF DIVIDEND RATE
The dividend rate on the APS during the period from and including the Date of
Original Issue for the APS to but excluding the Initial Dividend Payment Date
for the APS (the "Initial Dividend Period") will be the rate per annum set forth
on the inside cover page hereof. Commencing on the Initial Dividend Payment Date
for the APS, the Applicable Rate on the APS for each Subsequent Dividend Period,
which Subsequent Dividend Period shall be a period commencing on and including a
Dividend Payment Date and ending on and including the calendar day prior to the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from the Auction with respect to such Subsequent Dividend
Period. The Initial Dividend Period and Subsequent Dividend Period for the APS
is referred to herein as a "Dividend Period." Cash dividends shall be calculated
as set forth above under "--Dividends and Dividend Periods--General."
29
NON-PAYMENT PERIOD; LATE CHARGE
A Non-Payment Period will commence if the Fund fails to (i) declare, prior to
the close of business on the second Business Day preceding any Dividend Payment
Date, for payment on or (to the extent permitted as described below) within
three Business Days after such Dividend Payment Date to the persons who held
such shares as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date, the full amount of any dividend on the APS payable
on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such
Dividend Payment Date the full amount of any cash dividend on such shares (if
declared) payable on such Dividend Payment Date or (B) on any redemption date
for the APS called for redemption, the Mandatory Redemption Price per share of
such APS or, in the case of an optional redemption, the Optional Redemption
Price per share. Such Non-Payment Period will consist of the period commencing
on and including the aforementioned Dividend Payment Date or redemption date, as
the case may be, and ending on and including the Business Day on which, by 12:00
noon, New York City time, all unpaid cash dividends and unpaid redemption prices
shall have been so deposited or otherwise shall have been made available to the
applicable holders in same-day funds, provided that a Non-Payment Period for the
APS will not end unless the Fund shall have given at least five days' but no
more than 30 days' written notice of such deposit or availability to the Auction
Agent, the Securities Depository and all holders of the APS of such series.
Notwithstanding the foregoing, the failure by the Fund to deposit funds as
provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated below, shall not constitute a "Non-Payment
Period." The Applicable Rate for each Dividend Period for the APS of any series,
commencing during a Non-Payment Period, will be equal to the Non-Payment Period
Rate; and each Dividend Period commencing after the first day of, and during, a
Non-Payment Period shall be a [ ]-Day Dividend Period, in the cases of Series A,
Series B, and Series C APS. Any dividend on the APS due on any Dividend Payment
Date for such shares (if, prior to the close of business on the second Business
Day preceding such Dividend Payment Date, the Fund has declared such dividend
payable on such Dividend Payment Date to the persons who held such shares as of
12:00 noon, New York City time, on the Business Day preceding such Dividend
Payment Date) or redemption price with respect to such shares not paid to such
persons when due may be paid to such persons in the same form of funds by 12:00
noon, New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that such amount
is accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 360. In the case of a
willful failure of the Fund to pay a dividend on a Dividend Payment Date or to
redeem any APS on the date set for such redemption, the preceding sentence shall
not apply and the Applicable Rate for the Dividend Period commencing during the
Non-Payment Period resulting from such failure shall be the Non-Payment Period
Rate. For the purposes of the foregoing, payment to a person in same-day funds
on any Business Day at any time will be considered equivalent to payment to that
person in New York Clearing House (next-day) funds at the same time on the
preceding Business Day, and any payment made after 12:00 noon, New York City
time, on any Business Day shall be considered to have been made instead in the
same form of funds and to the same person before 12:00 noon, New York City time,
on the next Business Day.
The Non-Payment Period Rate initially will be [275%] of the applicable Reference
Rate, provided that the Board of Trustees of the Fund shall have the authority
to adjust, modify, alter or change from time to time the initial Non-Payment
Period Rate if the Board of Trustees of the Fund determines and [ ] and [ ] (or
any Substitute Rating Agency in lieu of [ ] and [ ] in the event such party
shall not rate the APS) advises the Fund in writing that such adjustment,
modification, alteration or change will not adversely affect its then-current
rating on the APS.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS
Under the 1940 Act, the Fund may not declare dividends or make other
distributions on Common Shares or purchase any such shares if, at the time of
the declaration, distribution or purchase, as applicable (and after giving
effect thereto), asset coverage (as defined in the 1940 Act) with respect to the
outstanding APS would be less than 200% (or such other percentage as in the
future may be required by law). Under the Code, the Fund must, among other
things, distribute each year at least 90% of the sum of its investment company
taxable income and certain other income in order to maintain its qualification
for tax treatment as a regulated investment company. The foregoing limitations
on dividends, other distributions and purchases in certain circumstances may
impair the Fund's ability to maintain such qualification. See "Taxes."
Upon any failure to pay dividends on the APS for two years or more, the holders
of the APS will acquire certain additional voting rights. See "--Voting rights"
below.
For so long as any APS are outstanding, the Fund will not declare, pay or set
apart for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or options, warrants or rights to subscribe for
or purchase, Common Shares or other shares of beneficial interest, if any,
ranking junior to the APS as to dividends or upon liquidation) in respect of
Common Shares or any other shares of beneficial interest of the Fund ranking
junior to or on a parity with the APS as to dividends or upon liquidation, or
call for redemption, redeem, purchase or otherwise acquire for consideration any
Common Shares or shares of any other such junior shares of beneficial interest
(except by conversion into or exchange for shares of beneficial interest of the
Fund ranking junior to APS as to dividends and upon liquidation) or any such
parity shares of beneficial interest (except by conversion into or exchange for
shares of beneficial interest of the Fund ranking junior to or on a parity with
APS as to dividends and upon liquidation), unless (A) immediately after such
transaction, the Fund would have [ ] Eligible Assets and [ ] Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Basic
30
Maintenance Amount, and the 1940 Act APS Asset Coverage (see "--Rating Agency
guidelines and asset coverage" and "--Redemption" below) would be satisfied, (B)
full cumulative dividends on the APS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, and
(C) the Fund has redeemed the full number of APS required to be redeemed by any
provision for mandatory redemption contained in the Amended By-Laws.
REDEMPTION
MANDATORY REDEMPTION
The Fund will be required to redeem, out of funds legally available therefor, at
the Mandatory Redemption Price per share, the APS to the extent permitted under
the 1940 Act and Massachusetts law, on a date fixed by the Board of Trustees, if
the Fund fails to maintain [ ] Eligible Assets or [ ] Eligible Assets with an
aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount or to satisfy the 1940 Act APS Asset Coverage and such failure is not
cured on or before the APS Basic Maintenance Cure Date or the 1940 Act Cure Date
(herein collectively referred to as a "Cure Date"), as the case may be.
"Mandatory Redemption Price" of APS means $25,000 per share plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption. Any such redemption will be limited to the lesser
number of APS necessary to restore the Discounted Value or the 1940 Act APS
Asset Coverage, as the case may be, or the maximum number that can be redeemed
with funds legally available under the Declaration of Trust and applicable law.
OPTIONAL REDEMPTION
To the extent permitted under the 1940 Act and under Massachusetts law, upon
giving a Notice of Redemption, as provided below, the Fund, at its option, may
redeem the APS, in whole or in part, out of funds legally available therefor, at
the Optional Redemption Price per share on any Dividend Payment Date; provided
that no APS may be redeemed at the option of the Fund during (a) the Initial
Dividend Period with respect to the APS or (b) a Non-Call Period to which such
share is subject. "Optional Redemption Price" means $25,000 per share of APS
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) to the date fixed for redemption plus any applicable redemption
premium, if any, attributable to the designation of a Premium Call Period. The
Fund has the authority to redeem the APS for any reason and may redeem all or
part of the outstanding APS if it anticipates that the Fund's leveraged capital
structure will result in a lower rate of return to holders of Common Shares for
any significant period of time than that obtainable if the Common Shares were
unleveraged.
Notwithstanding the provisions for redemption described above, no APS shall be
subject to optional redemption (i) unless all dividends in arrears on all
remaining outstanding APS, and all capital shares of the Fund ranking on a
parity with the APS with respect to the payment of dividends or upon
liquidation, have been or are being contemporaneously paid or declared and set
aside for payment and (ii) if redemption thereof would result in the Fund's
failure to maintain [ ] Eligible Assets and [ ] Eligible Assets with an
aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount; provided, however, that the foregoing shall not prevent the purchase or
acquisition of all outstanding APS of such series pursuant to a successful
completion of an otherwise lawful purchase or exchange offer made on the same
terms to, and accepted by, holders of all outstanding APS of such series.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Fund, whether voluntary
or involuntary, the holders of APS will be entitled to receive, out of the
assets of the Fund available for distribution to Shareholders, before any
distribution or payment is made upon any Common Shares or any other shares of
beneficial interest of the Fund ranking junior in right of payment upon
liquidation of APS, $25,000 per share together with the amount of any dividends
accumulated but unpaid (whether or not earned or declared) thereon to the date
of distribution, and after such payment the holders of APS will be entitled to
no other payment. If such assets of the Fund shall be insufficient to make the
full liquidation payment on outstanding APS and liquidation payments on any
other outstanding class or series of Preferred Shares of the Fund ranking on a
parity with the APS as to payment upon liquidation, then such assets will be
distributed among the holders of APS and the holders of shares of such other
class or series ratably in proportion to the respective preferential amounts to
which they are entitled. After payment of the full amount of liquidation
distribution to which they are entitled, the holders of APS will not be entitled
to any further participation in any distribution of assets by the Fund. A
consolidation, merger or share exchange of the Fund with or into any other
entity or entities or a sale, whether for cash, shares of stock, securities or
properties, of all or substantially all or any part of the assets of the Fund
shall not be deemed or construed to be a liquidation, dissolution or winding up
of the Fund.
RATING AGENCY GUIDELINES AND ASSET COVERAGE
31
The Fund will be required to satisfy two separate asset maintenance requirements
under the terms of the Amended By-Laws. These requirements are summarized below.
1940 ACT APS ASSET COVERAGE
The Fund will be required under the Amended By-Laws to maintain, with respect to
the APS, as of the last Business Day of each month in which any APS are
outstanding, asset coverage of at least 200% with respect to senior securities
which are beneficial interests in the Fund, including the APS (or such other
asset coverage as in the future may be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are beneficial interests of a
closed-end investment company as a condition of paying dividends on its common
shares) ("1940 Act APS Asset Coverage"). If the Fund fails to maintain 1940 Act
APS Asset Coverage and such failure is not cured as of the last Business Day of
the following month (the "1940 Act Cure Date"), the Fund will be required under
certain circumstances to redeem certain of the APS. See "Redemption" above.
The 1940 Act APS Asset Coverage immediately following the issuance of APS
offered hereby (after giving effect to the deduction of the sales load and
offering expenses for the APS) computed using the Fund's net assets as of [ ],
2004 and the APS had been issued as of such date will be as follows:
Value of Fund assets less liabilities
not constituting senior securities $
--------------------------- --------- = %
Senior securities $
representing
indebtedness plus liquidation value of APS
APS BASIC MAINTENANCE AMOUNT
The Fund intends that, so long as APS are outstanding, the composition of its
portfolio will reflect guidelines established by [ ] and [ ] in connection with
the Fund's receipt of a rating for such shares on or prior to their Date of
Original Issue of at least AAA/Aaa from [ ] and [ ]. [ ] and [ ], which are
Rating Agencies, issue ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines described below have been
developed by [ ] and [ ] in connection with issuances of asset-backed and
similar securities, including debt obligations and variable rate preferred
shares, generally on a case-by-case basis through discussions with the issuers
of these securities. The guidelines are designed to ensure that assets
underlying outstanding debt or preferred shares will be varied sufficiently and
will be of sufficient quality and amount to justify investment grade ratings.
The guidelines do not have the force of law but have been adopted by the Fund in
order to satisfy current requirements necessary for [ ] and [ ] to issue the
above-described ratings for APS, which ratings generally are relied upon by
institutional investors in purchasing such securities. The guidelines provide 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.
The Fund intends to maintain a Discounted Value for its portfolio at least equal
to the APS Basic Maintenance Amount. Both [ ] and [ ] have established
guidelines for determining Discounted Value. These guidelines define eligible
portfolio assets ("[ ] Eligible Assets" and "[ ] Eligible Assets"). To the
extent any particular portfolio holding does not satisfy these guidelines, all
or a portion of such holding's value will not be included in the calculation of
Discounted Value of the Fund's portfolio assets. The [ ] and [ ] guidelines do
not impose any limitations on the percentage of Fund assets that may be invested
in holdings not eligible for inclusion in the calculation of the Discounted
Value of the Fund's portfolio. The amount of such assets included in the
portfolio of the Fund at any time may vary depending upon the rating,
diversification and other characteristics of eligible assets included in the
portfolio, although it is not anticipated in the normal course of business that
the value of such assets will exceed 20% of the Fund's total assets. The APS
basic maintenance amount includes the sum of (a) the aggregate liquidation
preference of APS then outstanding and (b) certain accrued and projected payment
obligations of the Fund.
Upon any failure to maintain the required aggregate Discounted Value, the Fund
will seek to alter the composition of its portfolio to retain a Discounted Value
at least equal to the APS Basic Maintenance Amount on or prior to the APS Basic
Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses and/or gains on dispositions of portfolio securities. To the
extent any such failure is not cured in a timely manner, the APS will be subject
to mandatory redemption. See "--Redemption" above. The APS Basic Maintenance
Amount includes the sum of (i) the aggregate liquidation value of APS then
outstanding and (ii) certain accrued and projected payment obligations of the
Fund.
The Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by [ ] and [ ]. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any Rating Agency
providing a rating for the APS, at any time, may change or withdraw any such
rating. As set forth in the Amended By-Laws, the Fund's Board of Trustees,
without Shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Fund pursuant to the Rating Agency guidelines,
provided the Board of Trustees has obtained written confirmation from [ ] or [ ]
32
that any such change would not impair the ratings then assigned by [ ] or [ ] to
the APS as applicable.
As recently described by [ ] and [ ], a preferred shares rating is an assessment
of the capacity and willingness of an issuer to pay preferred shares
obligations. The ratings on the APS are not recommendations to purchase, hold or
sell APS, inasmuch as the ratings do not comment as to market price or
suitability for a particular investor, nor do the Rating Agency guidelines
described above address the likelihood that a holder of APS will be able to sell
such shares in an Auction. The ratings are based on current information
furnished to [ ] and [ ] by the Fund and the Adviser and information obtained
from other sources. The ratings may be changed, suspended or withdrawn as a
result of changes in, or the unavailability of, such information. The Common
Shares have not been rated by a Rating Agency.
A Rating Agency's guidelines will apply to the Fund's APS only so long as such
agency is rating such shares. The Fund will pay certain fees to each Rating
Agency that rates the Fund's APS.
VOTING RIGHTS
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, holders of APS of the Fund will be entitled to one
vote per share on each matter submitted to a vote of Shareholders and will vote
together with holders of Common Shares and other Preferred Shares of the Fund as
a single class.
In connection with the election of the Fund's Trustees, holders of the APS and
any other Preferred Shares, voting as a separate class, shall be entitled at all
times to elect two of the Fund's Trustees, and the remaining Trustees will be
elected by holders of Common Shares and APS and any other Preferred Shares,
voting together as a single class. In addition, if at any time dividends on
outstanding APS shall be unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any Preferred Shares are
entitled, together with the holders of APS, to elect a majority of the Trustees
of the Fund under the 1940 Act, then the number of Trustees constituting the
Board of Trustees automatically shall be increased by the smallest number that,
when added to the two Trustees elected exclusively by the holders of APS and any
other Preferred Shares as described above, would constitute a majority of the
Board of Trustees as so increased by such smallest number, and at a special
meeting of Shareholders which will be called and held as soon as practicable,
and at all subsequent meetings at which Trustees are to be elected, the holders
of the APS and any other Preferred Shares, voting as a separate class, will be
entitled to elect the smallest number of additional Trustees that, together with
the two Trustees which such holders in any event will be entitled to elect,
constitutes a majority of the total number of Trustees of the Fund as so
increased. The terms of office of the persons who are Trustees at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment in full, all dividends payable on all outstanding APS and
any other Preferred Shares for all past Dividend Periods, the additional voting
rights of the holders of APS and any other Preferred Shares as described above
shall cease, and the terms of office of all of the additional Trustees elected
by the holders of APS and any other Preferred Shares (but not of the Trustees
with respect to whose election the holders of Common Shares were entitled to
vote or the two Trustees the holders of APS and any other Preferred Shares have
the right to elect in any event) will terminate automatically.
