PROSPECTUS April 27, 2004
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14,500,000 SHARES
EATON VANCE TAX-ADVANTAGED
GLOBAL DIVIDEND OPPORTUNITIES FUND
COMMON SHARES
[EATON VANCE LOGO]
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INVESTMENT OBJECTIVE. Eaton Vance Tax-Advantaged Global Dividend Opportunities
Fund (the "Fund") is a newly 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 March 31, 2004, Eaton Vance and its
subsidiaries managed approximately $84.9 billion on behalf of funds,
institutional clients and individuals, including approximately $27.2 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.
Because the Fund is newly organized, its common shares have no history of public
trading. Approximately one to three months after completion of the offering of
common shares, the Fund expects to begin use of financial leverage through the
issuance of preferred shares and/or through borrowings, leveraging initially up
to approximately 35% of its total assets (including the amount obtained through
leverage).
(continued on inside cover page)
INVESTING IN SHARES INVOLVES CERTAIN RISKS. SEE "INVESTMENT OBJECTIVE, POLICIES
AND RISKS" BEGINNING AT PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO PUBLIC SALES LOAD(1) PROCEEDS TO FUND
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Per share $20.00 $0.90 $19.10
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Total $290,000,000 $13,050,000 $276,950,000
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Total assuming full exercise of the over-allotment option $333,500,000 $15,007,500 $318,492,500
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(notes on following page)
In addition to the sales load, the Fund will pay offering expenses of up to
$0.04 per share, estimated to total $650,000, which will reduce the "Proceeds to
Fund" (above). Eaton Vance or an affiliate has agreed to pay the amount by which
the aggregate of all of the Fund's offering costs (other than sales loads)
exceeds $0.04 per share. Eaton Vance or an affiliate has agreed to reimburse all
Fund organizational costs.
UBS INVESTMENT BANK MERRILL LYNCH & CO. WACHOVIA SECURITIES
A.G. EDWARDS & SONS, INC. RBC CAPITAL MARKETS H&R BLOCK FINANCIAL ADVISORS, INC.
JANNEY MONTGOMERY SCOTT LLC OPPENHEIMER
QUICK & REILLY, INC. WELLS FARGO SECURITIES, LLC
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(continued from previous page)
EXCHANGE LISTING. The Fund has been approved for listing of its common shares
on the New York Stock Exchange under the symbol "ETO." Because the Fund is newly
organized, its common shares have no history of public trading. The shares of
closed-end management investment companies frequently trade at a discount from
their net asset value. The returns earned by holders of the Fund's common shares
("Common Shareholders") who purchase their shares in this offering and sell
their shares below net asset value will be reduced.
The Adviser anticipates that the use of leverage should result in higher income
to Common Shareholders over time. Use of financial leverage creates an
opportunity for increased return, but, at the same time, creates special risks.
There can be no assurance that a leveraging strategy will be utilized or will be
successful. SEE "INVESTMENT OBJECTIVE, POLICIES AND RISKS--USE OF LEVERAGE AND
RELATED RISKS" AT PAGE 29 AND "DESCRIPTION OF CAPITAL STRUCTURE" AT PAGE 45.
The Fund's net asset value and distribution rate will vary and may be affected
by numerous factors, including changes in stock prices, market interest rates,
dividend rates and other factors. Fluctuations in net asset value may be
magnified as a result of the Fund's use of leverage, which is a speculative
investment technique. An investment in the Fund may not be appropriate for all
investors. There is no assurance that the Fund will achieve its investment
objective.
Interest rates are currently at or near historical lows. To the extent the Fund
invests in preferred stocks and fixed-rate debt securities the net asset value
and the price of the Common Shares may decline if market interest rates rise.
Furthermore, a rise in market interest rates may increase the costs associated
with the use of leverage.
This Prospectus sets forth concisely information you should know before
investing in the shares of the Fund. Please read and retain this Prospectus for
future reference. A Statement of Additional Information dated April 27, 2004,
has been filed with the Securities and Exchange Commission ("SEC") and can be
obtained without charge by calling 1-800-225-6265 or by writing to the Fund. A
table of contents to the Statement of Additional Information is located at page
55 of this Prospectus.
This Prospectus incorporates by reference the entire Statement of Additional
Information. The Statement of Additional Information is available along with
other Fund-related materials: at the SEC's public reference room in Washington,
DC (call 1-202-942-8090 for information on the operation of the reference room);
from the EDGAR database on the SEC's internet site (http://www.sec.gov); upon
payment of copying fees by writing to the SEC's public reference section,
Washington, DC 20549-0102; or by electronic mail at publicinfo@sec.gov. The
Fund's address is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109 and its telephone number is 1-800-225-6265.
The Fund's shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution, and
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.
The underwriters named in the Prospectus may purchase up to 2,175,000 additional
shares from the Fund under certain circumstances.
The underwriters expect to deliver the shares to purchasers on or about April
30, 2004.
You should rely only on the information contained or incorporated by reference
in this Prospectus. The Fund has not authorized anyone 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.
Until May 22, 2004 (25 days after the date of this Prospectus), all dealers that
buy, sell or trade the shares, whether or not participating in this offering,
may be required to deliver a Prospectus. This is in addition to the dealers'
obligation to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
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(1) Eaton Vance (not the Fund) will pay certain additional compensation to
qualifying underwriters. See "Underwriting." Eaton Vance (not the Fund) will pay
UBS Securities LLC for services provided pursuant to a shareholder servicing
agreement between UBS Securities LLC and Eaton Vance. See "Shareholder Servicing
Agent, custodian and transfer agent." The total amount of the foregoing payments
will not exceed 4.5% of the aggregate initial offering price of the Common
Shares offered hereby.
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TABLE OF CONTENTS
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Prospectus summary.................... 1
Summary of Fund expenses.............. 14
The Fund.............................. 16
Use of proceeds....................... 16
Investment objective, policies and
risks............................... 16
Management of the Fund................ 38
Distributions......................... 40
Dividend reinvestment plan............ 43
Description of capital structure...... 45
Underwriting.......................... 50
Shareholder Servicing Agent, custodian
and transfer agent.................. 53
Legal opinions........................ 54
Reports to shareholders............... 54
Independent auditors.................. 54
Additional information................ 54
Table of contents for the Statement of
Additional Information.............. 55
The Fund's privacy policy............. 55
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Prospectus summary
This is only a summary. This summary may not contain all of the information that
you should consider before investing in the Fund's common shares. You should
review the more detailed information contained in this Prospectus and in the
Statement of Additional Information, especially the information set forth under
the heading "Investment objective, policies and risks."
THE FUND
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (the "Fund") is a
newly organized, diversified, closed-end management investment company. The Fund
offers investors the opportunity to achieve a high level of after-tax total
return through a professionally managed portfolio consisting primarily of
dividend-paying common and preferred stocks of U.S. and foreign issuers. 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. Investments are based on
Eaton Vance Management's ("Eaton Vance" or the "Adviser") internal research and
ongoing company analysis, which is generally not available to individual
investors. An investment in the Fund may not be appropriate for all investors.
There is no assurance that the Fund will achieve its investment objective.
THE OFFERING
The Fund is offering 14,500,000 common shares of beneficial interest, par value
$0.01 per share, through a group of underwriters (the "Underwriters") led by UBS
Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Wachovia
Capital Markets, LLC. The common shares of beneficial interest are called
"Common Shares." The Underwriters have been granted an option by the Fund to
purchase up to 2,175,000 additional Common Shares solely to cover orders in
excess of 14,500,000 Common Shares. The initial public offering price is $20.00
per share. The minimum purchase in this offering is 100 Shares ($2,000). See
"Underwriting." Eaton Vance or an affiliate has agreed to (i) reimburse all
organizational costs and (ii) pay all offering costs (other than sales loads)
that exceed $0.04 per Common Share.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level of after-tax total
return. The Fund's return is expected to consist primarily of tax-advantaged
dividend income and capital appreciation. In its investment program, the Fund
will consider the potential effects of inflation on shareholder capital.
