As filed with the Securities and Exchange Commission on July 12, 2004
1933 Act File No. 333-115651
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 [ ]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6 [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. THOMAS E. HALE, ESQ.
KIRKPATRICK & LOCKHART LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
75 STATE STREET 333 WEST WACKER DRIVE, SUITE 2100
BOSTON, MASSACHUSETTS 02109 CHICAGO, ILLINOIS 60606
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 FEES
TITLE OF SECURITIES BEING REGISTERED (1) PRICE PER UNIT OFFERING PRICE (1) (2) (3)
(1) (1)
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Auction Preferred Shares of 5,800 $25,000 $145,000,000 $18,371.50
Beneficial Interest, $0.01 par value
===================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee,
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) A registration fee of $126.70 was previously paid in connection with the
initial filing on May 20, 2004.
(3) A registration fee of $18,244.80 was previously paid in connection with
the Pre-Effective Amendment No. 1 filing on July 9, 2004.
------------------------------------
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 July 12, 2004
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$145,000,000
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
2,000 SHARES, SERIES A
2,000 SHARES, SERIES B
1,800 SHARES, SERIES C
[EATON VANCE LOGO]
AUCTION PREFERRED SHARES
LIQUIDATION PREFERENCE $25,000 PER SHARE
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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 May 31, 2004, Eaton Vance and its
subsidiaries managed approximately $86.2 billion on behalf of funds,
institutional clients and individuals, including approximately $28.2 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 OBJECTIVE, POLICIES AND RISKS--RISK CONSIDERATIONS" BEGINNING ON
PAGE 24.
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 PUBLIC SALES LOAD PROCEEDS TO FUND(1)
----------------------------------------------------------------------------------------------------------------
Per Share $25,000 $250 $24,750
----------------------------------------------------------------------------------------------------------------
Total $ 145,000,000 $1,450,000 $143,550,000
----------------------------------------------------------------------------------------------------------------
(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 $463,372. 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 July ,
2004.
UBS INVESTMENT BANK
MERRILL LYNCH & CO.
WACHOVIA SECURITIES
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(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%, provided certain holding period
and other requirements are satisfied. 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 (1)..............................................
---------------
(1) The Initial Dividend Period for Series C will be a Dividend Period of days
ending , 2004.
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 ("APS Shareholders") 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 July ,
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 61 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.
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TABLE OF CONTENTS
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Prospectus summary.................... 1
Financial highlights.................. 9
The Fund.............................. 10
Use of proceeds....................... 10
Capitalization........................ 11
Portfolio composition................. 11
Investment objective, policies and
risks............................... 12
Management of the Fund................ 31
Description of APS.................... 33
The Auctions.......................... 42
Taxes................................. 50
Description of capital structure...... 55
Certain provisions of the Declaration
of Trust............................ 56
Underwriting.......................... 58
Shareholder Servicing Agent, custodian
and transfer agent.................. 58
Legal opinions........................ 59
Independent registered public
accounting firm..................... 60
Additional information................ 60
Table of contents for the Statement of
Additional Information.............. 61
The Fund's privacy policy............. 61
Glossary.............................. 62
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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 2,000 Auction Preferred Shares, Series A, 2,000 Auction
Preferred Shares, Series B and 1,800 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 UBS Securities LLC. 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%
1
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."
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 holders of the Fund's shares of
beneficial interest ("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 Shareholder's investment in the Fund. In order for otherwise
tax-advantaged dividends from the Fund received by a Shareholder to be taxable
at long-term capital gains rates, the 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 for
tax years beginning on or before December 31, 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 20 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
2
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 or group of industries. 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
resources 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.
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
3
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 in part by minimizing the taxes
incurred by individual Shareholders 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
4
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
May 31, 2004, Eaton Vance and its subsidiaries managed approximately $86.2
billion on behalf of funds, institutional clients and individuals, including
approximately $28.2 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
5
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 the 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
+ 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
objective, 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.
6
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 seven days for
Series A and Series B and 28 days for Series C APS. The Dividend Payment Date
for Special Dividend Periods of other than seven days in the cases of Series A
and Series B and 28 days in the case of Series C APS, will be set out in the
notice designating a Special Dividend Period. See "Description of APS--Dividends
and Dividend Periods."
DIVIDEND NUMBER OF
PAYMENT DATE SUBSEQUENT DAYS OF
INITIAL DATE OF FOR INITIAL DIVIDEND INITIAL
DIVIDEND ACCUMULATION DIVIDEND PAYMENT DIVIDEND
RATE OF INITIAL RATE 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 or long-term capital gains, both of
which are taxed at more favorable tax rates than ordinary income.
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."
7
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 Fitch and Moody's. 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 each Rating Agency's
guidelines. See "Description of APS--Rating Agency guidelines and asset
coverage."
VOTING RIGHTS
The 1940 Act requires that the APS Shareholders 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 APS Shareholders 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."
8
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 May 31, 2004. Since the Fund commenced
operations on April 30, 2004, the tables cover approximately four 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 MAY 31, 2004
PERIOD ENDED
MAY 31, 2004(2)
------------------------------------------------------------------------------------
Net asset value--Beginning of period(4)..................... $ 19.10
INCOME (LOSS) FROM OPERATIONS
Net investment income....................................... $ 0.267
Net realized and unrealized loss............................ $ (0.130)
--------
Total income from operations................................ $ 0.137
--------
Common share offering costs................................. $ (0.047)
--------
Net asset value--End of period.............................. $ 19.19
--------
Market value--End of period................................. $ 20.00
--------
Total Investment Return on Net Asset Value(5)............... 0.47%
Total Investment Return on Market Value(5).................. 4.71%
RATIOS/SUPPLEMENTAL DATA(1)
Net assets, end of period (000's omitted)................... $278,301
Ratios (As a percentage of average daily net assets):
Net expenses.............................................. 0.84%(6)
Net investment income..................................... 16.79%(3)(6)
Portfolio Turnover.......................................... 23%
------------
(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................................................. 1.07%(6)
Net investment income.................................... 16.56%(3)(6)
Net investment income per share............................. $ 0.263
(2) For the period from the start of business, April 30, 2004, to May 31, 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) The Fund's past performance is no guarantee of future results. This
annualized income is based on only a one month period during the start-up
phase of the Fund's operations. During this period, the Fund had a portion
of its assets invested in non-U.S. issuers whose annual dividend payment was
realized over the related time period. The annualized income quoted should
be considered in this context; the Fund's current income may be lower or
higher than the quoted annualized income. During the related time period,
stabilization activity related to the market performance of the Fund's
common shares was occurring.
9
--------------------------------------------------------------------------------
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, 2004. 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
before the payment of offering expenses borne by the Fund. 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, 2,175,000 additional Common
Shares to cover over-allotments. The over-allotment option was not exercised.
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 $143,086,628 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
securities 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.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
Capitalization
The following table sets forth the unaudited capitalization of the Fund as of
May 31, 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 holders of
Common Shares ("Common Shareholders") are estimated to be $1,913,372.
ACTUAL AS ADJUSTED
-----------------------------------------------------------------------------------------
(unaudited) (unaudited)
Preferred shares, par value, $0.01 per share (no shares
issued; 5,800 as adjusted, at $25,000 per share
liquidation preference)................................... $ -- $145,000,000
============ ============
SHAREHOLDERS' EQUITY:
Common Shares, par value, $0.01 per share (14,505,000 shares
issued and outstanding)................................... $ 145,050 $ 145,050
Capital in excess of par value attributable to Common
Shares.................................................... 276,229,950 274,316,578
Net undistributed investment income......................... 3,877,345 3,877,345
Net accumulated realized gain (loss)........................ (1,479,068) (1,479,068)
Net unrealized appreciation on investments.................. (472,757) (472,757)
------------ ------------
Net Assets.................................................. $278,300,520 $276,387,148
============ ============
Portfolio composition
As of May 31, 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 OF
INVESTMENT S&P(1) MOODY'S(1) FITCH(1) ISSUES VALUE PERCENT
-------------------------------------------------------------------------------------------------
Common Stock............... -- -- -- -- 215,864,180 79%
Preferred Stock............ AA Aa AA 1 4,017,680 1%
A A A 10 43,046,470 16%
BBB Baa BBB 2 7,115,875 3%
BB Ba BB -- 0 0%
Unrated -- 0 0%
Cash and cash
equivalents........... -- -- -- -- 1,707,000 1%
------------ ---
Total.................... 13 $271,175,205 100%
== ============ ===
------------
(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.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
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. In its investment program, the Fund will consider the potential
effects of inflation on shareholder capital. 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 its 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
--------------------------------------------------------------------------------
12
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
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 its 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 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
Shareholder's investment in the Fund. In order for otherwise tax-advantaged
dividends from the Fund received by a Shareholder to be taxable at long-term
capital gains rates, the Shareholder must hold his or her Fund shares for more
than 60 days during the 121-day period surrounding the ex-dividend date. The
provisions of the Code applicable to tax-advantaged dividends are effective for
tax years beginning on or before December 31, 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 20 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
--------------------------------------------------------------------------------
13
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
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 or group of industries. 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
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,
--------------------------------------------------------------------------------
14
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
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 its 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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
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%, provided
certain holding period and other requirements are satisfied. 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
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).
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
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.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 capture 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 and fixed-rate debt securities are typically, although
not always, higher than short-term interest rates. Both long-term and short-term
interest rates may fluctuate. Interest rates are currently low relative to
historic levels. During periods of declining interest rates, an issuer of
preferred stock or fixed-rate debt securities may exercise its option to redeem
securities prior to maturity, forcing the Fund to reinvest in lower yielding
securities. This is known as call risk. During periods of rising interest rates,
the average life of certain types of securities may be extended because of
slower than expected payments. This may lock in a below market yield, increase
the security's duration, and reduce the value of the security. This is known as
extension risk. The value of the Fund's common stock investments may also be
influenced by changes in interest rates. 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
APS Shareholders 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."
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 other than seven days in the cases of Series A and Series B and 28
days in the case of 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 Fitch and Moody's 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 share rating is an assessment of the
capacity and willingness of an issuer to pay preferred share 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
CURRENCY RISK
Since the Fund will invest in securities denominated or quoted in currencies
other than the U.S. dollar, the Fund will be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of investments in the Fund and the accrued income and appreciation or
depreciation of the investments in U.S. dollars. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and the Fund's return on such
assets as well as any temporary uninvested reserves in bank deposits in foreign
currencies. In addition, the Fund will incur costs in connection with
conversions between various currencies.
The Fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the Fund purchases a
foreign security traded in the currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received. Seeking to protect against a change in the
value of a foreign currency in the foregoing manner does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Furthermore, such transactions reduce or
preclude the opportunity for gain if the value of the currency should move in
the direction opposite to the position taken. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
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
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Eaton Vance. The Fund will not invest more than 10% of its total managed 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.
Energy Sector Risk. The energy industry can be significantly affected by
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 APS and distributions thereon can decline.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 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 dividends on the APS if such risk(s) adversely affects income from 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
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31
MANAGEMENT OF THE FUND
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various individual and institutional clients with combined assets under
management of approximately $86.2 billion as of May 31, 2004, including
approximately $28.2 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 five full years of the Fund's operations, 0.15% of average daily
total assets of the Fund in year six, 0.10% in year seven and 0.05% in year
eight. 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 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).
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32
MANAGEMENT OF THE FUND
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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
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.
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33
DESCRIPTION OF APS
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DIVIDENDS AND DIVIDEND PERIODS
GENERAL
After the Initial Dividend Period, each Subsequent Dividend Period for the APS
will generally consist of seven days in the cases of Series A and Series B (a
"7-Day Dividend Period") and 28 days in the case of Series C APS (a "28-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 7-Day Dividend Period, 28-Day Dividend
Period and any Special Dividend Period of 28 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 APS Shareholders set
forth in the Amended By-Laws. The Initial Dividend Period, 7-Day Dividend
Periods, 28-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.
APS Shareholders 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
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34
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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
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 seven in the cases of
Series A and Series B, and other than 28, in the case of Series C) 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 28 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
Fitch and Moody's. 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 Fitch Eligible Assets or Moody's 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
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35
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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 Fitch and Moody's. 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 7-Day Dividend Period in the cases of Series A and Series B,
and 28-Day Dividend Period in the case of Series C. 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 7-Day Dividend Period in the cases of Series A and
Series B and 28-Day Dividend Period in the case of Series C, 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 7-Day Dividend Period in the cases of Series A and
Series B and 28-Day Dividend Period in the case of Series C.
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."
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
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36
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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 APS
Shareholders 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 7-Day Dividend Period in the
cases of Series A and Series B and 28-Day Dividend Period in the case of 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 Fitch and
Moody's (or any Substitute Rating Agency in lieu of Fitch and Moody's 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 APS
Shareholders 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,
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37
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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
Fitch Eligible Assets and Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the APS Basic 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 Fitch Eligible Assets or Moody's 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
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38
DESCRIPTION OF APS
--------------------------------------------------------------------------------
(ii) if redemption thereof would result in the Fund's failure to maintain Fitch
Eligible Assets and Moody's 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 APS Shareholders 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 APS Shareholders 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 APS Shareholders 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 APS Shareholders 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
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 May
31, 2004 and assuming the APS had been issued as of such date will be as
follows:
Value of Fund assets less liabilities
not constituting senior securities $421,387,148 = 291%
--------------------------------------- --------------
Senior securities representing $145,000,000
indebtedness plus liquidation value of
APS
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39
DESCRIPTION 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 Fitch and Moody's 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 Fitch and Moody's. Fitch and Moody's,
which are Rating Agencies, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines described below
have been developed by Fitch and Moody's 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 Fitch and
Moody's 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 Fitch and Moody's have established
guidelines for determining Discounted Value. These guidelines define eligible
portfolio assets ("Fitch Eligible Assets" and "Moody's 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 Fitch and Moody's
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 Fitch and Moody's. 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 Fitch or
Moody's that any such change would not impair the ratings then assigned by Fitch
or Moody's to the APS as applicable.
As recently described by Fitch and Moody's, 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
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40
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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 Fitch and Moody's 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, APS Shareholders 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, APS Shareholders 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 APS Shareholders, 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
APS Shareholders 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 APS Shareholders 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 APS Shareholders and any other
Preferred Shares as described above shall cease, and the terms of office of all
of the additional Trustees elected by the APS Shareholders 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 APS
Shareholders 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 APS Shareholders 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
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41
DESCRIPTION OF APS
--------------------------------------------------------------------------------
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 APS Shareholders 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 APS Shareholders 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.
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
APS Shareholders 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 By-Laws,
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
--------------------------------------------------------------------------------
42
THE AUCTIONS
--------------------------------------------------------------------------------
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 UBS Securities LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Wachovia Capital Markets, LLC 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 UBS Securities LLC 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
7-Day Dividend Period in the cases of Series A and Series B and 28-Day Dividend
Period in the case of Series C 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
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.
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43
THE AUCTIONS
--------------------------------------------------------------------------------
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 APS Shareholders 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.
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44
THE AUCTIONS
--------------------------------------------------------------------------------
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
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 defined in the Glossary at the end of this Prospectus and 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 Fitch and
Moody's (or if Fitch or Moody's shall not make such rating available, the
equivalent of such rating by a Substitute Rating Agency) as follows:
CREDIT RATINGS
-------------------------------------------------------- APPLICABLE PERCENTAGE
MOODY'S S&P/FITCH OF THE REFERENCE RATE APPLICABLE SPREAD
------- --------- --------------------- -------------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Ba1 and lower BB+ and lower 300% 300 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:
MAXIMUM APPLICABLE RATE USING MAXIMUM APPLICABLE RATE METHOD USED TO
REFERENCE THE APPLICABLE PERCENTAGE OF THE USING THE APPLICABLE SPREAD DETERMINE THE
RATE REFERENCE RATE OVER THE REFERENCE RATE MAXIMUM APPLICABLE RATE
--------- -------------------------------- --------------------------- -----------------------
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.50% 7.25% Percentage
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
failure to make such deposit will not result
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45
THE AUCTIONS
--------------------------------------------------------------------------------
in the cancellation of any Auction. 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 Fitch and Moody's
to provide a rating for the APS. If Fitch or Moody's 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
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 or any Special Dividend
Period) 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--
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46
THE AUCTIONS
--------------------------------------------------------------------------------
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
(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.
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47
THE AUCTIONS
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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 7-Day Dividend Period, in the cases of Series A and
Series B, and 28-Day Dividend Period in the case of 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
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48
THE AUCTIONS
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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
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 Existing Holders. The three
Existing Holders and three Potential Holders submit orders through
Broker-Dealers at the Auction:
Existing 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%
Existing Holder B...................... Owns 300 shares, wants to hold Hold Order--will take the
Applicable Rate
Existing Holder C...................... Owns 200 shares, wants to sell Bid order of 1.9% rate for all
all 200 shares if Applicable 200 shares
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%. Existing
Holders B and C will continue to own their shares. Existing 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.
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49
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Taxes
GENERAL
The following is a summary discussion of the material U.S. federal income tax
consequences that may be relevant to a Shareholder of acquiring, holding and
disposing of the APS of the Fund as of the date of this Prospectus. This
discussion addresses only U.S. federal income tax consequences to U.S.
Shareholders who hold their shares as capital assets and does not address all of
the U.S. federal income tax consequences that may be relevant to particular
Shareholders in light of their individual circumstances. In addition, the
discussion does not address any state, local, or foreign tax consequences, and
it does not address any U.S. federal tax consequences other than U.S. federal
income tax consequences. The discussion is based upon present provisions of the
Code, the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change or differing
interpretations (possibly with retroactive effect). No attempt is made to
present a detailed explanation of all U.S. federal income tax concerns affecting
the Fund and its Shareholders, and the discussion set forth herein does not
constitute tax advice. Investors are urged to consult their own tax advisers to
determine the specific tax consequences to them of investing in the Fund,
including the applicable federal, state, local and foreign tax consequences to
them and the effect of possible changes in tax laws.
The Fund intends to elect and to qualify each year for the special tax treatment
afforded to 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 APS Shareholders 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
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
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50
TAXES
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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 and qualified dividend income 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, net capital gain and qualified dividend
income among the Fund's Common Shares and APS will be respected for federal
income tax
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51
TAXES
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purposes. It is possible that the IRS could disagree with counsel's opinion and
attempt to reallocate the Fund's net capital gain and qualified dividend income
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
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 will 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 are
attributable to such qualified dividend income received by the Fund and to the
extent that the Fund designates 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 dividend income"
means dividends received by the Fund from United States corporations and
"qualified foreign corporations," provided that the Fund satisfies certain
holding period and other requirements in respect of the stock of such
corporations.
In 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 qualified dividend income or long-term capital gains, both of which
are taxed at more favorable tax rates than ordinary income.
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52
TAXES
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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 120-day
and 180-day periods for holding such stock, proposed technical corrections to
the law (the "Technical Corrections Bills") would extend such periods to 121
days and 181 days. The Treasury Department and the IRS have announced that
taxpayers may apply the extended periods 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.
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, 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 IRS 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.
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
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53
TAXES
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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
corporations, the Fund 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.
SALES OF APS
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
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 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.
BACKUP WITHHOLDING
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.
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54
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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
February 27, 2004 ("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 June 30, 2004.
AMOUNT
OUTSTANDING
(EXCLUSIVE OF
AMOUNT HELD BY AMOUNT HELD BY
FUND FOR ITS OWN FUND FOR ITS OWN
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT)
----------------------------------------------------------------------------------------------------
Common Shares.............................. Unlimited -0- 14,505,000
Auction Preferred Shares
Series A................................. 2,000 -0- -0-
Series B................................. 2,000 -0- -0-
Series C................................. 1,800 -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 and the Fund's By-Laws
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.
--------------------------------------------------------------------------------
55
DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------
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
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 June 30, 2004, the net asset value per share of Common Shares and the
closing price per share of Common Shares on the NYSE were $19.43, and $17.69,
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,
--------------------------------------------------------------------------------
56
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
--------------------------------------------------------------------------------
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.
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.
--------------------------------------------------------------------------------
57
--------------------------------------------------------------------------------
Underwriting
The underwriters named below (the "Underwriters"), acting through UBS Securities
LLC, 299 Park Avenue, New York, New York, as lead manager and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Wachovia Capital Markets, LLC as their
representatives (together with the lead manager, 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.
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------------------------
UBS Securities LLC..........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Wachovia Capital Markets, LLC...............................
----------------
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 July , 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 UBS Securities LLC (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
--------------------------------------------------------------------------------
58
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AGENT
--------------------------------------------------------------------------------
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
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 or the Fund 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 Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois.
--------------------------------------------------------------------------------
59
--------------------------------------------------------------------------------
Independent registered public accounting firm
Deloitte & Touche LLP, Boston, Massachusetts is the independent registered
public accounting firm for the Fund and will audit the Fund's financial
statements.
Additional information
The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Fund has filed
with the 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.
--------------------------------------------------------------------------------
60
--------------------------------------------------------------------------------
Table of contents for the
Statement of Additional Information
PAGE
----
Additional investment information and restrictions.......... 2
Trustees and officers....................................... 8
Investment advisory and other services...................... 15
Determination of net asset value............................ 17
Portfolio trading........................................... 18
Taxes....................................................... 21
Other information........................................... 26
Independent registered public accounting firm............... 26
Independent auditors' report................................ 27
Statement of assets and liabilities......................... 28
Notes to Financial Statements............................... 29
Appendix A: Ratings......................................... A-1
Appendix B: Amended By-Laws................................. B-1
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.
--------------------------------------------------------------------------------
61
--------------------------------------------------------------------------------
Glossary
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"28-Day Dividend Period" means a Dividend Period consisting of 28 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 39 of this
Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 39 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 June 15, 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 page 45 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 45 of this Prospectus.
"Applicable Spread Over the Reference Rate" means the rate equaling the sum of
the Applicable Spread plus the Reference Rate.
"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 page 40 of this
Prospectus.
"APS Basic Maintenance Cure Date" has the meaning set forth on page 38 of this
Prospectus.
"APS Shareholders" has the meaning set forth on the inside cover 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 44 of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth in
Section 9 of Article VII 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.
--------------------------------------------------------------------------------
62
GLOSSARY
--------------------------------------------------------------------------------
"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.
"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 Fitch Eligible
Asset and Moody's Eligible Asset, the quotient of the market value thereof
divided by the applicable Fitch Discount Factor and Moody's Discount Factor.