The affirmative vote of a majority of the votes entitled to be cast by holders
of outstanding APS and any other Preferred Shares, voting as a separate class,
will be required to (i) authorize, create or issue any class or series of shares
ranking prior to the APS or any other series of Preferred Shares with respect to
the payment of dividends or the distribution of assets on liquidation; provided,
however, that no vote is required to authorize the issuance of another class of
Preferred Shares which is substantially identical in all respects to the APS or
(ii) amend, alter or repeal the provisions of the Declaration of Trust or the
Amended By-Laws, whether by merger, consolidation or otherwise, so as to affect
adversely any of the contract rights expressly set forth in the Declaration of
Trust or the Amended By-Laws of holders of APS or any other Preferred Shares. To
the extent permitted under the 1940 Act, in the event shares of more than one
series of APS are outstanding, the Fund shall not approve any of the actions set
forth in clause (i) or (ii) which adversely affects the contract rights
expressly set forth in the Declaration of Trust of a holder of shares of a
series of APS differently than those of a holder of shares of any other series
of APS without the affirmative vote of at least a majority of votes entitled to
be cast by holders of APS of each series adversely affected and outstanding at
such time (each such adversely affected series voting separately as a class).
The Board of Trustees, however, without Shareholder approval, may amend, alter
or repeal any or all of the various Rating Agency guidelines described herein in
the event the Fund receives confirmation from the Rating Agencies that any such
amendment, alteration or repeal would not impair the ratings then assigned to
the APS. Unless a higher percentage is provided for under "Certain provisions in
the Declaration of Trust," the affirmative vote of a majority of the votes
entitled to be cast by holders of outstanding APS and any other Preferred
Shares, voting as a separate class, will be required to approve any plan of
reorganization (including bankruptcy proceedings) adversely affecting such
shares or any action requiring a vote of security holders under Section 13(a) of
the 1940 Act including, among other things, changes in the Fund's investment
objective or changes in the investment restrictions described as fundamental
policies under "Investment objective, policies and risks." The class vote of
holders of APS and any other Preferred Shares described above in each case will
be in addition to a separate vote of the requisite percentage of Common Shares
and APS and any other Preferred Shares, voting together as a single class,
necessary to authorize the action in question.
33
The foregoing voting provisions will not apply to the APS if, at or prior to the
time when the act with respect to which such vote otherwise would be required,
such shares shall have been (i) redeemed or (ii) called for redemption and
sufficient funds shall have been deposited in trust to effect such redemption.
The Auctions
GENERAL
Holders of the APS will be entitled to receive cumulative cash dividends on
their shares when, as and if declared by the Board of Trustees of the Fund, out
of the funds legally available therefor, on the Initial Dividend Payment Date
with respect to the Initial Dividend Period and, thereafter, on each Dividend
Payment Date with respect to a Subsequent Dividend Period at the rate per annum
equal to the Applicable Rate for each such Dividend Period.
The provisions of the Amended By-Laws establishing the terms of the APS offered
hereby will provide that the Applicable Rate for each Dividend Period after the
Initial Dividend Period therefor will be equal to the rate per annum that the
Auction Agent advises has resulted on the Business Day preceding the first day
of such Dividend Period due to implementation of the auction procedures set
forth in the Amended By-Laws (the "Auction Procedures") in which persons
determine to hold or offer to purchase or sell the APS. The Amended Bylaws,
which contain the Auction Procedures, are attached as Appendix B to the Fund's
Statement of Additional Information. Each periodic operation of such procedures
with respect to the APS is referred to hereinafter as an "Auction." If, however,
the Fund should fail to pay or duly provide for the full amount of any dividend
on or the redemption price of the APS called for redemption, the Applicable Rate
for the APS will be determined as set forth under "Description of APS--Dividends
and Dividend Periods--Determination of dividend rate."
AUCTION AGENT AGREEMENT
The Fund will enter into an agreement (the "Auction Agent Agreement") with
Deutsche Bank Trust Company Americas ("Auction Agent" and together with any
successor bank or trust company or other entity entering into a similar
agreement with the Fund, the "Auction Agent"), which provides, among other
things, that the Auction Agent will follow the Auction Procedures for the
purpose of determining the Applicable Rate for the APS. The Fund will pay the
Auction Agent compensation for its services under the Auction Agent Agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to the
Fund, which termination may be no earlier than 60 days following delivery of
such notice. If the Auction Agent resigns, the Fund will use its best efforts to
enter into an agreement with a successor Auction Agent containing substantially
the same terms and conditions as the Auction Agent Agreement. The Fund may
terminate the Auction Agent Agreement, provided that prior to such termination
the Fund shall have entered into such an agreement with respect thereto with a
successor Auction Agent.
In addition to serving as the Auction Agent, the Auction Agent will be the
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS. The Auction Agent, however, will serve merely as the agent of the Fund,
acting in accordance with the Fund's instructions and will not be responsible
for any evaluation or verification of any matters certified to it.
BROKER-DEALER AGREEMENTS
The Auctions require the participation of one or more broker-dealers. The
Auction Agent will enter into agreements with [ ], [ ], [ ], and [ ] with
respect to the Fund and may enter into similar agreements (collectively, the
"Broker-Dealer Agreements") with one or more other broker-dealers (collectively,
the "Broker-Dealers") selected by the Fund, which provide for the participation
of such Broker-Dealers in Auctions. A Broker-Dealer Agreement may be terminated
by the Auction Agent or a Broker-Dealer on five days' notice to the other party,
provided that the Broker- Dealer Agreement with [ ], [ ], and [ ] may not be
terminated without the prior written consent of the Fund, which consent may not
be unreasonably withheld.
The Auction Agent after each Auction will pay a service charge from funds
provided by the Fund to each Broker-Dealer on the basis of the purchase price of
APS placed by such Broker-Dealer at such Auction. The service charge (i) for any
[ ]-Day Dividend Period shall be payable at the annual rate of 0.25% of the
purchase price of the APS placed by such Broker-Dealer in any such Auction and
(ii) for any Special Dividend Period shall be determined by mutual consent of
the Fund and any such Broker-Dealer or Broker-Dealers and shall be based upon a
selling concession that would be applicable to an underwriting of fixed or
variable rate preferred shares with a similar final maturity or variable rate
dividend period, respectively, at the commencement of the Dividend Period with
respect to such Auction. For the purposes of the preceding sentence, the APS
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been made by Beneficial Owners that were acquired by such
Beneficial Owners through such Broker-Dealer or (ii) the subject of the
following Orders submitted by such Broker-Dealer: (A) a Submitted Bid of a
Beneficial Owner that resulted in such Beneficial Owner continuing to hold such
34
shares as a result of the Auction, (B) a Submitted Bid of a Potential Beneficial
Owner that resulted in such Potential Beneficial Owner purchasing such shares as
a result of the Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders in
Auctions for its own account, unless the Fund notifies all Broker-Dealers that
they no longer may do so; provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders. If a Broker-Dealer submits an Order for its own
account in any Auction of APS, it may have knowledge of Orders placed through it
in that Auction and therefore have an advantage over other Bidders, but such
Broker-Dealer would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
SECURITIES DEPOSITORY
The Depository Trust Company initially will act as the Securities Depository for
the Agent Members with respect to the APS. One or more registered certificates
for all of the shares of each series of APS initially will be registered in the
name of Cede & Co., as nominee of the Securities Depository. The certificate
will bear a legend to the effect that such certificate is issued subject to the
provisions restricting transfers of the APS contained in the Amended By-Laws.
Cede & Co. initially will be the holder of record of all APS, and Beneficial
Owners will not be entitled to receive certificates representing their ownership
interest in such shares. The Securities Depository will maintain lists of its
participants and will maintain the positions (ownership interests) of the APS
held by each Agent Member, whether as the Beneficial Owner thereof for its own
account or as nominee for the Beneficial Owner thereof. Payments made by the
Fund to holders of APS will be duly made by making payments to the nominee of
the Securities Depository.
AUCTION PROCEDURES
The following is a brief summary of the procedures to be used in conducting
Auctions. This summary is qualified by reference to the Amended By-Laws set
forth in Appendix B to the Fund's Statement of Additional Information.
AUCTION DATE
An Auction to determine the Applicable Rate for the APS offered hereby for each
Dividend Period for such shares (other than the Initial Dividend Period
therefor) will be held on the last Business Day preceding the first day of such
Dividend Period, which first day is also the Dividend Payment Date for the
preceding Dividend Period (the date of each Auction being referred to herein as
an "Auction Date").
The Auction Date and the first day of the related Dividend Period (both of which
must be Business Days) need not be consecutive calendar days. See "Description
of APS--Dividends and Dividend Periods" for information concerning the
circumstances under which a Dividend Payment Date may fall on a date other than
the days specified above, which may affect the Auction Date.
ORDER BY BENEFICIAL OWNER, POTENTIAL BENEFICIAL OWNERS, EXISTING HOLDERS AND
POTENTIAL HOLDERS
On or prior to each Auction Date for a series of APS:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone orders
("Orders") with respect to a series of APS as follows:
(i) Hold Order--indicating the number of outstanding APS, if any, that
such Beneficial Owner desires to continue to hold without regard
to the Applicable Rate for the next Dividend Period for such
shares;
(ii) Bid--indicating the number of outstanding APS, if any, that such
Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next Dividend Period for such shares is
not less than the rate per annum then specified by such Beneficial
Owner; and/or
(iii) Sell Order--indicating the number of outstanding APS, if any, that
such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial Owners
of APS to determine whether such Potential Beneficial Owners desire to
submit Bids indicating the number of APS which they offer to purchase
provided that the Applicable Rate for the next Dividend Period for such
shares is not less than the rates per annum specified in such Bids.
A Beneficial Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
35
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to APS then held by such Beneficial Owner, as well as Bids for
additional APS. For information concerning the priority given to different types
of Orders placed by Beneficial Owners, see "--Submission of Orders by
Broker-Dealers to Auction Agent" below.
For Subsequent Dividend Periods, APS will pay dividends based on a rate set at
Auctions. The rate set at an Auction will not exceed the Maximum Applicable
Rate. The Maximum Applicable Rate for the APS will be the higher of the
Applicable Percentage of the Reference Rate or the Applicable Spread Over the
Reference Rate (as more particularly described below). The Auction Agent will
round each applicable Maximum Applicable Rate to the nearest one-thousandth
(0.001) of one percent per annum, with any such number ending in five
ten-thousandths of one percent being rounded upwards to the nearest
one-thousandth (0.001) of one percent. The Auction Agent will not round the
applicable Reference Rate as part of its calculation of the Maximum Applicable
Rate.
The Maximum Applicable Rate for the APS will depend on the credit rating or
ratings assigned to such shares. The Maximum Applicable Rate for any Dividend
Period will be the higher of the Applicable Percentage of the Reference Rate or
the Applicable Spread Over the Reference Rate. The Applicable Percentage of the
Reference Rate or Applicable Spread Over the Reference Rate will be determined
based on the credit rating assigned on such date to such shares by [ ] and [ ]
(or if [ ] or [ ] shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency) as follows:
CREDIT
RATINGS
APPLICABLE PERCENTAGE APPLICABLE SPREAD
MOODY'S S&P/FITCH OF REFERENCE RATE OVER REFERENCE RATE
---------------- --------------- ------------------------- -------------------------
Aaa AAA % bps
Aa3 to Aa1 AA- to AA+ % bps
A3 to A1 A- to A+ % bps
Baa3 to Baa1 BBB- to BBB+ % bps
Ba1 and lower BB+ and lower % bps
Assuming the Fund maintains an AAA/Aaa rating on the APS, the practical effect
of the different methods used to calculate the Maximum Applicable Rate is shown
in the table below:
METHOD USED TO
MAXIMUM APPLICABLE RATE MAXIMUM APPLICABLE RATE DETERMINE THE
REFERENCE RATE USING THE APPLICABLE PERCENTAGE USING THE APPLICABLE SPREAD MAXIMUM APPLICABLE RATE
-------------- ------------------------------- --------------------------- -----------------------
1% % %
2% % %
3% % %
4% % %
5% % %
6% % %
Prior to each Dividend Payment Date, the Fund is required to deposit with the
Auction Agent sufficient funds for the payment of declared dividends. The Fund
does not intend to establish any reserves for the payment of dividends.
There is no minimum Applicable Rate in respect of any Dividend Period.
The Fund will take all reasonable action necessary to enable [ ] and [ ] to
provide a rating for the APS. If [ ] or [ ] shall not make such a rating
available, the Adviser or their affiliates and successors, after consultation
with the Fund and the Broker-Dealers, will select another Rating Agency (a
"Substitute Rating Agency") to act as a Substitute Rating Agency.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
rejection of Submitted Bids and Submitted Sell Orders and allocation of shares."
Neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's
failure to comply with the foregoing. A Broker-Dealer also may hold APS in its
own account as a Beneficial Owner. A Broker-Dealer thus may submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
36
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. Any Order placed with the Auction Agent
by a Broker-Dealer as or on behalf of a Beneficial Owner or a Potential
Beneficial Owner will be treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of any APS held by it or its customers who are Beneficial Owners will be
treated in the same manner as an Existing Holder's failure to submit to its
Broker-Dealer an Order in respect to APS held by it, as described in the next
paragraph. Inasmuch as a Broker-Dealer participates in an Auction as an Existing
Holder or a Potential Holder only to represent the interests of a Beneficial
Owner or Potential Beneficial Owner, whether it be its customers or itself, all
discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby. For information concerning the priority
given to different types of Orders placed by Existing Holders, see "--Submission
of Orders by Broker-Dealers to Auction Agent." Each purchase or sale in an
Auction will be settled on the Business Day next succeeding the Auction Date at
a price per share equal to $25,000. See "--Notification of results; settlement."
If one or more Orders covering in the aggregate all of the outstanding APS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, either because a Broker-Dealer failed to contact such
Existing Holder or otherwise, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period which is not a Special Dividend
Period of 91 days or less) and a Sell Order (in the case of an Auction relating
to a Dividend Period of longer than 91 days) to have been submitted by or on
behalf of such Existing Holder covering the number of outstanding APS held by
such Existing Holder and not subject to Orders submitted to the Auction Agent.
If all of the outstanding APS are subject to Submitted Hold Orders, the Dividend
Period next succeeding the Auction automatically shall be the same length as the
immediately preceding Dividend Period, and the Applicable Rate for the next
Dividend Period for all the APS will be 90% of the Reference Rate on the date of
the applicable Auction.
For the purposes of an Auction, the APS for which the Fund shall have given
notice of redemption and deposited moneys therefor with the Auction Agent in
trust or segregated in an account at the Fund's custodian bank for the benefit
of the Auction Agent, as set forth under "Description of APS--Redemption," will
not be considered as outstanding and will not be included in such Auction.
Pursuant to the Amended By-Laws of the Fund, the Fund will be prohibited from
reissuing and its affiliates (other than the underwriters) will be prohibited
from transferring (other than to the Fund) any APS they may acquire. Neither the
Fund nor any affiliate of the Fund (other than the Underwriters) may submit an
Order in any Auction, except that an affiliate of the Fund that is a
Broker-Dealer may submit an Order.