Under normal market conditions, the Fund will invest at least 80% of its total
managed assets in dividend-paying common and preferred stocks of U.S. and
foreign issuers that Eaton Vance believes at the time of investment are eligible
to pay dividends that qualify for federal income taxation at rates applicable to
long-term capital gains, which reach a maximum of 15% ("tax-advantaged
dividends"). The remainder of the Fund's portfolio may be invested in stocks and
other investments that pay dividends, distributions or other amounts taxable for
federal income tax purposes at rates applicable to ordinary income. The Adviser
retains broad discretion to allocate the Fund's investments between common and
preferred stocks in a manner that it believes will best effectuate the Fund's
objective. Initially, the Fund expects to invest approximately 75%-85% of its
total managed assets in common stocks and approximately 15%-25% of its total
managed assets in preferred stocks. The Fund may invest in common and preferred
stocks of both domestic and foreign issuers. Under normal market conditions, the
Fund will invest at least 25% of its total managed assets in the securities of
U.S. issuers and at least 35% of its total managed assets in the securities of
issuers located in countries other than the United States ("Non-U.S. Issuers").
This means, at times, the Fund may invest up to 65% of its total managed assets
in securities of U.S. issuers and, at other times, the Fund may invest up to 75%
of its total managed assets in securities of Non-U.S. Issuers. Initially, the
Fund intends to invest
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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 Common Shareholders. For the
Fund to receive tax-advantaged dividend income, the Fund must hold stock paying
an otherwise tax-advantaged dividend for more than 60 days during the 121-day
period beginning 60 days before the ex-dividend date (or more than 90 days
during the associated 181-day period, in the case of certain preferred stocks).
Although current law only provides a 120-day and 180-day period of holding such
stock, a proposed technical correction to the law would extend such periods to
121 days and 181 days. The Treasury Department and the Internal Revenue Service
("IRS") have announced that taxpayers may apply the extended period as if the
legislation were already enacted in filing their federal income tax returns. In
addition, the Fund cannot be obligated to make related payments (pursuant to a
short sale or otherwise) with respect to positions in any security that is
substantially similar or related property with respect to such stock. Similar
provisions apply to each Common Shareholder's investment in the Fund. In order
for otherwise tax-advantaged dividends from the Fund received by a Common
Shareholder to be taxable at long-term capital gains rates, the Common
Shareholder must hold his or her Fund shares for more than 60 days during the
121-day period surrounding the ex-dividend date. The provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable to tax-advantaged
dividends are effective through 2008. Thereafter, higher tax rates will apply
unless further legislative action is taken.
In addition to investing in stocks that pay tax-advantaged dividends, the Fund
may also invest a portion of its assets in stocks and other securities that
generate fully taxable ordinary income (i.e., income other than tax-advantaged
dividends). For any year, so long as the Fund's fully taxable ordinary income
and net realized short-term gains are offset by expenses of the Fund, all of the
Fund's income distributions would be characterized as tax-advantaged dividends.
There can be no assurance that a portion of the Fund's income distributions will
not be fully taxable as ordinary income.
Eaton Vance currently believes that the U.S. and global economies may be in the
early stages of transitioning from a more than twenty year cycle of
disinflation, characterized by generally low and moderating inflation, to a new
cycle of generally rising inflation. Eaton Vance believes that, during periods
of high or rising concern about inflation, investments in common stocks of
certain types of issuers whose businesses are related to "hard assets" ("Hard
Asset Stocks") can support the Fund's
2
objective to achieve high after-tax total return. The value of such businesses
and hence their common stock prices normally appreciate in higher inflationary
environments. Hard Asset Stocks may include those of issuers whose businesses
are related to energy, other natural resources and real estate. Reflecting Eaton
Vance's current outlook on inflation, the Fund expects initially to invest
approximately 30%-40% of its total managed assets in Hard Asset Stocks.
The Fund may not invest 25% or more of its total managed assets in the
securities of issuers in any single industry. The Fund may invest a significant
portion of its assets in securities of issuers in any single industry or sector
of the economy if companies in that industry or sector meet the Fund's
investment criteria. The Fund may invest a significant portion of its assets in
each of the energy, raw materials, real estate, utilities and financial services
sectors.
The Fund anticipates making significant investments in natural resource-related
common stocks in the energy and raw materials sectors. Natural resource-related
common stocks are issued by companies engaged in exploring for, developing,
processing, fabricating, producing, distributing, dealing in or owning natural
resources, companies engaged in the creation or development of technologies for
the production or use of natural resources, and companies engaged in the
furnishing of technology, equipment, supplies or services to the natural
resource area. Natural resources include substances, materials and energy
derived from natural sources that have economic value. Examples of natural
resources include precious metals (e.g., gold, silver and platinum), ferrous and
nonferrous metals (e.g., iron, aluminum, copper, nickel, lead and zinc),
minerals, energy resources (e.g., coal, oil, natural gas, uranium, hydropower),
timber and timberland, agricultural land and commodities, water, marine
resources and alternative energy resources (e.g., solar, wind, geothermal and
tidal energy).
The Fund may also make significant investments in the real estate, utilities and
financial services sectors. Companies in the real estate sector include, for
example, real estate investment trusts ("REITs") that either own properties or
make construction or mortgage loans, real estate developers, companies with
substantial real estate holdings, and other companies whose products and
services are related to the real estate industry, such as building supply
manufacturers, mortgage lenders, or mortgage servicing companies. The utilities
sector includes companies engaged in the manufacture, production, generation,
transmission, sale or distribution of water, gas, and electric energy as well as
companies that provide communication services. Companies in the financial
services sector include, for example, commercial banks, savings and loan
associations, brokerage and investment companies, insurance companies, and
consumer and industrial finance companies.
If the Fund is focused in an industry or sector, it may present more risks than
if it were broadly diversified over numerous industries or sectors of the
economy. To the extent that the Fund's portfolio is composed significantly of
stocks in the energy, raw materials, real estate, utilities, and financial
services sectors, the Fund will be more exposed to the particular risks
associated with those sectors. However, if market conditions change, the Fund's
portfolio would not necessarily be so composed of stocks in these sectors, but
could be composed significantly of stocks of issuers in other market sectors.
See "Investment objective, policies and risks--Additional Risk
Considerations--Sector risk."
The Fund may seek to enhance the level of dividend income it receives by
engaging in dividend capture trading. In a dividend capture trade, the Fund
sells a stock on or shortly after the stock's ex-dividend date and uses the sale
proceeds to purchase one or more other stocks that are expected to pay dividends
before the next dividend payment on the stock being sold. Through this practice,
the Fund may receive more dividend payments over a given period of time than if
it held a single stock. Receipt of a greater number of dividend payments during
a given time period could augment the total amount of dividend income the Fund
receives over this period. For example, during the course of a single year it
may be possible through dividend capture trading for the Fund to receive five or
more dividend payments with respect to Fund assets attributable to dividend
capture trading where it may only have received four payments in a hold only
strategy. In order for dividends received by the Fund to qualify as
tax-advantaged dividends, the Fund must comply with the holding period
requirements described herein. Dividend capture trading by the Fund will take
account of this consideration. The use of
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dividend capture strategies will expose the Fund to increased trading costs and
potential for capital loss or gain, particularly in the event of significant
short-term price movements of stocks subject to dividend capture trading.
INVESTMENT STRATEGY
A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments, including the allocation between common
and preferred stocks and between U.S. and non-U.S. investments. Individual
members of this team with specialized expertise are responsible for the
day-to-day management of different portions of the Fund's portfolio. The Fund's
investments are actively managed, and securities may be bought or sold on a
daily basis.
In selecting securities, the Fund invests primarily in dividend-paying common
and preferred stocks of U.S. and non-U.S. companies that produce attractive
levels of tax-advantaged dividend income and are, in the opinion of the Adviser,
undervalued or inexpensive relative to the overall market. Stocks may be
undervalued in relation to other investments due to adverse economic or other
near-term difficulties that cause them not to achieve their expected financial
potential. Undervaluation may also arise because companies are misunderstood by
investors or because they are out of step with favored market themes. For its
investments in common stocks, the Fund also generally seeks to invest in
positions that the Adviser believes have the potential for growth of income and
capital appreciation over time. The Fund will take into consideration the
Adviser's expectations for inflation and may, during periods of high or rising
concern about inflation, make substantial investments in Hard Asset Stocks. For
its investments in preferred stocks, the Fund will also take into consideration
the interest rate sensitivity of the investments and the Adviser's interest rate
expectations.
Investment decisions are made primarily on the basis of fundamental research.