"Dividend Payment Date" has the meaning set forth on page 34 of this Prospectus.
"Dividend Periods" has the meaning set forth on page 34 of this Prospectus.
"DTC" means The Depository Trust Company.
"Eligible Assets" means Fitch Eligible Assets and Moody's 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.
"Fitch" means Fitch Ratings or its successors.
"Fitch Eligible Assets" has the meaning set forth on page 40 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.
--------------------------------------------------------------------------------
63
GLOSSARY
--------------------------------------------------------------------------------
"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 Subsection 1(a) of Article VII of the
Fund's Amended By-Laws contained in Appendix B to the Fund's Statement of
Additional Information.
"Long-Term Dividend Period" has the meaning set forth on page 35 of this
Prospectus.
"Mandatory Redemption Price" has the meaning set forth on page 38 of this
Prospectus.
"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.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Eligible Assets" has the meaning set forth on page 40 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 pages 36 and 37 of this
Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page 37 of this
Prospectus.
"Notice of Revocation" has the meaning set forth on page 35 of this Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page 35 of this
Prospectus.
"Optional Redemption Price" has the meaning set forth on page 38 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 23 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 35 of
this Prospectus.
"Response" has the meaning set forth on page 35 of this Prospectus.
"S&P" means Standard & Poor's, or its successors.
--------------------------------------------------------------------------------
64
GLOSSARY
--------------------------------------------------------------------------------
"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.
"Shareholder" means holders of Common Shares or Preferred Shares of the Fund.
"Shares" means Common Shares and/or APS.
"Short-Term Dividend Period" has the meaning set forth on page 35 this
Prospectus.
"Special Dividend Period" has the meaning set forth on page 34 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
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
July , 2004.
"Winning Bid Rate" has the meaning specified in Subsection 9(d)(i) of the
Auction Procedures.
--------------------------------------------------------------------------------
65
[EATON VANCE LOGO]
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION JULY 12, 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.......... 2
Trustees and officers....................................... 8
Investment advisory and other services...................... 15
Determination of net asset value............................ 17
Portfolio trading........................................... 18
Taxes....................................................... 21
Other information........................................... 26
Independent registered public accounting firm............... 26
Statement of assets and liabilities......................... 28
Notes to Financial Statements............................... 29
APPENDIX A: Ratings......................................... A-1
APPENDIX B: Amended By-Laws................................. B-1
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%, provided certain holding period and other requirements are
satisfied. 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
--------------------------------------------------------------------------------
2
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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
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
--------------------------------------------------------------------------------
3
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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.
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
--------------------------------------------------------------------------------
4
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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.
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
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5
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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.
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6
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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
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.
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7
--------------------------------------------------------------------------------
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) Since 3/11/04 Chairman, President and 197 Director of EVC
11/9/41 and Vice Three Years Chief Executive Officer
President of BMR, Eaton Vance,
EVC and EV; Director of
EV; Vice President and
Director of EVD.
Trustee and/or officer
of 197 registered
investment companies in
the Eaton Vance Fund
Complex. Mr. Hawkes is
an interested person
because of his
positions with BMR,
Eaton Vance, EVC and
EV, which are
affiliates of the Fund.
NON-INTERESTED TRUSTEES
Samuel L. Hayes, III Trustee(2) Since 3/11/04 Jacob H. Schiff 197 Director of
(A) 2/23/35 Three Years Professor of Investment Tiffany & Co.
Banking Emeritus, (specialty
Harvard University retailer) and
Graduate School of Telect, Inc.
Business (telecommunication
Administration. services company)
William H. Park Trustee(3) Since 3/11/04 President and Chief 194 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).
--------------------------------------------------------------------------------
8
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 3/11/04 Professor of Law, 194 None
7/10/40 Three Years Georgetown University
Law Center (since
1999). Tax Partner,
Covington & Burling,
Washington, DC (1991-
2000).
Norton H. Reamer (A) Trustee(4) Since 3/11/04 President and Chief 197 None
9/21/35 Three Years Executive 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 3/11/04 Professor of Law, 197 None
9/14/57 Three Years University of
California at Los
Angeles School of Law
(since July 2001).
Formerly, Professor of
Law, Georgetown
University Law Center.
------------
(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.
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9
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
10/26/57 Chief Investment Officer of Eaton Vance and BMR.
Executive Officer of 44 registered investment
Officer companies managed by Eaton Vance or BMR.
Thomas E. Faust Jr. Vice President Since 2/27/04 Executive Vice President of Eaton Vance,
5/31/58 BMR, EVC and EV; Chief Investment Officer of
Eaton Vance and BMR and Director of EVC.
Chief Executive Officer of Belair Capital
Fund LLC, Belcrest Capital Fund LLC, Belmar
Capital Fund LLC; Belport Capital Fund LLC
and Belrose Capital Fund LLC (private
investment companies sponsored by Eaton
Vance). Officer of 56 registered investment
companies managed by Eaton Vance or BMR.
Thomas H. Luster Vice President Since 2/27/04 Vice President of Eaton Vance or BMR.
4/8/62 Officer of 15 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.
7/15/47 Previously, 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.
8/21/54 Previously, 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.
4/1/45 Officer of 118 registered investment
companies managed by Eaton Vance or BMR.
Alan R. Dynner Secretary Since 2/27/04 Vice President, Secretary and Chief Legal
10/10/40 Officer of BMR, Eaton Vance, EVD, EV and
EVC. Officer of 197 registered investment
companies managed by Eaton Vance or BMR.
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
--------------------------------------------------------------------------------
10
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
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.
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 met once, the Audit
Committee, Special Committee and the Contract Review Subcommittee have each 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:
+ A report comparing the fees and expenses of the Fund and certain
profitability analyses prepared by Eaton Vance;
+ Information on the relevant peer group(s) of funds;
+ The economic outlook and the general investment outlook in the relevant
investment markets;
+ Eaton Vance's results and financial condition and the overall organization of
the Adviser;
+ Arrangements regarding the distribution of Fund shares;
+ The procedures used to determine the fair value of the Fund's assets;
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TRUSTEES AND OFFICERS
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+ The allocation of brokerage, including allocations to soft dollar brokerage
and allocations to firms that sell Eaton Vance fund shares;
+ Eaton Vance's management of the relationship with the custodian,
subcustodians and fund accountants;
+ The resources devoted to Eaton Vance's compliance efforts undertaken on
behalf of the funds it manages and the record of compliance with the
investment policies and restrictions and with policies on personal securities
transactions;
+ The quality, nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;
+ Investment management staffing;
+ Operating expenses (including transfer agency expenses) to be paid to third
parties; and
+ Information to be provided to investors, including the Fund's shareholders.
In evaluating the Advisory Agreement between the Fund and Eaton Vance, the
Contract Review Subcommittee of the Special Committee reviewed material
furnished by Eaton Vance at the initial Board meeting held on 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.
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12
TRUSTEES AND OFFICERS
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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. The Contracts Review Subcommittee also considered that the Adviser
would enter into a Shareholder Servicing Agreement with UBS Securities LLC,
whereby the Adviser (and not the Fund) would pay UBS Securities LLC to provide
upon request certain market data and other reports to support shareholder
services pursuant to the agreement.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the
Trustee as of December 31, 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:
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 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 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
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13
TRUSTEES AND OFFICERS
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(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(2) $ 85,000 $170,833 $167,500(3)
------------
* Estimated
(1) As of June 30, 2004, the Eaton Vance fund complex consisted of 198
registered investment companies or series thereof.
(2) Includes $60,920 of deferred compensation.
(3) Includes $23,250 of deferred compensation.
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's Special Committee or a sub-committee
thereof, except as contemplated under the Fund Policy. The Board's Special
Committee or a sub-committee thereof will instruct the Adviser on the
appropriate course of action.
The Policies are designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The Adviser will generally support company management on proposals
relating to environmental and social policy issues, on matters regarding the
state of organization of the company and routine matters related to corporate
administration which are not expected to have a significant economic impact on
the company or its shareholders. On all other matters, the Adviser will review
each matter on a case-by-case basis and reserves the right to deviate from the
Policies' guidelines when it believes the situation warrants such a deviation.
The Policies include voting guidelines for matters relating to, among other
things, the election of directors, approval of independent auditors, executive
compensation, corporate structure and anti-takeover defenses. The Adviser may
abstain from voting from time to time where it determines that the costs
associated with voting a proxy outweigh the benefits derived from exercising the
right to vote.
In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Fund's shareholders and the Adviser or any of its
affiliates or any affiliate of the Fund by maintaining
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14
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
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
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15
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------
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., Vincent M. O'Reilly, Winthrop H.
Smith, Jr. and Ralph Z. Sorenson. All shares of the outstanding Voting Common
Stock of EVC are deposited in a voting trust, the voting trustees of which are
Messrs. 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
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16
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------
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.
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
--------------------------------------------------------------------------------
17
DETERMINATION OF NET ASSET VALUE
--------------------------------------------------------------------------------
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
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.
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18
PORTFOLIO TRADING
--------------------------------------------------------------------------------
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. Brokerage and research
services may include advice as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement); and the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the advisers
of investment companies, institutions and other investors to receive research,
analytical, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from affiliates of executing broker-dealers. Investment advisers also commonly
receive Research Services from research providers that are not affiliated with
an executing broker-dealer, but which have entered into payment arrangements
involving an executing broker-dealer ("Third Party Research Services"). Under a
typical Third Party Research Services payment arrangement, the research provider
agrees to provide services to an investment adviser in exchange for specified
payments to the research provider by a broker-dealer that executes portfolio
transactions for clients of the investment adviser. The investment adviser and
the executing broker-dealer enter into a related agreement specifying the amount
of brokerage business the investment adviser will direct to the executing
broker-dealer to offset payments made by the executing broker-dealer for Third
Party Research Services received by the investment adviser. For example, an
investment adviser may agree to direct brokerage business generating $45,000 in
commissions on portfolio transactions to a broker-dealer firm as consideration
for the executing broker-dealer making payments of $30,000 to a provider of
Third Party Research Services. The relationship between commissions to be paid
to an executing broker-dealer as consideration for Third Party Research Services
and the cost borne by the executing broker-dealer in connection with providing
such services to the investment adviser is referred to herein as the "Third
Party Research Services Payment Ratio."
Consistent with the foregoing practices, the Adviser receives Research Services
from many broker-dealer firms with which the Adviser places transactions and
from third parties with which these broker-dealers have arrangements. The Fund
and the Adviser may also receive Research Services from underwriters and dealers
in fixed-price offerings, which Research Services are reviewed and evaluated by
the Adviser in connection with its investment responsibilities.
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19
PORTFOLIO TRADING
--------------------------------------------------------------------------------
Research Services received by the Adviser 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 markets, 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, data bases and
services. Any particular Research Service obtained through a broker-dealer may
be used by the Adviser in connection with client accounts other than those
accounts 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 Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and may attempt to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the investment adviser believes are useful or
of value to it in rendering investment advisory services to its clients.
The Adviser has agreed to reduce the Fund's advisory fee in connection with
Third Party Research Services whose cost is borne by the Fund through
commissions on portfolio transactions. Specifically, whenever the Fund executes
a portfolio transaction with a broker-dealer and the associated commission is
consideration for Third Party Research Services, the advisory fee paid by the
Fund to the Adviser will be reduced by dividing the commission payment
associated with the transaction by the applicable Third Party Research Services
Payment Ratio.
Some executing broker-dealers develop and make available directly to their
brokerage customers proprietary Research Services ("Proprietary Research
Services"). As a general matter, broker-dealers bundle the cost of Proprietary
Research Services with trade execution services rather than charging separately
for each. In such circumstances, the cost or other value of the Proprietary
Research Services cannot be determined. The advisory fee paid by the Fund will
not be reduced in connection with the receipt of Proprietary Research Services
by the Adviser.
The investment companies sponsored by the Adviser or its affiliates may allocate
brokerage commissions to acquire information relating to the performance, fees
and expenses of such companies and other mutual funds, which information is used
by the Trustees of such companies to fulfill their responsibility to oversee the
quality of the services provided by various entities, including the investment
adviser, to such companies. Such companies may also pay cash for such
information.
Subject to the requirement that the Adviser shall use its best efforts to seek
and execute portfolio 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
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20
PORTFOLIO TRADING
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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 following is a summary
discussion of the material U.S. federal income tax consequences that may be
relevant to a shareholder of acquiring, holding and disposing of the APS of the
Fund as of the date of this SAI. This discussion addresses only U.S. federal
income tax consequences to U.S. shareholders who hold their shares as capital
assets and does not address all of the U.S. federal income tax consequences that
may be relevant to particular shareholders in light of their individual
circumstances. In addition, the discussion does not address any state, local, or
foreign tax consequences, and it does not address any U.S. federal tax
consequences other than U.S. federal income tax consequences. The discussion is
based upon present provisions of the Code, the regulations promulgated
thereunder, and judicial and administrative ruling authorities, all of which are
subject to change or differing interpretations (possibly with retroactive
effect). No attempt is made to present a detailed explanation of all U.S.
federal income tax concerns affecting the Fund and its shareholders, and the
discussion set forth herein does not constitute tax advice. Investors are urged
to consult their own tax advisers to determine the specific tax consequences to
them of investing in the Fund, including the applicable federal, state, local
and foreign tax consequences to them and the effect of possible changes in tax
laws. The Fund intends to elect to be treated and to qualify each year as a
regulated investment company ("RIC") under the Code. Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute substantially all of its net
income and net short-term 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.
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21
TAXES
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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
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
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22
TAXES
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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 provisions of the Technical
Corrections Bills 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 (or more than 90 days during the
associated 180-day period in the case of preferred stock paying dividends
accrued over a period of more than 366 days) (the 120-day period would be
expanded to a 121-day period, and the 180-day period to 181 days, 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.
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 IRS have announced that
taxpayers may apply the extended period as if the legislation were already
enacted in filing their federal income tax returns.
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. Federal income tax rules are not entirely clear about issues such
as when the Fund may cease to accrue interest, original issue discount or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income and whether exchanges of debt obligations
in a bankruptcy or workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such debt securities, in order
to seek to preserve its status as a regulated investment company and to not
become subject to U.S. federal income or excise tax.
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.
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23
TAXES
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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 nondeductible
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 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
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24
TAXES
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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
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 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
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25
TAXES
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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.
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,
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 registered public accounting firm
Deloitte & Touche LLP, Boston, Massachusetts, is the independent registered
public accounting firm for the Fund, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the SEC.
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26
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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
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27
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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.
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28
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.
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29
Portfolio of investments (unaudited) as of
May 31, 2004
COMMON STOCKS--77.5%
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------
BANKING--2.5%
Societe Generale............................................ 26,000 2,203,443
UniCredito Italiano SPA..................................... 400,000 1,870,802
Wachovia Corp. ............................................. 30,000 1,416,300
Wells Fargo & Co. .......................................... 25,000 1,470,000
--------------
$ 6,960,545
==============
BUILDING MATERIALS--2.0%
Cemex SA ADR................................................ 150,000 4,401,000
Lafarge SA.................................................. 12,000 1,036,024
--------------
$ 5,437,024
==============
CHEMICALS--0.5%
Lyondell Chemical Co. ...................................... 90,000 1,486,800
--------------
$ 1,486,800
==============
COAL--0.4%
Peabody Energy Corp. ....................................... 25,000 1,243,500
--------------
$ 1,243,500
==============
CONSUMER PRODUCTS MANUFACTURER--0.4%
Newell Rubbermaid, Inc. .................................... 50,000 1,178,500
--------------
$ 1,178,500
==============
DIVERSIFIED MINERALS--0.6%
BHP Billiton Ltd. ADR....................................... 100,000 1,725,000
--------------
$ 1,725,000
==============
DIVERSIFIED TELECOMMUNICATION SERVICES--1.8%
BCE, Inc. .................................................. 250,000 4,975,000
--------------
$ 4,975,000
==============
FOODS--0.5%
Sara Lee Corp. ............................................. 60,000 1,374,000
--------------
$ 1,374,000
==============
MACHINERY--0.6%
Sandvik AB.................................................. 45,000 1,527,112
--------------
$ 1,527,112
==============
--------------------------------------------------------------------------------
30
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------
METALS--GOLD--1.6%
Freeport-McMoran Copper & Gold, Inc., Class B............... 130,000 4,371,900
--------------
$ 4,371,900
==============
METALS--INDUSTRIAL--4.1%
Alumina Ltd. ............................................... 350,000 1,336,216
Anglo American PLC ADR...................................... 75,000 1,580,250
Arcelor..................................................... 200,000 3,353,278
Cia Siderurgica Nacional SA ADR............................. 30,000 1,398,300
Rio Tinto PLC ADR........................................... 20,000 1,951,600
Southern Peru Copper Corp. ................................. 55,000 1,714,900
--------------
$ 11,334,544
==============
OIL AND GAS--12.2%
BP PLC ADR.................................................. 100,000 5,300,000
ChevronTexaco Corp. ........................................ 60,000 5,424,000
Enbridge, Inc. ............................................. 100,000 3,655,000
Eni SPA..................................................... 160,000 3,260,959
Exxon Mobil Corp. .......................................... 65,000 2,811,250
Statoil ASA................................................. 400,000 5,036,282
Total SA ADR................................................ 90,000 8,467,200
--------------
$ 33,954,691
==============
OIL AND GAS--EQUIPMENT AND SERVICES--2.4%
Marathon Oil Corp. ......................................... 200,000 6,668,000
--------------
$ 6,668,000
==============
PRINTING AND BUSINESS PRODUCTS--0.5%
Donnelley (R.R.) & Sons Co. ................................ 50,000 1,513,000
--------------
$ 1,513,000
==============
REITS--8.2%
AvalonBay Communities, Inc. ................................ 25,000 1,361,250
Boston Properties, Inc. .................................... 50,000 2,468,000
Developers Diversified Realty Corp. ........................ 125,000 4,298,750
Pennsylvania REIT........................................... 50,000 1,665,000
Plum Creek Timber Co., Inc. ................................ 175,000 5,481,000
Public Storage, Inc. ....................................... 81,400 3,743,586
Rayonier, Inc. ............................................. 75,000 3,150,000
Washington REIT............................................. 25,000 706,750
--------------
$ 22,874,336
==============
--------------------------------------------------------------------------------
31
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------
RETAIL--GENERAL--0.5%
May Department Stores Co. (The)............................. 45,000 1,289,700
--------------
$ 1,289,700
==============
TELECOMMUNICATIONS--5.8%
Sprint Corp. (FON Group).................................... 200,000 3,552,000
Telecom Italia Mobile SPA................................... 1,200,000 6,506,287
Telecom Italia SPA.......................................... 2,800,000 6,069,115
--------------
$ 16,127,402
==============
TELEPHONE UTILITIES--2.1%
Telefonos de Mexico SA ADR.................................. 175,000 5,887,000
--------------
$ 5,887,000
==============
TOBACCO COMPANY--0.4%
Altria Group, Inc. ......................................... 25,000 1,199,250
--------------
$ 1,199,250
==============
UTILITIES--ELECTRIC--21.4%
American Electric Power Co., Inc. .......................... 200,000 6,354,000
Dominion Resources, Inc. ................................... 105,000 6,611,850
Duke Energy Corp. .......................................... 350,000 6,979,000
Electrabel.................................................. 10,000 3,259,249
Enel SPA.................................................... 400,000 3,277,567
Entergy Corp. .............................................. 100,000 5,461,000
Exelon Corp. ............................................... 150,000 4,995,000
FirstEnergy Corp. .......................................... 110,000 4,290,000
National Grid Transco PLC................................... 400,000 3,170,035
Pepco Holdings, Inc. ....................................... 250,000 4,600,000
Public Service Enterprise Group, Inc. ...................... 150,000 6,324,000
Scottish Power PLC.......................................... 600,000 4,361,778
--------------
$ 59,683,479
==============
UTILITIES--GAS--3.9%
ENI ADR..................................................... 45,000 4,568,850
Snam Rete Gas............................................... 1,500,000 6,319,451
--------------
$ 10,888,301
==============
--------------------------------------------------------------------------------
32
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------
UTILITIES--WATER--5.1%
Severn Trent PLC............................................ 200,000 2,962,855
Suez SA..................................................... 250,000 4,857,124
United Utilities PLC........................................ 100,000 996,480
Veolia Environment.......................................... 200,000 5,348,637
--------------
$ 14,165,096
--------------
TOTAL COMMON STOCKS (IDENTIFIED COST $215,791,196)....................... $ 215,864,180
==============
PREFERRED STOCKS--19.5%
BANKING--13.9%
ABN AMRO Capital Funding Trust VII, 6.08%................... 150,000 3,489,000
Barclays Bank PLC, 8.55%(1)(2).............................. 55,000 6,767,761
BNP Paribas Capital Trust, 9.003%(1)(2)..................... 35,000 4,410,955
CA Preferred Funding Trust, 7.00%........................... 55,000 5,488,181
HSBC Capital Funding LP, 9.547%(1)(2)....................... 40,000 5,050,716
ING Capital Funding Trust III, 8.439%(1).................... 37,500 4,499,625
Lloyds TSB Bank PLC, 6.90%.................................. 4,000,000 4,017,680
UBS Preferred Funding Trust I, 8.622%(1).................... 4,000,000 4,823,908
--------------
$ 38,547,826
--------------
FOODS--1.7%
Dairy Farmers of America, 7.875%(2)......................... 45,000 4,651,875
--------------
$ 4,651,875
--------------
INSURANCE--3.9%
AXA, 7.10%.................................................. 4,500,000 4,582,050
ING Group NV, 7.20%......................................... 80,000 2,034,400
Prudential PLC, 6.50%....................................... 20,000 1,899,874
RenaissanceRe Holdings Ltd., 6.08%.......................... 110,000 2,464,000
--------------
$ 10,980,324
==============
TOTAL PREFERRED STOCKS (IDENTIFIED COST $54,740,809)..................... $ 54,180,025
==============
SHORT-TERM INVESTMENTS--0.6%
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
------------------------------------------------------------------------------------------
Investors Bank & Trust Company Time Deposit, 1.06%, 6/1/04 1,707 1,707,000
--------------
TOTAL SHORT-TERM INVESTMENTS (AT AMORTIZED COST, $1,707,000)............. $ 1,707,000
--------------
--------------------------------------------------------------------------------
33
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000'S
SECURITY OMITTED) VALUE
------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.6% (IDENTIFIED COST $272,239,005).................. $ 271,751,205
==============
OTHER ASSETS, LESS LIABILITIES--2.4%..................................... $ 6,549,315
==============
NET ASSETS--100.0%....................................................... $ 278,300,520
==============
------------
ADR--American Depositary Receipt
REIT--Real Estate Investment Trust
(1) Variable rate security.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
See notes to financial statements.