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 1:30 p.m., New York City time, on each Auction Date, or such other time
on the Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Fund) as the Existing
Holder or Potential Holder in respect of the APS subject to such Orders. Any
Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate per annum
up to the next highest one-thousandth (0.001) of 1%. If one or more Orders of an
Existing Holder are submitted to the Auction Agent and such Orders cover in the
aggregate more than the number of outstanding APS held by such Existing Holder,
such Orders will be considered valid in the following order of priority:
(i) any Hold Order will be considered valid up to and including the number
of outstanding APS held by such Existing Holder, provided that if more
than one Hold Order is submitted by such Existing Holder and the number
of APS subject to such Hold Orders exceeds the number of outstanding
APS held by such Existing Holder, the number of APS subject to each of
such Hold Orders will be reduced pro rata so that such Hold Orders, in
the aggregate, will cover exactly the number of outstanding APS held by
such Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding APS held by such Existing Holder over the number of
outstanding APS subject to any Hold Order referred to in clause (i)
above (and if more than one Bid submitted by such Existing Holder
specifies the same rate per annum and together they cover more than the
remaining number of shares that can be the subject of valid Bids after
application of clause (i) above and of the foregoing portion of this
clause (ii) to any Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of such Bids will be
reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of outstanding shares); and the number of
outstanding shares, if any, subject to Bids not valid under this clause
(ii) shall be treated as the subject of a Bid by a Potential Holder;
and
37
(iii) any Sell Order will be considered valid up to and including the excess
of the number of outstanding APS held by such Existing Holder over the
sum of the number of APS subject to Hold Orders referred to in clause
(i) above and the number of APS subject to valid Bids by such Existing
Holder referred to in clause (ii) above; provided that, if more than
one Sell Order is submitted by any Existing Holder and the number of
APS subject to such Sell Orders is greater than such excess, the number
of APS subject to each of such Sell Orders will be reduced pro rata so
that such Sell Orders, in the aggregate, will cover exactly the number
of APS equal to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction, each
Bid submitted in such Auction will be considered a separate Bid with the rate
per annum and number of APS therein specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE
Not earlier than the Submission Deadline for each Auction, the Auction Agent
will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding APS over the number of outstanding APS subject to
Submitted Hold Orders (such excess being referred to as the "Available APS") and
whether Sufficient Clearing Bids have been made in such Auction. Sufficient
Clearing Bids will have been made if the number of outstanding APS that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate). If Sufficient Clearing Bids have been made,
the Auction Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the number of
shares subject to Submitted Bids specifying such rate per annum or a lower rate
per annum being at least equal to the available APS. If Sufficient Clearing Bids
have been made, the Winning Bid Rate will be the Applicable Rate for the next
Dividend Period for the APS then outstanding. If Sufficient Clearing Bids have
not been made (other than because all outstanding APS are the subject of
Submitted Hold Orders), the Dividend Period next following the Auction
automatically will be a [ ]-Day Dividend Period, in the cases of Series A,
Series B, and Series C APS and the Applicable Rate for such Dividend Period will
be equal to the Maximum Applicable Rate.
If Sufficient Clearing Bids have not been made, Beneficial Owners that have
Submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any, of the APS subject to such Submitted Sell Orders. See
"--Acceptance and rejection of Submitted Bids and Submitted Sell Orders and
allocation of shares." Thus, under some circumstances, Beneficial Owners may not
have liquidity of investment.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES
Based on the determinations described under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and subject to the
discretion of the Auction Agent to round, the Auction Procedures include a pro
rata allocation of shares for purchase and sale, which may result in an Existing
Holder continuing to hold or selling or a Potential Holder purchasing, a number
of shares of a series of APS that is fewer than the number of shares of such
series specified in its Order. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as Existing Holders or
Potential Holders in respect of customer Orders will be required to make
appropriate pro rata allocations among their respective customers. See the
Fund's Amended By-Laws set forth in Appendix B to the Fund's Statement of
Additional Information.
NOTIFICATION OF RESULTS; SETTLEMENT
The Auction Agent will advise each Broker-Dealer who submitted a Bid or Sell
Order in an Auction whether such Bid or Sell Order was accepted or rejected in
whole or in part and of the Applicable Rate for the next Dividend Period for the
related APS by telephone approximately 3:00 p.m., New York City time, on the
Auction Date for such Auction. Each such Broker-Dealer that submitted an Order
for the account of a customer then will advise such customer whether such Bid or
Sell Order was accepted or rejected, will confirm purchases and sales with each
customer purchasing or selling APS as a result of the Auction and will advise
each customer purchasing or selling APS to give instructions to its Agent Member
of the Securities Depository to pay the purchase price against delivery of such
shares or to deliver such shares against payment therefor as appropriate.
In accordance with the Securities Depository's normal procedures, on the day
after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of APS as determined in such Auction.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds. If the procedures
of the Securities Depository applicable to APS shall be changed to provide for
payment in next-day funds, then purchasers may be required to make payment in
next-day funds. If the certificates for the APS are not held by the Securities
38
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.
The following is a simplified example of how a typical Auction works. Assume
that the Fund has 1,000 outstanding APS and three current holders. The three
current holders and three potential holders submit orders through Broker-Dealers
at the Auction:
Current Holder A Owns 500 shares, wants to sell Bid order of 2.1% rate for all
all 500 shares if Applicable 500 shares
Rate is less than 2.1%
Current Holder B Owns 300 shares, wants to hold Hold Order--will take the
Applicable Rate
Current Holder C Owns 200 shares, wants to sell all 200 shares if Bid order of 1.9% rate for all 200 shares
Applicable Rate is less than 1.9%
Potential Holder D Wants to buy 200 shares Places order to buy at or above 2.0%
Potential Holder E Wants to buy 300 shares Places order to buy at or above 1.9%
Potential Holder F Wants to buy 200 shares Places order to buy at or above 2.1%
The lowest dividend rate that will result in all 1,000 APS continuing to be held
is 2.0% (the offer by D). Therefore, the Applicable Rate will be 2.0%. Current
Holders B and C will continue to own their shares. Current Holder A will sell
its shares because A's dividend rate bid was higher than the Applicable Rate.
Potential Holder D will buy 200 shares and Potential Holder E will buy 300
shares because their bid rates were at or below the Applicable Rate. Potential
Holder F will not buy shares because its bid rate was above the Applicable Rate.
SECONDARY MARKET TRADING AND TRANSFER OF APS
The Broker-Dealers may maintain a secondary trading market in the APS outside of
Auctions; however, they have no obligation to do so and there can be no
assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the Broker-Dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long-Term Dividend Period, likely will have an adverse
effect on the secondary market price of the APS, and a selling Shareholder may
sell APS between Auctions at a price per share of less than $25,000.
Taxes
GENERAL
The Fund intends to elect and to qualify each year for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as the
Fund so qualifies, in any taxable year in which it distributes at least 90% of
the sum of its investment company taxable income (consisting generally of
taxable net investment income, net short-term capital gain and net realized
gains from certain hedging transactions) and certain other income, the Fund (but
not its Shareholders) will not be subject to federal income tax to the extent
that it distributes its investment company taxable income and net capital gain
(the excess of net long-term capital gain over net short-term capital loss). The
Fund intends to distribute substantially all of such income and gain each year.
The APS will constitute stock of the Fund, and distributions by the Fund with
respect to its APS (other than distributions in redemption of APS that are
treated as exchanges of stock under Section 302(b) of the Code) thus will
constitute dividends to the extent of the Fund's current and accumulated
earnings and profits as calculated for federal income tax purposes. It is
possible, however, that the IRS might take a contrary position, asserting, for
example, that the APS constitute debt of the Fund. If this position were upheld,
the discussion of the treatment of distributions below would not apply. Instead,
distributions by the Fund to holders of APS would constitute interest, whether
or not they exceeded the earnings and profits of the Fund, would be included in
full in the income of the recipient and would be taxed as ordinary income.
Kirkpatrick & Lockhart LLP, counsel to the Fund, believes that such a position,
if asserted by the IRS, would be unlikely to prevail if the issue were properly
litigated.
Distributions of any taxable net investment income and net short-term capital
gain will be taxable as ordinary income (except to the extent that a reduced
capital gains tax rate applies to qualified dividend income). Distributions of
the Fund's net capital gain, if any, will be taxable to Shareholders as long-
term capital gains, regardless of the length of time they held their shares.
Distributions, if any, in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after that basis has
been reduced to zero, will constitute capital gains to the Shareholder (assuming
the shares are held as a capital asset).
Subject to certain conditions and limitations, under applicable federal income
tax provisions, a corporation receiving dividends with respect to stock it owns
39
in another corporation is allowed a deduction against a portion of such dividend
income received (the "Dividends Received Deduction"). The Fund expects to
receive dividends with respect to some or all of the stocks in other
corporations held by the Fund, and the Fund may designate such dividends as
eligible for the Dividends Received Deduction only to the extent that the Fund
receives dividends for which the Fund would be entitled to the Dividends
Received Deduction if the Fund were a regular corporation and not a RIC. A
corporation that owns Common Shares or APS generally will be entitled to a
Dividends Received Deduction with respect to a designated portion of the
dividends it receives from the Fund.
For dividends received by the Fund to be eligible for designation for the
Dividends Received Deduction, the dividends must be paid by a domestic
corporation that is subject to U.S. income tax and the Fund must hold the stock
of such corporation for at least 46 days during the 90-day period beginning 45
days before the ex-dividend date for the stock (91 days during the 180-day
period for certain preferred stock). The Fund's holding period for stock will in
general not include any period for which the Fund holds an option to sell or is
the writer of an option to buy substantially identical stock, although there
exists an exception for certain options written by the Fund, the exercise prices
of which are not substantially below the market prices of the underlying
securities at the times the options are written. The Dividends Received
Deduction is reduced for dividends received from debt-financed portfolio stock
by a percentage related to the amount of debt incurred to purchase such stock.
To the extent that the source of dividends or distributions with respect to the
APS is dividends received by the Fund that would be eligible for the Dividends
Received Deduction, a corporate holder of Common Shares or APS (collectively,
the "Shares") in the Fund will be allowed a deduction equal to 70% of the
dividends paid to it by the Fund and designated by the Fund as eligible for the
Dividends Received Deduction. The aggregate amount of Dividends Received
Deductions that may be taken by a corporation is limited to 70% of its taxable
income, computed without regard to any net operating loss deduction.
In order for dividends effectively designated by the Fund as eligible for the
Dividends Received Deduction to qualify for the Dividends Received Deduction
when received by a particular Shareholder, the Shareholder must, among other
things, be a corporation meeting the 46-day (or 91-day) holding period
requirement described above with respect to its Fund Shares. The Dividends
Received Deduction will be reduced in the case of a Shareholder who has incurred
indebtedness, or is treated as having incurred indebtedness, that is "directly
attributable" to the acquisition or carrying of the Shares. The basis of a
Shareholder's Shares may be reduced in the case of certain "extraordinary
dividends" eligible for the Dividends Received Deduction by an amount equal to
the non-taxed portion of such dividends, although it is expected that such
extraordinary dividends will be paid only in unusual circumstances.
Dividends and other distributions declared by the Fund in October, November or
December of any year and payable to Shareholders of record on a date in any of
those months will be deemed to have been paid by the Fund and received by the
Shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to Shareholders for the year in which that December 31 falls.
The Fund will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class's proportionate share of
a particular type of income for a year is determined according to the percentage
of total dividends paid by the RIC during that year to the class. Accordingly,
the Fund intends to designate a portion of its distributions as capital gain
dividends in compliance with the IRS position.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Fund, under current law the manner in which the Fund intends to
allocate items of ordinary income and net capital gain among the Fund's Common
Shares and APS will be respected for federal income tax purposes. It is possible
that the IRS could disagree with counsel's opinion and attempt to reallocate the
Fund's net capital gain or other taxable income.
If at any time when APS are outstanding the Fund does not meet the asset
coverage requirements of the 1940 Act, the Fund will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
See "Description of APS--Dividends and Dividend Periods--Restrictions on
dividends and other payments." Such a suspension may prevent the Fund from
distributing at least 90% of the sum of its investment company taxable income
and certain other income and may, therefore, jeopardize the Fund's qualification
for taxation as a RIC. Upon any failure to meet the asset coverage requirements
of the 1940 Act, the Fund, in its sole discretion, may redeem APS in order to
maintain or restore the requisite asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify for
treatment as a RIC. See "Description of APS--Redemption." There can be no
assurance, however, that any such action would achieve that objective.
Certain of the Fund's investment practices are subject to special Code
provisions that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
40
require the Fund to recognize income or gain without receiving cash with which
to make distributions in the amounts necessary to satisfy the requirements for
maintaining RIC status and for avoiding income and excise taxes. The Fund will
monitor its transactions and may make certain tax elections in order to mitigate
the effect of these rules and prevent disqualification of the Fund as a RIC.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax
Act"), the U.S. federal income tax rate on long-term capital gains recognized by
individuals has been reduced to 15% (or 5% for individuals in the 10% or 15% tax
brackets), and "qualified dividend income" received by individuals from certain
domestic and foreign corporations will also be taxed at this reduced capital
gains tax rate provided certain holding period and other requirements are
satisfied. The reduced long-term capital gains tax rate will apply to capital
gains realized by Shareholders who sell Common Shares of the Fund that they have
held for more than one year. The reduced rates, which do not apply to short-term
capital gains, generally apply to long-term capital gains from sales or
exchanges recognized on or after May 6, 2003 (and to Fund distributions of such
gain), and will cease to apply for taxable years beginning after December 31,
2008. Distributions from the Fund designated as capital gain dividends should be
eligible for the reduced rate applicable to long-term capital gains. Ordinary
income dividends paid by the Fund would be eligible to be treated by individual
Fund Shareholders as qualified dividend income taxed at the reduced capital
gains rate to the extent that some portion of the Fund's dividends were
attributable to such qualified dividend income received by the Fund and to the
extent that the Fund were to designate such portion as qualified dividend
income. The tax treatment applies only if certain holding period and other
requirements are satisfied by the Shareholder. For this purpose, "qualified
dividends income" means dividends received by the Fund from United States
corporations and "qualified foreign corporations," provided that the Fund
satisfies certain holding period and other requirements in respect of the stock
of such corporations.
In the case of securities lending transactions, payments in lieu of dividends do
not constitute qualified dividend income. Dividends received by the Fund from
REITs are qualified dividend income eligible for this lower tax rate only in
limited circumstances. These special rules relating to the taxation of ordinary
income dividends paid by the Fund generally apply to taxable years beginning
after December 31, 2002 and beginning before January 1, 2009. Thereafter, the
Fund's dividends, other than capital gain dividends, will be fully taxable at
ordinary income tax rates unless further Congressional action is taken. There
can be no assurances as to what percentage of the dividends paid on the APS will
consist of tax-advantaged dividends on long-term capital gains, both of which
are taxed at more favorable tax rates than ordinary income.
A dividend paid by the Fund to a Shareholder will not be treated as qualified
dividend income of the Shareholder if (1) the dividend is received with respect
to any share held for fewer than 61 days during the 121-day period beginning on
the date which is 60 days before the date on which such share becomes
ex-dividend with respect to such dividend (or fewer than 91 days during the
associated 181-day period, in the case of dividends attributable to periods in
excess of 366 days paid with respect to preferred stock), (2) to the extent that
the shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest. Although current law only provides a
120-day and 180-day period for holding such stock, a proposed technical
correction to the law (the "Technical Corrections Bills") would extend such
periods to 121 days and 181 days. The Treasury Department and the Internal
Revenue Service have announced that taxpayers may apply the extended period as
if the legislation were already enacted in filing their federal income tax
returns.
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, which 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 52 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 on an established
securities market in the United States 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 NASDAQ Stock Market.
A qualified foreign corporation does not include any foreign corporation which
for the taxable year of the corporation in which the dividend is paid, or the
preceding taxable year, is a foreign personal holding company, a foreign
investment company or a passive foreign investment company.
Dividends and interest received, and gains realized, by the Fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the return on its securities. Tax conventions between certain countries
41
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. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
it will be eligible to, and may, file an election with the IRS that will enable
its Shareholders, in effect, to receive the benefit of the foreign tax credit
with respect to any foreign taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its Shareholders and each
Shareholder (1) would be required to include in gross income, and treat as paid
by such Shareholder, a proportionate share of those taxes, (2) would be required
to treat such share of those taxes and of any dividend paid by the Fund that
represents income from foreign or U.S. possessions sources as such Shareholder's
own income from those sources, and (3) could either deduct the foreign taxes
deemed paid in computing taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against federal income tax.
The Fund will report to its Shareholders shortly after each taxable year their
respective shares of foreign taxes paid and the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.