The portfolio managers utilize information provided by, and the expertise of,
the Adviser's research staff in making investment decisions. In selecting
stocks, the portfolio managers consider (among other factors) a company's
earnings or cash flow capabilities, dividend prospects and tax treatment of a
company's dividends, the strength of the company's business franchises and
estimates of the company's net value. Many of these considerations are
subjective.
The Fund seeks to achieve high after-tax returns for Common Shareholders in part
by minimizing the taxes they incur in connection with the Fund's investment
income and realized capital gains. The Fund seeks to minimize distributions that
are taxed as ordinary income by investing principally in common and preferred
stocks that pay tax-advantaged dividends and generally by avoiding net realized
short-term capital gains and fully taxable ordinary income in excess of the
Fund's expenses. The Fund seeks to minimize distributions taxed as long-term
capital gains by avoiding or minimizing the sale of portfolio securities with
large accumulated capital gains. When a decision is made to sell a particular
appreciated security, the portfolio managers will select for sale the share lots
resulting in the most favorable tax treatment, generally those with holding
periods sufficient to qualify for long-term capital gains treatment that have
the highest cost basis. The portfolio managers may sell securities to realize
capital losses that can be used to offset realized gains (but not tax-advantaged
dividends or other ordinary income).
To seek to protect against price declines in securities holdings with large
accumulated gains, the Fund may use various hedging techniques (such as the
purchase and sale of futures contracts on stocks and stock indices and options
thereon, the purchase of put options and the sale of call options on securities
held, equity swaps, covered short sales, forward sales of stocks and the
purchase and sale of forward currency exchange contracts and currency futures).
By using these techniques rather than selling appreciated securities, the Fund
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
4
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."
LEVERAGE
The Fund expects to use financial leverage through the issuance of preferred
shares and/or through borrowings, including the issuance of debt securities. The
Fund expects to begin use of leverage one to three months after the completion
of the offering of the Common Shares through the issuance of preferred shares
and/or through borrowings, leveraging initially up to approximately 35% of its
total assets (including the amount obtained through leverage). In the future,
the Adviser, in its sole discretion, may leverage solely through the issuance of
preferred shares or solely through borrowings if it determines such leverage is
in the best interest of Common Shareholders. The Adviser anticipates that the
use of leverage should result in higher income to Common Shareholders over time.
The Fund generally will not use leverage, however, if the Adviser anticipates
that it would result in a lower return to Common Shareholders over time. Use of
financial leverage creates an opportunity for increased return for Common
Shareholders, but, at the same time, creates special risks (including the
likelihood of greater volatility of net asset value and market price of the
Common Shares), and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. The Fund currently intends
to issue preferred shares approximately one to three months after completion of
this offering, subject to market conditions and to the Fund's receipt of a
AAA/Aaa credit rating on such preferred shares from a nationally recognized
statistical rating organization ("Rating Agency") (typically, Moody's, S&P or
Fitch). 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 total assets, including proceeds from the issuance of preferred shares
and borrowings. See "Investment objective, policies and risks--Use of leverage
and related risks" and "Management of the Fund--The Adviser."
LISTING
The Fund has been approved for listing of its Common Shares on the New York
Stock Exchange under the symbol "ETO."
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance, an indirect wholly-owned subsidiary of Eaton Vance Corp., is the
Fund's investment adviser and administrator. The Adviser and its subsidiaries
manage approximately $84.9 billion on
5
behalf of funds, institutional clients and individuals as of March 31, 2004,
including approximately $27.2 billion in tax-managed equity fund assets.
Twenty-six of the funds managed by Eaton Vance are closed-end. See "Management
of the Fund."
DISTRIBUTIONS
Commencing with the Fund's first dividend, the Fund intends to make regular
monthly cash distributions to Common Shareholders of substantially all of the
net investment income of the Fund allocated to Common Shareholders. A
significant portion of the Fund's investment income is expected to consist of
tax-advantaged dividends. A portion of the Fund's income may not be
tax-advantaged. Any such income distributions, as well as any distributions by
the Fund of net realized short-term capital gains, will be taxed as ordinary
income. The amount of each monthly distribution will vary depending on a number
of factors, including dividends payable on the Fund's preferred shares or other
costs of financial leverage. As portfolio and market conditions change, the rate
of dividends on the Common Shares and the Fund's dividend policy could change.
Over time, the Fund will distribute all of its net investment income after it
pays accrued dividends on any outstanding preferred shares or other costs of
financial leverage. In addition, at least annually, the Fund intends to
distribute any net short-term capital gain and any net capital gain (which is
the excess of net long-term capital gain over short-term capital loss). The
initial distribution is expected to be declared approximately 45 days and paid
approximately 60 to 90 days after the completion of this offering, depending on
market conditions. Common Shareholders may elect automatically to reinvest some
or all of their distributions in additional Common Shares under the Fund's
dividend reinvestment plan. See "Distributions" and "Dividend reinvestment
plan."
The Fund has applied for an order from the SEC granting exemption from Section
19(b) of the Investment Company Act of 1940, as amended ("Investment Company
Act" or "1940 Act"), and Rule 19b-1 thereunder to permit the Fund to include
realized capital gains as a part of its regular distributions to Common
Shareholders more frequently than would otherwise be permitted by the Investment
Company Act. The Fund will not pursue this distribution policy until it receives
such an exemptive order. There is no guarantee that the SEC will grant such
exemptive relief. However, if the Fund fails to receive the requested relief and
the Fund is unable to include realized capital gains in regular distributions
more frequently than would otherwise be permitted by the Investment Company Act,
the Adviser does not believe that the distribution policy, as set forth above,
will otherwise be adversely affected.
DIVIDEND REINVESTMENT PLAN
The Fund has established a dividend reinvestment plan (the "Plan"). Under the
Plan, a Common Shareholder may elect to have all dividend and capital gain
distributions automatically reinvested in additional Common Shares either
purchased in the open market or newly issued by the Fund if the Common Shares
are trading at or above their net asset value. Common Shareholders may elect to
participate in the Plan by completing the dividend reinvestment plan application
form. Common Shareholders who do not elect to participate in the Plan will
receive all distributions in cash paid by check mailed directly to them by PFPC
Inc., as dividend paying agent. Common Shareholders who intend to hold their
Common Shares through a broker or nominee should contact such broker or nominee
to determine whether or how they may participate in the Plan. See "Dividend
reinvestment plan."
CLOSED-END STRUCTURE
Closed-end funds differ from open-end management investment companies (commonly
referred to as mutual funds) in that closed-end funds generally list their
shares for trading on a securities exchange and do not redeem their shares at
the option of the shareholder. By comparison, mutual funds issue securities that
are redeemable at net asset value at the option of the shareholder and typically
engage
6
in a continuous offering of their shares. Mutual funds are subject to continuous
asset in-flows and out-flows that can complicate portfolio management, whereas
closed-end funds generally can stay more fully invested in securities consistent
with the closed-end fund's investment objective and policies. In addition, in
comparison to open-end funds, closed-end funds have greater flexibility in the
employment of financial leverage and in the ability to make certain types of
investments. However, shares of closed-end funds frequently trade at a discount
from their net asset value. In recognition of the possibility that the Common
Shares might trade at a discount to net asset value and that any such discount
may not be in the interest of Common Shareholders, the Fund's Board of Trustees
(the "Board"), in consultation with Eaton Vance, from time to time may review
possible actions to reduce any such discount. The Board might consider open
market repurchases or tender offers for Common Shares at net asset value. There
can be no assurance that the Board will decide to undertake any of these actions
or that, if undertaken, such actions would result in the Common Shares trading
at a price equal to or close to net asset value per Common Share. The Board
might also consider the conversion of the Fund to an open-end mutual fund. The
Board believes, however, that the closed-end structure is desirable, given the
Fund's investment objective and policies. Investors should assume, therefore,
that it is highly unlikely that the Board would vote to convert the Fund to an
open-end investment company. Investors should note that the anticipated issuance
of preferred shares to provide investment leverage could make a conversion to
open-end form more difficult because of the voting rights of preferred
shareholders, the costs of redeeming preferred shares and other factors. See
"Description of capital structure."
SPECIAL RISK CONSIDERATIONS
NO OPERATING HISTORY
The Fund is a closed-end investment company with no history of operations and is
designed for long-term investors and not as a trading vehicle.