--------------------------------------------------------------------------------
34
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
AS OF MAY 31, 2004
ASSETS
Investments, at value (identified cost, $272,239,005)..... $271,751,205
Cash...................................................... 20,861
Foreign currency, at value (cost $101,174)................ 100,745
Receivable for investments sold........................... 7,380,684
Receivable from the Investment Adviser.................... 7,500
Dividends and interest receivable......................... 2,561,193
Tax reclaim receivable.................................... 209,546
------------
TOTAL ASSETS................................................ $282,031,734
============
LIABILITIES
Payable for investments purchased......................... $ 3,051,876
Payable to affiliate for Trustees' fees................... 2,368
Accrued expenses.......................................... 676,970
------------
TOTAL LIABILITIES........................................... $ 3,731,214
============
NET ASSETS FOR 14,505,000 COMMON SHARES OUTSTANDING......... $278,300,520
============
SOURCES OF NET ASSETS
Common Shares, $0.01 par value, unlimited number of shares
authorized, 14,505,000 shares issued and outstanding... $ 145,050
Additional paid-in capital................................ 276,229,950
Accumulated net realized loss (computed on the basis of
identified cost)....................................... (1,479,068)
Accumulated undistributed net investment income........... 3,877,345
Net unrealized depreciation (computed on the basis of
identified cost)....................................... (472,757)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $278,300,520
============
NET ASSET VALUE PER COMMON SHARE
($278,300,520 / 14,505,000 COMMON SHARES ISSUED AND
OUTSTANDING).............................................. $ 19.19
============
See notes to financial statements.
--------------------------------------------------------------------------------
35
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MAY 31, 2004(1)
INVESTMENT INCOME
Dividends (net of foreign taxes, $367,416)................ $ 4,016,538
Interest.................................................. 54,535
-----------
TOTAL INVESTMENT INCOME..................................... $ 4,071,073
===========
EXPENSES
Investment adviser fee.................................... $ 195,803
Trustees' fees and expenses............................... 2,368
Legal and accounting services............................. 13,344
Custodian fee............................................. 9,214
Organization expenses..................................... 7,500
Printing and postage...................................... 6,656
Transfer and dividend disbursing agent fees............... 5,248
Miscellaneous............................................. 7,166
-----------
TOTAL EXPENSES.............................................. $ 247,299
===========
Deduct--
Expense reimbursement..................................... $ 7,500
Reduction of investment adviser fee....................... 46,071
-----------
TOTAL EXPENSE REDUCTIONS.................................... $ 53,571
===========
NET EXPENSES................................................ $ 193,728
===========
NET INVESTMENT INCOME....................................... $ 3,877,345
===========
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)--
Investment transactions (identified cost basis)........ $(1,483,014)
Foreign currency transactions.......................... 3,946
-----------
NET REALIZED LOSS........................................... $(1,479,068)
===========
Change in unrealized appreciation (depreciation)--
Investments (identified cost basis).................... $ (487,800)
Foreign currency....................................... 15,043
-----------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)........ $ (472,757)
===========
NET REALIZED AND UNREALIZED LOSS............................ $(1,951,825)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,925,520
===========
------------
(1) For the period from the start of business, April 30, 2004, to May 31, 2004.
See notes to financial statements.
--------------------------------------------------------------------------------
36
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
MAY 31, 2004
(UNAUDITED)(1)
--------------
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
From operations--
Net investment income..................................... $ 3,877,345
Net realized loss......................................... (1,479,068)
Net change in unrealized appreciation (depreciation)...... (472,757)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,925,520
============
Transactions in shares of beneficial interest--
Proceeds from sale of common shares(2).................... $276,950,000
Offering costs............................................ (675,000)
------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS..... $276,275,000
============
NET INCREASE IN NET ASSETS.................................. $278,200,520
============
NET ASSETS APPLICABLE TO COMMON SHARES
At beginning of period...................................... $ 100,000
------------
AT END OF PERIOD............................................ $278,300,520
============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN
NET ASSETS APPLICABLE TO COMMON SHARES
AT END OF PERIOD............................................ $ 3,877,345
============
------------
(1) For the period from the start of business, April 30, 2004, to May 31, 2004.
(2) Proceeds from sales of shares net of sales load paid of $13,050,000.
See notes to financial statements
--------------------------------------------------------------------------------
37
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding during the periods stated
PERIOD ENDED
MAY 31, 2004
(UNAUDITED)(1)(2)
-----------------
-------------------------------------------------------------------------------
Net asset value--Beginning of period(3)..................... $ 19.100
--------
INCOME (LOSS) FROM OPERATIONS
Net investment income....................................... $ 0.267
Net realized and unrealized loss............................ (0.130)
--------
TOTAL INCOME FROM OPERATIONS................................ $ 0.137
========
OFFERING COSTS CHARGED TO PAID-IN CAPITAL................... $(0.047)
========
NET ASSET VALUE--END OF PERIOD.............................. $ 19.190
========
MARKET VALUE--END OF PERIOD................................. $ 20.000
========
TOTAL INVESTMENT RETURN ON NET ASSET VALUE(4)............... 0.47%
========
TOTAL INVESTMENT RETURN ON MARKET VALUE(4).................. 4.71%
========
RATIOS/SUPPLEMENTAL DATA+
Net assets applicable to common shares, end of period (000's
omitted).................................................. $278,301
Net asset value applicable to common shares--End of period
Net expenses.............................................. 0.84%(5)
Net investment income..................................... 16.79%(5)
Portfolio Turnover.......................................... 23%
------------
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee and a reimbursement of expenses by the Adviser. Had such actions
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.................................................. 1.07%(5)
Net investment income..................................... 16.56%(5)
Net investment income per share............................. $0.263
(1) For the period from the start of business, April 30, 2004, to May 31, 2004.
(2) Net investment income per share was computed using average shares
outstanding.
(3) Net asset value at beginning of period reflects the deduction of the sales
load of $0.900 per share paid by the shareholder from the $20.000 offering
price.
(4) Total investment return on net asset value is calculated assuming a
purchase price at the offering price of $20.000 less the sales load of
$0.900 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 price at the
offering price of $20.000 less the sales load of $0.900 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.
(5) Annualized.
Other
Other
--------------------------------------------------------------------------------
38
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund as of May 31, 2004
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1: SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (the Fund) is
registered under the Investment Company Act of 1940 (the 1940 Act), as amended,
as a diversified, closed-end management investment company. The Fund was
organized under the laws of the Commonwealth of Massachusetts by an Agreement
and Declaration of Trust dated February 27, 2004. The Fund's investment
objective is to provide a high level of after-tax total return consisting
primarily of tax-advantaged dividend income and capital appreciation. The Fund
seeks to achieve its objective by investing primarily in dividend-paying common
and preferred stocks. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America.
A: INVESTMENT VALUATION
Marketable securities that are listed on foreign or U.S. securities exchanges
are valued at closing sale prices on the exchange where such securities are
principally traded. 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 generally valued
at the mean between the latest bid and asked prices. Other fixed income and debt
securities, including listed securities and securities for which price
quotations are available, will normally be valued on the basis of valuations
furnished by a pricing service. Options are valued at the last sale price on a
U.S. exchange or board of trade or, in the absence of a sale, at the mean
between the last bid and asked price. Short-term debt securities with a
remaining maturity of 60 days or less are valued at amortized cost, which
approximates fair value. Investments for which valuations or market quotations
are unavailable are valued at fair value using methods determined in good faith
by or at the direction of the Trustees.
B: INCOME
Dividend income is recorded on the ex-dividend date for dividends received in
cash and/or securities. However, if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis.
C: FEDERAL TAXES
The Fund's policy is to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to distribute to shareholders
each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal income or excise tax is
necessary.
D: OFFERING COSTS
Costs incurred by the Fund in connection with the offering of the common shares
were recorded as a reduction of capital paid in excess of par applicable to
common shares.
E: WRITTEN OPTIONS
Upon the writing of a call or a put option, an amount equal to the premium
received by the Fund is included in the Statement of Assets and Liabilities as a
liability. The amount of the liability is
--------------------------------------------------------------------------------
39
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
subsequently marked-to-market to reflect the current value of the option written
in accordance with the Fund's policies on investment valuations discussed above.
Premiums received from writing options which expire are treated as realized
gains. Premiums received from writing options which are exercised or are closed
are added to or offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The Fund, as
writer of an option, may have no control over whether the underlying securities
may be sold (call) or purchased (put) and, as a result, bears the market risk of
an unfavorable change in the price of the securities underlying the written
option.
F: PURCHASED OPTIONS
Upon the purchase of a call or put option, the premium paid by the Fund is
included in the Statement of Assets and Liabilities as an investment. The amount
of the investment is subsequently marked-to-market to reflect the current market
value of the option purchased, in accordance with the Fund's policies on
investment valuations discussed above. If an option which the Fund has purchased
expires on the stipulated expiration date, the Fund will realize a loss in the
amount of the cost of the option. If the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss, depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option. If a Fund exercises a put option, it will realize a gain or
loss from the sale of the underlying security, and the proceeds from such sale
will be decreased by the premium originally paid. If the Fund exercises a call
option, the cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
G: SWAP AGREEMENTS
The Fund may enter into swap agreements 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 on a net basis. 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 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. These instruments are
traded in the over-the-counter market. 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.
H: USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual results could
differ from those estimates.
I: OTHER
Investment transactions are accounted for on a trade date basis. Realized gains
and losses are computed on the specific identification of the securities sold.
--------------------------------------------------------------------------------
40
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
J: FOREIGN CURRENCY TRANSACTIONS
Investment valuations, other assets, and liabilities initially expressed in
foreign currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investment securities and
income and expenses are converted into U.S. dollars based upon currency exchange
rates prevailing on the respective dates of such transactions. Recognized gains
or losses on investment transactions attributable to foreign currency exchange
rates are recorded for financial statement purposes as net realized gains and
losses on investments. That portion of unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates is
not separately disclosed.
K: INTERIM FINANCIAL STATEMENTS
The interim financial statements relating to May 31, 2004 and for the period
then ended have not been audited by independent certified public accountants,
but in the opinion of the Fund's management reflect all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
financial statements.
2: DISTRIBUTION TO SHAREHOLDERS
The Fund intends to make monthly distributions of net investment income.
Distributions are recorded on the ex-dividend date. In addition, at least
annually, the Funds intends to distribute net capital gain, if any.
3: INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Fund. Under the advisory agreement, EVM receives a monthly advisory fee in the
amount equal to 0.85% annually of average daily gross assets of the Fund. For
the period from the start of business, April 30, 2004 to May 31, 2004, the
advisory fee amounted to $195,803. EVM serves as the administrator of the Fund,
but receives no compensation for providing administrative services to the Fund.
In addition, the Adviser 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 five years of the Fund's operations, 0.15% of average daily gross
assets in year six, 0.10% in year seven and 0.05% in year eight. For the period
from the start of business, April 30, 2004 to May 31, 2004 the Investment
Adviser waived $46,071 of its advisory fee. In addition, the Adviser has agreed
to reimburse the Fund for all organizational costs, estimated at $7,500, which
is payable by the Adviser at May 31, 2004.
Trustees of the Fund who are not affiliated with EVM may elect to defer receipt
of all or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the period from the start of business,
April 30, 2004, to May 31, 2004, no significant amounts have been deferred.
Certain officers and Trustees of the Fund are officers of the above
organization.
4: PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short -term obligations,
aggregated $303,723,996 and $31,875,616 respectively, for the period from the
start of business, April 30, 2004, to May 31, 2004.
--------------------------------------------------------------------------------
41
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
5: FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of investments
owned by the Fund at May 31, 2004, as computed on a federal income tax basis,
were as follows:
AGGREGATE COST.............................................. $272,239,005
------------
Gross unrealized appreciation............................... $ 3,055,967
Gross unrealized depreciation............................... (3,543,767)
------------
NET UNREALIZED DEPRECIATION................................. $ (487,800)
------------
6: COMMON SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Fund to issue an unlimited number of full
and fractional $0.01 par value common shares of beneficial interest.
Transactions in common shares were as follows:
PERIOD ENDED
MAY 31, 2004
(UNAUDITED)(1)
-----------------------------------------------------------------------------
Sales....................................................... 14,505,000
----------
NET INCREASE................................................ 14,505,000
==========
------------
(1) For the period from the start of business, April 30, 2004 to May 31, 2004.
7: FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk in the
normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options,
forward foreign currency exchange contracts, and financial futures contracts and
may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes. The notional or contractual amounts
of these instruments represent the investment the Fund has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. The Fund did not have any open obligations under these financial
instruments at May 31, 2004.
--------------------------------------------------------------------------------
42
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.
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A-1
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.
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A-2
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.
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A-3
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
--------------------------------------------------------------------------------
A-4
DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
FITCH RATINGS
INVESTMENT GRADE 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.
--------------------------------------------------------------------------------
A-5
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.
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A-6
Ex.(B)(2)
APPENDIX B: AMENDED BY-LAWS
--------------------------------------------------------------------------------
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
AMENDMENT NO. 1 TO BY-LAWS--STATEMENT
CREATING THREE SERIES OF
AUCTION PREFERRED SHARES
WHEREAS, Section 5.1 of Article VI of the Agreement and Declaration of Trust
dated February 27, 2004 of Eaton Vance Tax-Advantaged Global Dividend
Opportunities Fund (the "Declaration of Trust"), a copy of which is on file in
the office of the Secretary of the Commonwealth of The Commonwealth of
Massachusetts, provides that the Trustees may, without shareholder approval,
authorize one or more classes of shares (which classes may be divided into two
or more series), shares of each such class or series having such preferences,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, as the Trustees may determine and as shall
be set forth in the By-laws; and
WHEREAS, pursuant to authority expressly vested in the Trustees of the Fund by
Section 5.1 of Article VI of the Declaration of Trust, the Trustees have
authorized, in addition to that Fund's common shares, a class of preferred
shares which are now to be issued divided into one series of 2,000 shares, one
series of 2,000 shares, and one series of 1,800 shares of its authorized
preferred shares, $0.01 par value, liquidation preference $25,000 per share plus
accumulated but unpaid dividends thereon, if any (whether or not earned or
declared), plus the premium, if any, resulting from the designation of a Premium
Call Period, designated respectively Series A Auction Preferred Shares, Series B
Auction Preferred Shares and Series C Auction Preferred Shares.
NOW, THEREFORE, the By-laws of Eaton Vance Tax-Advantaged Global Dividend
Opportunities Fund are hereby amended as follows:
1. ARTICLES VII through XIII shall be redesignated as ARTICLES VIII
through XIV and all affected cross references therein hereby are
amended accordingly.
2. A new ARTICLE VII shall be added as follows:
ARTICLE VII
STATEMENT CREATING THREE SERIES OF AUCTION PREFERRED SHARES
DESIGNATION
Auction Preferred Shares, Series A: 2,000 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series A." Each share of Auction Preferred Shares, Series A (sometimes referred
to herein as "Series A APS") may be issued on a date to be determined by the
Board of Trustees of the Fund or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Fund or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series A
APS shall constitute a separate series of Preferred Shares of the Fund, and each
share of Series A APS shall be identical.
Auction Preferred Shares, Series B: 2,000 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred
--------------------------------------------------------------------------------
B-1
Shares, Series B." Each share of Auction Preferred Shares, Series B (sometimes
referred to herein as "Series B APS") may be issued on a date to be determined
by the Board of Trustees of the Fund or pursuant to their delegated authority;
have an Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Fund or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series B
APS shall constitute a separate series of Preferred Shares of the Fund, and each
share of Series B APS shall be identical.
Auction Preferred Shares, Series C: 1,800 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series C." Each share of Auction Preferred Shares, Series C (sometimes referred
to herein as "Series C APS") may be issued on a date to be determined by the
Board of Trustees of the Fund or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Fund or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series C
APS shall constitute a separate series of Preferred Shares of the Fund, and each
share of Series C APS shall be identical. The Series A APS, the Series B APS,
and the Series C APS are sometimes collectively referred to herein as the "APS."
1. DEFINITIONS. (a) Unless the context or use indicates another or different
meaning or intent, in these Amended By-Laws the following terms have the
following meanings, whether used in the singular or plural:
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"28-Day Dividend Period" means a Dividend Period consisting of 28 days.
"1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
"1940 Act APS Asset Coverage" means asset coverage, as defined in section 18(h)
of the 1940 Act, of at least 200% with respect to all outstanding senior
securities of the Fund which are shares of beneficial interest, including all
outstanding shares of APS and other Preferred Shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares of beneficial
interest of a closed-end investment company as a condition of paying dividends
on its Common Shares).
"1940 Act Cure Date," with respect to the failure by the Fund to maintain the
1940 Act APS Asset Coverage (as required by paragraph 6 of these Amended
By-Laws) as of the last Business Day of each month, means the last Business Day
of the following month.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of these
Amended By-Laws.
"Adviser" means the Fund's investment adviser, which initially shall be Eaton
Vance Management.
"Affiliate" means any person known to the Auction Agent to be controlled by, in
control of or under common control with the Fund; provided that Eaton Vance
Management shall not be deemed to be an Affiliate nor shall any corporation or
any person controlled by, in control of or under common control with such
entity, one of the trustees, directors or executive officers of which is also a
trustee, director or executive officer of the Fund, be deemed to be an
Affiliate.
"Agent Member" means a member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more shares of APS or a Potential
Beneficial Owner.
"Amended By-Laws" means the By-Laws of the Fund, as amended by this Statement
creating the APS and as may otherwise be amended from time-to-time.
--------------------------------------------------------------------------------
B-2
"Applicable Percentage" has the meaning set forth in paragraph 9(a)(vii) of
these Amended By-Laws.
"Applicable Rates" means the rates per annum at which cash dividends are payable
on each Series of APS or Other APS, as the case may be, for any Dividend Period.
"Applicable Spread Over the Reference Rate" means the rate equaling the sum of
the Applicable Spread plus the Reference Rate.
"Approved Price" means the "fair value" as determined by the Fund in accordance
with the valuation procedures adopted from time to time by the Board of Trustees
of the Fund and for which the Fund receives a marked-to-market price (which, for
the purpose of clarity, shall not mean Market Value) from an independent source
at least semi-annually.
"APS" means, as the case may be, the Auction Preferred Shares.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean the dollar
amount equal to the sum of (i)(A) the product of the number of Outstanding
shares of each Series of APS on such date by the Liquidation Preference (and
redemption premium, if any) per share of such Series; (B) the aggregate amount
of dividends that will have accumulated at the respective Applicable Rates
(whether or not earned or declared) to (but not including) the first respective
Dividend Payment Dates for each Series of APS Outstanding that follows such
Valuation Date; (C) the aggregate amount of dividends that would accumulate on
Outstanding Preferred Shares from such first Dividend Payment Dates therefor
referenced in (B) of this paragraph through the 45th day after such Valuation
Date at the respective Applicable Rates referenced in (B) of this paragraph; (D)
the amount of anticipated non-interest expenses of the Fund for the 90 days
subsequent to such Valuation Date; (E) the amount of the current outstanding
balances of any indebtedness or obligations of the Fund senior in right of
payment to the Preferred Shares plus interest actually accrued together with 30
days additional interest on the current outstanding balances calculated at the
current rate; and (F) any other current liabilities payable during the 30 days
subsequent to such Valuation Date, including, without limitation, indebtedness
due within one year and any redemption premium due with respect to the Preferred
Shares for which a Notice of Redemption has been sent, as of such Valuation
Date, to the extent not reflected in any of (i)(A) through (i)(E) (including,
without limitation, any liabilities incurred for the purpose of clearing
securities transactions) less (ii) the sum of any cash plus the value of any of
the Fund's assets irrevocably deposited by the Fund for the payment of any of
(i)(A) through (i)(F) ("value," for purposes of this clause (ii), means the
Discounted Value of the security, except that if the security matures prior to
the relevant redemption payment date and is either fully guaranteed by the U.S.
Government or is rated P2 by Moody's and A2 by Fitch, it will be valued at its
face value).
"APS Basic Maintenance Amount Test" means a test which is met if: (a) the
aggregate Discounted Values of the Moody's Eligible Assets meets or exceeds 1.0
times the APS Basic Maintenance Amount and (b) the aggregate Discounted Values
of the Fitch Eligible Assets meets or exceeds 1.0 times the APS Basic
Maintenance Amount.
"APS Basic Maintenance Cure Date," with respect to the failure by the Fund to
satisfy the APS Basic Maintenance Amount (as required by paragraph 7(a) of these
Amended By-Laws) as of a given Valuation Date, means the 7th Business Day
following such Valuation Date.
"APS Basic Maintenance Report" means a report signed by any of the President,
Treasurer, any Senior Vice President or any Vice President of the Fund which
sets forth, as of the related Valuation Date, the assets of the Fund, the Market
Value and the Discounted Value thereof (seriatim and in aggregate), and the APS
Basic Maintenance Amount.
"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 the Fund to follow
--------------------------------------------------------------------------------
B-3
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 and Other APS.
"Auction Procedures" means the procedures for conducting Auctions set forth in
paragraph 9 of this Article VII, of these Amended By-Laws.
"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 shares of APS or a Broker-Dealer that holds APS for its own account.
"Bi-Monthly Valuation Date" means the fifteenth day of each month if such day is
a Business Day or the first Business Day preceding the fifteenth and the last
Business Day of each month in each fiscal year of the Fund, commencing from the
Date of Original Issue.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law to
perform the functions required of a Broker-Dealer in paragraph 9 of this Article
VII, of these Amended By-Laws, 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 between the Auction Agent and a
Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 9 of this Article VII, of these Amended
By-Laws.
"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 The
City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the shares of beneficial interest designated as common
shares, par value $0.01 per share, of the Fund.
"Date of Original Issue" means, with respect to any share of APS or Other APS,
the date on which the Fund originally issues such share.
"Declaration of Trust" means the Agreement and Declaration of Trust, as amended
and supplemented (including these Amended By-Laws), of the Fund.