The Tax Act, in amending certain Code provisions to provide that dividends paid
by a RIC would be treated as "qualified dividend income" to the extent that such
dividends were derived from qualified dividend income received by the RIC,
failed to make certain conforming amendments to other provisions of the Code. As
a result, the Code contains certain contradictory provisions creating some doubt
that the Code authorizes the Fund to designate as qualified dividend income that
portion of its dividends that is derived from dividends it has received from
qualified foreign corporations. The Fund believes, however, that the intention
of the Tax Act was to authorize the Fund's designation of such dividends as
qualified dividend income. Further, the Technical Corrections Bills have been
filed in both the Senate and the House of Representatives, and these Technical
Corrections Bills would amend the Code to make it clear that dividends paid by a
RIC can be designated qualified dividend income to the extent that they are
derived from dividends received from qualified foreign corporations. The Fund
cannot predict whether or in what form the Technical Corrections Bills will be
enacted or, if enacted, when that will occur. Nevertheless, the Treasury
Department and the Internal Revenue Service have announced that they will apply
the provisions of the Technical Corrections Bills relating to qualified dividend
income in advance of the enactment of such legislation.
The Fund will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
A selling Shareholder 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 amount received. 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 in the case of 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 dividends) (5% for individuals in the 10% or
15% tax brackets). Any loss on a disposition of Shares held for six months or
less will be treated as a long- term capital loss to the extent of any capital
gain dividends received with respect to those Shares. For purposes of
determining whether Shares have been held for six months or less, the holding
period is suspended for any periods during which the Shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or short
sales. Any loss realized on a sale or exchange of Shares will be disallowed to
the extent those Shares are replaced by other Shares within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the
Common Shares (whether through the reinvestment of distributions, which could
occur, for example, if the Shareholder is a participant in the Fund's dividend
reinvestment plan (as defined below) or otherwise). In that event, the basis of
the replacement Shares will be adjusted to reflect the disallowed loss.
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.
SALES OF APS
The sale of APS (including transfers in connection with a redemption or
repurchase of APS) will be a taxable transaction for federal income tax
purposes. A selling Shareholder generally will recognize gain or loss equal to
the difference between the amount received and the holder's adjusted tax basis
in the APS. If the APS are held as a capital asset, the gain or loss will be a
capital gain or loss and will be long-term if the APS have been held for more
than one year. Any loss realized on a disposition of APS held for six months or
less will be treated as a long-term, rather than a short-term, capital loss to
the extent of any capital gain distributions received with respect to those APS.
A Shareholder's holding period for APS is suspended for any periods during which
the Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options, sales contracts or short sales. Any loss realized on a sale or exchange
of APS will be disallowed to the extent those APS are replaced by other APS
within a period of 61 days beginning 30 days before and ending 30 days after the
date of disposition of the original APS. In that event, the basis of the
replacement APS will be adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING
42
The Fund is required to withhold a percentage of all taxable dividends, capital
gain distributions and repurchase proceeds payable to any individuals and
certain other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number. Such withholding from taxable dividends
and capital gain distributions is also required for such Shareholders who fail
to provide certain certifications or otherwise are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
from payments made to a Shareholder may be refunded or credited against the
Shareholder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
The foregoing briefly summarizes some of the important federal income tax
consequences to Shareholders of investing in Shares, reflects the federal tax
law as of the date of this Prospectus, and does not address special tax rules
applicable to certain types of investors, such as corporate and foreign
investors. Investors should consult their tax advisors regarding other federal,
state or local tax considerations that may be applicable in their particular
circumstances, as well as any proposed tax law changes.
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
November 14, 2003 ("Declaration of Trust"). The Declaration of Trust provides
that the Trustees of the Fund may authorize separate classes of shares of
beneficial interest. The Trustees of the Fund have authorized an unlimited
number of shares of beneficial interest, par value $0.01 per share, all of which
shares were initially classified as Common Shares. The Declaration of Trust also
authorizes the issuance of an unlimited number of shares of beneficial interest
with preference rights, including Preferred Shares, having a par value of $0.01
per share, in one or more series, with rights as determined by the Board of
Trustees, by action of the Board of Trustees without the approval of the
Shareholders. For a description of the APS, see "Description of APS." The
following table shows the amount of (i) shares authorized, (ii) shares held by
the Fund for its own account and (iii) shares outstanding, for each class of
authorized securities of the Fund as of March 31, 2004.
AMOUNT OUTSTANDING
AMOUNT HELD BY (EXCLUSIVE OF AMOUNT HELD
FUND FOR ITS OWN BY FUND FOR ITS OWN
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT)
----------------------- ------------------ ------------------ ---------------------------
Common Shares Unlimited -0-
Auction Preferred Shares
Series A -0- -0-
Series B -0- -0-
Series C -0- -0-
Holders of Common Shares are entitled to share equally in dividends declared by
a Board of Trustees payable to holders of Common Shares and in the net assets of
the Fund available for distribution to holders of Common Shares after payment of
the preferential amounts payable to holders of any outstanding Preferred Shares,
including the APS. Neither holders of Common Shares nor holders of Preferred
Shares have pre-emptive or conversion rights and Common Shares are not
redeemable. 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 Trustees may distribute the remaining assets of the Fund among
the holders of the Common Shares. The Declaration of Trust provides that
Shareholders are not liable for any liabilities of the Fund, permits inclusion
of a clause to that effect in every agreement 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, in certain limited circumstances, may be held
personally liable for the obligations of the Fund as though they were general
partners, the provisions of the Declaration of Trust described in the foregoing
sentence make the likelihood of such personal liability remote.
Holders of Common Shares are entitled to one vote for each share held and will
vote with the holders of any outstanding APS or other Preferred Shares on each
matter submitted to a vote of holders of Common Shares, except as described
under "Description of APS--Voting rights."
Shareholders are entitled to one vote for each share held. The Common Shares,
APS and any other Preferred Shares do not have cumulative voting rights, which
means that the holders of more than 50% of the Common Shares, APS and any other
Preferred Shares voting for the election of Trustees can elect all of the
Trustees standing for election by such holders, and, in such event, the holders
of the remaining Common Shares, APS and any other Preferred Shares will not be
able to elect any of such Trustees.
So long as any APS or any other Preferred Shares are outstanding, holders of
Common Shares will not be entitled to receive any dividends of or other
43
distributions from the Fund, unless at the time of such declaration, (1) all
accrued dividends on Preferred Shares or accrued interest on borrowings has been
paid and (2) the value of the Fund's total assets (determined after deducting
the amount of such dividend or other 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 (expected to
equal the aggregate original purchase price of the outstanding Preferred Shares
plus redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Fund is required to comply
with other asset coverage requirements as a condition of the Fund obtaining a
rating of the Preferred Shares from a Rating Agency. These requirements include
an asset coverage test more stringent than under the 1940 Act. See "Description
of APS--Dividends and Dividend Periods--Restrictions on Dividends and other
payments."
The Fund will send unaudited reports at least semi-annually and audited
financial statements annually to all of its Shareholders.
The Common Shares of the Fund commenced trading on the NYSE on April 28, 2004.
As of May [], 2004, the net asset value per share of Common Shares and the
closing price per share of Common Shares on the NYSE were $[ ], and $[ ],
respectively.
PREFERRED SHARES
Under the 1940 Act, the Fund is permitted to have outstanding more than one
series of Preferred Shares as long as no single series has priority over another
series as to the distribution of assets of the Fund or the payment of dividends.
Neither holders of Common Shares nor holders of Preferred Shares have
pre-emptive rights to purchase any APS or any other Preferred Shares that might
be issued. It is anticipated that the net asset value per share of the APS will
equal its original purchase price per share plus accumulated dividends per
share.
Certain provisions of the Declaration of Trust
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The Declaration of Trust includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board, and could have the effect of
depriving holders of Common Shares of an opportunity to sell their 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 holders of Common Shares
and Preferred Shares. 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 of Trustees. 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 is 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 holders of Common Shares and Preferred Shares generally.
Reference should be made to the Declaration of Trust on file with the SEC for
the full text of these provisions.
44
CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end 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, each voting separately as a class, or (ii)
more than 50% of the then outstanding Common Shares and Preferred Shares, 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 investment company also
would require the redemption of any outstanding Preferred Shares, including the
APS, and could require the repayment of borrowings. The Board believes that the
closed-end structure is desirable, given the Fund's investment objective and
policies. Investors should assume, therefore, that it is unlikely that the Board
would vote to convert the Fund to an open-end investment company.
45
Underwriting
The underwriters named below (the "Underwriters"), acting through [ ], [ ], [ ],
[ ] and [ ] [ ] as lead managers and [ ] as their representative (together with
the lead managers, the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Fund and the
Adviser, to purchase from the Fund the number of APS set forth below their
respective names. The Underwriters are committed to purchase and pay for all of
the Fund's APS if any are purchased.
NUMBER OF SHARES UNDERWRITERS
-------------------------------------------------------------------------------
Total
The Underwriters have advised the Fund that they propose initially to offer the
APS of the Fund to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $[ ] per share. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $[ ] per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed. Investors must pay for any APS purchased
on or before [ ], 2004.
The Underwriters will act in Auctions as Broker-Dealers as set forth under "The
Auctions--General--Broker-Dealer Agreements" and will be entitled to fees for
services as Broker-Dealers as set forth therein. The Underwriters also may
provide information to be used in ascertaining the Reference Rate.
The Fund anticipates that the Representatives and certain other Underwriters may
from time to time act as brokers and dealers in connection with the execution of
the Fund's portfolio transactions after they have ceased to be principal
underwriters of the Fund under the 1940 Act and, subject to certain conditions,
may act as such brokers while they are principal underwriters.
In connection with this offering, certain of the Underwriters or selected
dealers may distribute prospectuses electronically.
The Fund and the Adviser have agreed to indemnify the Underwriters against
certain liabilities including liabilities under the Securities Act of 1933, as
amended.
Shareholder Servicing Agent, custodian and transfer agent
Pursuant to a shareholder servicing agreement ("Shareholder Servicing
Agreement") between [ ] (the "Shareholder Servicing Agent") and Eaton Vance, the
Shareholder Servicing Agent will (i) at the request of and as specified by Eaton
Vance, undertake to make available public information pertaining to the Fund on
an ongoing basis and to communicate to investors and prospective investors the
Fund's features and benefits (including arranging periodic seminars or
conference calls for Eaton Vance to communicate to investors, responding to
questions from current or prospective Shareholders and contacting specific
Shareholders, where appropriate), provided that services shall not include
customary market research information provided by the Shareholder Servicing
Agent or its registered broker-dealer affiliates in the ordinary course of their
business; (ii) at the request of and as specified by Eaton Vance, make available
to investors and prospective investors market price, net asset value, yield and
other information regarding the Fund (provided that services shall not include
customary market research information provided by the Shareholder Servicing
Agent or its registered broker-dealer affiliates in the ordinary course of their
business), if reasonably obtainable, for the purpose of maintaining the
visibility of the Fund in the investor community; (iii) at the request of Eaton
Vance or the Fund, provide certain economic research and statistical information
and reports, if reasonably obtainable, to Eaton Vance or the Fund and consult
with representatives of Eaton Vance and/or Trustees of the Fund in connection
therewith, which information and reports shall include: (a) statistical and
financial market information with respect to the Fund's market performance; and
(b) comparative information regarding the Fund and other closed-end management
investment companies with respect to (1) the net asset value of their respective
shares, (2) the respective market performance of the Fund and such other
companies, and (3) other relevant performance indicators. Except as legally
required, such information and reports may not be quoted or referred to, orally
or in writing, reproduced or disseminated by the Fund or any of its affiliates
or any of their agents, without the prior written consent of the Shareholder
Servicing Agent, which consent will not be unreasonably withheld; and (iv) at
the request of Eaton Vance or the Fund, provide information to and consult with
Eaton Vance and/or the Board of Trustees of the Fund with respect to applicable
strategies designed to address market value discounts, which may include share
repurchases, tender offers, modifications to dividend policies or capital
structure, repositioning or restructuring of the Fund, conversion of the Fund to
an open-end investment company, liquidation or merger; including providing
information concerning the use and impact of the above strategic alternatives by
other market participants provided, however, that under the terms of the
Shareholder Servicing Agreement, the Shareholder Servicing Agent is not
46
obligated to render any opinions, valuations or recommendations of any kind or
to perform any such similar services. For these services, Eaton Vance will pay
the Shareholder Servicing Agent a fee computed daily and payable quarterly
equal, on an annual basis, to 0.10% of the Fund's average daily gross assets.
Under the terms of the Shareholder Servicing Agreement, the Shareholder
Servicing Agent is relieved from liability to Eaton Vance for any act or
omission to act by the Shareholder Servicing Agent in the course of its
performances under the Shareholder Servicing Agreement in the absence of gross
negligence or willful misconduct on the part of the Shareholder Servicing Agent.
The Shareholder Servicing Agreement will continue so long as the Advisory
Agreement remains in effect between the Fund and the Adviser or any successor in
interest or affiliate of the Adviser, as and to the extent that such Advisory
Agreement is renewed periodically in accordance with the 1940 Act.
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116 is the custodian of the Fund and will maintain custody of
the securities and cash of the Fund. IBT maintains the Fund's general ledger and
computes net asset value per share at least weekly. IBT also attends to details
in connection with the sale, exchange, substitution, transfer and other dealings
with the Fund's investments, and receives and disburses all funds. IBT also
assists in preparation of Shareholder reports and the electronic filing of such
reports with the SEC.
PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 is the transfer
agent and dividend disbursing agent of the Fund.
Legal opinions
Certain legal matters in connection with the APS will be passed upon for the
Fund by Kirkpatrick & Lockhart LLP, Boston, Massachusetts, and for the
Underwriters by [ ].
Independent auditors
Deloitte & Touche LLP, Boston, Massachusetts are the independent auditors 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 document 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.
47
Table of contents for the Statement of Additional Information
Additional investment information and restrictions
Trustees and officers
Investment advisory and other services
Determination of net asset value
Portfolio trading
Taxes
Other information
Independent auditors
Independent auditors' report
Financial statements
APPENDIX A: Ratings A-
APPENDIX B: Amended By-Laws B-
The Fund's privacy policy
The Fund is committed to ensuring your financial privacy. This notice is being
sent to comply with privacy regulations of the Securities and Exchange
Commission. The Fund has in effect the following 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 Fund transactions will be collected.
- 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).
- Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality of
such information.
For more information about the Fund's privacy policies call 1-800-262-1122.
48
Glossary
"[ ]-Day Dividend Period" means a Dividend Period consisting of [ ] days.
"1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
"1940 Act APS Asset Coverage" has the meaning set forth on page 36 of this
Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 36 of this Prospectus.
"Adviser" means Eaton Vance Management.
"Agent Member" means the member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more APS or on behalf of a Potential
Beneficial Owner.
"Amended By-Laws" means the By-laws of the Fund, as amended [ ], 2004,
specifying the powers, preferences and rights of the APS. The Fund's Amended
By-Laws are contained in Appendix B to the Fund's Statement of Additional
Information.
"Applicable Percentage" has the meaning set forth on pages [ ] and [ ] of this
Prospectus.
"Applicable Rate" means the rate per annum at which cash dividends are payable
on APS for any Dividend Period.
"Applicable Spread" has the meaning set forth on page [ ] of this Prospectus.
"APS" means the Auction Preferred Shares with a par value of $0.01 per share and
a liquidation preference of $25,000 per share, plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared), of
the Fund.
"APS Basic Maintenance Amount" has the meaning set forth on pages [ ] and [ ] of
this Prospectus.
"APS Basic Maintenance Cure Date" has the meaning set forth on page [ ] of this
Prospectus.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Deutsche Bank Trust Company Americas, unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Fund or a duly authorized
committee thereof enters into an agreement with each to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS.
"Auction Agent Agreement" means the agreement entered into between the Fund and
the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" has the meaning set forth on page [ ] of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth in
Section 9 of the Fund's Amended By-Laws contained in Appendix B to the Fund's
Statement of Additional Information.
"Available APS" has the meaning specified in Paragraph 9(d)(i) of the Auction
Procedures.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of APS or a Broker-Dealer that holds APS for its own account.
"Bid" has the meaning specified in Subsection 9(b)(i) of the Auction Procedures.
"Bidder" has the meaning specified in Subsection 9(b)(i) of the Auction
Procedures.
"Board of Trustees" or "Board" means the Board of Trustees of the Fund.
49
"Broker-Dealer" means any broker-dealer, or other entity permitted by law to
perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Fund and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in New
York City are authorized or obligated by law to close.