INVESTMENT AND MARKET RISK
An investment in Common Shares is subject to investment risk, including the
possible loss of the entire principal amount invested. An investment in Common
Shares represents an indirect investment in the securities owned by the Fund,
which are generally traded on a securities exchange or in the over-the-counter
markets. The value of these securities, like other market investments, may move
up or down, sometimes rapidly and unpredictably. The Common Shares at any point
in time may be worth less than the original investment, even after taking into
account any reinvestment of dividends and distributions.
ISSUER RISK
The value of common and preferred stocks may decline for a number of reasons
that directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services.
INCOME RISK
The income Common Shareholders 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 and Common
Shareholders' income from the Fund could drop as well. The Fund's income also
would likely be affected adversely when prevailing short-term interest rates
increase and the Fund is utilizing leverage.
TAX RISK
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
7
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.
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 and particularly during periods of high or rising concern
about inflation, common stocks also have experienced significantly more
volatility in returns and may not maintain their real values 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 price 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 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 on this position. 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
8
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.
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 over "value" stocks.
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.
EFFECTS OF LEVERAGE
There can be no assurance that a leveraging strategy will be utilized by the
Fund or that, if utilized, it will be successful during any period in which it
is employed. Leverage creates risks for Common Shareholders, including the
likelihood of greater volatility of net asset value and market price of the
Common Shares and the risk that fluctuations in dividend rates on any preferred
shares or fluctuations
9
in borrowing costs may affect the return to Common Shareholders. To the extent
the income derived from securities purchased with proceeds received from
leverage exceeds the cost of leverage, the Fund's distributions will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased with such proceeds is not sufficient to cover the cost of
leverage, the amount available for distribution to Common Shareholders as
dividends and other distributions will be less than if leverage had not been
used. In the latter case, Eaton Vance, in its best judgment, may nevertheless
determine to maintain the Fund's leveraged position if it deems such action to
be appropriate. The costs of an offering of preferred shares and/or a borrowing
program will be borne by Common Shareholders and consequently will result in a
reduction of the net asset value of Common Shares.
As discussed under "Management of the Fund," the fee paid to Eaton Vance will be
calculated on the basis of the Fund's average daily gross assets, including
proceeds from the issuance of preferred shares and/or borrowings, so the fees
will be higher when leverage is utilized. In this regard, holders of preferred
shares do not bear the investment advisory fee. Rather, Common Shareholders bear
the portion of the investment advisory fee attributable to the assets purchased
with the proceeds of the preferred shares offering. See "Investment objective,
policies and risks--Use of Leverage and Related Risks."
The Fund currently intends to seek a AAA/Aaa credit rating on any preferred
shares from a Rating Agency. The Fund may be subject to investment restrictions
of the Rating Agency as a result. These restrictions or borrowing program
covenants may impose asset coverage or portfolio composition requirements that
are more stringent than those imposed on the Fund by the Investment Company Act.
It is not anticipated that these covenants or guidelines will significantly
impede Eaton Vance in managing the Fund's portfolio in accordance with its
investment objective and policies. See "Description of capital
structure--Preferred Shares."
Financial leverage may also be achieved through the purchase of certain
derivative instruments. The Fund's use of derivative instruments exposes the
Fund to special risks. See "Investment objective, policies and risks--Additional
Investment Practices" and "Investment objective, policies and risks--Additional
Risk Considerations."
NON-INVESTMENT GRADE SECURITIES RISK
The Fund's investments in preferred stocks and bonds of below investment grade
quality, if any, are predominantly speculative because of the credit risk of
their issuers. While offering a greater potential opportunity for capital
appreciation and higher yields, preferred stocks and bonds of below investment
grade quality entail greater potential price volatility and may be less liquid
than higher-rated securities. Issuers of below investment grade quality
preferred stocks and bonds are more likely to default on their payments of
dividends/interest and liquidation value/principal owed to the Fund, and such
defaults will reduce the Fund's net asset value and income distributions. The
prices of these lower quality preferred stocks and bonds are more sensitive to
negative developments than higher rated securities. Adverse business conditions,
such as a decline in the issuer's revenues or an economic downturn, generally
lead to a higher non-payment rate. In addition, such a security may lose
significant value before a default occurs as the market adjusts to expected
higher non-payment rates. The Fund will not invest in preferred stocks or bonds
that are rated at the time of purchase below B as determined by S&P, Moody's or
Fitch, or, if unrated, determined to be of comparable quality by Eaton Vance.
The Fund will not invest more than 10% of its total managed assets in preferred
stocks and bonds 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.
INTEREST RATE RISK
Interest rate risk is the risk that preferred stocks paying fixed dividend rates
and fixed-rate debt securities will decline in value because of changes in
market interest rates. When interest rates rise, the
10
market value of such securities generally will fall. The Fund's investment in
preferred stocks and fixed-rate debt securities means that the net asset value
and price of the Common Shares may decline if market interest rates rise.
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.
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. 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. 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 sectors of the
market. As the percentage of the Fund's assets invested in a particular sector
increases, so does the potential for fluctuation in the net asset value of
Common Shares.
+ The energy sector generally 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. 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 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.
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 aversely affected by a change
in inflation.
11
+ The real estate sector 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 risks involved in investing in
the securities of companies in the real estate sector ("Real Estate
Companies") and REITs include (among others) the risks that (i) values of
Real Estate Companies may fall because of the failure of borrowers to pay
their loans or because of poor management; (ii) property values may fall due
to increasing vacancies or declining rents resulting from economic, legal,
cultural or technological developments; and (iii) Real Estate Companies and
REITs that utilize leverage may increases their investment risk which could
adversely affect market values 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. Other factors such as lack of adequate insurance or
environmental issues may contribute to the risks involved in a real estate
investment. The value of investments in the real estate sector may be
aversely affected by a change in inflation.
+ 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.
+ The financial services sector may include, for example, commercial banks,
savings and loan associations, brokerage and investment companies, insurance
companies, and consumer and industrial finance companies. 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.
See "Investment objective, policies and risks--Additional Risk
Considerations--Sector risk" for a discussion of the specific risks relating to
each of these sectors.
DERIVATIVES RISK
Derivative transactions (such as futures contracts and options thereon, options,
swaps and short sales) may 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. 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
12
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
payments by the Fund of tax-advantaged dividends.
LIQUIDITY RISK
The Fund may invest up to 15% of its total managed assets in securities for
which there is no readily available trading market or which are otherwise
illiquid. The Fund may not be able readily to dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund may
have to sell other investments or engage in borrowing transactions if necessary
to raise cash to meet its obligations. In addition, the limited liquidity could
affect the market price of the securities, thereby adversely affecting the
Fund's net asset value.
INFLATION RISK
Although the Fund, in its investment program, will consider the potential
effects of inflation on shareholder capital, there is no assurance that this
effort will be successful. Inflation risk is the risk that the purchasing power
of assets or income from investment will be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value
of the Common Shares and distributions thereon can decline. In addition, during
any periods of rising inflation, dividend rates of preferred shares of the Fund
and the costs of Fund borrowings would likely increase, which would tend to
reduce distributions to Common Shareholders.
MARKET PRICE OF SHARES
The shares of closed-end management investment companies often trade at a
discount from their net asset value, and the Fund's Common Shares may likewise
trade at a discount from net asset value. The trading price of the Fund's Common
Shares may be less than the public offering price. The returns earned by Common
Shareholders who purchased their Common Shares in this offering and sell their
Common Shares below net asset value will be reduced.
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.
ANTI-TAKEOVER PROVISIONS
The Fund's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Fund or to change the composition of its Board. See "Description
of capital structure--Anti-takeover Provisions in the Declaration of Trust."
13
Summary of Fund expenses
The purpose of the table below is to help you understand all fees and expenses
that you, as a Common Shareholder, would bear directly or indirectly. The
following table assumes leverage in an amount equal to 35% (31.50% after
preferred shares issuance and 3.50% borrowings) of the Fund's total assets, and
shows Fund expenses as a percentage of net assets attributable to Common Shares.