"Deposit Securities" means cash and securities rated at least A2 (having a
remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by Moody's or A
(having a remaining maturity of 12 months or less), F-1+ by Fitch.
"Discounted Value" as of any Valuation Date, means (i) with respect to an Fitch
Eligible Asset, the quotient of the Market Value thereof divided by the
applicable Fitch Discount Factor and (ii)(a) with respect to a Moody's Eligible
Asset that is not currently callable as of such Valuation Date at the option of
the issuer thereof, the quotient of the Market Value thereof divided by the
applicable Moody's Discount Factor, or (b) with respect to a Moody's Eligible
Asset that is currently callable as of such Valuation Date at the option of the
issuer thereof, the quotient of (1) the lesser of the Market Value or call price
thereof, including any call premium, divided by (2) the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to APS, has the meaning set forth in
paragraph 2(b)(i) of these Amended By-Laws and, with respect to Other APS, has
the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend Period,
28-Day Dividend Period and any Special Dividend Period.
"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 shares of APS in
the Share Books.
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B-4
"Fitch" means Fitch Ratings and its successors at law.
"Fitch Approved Foreign Nation" means a corporation, limited liability company
or limited partnership or similar entity domiciled in a country whose sovereign
debt rating in a non-local currency is assigned a rating of "AAA".
"Fitch Discount Factor" means, for purposes of determining the Discounted Value
of any Fitch Eligible Asset, the percentage determined as follows, provided
however, that for unhedged foreign investments a discount factor of 105% shall
be applied to the Market Value thereof in addition to the Fitch Discount Factor
as determined in accordance with the procedures below, provided further that, if
the foreign issuer of such unhedged foreign investment is from a country whose
sovereign discount factor of 117% shall be applied to the Market Value thereof
in addition to the Fitch Discount Factor as determined in accordance with the
procedures below. The Fitch Discount Factor for any Fitch Eligible Asset, other
than the securities set forth below, will be the percentage provided in writing
by Fitch.
(i) Corporate Debt Securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS (NON-CONVERTIBLES)
TERMS TO MATURITY AAA AA A BBB BB B NR(1)
----------------- --- --- --- --- --- --- -----
1 year or less.................................. 106 108 110 112 130 152 152
2 years or less (but longer than 1 year)........ 106 108 110 112 130 152 152
3 years or less (but longer than 2 years)....... 106 108 110 112 130 152 152
4 years or less (but longer than 3 years)....... 111 113 115 117 134 152 152
5 years or less (but longer than 4 years)....... 111 113 115 117 134 152 152
7 years or less (but longer than 5 years)....... 114 116 118 120 136 152 152
10 years or less (but longer than 7 years)...... 116 118 120 122 137 152 152
15 years or less (but longer than 10 years)..... 120 122 124 124 139 152 152
30 years or less (but longer than 15 years)..... 124 127 129 129 145 152 152
Greater than 30 years........................... 124 127 129 129 145 152 152
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Fund will use the percentage set forth under "not
rated" in this table. Securities rated below B by Fitch shall be treated the
same as securities not rated by Fitch.
The Fitch Discount Factors presented in the immediately preceding table apply to
corporate debt securities that are Performing and have a Market Value determined
by a Pricing Service or an Approved Price. The Fitch Discount Factor noted in
the table above for a debt security rated B by Fitch shall apply to any
non-Performing debt security with a price equal to or greater than $0.90. The
Fitch Discount Factor noted in the table above for a debt security rated below B
by Fitch shall apply to any non-Performing debt security with a price less than
$0.90 but equal to or greater than $0.20. If a debt security does not have a
Market Value determined by a Pricing Service or an Approved Price, a rating two
rating categories below the actual rating on the debt security will be used
(e.g., where the
--------------------------------------------------------------------------------
B-5
actual rating is A-, the rating for Debt Securities rated BB- will be used). The
Fitch Discount Factor for a debt security issued by a limited partnership that
is not a Rule 144A Security shall be the Discount Factor determined in
accordance with the table set forth above multiplied by 105%.
The Fitch Discount Factors presented in the immediately preceding table will
also apply to corporate obligations backed by a guaranty, a letter of credit or
insurance issued by a third party. If the third-party credit rating is the basis
for the rating on the obligation, then the rating on the third party will be
used to determine the Fitch Discount Factor in the table.
(ii) Common stock and warrants: The Fitch Discount Factor applied to Common
Stock will be:
Large-cap stocks: 200%
Mid-cap stocks: 233%
Small-cap stocks: 286%
Others: 370%
See "Fitch Eligible Assets--common stocks" for definitions of Large-cap, Mid-cap
and Small-cap.
(iii) Preferred stock: The percentage determined by references to the rating
of a preferred stock in accordance with the table set forth below.
PREFERRED STOCK(1) DISCOUNT FACTOR
------------------ ---------------
AAA......................................................... 130%
AA.......................................................... 133%
A........................................................... 135%
BBB......................................................... 139%
BB.......................................................... 154%
Not rated or below BB....................................... 161%
Investment Grade DRD........................................ 164%
Not rated or below Investment Grade DRD..................... 200%
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Fund will use the percentage set forth under "not
rated" in this table.
(iv) Convertible securities: The Fitch Discount Factor applied to convertible
securities is (A) 200% for investment grade convertibles and (B) 222% for below
investment grade convertibles so long as such convertible debt securities have
neither (x) conversion premium greater than 100% nor (y) have a yield to
maturity or yield to worst of greater than 15.00% above the relevant Treasury
curve.
The Fitch Discount Factor applied to convertible debt securities which have
conversion premiums of greater than 100% is (A) 152% for investment grade
convertibles and (B) 179% for below investment grade convertibles so long as
such convertible debt securities do not have a yield to maturity or yield to
worst of greater than 15.00% above the relevant Treasury curve.
The Fitch Discount Factor applied to convertible debt securities which have a
yield to maturity or yield to worse of greater than 15.00% above the relevant
Treasury curve is 370%.
--------------------------------------------------------------------------------
B-6
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Discount Factor (e.g., where the only rating on a security
is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only
rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be
used). If a security is not rated by any Rating Agency, the Fund will treat the
security as if it were below investment grade.
(v) U.S. Government Securities:
TIME REMAINING TO MATURITY DISCOUNT FACTOR
-------------------------- ---------------
1 year or less.............................................. 101.5%
2 years or less (but longer than 1 year).................... 103%
3 years or less (but longer than 2 years)................... 105%
4 years or less (but longer than 3 years)................... 107%
5 years or less (but longer than 4 years)................... 109%
7 years or less (but longer than 5 years)................... 112%
10 years or less (but longer than 7 years).................. 114%
15 years or less (but longer than 10 years)................. 122%
20 years or less (but longer than 15 years)................. 130%
25 years or less (but longer than 20 years)................. 146%
Greater than 30 years....................................... 154%
(vi) Short-Term Investments and Cash: The Fitch Discount Factor applied to
short-term portfolio securities, including without limitation Debt Securities,
Short Term Money Market Instruments and municipal debt obligations, will be (A)
100%, so long as such portfolio securities mature or have a demand feature at
par exercisable within the Fitch Exposure Period; (B) 115%, so long as such
portfolio securities mature or have a demand feature at par not exercisable
within the Fitch Exposure Period; and (C) 125%, so long as such portfolio
securities neither mature nor have a demand feature at par exercisable within
the Fitch Exposure Period. A Fitch Discount Factor of 100% will be applied to
cash.
(vii) Rule 144A Securities: The Fitch Discount Factor applied to Rule 144A
Securities shall be the Discount Factor determined in accordance with the table
above under Corporate Debt Securities in subsection (i) multiplied by 110% until
such securities are registered under the Securities Act.
(viii) Real Estate Investments Trusts:
(a) For common stock and preferred stock of REITs and other real estate
companies the Fitch Discount Factor applied shall be:
REIT or other real estate company preferred stock........... 154%
REIT or other real estate company common stock.............. 196%
--------------------------------------------------------------------------------
B-7
(b) For corporate debt securities of REITs the Fitch Discount Factor applied
shall be:
TERM TO MATURITY AAA AA A BBB BB B CCC
---------------- --- --- --- --- --- --- ---
1 year.................................. 111% 114% 117% 120% 121% 127% 227%
2 year.................................. 116% 125% 125% 127% 132% 137% 137%
3 year.................................. 121% 123% 127% 131% 133% 140% 225%
4 year.................................. 126% 126% 129% 132% 136% 140% 164%
5 year.................................. 131% 132% 135% 139% 144% 149% 185%
7 year.................................. 140% 143% 146% 152% 159% 167% 228%
10 year................................. 141% 143% 147% 153% 160% 168% 232%
12 year................................. 144% 144% 150% 157% 165% 174% 249%
15 year................................. 148% 151% 155% 163% 172% 182% 274%
20-30 year.............................. 152% 156% 160% 169% 180% 191% 306%
If a security is not rated by Fitch Ratings but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g., where
the S&P rating is A- and the Moody's rating is Baa1, a rating by Fitch Ratings
of BBB+ will be used). If a security is not rated by Fitch Ratings but is rated
by only one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g., where
the only rating on a security is an S&P rating of AAA, a rating by Fitch Ratings
of AAA will be used, and where the only rating on a security is a Moody's rating
of Ba3, a rating by Fitch Ratings of BB- will be used). If a security is not
rated by any Rating Agency, the Fund will treat the security as if it were below
investment grade.
(ix) Futures and call options: For purposes of the APS Basic Maintenance
Amount, futures held by the Fund and call options sold by the Fund shall not be
included as Fitch Eligible Assets. However, such assets shall be valued at
Market Value by subtracting the good faith margin and the maximum daily trading
variance as of a Valuation Date. For call options purchased by the Fund, the
Market Value of the call option will be included as Fitch Eligible Asset subject
to a Fitch Discount Factor mutually agreed to between the Fund and Fitch based
on the characteristics of the option contract such as its maturity and the
underlying security of the contract.
(x) Securities lending: The Fund may engage in securities lending in an amount
not to exceed 10% of the Fund's total gross assets. For purposes of calculating
the APS Basic Maintenance Amount, such securities lent shall be included as
Fitch Eligible Assets with the appropriate Fitch Discount Factor applied to such
lent security. The obligation to return such collateral shall not be included as
an obligation/liability for purposes of calculating the APS Basic Maintenance
Amount. However, the Fund may reinvest cash collateral for securities lent in
conformity with its investment objectives and policies and the provisions of
these bylaws. In such event, to the extent that securities lending collateral
received is invested by the Fund in assets that otherwise would be Fitch
Eligible Assets and the value of such assets exceeds the amount of the Fund's
obligation to return the collateral on a Valuation Date, such excess amount
shall be included in the calculation of Fitch Eligible Assets by applying the
applicable Fitch Discount Factor to this amount and adding the product to total
Fitch Eligible Assets. Conversely, if the value of assets in which securities
lending collateral has been invested is less then the amount of the Fund's
obligation to return the collateral on a Valuation Date, such difference shall
be included as an obligation/liability of the Fund for purposes of calculating
the APS Basic Maintenance Amount. Collateral received by the Fund in a
securities lending transaction and maintained by the Fund in the form received
shall not be included as a Fitch Eligible Asset for purposes of calculating the
APS Basic Maintenance Amount.
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B-8
(xi) Swaps (including Total Return Swaps and Interest Rate Swaps): Total
Return and Interest Rate Swaps are subject to the following provisions:
If the Fund has an outstanding gain from a swap transaction on a Valuation Date,
the gain will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor on the counterparty to the swap transaction. At the time a swap
is executed, the Fund will only enter into swap transactions where the
counterparty has at least a Fitch rating of A- or Moody's rating of A3.
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Fund has an outstanding liability from a swap transaction on a
Valuation Date, the Fund counts such liability as an outstanding liability from
the total Fitch Eligible Assets in calculating the APS Basic Maintenance Amount.
(B) In addition, for swaps other than Total Return Swaps, the Market Value of
the position (positive or negative) will be included as a Fitch Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS.
(C) (1) The underlying securities subject to a Credit Default Swap sold by the
Fund will be subject to the applicable Fitch Discount Factor for each security
subject to the swap;
(2) If the Fund purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor assessed based on the counterparty risk; and
(3) The Fund will not include a Credit Default Swap as a Fitch Eligible Asset
purchased by the Fund without the Fund holding the underlying security or when
the Fund buys a Credit Default Swap for a basket of securities without holding
all the securities in the basket.
"Fitch Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) BBB or
higher by Fitch or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A or higher by Fitch
or the equivalent by another Rating Agency if the payment date is within thirty
days of the Valuation Date, and (C) A+ or higher by Fitch or the equivalent by
another Rating Agency if the payment date is within the Fitch Exposure Period)
and receivables for Fitch Eligible Assets sold if the receivable is due within
five (5) Business Days of the Valuation Date, and if the trades which generated
such receivables are settled within five (5) Business Days;
(ii) Short Term Money Market Instruments so long as (A) such securities are
rated at least F1 by Fitch or the equivalent by another Rating Agency, (B) in
the case of demand deposits, time deposits and overnight funds, the supporting
entity is rated at least A by Fitch or the equivalent by another Rating Agency,
or (C) in all other cases, the supporting entity (1) is rated at least A by
Fitch or the equivalent by another Rating Agency and the security matures within
one month, (2) is rated at least A by Fitch or the equivalent by another Rating
Agency and the security matures within three months or (3) is rated at least AA
by Fitch or the equivalent by another Rating Agency and the security matures
within six months;
(iii) U.S. Government Securities;
(iv) debt securities if such securities have been registered under the
Securities Act or are restricted as to resale under federal securities laws but
are eligible for resale pursuant to Rule 144A under the Securities Act as
determined by the Fund's investment manager or portfolio manager acting pursuant
to procedures approved by the Board of Trustees of the Fund; and such securities
are issued by (1) a U.S. corporation, limited liability company or limited
partnership, (2) a corporation, limited liability company or limited partnership
domiciled in a Fitch Approved Foreign Nation, (3) the government of any Approved
Foreign Nation or any of its agencies, instrumentalities or political
subdivisions (the debt securities of Approved Foreign Nation issuers being
referred to collectively as "Foreign Bonds"), (4) a corporation, limited
liability company or limited partnership domiciled in Canada or (5) the
--------------------------------------------------------------------------------
B-9
Canadian government or any of its agencies, instrumentalities or political
subdivisions (the debt securities of Canadian issuers being referred to
collectively as "Canadian Bonds"). Foreign Bonds held by the Fund will qualify
as Fitch Eligible Assets only up to a maximum of 25% of the aggregate Market
Value of all assets constituting Fitch Eligible Assets. Similarly, Canadian
Bonds held by the Fund will qualify as Fitch Eligible Assets only up to a
maximum of 20% of the aggregate Market Value of all assets constituting Fitch
Eligible Assets. Notwithstanding the limitations in the two preceding sentences,
Foreign Bonds and Canadian Bonds held by the Fund will qualify as Fitch Eligible
Assets only up to a maximum of 30% of the aggregate Market Value of all assets
constituting Fitch Eligible Assets. All debt securities satisfying the foregoing
requirements and restrictions of this paragraph (iv) are herein referred to as
"Debt Securities."
(v) Preferred stocks if (i) such securities provide for the periodic payment of
dividends thereon in cash in U.S. dollars or euros and do not provide for
conversion or exchange into, or have warrants attached entitling the holder to
receive equity capital at any time over the respective lives of such securities,
(ii) the issuer of such a preferred stock has common stock listed on either the
New York Stock Exchange, the American Stock Exchange or in the over-the-counter
market, and (iii) the issuer of such a preferred stock has a senior debt rating
or preferred stock rating from Fitch of BBB- or higher or the equivalent rating
by another Rating Agency. In addition, the preferred stocks issue must be at
least $40 million;
(vi) common stocks (i) (A) which are traded on the New York Stock Exchange, the
American Stock Exchange or in the over-the-counter market, (B) which, if cash
dividend paying, pay cash dividends in U.S. dollars, and (C) which may be sold
without restriction by the Corporation; provided, however, that (1) common stock
which, while a Fitch Eligible Asset owned by the Corporation, ceases paying any
regular cash dividend will no longer be considered a Fitch Eligible Asset until
60 calendar days after the date of the announcement of such cessation, unless
the issuer of the common stock has senior debt securities rated at least A- by
Fitch or the equivalent by another Rating Agency and (2) the aggregate Market
Value of the Corporation's holdings of the common stock of any issuer in excess
of 5% per US issuer of the number of Outstanding shares times the Market Value
of such common stock shall not be a Fitch's Eligible Asset; (ii) securities
denominated in any currency other than the U.S. dollar and securities of issuers
formed under the laws of jurisdictions other than the United States, its states
and the District of Columbia for which there are dollar-denominated American
Depository Receipts ("ADRs") which are traded in the United States on exchanges
or over-the-counter and are issued by banks formed under the laws of the United
States, its states or the District of Columbia; provided, however, that the
aggregate Market Value of the Corporation's holdings of securities denominated
in currencies other than the U.S. dollar and ADRs in excess of 3% of the
aggregate Market Value of the Outstanding shares of common stock of such issuer
or in excess of 10% of the Market Value of the Corporation's Fitch Eligible
Assets with respect to issuers formed under the laws of any single such non-U.S.
jurisdiction other than Approved Foreign Nations shall not be a Fitch Eligible
Asset; (iii) Small-cap stocks refer to stocks with a market capitalization
between $300 million to $2 billion. Mid-cap stocks refer to stocks with a market
capitalization between $2 billion to $10 billion. Large-cap stocks are companies
having a market capitalization between $10 billion and $200 billion.
(vii) Rule 144A Securities;
(viii) warrants on common stocks described in (vi) above;
(ix) any common stock, preferred stock or any debt security of REITs or real
estate companies;
(x) Interest Rate Swaps entered into according to International Swap Dealers
Association ("ISDA") standards if (1) the counterparty to the swap transaction
has a short-term rating of not less than F1 by Fitch or the equivalent by
another Rating Agency, or, if the swap counterparty does not have a short-term
rating, the counterparty's senior unsecured long-term debt rating is AA or
higher by Fitch or the equivalent by another Rating Agency and (2) the original
aggregate notional amount of the Interest
--------------------------------------------------------------------------------
B-10
Rate Swap transaction or transactions is not greater than the liquidation
preference of the APS originally issued;
(xi) swaps, including total return swaps entered into according to ISDA;
(xii) Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of
the 1940 Act, not otherwise provided for in this definition may be included in
Fitch Eligible Assets, but, with respect to any financial contract, only upon
receipt by the Fund of a writing from Fitch Ratings specifying any conditions on
including such financial contract in Fitch Eligible Assets and assuring the Fund
that including such financial contract in the manner so specified would not
affect the credit rating assigned by Fitch Ratings to the APS; and
(xiii) Fitch Hedging Transactions.
Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of the
Investment Company Act, not otherwise provided for in this definition may be
included in Fitch Eligible Assets, but, with respect to any financial contract,
only upon receipt by the Fund of a writing from Fitch specifying any conditions
on including such financial contract in Fitch Eligible Assets and assuring the
Fund that including such financial contract in the manner so specified would not
affect the credit rating assigned by Fitch to the APS.
Where the Fund sells an asset and agrees to repurchase such asset in the future,
the Discounted Value of such asset will constitute a Fitch Eligible Asset and
the amount the Fund is required to pay upon repurchase of such asset will count
as a liability for the purposes of the APS Basic Maintenance Amount. Where the
Fund purchases an asset and agrees to sell it to a third party in the future,
cash receivable by the Fund thereby will constitute a Fitch Eligible Asset if
the long-term debt of such other party is rated at least A- by Fitch or the
equivalent by another Rating Agency and such agreement has a term of 30 days or
less; otherwise the Discounted Value of such purchased asset will constitute a
Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch Eligible
Asset to the extent that it has been irrevocably deposited for the payment of
(i)(A) through (i)(E) under the definition of APS Basic Maintenance Amount or to
the extent it is subject to any liens, except for (A) liens which are being
contested in good faith by appropriate proceedings and which Fitch has indicated
to the Fund will not affect the status of such asset as a Fitch Eligible Asset,
(B) liens for taxes that are not then due and payable or that can be paid
thereafter without penalty, (C) liens to secure payment for services rendered or
cash advanced to the Fund by its investment manager or portfolio manager, the
Fund's custodian, transfer agent or registrar or the Auction Agent and (D) liens
arising by virtue of any repurchase agreement.
FITCH DIVERSIFICATION LIMITATIONS:
Portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Fitch's
Eligible Assets:
EQUITY SECURITIES
MAXIMUM SINGLE
TYPE ISSUER(%)(1)
---- --------------
Large-cap................................................... 5%
Mid-cap..................................................... 5%
Small-cap................................................... 5%
---------------
(1) Percentages represent both a portion of the aggregate market value and
number of outstanding shares of the common stock portfolio.
--------------------------------------------------------------------------------
B-11
DEBT SECURITIES
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
SECURITY RATED AT LEAST ISSUER(1) INDUSTRY(1),(2) ($ IN MILLION)(3)
----------------------- -------------- --------------- ------------------
AAA.................................. 100% 100% $100
AA-.................................. 20 75 100
A-................................... 10 50 100
BBB-................................. 6 25 100
BB-.................................. 4 16 50
B-................................... 3 12 50
CCC.................................. 2 8 50
---------------
(1) Percentages represent a portion of the aggregate Market Value of corporate
debt securities.
(2) Industries are determined according to Fitch's Industry Classifications, as
defined herein.
(3) Preferred stock has a minimum issue size of $40 million, and mortgage pass
throughs issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association ("FNMA") or the Government National
Mortgage Association ("GNMA"), which has no minimum issue size.
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Diversification Limitations (e.g., where the only rating on
a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and
where the only rating on a security is a Moody's rating of Ba, a Fitch rating of
BB will be used). If a security is not rated by any Rating Agency, the Trust
will use the percentage set forth under "not rated" in this table.
"Fitch Exposure Period" means the period commencing on (and including) a given
Valuation Date and ending 41 days thereafter.