"Cede & Co." means the nominee of DTC, and in whose name the shares of APS
initially will be registered.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the common shares of beneficial interest, par value $0.01
per share, of the Fund.
"Date of Original Issue" means, with respect to each series of APS, the date on
which such share first is issued by the Fund.
"Declaration of Trust" means the Agreement and Declaration of Trust of the Fund.
"Discounted Value" of any asset of each means with respect to a [ ] Eligible
Asset and [ ] Eligible Asset, the quotient of the market value thereof divided
by the applicable [ ] Discount Factor and [ ] Discount Factor.
"Dividend Payment Date" has the meaning set forth on page [ ] of this
Prospectus.
"Dividend Periods" has the meaning set forth on pages [ ] and [ ] of this
Prospectus.
"DTC" means The Depository Trust Company.
"Eligible Assets" means [ ] Eligible Assets and [ ] Eligible Assets.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of APS in the
records of the Auction Agent.
"[ ]" means [ ] Ratings or its successors.
"[ ] Eligible Assets" has the meaning set forth on page [ ] of this Prospectus.
"Fund" means Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund, a
Massachusetts business trust that is the issuer of APS.
"Hold Order" has the meaning specified in Subsection 9(b)(i) of the Auction
Procedures.
"IBT" means Investors Bank & Trust Company, the custodian of the Fund's assets.
"Initial Dividend Payment Date" has the meaning set forth on the inside cover
page of this Prospectus.
"Initial Dividend Period" means, with respect to the APS, the period from and
including the Date of Original Issue to but excluding the Initial Dividend
Payment Date of the APS.
"IRS" means the Internal Revenue Service.
"LIBOR" means the London Interbank Offered Rate.
"LIBOR Rate" has the meaning specified in Paragraph 1(a) of the Fund's Amended
By-Laws.
"Long-Term Dividend Period" has the meaning set forth on page [ ] of this
Prospectus.
"Mandatory Redemption Price" has the meaning set forth on page [ ] of this
Prospectus.
50
"Marginal Tax Rate" means the maximum marginal federal income tax rate
applicable to an individual's or a corporation's ordinary income, whichever is
greater.
"Maximum Applicable Rate" has the meaning specified under "The Auctions--Auction
Procedures--Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders" in this Prospectus.
"[ ]" means [ ] or its successors.
"[ ] Eligible Assets" has the meaning set forth on page [ ] of this Prospectus.
"Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page [ ] of this Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page [ ] of this
Prospectus.
"Notice of Revocation" has the meaning set forth on page [ ] of this Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page [ ] of
this Prospectus.
"Optional Redemption Price" has the meaning set forth on page [ ] of this
Prospectus.
"Order" has the meaning specified in Subsection 9(b)(i) of the Auction
Procedures.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of APS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
APS.
"Potential Holder" means any Broker-Dealer or any such other person as may be
permitted by the Fund, including any Existing Holder, who may be interested in
acquiring APS (or, in the case of an Existing Holder, additional APS).
"Preferred Shares" means preferred shares of beneficial interest, par value
$0.01 per share, of the Fund.
"Premium Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Rating Agency" has the meaning set forth on page [ ] of this Prospectus.
"Reference Rate" means (i) with respect to a Dividend Period having 364 or fewer
days, the applicable LIBOR Rate and (ii) with respect to a Dividend Period
having 365 or more days, the applicable U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth on page [ ] of
this Prospectus.
"Response" has the meaning set forth on page [ ] of this Prospectus.
"S&P" means Standard & Poor's, or its successors.
"Securities Depository" means The Depository Trust Company and its successors
and assigns or any successor securities depository selected by the Fund that
agrees to follow the procedures required to be followed by such securities
depository in connection with the APS.
"Sell Order" has the meaning specified in Subsection 9(b)(i) of the Auction
Procedures.
"Short-Term Dividend Period" has the meaning set forth on page [ ] this
Prospectus.
"Special Dividend Period" has the meaning set forth on page [ ] of this
Prospectus.
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Fund, after consultation with the
51
Auction Agent and the Broker-Dealers, during which the APS subject to such
Dividend Period shall not be subject to redemption at the option of the Fund and
(ii) a period (a "Premium Call Period"), consisting of a number of whole years
and determined by the Board of Trustees of the Fund, after consultation with the
Auction Agent and the Broker-Dealers, during each year of which the APS subject
to such Dividend Period shall be redeemable at the Fund's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Trustees of
the Fund after consultation with the Auction Agent and the Broker-Dealers.
"Submission Deadline" has the meaning specified in Subsection 9(a)(x) of the
Auction Procedures.
"Submitted Bid" has the meaning specified in Subsection 9(d)(i) of the Auction
Procedures.
"Submitted Hold Order" has the meaning specified in Subsection 9(d)(i) of the
Auction Procedures.
"Submitted Order" has the meaning specified in Subsection 9(d)(i) of the Auction
Procedures.
"Submitted Sell Order" has the meaning specified in Subsection 9(d)(i) of the
Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by the
Adviser, or its respective affiliates and successors, after consultation with
the Fund and the Broker-Dealers, to act as a substitute Rating Agency or
substitute Rating Agencies, as the case may be, to determine the credit ratings
of the APS.
"Sufficient Clearing Bids" has the meaning specified in Subsection 9(d)(i) of
the Auction Procedures.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Fund is
maintaining the APS Basic Maintenance Amount, each Business Day commencing with
[ ], 2004.
"Winning Bid Rate" has the meaning specified in Subsection 9(d)(i) of the
Auction Procedures.
[EATON VANCE LOGO]
52
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION May 19, 2004
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
2004
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND
OPPORTUNITIES FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PAGE
----
Additional investment information and restrictions...
Trustees and officers................................
Investment advisory and other services...............
Determination of net asset value.....................
Portfolio trading....................................
Taxes................................................
Other information....................................
Independent auditors.................................
Statement Of Assets And Liabilities..................
Notes to financial statements........................
APPENDIX A: Ratings..................................A-
APPENDIX B: Amended By-laws..........................B-
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND
OPPORTUNITIES FUND (THE "FUND") DATED , 2004, AS SUPPLEMENTED FROM TIME TO TIME,
WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-225-6265.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION, WHICH IS NOT A PROSPECTUS, IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Fund's Prospectus.
Additional investment information and restrictions
Primary investment strategies are described in the Prospectus. The following is
a description of the various investment policies that may be engaged in, whether
as a primary or secondary strategy, and a summary of certain attendant risks.
Eaton Vance may not buy any of the following instruments or use any of the
following techniques unless it believes that doing so will help to achieve the
Fund's investment objective.
TAX-MANAGED INVESTING. Taxes are a major influence on the net returns that
investors receive on their taxable investments. There are five components of the
returns of the Fund--appreciation in the value of the Fund shares, distributions
of tax-advantaged dividends, distributions of other investment income and
distributions of realized short-term and long-term capital gains--which are
treated differently for federal income tax purposes. Distributions of income
other than tax-advantaged dividends and distributions of net realized short-term
gains (on stocks held for one year or less) are taxed as ordinary income, at
rates currently as high as 35%. Distributions to individuals and other
non-corporate shareholders of tax-advantaged dividends and net realized
long-term gains (on stocks held for more than one year) are currently taxed at
rates up to 15%. Generally, returns derived from appreciation in the value of
the Fund shares are not taxable until the shareholder sells his or her Fund
shares. Upon sale, a capital gain or loss (short-term if the shareholder has
held his or her shares for one year or less, otherwise long-term) equal to the
difference between the net proceeds of such sale and the shareholder's adjusted
tax basis is realized. As described in the Prospectus, the Fund seeks to achieve
favorable after-tax returns in part by minimizing the taxes incurred by
shareholders in connection with the Fund's net investment income and net
realized gains.
EQUITY INVESTMENTS. The Fund invests primarily in dividend-paying common stocks
and preferred stocks. The Fund also may invest in debt securities, warrants and
other securities and instruments.
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
primarily 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. However, the Fund may from time to time purchase preferred stocks of
below investment grade quality that, at the time of purchase, are rated at least
B as determined by S&P, Fitch or Moody's or, if unrated, are determined to be of
comparable quality by Eaton Vance. Securities of below investment grade quality
commonly are referred to as "junk" preferred stocks and bonds, as the case may
be. The foregoing credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security in the event of
a downgrade of an assessment of credit quality or the withdrawal of a rating.
Preferred stocks involve credit risk, which is the risk that a preferred stock
will decline in price, or fail to pay dividends when expected, because the
issuer experiences a decline in its financial status. In addition to credit
risk, investment in preferred stocks involves certain other risks as more fully
described in the Prospectus.
DERIVATIVE INSTRUMENTS. Derivative instruments (which are instruments that
derive their value from another instrument, security, index or currency) may be
purchased or sold to enhance return (which may be considered speculative), to
hedge against fluctuations in securities prices, market conditions or currency
exchange rates, or as a substitute for the purchase or sale of securities or
currencies. Such transactions may be in the U.S. or abroad and may include the
purchase or sale of futures contracts on indices and options on stock index
futures, the purchase of put options and the sale of call options on securities
held, equity swaps and the purchase and sale of currency futures and forward
foreign currency exchange contracts. Transactions in derivative instruments
involve a risk of loss or depreciation due to: unanticipated adverse changes in
securities prices, interest rates, indices, the other financial instruments'
prices or currency exchange rates; 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
2
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
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 Code limit the use of derivative instruments. The Fund has
claimed an exclusion from the definition of a Commodity Pool Operator ("CPO")
under the Commodity Exchange Act and 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.
A put option on a security may be written only if the Adviser intends to acquire
the security. Call options written on securities will be covered by ownership of
the securities subject to the call option or an offsetting option.
CORPORATE BONDS AND OTHER DEBT SECURITIES
The Fund may invest in corporate bonds including below investment grade quality,
commonly known as "junk bonds" ("Non-Investment Grade Bonds"). Investments in
Non-Investment Grade Bonds generally provide greater income and increased
opportunity for capital appreciation than investments in higher quality
securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and
bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and interest
payments. Debt securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of higher
quality securities.
Non-Investment Grade Bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in Non-Investment Grade Bond prices because the
advent of recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of Non-Investment Grade
Bonds defaults, in addition to risking payment of all or a portion of interest
and principal, the Fund may incur additional expenses to seek recovery. In the
case of Non-Investment Grade Bonds structured as zero-coupon, step-up or
payment-in-kind securities, market prices of such securities will normally be
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest currently and in cash. Eaton
Vance seeks to reduce these risks through diversification, credit analysis and
attention to current developments in both the economy and financial markets.
The secondary market on which Non-Investment Grade Bonds are traded may be less
liquid than the market for investment grade securities. Less liquidity in the
secondary trading market could adversely affect the net asset value of the
shares. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of Non-Investment
Grade Bonds, especially in a thinly traded market. When secondary markets for
Non-Investment Grade Bonds are less liquid than the market for investment grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is no reliable, objective data available.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly and the Fund may have greater
difficulty selling these securities. The Fund will be more dependent on Eaton
Vance's research and analysis when investing in Non-Investment Grade Bonds.
Eaton Vance seeks to minimize the risks of investing in all securities through
in-depth credit analysis and attention to current developments in interest rate
and market conditions.
A general description of the ratings of securities by S&P, Fitch and Moody's is
set forth in Appendix A to this SAI. Such ratings represent these rating
organizations' opinions as to the quality of the securities they rate. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, debt obligations with the same maturity, coupon and
rating may have different yields while obligations with the same maturity and
coupon may have the same yield. For these reasons, the use of credit ratings as
the sole method of evaluating Non-Investment Grade Bonds can involve certain
risks. For example, credit ratings evaluate the safety or principal and interest
payments, not the market value risk of Non-Investment Grade Bonds. Also, credit
rating agencies may fail to change credit ratings in a timely fashion to reflect
events since the security was last rated. Eaton Vance does not rely solely on
credit ratings when selecting securities for the Fund, and develops its own
independent analysis of issuer credit quality.
3
In the event that a rating agency or Eaton Vance downgrades its assessment of
the credit characteristics of a particular issue, the Fund is not required to
dispose of such security. In determining whether to retain or sell a downgraded
security, Eaton Vance may consider such factors as Eaton Vance's assessment of
the credit quality of the issuer of such security, the price at which such
security could be sold and the rating, if any, assigned to such security by
other rating agencies. However, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of high quality
debt securities.
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.
The ability to use short sales against-the-box, certain equity swaps and certain
equity collar strategies 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 within thirty days of the end of the Fund's
taxable year and the underlying appreciated securities position is held unhedged
for at least the next sixty days after the hedging transaction is closed.
Failure to meet these requirements would trigger the recognition of gain on the
underlying appreciated securities position under the federal tax laws applicable
to constructive sales.
Purchasing securities to close out the short position can itself cause the price
of the securities to rise further, thereby exacerbating the loss. Short-selling
exposes the Fund to unlimited risk with respect to that security due to the lack
of an upper limit on the price to which an instrument can rise. Although the
Fund reserves the right to utilize short sales, the Adviser is under no
obligation to utilize short sales at all.
SECURITIES LENDING
As described in the Prospectus, the Fund may lend a portion of its portfolio
securities to broker-dealers or other institutional borrowers. Loans will be
made only to organizations whose credit quality or claims paying ability is
considered by the Adviser to be at least investment grade. All securities loans
will be collateralized on a continuous basis by cash or U.S. government
securities having a value, marked to market daily, of at least 100% of the
market value of the loaned securities. The Fund may receive loan fees in
connection with loans that are collateralized by securities or on loans of
securities for which there is special demand. The Fund may also seek to earn
income on securities loans by reinvesting cash collateral in securities
consistent with its investment objective and policies, seeking to invest at
rates that are higher than the "rebate" rate that it normally will pay to the
borrower with respect to such cash collateral. Any such reinvestment will be
subject to the investment policies, restrictions and risk considerations
described in the Prospectus and in this SAI. [Under current Rating Agencies
guidelines in connection with the Auction Preferred Shares, securities lending
by the Fund may not exceed 10% of the Fund's total gross assets. Such limit is
subject to change by the Rating Agencies.]
Securities loans may result in delays in recovering, or a failure of the
borrower to return, the loaned securities. The defaulting borrower ordinarily
would be liable to the Fund for any losses resulting from such delays or
failures, and the collateral provided in connection with the loan normally would
also be available for that purpose. Securities loans normally may be terminated
by either the Fund or the borrower at any time. Upon termination and the return
of the loaned securities, the Fund would be required to return the related cash
or securities collateral to the borrower and it may be required to liquidate
longer term portfolio securities in order to do so. To the extent that such
securities have decreased in value, this may result in the Fund realizing a loss
at a time when it would not otherwise do so. The Fund also may incur losses if
it is unable to reinvest cash collateral at rates higher than applicable rebate
rates paid to borrowers and related administrative costs. These risks are
substantially the same as those incurred through investment leverage, and will
be subject to the investment policies, restrictions and risk considerations
described in the Prospectus and in this SAI.
The Fund will receive amounts equivalent to any interest or other distributions
paid on securities while they are on loan, and the Fund will not be entitled to
exercise voting or other beneficial rights on loaned securities. The Fund will
exercise its right to terminate loans and thereby regain these rights whenever
the Adviser considers it to be in the Fund's interest to do so, taking into
account the related loss of reinvestment income and other factors.
TEMPORARY INVESTMENTS
The Fund may invest temporarily in cash or cash equivalents. Cash equivalents
are highly liquid, short-term securities such as commercial paper, time
deposits, certificates of deposit, short-term notes and short-term U.S.
government obligations.