Shareholder transaction expenses
Sales load paid by you (as a percentage of offering
price)................................................. 4.50%
Expenses borne by the Fund................................ 0.87(1)(2)
Dividend reinvestment plan fees........................... None(3)
PERCENTAGE OF NET ASSETS
ATTRIBUTABLE
TO COMMON SHARES
(ASSUMING THE ISSUANCE
OF PREFERRED SHARES
AND/OR BORROWINGS)(4)
--------------------------------------------------------------------------------------
Annual expenses
Investment advisory fee................................... 1.31%
Interest Payments on Borrowed funds....................... 0.08(2)
Other expenses............................................ 0.35%(5)
------
Total annual expenses..................................... 1.74%
Less fee and expense reimbursements (years 1-5)........... (0.31)%(6)
------
Net annual expenses (years 1-5)........................... 1.43%(6)
======
------------
(1) Eaton Vance or an affiliate has agreed to reimburse all organizational
costs and pay all offering costs (other than sales load) that exceed $0.04
per Common Share (0.20% of the offering price).
(2) Assumes leverage by borrowing in an amount equal to approximately 3.50% of
the Fund's total assets (including all amounts obtained by leverage) at an
interest rate of 1.50%. If the Fund offers preferred shares, costs of that
offering, estimated to be slightly more than 1.37% of the total amount of
the preferred share offering, will effectively be borne by Common
Shareholders and result in the reduction of the net asset value of the
Common Shares. Assuming the issuance of preferred shares in an amount equal
to 31.50% of the Fund's total assets (after issuance of all leverage),
those offering costs are estimated to be not more than approximately $0.14
or $1,672,000 per common share (0.67% of the offering price).
(3) You will be charged a $5.00 service charge and pay brokerage charges if you
direct the plan agent to sell your Common Shares held in a dividend
reinvestment account.
(4) Stated as percentages of net assets attributable to Common Shares assuming
no issuance of preferred shares or borrowings, the Fund's expenses would be
estimated to be as follows:
PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO
COMMON SHARES
(ASSUMING NO PREFERRED
SHARES AND/OR
BORROWINGS ARE ISSUED
AND OUTSTANDING)
--------------------------------------------------------------------------------------
Annual expenses Investment advisory fee..................... 0.85%
Other expenses............................................ 0.20%(5)
-----------
Total annual expenses..................................... 1.05%
Fee and expense reimbursements (years 1-5)................ (0.20)%(6)
-----------
Net annual expenses (years 1-5)........................... 0.85%(6)
===========
(5) Estimated expenses based on the current fiscal year.
(6) Eaton Vance has contractually agreed to reimburse the Fund for fees and
other expenses in the amount of 0.20% of average total assets of the Fund
for the first 5 full years of the Fund's operations, 0.15% of the average
total assets for the Fund in year 6, 0.10% in year 7 and 0.05% in year 8.
For this purpose, total assets 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.
Without the reimbursement, Total annual expenses would be estimated to be
1.74% of
14
average daily net assets attributable to Common Shares (or, assuming no issuance
of preferred shares or borrowings, 1.05% of average daily net assets
attributable to Common Shares). 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.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations and assume that the Fund issues approximately
12,500,000 Common Shares. See "Management of the Fund" and "Dividend
reinvestment plan."
EXAMPLE
The following Example illustrates the expenses that you would pay on a $1,000
investment in Common Shares (including the sales load of $45, estimated offering
expenses of this offering of $2 and the estimated preferred share offering costs
assuming preferred shares are issued representing 31.50% of the Fund's total
assets (after issuance) of $6.70), assuming (1) total net annual expenses of
1.43% of net assets attributable to Common Shares in years 1 through 5
increasing to 1.74% in years 9 and 10 and (2) a 5% annual return(1):
1 YEAR 3 YEARS 5 YEARS 10 YEARS (2)
----------------------------------------
$68 $97 $128 $230
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER.
---------------
(1) The example assumes that the estimated Other expenses set forth in the
Annual expenses table are accurate, that fees and expenses increase as
described in note 2 below and that all dividends and distributions are
reinvested at net asset value. Actual expenses may be greater or less than
those assumed. Moreover, the Fund's actual rate of return may be greater or
less than the hypothetical 5% return shown in the example.
(2) Assumes reimbursement of fees and expenses of 0.15% of average daily total
assets of the Fund in year 6, 0.10% in year 7 and 0.05% in year 8 and no
reimbursement of fees or expenses in years 9 and 10. Eaton Vance has not
agreed to reimburse the Fund for any portion of its fees and expenses beyond
2012.
15
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The Fund
The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a Massachusetts
business trust on February 27, 2004 pursuant to a Declaration of Trust governed
by the laws of The Commonwealth of Massachusetts and has no operating history.
The Fund's principal office is located at The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109, and its telephone number is 1-800-225-6265.
This Prospectus relates to the initial public offering of the Fund's common
shares of beneficial interest, $0.01 par value (the "Common Shares"). See
"Underwriting."
Use of proceeds
The net proceeds of this offering of Common Shares will be approximately
$276,950,000 (or $318,492,500 assuming exercise of the Underwriters'
over-allotment option in full), which, after payment of the estimated offering
expenses, will be invested in accordance with the Fund's investment objective
and policies as soon as practicable, but, in no event, under normal market
conditions, later than three months after the receipt thereof. Pending such
investment, the proceeds may be invested in high-quality, short-term debt
securities, cash and/or cash equivalents. Eaton Vance or an affiliate has agreed
to (i) reimburse all organizational costs and (ii) pay all offering costs of the
Fund (other than sales loads) that exceed $0.04 per Common Share.
Investment objective, policies and risks
INVESTMENT OBJECTIVE
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. The
Fund's investment objective is fundamental and cannot be changed without the
approval of the Common 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 Common Shareholders.
The Adviser retains broad discretion to allocate the Fund's investments between
common and preferred stocks in a manner that it believes will best effectuate
the Fund's objective. Initially, the Fund expects to invest approximately
75%-85% of its total managed assets in common stocks and approximately 15%-25%
of its total managed assets in preferred stocks. The Fund may invest in common
and preferred stocks of both domestic and foreign issuers. Under normal market
conditions,
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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the Fund will invest at least 25% of its total managed assets in the securities
of U.S. issuers and at least 35% of its total managed assets in the securities
of issuers located in countries other than the United States ("Non-U.S.
Issuers"). This means, at times, the Fund may invest up to 65% of its total
managed assets in securities of U.S. issuers and, at other times, the Fund may
invest up to 75% of its total managed assets in securities of Non-U.S. Issuers.
Initially, the Fund intends to invest approximately 45%-55% of its total managed
assets in Non-U.S. Issuers. The Fund may invest up to 15% of its total managed
assets in issuers located in emerging market countries. Under normal market
conditions, the Fund will invest in issuers located in at least three countries,
including the United States.
Under normal market conditions, with respect to that portion of its assets
invested in preferred stocks, the Fund expects to invest primarily in preferred
stocks of investment grade quality (which is at least BBB- as determined by
Standard & Poor's Ratings Group ("S&P") or Fitch Ratings ("Fitch"), Baa3 as
determined by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
determined to be of comparable quality by Eaton Vance). However, the Fund may
from time to time purchase preferred stocks of below investment grade quality
that at the time of purchase are rated at least B as determined by S&P, Fitch or
Moody's or, if unrated, are determined to be of comparable quality by Eaton
Vance. Securities of below investment grade quality commonly are referred to as
"junk" preferred stocks and bonds, as the case may be. The Fund will not invest
more than 10% of its total managed assets in preferred stocks and bonds of below
investment grade quality. The foregoing credit quality policies apply only at
the time a security is purchased, and the Fund is not required to dispose of a
security in the event of a downgrade of an assessment of credit quality or the
withdrawal of a rating. Securities rated in the lowest investment grade rating
(BBB- or Baa3) may have certain speculative characteristics. Below investment
grade quality securities are considered to be predominantly speculative because
of the credit risk of the issuers. See "Investment objective, policies and
risks--Additional Risk Considerations--Non-investment grade securities risk."
The Fund seeks to invest in securities expected to generate dividend income that
qualifies for favorable federal income tax treatment. Under federal income tax
law enacted on May 28, 2003, tax-advantaged dividends received by individual
shareholders are taxed at long-term capital gain tax rates, which reach a
maximum of 15%. Tax-advantaged dividends generally include dividends from
domestic corporations and dividends from foreign corporations that meet certain
specified criteria. The Fund generally can pass the tax treatment of
tax-advantaged dividends it receives through to Common Shareholders. For the
Fund to receive tax-advantaged dividend income, the Fund must hold stock paying
an otherwise tax-advantaged dividend for more than 60 days during the 121-day
period beginning 60 days before the ex-dividend date (or more than 90 days
during the associated 181-day period, in the case of certain preferred stocks).