"Fitch General Portfolio Requirements" means that the Fund's portfolio must meet
the following diversification requirements: (a) no more than 25% by par value of
the Fund's total assets can be invested in the securities of borrowers and other
issuers having their principal business activities in the same Fitch Industry
Classification; provided, that this limitation shall not apply with respect to
U.S. Government Securities and provided further that for purposes of this
subsection (a), the term "issuer" shall not include a lender selling a
participation to the Fund or any other person interpositioned between such
lender and the Fund with respect to a participation and (b) no more than 10% by
par value of the Fund's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Fund together with any other persons
interpositioned between such lender and the Fund with respect to such
participation.
"Fitch Hedging Transactions" means purchases or sales of exchange-traded
financial futures contracts based on any index approved by Fitch, LIBOR or
Treasury Bonds, and purchases, writings or sales of exchange-traded put options
on such futures contracts, and purchases, writings or sales of exchange-traded
call options on such financial futures contracts, and put and call options on
such financial futures contracts ("Fitch Hedging Transactions"), subject to the
following limitations:
(i) The Fund may not engage in any Fitch Hedging Transaction based on any index
approved by Fitch (other than transactions that terminate a futures contract or
option held by the Fund by the Fund's taking the opposite position thereto
("closing transactions")) that would cause the Fund at the
--------------------------------------------------------------------------------
B-12
time of such transaction to own or have sold outstanding financial futures
contracts based on such index exceeding in number 10% of the average number of
daily traded financial futures contracts based on such index in the 30 days
preceding the time of effecting such transaction as reported by The Wall Street
Journal.
(ii) The Fund will not engage in any Fitch Hedging Transaction based on
Treasury Bonds or LIBOR (other than closing transactions) that would cause the
Fund at the time of such transaction to own or have sold:
(A) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 60% of the
aggregate Market Value of Fitch Eligible Assets owned by the Fund and at least
rated AA by Fitch (or, if not rated by Fitch Ratings, rated at least Aa by
Moody's; or, if not rated by Moody's, rated AAA by S&P); or
(B) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Fitch Eligible Assets owned by the Fund (other
than Fitch Eligible Assets already subject to a Fitch Hedging Transaction) and
rated at least A or BBB by Fitch (or, if not rated by Fitch Ratings, rated at
least Baa by Moody's; or, if not rated by Moody's, rated at least A or AA by
S&P) (for purposes of the foregoing clauses (i) and (ii), the Fund shall be
deemed to own futures contracts that underlie any outstanding options written by
the Fund);
(iii) The Fund may engage in closing transactions to close out any outstanding
financial futures contract based on any index approved by Fitch if the amount of
open interest in such index as reported by The Wall Street Journal is less than
an amount to be mutually determined by Fitch and the Fund.
(iv) The Fund may not enter into an option or futures transaction unless, after
giving effect thereto, the Fund would continue to have Fitch Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Shares Basic
Maintenance Amount.
"Fitch Industry Classification" means, for the purposes of determining Fitch
Eligible Assets, each of the following industry classifications:
FITCH INDUSTRY CLASSIFICATIONS SIC CODE (MAJOR GROUPS)
------------------------------ -----------------------
Aerospace and Defense....................................... 37, 45
Automobiles................................................. 37, 55
Banking and Finance......................................... 60, 65
Broadcasting and Media...................................... 27, 48
Building and Materials...................................... 15-17, 32, 52
Cable....................................................... 48
Chemicals................................................... 28, 30
Computers and Electronics................................... 35, 36
Consumer Products........................................... 23, 51
Energy...................................................... 13, 29, 49
Environmental Services...................................... 87
Farming and Agriculture..................................... 1-3, 7-9
Food, Beverage and Tobacco.................................. 20, 21, 54
Gaming, Lodging and Restaurants............................. 70, 58
Health Care and Pharmaceuticals............................. 38, 28, 80
Industrial/Manufacturing.................................... 35
Insurance................................................... 63, 64
Leisure and Entertainment................................... 78, 79
--------------------------------------------------------------------------------
B-13
FITCH INDUSTRY CLASSIFICATIONS SIC CODE (MAJOR GROUPS)
------------------------------ -----------------------
Metals and Mining........................................... 10, 12, 14, 33, 34
Miscellaneous............................................... 50, 72-76, 99
Paper and Forest Products................................... 8, 24, 26
Real Estate................................................. 67
Retail...................................................... 53, 56, 59
Sovereign................................................... N/A
Supermarkets and Drug Stores................................ 54
Telecommunications.......................................... 48
Textiles and Furniture...................................... 22, 25, 31, 57
Transportation.............................................. 40, 42-47
Utilities................................................... 49
RMBS prime.................................................. N/A
RMBS subprime............................................... N/A
Consumer ABS................................................ N/A
Commercial ABS--Small Business.............................. N/A
Commercial ABS--Travel/Transportation....................... N/A
Commercial ABS--Other....................................... N/A
CDO of corporates CMBS...................................... N/A
Structured Finance Obligations.............................. N/A
Packaging and Containers.................................... 26, 32, 34
Business Services........................................... 73, 87
The Fund shall use its discretion in determining which industry classification
is applicable to a particular investment.
"Fund" means Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund, a
Massachusetts business trust.
"Holder" means a Person identified as a holder of record of shares of APS in the
Share Register.
"Independent Accountant" means a nationally recognized accountant, or firm of
accountants, that is, with respect to the Fund, an independent public accountant
or firm of independent public accountants under the Securities Act of 1933, as
amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date as
determined by the Board of Trustees of the Fund or their designee with respect
to each series of APS or Other APS, as the case may be.
"Initial Dividend Period" has the meaning set forth in paragraph 2(c)(i) of this
Article VII, of these Amended By-Laws and, with respect to Other APS, has the
equivalent meaning.
"Initial Dividend Rate" means the rate per annum established by the Board of
Trustees or their designee, applicable to the Initial Dividend Period for such
series of APS and, with respect to Other APS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with a broker
as a margin payment at the time of purchase or sale of a futures contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
--------------------------------------------------------------------------------
B-14
"Interest Rate Swaps" means 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.
"LIBOR" means the London Interbank Offered Rate.
"LIBOR Dealers" means UBS Securities LLC and such other dealer or dealers as the
Fund may from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.
"LIBOR Rate" means on any Auction Date, means (i) the rate for deposits in U.S.
dollars for the designated Dividend Period, which appears on display page 3750
of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page as
may replace that page on that service, or such other service as may be selected
by the LIBOR Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m.,
London time, on the day that is the London Business Day preceding the Auction
Date (the "LIBOR Determination Date"), or (ii) if such rate does not appear on
Telerate Page 3750 or such other page as may replace such Telerate Page 3750,
(A) the LIBOR Dealer shall determine the arithmetic mean of the offered
quotations of the Reference Banks to leading banks in the London interbank
market for deposits in U.S. dollars for the designated Dividend Period in an
amount determined by such LIBOR Dealer by reference to requests for quotations
as of approximately 11:00 a.m. (London time) on such date made by such LIBOR
Dealer to the Reference Banks, (B) if at least two of the Reference Banks
provide such quotations, LIBOR Rate shall equal such arithmetic mean of such
quotations, (C) if only one or none of the Reference Banks provide such
quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the LIBOR
Dealer (after obtaining the Fund's approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Dividend
Period in an amount determined by the LIBOR Dealer (after obtaining the Fund's
approval) that is representative of a single transaction in such market at such
time by reference to the principal London offices of leading banks in the London
interbank market; provided, however, that if one of the LIBOR Dealers does not
quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Fund to
provide such rate or rates not being supplied by the LIBOR Dealer; provided
further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures
provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous
Auction Date. If the number of Dividend Period days shall be (i) seven days or
more but fewer than 21 days, such rate shall be the seven-day LIBOR rate; (ii)
21 days or more but fewer than 49 days, such rate shall be one-month LIBOR rate;
(iii) 49 or more but fewer than 77 days, such rate shall be the two-month LIBOR
rate; (iv) 77 or more but fewer than 112 days, such rate shall be the
three-month LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall
be the four-month LIBOR rate; (vi) 140 or more but fewer than 168 days, such
rate shall be the five-month LIBOR rate; (vii) 168 or more but fewer than 189
days, such rate shall be the six-month LIBOR rate; (viii) 189 or more but fewer
than 217 days, such rate shall be the seven-month LIBOR rate; (ix) 217 or more
but fewer than 252 days, such rate shall be the eight-month LIBOR rate; (x) 252
or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate;
(xi) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR
rate; (xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more but fewer than 365 days, such
rate shall be the twelve-month LIBOR rate.
"London Business Day" means any day on which commercial banks are generally open
for business in London.
"Long Term Dividend Period" means a 1-Year Dividend Period or a Special Dividend
Period consisting of a specified period of one whole year or more but not
greater than five years.
--------------------------------------------------------------------------------
B-15
"Mandatory 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 and excluding Additional Dividends.
"Market Value" of any asset of the Fund shall be the market value thereof
determined by the Pricing Service or by the Fund in accordance with procedures
approved by the Board of Trustees. Market Value of any asset shall include any
interest accrued thereon. The Pricing Service shall value portfolio securities
at the quoted bid prices or the mean between the quoted bid and asked price or
the yield equivalent when quotations are not readily available. Securities for
which quotations are not readily available shall be valued at fair value as
determined by the Pricing Service of the Fund using methods which include
consideration of: yields or prices of obligations of comparable quality, type of
issue, coupon, maturity and rating; indications as to value from dealers; and
general market conditions. The Pricing Service or the Fund may employ electronic
data processing techniques and/or a matrix system to determine valuations. At
the Fund's discretion, in the event the Pricing Service is unable to value a
security, the security shall be valued at the lower of two dealer bids obtained
by the Fund from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Trustees.
"Maximum Applicable Rate," with respect to APS, has the meaning set forth in
paragraph 9(a)(vii) of this Article VII, of these Amended By-Laws and, with
respect to Other APS, has the equivalent meaning.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its
successors.
"Moody's Discount Factor" means for purposes of determining the Discounted Value
of any Moody's Eligible Asset, the percentage determined as follows. The Moody's
Discount Factor for any Moody's Eligible Asset other than the securities set
forth below will be the percentage provided in writing by Moody's.
(i) Corporate debt securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS
(NON-CONVERTIBLES)
TERMS TO MATURITY OF NON-INVESTMENT GRADE BONDS(2) AAA AA A BAA BA B NR(1)
-------------------------------------------------- --- --- --- --- --- --- -----
1 year or less................................. 109 112 115 118 137 150 250
2 years or less (but longer than 1 year)....... 115 118 122 125 146 160 250
3 years or less (but longer than 2 years)...... 120 123 127 131 153 168 250
4 years or less (but longer than 3 years)...... 126 129 133 138 161 176 250
5 years or less (but longer than 4 years)...... 132 135 139 144 168 185 250
7 years or less (but longer than 5 years)...... 139 143 147 152 179 197 250
10 years or less (but longer than 7 years)..... 145 150 155 160 189 208 250
15 years or less (but longer than 10 years).... 150 155 160 165 196 216 250
20 years or less (but longer than 15 years).... 150 155 160 165 196 228 250
30 years or less (but longer than 20 years).... 150 155 160 165 196 229 250
Greater than 30 years.......................... 165 173 181 189 205 240 250
--------------------------------------------------------------------------------
B-16
------------
(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Fund's assets can be derived
from other sources, securities rated below B by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch,
are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or
other debt security is unrated by Moody's, S&P or Fitch, the Fund will use
the percentage set forth under "Below B and Unrated" in this table. Ratings
assigned by S&P or Fitch are generally accepted by Moody's at face value.
However, adjustments to face value may be made to particular categories of
credits for which the S&P and/or Fitch rating does not seem to approximate a
Moody's rating equivalent. Split-rated securities assigned by S&P and Fitch
Ratings (i.e., these Rating Agencies assign different rating categories to
the security) will be accepted at the lower of the two ratings.
(2) The Moody's Discount Factors for debt securities shall also be applied to
any interest rate swap or cap, in which case the rating of the counterparty
shall determine the appropriate rating category.
The Moody's Discount Factors presented in the immediately preceding table will
also apply to corporate debt securities that do not pay interest in U.S. dollars
or euros, provided that the Moody's Discount Factor determined from the table
shall be multiplied by a factor of 1.2 for purposes of calculating the
Discounted Value of such securities.
(ii) Common stock: The Moody's Discount Factor applied to common stock will be:
COMMON STOCKS UTILITY INDUSTRIAL FINANCIAL
------------- ------- ---------- ---------
Seven week exposure period................................ 170% 264% 241%
(iii) Preferred stock*: The Moody's Discount Factor for taxable preferred stock
shall be:
Aaa......................................................... 150%
Aa.......................................................... 155%
A........................................................... 160%
Baa......................................................... 165%
Ba.......................................................... 196%
B........................................................... 216%
B or Not Rated.............................................. 250%
Because of the size of the DRD market, these preferred stocks will be assigned a
different discount factor to reflect their liquidity. Investment grade DRDs will
receive a 165% discount factor and non-investment grade DRDs will receive a 216%
discount factor.
---------------
* Eligible non-cumulative preferred stocks' Discount Factors will be increased
by an additional 20%
--------------------------------------------------------------------------------
B-17
(iv) Convertible securities: The Moody's Discount Factor for convertible
securities shall be (including convertible preferred stock):
The percentage determined by reference to the sector groupings of the issuer of
the convertible security with reference to the rating of such security, in
accordance with the table set forth below.
DISCOUNT FACTORS(2)
-------------------------------------------------
RATING(1) UTILITY INDUSTRIAL FINANCIAL TRANSPORTATION
--------- ------- ---------- --------- --------------
Aaa.......................................... 162% 256% 233% 250%
Aa........................................... 167 261 238 265
A............................................ 172 266 243 275
Baa.......................................... 188 282 259 285
Ba........................................... 195 290 265 290
B............................................ 199 293 270 295
Unrated...................................... 300 300 300 300
------------
(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for applicable Fund assets can be
derived from other sources as well as combined with a number of sources,
unrated fixed-income and convertible securities (which are securities that
are not rated by any of Moody's, S&P or Fitch Ratings) are limited to 10% of
Moody's Eligible Assets for purposes of calculations related to the
Preferred Shares Basic Maintenance Amount. If a convertible security is not
rated by any of Moody's, S&P or Fitch Ratings, the Fund will use the
applicable percentage set forth in the row entitled "Unrated" in the table
above. Ratings assigned by S&P and/or Fitch Ratings are generally accepted
at face value. However, adjustments to face value may be made to particular
categories of credits for which the ratings by S&P and/or Fitch Ratings do
not seem to approximate a Moody's rating equivalent. Split-rated securities
assigned by S&P and Fitch Ratings (i.e., these Rating Agencies assign
different rating categories to the security) will be accepted at the lower
of the two ratings.
(2) Discount factors are for Seven-week exposure period.
Upon conversion to common stock, the Discount Factors applicable to common stock
will apply:
COMMON STOCKS UTILITY INDUSTRIAL FINANCIAL
------------- ------- ---------- ---------
Seven week exposure period................................ 170% 264% 241%
(v) Short-term instruments: The Moody's Discount Factor applied to short-term
portfolio securities, U.S. Government Securities including without limitation
corporate debt securities, Short Term Money Market Instruments and municipal
debt obligations, will be (A) 100%, so long as such portfolio securities mature
or have a demand feature at par exercisable within the Moody's Exposure Period;
(B) 115%, so long as such portfolio securities mature or have a demand feature
at par not exercisable within the Moody's Exposure Period; and (C) 125%, if such
securities are not rated by Moody's, so long as such portfolio securities are
rated at least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at
par exercisable within the Moody's Exposure Period. A Moody's Discount Factor of
100% will be applied to cash.
(vi) Rule 144A Securities: The Moody's Discount Factor applied to Rule 144A
Securities for Rule 144A Securities whose terms include rights to registration
under the Securities Act within one year and Rule 144A Securities which do not
have registration rights within one year will be 120% and 130%, respectively, of
the Moody's Discount Factor which would apply were the securities registered
under the Securities Act.
--------------------------------------------------------------------------------
B-18
(vii) Common Stock and Preferred Stock of REITs and Other Real Estate
Companies:
DISCOUNT FACTOR(1),(2),(3)
--------------------------
common stock of REITs....................................... 154%
preferred stock of REITs
with Senior Implied Moody's (or S&P) rating:.............. 154%
without Senior Implied Moody's (or S&P) rating:........... 208%
DISCOUNT FACTOR(1),(2),(3)
--------------------------
common stock and preferred stock of Other Real Estate
Companies
with Senior Implied Moody's (or S&P) rating:.............. 208%
without Senior Implied Moody's (or S&P) rating:........... 250%
------------
(1) A Discount Factor of 250% will be applied to those assets in a single
Moody's Real Estate Industry/Property Sector Classification which exceed 30%
of Moody's Eligible Assets but are not greater than 35% of Moody's Eligible
Assets.
(2) A Discount Factor of 250% will be applied if dividends on such securities
have not been paid consistently (either quarterly or annually) over the
previous three years, or for such shorter time period that such securities
have been outstanding.
(3) A Discount Factor of 250% will be applied if the market capitalization
(including common stock and preferred stock) of an issuer is below $500
million.
Debt Securities of REITs and Other Real Estate Companies(1):
MATURITY IN YEARS AAA AA A BAA BA B CAA NR(2)
----------------- --- --- --- --- --- --- --- -----
1......................... 109% 112% 115% 118% 119% 125% 225% 250%
2......................... 115% 118% 122% 125% 127% 133% 225% 250%
3......................... 120% 123% 127% 131% 133% 140% 225% 250%
4......................... 126% 129% 133% 138% 140% 147% 225% 250%
5......................... 132% 135% 139% 144% 146% 154% 225% 250%
7......................... 139% 143% 147% 152% 156% 164% 225% 250%
10........................ 145% 150% 155% 160% 164% 173% 225% 250%
15........................ 150% 155% 160% 165% 170% 180% 225% 250%
20........................ 150% 155% 160% 165% 170% 190% 225% 250%
30........................ 150% 155% 160% 165% 170% 191% 225% 250%
------------
(1) The Moody's Discount Factors for debt securities shall also be applied to
any interest rate swap or cap, in which case the rating of the counterparty
shall determine the appropriate rating category.
(2) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Fund's assets can be derived
from other sources, securities rated below B by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch,
are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or
other debt security is unrated by Moody's, S&P or Fitch, the Fund will use
the percentage set forth under "Below B and Unrated" in this table. Ratings
assigned by S&P or Fitch are generally accepted by Moody's at face value.
However, adjustments to face value may be made to particular categories of
credits for which the S&P and/or Fitch rating does not seem to approximate a
Moody's rating equivalent. Split-rated securities assigned by S&P and Fitch
Ratings (i.e., these Rating Agencies assign different rating categories to
the security) will be accepted at the lower of the two ratings.
--------------------------------------------------------------------------------
B-19
(viii) Warrants: The Discount Factors applicable to common stock will apply:
COMMON STOCKS UTILITY INDUSTRIAL FINANCIAL
------------- ------- ---------- ---------
Seven week exposure period................................ 170% 264% 241%
(ix) Moody's Hedging Transactions: See the definition of "Moody's Hedging
Transactions" for the applicable Moody's Discount Factor to be applied.
(x) Non-U.S. denominated assets: In addition to the discount factors
referenced above, a further discount factor shall be applicable to Fund assets
valued in a non-U.S. currency as follows:
CURRENCY DISCOUNT FACTOR*
-------- ----------------
Australian Dollar........................................... 1.35
Canadian Dollar............................................. 1.07
UK Pound.................................................... 1.16
New Zealand Dollar.......................................... 1.35
Euro........................................................ 1.18
Swedish Kronor.............................................. 1.19
Polish Zlotych.............................................. 1.14
Hungarian Forint............................................ 1.18
Denmark Kroner.............................................. 1.21
Moody's will provide currency discount factors for other currencies at the
Advisor's request.
"Moody's Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) Baa3 or
higher by Moody's or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A2 or higher by
Moody's or the equivalent by another Rating Agency if the payment date is within
thirty days of the Valuation Date, and (C) A1 or higher by Moody's or the
equivalent by another Rating Agency if the payment date is within the Moody's
Exposure Period) and receivables for Moody's Eligible Assets sold if the
receivable is due within five (5) Business Days of the Valuation Date, and if
the trades which generated such receivables are (A) settled through clearing
house firms with respect to which the Fund has received prior written
authorization from Moody's or (B) (1) with counterparties having a Moody's
long-term debt rating of at least Baa3 or the equivalent by another Rating
Agency or (2) with counterparties having a Moody's Short Term Money Market
Instrument rating of at least P-1 or the equivalent by another Rating Agency;
(ii) Short Term Money Market Instruments, so long as (A) such securities are
rated at least P-1 or the equivalent by another Rating Agency, (B) in the case
of demand deposits, time deposits and overnight funds, the supporting entity is
rated at least A2 or the equivalent by another Rating Agency, or (C) in all
other cases, the supporting entity (1) is rated A2 or the equivalent by another
Rating Agency and the security matures within one month, (2) is rated A1 or the
equivalent by another Rating Agency and the security matures within three months
or (3) is rated at least A3 or the equivalent by another Rating Agency and the
security matures within six months; provided, however, that for purposes of this
definition, such instruments (other than commercial paper rated by S&P and not
rated by Moody's) need not meet any otherwise applicable S&P rating criteria;
(iii) U.S. Government Securities;
(iv) Rule 144A Securities;
(v) Common stocks:
(A) which are issued by issuers whose senior debt securities are rated at least
Baa3 by Moody's (or, in the event an issuer's senior debt securities are not
rated by Moody's, which are issued by an issuer
--------------------------------------------------------------------------------
B-20
whose senior debt securities are rated at least BBB- by S&P and which for this
purpose have been assigned a Moody's equivalent rating of at least Baa3);
(B) which are traded on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market System or other Moody's approved exchanges;
(C) which have a market capitalization greater than $500,000,000;
(D) which are currently paying a cash dividend be it an initial cash dividend
or part of an ongoing series of cash dividends or whose predecessors have paid
cash dividends regularly during the preceding three-year period (or since
inception of the dividend if the common stock initiated a dividend within the
past three-years); and
(E) which pay dividends in U.S. dollars or currency of other Approved Foreign
Nations;
Provided, however, that (1) the aggregate Market Value of the Fund's holdings of
the common stock of any eligible issuer (x) shall be less than 5% of the number
of outstanding shares times the Market Value of such common stock and (y) shall
not exceed 5% of the number of outstanding shares (less the number of shares
held by insiders, as determined in accordance with standards established by
Moody's) multiplied by the Market Value of such common stock and (2) the number
of shares of common stock of any eligible issuer held by the Fund shall not
exceed the average weekly trading volume of such common stock during the
preceding month.