4
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Fund present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
present or represented at the meeting or (b) more than 50% of outstanding shares
of the Fund. As a matter of fundamental policy the Fund may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act currently requires that any
indebtedness incurred by a closed-end investment company have an asset
coverage of at least 300%;
(2) Issue senior securities, as defined in the 1940 Act, other than (a)
preferred shares which immediately after issuance will have asset coverage
of at least 200%, (b) indebtedness which immediately after issuance will
have asset coverage of at least 300%, or (c) the borrowings permitted by
investment restriction (1) above. The 1940 Act currently defines "senior
security" as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness and any stock of a class
having priority over any other class as to distribution of assets or payment
of dividends. Debt and equity securities issued by a closed-end investment
company meeting the foregoing asset coverage provisions are excluded from
the general 1940 Act prohibition on the issuance of senior securities;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of investment assets with the proceeds of a
permitted borrowing or securities offering will not be deemed to be the
purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as it may
technically be deemed to be an underwriter under the Securities Act of 1933,
as amended, in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell securities
which are secured by interests in real estate and securities of issuers
which invest or deal in real estate. The Fund reserves the freedom of action
to hold and to sell real estate acquired as a result of the ownership of
securities;
(7) Purchase or sell physical commodities or contracts for the purchase or sale
of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices, currencies,
interest or other financial instruments;
(8) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of a single issuer or purchase more than 10% of the
outstanding voting securities of a single issuer, except obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities and
except securities of other investment companies; and
(9) Invest 25% or more of its total assets in any single industry or group of
industries (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
The Fund may borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund
securities. The 1940 Act currently requires that the Fund have 300% asset
coverage with respect to all borrowings other than temporary borrowings.
For purposes of construing restriction (9), securities of the U.S. government,
its agencies, or instrumentalities are not considered to represent industries.
The Fund reserves the right to invest 25% or more of its assets in each of the
energy, raw materials, real estate, utilities and financial services sectors.
For purposes of construing restriction (9), a large economic or market sector
shall not be construed as a group of industries.
The Fund has adopted the following nonfundamental investment policy which may be
changed by the Board without approval of the Fund's shareholders. As a matter of
nonfundamental policy, the Fund may not make short sales of securities or
maintain a short position, unless at all times when a short position is open it
either owns an equal amount of such securities or owns securities convertible
5
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short.
Upon the Board's approval, the Fund may invest more than 10% of its total assets
in one or more other management investment companies (or may invest in
affiliated investment companies) to the extent permitted by the 1940 Act and
rules thereunder.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other assets or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's acquisition of such security or
asset. Accordingly, any later increase or decrease resulting from a change in
values, assets or other circumstances or any subsequent rating change made by a
rating service (or as determined by the Adviser if the security is not rated by
a rating agency) will not compel the Fund to dispose of such security or other
asset. Notwithstanding the foregoing, the Fund must always be in compliance with
the borrowing policies set forth above.
6
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.
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX OTHER
NAME AND POSITION(S) AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
James B. Hawkes Trustee(3) and Since 3/15/04 Chairman, President and 196 Director of EVC
11/9/41 Vice President Three Years Chief Executive Officer of
BMR, Eaton Vance, EVC and
EV; Director of EV; Vice
President and Director of
EVD. Trustee and/or officer
of 196 registered investment
companies in the Eaton Vance
Fund Complex. Mr. Hawkes is
an interested person because
of his positions with BMR,
Eaton Vance, EVC and EV,
which are affiliates of the
Fund.
NON-INTERESTED TRUSTEES
Samuel L. Hayes, III Trustee(2) Since 3/15/04 Jacob H. Schiff 196 Director of
(A) 2/23/35 Three Years Professor of Investment Tiffany & Co.
Banking Emeritus, Harvard (specialty
University Graduate School retailer) and
of Business Administration. Telect, Inc.
(telecommunication
services company)
William H. Park Trustee(3) Since 3/15/04 President and Chief 193 None
9/19/47 Three Years Executive Officer, Prizm
Capital Management, LLC
(investment management firm)
(since 2002). Executive Vice
President and Chief
Financial Officer, United
Asset Management Corporation
(a holding company owning
institutional investment
management firms)
(1982-2001).
7
TRUSTEES AND OFFICERS
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX OTHER
NAME AND POSITION(S) AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
-----------------------------------------------------------------------------------------------------------------------------------
Ronald A. Pearlman Trustee(4) Since 3/15/04 Professor of Law, Georgetown 193 None
7/10/40 Three Years University Law Center (since
1999). Tax Partner, Covington
& Burling, Washington, DC
(1991- 2000).
Norton H. Reamer Trustee(4) Since 3/15/04 President and Chief Executive 196 None
(A) 9/21/35 Three Years Officer of Asset Management
Finance Corp. (a specialty
finance company serving the
investment management
industry) (since October
2003). President, Unicorn
Corporation (an investment and
financial advisory services
company) (since September
2000). Formerly, Chairman,
Hellman, Jordan Management
Co., Inc. (an investment
management company)
(2000-2003). Formerly,
Advisory Director of Berkshire
Capital Corporation
(investment banking firm)
(2002-2003). Formerly,
Chairman of the Board, United
Asset Management Corporation
(a holding company owning
institutional investment
management firms) and
Chairman, President and
Director, UAM Funds (mutual
funds) (1980-2000).
Lynn A. Stout Trustee(4) Since 3/15/04 Professor of Law, University 196 None
9/14/57 Three Years of California at Los Angeles
School of Law (since July
2001). Formerly, Professor
of Law, Georgetown University
Law Center.
____________
(1) Includes both master and feeder funds in master-feeder structure.
(2) Class I Trustees whose term expires in 2005.
(3) Class II Trustees whose term expires in 2006.
(4) Class III Trustees whose term expires in 2007.
8
TRUSTEES AND OFFICERS
------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF OFFICE
POSITION(S) AND LENGTH
NAME AND DATE OF BIRTH WITH THE FUND OF SERVICE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
-------------------------- ------------- -------------- --------------------------------------------
Duncan W. Richardson President and Since 2/27/04 Senior Vice President and Chief Equity Investment Officer
10/26/57 Chief Executive of Eaton Vance and BMR. Officer of 44 registered Officer
investment companies managed by Eaton Vance or BMR.
Thomas E. Faust Jr. Vice President Since 2/27/04 Executive Vice President of Eaton Vance, BMR, EVC and EV;
5/31/58 Chief Investment Officer ofEaton Vance and BMR and
Director of EVC. Chief Executive Officer of Belair Capital
Fund LLC, Belcrest Capital Fund LLC, Belmar Capital Fund
LLC; Belport Capital Fund LLC and Belrose Capital Fund LLC
(private investment companies sponsored by Eaton Vance).
Officer of 55 registered investment companies managed by
Eaton Vance or BMR.
Thomas H. Luster Vice President Since 2/27/04 Vice President of Eaton Vance or BMR. Officer of 15
4/8/62 registered investment companies managed by Eaton Vance or
BMR.
Michael R. Mach Vice President Since 2/27/04 Vice President of Eaton Vance and BMR. Previously,
7/15/47 Managing Director and Senior Analyst for Robertson
Stephens (1998-1999). Officer of 26 registered investment
companies managed by Eaton Vance or BMR.
Judith A. Saryan Vice President Since 2/27/04 Vice President of Eaton Vance and BMR. Previously,
8/21/54 Portfolio Manager and Equity Analyst for State Street
Global Advisors (1980-1999). Officer of 25 registered
investment companies managed by Eaton Vance or BMR.
James L. O'Connor Treasurer Since 2/27/04 Vice President of BMR, Eaton Vance and EVD. Officer of 118
4/1/45 registered investment companies managed by Eaton Vance or
BMR.
Alan R. Dynner Secretary Since 2/27/04 Vice President, Secretary and Chief Legal Officer of BMR,
10/10/40 Eaton Vance, EVD, EV and EVC. Officer of 196 registered
investment companies managed by Eaton Vance or BMR.
The Board of Trustees of the Fund has several standing Committees, including the Governance Committee, the Audit Committee, and the
Special Committee. Each such Committee is comprised of only noninterested Trustees.
The Governance Committee of the Board of Trustees of the Fund is comprised of the noninterested Trustees. Ms. Stout currently serves
as chairperson of the Governance Committee. The purpose of the Governance Committee is to consider, evaluate and make
recommendations to the Board of Trustees with respect to the structure, membership and operation of the Board of Trustees and the
Committees thereof, including the nomination and selection of noninterested Trustees and the compensation of noninterested Trustees.
The Governance Committee will, when a vacancy exists or is anticipated, consider any nominee for noninterested Trustee recommended
by a shareholder if such recommendation is submitted to the Governance Committee, contains sufficient background information
concerning the candidate and is received in a sufficiently timely manner.
8
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
Messrs. Reamer (Chairman), Hayes, Park and Ms. Stout are members of the Audit
Committee of the Board of Trustees of the Fund. The Board of Trustees has
designated Messrs. Hayes, Park and Reamer, each a noninterested Trustee, as
audit committee financial experts. The Audit Committee's functions include (i)
overseeing the Fund's accounting and financial reporting policies and practices,
its internal audit controls and procedures, the internal controls of certain
service providers, as appropriate, and the quality and integrity of the Fund's
financial statements and independent audit thereof; (ii) approving the
selection, evaluation and, when appropriate, replacement of the Fund's
independent auditors; and (iii) evaluating the qualification, independence, and
performance of the Fund's independent auditors.
Messrs. Hayes (Chairman), Park, Pearlman, Reamer and Ms. Stout are currently
members of the Special Committee of the Board of Trustees of the Fund. The
purposes of the Special Committee are to consider, evaluate and make
recommendations to the Board of Trustees concerning the following matters: (i)
contractual arrangements with each service provider to the Fund, including
advisory, sub-advisory, transfer agency, custodial and fund accounting,
distribution services and administrative services; (ii) any and all other
matters in which any of the Fund service providers (including Eaton Vance or any
affiliated entity thereof) has an actual or potential conflict of interest with
the interests of the Fund, or investors therein; and (iii) any other matter
appropriate for review by the noninterested Trustees, unless the matter is
within the responsibilities of the Audit Committee or the Governance Committee
of the Fund. In addition, the Special Committee has established a Contract
Review Subcommittee whose duties and powers include evaluating proposed new or
amended or existing contracts for services provided to the Fund and making
recommendations to the Board of Trustees with respect to all matters involving
an actual or potential conflict of interest between the interests of Eaton Vance
or any of its affiliated companies, on the one hand, and the Fund on the other
hand. The members of the Contract Review Subcommittee are Messrs. Hayes
(Chairman), Park, Pearlman and Reamer.
As of the date of this SAI, the Governance Committee has not met, the Audit
Committee and Special Committee have each held one meeting and the Contract
Review Subcommittee has held two meetings.
When considering approval of the Advisory Agreement between the Fund and the
Adviser, the Contract Review Sub-Committee of the Special Committee considered,
among other things, the following:
o A report comparing the fees and expenses of the Fund and certain
profitability analyses prepared by Eaton Vance;
o Information on the relevant peer group(s) of funds;
o The economic outlook and the general investment outlook in the relevant
investment markets;
o Eaton Vance's results and financial condition and the overall
organization of the Adviser;
o Arrangements regarding the distribution of Fund shares;
o The procedures used to determine the fair value of the Fund's assets;
o The allocation of brokerage, including allocations to soft dollar
brokerage and allocations to firms that sell Eaton Vance fund shares;
o Eaton Vance's management of the relationship with the custodian,
subcustodians and fund accountants;
o The resources devoted to Eaton Vance's compliance efforts undertaken on
behalf of the funds it manages and the record of compliance with the
investment policies and restrictions and with policies on personal
securities transactions;
o The quality, nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;
o Investment management staffing;
10
o Operating expenses (including transfer agency expenses) to be paid to
third parties; and
o Information to be provided to investors, including the Fund's
shareholders.
In evaluating the Advisory Agreement between the Fund and Eaton Vance, the
Contract Review Subcommittee of the Special Committee reviewed material
furnished by Eaton Vance at the initial Board meeting held on March 15, 2004,
including the above referenced considerations and information relating to the
education, experience and number of investment professionals and other personnel
who would provide services under the Advisory Agreement. The Contract Review
Subcommittee also took into account the time and attention to be devoted by
senior management to the Fund and the other funds in the complex. The Contract
Review Subcommittee evaluated the level of skill required to manage the Fund and
concluded that the human resources available at Eaton Vance were appropriate to
fulfill effectively the duties of the Adviser on behalf of the Fund. The
Contract Review Subcommittee also considered the business reputation of the
Adviser, its financial resources and professional liability insurance coverage
and concluded that Eaton Vance would be able to meet any reasonably foreseeable
obligations under the Advisory Agreement.
The Contract Review Subcommittee of the Special Committee received information
concerning the investment philosophy and investment process to be applied by
Eaton Vance in managing the Fund. In this regard, the Contract Review
Subcommittee considered Eaton Vance's in-house research capabilities as well as
other resources available to Eaton Vance personnel, including research services
that may be available to Eaton Vance as a result of securities transactions
effected for the Fund and other investment advisory clients. The Contract Review
Subcommittee concluded that Eaton Vance's investment process, research
capabilities and philosophy were well suited to the Fund, given the Fund's
investment objective and policies.
In addition to the factors mentioned above, the Contract Review Subcommittee of
the Special Committee also reviewed the level of the Adviser's profits in
respect of the management of the Eaton Vance funds, including the Fund. The
Contract Review Subcommittee considered the profits realized by Eaton Vance and
its affiliates in connection with the operation of the Fund. The Contract Review
Subcommittee also considered profit margins of Eaton Vance in comparison with
available industry data.
The Contract Review Subcommittee of the Special Committee did not consider any
single factor as controlling in determining whether or not to approve the
Advisory Agreement. Nor are the items described herein all encompassing of the
matters considered by the Contract Review Subcommittee. In assessing the
information provided by Eaton Vance and its affiliates, the Contract Review
Subcommittee also took into consideration the benefits to shareholders of
investing in a fund that is part of a large family of funds which provides a
large variety of shareholder services.
Based on its consideration of all factors that it deemed material and assisted
by the advice of its independent counsel, the Contract Review Subcommittee of
the Special Committee concluded that the approval of the Advisory Agreement,
including the fee structure (described herein) is in the interests of
shareholders.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the
Trustee as of December 31, 2003.
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 TRUSTEE
James B. Hawkes.................. None over $100,000
NONINTERESTED TRUSTEES
Samuel L. Hayes, III............. None over $100,000
William H. Park.................. None over $100,000
Ronald A. Pearlman............... None over $100,000
Norton H. Reamer................. None over $100,000
Lynn A. Stout.................... None $50,001--$100,000
As of December 31, 2003, no noninterested Trustee or any of their immediate
family members owned beneficially or of record any class of securities of EVC,
EVD or any person controlling, controlled by or under common control with EVC or
EVD.
During the calendar years ended December 31, 2002 and December 31, 2003, no
noninterested Trustee (or their immediate family members) had:
11
1. Any direct or indirect interest in Eaton Vance, EVC, EVD or any person
controlling, controlled by or under common control with EVC or EVD;
2. Any direct or indirect material interest in any transaction or series of
similar transactions with (i) the Trust or any Fund; (ii) another fund
managed by EVC, distributed by EVD or a person controlling, controlled by or
under common control with EVC or EVD; (iii) EVC or EVD; (iv) a person
controlling, controlled by or under common control with EVC or EVD; or (v) an
officer of any of the above; or
3. Any direct or indirect relationship with (i) the Trust or any Fund; (ii)
another fund managed by EVC, distributed by EVD or a person controlling,
controlled by or under common control with EVC or EVD; (iii) EVC or EVD; (iv)
a person controlling, controlled by or under common control with EVC or EVD;
or (v) an officer of any of the above.
During the calendar years ended December 31, 2002 and December 31, 2003, no
officer of EVC, EVD or any person controlling, controlled by or under common
control with EVC or EVD served on the Board of Directors of a company where a
noninterested Trustee of the Fund or any of their immediate family members
served as an officer.
Trustees of the Fund who are not affiliated with the Adviser may elect to defer
receipt of all or a percentage of their annual fees in accordance with the terms
of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Fund in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Fund's assets, liabilities, and net income per share, and will not obligate the
Fund to retain the services of any Trustee or obligate the Fund to pay any
particular level of compensation to the Trustee. The Fund does not have a
retirement plan for its Trustees.
The fees and expenses of the Trustees of the Fund are paid by the Fund. (A
Trustee of the Fund who is a member of the Eaton Vance organization receives no
compensation from the Fund.) For the Fund's fiscal year ending March 31, 2005,
it is anticipated that the Trustees of the Fund will earn the following
compensation in their capacities as Trustees. For the year ended December 31,
2003, the Trustees earned the compensation set forth below in their capacities
as Trustees from the funds in the Eaton Vance fund complex(1).