Although current law only provides a 120-day and 180-day period for holding such
stock, a proposed technical correction to the law would extend such periods to
121 days and 181 days. The Treasury Department and the Internal Revenue Service
have announced that taxpayers may apply the extended period as if the
legislation were already enacted in filing their federal income tax returns. In
addition, the Fund cannot be obligated to make related payments (pursuant to a
short sale or otherwise) with respect to positions in any security that is
substantially similar or related property with respect to such stock. Similar
provisions apply to each Common Shareholder's investment in the Fund. In order
for otherwise tax-advantaged dividends from the Fund received by a Common
Shareholder to be taxable at long-term capital gains rates, the Common
Shareholder must hold his or her Fund shares for more than 60 days during the
121-day period surrounding the ex-dividend date. The provisions of the Code
applicable to tax-advantaged dividends are effective through 2008. Thereafter,
higher tax rates will apply unless further legislative action is taken.
In addition to investing in stocks that pay tax-advantaged dividends, the Fund
may also invest a portion of its assets in stocks and other securities that
generate fully taxable ordinary income. For any
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17
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
year, so long as the Fund's fully taxable ordinary income and net realized
short-term gains are offset by expenses of the Fund, all of the Fund's income
distributions would be characterized as tax-advantaged dividends. There can be
no assurance that a portion of the Fund's income distributions will not be fully
taxable as ordinary income.
Eaton Vance currently believes that the U.S. and global economies may be in the
early stages of transitioning from a more than twenty year cycle of
disinflation, characterized by generally low and moderating inflation, to a new
cycle of generally rising inflation. Eaton Vance believes that, during periods
of high or rising concern about inflation, investments in common stocks of
certain types of issuers whose businesses are related to "hard assets" ("Hard
Asset Stocks") can support the Fund's objective to achieve high after-tax total
return. The value of such businesses and hence their common stock prices
normally appreciate in higher inflationary environments. Hard Asset Stocks may
include those of issuers whose businesses are related to energy, other natural
resources and real estate. Reflecting this outlook, the Fund expects initially
to invest approximately 30%-40% of its total managed assets in Hard Asset
Stocks.
The Fund may seek to enhance the level of dividend income it receives by
engaging in dividend capture trading. In a dividend capture trade, the Fund
sells a stock on or shortly after the stock's ex-dividend date and uses the sale
proceeds to purchase one or more other stocks that are expected to pay dividends
before the next dividend payment on the stock being sold. Through this practice,
the Fund may receive more dividend payments over a given period of time than if
it held a single stock. Receipt of a greater number of dividend payments during
a given time period could augment the total amount of dividend income the Fund
receives over this period. For example, during the course of a single year it
may be possible through dividend capture trading for the Fund to receive five or
more dividend payments with respect to Fund assets attributable to dividend
capture trading where it may only have received four payments in a hold only
strategy. In order for dividends received by the Fund to qualify as
tax-advantaged dividends, the Fund must comply with the holding period
requirements described herein. Dividend capture trading by the Fund will take
account of this consideration. The use of dividend capture strategies will
expose the Fund to increased trading costs and potential for capital loss or
gain, particularly in the event of significant short-term price movements of
stocks subject to dividend capture trading.
INVESTMENT STRATEGY
A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments, including the allocation between common
and preferred stocks and between U.S. and non-U.S. investments. Individual
members of this team with specialized expertise are responsible for the
day-to-day management of different portions of the Fund's portfolio. The Fund's
investments are actively managed and securities may be bought or sold on a daily
basis.
In selecting securities, the Fund invests primarily in dividend-paying common
and preferred stocks of U.S. and non-U.S. companies that produce attractive
levels of tax-advantaged dividend income and are, in the opinion of the Adviser,
undervalued or inexpensive relative to the overall market. Stocks may be
undervalued in relation to other investments due to adverse economic or other
near-term difficulties that cause them not to achieve their expected financial
potential. Undervaluation may also arise because companies are misunderstood by
investors or because they are out of step with favored market themes. For its
investments in common stocks, the Fund also generally seeks to invest in
positions that the Adviser believes have the potential for growth of income and
capital appreciation over time. The Fund will take into consideration the
Adviser's expectations for inflation and may, during periods of high or rising
concern about inflation, make substantial investments in certain types of
issuers whose businesses are related to Hard Asset Stocks. For its investment in
preferred stocks, the Fund will also
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18
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
take into consideration the interest rate sensitivity of the investments and the
Adviser's interest rate expectations.
Investment decisions are made primarily on the basis of fundamental research.
The portfolio managers utilize information provided by, and the expertise of,
the Adviser's research staff in making investment decisions. In selecting
stocks, the portfolio managers consider (among other factors) a company's
earnings or cash flow capabilities, dividend prospects and tax treatment of a
company's dividends, the strength of the company's business franchises and
estimates of the company's net value. Many of these considerations are
subjective.
The Fund may not invest 25% or more of its total managed assets in the
securities of issuers in any single industry. The Fund may invest a significant
portion of its assets in securities of issuers in any single industry or sector
of the economy if companies in that industry or sector meet the Fund's
investment criteria. The Fund may invest a significant portion of its assets in
each of energy, raw materials, real estate, utilities and financial services
sectors.
The Fund anticipates making significant investments in natural resource-related
common stocks in the energy and raw materials sectors. Natural resource-related
common stocks are issued by companies engaged in exploring for, developing,
processing, fabricating, producing, distributing, dealing in or owning natural
resources, companies engaged in the creation or development of technologies for
the production or use of natural resources, and companies engaged in the
furnishing of technology, equipment, supplies or services to the natural
resource sector. Natural resources include substances, materials and energy
derived from natural sources that have economic value. Examples of natural
resources include precious metals (e.g., gold, silver and platinum), ferrous and
nonferrous metals (e.g., iron, aluminum, copper, nickel, lead and zinc),
minerals, energy resources (e.g., coal, oil, natural gas, uranium, hydropower),
timber and timberland, agricultural land and commodities, water, marine
resources and alternative energy resources (e.g., solar, wind, geothermal and
tidal energy).
The Fund may also make significant investments in the real estate, utilities and
financial services sectors. Companies in the real estate industry and real
estate related investments may include, for example, real estate investment
trusts ("REITs") that either own properties or make construction or mortgage
loans, real estate developers, companies with substantial real estate holdings,
and other companies whose products and services are related to the real estate
industry, such as building supply manufacturers, mortgage lenders, or mortgage
servicing companies. The utilities sector includes companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
water, gas, and electric energy as well as companies that provide communication
services. Companies in the financial services sector include, for example,
commercial banks, savings and loan associations, brokerage and investment
companies, insurance companies, and consumer and industrial finance companies.
If the Fund is focused in an industry or sector, it may present more risks than
if it were broadly diversified over numerous industries or sectors of the
economy. To the extent that the Fund's portfolio is composed significantly of
stocks in the energy, raw materials, real estate, utilities, and financial
services sectors, the Fund will be more exposed to the particular risks
associated with those sectors. However, if market conditions change, the Fund's
portfolio would not necessarily be so composed of stocks in these sectors, but
could be composed significantly of stocks of issuers in other market sectors.
See "Investment objective, policies and risks--Additional Risk
Considerations--Sector risk."
TAX-MANAGED INVESTING
The Fund seeks to achieve high after-tax returns for Common Shareholders in part
by minimizing the taxes they incur in connection with the Fund's investment
income and realized capital gains. The Fund seeks to minimize distributions that
are taxed as ordinary income by investing principally in common and preferred
stocks that pay tax-advantaged dividends and generally by avoiding net realized
short-
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19
INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
term capital gains and fully taxable ordinary income in excess of the Fund's
expenses. The Fund seeks to minimize distributions taxed as long-term capital
gains by avoiding or minimizing the sale of portfolio securities with large
accumulated capital gains. When a decision is made to sell a particular
appreciated security, the portfolio managers will select for sale the share lots
resulting in the most favorable tax treatment, generally those with holding
periods sufficient to qualify for long-term capital gains treatment that have
the highest cost basis. The portfolio managers may sell securities to realize
capital losses that can be used to offset realized gains (but not tax-advantaged
dividends or other ordinary income).