(vi) Corporate debt securities if (A) such securities are rated B3 or higher by
Moody's or the equivalent by another Rating Agency; (B) such securities provide
for the periodic payment of interest in cash in U.S. dollars or euros, except
that such securities that do not pay interest in U.S. dollars or euros shall be
considered Moody's Eligible Assets if they are rated by Moody's, S&P or Fitch;
(C) for securities which provide for conversion or exchange at the option of the
issuer into equity capital at some time over their lives, the issuer must be
rated at least B3 by Moody's or the equivalent by another Rating Agency and the
discount factor will be 250%; (D) for debt securities rated Ba1 and below, no
more than 10% of the original amount of such issue may constitute Moody's
Eligible Assets or the equivalent by another Rating Agency; (E) such securities
have been registered under the Securities Act or are restricted as to resale
under federal securities laws but are eligible for resale pursuant to Rule 144A
under the Securities Act as determined by the Fund's investment manager or
portfolio manager acting pursuant to procedures approved by the Board of
Trustees, except that such securities that are not subject to U.S. federal
securities laws shall be considered Moody's Eligible Assets if they are publicly
traded; and (F) such securities are not subject to extended settlement.
Notwithstanding the foregoing limitations, (x) corporate debt securities not
rated at least B3 by Moody's or not rated by Moody's shall be considered to be
Moody's Eligible Assets only to the extent the Market Value of such corporate
debt securities does not exceed 10% of the aggregate Market Value of all Moody's
Eligible Assets; provided, however, that if the Market Value of such corporate
debt securities exceeds 10% of the aggregate Market Value of all Moody's
Eligible Assets, a portion of such corporate debt securities (selected by the
Fund) shall not be considered Moody's Eligible Assets, so that the Market Value
of such corporate debt securities (excluding such portion) does not exceed 10%
of the aggregate Market Value of all Moody's Eligible Assets; and (y) corporate
debt securities rated by neither Moody's, S&P nor Fitch shall be considered to
be Moody's Eligible Assets only to the extent such securities are issued by
entities which (i) have not filed for bankruptcy within the past three years,
(ii) are current on all principal and interest in their fixed income
obligations, (iii) are current on all preferred stock dividends, and (iv)
possess a current, unqualified auditor's report without qualified, explanatory
language.
(vii) Preferred stocks if (A) such securities provide for the periodic payment
of dividends thereon in cash in U.S. dollars or euros and do not provide for
conversion or exchange into, or have warrants attached entitling the holder to
receive, equity capital at any time over the respective lives of such
securities, (B) the issuer of such a preferred stock has common stock listed on
either the New York
--------------------------------------------------------------------------------
B-21
Stock Exchange or the American Stock Exchange or other Moody's approved
exchanges, (C) the issuer of such a preferred stock has a senior debt rating
from Moody's of Baa3 or higher or equivalent by another Rating Agency and (D)
such preferred stock has paid consistent cash dividends in U.S. dollars or euros
over the last three years or has a minimum rating of A1 (if the issuer of such
preferred stock has other preferred issues outstanding that have been paying
dividends consistently for the last three years, then a preferred stock without
such a dividend history would also be eligible), or (E) as otherwise agreed upon
by the Fund & Moody's. In addition, the preferred stocks must have the following
diversification requirements: (X) the preferred stock issue must be greater than
$40 million and (Y) the minimum holding by the Fund of each issue of preferred
stock is $500,000. In addition, preferred stocks issued by transportation
companies will not be considered Moody's Eligible Assets;
(viii) convertible securities (including convertible preferred stock), provided
that (A) the issuer of common stock must have a Moody's senior unsecured debt of
Caa or better, or a rating of CCC or better by S&P or Fitch Ratings, (B) the
common stocks must be traded on the New York Stock Exchange, the American Stock
Exchange, or the NASDAQ, (C) dividends must be paid in U.S. dollars, (D) the
portfolio of convertible bonds must be diversified as set forth in the table set
forth below, (E) the company shall not hold shares exceeding the average weekly
trading volume during the preceding month and (F) synthetic convertibles are
excluded from asset eligibility;
(ix) common stock, preferred stock or any debt security of REITs or real estate
companies.
(x) Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of
the Investment Company Act of 1940, as amended, not otherwise provided for in
this definition but only upon receipt by the Fund of a letter from Moody's
specifying any conditions on including such financial contract in Moody's
Eligible Assets and assuring the Fund that including such financial contract in
the manner so specified would not affect the credit rating assigned by Moody's
to the APS; and
(xi) Moody's Hedging Transactions.
MOODY'S DIVERSIFICATION LIMITATIONS:
In addition, portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Moody's
Eligible Assets:
EQUITY SECURITIES
MAXIMUM SINGLE MAXIMUM SINGLE MAXIMUM SINGLE
INDUSTRY CATEGORY ISSUER(%)(1) INDUSTRY(%)(1) STATE(%)(1)
----------------- -------------- -------------- --------------
Utility................................. 4 50 7(2)
Industrial.............................. 4 45 7
Financial............................... 5 40 6
Other................................... 6 20 N/A
------------
(1) Percentages represent both a portion of the aggregate market value and the
number of outstanding shares of the common stock portfolio.
(2) Utility companies operating in more than one state should be diversified
according to the state of incorporation.
--------------------------------------------------------------------------------
B-22
DEBT SECURITIES
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
RATINGS(1) ISSUER(2),(3) INDUSTRY(3),(4) ($ IN MILLION)(5)
---------- -------------- --------------- ------------------
Aaa.............................. 100% 100% $100
Aa............................... 20 60 100
A................................ 10 40 100
Baa.............................. 6 20 100
Ba............................... 4 12 50(6)
B1-B2............................ 3 8 50(6)
B3 or below...................... 2 5 50(6)
------------
(1) Refers to the preferred stock and senior debt rating of the portfolio
holding.
(2) Companies subject to common ownership of 25% or more are considered as one
issuer.
(3) Percentages represent a portion of the aggregate Market Value of corporate
debt securities.
(4) Industries are determined according to Moody's Industry Classifications, as
defined herein.
(5) Except for preferred stock, which has a minimum issue size of $40 million.
(6) Portfolio holdings from issues ranging from $50 million ($40 million for
preferred stocks) to $100 million are limited to 20% of the Fund's total
assets or unless otherwise approved by Moody's.
Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Fund's assets can be derived from
other sources, securities rated below B by Moody's and unrated securities, which
are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of
Moody's Eligible Assets. If a corporate, municipal or other debt security is
unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth
under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are
generally accepted by Moody's at face value. However, adjustments to face value
may be made to particular categories of credits for which the S&P and/or Fitch
rating does not seem to approximate a Moody's rating equivalent. Split-rated
securities assigned by S&P and Fitch Ratings (i.e., these Rating Agencies assign
different rating categories to the security) will be accepted at the lower of
the two ratings.
Where the Fund sells an asset and agrees to repurchase such asset in the future,
the Discounted Value of such asset will constitute a Moody's Eligible Asset and
the amount the Fund is required to pay upon repurchase of such asset will count
as a liability for the purposes of the APS Basic Maintenance Amount. Where the
Fund purchases an asset and agrees to sell it to a third party in the future,
cash receivable by the Fund thereby will constitute a Moody's Eligible Asset if
the long-term debt of such other party is rated at least A2 by Moody's and such
agreement has a term of 30 days or less; otherwise the Discounted Value of such
purchased asset will constitute a Moody's Eligible Asset. For the purposes of
calculation of Moody's Eligible Assets, portfolio securities which have been
called for redemption by the issuer thereof shall be valued at the lower of
Market Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(E) under the definition of APS Basic Maintenance
Amount or to the extent it is subject to any Liens, except for (A) Liens which
are being contested in good faith by appropriate proceedings and which Moody's
has indicated to the Fund will not affect the status of such asset as a Moody's
Eligible Asset, (B) Liens for taxes that are not then due and payable or that
can be paid thereafter without penalty, (C) Liens to secure payment for services
rendered or cash advanced to the Fund by its investment manager or portfolio
manager, the Fund's custodian, transfer agent or registrar or the Auction Agent
and (D) Liens arising by virtue of any repurchase agreement.
--------------------------------------------------------------------------------
B-23
"Moody's Exposure Period" means the period commencing on a given Valuation Date
and ending 49 days thereafter.
"Moody's General Portfolio Requirements" means that the Fund's portfolio must
meet the following diversification requirements: (a) no more than 25% by par
value of the Fund's total assets can be invested in the securities of borrowers
and other issuers having their principal business activities in the same Moody's
Industry Classification; provided, that this limitation shall not apply with
respect to U.S. Government Securities and provided further that for purposes of
this subsection (a), the term "issuer" shall not include a lender selling a
participation to the Fund or any other person interpositioned between such
lender and the Fund with respect to a participation and (b) no more than 10% by
par value of the Fund's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Fund together with any other persons
interpositioned between such lender and the Fund with respect to such
participation.
"Moody's Hedging Transactions" means for so long as any APS are rated by
Moody's, the Fund may buy or sell financial futures contracts, write, purchase
or sell call options on financial futures contracts or purchase put options on
financial futures contracts or write call options on portfolio securities, swaps
and securities lending unless it receives written confirmation from Moody's that
engaging in such transactions would impair the ratings then assigned to the APS
by Moody's, (collectively "Moody's Hedging Transactions"), subject to the
following limitations:
(i) Future and call options: For purposes of the APS Basic Maintenance Amount,
futures held by the Fund and call options sold by the Fund shall not be included
as Moody's Eligible Assets. However, such assets shall be valued at Market Value
by subtracting the good faith margin and the maximum daily trading variance as
of a Valuation Date. For call options purchased by the Fund, the Market Value of
the call option will be included as Moody's Eligible Asset subject to a Moody's
Discount Factor mutually agreed to between the Fund and Moody's based on the
characteristics of the option contract such as its maturity and the underlying
security of the contract.
(ii) Securities lending: The Fund may engage in securities lending in an
amount not to exceed 10% of the Fund's total gross assets (provided term and
conditions of the securities lending program are disclosed in advance to
Moody's, if Moody's is rating the preferred shares). For purposes of calculating
the APS Basic Maintenance Amount, such securities lent shall be included as
Moody's Eligible Assets with the appropriate Moody's Discount Factor applied to
such lent security. The obligation to return such collateral shall not be
included as an obligation/liability for purposes of calculating the APS Basic
Maintenance Amount. However, the Fund may reinvest cash collateral for
securities lent in conformity with its investment objectives and policies and
the provisions of these bylaws. In such event, to the extent that securities
lending collateral received is invested by the Fund in assets that otherwise
would be Moody's Eligible Assets and the value of such assets exceeds the amount
of the Fund's Moody's Eligible Assets by applying the applicable Moody's
Discount Factor to this amount and adding the product to total Moody's Eligible
Assets. Conversely, if the value of assets in which securities lending
collateral has been invested is less then the amount of the Fund's obligation to
return the collateral on a Valuation Date, such difference shall be included as
an obligation/liability of the Fund for purposes of calculating the APS Basic
Maintenance Amount. Collateral received by the Fund in a securities lending
transaction and maintained by the Fund in the form received shall not be
included as a Moody's Eligible Asset for purposes of calculating the APS Basic
Maintenance Amount.
(iii) Swaps (including Total Return Swaps and Interest Rate Swaps): Total
return and Interest Rate Swaps are subject to the following provisions:
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Fund has an outstanding gain from a swap transaction on a
Valuation Date, the gain will be included as a Moody's Eligible Asset subject to
the Moody's Discount Factor on the counterparty to the swap transaction. If the
Fund has
--------------------------------------------------------------------------------
B-24
an outstanding liability from a swap transaction on a Valuation Date, the Fund
will subtract the outstanding liability from the total Moody's Eligible Assets
in calculating the APS Basic Maintenance Amount.
In addition, for swaps other than Total Return Swaps, the Market Value of the
position (positive or negative) will be included as a Moody's Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS. At the time a swap is executed, the Fund will
only enter into swap transactions where the counterparty has at least a Fitch
rating of A- or Moody's long-term rating of A3.
(B) (1) The underlying securities subject to a Credit Default Swap sold by the
Fund will be subject to the applicable Moody's Discount Factor for each security
subject to the swap;
(2) If the Fund purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Moody's Eligible Asset subject to the Moody's
Discount Factor assessed based on the counterparty risk and the duration of the
swap agreement; and
If not otherwise provided for in (a)(i)-(iii) above, derivative instruments
shall be treated as follows: Any derivative instruments will be valued pursuant
to the Fund's valuation procedures on a Valuation Date. The amount of the net
payment obligation and the cost of a closing transaction, as appropriate, on any
derivative instrument on a Valuation Date will be counted as a liability for
purposes of determining the APS Basic Maintenance Amount (e.g., a written call
option that is in the money for the holder). Any derivative instrument with
respect to which the Fund is owed payment on the Valuation Date that is not
based upon an individual security or securities that are Moody's Eligible Assets
will have a mutually agreed upon valuation by Moody's and the Fund for purposes
of determining Moody's Eligible Assets. Any derivative instrument with respect
to which the Fund is owed payment on the valuation date that is based upon an
individual security or securities that are Moody's Eligible Assets (e.g., a
purchased call option on a bond that is in the money) will be valued as follows
for purposes of determining Moody's Eligible Assets: (A) For such derivative
instruments that are exchange traded, the value of the in-the-money amount of
the payment obligation to the Fund will be reduced by applying the Moody's
Discount Factor (as it would apply to the underlying security or securities) and
then added to Moody's Eligible Assets; and (B) for such derivative instruments
that are not exchange traded, the value of the in-the-money amount of the
payment obligation to the Fund will be (1) reduced as described in (A) and (B)
further reduced by applying to the remaining amount the Moody's Discount Factor
determined by reference to the credit rating of the derivative counterparty with
the remaining amount after these reductions then added to Moody's Eligible
Assets.
For purposes of determining whether the Fund has Moody's Eligible Assets with an
aggregate Discounted Value that equals or exceeds the APS Basic Maintenance
Amount, the Discounted Value of all Forward Commitments to which the Fund is a
party and of all securities deliverable to the Fund pursuant to such Forward
Commitments shall be zero.
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 Preferred Shares will be able to sell such shares in
an Auction or otherwise.
"Moody's Industry Classification" means, for the purposes of determining Moody's
Eligible Assets, each of the following industry classifications (or such other
classifications as Moody's may from time to time approve for application to the
Preferred Shares):
1. Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
--------------------------------------------------------------------------------
B-25
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar,
Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry
Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood,
Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
5. Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate,
Real Estate Development, REITs, Land Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating Containers
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and
Waste Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers,
Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture
Chemicals, Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals,
Hospital Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games,
Toy Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
--------------------------------------------------------------------------------
B-26
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales of the foregoing
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
25. Personal, Food and Miscellaneous
26. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
27. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
28. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
29. Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
30. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
31. Personal Transportation: Air, Bus, Rail, Car Rental
32. Utilities: Electric, Water, Hydro Power, Gas
33. Broadcasting and Entertainment: Recording Industry, Motion Exhibition
Theaters, Motion Picture Production and Distribution, Radio, T.V.,
Cable Broadcasting and Broadcasting Equipment
34. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
Supra-national Agencies
The Fund will use its discretion in determining which industry classification is
applicable to a particular investment in consultation with the Independent
Accountant and Moody's, to the extent the Fund considers necessary.
"Non-Call Period" has the meaning set forth under the definition of "Specific
Redemption Provisions."
"Non-Payment Period" means any period commencing on and including the day on
which the Fund shall fail 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 by paragraph 2(c)(i) of this Article VII, of these Amended
By-Laws) within three Business Days after such Dividend Payment Date to the
Holders 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 shares of 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
payable (if declared) on such Dividend Payment Date or (B) on any redemption
date for any shares of 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, 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 shall have otherwise been made
available to Holders in same-day funds; provided that, a Non-Payment Period
shall 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, all Existing Holders (at their addresses appearing in the Share Books)
and the Securities Depository. 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 by paragraph 2(c)(i) of
these Amended By-Laws, shall not constitute a "Non-Payment Period."
--------------------------------------------------------------------------------
B-27
"Non-Payment Period Rate" means, initially, 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 Moody's or Fitch
(and any Substitute Rating Agency in lieu of Moody's or Fitch, as applicable in
the event such party shall not rate the APS) advise the Fund in writing that
such adjustment, modification, alteration or change will not adversely affect
its then current ratings on the APS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph 2(b)(i) of
Article VII, of these Amended By-Laws.
"Notice of Redemption" means any notice with respect to the redemption of shares
of APS pursuant to paragraph 4 of Article VII, of these Amended By-Laws.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of
Article VII, of these Amended By-Laws.
"Notice of Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Optional Redemption Price" 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 plus any applicable redemption premium attributable to the
designation of a Premium Call Period.
"Other APS" means the auction rate Preferred Shares of the Fund, other than the
APS.
"Outstanding" means, as of any date (i) with respect to APS, shares of APS
therefor issued by the Fund except, without duplication, (A) any shares of APS
theretofore canceled or delivered to the Auction Agent for cancellation, or
redeemed by the Fund, or as to which a Notice of Redemption shall have been
given and Deposit Securities shall have been deposited in trust or segregated by
the Fund pursuant to paragraph 4(c) and (B) any shares of APS as to which the
Fund or any Affiliate thereof shall be a Beneficial Owner, provided that shares
of APS held by an Affiliate shall be deemed outstanding for purposes of
calculating the APS Basic Maintenance Amount and (ii) with respect to shares of
other Preferred Shares, has the equivalent meaning.
"Parity Shares" means the APS and each other outstanding series of Preferred
Shares the holders of which, together with the holders of the APS, shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Performing" means that no default as to the payment of principal or interest
has occurred and is continuing.
"Person" means and includes an individual, a partnership, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of APS but that wishes to
purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of 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 shares of APS (or, in the case of an Existing Holder, additional
shares of APS).
"Preferred Shares" means the preferred shares of beneficial interest, par value
$0.01 per share, of the Fund, and includes APS and Other APS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
--------------------------------------------------------------------------------
B-28
"Pricing Service" means any pricing service designated by the Board of Trustees
of the Fund provided the Fund obtains written assurance from Moody's and Fitch
that such designation will not impair the rating then assigned by Moody's and
Fitch, as applicable, to the APS.
"Rating Agency" means S&P, Moody's or Fitch or another nationally recognized
statistical rating organization as agreed upon between the Fund and Moody's
and/or Fitch, as applicable.
"Reference Banks" means four major banks in the London interbank market selected
by UBS Securities LLC or its affiliates or successors or such other party as the
Fund may from time to time appoint.
"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.
"REITs" means real estate investment trusts.
"Request for Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Response" has the meaning set forth in paragraph 2(c)(iii) of Article VII, of
these Amended By-Laws.
"Rule 144A Securities" means securities which are restricted as to resale under
federal securities laws but are eligible for resale pursuant to Rule 144A under
the Securities Act as determined by the Fund's investment manager or portfolio
manager acting pursuant to procedures approved by the Board of Trustees of the
Fund.
"S&P" means Standard & Poor's Corporation, a New York Corporation, and its
successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company or any successor
company or other entities elected by the Fund as securities depository for the
shares of APS that agrees to follow the procedures required to be followed by
such securities depository in connection with the shares of APS.
"Series A APS" means the Auction Preferred Shares, Series A.
"Series B APS" means the Auction Preferred Shares, Series B.
"Series C APS" means the Auction Preferred Shares, Series C.
"Service" means the United States Internal Revenue Service.
"Share Books" means the books maintained by the Auction Agent setting forth at
all times a current list, as determined by the Auction Agent, of Existing
Holders of the APS.
"Share Register" means the register of Holders maintained on behalf of the Fund
by the Auction Agent in its capacity as transfer agent and registrar for the
APS.
"Short Term Dividend Period" means a Special Dividend Period consisting of a
specified number of days (other than seven in the cases of Series A APS and
Series B APS and 28 in the case of Series C APS), evenly divisible by seven and
not fewer than seven nor more than 364.
"Short Term Money Market Instruments" means the following types of instruments
if, on the date of purchase or other acquisition thereof by the Fund, the
remaining term to maturity thereof is not in excess of 180 days (or 270 days for
instruments rated at least Aaa for purposes of determining Moody's Eligible
Assets):
(i) commercial paper rated either F-1 by Fitch or A-1 by S&P if such commercial
paper matures in 30 days or P-1 by Moody's and either F-1+ by Fitch or A-1+ by
S&P if such commercial paper matures in over 30 days;
--------------------------------------------------------------------------------
B-29
(ii) demand or time deposits in, and banker's acceptances and certificates of
deposit of, (A) a depository institution or trust company incorporated under the
laws of the United States of America or any state thereof or the District of
Columbia or (B) a United States branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to banking
regulation under the laws of the United States, any state thereof or the
District of Columbia);
(iii) overnight funds;
(iv) U.S. Government Securities; and
(v) Eurodollar demand or time deposits in, or certificates of deposit of, the
head office or the London branch office of a depository institution or trust
company if the certificates of deposit, if any, and the long-term unsecured debt
obligations (other than such obligations the ratings of which are based on the
credit of a person or entity other than such depository institution or trust
company) of such depository institution or trust company that have (1) credit
ratings on each Valuation Date of at least P-1 from Moody's and either F-1+ from
Fitch or A-1+ from S&P, in the case of commercial paper or certificates of
deposit, and (2) credit ratings on each Valuation Date of at least Aa3 from
Moody's and either AA from Fitch or AA- from S&P, in the case of long-term
unsecured debt obligations; provided, however, that in the case of any such
investment that matures in no more than one Business Day from the date of
purchase or other acquisition by the Fund, all of the foregoing requirements
shall be applicable except that the required long-term unsecured debt credit
rating of such depository institution or trust company from Moody's, Fitch and
S&P shall be at least A2, A-2 and A, respectively; and provided further,
however, that the foregoing credit rating requirements shall be deemed to be met
with respect to a depository institution or trust company if (1) such depository
institution or trust company is the principal depository institution in a
holding company system, (2) the certificates of deposit, if any, of such
depository institution or trust company are not rated on any Valuation Date
below P-1 by Moody's, F-1+ by Fitch or A-1+ by S&P and there is no long-term
rating, and (3) the holding company shall meet all of the foregoing credit
rating requirements (including the preceding proviso in the case of investments
that mature in no more than one Business Day from the date of purchase or other
acquisition by the Fund); and provided further, that the interest receivable by
the Fund shall not be subject to any withholding or similar taxes.