SAMUEL L. WILLIAM H. RONALD A. NORTON H. LYNN A.
SOURCE OF COMPENSATION HAYES, III PARK PEARLMAN REAMER STOUT<
------------------------------- ---------- ---------- --------- --------- -------
Fund*.......................... $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Fund Complex................... $ 183,750 $ 98,333(3)(4) $ 85,000(4) $ 170,830 $ 167,500(2)
____________
* Estimated
(1) As of March 15, 2004, the Eaton Vance fund complex consisted of 197
registered investment companies or series thereof.
(2) Includes $8,417 of deferred compensation.
(3) Includes $42,830 of deferred compensation.
(4) Messrs. Park and Pearlman became Trustees in 2003.
PROXY VOTING POLICY
The Fund is subject to the Eaton Vance Funds Proxy Voting Policy and Procedures
(the "Fund Policy"), pursuant to which the Trustees have delegated proxy voting
responsibility to the Adviser and adopted the Adviser's proxy voting policies
and procedures (the "Policies") which are described below. The Trustees will
review the Fund's proxy voting records from time to time and will annually
consider approving the Policies for the upcoming year. In the event that a
conflict of interest arises between the Fund's shareholders and the Adviser or
any of its affiliates or any affiliate of the Fund, the Adviser will generally
refrain from voting the proxies related to the companies giving rise to such
conflict until it consults with the Board of the Fund, except as contemplated
under the Fund Policy. The Board's Special Committee will instruct the Adviser
on the appropriate course of action.
The Policies are designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The Adviser will generally support company management on proposals
relating to environmental and social policy issues, on matters regarding the
state of organization of the company and routine matters related to corporate
12
administration which are not expected to have a significant economic impact on
the company or its shareholders. On all other matters, the Adviser will review
each matter on a case-by-case basis and reserves the right to deviate from the
Policies' guidelines when it believes the situation warrants such a deviation.
The Policies include voting guidelines for matters relating to, among other
things, the election of directors, approval of independent auditors, executive
compensation, corporate structure and anti-takeover defenses. The Adviser may
abstain from voting from time to time where it determines that the costs
associated with voting a proxy outweigh the benefits derived from exercising the
right to vote.
In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Fund's shareholders and the Adviser or any of its
affiliates or any affiliate of the Fund by maintaining a list of significant
existing and prospective corporate clients. The Adviser's personnel responsible
for reviewing and voting proxies on behalf of the Fund will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the Adviser identified in the Policies. Such
members of senior management will determine if a conflict exists. If a conflict
does exist, the proxy will either be voted strictly in accordance with the
Policies or the Adviser will seek instruction on how to vote from the Special
Committee. Effective August 31, 2004, information on how the Fund voted proxies
relating to portfolio securities during the 12 month period ended June 30, 2004
will be available (1) without charge, upon request, by calling 1-800-262-1122,
and (2) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Investment advisory and other services
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and of investment companies
since 1931. They maintain a large staff of experienced fixed-income, senior loan
and equity investment professionals to service the needs of their clients. The
equity group covers stocks ranging from blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds, and
individual and various institutional accounts. The fixed-income group focuses on
all kinds of taxable investment-grade and high-yield securities, tax-exempt
investment-grade and high-yield securities, and U.S. government securities. The
senior loan group focuses on senior floating rate loans, unsecured loans and
other floating rate debt securities such as notes, bonds and asset backed
securities, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by Eaton Vance under the Advisory Agreement or
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 to March 15, 2006
and from year to year so long as such continuance is approved at least annually
(i) by the vote of a majority of the noninterested Trustees of the Fund or of
the Adviser cast in person at a meeting specifically called for the purpose of
voting on such approval and (ii) by the Board of Trustees of the 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.
Eaton Vance is a business trust organized under Massachusetts law. EV serves as
trustee of Eaton Vance. Eaton Vance and EV are subsidiaries of EVC, a Maryland
corporation and publicly-held holding company. EVC through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Directors of EVC are James B. Hawkes, John G. L.
Cabot, Thomas E. Faust Jr., Leo I. Higdon, Jr., John M. Nelson, Vincent M.
13
O'Reilly and Ralph Z. Sorenson. All shares of the outstanding Voting Common
Stock of EVC are deposited in a voting trust, the voting trustees of which are
Messrs. James B. Hawkes, Jeffrey P. Beale, Alan R. Dynner, Thomas E. Faust Jr.,
Thomas J. Fetter, Scott H. Page, Duncan W. Richardson, William M. Steul, Payson
F. Swaffield, Michael W. Weilheimer and Wharton P. Whitaker (all of whom are
officers of Eaton Vance). The voting trustees have unrestricted voting rights
for the election of Directors of EVC. All of the outstanding voting trust
receipts issued under said voting trust are owned by certain of the officers of
BMR and Eaton Vance who are also officers, or officers and Directors of EVC and
EV. As indicated under "Trustees and officers", all of the officers of the Fund
(as well as Mr. Hawkes who is also a Trustee) hold positions in the Eaton Vance
organization.
EVC and its affiliates and their officers and employees from time to time have
transactions with various banks, including the custodian of the Fund, IBT. It is
Eaton Vance's opinion that the terms and conditions of such transactions were
not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such banks.
Code of ethics
The Adviser and the Fund have adopted a Code of Ethics governing personal
securities transactions. Under the Code of Ethics, Eaton Vance 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 Code 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 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. Eaton Vance will furnish to the Fund investment
advice and provide related office facilities and personnel for servicing the
investments of the Fund. Eaton Vance will compensate all Trustees and officers
of the Fund who are members of the Eaton Vance organization and who render
investment services to the Fund, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Fund.
ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the
business affairs of the Fund, subject to the supervision of the Fund's Board of
Trustees. Eaton Vance will furnish to the Fund all office facilities, equipment
and personnel for administering the affairs of the Fund. Eaton Vance will
compensate all Trustees and officers of the Fund who are members of the Eaton
Vance organization and who render executive and administrative services to the
Fund, and will also compensate all other Eaton Vance personnel who perform
management and administrative services for the Fund. Eaton Vance's
administrative services include recordkeeping, preparation and filing of
documents required to comply with federal and state securities laws, supervising
the activities of the Fund's custodian and transfer agent, providing assistance
in connection with the Trustees' and shareholders' meetings, providing services
in connection with repurchase offers, if any, and other administrative services
necessary to conduct the Fund's business.
Determination of net asset value
The net asset value per share of the Fund is determined no less frequently than
daily, on each day that the New York Stock Exchange (the "Exchange") is open for
trading, as of the close of regular trading on the Exchange (normally 4:00 p.m.
New York time). The Fund's net asset value per share is determined by IBT, in
the manner authorized by the Trustees of the Fund. Net asset value is computed
by dividing the value of the Fund's total assets, less its liabilities by the
number of shares outstanding.
The Trustees of the Fund have established the following procedures for fair
valuation of the Fund's assets under normal market conditions. Marketable
securities listed on foreign or U.S. securities exchanges generally are valued
at closing sale prices or, if there were no sales, at the mean between the
closing bid and asked prices therefor on the exchange where such securities are
principally traded (such prices may not be used, however, where an active
over-the-counter market in an exchange listed security better reflects current
market value). Marketable securities listed in the NASDAQ National Market System
are valued at the NASDAQ official closing price. Unlisted or listed securities
for which closing sale prices are not available are valued at the mean between
the latest bid and asked prices. An option is valued at the last sale price as
quoted on the principal exchange or board of trade on which such option or
contract is traded, or in the absence of a sale, at the mean between the last
bid and asked prices.
14
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 the mean between the bid and asked prices provided by dealers.
Financial futures contracts listed on commodity exchanges and exchange-traded
options are valued at closing settlement prices. Short-term obligations having
remaining maturities of less than 60 days are valued at amortized cost, which
approximates value, unless the Trustees determine that under particular
circumstances such method does not result in fair value. As authorized by the
Trustees, debt securities (other than short-term obligations) may be valued on
the basis of valuations furnished by a pricing service 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 fair valuation service in
making any such adjustment. Foreign securities and currency 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 the Adviser. The
Adviser is also responsible for the execution of transactions for all other
accounts managed by it. The Adviser places the portfolio security transactions
of the 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
15
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.
Fixed income obligations, which may be purchased and sold by the Fund, are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through broker-dealers or banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuers of
such obligations. The Fund may also purchase fixed income and other securities
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters.
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 third parties with which such broker-dealers have arrangements. Consistent
with this practice, the Adviser receives Research Services from many
broker-dealer firms with which the Adviser places the Fund's transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic, political, business
and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, proxy voting data and analysis
services, technical analysis of various aspects of the securities market,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, databases and services. Any particular Research
Service obtained through a broker-dealer may be used by the Adviser in
connection with client accounts other than those accounts which pay commissions
to such broker-dealer. Any such Research Service may be broadly useful and of
value to the Adviser in rendering investment advisory services to all or a
significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may be
useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory fee
paid by the Fund is not reduced because the Adviser receives such Research
Services. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.
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. The
investment companies sponsored by the Adviser or its affiliates may allocate
trades in such offerings to acquire information relating to the performance,
fees and expenses of such companies and other mutual funds, which information is
used by the Trustees of such companies to fulfill their responsibility to
oversee the quality of the services provided by various entities, including the
Adviser, to such companies. Such companies may also pay cash for such
information.
16
Subject to the requirement that the Adviser shall use its best efforts to seek
and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by the Adviser.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc. ("NASD"), which rule provides that no firm which is a
member of the NASD shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Securities considered as investments for the 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 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 Internal Revenue Code of 1986, as amended (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 and long-term capital gains (after reduction by any
available capital loss carryforwards) in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status and to avoid paying any
federal income or excise tax. To the extent it qualifies for treatment as a RIC
and satisfies the above-mentioned distribution requirements, the Fund will not
be subject to federal income tax on income paid to its shareholders in the form
of dividends or capital gain distributions.
In order to avoid incurring a 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 and (ii) 98% of its capital gain net income
(which is the excess of its realized net long-term capital gain over its
realized net short-term capital loss), generally computed on the basis of the
one-year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, plus 100% of any ordinary income and
capital gain net income from the prior year (as previously computed) that were
not paid out during such year and on which the Fund paid no federal income tax.
Under current law, provided that the Fund qualifies as a RIC for federal income
tax purposes, the Fund should not be liable for any income, corporate excise or
franchise tax in The Commonwealth of Massachusetts.
If the Fund does not qualify as a RIC for any taxable year, the Fund's taxable
income will be subject to corporate income taxes, and all distributions from
earnings and profits, including distributions of net capital gain (if any), will
be taxable to the shareholder as ordinary income. 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.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax
Act"), certain income distributions paid by the Fund (whether paid in cash or
reinvested in additional Fund Shares) to individual taxpayers are taxed at rates
applicable to net long-term capital gains (15%, or 5% for individuals in the 10%
or 15% tax brackets). This tax treatment applies only if certain holding period
requirements and other requirements are satisfied by the Shareholder and the
dividends are attributable to qualified dividend income received by the Fund
itself. For this purpose, "qualified dividend income" means dividends received
by the Fund from United States corporations and "qualified foreign
17
corporations," provided that the Fund satisfies certain holding period and other
requirements in respect of the stock of such corporations. In the case of
securities lending transactions, payments in lieu of dividends do not constitute
qualified dividend income. Dividends received by the Fund from REITs are
qualified dividend income eligible for this lower tax rate only in limited
circumstances. These special rules relating to the taxation of ordinary income
dividends paid by RICs generally apply to taxable years beginning after December
31, 2002 and beginning before January 1, 2009. Thereafter, the Fund's dividends,
other than capital gain dividends, will be fully taxable at ordinary income tax
rates unless further Congressional action is taken. There can be no assurance
that a portion of the Fund's income distributions will not be fully taxable as
ordinary income.
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, which 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 52 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
American Depositary Receipt in respect of such stock, is considered readily
tradable on an established securities market in the Unites States 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 Nasdaq Stock Market.
A qualified foreign corporation does not include any foreign corporation which
for the taxable year of the corporation in which the dividend is paid, or the
preceding taxable year, is a foreign personal holding company, a foreign
investment company or a passive foreign investment company.
The TAX ACT, in amending certain Code provisions to provide that dividends paid
by a RIC would be treated as "qualified dividend income" to the extent that such
dividends were derived from qualified dividend income received by the RIC,
failed to make certain conforming amendments to other provisions of the Code. As
a result, the Code contains certain contradictory provisions creating some
ambiguity as to whether the Code authorizes the Fund to designate in certain
circumstances as qualified dividend income that portion of its dividends that is
derived from dividends it has received from qualified foreign corporations. The
Fund believes, however, that the intention of the Tax Act was to authorize the
Fund's designation of such dividends as qualified dividend income. Further,
bills proposing to make technical corrections to the Tax Act (the "Technical
Corrections Bills") have been filed in both the Senate and the House of
Representatives, and these Technical Corrections Bills would amend the Code to
make it clear that a RIC's dividends can be designated qualified dividend income
to the extent that they are derived from dividends received from qualified
foreign corporations. The Fund cannot predict whether or in what form the
Technical Corrections Bills will be enacted or, if enacted, when that will
occur. Nevertheless, the Treasury Department and the IRS have announced that
they will apply the provision of the Technical Corrections Bill relating to
qualified dividend income in advance of the enactment of such legislation.
A dividend (whether paid in cash or reinvested in additional Fund shares) will
not be treated as qualified dividend income (whether received by the Fund or
paid by the Fund to a shareholder) if (1) the dividend is received with respect
to any share held for fewer than 61 days during the 120-day period beginning on
the date which is 60 days before the date on which such share becomes ex-
dividend with respect to such dividend (the 120-day period would be expanded to
a 121-day period under the Technical Corrections Bills), (2) to the extent that
the shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest.
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.
The Fund's investment in zero coupon, payment in kind and certain other
securities will cause it to realize income prior to the receipt of cash payments
with respect to these securities. Such income will be accrued daily by the Fund
and, in order to avoid a tax payable by the Fund, the Fund may be required to
liquidate securities that it might otherwise have continued to hold in order to
generate cash so that the Fund may make required distributions to its
shareholders.
Investments in lower rated or unrated securities may present special tax issues
for the Fund to the extent that the issuers of these securities default on their
obligations pertaining thereto. The Code is not entirely clear regarding the
federal income tax consequences of the Fund's taking certain positions in
connection with ownership of such distressed securities.
18
Any recognized gain or income attributable to market discount on long-term debt
obligations (i.e., obligations with a term of more than one year except to the
extent of a portion of the discount attributable to original issue discount)
purchased by the Fund is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if purchased after its
original issue at a price less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis exclusion.
The Fund's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of securities held by the Fund, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund may be required to limit its activities
in options and futures contracts in order to enable it to maintain its RIC
status.
Any loss realized upon the sale or exchange of Fund shares with a holding period
of six months or less will be treated as a long-term capital loss to the extent
of any capital gain distributions received with respect to such shares. In
addition, all or a portion of a loss realized on a sale or other disposition of
Fund shares may be disallowed under "wash sale" rules to the extent the
shareholder acquires other shares of the same Fund (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date. Any
disallowed loss will result in an adjustment to the shareholder's tax basis in
some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Fund (or of another fund) pursuant to
the reinvestment or exchange privilege. Any disregarded amounts will result in
an adjustment to the shareholder's tax basis in some or all of any other shares
acquired.
Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses. Certain distributions declared in October, November or December and paid
in the following January will be taxed to shareholders as if received on
December 31 of the year in which they were declared. In addition, certain other
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid by the Fund (except for purposes of the non-deductible
4% federal excise tax) during such taxable year. In such case, shareholders will
be treated as having received such dividends in the taxable year in which the
distributions were actually made.
Dividends and interest received, and gains realized, by the Fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the return on its securities. Tax conventions between certain countries
and the United States, however, may reduce or eliminate foreign taxes, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign issuers, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service (the "IRS") that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder (1) would be required to include in gross
income, and treat as paid by such shareholder, a proportionate share of those
taxes, (2) would be required to treat such share of those taxes and of any
dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as such shareholder's own income from those sources, and (3)
could either deduct the foreign taxes deemed paid in computing taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of foreign taxes paid
and the income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election. An individual who has no more than
$300 ($600 for married persons filing jointly) of creditable foreign taxes
included on Forms 1099 and all of whose foreign source income is "qualified
passive income" may elect each year to be exempt from the complicated foreign
tax credit limitation, in which event such individual would be able to claim a
foreign tax credit without needing to file the detailed Form 1116 that otherwise
is required.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in
19
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain from disposition of
that stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain--which it
may have to distribute to satisfy the distribution requirement and avoid
imposition of the excise tax--even if the QEF does not distribute those earnings
and gain to the Fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain of its requirements.
The Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
the Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains (reduced by any prior deductions) with respect to that
stock included by the Fund for prior taxable years under the election. The
Fund's adjusted basis in each PFIC's stock with respect to which it has made
this election will be adjusted to reflect the amounts of income included and
deductions taken thereunder.
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 IRS as well as shareholders with
respect to whom the Fund has received certain information from the IRS 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 2004. An
individual's TIN is generally his or her social security number. Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's federal income tax liability, if any,
provided that the required information is furnished to the IRS.
The foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in the Fund.
The IRS has taken the position that if a RIC has more than one class of shares,
it may designate distributions made to each class in any year as consisting of
no more than that class's proportionate share of particular types of income for
that year, including ordinary income and net capital gain. A class's
proportionate share of a particular type of income for a year is determined
according to the percentage of total dividends paid by the RIC during that year
to the class. Accordingly, the Fund intends to designate a portion of its
distributions as capital gain dividends in accordance with the IRS position.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Fund, under current law the manner in which the Fund intends to
allocate items of ordinary income and net capital gain among the Fund's Common
Shares and Auction Preferred Shares will be respected for federal income tax
purposes. It is possible that the IRS could disagree with counsel's opinion and
attempt to reallocate the Fund's net capital gain or other taxable income.
STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local tax
consequences of investing in the Fund.
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 the Fund property or the acts,
20
obligations or affairs of the Fund. The Declaration of Trust in coordination
with the Fund's By-laws also provides for indemnification out of the Fund
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the 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 per centum 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 auditors
Deloitte & Touche LLP, Boston, Massachusetts, are the independent auditors for
the Fund, providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
21
Independent Auditors' Report
To the Trustees and Shareholder of
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Tax-Advantaged Global Dividend Opportunities Fund (the "Fund") as of April
12, 2004 and the related statement of operations for the period from February
27, 2004 (date of organization) through April 12, 2004. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eaton Vance Tax-Advantaged
Global Dividend Opportunities Fund as of April 12, 2004, and the result of its
operations for the period from February 27, 2004 (date of organization) through
April 12, 2004 in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
April 16, 2004
22
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
STATEMENT OF ASSETS AND LIABILITIES
APRIL 12, 2004
ASSETS
Cash................................................................................................. $ 100,000
Offering costs....................................................................................... 800,000
Receivable from Adviser.............................................................................. 7,500
-----------
Total assets......................................................................................... $ 907,500
===========
LIABILITIES
Accrued offering costs............................................................................... $ 800,000
Accrued organizational costs......................................................................... 7,500
Total liabilities.................................................................................... $ 807,500
===========
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
===========
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 27, 2004 (DATE OF ORGANIZATION) THROUGH APRIL 13, 2004
INVESTMENT INCOME..................................................................................... $ --
-----------
EXPENSES
Organization costs.................................................................................. $ 7,500
Expense reimbursement............................................................................... (7,500)
-----------
-----------
Net expenses...................................................................................... $ --
NET INVESTMENT INCOME................................................................................. $ --
===========
See notes to financial statements.
23
Notes to financial statements
NOTE 1: ORGANIZATION
The Eaton Vance Tax-Advantage Global Dividend Opportunities Fund (the "Fund")
was organized as a Massachusetts business trust on February 27, 2004, and has
been inactive since that date except for matters relating to its organization
and registration as a diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended, and the sale of 5,000 common shares to Eaton Vance Management,
the Fund's Investment Adviser.
Eaton Vance Management, or an affiliate, has agreed to reimburse all
organizational costs, estimated at approximately $7,500.
Eaton Vance Management, or an affiliate, has agreed to pay all offering costs
(other than sales loads) that exceed $0.04 per common share. Based on an
offering size of $400,000,000 the Fund has estimated the cost of the offering to
be approximately $800,000 all of which would be paid by the Fund. Any amount in
excess of $800,000 would be paid by Eaton Vance Management.
The Fund's investment objective is to provide a high level of after-tax total
return. Such return is expected to consist primarily of tax-advantaged dividend
income and capital appreciation. The Fund pursues its objective by investing its
assets primarily in dividend-paying common and preferred stocks of U.S. and
foreign issuers.
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 the
use of management 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
20,000,000 common shares.
NOTE 3: INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment advisory agreement between the Adviser and the Fund,
the Fund has agreed to pay an investment advisory fee, payable on a monthly
basis, at an annual rate of 0.85% 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.
In addition, Eaton Vance has contractually agreed to reimburse the Fund for fees
and other expenses in the amount of 0.20% of the average daily gross assets for
the first 5 full years of the Fund's operations, 0.15% of average daily gross
assets in year 6, 0.10% in year 7 and 0.05% in year 8.
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.
24
[INSERT FINANCIALS]
25
APPENDIX A: RATINGS
--------------------------------------------------------------------------------
Description of securities ratings+
Moody's Investors Service, Inc.
LONG-TERM DEBT SECURITIES AND PREFERRED STOCK RATINGS
AAA: Bonds and preferred stock which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risk appear somewhat larger than
the Aaa securities.
A: Bonds and preferred stock which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds and
preferred stock lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA: Bonds and preferred stock which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA: Bonds and preferred stock which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
CA: Bonds and preferred stock which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
__________
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the Fund's
fiscal year end.
26
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
SHORT-TERM DEBT SECURITIES RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
27
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt and preferred stock rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt and preferred stock rated A have a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt and preferred stock rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt and preferred stock rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB: Debt and preferred stock rated BB have less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating.
B: Debt and preferred stock rated B have a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC: Debt and preferred stock rated CCC have a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt and
preferred stock which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt and
preferred stock which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt and preferred stock rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.
28
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
The D rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
PLUS (+) OR MINUS (--): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
COMMERCIAL PAPER
COMMERCIAL PAPER RATING DEFINITIONS
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from A for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1: A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
29
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
FITCH RATINGS
INVESTMENT GRADE RATINGS
AAA: Bonds and preferred stocks are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds and preferred stocks are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+".
A: Bonds and preferred stocks are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds and preferred stocks are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BELOW INVESTMENT GRADE RATINGS
BB: Bonds and preferred stocks are considered speculative. The obligor's ability
to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
that could assist the obligor in satisfying its debt service requirements.
B: Bonds and preferred stocks are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds and preferred stocks have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Bonds and preferred stocks are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C: Bonds and preferred stocks are in imminent default in payment of interest or
principal.
30
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
DDD, DD AND D: Bonds and preferred stocks are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) OR MINUS (--): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds and preferred stock which are unrated expose the investor to risks
with respect to capacity to pay interest or repay principal which are similar to
the risks of lower-rated speculative bonds. The Fund is dependent on the
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
31
[INSERT APPENDIX B: AMENDED BY-LAWS]
32
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2004
_______________
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
PFPC INC.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
33
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A:
Financial Highlights*
Included in Part B:
Independent Auditor's Report
Statement of Assets and Liabilities
Notes to Financial Statement
Unaudited Financial Statements*
-------------------------------
* To be filed by amendment
(2) EXHIBITS:
(a) Agreement and Declaration of Trust dated February 27, 2004 is
incorporated herein by reference to the Registrant's initial
Registration Statement on Form N-2 (File Nos. 333-113177 and
811-21519) as to the Registrant's common shares of beneficial
interest ("Common Shares") filed with the Securities and Exchange
Commission on March 1, 2004 (Accession No. 0000898432-04-000208)
("Initial Common Shares Registration Statement").
(b) (1) By-Laws are incorporated herein by reference to the Registrant's
Initial Common Shares Registration Statement.
(2) Form of Amended By-Laws to be filed by amendment.
(c) Not applicable.
(d) (1) Form of Specimen Certificate for Common Shares of Beneficial
Interest is incorporated by reference to Pre-Effective Amendment No.
2 to the Registrant's Initial Common Shares Registration Statement
filed with the Commission on March 25, 2004 (Accession No.
0000950135-04-001508) ("Pre-Effective Amendment No. 2 to the
Registrant's Initial Common Shares Registration Statement").
(2) Form of Specimen Certificate of Series A Auction Preferred Shares
to be filed by amendment.
(3) Form of Specimen Certificate of Series B Auction Preferred Shares
to be filed by amendment.
(4) Form of Specimen Certificate of Series C Auction Preferred Shares
to be filed by amendment.
(e) Form of Dividend Reinvestment Plan is incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Initial Common
Shares Registration Statement.
(f) Not applicable.
(g) (1) Investment Advisory Agreement dated March 15, 2004 is
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Initial Common Shares Registration Statement.
(2) Expense Reimbursement Arrangement dated March 15, 2004 is
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Initial Common Shares Registration Statement.
(h) (1) Form of Underwriting Agreement is incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Initial Common
Shares Registration Statement.
(2) Form of Master Agreement Among Underwriters is incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement.
(3) Form of Master Selected Dealers Agreement is incorporated by
reference to Pre- Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement.
(4) Form of Underwriting Agreement as to Registrant's Auction
Preferred Shares to be filed by amendment.
(5) Form of Master Agreement Among Underwriters as to Registrant's
Auction Preferred Shares to be filed by amendment.
(6) Form of Master Selected Dealers Agreement as to Registrant's
Auction Preferred Shares to be filed by amendment.
(i) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
matter of Capital Exchange Fund, Inc., Release No. IC-20671 (November
1, 1994).
(j) (1) Master Custodian Agreement with Investors Bank & Trust Company
dated March 15, 2004 is incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Initial Common
Shares Registration Statement.
(2) Extension Agreement dated August 31, 2000 to Master Custodian
Agreement with Investors Bank & Trust Company filed as Exhibit
(g)(4) to Post-Effective Amendment No. 85 of Eaton Vance
Municipals Trust (File Nos. 33-572, 811-4409) filed with the
Commission on January 23, 2001 (Accession No.
0000940394-01-500027) and incorporated herein by reference.
(3) Delegation Agreement dated December 11, 2000, with Investors Bank
& Trust Company filed as Exhibit (j)(e) to the Eaton Vance Prime
Rate Reserves N-2, Amendment No. 5 (File Nos. 333-32267,
811-05808) filed April 3, 2002 (Accession No.
0000940394-01-500126) and incorporated herein by reference.
(k) (1) Supplement to the Transfer Agency and Services Agreement dated
March 15, 2004 is incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's Initial Common Shares
Registration Statement.
(2) Transfer Agency and Services Agreement as amended and restated on
June 16, 2003, filed as Exhibit (k)(2) to the Registration
Statement of Eaton Vance Tax-Advantaged Dividend Income Fund
(File Nos. 333-107050 and 811-21400) filed July 15, 2003
(Accession No. 0000898432-03- 000638) and incorporated herein by
reference.
(3) Administration Agreement dated March 15, 2004 is incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement.
(4) Form of Shareholder Servicing Agreement is incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement.
(5) Form of Additional Compensation Agreement is incorporated by
reference to Pre- Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement.
(6) Form of Auction Agreement between Registrant and the Auction
Agent as to Registrant's Auction Preferred Shares to be filed by
amendment.
(7) Form of Broker-Dealer Agreement as to Registrant's Auction
Preferred Shares to be filed by amendment.
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP as to Registrant's
Auction Preferred Shares to be filed by amendment.
(m) Not applicable.
(n) Consent of Independent Auditors filed herewith.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management incorporated by
reference to Pre-Effective Amendment No. 3 to the Registrant's
Initial Common Shares Registration Statement filed with the
Commission on April 23, 2004 (Accession No. 0000950135-04-002006).
(q) Not applicable.
(r) Code of Ethics adopted by Eaton Vance Corp., Eaton Vance Management,
Boston Management and Research, Eaton Vance Distributors, Inc. and
the Eaton Vance Funds effective September 1, 2000, as revised June 4,
2002, filed as Exhibit (p) to Post- Effective Amendment No. 45 of
Eaton Vance Investment Trust (File Nos. 33-1121, 811-4443) filed July
24, 2002 (Accession No. 0000940394-02-000462) and incorporated herein
by reference.
(s) Power of Attorney dated March 15, 2004 is incorporated by reference
to Pre-Effective Amendment No. 2 to the Registrant's Initial Common
Shares Registration Statement.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement to be filed by amendment.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
Registration and Filing Fees $
National Association of Securities Dealers, Inc. Fees
New York Stock Exchange Fees
Costs of Printing and Engraving
Accounting Fees and Expenses
Legal Fees and Expenses
Total
=======
$
ITEM 27 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of May 14, 2004, of
each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial interest, par 6
value $0.01 per share
Series A Auction Preferred Shares, par 0
value $0.01 per share
Series B Auction Preferred Shares, par 0
value $0.01 per share
Series C Auction Preferred Shares, par 0
value $0.01 per share
Series D Auction Preferred Shares, par 0
value $0.01 per share
Series E Auction Preferred Shares, par 0
value $0.01 per share
Series F Auction Preferred Shares, par 0
value $0.01 per share
Series G Auction Preferred Shares, par 0
value $0.01 per share
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws filed in the Registrant's Initial Common Shares
Registration Statement and the Underwriting Agreement filed in Pre-Effective
Amendment No. 2 to the Initial Common Shares Registration Statement and the Form
of Underwriting Agreement to be filed by amendment to this Registration
Statement contain provisions limiting the liability, and providing for
indemnification, of the Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their official capacities as
such. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
Investment advisory and other services" in the Statement of Additional
Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange
Act of 1934 (File No. 001-8100); and (iii) the Form ADV of Eaton Vance
Management (File No. 801-15930) filed with the Commission, all of which are
incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940, as
amended, and the Rules promulgated thereunder are in the possession and custody
of the Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon
Street, 16th Floor, Boston, MA 02116, and its transfer agent, PFPC Inc., 4400
Computer Drive, Westborough, MA 01581-5120, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody of Eaton Vance Management, The Eaton Vance Building, 255 State
Street, Boston, MA 02109. Registrant is informed that all applicable accounts,
books and documents required to be maintained by registered investment advisers
are in the custody and possession of Eaton Vance Management.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend offering of Common Shares until
the prospectus is amended if (1) subsequent to the effective date of this
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of this Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. for the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to 497(h) under the Securities Act
shall be deemed to be part of the Registration Statement as of the time it was
declared effective; and
b. for the purpose of determining any liability under the Securities
Act, each post- effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of an oral or written request, its Statement of Additional Information.
NOTICE
A copy of the Agreement and Declaration of Trust of Eaton Vance
Tax-Advantaged Global Dividend Opportunities Fund is on file with the Secretary
of State of the Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Registrant by an officer of the
Registrant as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders individually, but are binding only upon the assets and
property of the Registrant.
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 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 18th day of May 2004.
EATON VANCE TAX-ADVANTAGED
GLOBAL DIVIDEND OPPORTUNITIES FUND
By: /s/ Duncan W. Richardson
------------------------
Duncan W. Richardson
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment 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 Principal May 18, 2004
------------------------ Executive Officer
Duncan W. Richardson
/s/ James L. O'Connor Treasurer and Principal May 18, 2004
--------------------- Financial and Accounting
James L. O'Connor Officer
/s/ James B. Hawkes Trustee May 18, 2004
-------------------
James B. Hawkes
Samuel L. Hayes, III* Trustee May 18, 2004
---------------------
Samuel L. Hayes, III
William H. Park* Trustee May 18, 2004
----------------
William H. Park
Ronald A. Pearlman* Trustee May 18, 2004
-------------------
Ronald A. Pearlman
Norton H. Reamer* Trustee May 18, 2004
-----------------
Norton H. Reamer
Lynn A. Stout* Trustee May 18, 2004
--------------
Lynn A. Stout
*By: /s/Alan R. Dynner
-----------------
Alan R. Dynner (As attorney in-fact)
INDEX TO EXHIBITS
(n) Consent of Independent Auditors