To seek to protect against price declines in securities holdings with large
accumulated gains, the Fund may use various hedging techniques (such as the
purchase and sale of futures contracts on stocks and stock indices and options
thereon, the purchase of put options and the sale of call options on securities
held, equity swaps, covered short sales, forward sales of stocks and the
purchase and sale of forward currency exchange contracts and currency futures).
By using these techniques rather than selling appreciated securities, the Fund
can, within certain limitations, reduce its exposure to price declines in the
securities without realizing substantial capital gains under current tax law. In
order to seek to protect against adverse changes in the value of the Fund's
portfolio from changes in the value of foreign currencies, the Fund may purchase
and sell foreign currency on a spot (i.e., cash) basis in connection with the
settlement of transactions in securities traded in such foreign currency, may
enter into forward contracts to purchase or sell securities or foreign
currencies at a future date, or may buy or sell a foreign currency option or
futures contract for such amount. Derivative instruments may also be used by the
Fund to enhance returns or as a substitute for the purchase or sale of
securities. As a general matter, dividends received on hedged stock positions
are characterized as ordinary income and are not eligible for favorable tax
treatment. Dividends received on securities with respect to which the Fund is
obligated to make related payments (pursuant to short sales or otherwise) will
be treated as fully taxable ordinary income (i.e., income other than
tax-advantaged dividends).
In addition, use of derivatives may give rise to short-term capital gains and
other income that would not qualify for favorable tax treatment. The Fund may
invest up to 20% of its total managed assets in derivative instruments acquired
for hedging, risk management and investment purposes (to gain exposure to
securities, securities markets, markets indices and/or currencies consistent
with its investment objective and policies), provided that no more than 10% of
the Fund's total managed assets may be invested in such derivative instruments
acquired for speculative purposes.
Taxes are a major influence on the net returns that investors receive on their
taxable investments. There are five components of the returns of the
Fund--appreciation in the value of the Common Shares, distributions of
tax-advantaged dividends, distributions of other investment income and
distributions of realized short-term and long-term capital gains--which are
treated differently for federal income tax purposes. Distributions of income
other than tax-advantaged dividends and distributions of net realized short-term
gains (on stocks held for one year or less) are taxed as ordinary income, at
rates as high as 35%. Distributions to individuals and other non-corporate
shareholders of tax-advantaged dividends and net realized long-term gains (on
stocks held for more than one year) are taxed at rates up to 15%. Generally,
returns derived from appreciation in the value of the Common Shares are not
taxable until the shareholder sells his or her Common Shares. Upon sale, a
capital gain or loss (short-term, if the shareholder has held his or her shares
for one year or less, otherwise long-term) equal to the difference between the
net proceeds of such sale and the shareholder's adjusted tax basis is realized.
As described above, the Fund seeks to achieve favorable after-tax returns for
Common Shareholders in part by minimizing the taxes they incur in connection
with the Fund's net investment income and net realized gains.
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20
INVESTMENT OBJECTIVE, POLICIES AND RISKS
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COMMON STOCKS
Common stock represents an equity ownership interest in an issuer. The Fund will
have substantial exposure to common stocks. Although common stocks have
historically generated higher average returns than fixed-income securities over
the long term and particularly during periods of high or rising concerns about
inflation, common stocks also have experienced significantly more volatility in
returns and may not maintain their real value during inflationary periods. An
adverse event, such as an unfavorable earnings report, may depress the value of
a particular common stock held by the Fund. Also, the prices of common stocks
are sensitive to general movements in the stock market and a drop in the stock
market may depress the price of common stocks to which the Fund has exposure.
Common stock prices fluctuate for many reasons, including changes in investors'
perceptions of the financial condition of an issuer or the general condition of
the relevant stock market, or when political or economic events affecting the
issuers occur. In addition, common stock prices may be sensitive to rising
interest rates, as the costs of capital rise and borrowing costs increase.
PREFERRED STOCKS
Preferred stock, like common stock, represents an equity ownership in an issuer.
Generally, preferred stock has a priority of claim over common stock in dividend
payments and upon liquidation of the issuer. Unlike common stock, preferred
stock does not usually have voting rights. Preferred stock in some instances is
convertible into common stock.
Although they are equity securities, preferred stocks have certain
characteristics of both debt and common stock. They are debt-like in that their
promised income is contractually fixed. They are common stock-like in that they
do not have rights to precipitate bankruptcy proceedings or collection
activities in the event of missed payments. Furthermore, they have many of the
key characteristics of equity due to their subordinated position in an issuer's
capital structure and because their quality and value are heavily dependent on
the profitability of the issuer rather than on any legal claims to specific
assets or cash flows.
In order to be payable, dividends on preferred stock must be declared by the
issuer's board of directors. In addition, distributions on preferred stock may
be subject to deferral and thus may not be automatically payable. Income
payments on some preferred stocks are cumulative, causing dividends and
distributions to accrue even if not declared by the board of directors or
otherwise made payable. Other preferred stocks are non-cumulative, meaning that
skipped dividends and distributions do not continue to accrue. There is no
assurance that dividends on preferred stocks in which the Fund invests will be
declared or otherwise made payable. The Fund may invest in non-cumulative
preferred stock, although the Adviser would consider, among other factors, their
non-cumulative nature in making any decision to purchase or sell such
securities. If the Fund owns preferred stock that is deferring its
distributions, the Fund may be required to report income for federal income tax
purposes while it is not receiving cash payments corresponding to such income.
Shares of preferred stock have a liquidation value that generally equals the
original purchase price at the date of issuance. The market values of preferred
stock may be affected by favorable and unfavorable changes impacting the
issuers' industries or sectors, including companies in the utilities and
financial services sectors, which are prominent issuers of preferred stock. See
"Investment objective, policies and risks--Additional Risk
Considerations--Sector risk." They may also be affected by actual and
anticipated changes or ambiguities in the tax status of the security and by the
availability of the actual and anticipated changes or ambiguities in tax laws,
such as changes in corporate and individual income tax rates, and in the
dividends received deduction for corporate taxpayers or the characterization of
dividends as tax-advantaged as described herein.
Because the claim on an issuer's earnings represented by preferred stock may
become onerous when interest rates fall below the rate payable on the stock or
for other reasons, the issuer may redeem
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21
INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 laws (including withholding tax), government policies (in
this country or abroad), relations between nations and trading, settlement,
custodial and other operational risks. In addition, the costs of investing
abroad are generally higher than in the United States, and foreign securities
markets may be less liquid, more volatile and less subject to governmental
supervision than markets in the United States. Foreign investments also could be
affected by other factors not present in the United States, including
expropriation, armed conflict, confiscatory taxation, lack of uniform accounting
and auditing standards, less publicly available financial and other information
and potential difficulties in enforcing contractual obligations. As an
alternative to holding foreign-traded securities, the Fund may invest in
dollar-denominated securities of foreign companies that trade on U.S. exchanges
or in the U.S. over-the-counter market (including depositary receipts, which
evidence ownership in underlying foreign securities).
Because foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a domestic company. Volume and liquidity in
most foreign debt markets are less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of securities exchanges, broker-dealers and listed companies than in
the United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities before delivery
may be required. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments, which could affect investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Foreign securities markets,
while growing in volume and sophistication, are generally not as developed as
those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies.
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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participation of the issuer. Unsponsored receipts may involve higher expenses,
they may not pass-through voting or other shareholder rights, and they may be
less liquid.
Emerging Markets. The risks of foreign investments described above apply to an
even greater extent to investments in emerging markets. The securities markets
of emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed foreign
markets. Disclosure and regulatory standards in many respects are less stringent
than in the U.S. and developed foreign markets. There also may be a lower level
of monitoring and regulation of securities markets in emerging market countries
and the activities of investors in such markets and enforcement of existing
regulations has been extremely limited. Many emerging countries have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. The economies of
these countries also have been and may continue to be adversely affected by
economic conditions in the countries in which they trade. The economies of
countries with emerging markets may also be predominantly based on only a few
industries or dependent on revenues from particular commodities. In addition,
custodial services and other costs relating to investment in foreign markets may
be more expensive in emerging markets than in many developed foreign markets,
which could reduce the Fund's income from such securities.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as economic developments generally, may affect the Fund's
investments in those countries. In addition, there is a heightened possibility
of expropriation or confiscatory taxation, imposition of withholding taxes on
interest payments, or other similar developments that could affect investments
in those countries. There can be no assurance that adverse political changes
will not cause the Fund to suffer a loss of any or all of its investments.