"Special Dividend Period" means a Dividend Period consisting of (i) a specified
number of days (other than seven in the cases of Series A APS and Series B APS
and 28 in the case of Series C APS) or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"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
Auction Agent and the Broker-Dealers, during which the shares of 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 shares of 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.
"Subsequent Dividend Period," with respect to APS, has the meaning set forth in
paragraph 2(c)(i) of Article VII, of these Amended By-Laws and, with respect to
Other APS, has the equivalent meaning.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally
recognized statistical rating organization or two nationally recognized
statistical rating organizations, respectively, selected by Eaton Vance
Management or its affiliates and successors, after consultation with the Fund
and the Broker-Dealers, to act as the substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of APS.
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"Swap" means a derivative transaction between two parties who contractually
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.
(i) "Interest Rate Swap" means an arrangement whereby two parties (called
counterparties) enter into an agreement to exchange periodic interest payments.
The dollar amount the counterparties pay each other is an agreed-upon periodic
interest rate multiplied by some predetermined dollar principal, called the
notional principal amount. No principal (no notional amount) is exchanged
between parties to the transaction; only interest is exchanged.
(ii) "Total Return Swap" means an agreement between counterparties 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).
"Treasury Bonds" means United States Treasury Bills, Bonds or Notes.
"U.S. Government Securities" means direct obligations of the United States or of
its agencies or instrumentalities that are entitled to the full faith and credit
of the United States and that, other than Treasury bills, provide for the
periodic payment of interest and the full payment of principal at maturity or
call for redemption.
"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
the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures contract
owned or sold by the Fund, the amount of cash or securities paid to or received
from a broker (subsequent to the Initial Margin payment) from time to time as
the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, APS Basic
Maintenance Amount, APS Basic Maintenance Cure Date, APS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Fitch Discount Factor, Fitch Eligible Asset, Fitch Exposure Period,
Fitch Industry Classification, Fitch Hedging Transactions, Market Value, Maximum
Applicable Rate, Moody's Exposure Period, Moody's Hedging Transactions, Moody's
Discount Factor, Moody's Eligible Asset, Moody's Industry Classification,
Performing, Short Term Money Market Instruments, Treasury Bonds, U.S. Government
Securities, Valuation Date, Variation Margin 1940 Act Cure Date, and 1940 Act
APS Asset Coverage (and any terms defined with such definitions) have been
determined by the Board of Trustees of the Fund in order to obtain a AAA rating
from Fitch and Aaa rating from Moody's on the APS on their Date of Original
Issue; and the Board of Trustees of the Fund shall have the authority, without
shareholder approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and guidelines set forth thereunder if Moody's,
Fitch or any Substitute
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B-31
Rating Agency advises the Fund in writing that such amendment, alteration or
repeal will not adversely affect its then current rating on the APS.
(c) The Fund agrees to notify Moody's and Fitch with no less than thirty (30)
days' notification of: (i) any material changes to the Fund's organizational
documents and material contracts, as determined by the Fund's officers, in their
sole discretion, (ii) any redemptions of APS by the Fund, or (iii) any failed
Auctions.
2. DIVIDENDS. (a) The Holders of a particular series of APS shall be entitled
to receive, when, as and if declared by the Board of Trustees of the Fund, out
of funds legally available therefor, cumulative dividends each consisting of
cash at the Applicable Rate, and no more, payable on the respective dates set
forth below. Dividends on the shares of each series of APS so declared and
payable shall be paid in preference to and in priority over any dividends
declared and payable on the Common Shares.
(b) (i) Cash dividends on shares of each series of APS shall accumulate from
the Date of Original Issue and shall be payable, when, as and if declared by the
Board of Trustees, out of funds legally available therefor, commencing on the
Initial Dividend Payment Date. Following the Initial Dividend Payment Date for a
series of APS, dividends on that series of APS will be payable, at the option of
the Fund, either (i) with respect to any 7-Day Dividend Period, any 28-Day
Dividend Period and any Short Term Dividend Period of 28 or fewer days, on the
day next succeeding the last day thereof, or (ii) with respect to any Short Term
Dividend Period of more than 28 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then 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 exception discussed above,
the next succeeding Dividend Payment Date, subject to such exception, will occur
on the next 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 shares of APS set forth in the Declaration of Trust or the Amended
By-Laws. The Initial Dividend Period, 7-Day Dividend Periods, 28-Day Dividend
Periods and Special Dividend Periods with respect to a series of APS 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."
(ii) Each dividend shall be paid to the Holders as they appear in the Stock
Register as of 12:00 noon, New York City time, on the Business Day preceding the
Dividend Payment Date. 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 Holders as they appear on the Stock Register on a date, not
exceeding 15 days prior to the payment date therefor, as may be fixed by the
Board of Trustees of the Fund.
(c) (i) During the period from and including the Date of Original Issue to but
excluding the Initial Dividend Payment Date for each series of APS (the "Initial
Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate.
Commencing on the Initial Dividend Payment Date for each series of APS, the
Applicable Rate for each subsequent dividend period (hereinafter referred to as
a "Subsequent Dividend Period"), which Subsequent Dividend Period shall commence
on and include a Dividend Payment Date and shall end on and include 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 implementation of the Auction
Procedures.
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B-32
The Applicable Rate for each Dividend Period commencing during a Non-Payment
Period shall 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
7-Day Dividend Period in the cases of Series A APS and Series B APS and a 28-Day
Dividend Period in the case of Series C APS. Except in the case of the willful
failure of the Fund to pay a dividend on a Dividend Payment Date or to redeem
any shares of APS on the date set for such redemption, any amount of any
dividend due on any Dividend Payment Date (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 Holders of
such shares of APS as of 12:00 noon, New York City time, on the Business Day
preceding such Dividend Payment Date) or redemption price with respect to any
shares of APS not paid to such Holders when due may be paid to such Holders 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 shares of 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 shall be considered equivalent to payment to such 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.
(ii) The amount of cash dividends per share of any series of APS payable (if
declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period, each
28-Day Dividend Period and each Dividend Payment Date of each Short Term
Dividend Period 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 APS were outstanding 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. During any Long Term
Dividend Period, the amount of cash dividends per share of a Series of APS
payable (if declared) on any Dividend Payment Date shall be computed by
multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be such number of days in such part of such Dividend
Period 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.
(iii) The Fund may, 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 Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of APS be a number of days (other than seven in the
cases of Series A APS and Series B APS and 28 in the case of Series C APS),
evenly divisible by seven and not fewer than seven nor more than 364 in the case
of a Short Term Dividend Period or one whole year or more 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 28 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,
any amounts due with respect to redemption's, payable 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 a series
of 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
--------------------------------------------------------------------------------
B-33
prior to an Auction Date for a series of APS. Upon receiving such Request for
Special Dividend Period, the Broker-Dealer(s) shall jointly determine whether,
given the factors set forth below, it is advisable that the Fund issue a Notice
of Special Dividend Period for the series of APS as contemplated by such Request
for Special Dividend Period and 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-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the APS, (4) industry and financial conditions which
may affect the APS, (5) the investment objective of the Fund, and (6) 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-Dealer(s) 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 series of 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 series of APS, the Fund may by no later than the second
Business Day prior to such Auction Date 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 Moody's and Fitch. The Fund shall not give a Notice of
Special Dividend Period and, if the Fund has given a Notice of Special Dividend
Period, the Fund is required to 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 Fitch Eligible Assets or Moody's
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-Dealer(s) 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 Fitch and Moody's. If the
Fund is prohibited from giving a Notice of Special Dividend Period as a result
of any 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
for any series of APS, the next succeeding Dividend Period will be a 7-Day
Dividend Period in the cases of Series A APS and Series B APS and a 28-Day
Dividend Period in the case of Series C APS. In addition, in the event
Sufficient Clearing Bids are not made in the applicable Auction or such Auction
is not held for any reason, such next succeeding Dividend Period will be a 7-Day
Dividend Period in the case of Series A APS and Series B APS and 28-Day Dividend
Period in the case of Series C APS and the Fund may not again give a Notice of
Special Dividend Period for the APS (and any such attempted notice shall be null
and void) until Sufficient Clearing Bids have been made in an Auction with
respect to a 7-Day Dividend Period in the cases of Series A APS and Series B APS
and a 28-Day Dividend Period in the case of Series C APS.
(d) (i) Holders shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends and applicable
late charges, as herein provided, on the shares of
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B-34
APS. Except for the late charge payable pursuant to paragraph 2(c)(i) hereof, no
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment on the shares of APS that may be in arrears.
(ii) For so long as any share of APS is Outstanding, the Fund shall 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 shares of APS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of beneficial
interest of the Fund ranking junior to or on a parity with the shares of APS as
to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the Fund
ranking junior to the shares of APS as to dividends and upon liquidation) or any
other such Parity Shares (except by conversion into or exchange for stock of the
Fund ranking junior to or on a parity with the shares of APS as to dividends and
upon liquidation), unless (A) immediately after such transaction, the Fund shall
have Fitch Eligible Assets and Moody's Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount and
the Fund shall maintain the 1940 Act APS Asset Coverage, (B) full cumulative
dividends on shares of APS and shares of Other 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 shares of APS required to be
redeemed by any provision for mandatory redemption contained herein.
(e) No fractional shares of APS shall be issued.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Fund, whether voluntary or involuntary, the Holders shall 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 ranking junior in right of payment
upon liquidation to the APS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments. If upon any liquidation, dissolution or winding up of the Fund, the
amounts payable with respect to the APS and any other Outstanding class or
series of Preferred Shares of the Fund ranking on a parity with the APS as to
payment upon liquidation are not paid in full, the Holders and the holders of
such other class or series will share ratably in any such distribution of assets
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Fund. A consolidation, merger or statutory
share exchange of the Fund with or into any other fund or entity 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.
4. REDEMPTION. (a) Shares of APS shall be redeemable by the Fund as provided
below:
(i) To the extent permitted under the 1940 Act and Massachusetts law, upon
giving a Notice of Redemption, the Fund at its option may redeem shares of any
series of 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 share of APS may be redeemed at the option of the Fund during (A) the
Initial Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. In addition, holders of APS which are
redeemed shall be entitled to receive Additional Dividends to the extent
provided herein. The Fund may not give a Notice of Redemption relating to an
optional redemption as described in this paragraph 4(a)(i) unless, at the time
of giving such Notice of Redemption, the Fund has available Deposit Securities
with maturity or tender dates not later than the day preceding the applicable
redemption date and having a value not less than the amount due to Holders by
reason of the redemption of their shares of APS on such redemption date,
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B-35
and the Discounted Value of Fitch Eligible Assets and Moody's Eligible Assets at
least equals the APS Basic Maintenance Amount immediately subsequent to such
redemption if such redemption were to occur on such date.
(ii) The Fund shall redeem, out of funds legally available therefor, at the
Mandatory Redemption Price per share, shares of 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 Fitch Eligible Assets and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount as provided in paragraph 7(a) or to satisfy the
1940 Act APS Asset Coverage as provided in paragraph 6 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. The
number of shares of APS to be redeemed shall be equal to the lesser of (i) the
minimum number of shares of APS the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date, together
with all shares of other Preferred Shares then Outstanding subject to redemption
or retirement, would result in the Fund having Fitch Eligible Assets and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage,
as the case may be, on such Cure Date (provided that, if there is no such
minimum number of shares of APS and shares of other Preferred Shares the
redemption of which would have such result, all shares of APS and shares of
other Preferred Shares then Outstanding shall be redeemed), and (ii) the maximum
number of shares of APS, together with all shares of other Preferred Shares
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In determining the
number of shares of APS required to be redeemed in accordance with the
foregoing, the Fund shall allocate the number required to be redeemed which
would result in the Fund having Fitch Eligible Assets and Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage, as the
case may be, pro rata among shares of APS of all series, Other APS and other
Preferred Shares subject to redemption pursuant to provisions similar to those
contained in this paragraph 4(a)(ii); provided that, shares of APS which may not
be redeemed at the option of the Fund due to the designation of a Non-Call
Period applicable to such shares (A) will be subject to mandatory redemption
only to the extent that other shares are not available to satisfy the number of
shares required to be redeemed and (B) will be selected for redemption in an
ascending order of outstanding number of days in the Non-Call Period (with
shares with the lowest number of days to be redeemed first) and by lot in the
event of shares having an equal number of days in such Non-Call Period. The Fund
shall effect such redemption on a Business Day which is not later than 35 days
after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of shares of APS and
shares of other Preferred Shares which are subject to mandatory redemption or
the Fund otherwise is unable to effect such redemption on or prior to 35 days
after such Cure Date, the Fund shall redeem those shares of APS which it is
unable to redeem on the earliest practicable date on which it is able to effect
such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares of APS
may be redeemed pursuant to paragraph 4(a)(i) of Article VII, of these Amended
By-Laws (i) unless all dividends in arrears on all remaining Outstanding shares
of Parity Shares shall have been or are being contemporaneously paid or declared
and set apart for payment and (ii) if redemption thereof would result in the
Fund's failure to maintain Fitch Eligible Assets and Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount. In the event that less than all the Outstanding shares of a
series of APS are to be redeemed and there is more than one Holder, the shares
of that series of APS to be redeemed shall be selected by lot or such other
method as the Fund shall deem fair and equitable.
(c) Whenever shares of APS are to be redeemed, the Fund, not less than 17 nor
more than 30 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
shares of APS to be redeemed and to the Auction Agent. The Fund
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B-36
shall cause the Notice of Redemption to also be published in the eastern and
national editions of The Wall Street Journal. The Notice of Redemption shall set
forth (i) the redemption date, (ii) the amount of the redemption price, (iii)
the aggregate number of shares of APS of such series to be redeemed, (iv) the
place or places where shares of APS of such series are to be surrendered for
payment of the redemption price, (v) a statement that dividends on the shares to
be redeemed shall cease to accumulate on such redemption date and (vi) the
provision of these Amended By-Laws pursuant to which such shares are being
redeemed. No defect in the Notice of Redemption or in the mailing or publication
thereof shall affect the validity of the redemption proceedings, except as
required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and, concurrently
or thereafter, the Fund shall have deposited in trust with the Auction Agent, or
segregated in an account at the Fund's custodian bank for the benefit of the
Auction Agent, Deposit Securities (with a right of substitution) having an
aggregate Discounted Value (utilizing in the case of Fitch the Fitch Exposure
Period of 41 Business Days and in the case of Moody's the Moody's Exposure
Period of 49 days) equal to the redemption payment for the shares of APS as to
which such Notice of Redemption has been given with irrevocable instructions and
authority to pay the redemption price to the Holders of such shares, then upon
the date of such deposit or, if no such deposit is made, then upon such date
fixed for redemption (unless the Fund shall default in making the redemption
payment), all rights of the Holders of such shares as shareholders of the Fund
by reason of the ownership of such shares will cease and terminate (except their
right to receive the redemption price in respect thereof, but without interest),
and such shares shall no longer be deemed Outstanding. The Fund shall be
entitled to receive, from time to time, from the Auction Agent the interest, if
any, on such Deposit Securities deposited with it and the Holders of any shares
so redeemed shall have no claim to any of such interest. In case the Holder of
any shares so called for redemption shall not claim the redemption payment for
his shares within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Fund such amount remaining on deposit and
the Auction Agent shall thereupon be relieved of all responsibility to the
Holder of such shares called for redemption and such Holder thereafter shall
look only to the Fund for the redemption payment.
5. VOTING RIGHTS. (a) General. Except as otherwise provided in the Declaration
of Trust or Amended By-Laws, each Holder of shares of APS shall be entitled to
one vote for each share held on each matter submitted to a vote of shareholders
of the Fund, and the holders of Outstanding shares of Preferred Shares,
including APS, and of shares of Common Shares shall vote together as a single
class; provided that, at any meeting of the shareholders of the Fund held for
the election of trustees, the holders of Outstanding shares of Preferred Shares,
including APS, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of capital stock of the Fund, to elect two
trustees of the Fund. Subject to paragraph 5(b) hereof, the holders of
outstanding shares of beneficial interest of the Fund, including the holders of
Outstanding shares of Preferred Shares, including APS, voting as a single class,
shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in which
any one or more of the conditions described below shall exist (such period being
referred to herein as a "Voting Period"), the number of trustees constituting
the Board of Trustees shall be automatically increased by the smallest number
that, when added to the two directors elected exclusively by the holders of
shares of Preferred Shares, would constitute a majority of the Board of Trustees
as so increased by such smallest number; and the holders of shares of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Fund), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared,
and whether or not funds are then legally available in an amount sufficient
therefor) on the Outstanding shares of APS equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified
--------------------------------------------------------------------------------
B-37
securities shall not have been deposited with the Auction Agent for the payment
of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Shares are
entitled to elect a majority of the trustees of the Fund under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in this
paragraph 5(b) shall cease, subject always, however, to the reverting of such
voting rights in the Holders upon the further occurrence of any of the events
described in this paragraph 5(b)
(c) Right to Vote with Respect to Certain Other Matters. So long as any shares
of APS are Outstanding, the Fund shall not, without the affirmative vote of the
Holders of at least a majority of the shares of Preferred Shares Outstanding at
the time, voting separately as one class, approve any conversion of the Fund
from a closed-end to an open-end investment company and (i) authorize, create or
issue any class or series of shares of beneficial interest ranking prior to the
APS or any other series of Preferred Shares with respect to payment of dividends
or the distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Declaration of Trust, whether by merger, consolidation or
otherwise, so as to adversely affect any of the contract rights expressly set
forth in the Declaration of Trust of holders of shares 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 the holders of at
least a majority of the shares of APS of each series adversely affected and
Outstanding at such time (each such adversely affected series voting separately
as a class). The Fund shall notify Fitch and Moody's ten (10) Business Days
prior to any such vote described in clause (i) or (ii). Unless a higher
percentage is provided for under the Declaration of Trust, the affirmative vote
of the holders of a majority of the Outstanding shares of Preferred Shares,
including APS, voting together as a single 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. The class vote of holders of shares of Preferred
Shares, including APS, described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common Shares and shares
of Preferred Shares, including APS, voting together as a single class necessary
to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of
shares of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Fund shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Fund fails to send such notice to the
Auction Agent or if the Fund does not call such a special meeting, it may be
called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Fund), shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on any
matter or the number of shares required to constitute a quorum, whether such
right is created by these Amended By-Laws, by the other provisions of the
Declaration of Trust, by statute or otherwise, a share of APS which is not
Outstanding shall not be counted.
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B-38
(iii) The terms of office of all persons who are trustees of the Fund at the
time of a special meeting of Holders and holders of other Preferred Shares to
elect trustees shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of trustees that they are
entitled to elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent trustees elected by the Holders and
such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Fund.
(iv) Simultaneously with the expiration of a Voting Period, the terms of office
of the additional trustees elected by the Holders and holders of other Preferred
Shares pursuant to paragraph 5(b) above shall terminate, the remaining trustees
shall constitute the trustees of the Fund and the voting rights of the Holders
and such other holders to elect additional trustees pursuant to paragraph 5(b)
above shall cease, subject to the provisions of the last sentence of paragraph
5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of shares
of APS shall not have any rights or preferences other than those specifically
set forth herein. The Holders of shares of APS shall have no preemptive rights
or rights to cumulative voting. In the event that the Fund fails to pay any
dividends on the shares of APS, the exclusive remedy of the Holders shall be the
right to vote for trustees pursuant to the provisions of this paragraph 5.
(f) Notification to Fitch and Moody's. In the event a vote of Holders of APS is
required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund
shall, not later than ten Business Days prior to the date on which such vote is
to be taken, notify Fitch and Moody's that such vote is to be taken and the
nature of the action with respect to which such vote is to be taken and, not
later than ten Business Days after the date on which such vote is taken, notify
Fitch and Moody's of the result of such vote.
6. 1940 ACT APS ASSET COVERAGE. The Fund shall maintain, as of the last
Business Day of each month in which any share of APS is Outstanding, the 1940
Act APS Asset Coverage.
7. APS BASIC MAINTENANCE AMOUNT. The following references in this paragraph 7
to Fitch Eligible Assets and/or Moody's Eligible Assets, as the case may be, are
only applicable if Fitch and/or Moody's, as the case may be, is rating the APS.
(a) The Fund shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date Fitch Eligible Assets
and Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the APS Basic Maintenance Amount Test. Upon any failure to maintain
the required Discounted Value, the Fund will use its best efforts to alter the
composition of its portfolio to retain a Discounted Value at least equal to the
APS Basic Maintenance Amount Test on or prior to the APS Basic Maintenance Cure
Date.
(b) On or before 5:00 p.m., New York City time, on the third Business Day after
a Valuation Date on which the Fund fails to satisfy the APS Basic Maintenance
Amount Test, the Fund shall complete and deliver to the Auction Agent, Moody's
and Fitch, a complete APS Basic Maintenance Report as of the date of such
failure, which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Fund mails to the Auction Agent
for delivery on the next Business Day the complete APS Basic Maintenance Report.
The Fund will deliver an APS Basic Maintenance Report to the Auction Agent,
Moody's and Fitch, on or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Fund cures its failure to
maintain Fitch Eligible Assets and Moody's, with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount Test or on which the
Fund fails to maintain Fitch Eligible Assets and Moody's Eligible Assets, with
an aggregate Discounted Value which exceeds the APS Basic Maintenance Amount by
5% or more. The Fund will also deliver an APS Basic Maintenance Report to the
Auction Agent, Fitch, and Moody's as of each Bi-Monthly Valuation Date on or
before the third Business Day after such date. Additionally, on or before 5:00
p.m., New York City time, on the third Business Day after the first day of a
Special Dividend Period, the Fund will deliver an APS Basic Maintenance Report
to Fitch,
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B-39
Moody's and the Auction Agent. The Fund shall also provide Fitch and Moody' with
an APS Basic Maintenance Report when specifically requested by Fitch or Moody's,
as applicable. A failure by the Fund to deliver an APS Basic Maintenance Report
under this paragraph 7(b) shall be deemed to be delivery of an APS Basic
Maintenance Report indicating the Discounted Value for Fitch Eligible Assets and
Moody's Eligible Assets of the Fund is less than the APS Basic Maintenance
Amount Test, as of the relevant Valuation Date.
(c) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Valuation Date as of the last Business Day of the Fund's fiscal year, the
Independent Accountant will confirm in writing to the Auction Agent, Moody's and
Fitch (i) the mathematical accuracy of the calculations reflected in such Report
(and in any other APS Basic Maintenance Report, randomly selected by the
Independent Accountant, that was delivered by the Fund at year-end on such
Valuation Date), (ii) that, in such Report (and in such randomly selected
Report), the Fund correctly determined the assets of the Fund which constitute
Fitch Eligible Assets and Moody's Eligible Assets at such Bi-Monthly Valuation
Date in accordance with these Amended By-Laws, (iii) that, in such Report (and
in such randomly selected Report), the Fund determined whether the Fund had, at
such Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with these Amended By-Laws, Fitch Eligible Assets
and Moody's Eligible Assets of an aggregate Discounted Value at least equal to
the APS Basic Maintenance Amount Test, (iv) with respect to the Fitch ratings on
debt securities, the issuer name, issue size and coupon rate listed in such
Report, that the Independent Accountant has requested that Fitch verify such
information and the Independent Accountant shall provide a listing in its letter
of any differences, (v) with respect to the Moody's ratings on debt securities,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Fund's assets to the Fund for purposes of valuing securities in the Fund's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Fund and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Fund has satisfied the requirements as defined under "Moody's Hedging
Transactions" of these Amended By-Laws (such confirmation is herein called the
"Accountant's Confirmation").
(d) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to any
Valuation Date on which the Fund failed to maintain Fitch Eligible Assets and
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than the APS Basic Maintenance Amount, and relating to the APS Basic Maintenance
Cure Date with respect to such failure, the Independent Accountant will provide
to the Auction Agent, Moody's and Fitch an Accountant's Confirmation as to such
APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraphs (c) or
(d) of this paragraph 7 shows that an error was made in the APS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all Fitch Eligible Assets and Moody's
Eligible Assets of the Fund was determined by the Independent Accountant, the
calculation or determination made by such Independent Accountant shall be final
and conclusive and shall be binding on the Fund, and the Fund shall accordingly
amend and deliver the APS Basic Maintenance Report to the Auction Agent, Moody's
and Fitch promptly following receipt by the Fund of such Accountant's
Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day after
the Date of Original Issue of the shares of APS, the Fund will complete and
deliver to Fitch and Moody's an APS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business
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B-40
Days of such Date of Original Issue, the Independent Accountant will confirm in
writing to Fitch and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of Fitch
Eligible Assets or Moody's Eligible Assets, as applicable reflected thereon
equals or exceeds the APS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after shares
of Common Shares are repurchased by the Fund, the Fund will complete and deliver
to Fitch and Moody's an APS Basic Maintenance Report as of the close of business
on such date that Common Shares is repurchased.
8. NOTICE. All notices or communications, unless otherwise specified in the
Amended By-Laws of the Fund or these Amended By-Laws, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date seven days after which such notice is mailed.
9. AUCTION PROCEDURES. (a) Certain definitions. As used in this paragraph 9,
the following terms shall have the following meanings, unless the context
otherwise requires:
(i) "APS" means the shares of APS being auctioned pursuant to this paragraph 9.
(ii) "Auction Date" means the first Business Day preceding the first day of a
Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 9(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 9(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 9(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 9(b)(i) below.
(vii) "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" which term shall mean the rate equaling the sum of the
Applicable Spread (as more particularly set forth below) plus the Reference
Rate. The Applicable Percentage will be determined based on the credit rating
assigned on such date to such shares by Fitch and Moody's (or if Fitch or
Moody's shall not make such rating available, the equivalent of such rating by a
Substitute Rating Agency) as follows:
APPLICABLE
CREDIT RATINGS PERCENTAGE OF
---------------------------- THE REFERENCE APPLICABLE
MOODY'S S&P/FITCH RATE SPREAD
------------- ------------- ------------- ----------
Aaa AAA 125 % 125 bps
Aa3 to Aa1 AA- to AA+ 150 % 150 bps
A3 to A1 A- to A+ 200 % 200 bps
Baa3 to Baa1 BBB- to BBB+ 250 % 250 bps
Ba1 and lower BB+ and lower 300 % 300 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:
MAXIMUM APPLICABLE METHOD USED TO
RATE USING THE MAXIMUM APPLICABLE DETERMINE THE
APPLICABLE PERCENTAGE RATE USING THE MAXIMUM APPLICABLE
REFERENCE RATE OF THE REFERENCE RATE APPLICABLE SPREAD RATE
-------------- --------------------- ------------------ ------------------
1%............................ 1.25% 2.25% Spread
2%............................ 2.50% 3.25% Spread
3%............................ 3.75% 4.25% Spread
4%............................ 5.00% 5.25% Spread
5%............................ 6.25% 6.25% Either
6%............................ 7.50% 7.25% Percentage
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B-41
The Fund shall take all reasonable action necessary to enable Fitch and Moody's
to provide a rating for each series of APS. If Fitch or Moody's shall not make
such a rating available, Eaton Vance Management or its affiliates and
successors, after consultation with the Fund and the Broker-Dealers, shall
select a nationally recognized statistical rating organization to act as a
Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 9(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 9(b)(i) below.
(x) "Submission Deadline" means 1:30 p.m., New York City time, on any Auction
Date or such other time on any Auction Date as may be specified by the Auction
Agent from time to time as the time by which each Broker-Dealer must submit to
the Auction Agent in writing all Orders obtained by it for the Auction to be
conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 9(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph 9(d)(i)
below.
(xiii) "Submitted Order" has the meaning specified in paragraph 9(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph 9(d)(i)
below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph 9(d)(i)
below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph 9(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders.
(i) Unless otherwise permitted by the Fund, Beneficial Owners and Potential
Beneficial Owners may only participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in respect of shares subject to
Orders submitted or deemed submitted to them by Beneficial Owners and as
Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information as to:
(1) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners that shall
be maintained in good faith for the purpose of conducting a competitive Auction,
shall contact Potential Beneficial Owners, including Persons that are not
Beneficial Owners, on such list to determine the number of Outstanding shares,
if any, of APS which each such Potential Beneficial Owner offers to purchase,
provided that the Applicable Rate for the next succeeding Dividend Period shall
not be less than the rate per annum specified by such Potential Beneficial
Owner.
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B-42
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or the communication by a Broker-Dealer
acting for its own account to the Auction Agent, of information referred to in
clause (A) or (B) of this paragraph 9(b)(i) is hereinafter referred to as an
"Order" and each Beneficial Owner and each Potential Beneficial Owner placing an
Order, including a Broker-Dealer acting in such capacity for its own account, is
hereinafter referred to as a "Bidder"; an Order containing the information
referred to in clause (A)(1) of this paragraph 9(b)(i) is hereinafter referred
to as a "Hold Order"; an Order containing the information referred to in clause
(A)(2) or (B) of this paragraph 9(b)(i) is hereinafter referred to as a "Bid";
and an Order containing the information referred to in clause (A)(3) of this
paragraph 9(b)(i) is hereinafter referred to as a "Sell Order". 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.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be less than the rate per
annum specified in such Bid; or (1) such number or a lesser number of
Outstanding shares of APS to be determined as set forth in paragraph 9(e)(i)(D)
if the Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined as set forth
in paragraph 9(e)(ii)(C) if such specified rate per annum shall be higher than
the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Sell Order; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 9(e)(ii)(C) if Sufficient Clearing Bids do
not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be higher than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 9(e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum specified
therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent
(i) Each Broker-Dealer shall submit in writing or through the Auction Agent's
Auction Processing System to the Auction Agent prior to the Submission Deadline
on each Auction Date all Orders obtained by such Broker-Dealer, designating
itself (unless otherwise permitted by the Fund) as an Existing Holder in respect
of shares subject to Orders submitted or deemed submitted to it by Beneficial
Owners and as a Potential Holder in respect of shares subject to Orders
submitted to it by Potential Beneficial Owners, and specifying with respect to
each Order:
(A) the name of the Bidder placing such Order (which shall be the Broker-Dealer
unless otherwise permitted by the Fund);
(B) the aggregate number of Outstanding shares of APS that are the subject of
such Order;
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B-43
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of APS subject to any Hold Order
placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of APS subject to any Bid placed
by such Existing Holder and the rate per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of APS subject to any Sell Order
placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per annum
specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of APS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, 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
Special Dividend Period of longer than 91 days) to have been submitted on behalf
of such Existing Holder covering the number of Outstanding shares of APS held by
such Existing Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall be
considered valid up to and including the number of Outstanding shares of APS
held by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of shares of APS
subject to such Hold Orders exceeds the number of Outstanding shares of APS held
by such Existing Holder, the number of shares of APS subject to each of such
Hold Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding shares of APS held by
such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be considered
valid, in the ascending order of their respective rates per annum if more than
one Bid is submitted on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of APS held by such Existing Holder
over the number of shares of APS subject to any Hold Order referred to in
paragraph 9(c)(iv)(A) above (and if more than one Bid submitted on behalf of
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 paragraph 9(c)(iv)(A) above and of the foregoing portion of
this paragraph 9(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates
per annum, the number of shares subject to each of such Bids shall be reduced
pro rata so that such Bids, in the aggregate, cover exactly such remaining
number of shares); and the number of shares, if any, subject to Bids not valid
under this paragraph 9(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the excess of
the number of Outstanding shares of APS held by such Existing Holder over the
number of shares of APS subject to Hold Orders referred to in paragraph
9(c)(iv)(A) and Bids referred to in paragraph 9(c)(iv)(B); provided that if more
than one Sell Order is submitted on behalf of any Existing Holder and the number
of shares of APS subject to such Sell Orders is greater than such excess, the
number of shares
--------------------------------------------------------------------------------
B-44
of APS subject to each of such Sell Orders shall be reduced pro rata so that
such Sell Orders, in the aggregate, cover exactly the number of shares of APS
equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder, each
Bid submitted shall be a separate Bid with the rate per annum and number of
shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as 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.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the Auction
Agent shall assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of APS over the number
of Outstanding shares of APS that are the subject of Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS");
(B) from the Submitted Orders whether the number of Outstanding shares of APS
that are the subject of Submitted Bids by Potential Holders specifying one or
more rates per annum equal to or lower than the Maximum Applicable Rate exceeds
or is equal to the sum of:
(1) the number of Outstanding shares of APS that are the subject of Submitted
Bids by Existing Holders specifying one or more rates per annum higher than the
Maximum Applicable Rate, and
(2) the number of Outstanding shares of APS that are subject to Submitted Sell
Orders (if such excess or such equality exists (other than because the number of
Outstanding shares of APS in clause (1) above and this clause (2) are each zero
because all of the Outstanding shares of APS are the subject of Submitted Hold
Orders), such Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum specified in
the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the Winning Bid Rate
and all other Submitted Bids from Existing Holders specifying lower rates per
annum were rejected, thus entitling such Existing Holders to continue to hold
the shares of APS that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the Winning Bid Rate
and all other Submitted Bids from Potential Holders specifying lower rates per
annum were accepted, thus entitling the Potential Holders to purchase the shares
of APS that are the subject of such Submitted Bids, would result in the number
of shares subject to all Submitted Bids specifying the Winning Bid Rate or a
lower rate per annum being at least equal to the Available APS.
(ii) Promptly after the Auction Agent has made the determinations pursuant to
paragraph 9(d)(i), the Auction Agent shall advise the Fund of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all of the
Outstanding shares of APS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to the
Maximum Applicable Rate; or
--------------------------------------------------------------------------------
B-45
(C) if all of the Outstanding shares of APS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction shall automatically
be the same length as the immediately preceding Dividend Period and the
Applicable Rate for the next succeeding Dividend Period shall be equal to 90% of
the Reference Rate on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations made pursuant to paragraph
9(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions of
paragraph 9(e)(iii) and paragraph 9(e)(iv), Submitted Bids and Submitted Sell
Orders shall be accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted and the
Submitted Bid of each of the Existing Holders specifying any rate per annum that
is higher than the Winning Bid Rate shall be accepted, thus requiring each such
Existing Holder to sell the Outstanding shares of APS that are the subject of
such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid, unless the number of Outstanding shares
of APS subject to all such Submitted Bids shall be greater than the number of
Outstanding shares of APS ("Remaining Shares") equal to the excess of the
Available APS over the number of Outstanding shares of APS subject to Submitted
Bids described in paragraph 9(e)(i)(B) and paragraph 9(e)(i)(C), in which event
the Submitted Bids of each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell Outstanding shares of APS, but only in
an amount equal to the difference between (1) the number of Outstanding shares
of APS then held by such Existing Holder subject to such Submitted Bid and (2)
the number of shares of APS obtained by multiplying (x) the number of Remaining
Shares by (y) a fraction the numerator of which shall be the number of
Outstanding shares of APS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the number of Outstanding
shares of APS subject to such Submitted Bids made by all such Existing Holders
that specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be accepted but only in an
amount equal to the number of Outstanding shares of APS obtained by multiplying
(x) the difference between the Available APS and the number of Outstanding
shares of APS subject to Submitted Bids described in paragraph 9(e)(i)(B),
paragraph 9(e)(i)(C) and paragraph 9(e)(i)(D) by (y) a fraction the numerator of
which shall be the number of Outstanding shares of APS subject to such Submitted
Bid and the denominator of which shall be the sum of the number of Outstanding
shares of APS subject to such Submitted Bids made by all such Potential Holders
that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because all of
the Outstanding shares of APS are subject to Submitted Hold Orders), subject to
the provisions of paragraph 9(e)(iii),
--------------------------------------------------------------------------------
B-46
Submitted Orders shall be accepted or rejected as follows in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be rejected,
thus entitling such Existing Holder to continue to hold the Outstanding shares
of APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be accepted,
thus requiring such Potential Holder to purchase the Outstanding shares of APS
that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate per annum
that is higher than the Maximum Applicable Rate shall be accepted and the
Submitted Sell Orders of each Existing Holder shall be accepted, in both cases
only in an amount equal to the difference between (1) the number of Outstanding
shares of APS then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of APS obtained by multiplying
(x) the difference between the Available APS and the aggregate number of
Outstanding shares of APS subject to Submitted Bids described in paragraph
9(e)(ii)(A) and paragraph 9(e)(ii)(B) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of APS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding shares of APS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 9(e)(i) or
paragraph 9(e)(ii), any Existing Holder would be entitled or required to sell,
or any Potential Holder would be entitled or required to purchase, a fraction of
a share of APS on any Auction Date, the Auction Agent shall, in such manner as
in its sole discretion it shall determine, round up or down the number of shares
of APS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that each Outstanding share of APS purchased or sold by
each Existing Holder or Potential Holder on such Auction Date shall be a whole
share of APS.
(iv) If, as a result of the procedures described in paragraph 9(e)(i), any
Potential Holder would be entitled or required to purchase less than a whole
share of APS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of APS for purchase
among Potential Holders so that only whole shares of APS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of APS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall determine,
with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf
of Existing Holders or Potential Holders, the aggregate number of Outstanding
shares of APS to be purchased and the aggregate number of the Outstanding shares
of APS to be sold by such Potential Holders and Existing Holders and, to the
extent that such aggregate number of Outstanding shares to be purchased and such
aggregate number of Outstanding shares to be sold differ, the Auction Agent
shall determine to which other Broker-Dealer or Broker-Dealers acting for one or
more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS
(f) Miscellaneous. The Fund may interpret the provisions of this paragraph 9
to resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not substantially adversely affect the
rights of Beneficial Owners of APS. A Beneficial Owner or an Existing Holder (A)
may sell, transfer or otherwise dispose of shares of APS only pursuant to a Bid
or Sell Order in accordance with the procedures described in this paragraph 9 or
to or through a Broker-Dealer, provided that in the case of all transfers other
than pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the shares of APS held by it maintained in book entry form by the
Securities Depository in the
--------------------------------------------------------------------------------
B-47
account of its Agent Member, which in turn will maintain records of such
Beneficial Owner's beneficial ownership. Neither the Fund nor any Affiliate
shall submit an Order in any Auction. Any Beneficial Owner that is an Affiliate
shall not sell, transfer or otherwise dispose of shares of APS to any Person
other than the Fund. All of the Outstanding shares of APS of a series shall be
represented by a single certificate registered in the name of the nominee of the
Securities Depository unless otherwise required by law or unless there is no
Securities Depository. If there is no Securities Depository, at the Fund's
option and upon its receipt of such documents as it deems appropriate, any
shares of APS may be registered in the Stock Register in the name of the
Beneficial Owner thereof and such Beneficial Owner thereupon will be entitled to
receive certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
10. SECURITIES DEPOSITORY; STOCK CERTIFICATES. (a) If there is a Securities
Depository, one certificate for all of the shares of APS of each series shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent shares of APS. All such certificates shall bear a legend to the effect
that such certificates are issued subject to the provisions restricting the
transfer of shares of APS contained in these Amended By-Laws. Unless the Fund
shall have elected, during a Non-Payment Period, to waive this requirement, the
Fund will also issue stop-transfer instructions to the Auction Agent for the
shares of APS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of APS of a series shall be
the Non-Payment Period Rate or there is no Securities Depository, the Fund may
at its option issue one or more new certificates with respect to such shares
(without the legend referred to in paragraph 10(a)) registered in the names of
the Beneficial Owners or their nominees and rescind the stop-transfer
instructions referred to in paragraph 10(a) with respect to such shares.
--------------------------------------------------------------------------------
B-48
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 REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
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
(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 is incorporated herein by reference to
the Pre-Effective Amendment No. 1 to the Registrant's Initial
APS Registration Statement filed with the Commission on July
9, 2004 (Accession No. 0000950135-04-003454) ("Pre- Effective
Amendment No. 1 to the Registrant's Initial APS Registration
Statement").
(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 is incorporated herein by reference to the
Pre-Effective Amendment No. 1 to the Registrant's Initial APS
Registration Statement.
(3) Form of Specimen Certificate of Series B Auction Preferred
Shares is incorporated herein by reference to the
Pre-Effective Amendment No. 1 to the Registrant's Initial APS
Registration Statement.
(4) Form of Specimen Certificate of Series C Auction Preferred
Shares is incorporated herein by reference to the
Pre-Effective Amendment No. 1 to the Registrant's Initial APS
Registration Statement.
(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 herein by reference to Registrant's Pre-Effective
Amendment No. 2 to the Initial Common Shares Registration
Statement.
(2) Expense Reimbursement Arrangement dated March 15, 2004 is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 2 to the Initial Common Shares Registration
Statement.
(h) (1) Form of Underwriting Agreement is incorporated herein by
reference to Registrant's Pre-Effective Amendment No. 2 to the
Initial Common Shares Registration Statement.
(2) Form of Master Agreement Among Underwriters is incorporated
herein by reference to Registrant's Pre-Effective Amendment
No. 2 to the Initial Common Shares Registration Statement.
(3) Form of Master Selected Dealers Agreement is incorporated
herein by reference to Registrant's Pre-Effective Amendment
No. 2 to the Initial Common Shares Registration Statement.
(4) Form of Underwriting Agreement as to Registrant's Auction
Preferred Shares is incorporated herein by reference to
Pre-Effective Amendment No. 1 to the Registrant's Initial APS
Registration Statement.
(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 Pre-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 Agent Agreement between Registrant and the
Auction Agent as to Registrant's Auction Preferred Shares is
incorporated herein by reference to the Pre-Effective
Amendment No. 1 to the Registrant's Initial APS Registration
Statement.
(7) Form of Broker-Dealer Agreement as to Registrant's Auction
Preferred Shares is incorporated herein by reference to the
Pre-Effective Amendment No. 1 to the Registrant's Initial APS
Registration Statement.
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP as to Registrant's
Auction Preferred Shares filed herewith.
(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 Pre- 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 filed in Pre-Effective Amendment No. 1
to the Registrant's Initial APS Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
Registration and Filing Fees $ 18,371.50
National Association of Securities Dealers, Inc. Fees 0.00
Rating Agency Fees $ 165,000.00
Costs of Printing and Engraving $ 100,000.00
Accounting Fees and Expenses $ 30,000.00
Legal Fees and Expenses $ 150,000.00
==============
Total $ 463,371.50
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 June 30, 2004, of
each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial interest, par value 9
$0.01 per share
Series A Auction Preferred Shares, par value 0
$0.01 per share
Series B Auction Preferred Shares, par value 0
$0.01 per share
Series C Auction Preferred Shares, par value 0
$0.01 per share
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws filed in the Registrant's Initial Common Shares
Registration Statement, the Amended By-Laws filed in Pre-Effective Amendment No.
1 to the Registrant's Initial APS Registration Statement, the Underwriting
Agreement filed in Pre-Effective Amendment No. 2 to the Initial Common Shares
Registration Statement and the Form of Underwriting Agreement filed in
Pre-Effective Amendment No. 1 to the Registrant's Initial APS 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
pre-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 Pre-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Boston and the Commonwealth of Massachusetts, on the 12th day of July 2004.
EATON VANCE TAX-ADVANTAGED
GLOBAL DIVIDEND OPPORTUNITIES FUND
By: Duncan W. Richardson*
-------------------------------
Duncan W. Richardson
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Duncan W. Richardson* President and Principal Executive July 12, 2004
--------------------------- Officer
Duncan W. Richardson
/s/ James L. O'Connor
--------------------------- Treasurer and Principal Financial July 12, 2004
James L. O'Connor and Accounting Officer
James B. Hawkes* Trustee July 12, 2004
---------------------------
James B. Hawkes
Samuel L. Hayes, III* Trustee July 12, 2004
---------------------------
Samuel L. Hayes, III
William H. Park* Trustee July 12, 2004
---------------------------
William H. Park
Ronald A. Pearlman* Trustee July 12, 2004
---------------------------
Ronald A. Pearlman
Norton H. Reamer* Trustee July 12, 2004
---------------------------
Norton H. Reamer
Lynn A. Stout* Trustee July 12, 2004
---------------------------
Lynn A. Stout
*By: /s/ James L. O'Connor
---------------------------------------
James L. O'Connor (As attorney in-fact)
INDEX TO EXHIBITS
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP
(n) Consent of Independent Auditors