ADDITIONAL INVESTMENT PRACTICES
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.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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--Additional Risk
Considerations--Non-investment grade securities risk." Income payments on debt
securities received by the Fund will be fully taxable as ordinary income.
WARRANTS
The Fund may invest in equity and index warrants of domestic and international
issuers. Equity warrants are securities that give the holder the right, but not
the obligation, to subscribe for equity issues of the issuing company or a
related company at a fixed price either on a certain date or during a set
period. Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a warrant may be
more volatile than the price of its underlying security, and a warrant may offer
greater potential for capital appreciation as well as capital loss. Warrants do
not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercised prior to its
expiration date. These factors can make warrants more speculative than other
types of investments. The sale of a warrant results in a long- or short-term
capital gain or loss depending on the period for which a warrant is held.
CONVERTIBLE SECURITIES AND BONDS WITH WARRANTS ATTACHED
The Fund may invest in preferred stocks and fixed-income obligations that are
convertible into common stocks of domestic and foreign issuers, and bonds issued
as a unit with warrants. Convertible securities in which the Fund may invest,
comprised of both convertible debt and convertible preferred stock, may be
converted at either a stated price or at a stated rate into underlying shares of
common stock. Because of this feature, convertible securities generally enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities often provide higher yields than the
underlying equity securities, but generally offer lower yields than
non-convertible securities of similar quality. The value of convertible
securities fluctuates in relation to changes in interest rates like bonds, and,
in addition, fluctuates in relation to the underlying common stock. Income
payments on convertible fixed-income obligations will be taxable as ordinary
income; dividend payments on convertible preferred stocks may be tax-advantaged
dividends depending on the nature of the preferred stock.
SHORT SALES
The Fund may sell a security short if it owns at least an equal amount of the
security sold short or another security convertible or exchangeable for an equal
amount of the security sold short without payment of further compensation (a
short sale against-the-box). In a short sale against-the-box, the short seller
is exposed to the risk of being forced to deliver stock that it holds to close
the position if the borrowed stock is called in by the lender, which would cause
gain or loss to be recognized on the
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 may engage in transactions to hedge against changes in foreign
currencies, and will use such 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
--------------------------------------------------------------------------------
gains earned on any of the Fund's foreign currency transactions generally will
be treated as fully taxable income (i.e. income other than tax-advantaged
dividends).
Currency transactions are subject to the risk of a number of complex political
and economic factors applicable to the countries issuing the underlying
currencies. Furthermore, unlike trading in most other types of instruments,
there is no systematic reporting of last sale information with respect to the
foreign currencies underlying the derivative currency transactions. As a result,
available information may not be complete. In an over-the-counter trading
environment, there are no daily price fluctuation limits. There may be no liquid
secondary market to close out options purchased or written, or forward contracts
entered into, until their exercise, expiration or maturity. There is also the
risk of default by, or the bankruptcy of, the financial institution serving as a
counterparty.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Securities may be purchased on a "forward commitment" or "when-issued" basis
(meaning securities are purchased or sold with payment and delivery taking place
in the future) in order to secure what is considered to be an advantageous price
and yield at the time of entering into the transaction. However, the return on a
comparable security when the transaction is consummated may vary from the return
on the security at the time that the forward commitment or when-issued
transaction was made. From the time of entering into the transaction until
delivery and payment is made at a later date, the securities that are the
subject of the transaction are subject to market fluctuations. In forward
commitment or when-issued transactions, if the seller or buyer, as the case may
be, fails to consummate the transaction, the counterparty may miss the
opportunity of obtaining a price or yield considered to be advantageous. Forward
commitment or when-issued transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made until payment is
received or delivery is made from the other party to the transaction. Forward
commitment or when-issued transactions are not entered into for the purpose of
investment leverage.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its total managed assets in securities for
which there is no readily available trading market or are otherwise illiquid.
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
Total Return Swaps. Total return swaps are contracts in which one party agrees
to make payments of the total return from the underlying asset(s), which may
include securities, baskets of securities, or securities indices during the
specified period, in return for payments equal to a fixed or floating rate of
interest or the total return from other underlying asset(s). Amounts realized on
total return swaps may be taxable as ordinary income (i.e., income other than
tax-advantaged dividends), capital gain or a combination thereof depending on
the nature of the swap contract.
FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell various kinds of financial futures contracts and
options thereon to seek to hedge against changes in stock prices or interest
rates, for other risk management purposes or to gain exposure to certain
securities, indices and currencies. Futures contracts may be based on various
securities indices and securities. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed the Fund's initial investment in these contracts. The Fund will only
purchase or sell futures contracts or related options in compliance with the
rules of the Commodity Futures Trading Commission. These transactions involve
transaction costs. There can be no assurance that Eaton Vance's use of futures
will be advantageous to the Fund. Nationally recognized statistical rating
organizations (each a "Rating Agency") guidelines on any preferred shares issued
by the Fund 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
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.
The Fund currently expects that it may enter into definitive agreements with
respect to a credit facility/ commercial paper program after the closing of the
offer and sale of the Common Shares offered hereby. The Fund intends to arrange
a senior revolving credit facility/commercial paper program pursuant to which
the Fund expects to be entitled to borrow an amount up to approximately 3.5% of
the Fund's total assets as of the closing of the offer and sale of the Common
Shares offered hereby. Any such borrowings would constitute financial leverage.
The terms of any agreements relating to such a credit facility/commercial paper
program have not been determined and are subject to definitive agreement and
other conditions, but the Fund anticipates that such a credit
facility/commercial paper program would have terms substantially similar to the
following: (i) a final maturity not expected to exceed three years subject to
possible extension by the Fund; (ii) with respect to each draw under the
facility/program, an interest rate equal to the lesser of LIBOR plus a stated
premium or an alternate rate on the outstanding amount of each such draw, reset
over periods ranging from one to six months; and (iii) payment by the Fund of
certain fees and expenses including an underwriting fee, a commitment fee on the
average undrawn amount of the facility/program, an ongoing administration fee
and the expenses of the lenders under the facility/program incurred in
connection therewith; subject to the market conditions which may cause the cost
to be more or less, the Fund currently expects that the aggregate annualized
cost to the Fund over the life of the facility/program of the interest rate and
fees referred to in clauses (ii) and (iii) will not exceed an amount equal to
the stated principal amount of the facility/program times an amount equal to the
1-month LIBOR plus 45 basis points. Individual draws on the facility/program may
have maturities ranging from seven days to one year. The facility/ program is
not expected to be convertible into any other securities of the Fund,
outstanding amounts are expected to be prepayable by the Fund prior to final
maturity without significant penalty and there are not expected to be any
sinking fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund
may be required to prepay outstanding amounts under the facility/program or
incur a penalty rate of interest in the event of the occurrence of certain
events of default. The Fund expects to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program. In addition the Fund expects that such a credit
facility/commercial paper program would contain covenants which, among other
things, likely will limit the Fund's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment policies
and engage in certain transactions including mergers and consolidations, and may
require asset coverage ratios in addition to those required by the 1940 Act. The
Fund may be required to maintain a portion of its assets in cash or high-grade
securities as a reserve against interest or principal payments and expenses. The
Fund expects that any credit facility/commercial paper program would have
customary covenant, negative covenant and default provisions. There can be no
assurance that the Fund will enter into an agreement for a credit
facility/commercial paper program on terms and conditions representative of the
foregoing, or that additional material terms will not apply. In addition, if
entered into, any such credit facility/ paper program may in the future be
replaced or refinanced by one or more credit facilities/commercial
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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paper programs having substantially different terms or by the issuance of
preferred shares or debt securities.
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.
When the Fund enters into a reverse repurchase agreement, any fluctuations in
the market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Fund's assets. As a result, such transactions may increase fluctuations
in the market value of the Fund's assets. While there is a risk that large
fluctuations in the market value of the Fund's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,
they constitute a form of leverage and are subject to the risks described below
under "--Use of Leverage and Related Risks." 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.
USE OF LEVERAGE AND RELATED RISKS
The Fund expects to begin to use leverage through the issuance of preferred
shares and/or through borrowings, including the issuance of debt securities,
leveraging initially up to approximately 35% of its total assets (including the
amount obtained from leverage). In the future, the Adviser, in its sole
discretion, may leverage through borrowings if it determines such leverage is in
the best interest of Common Shareholders. The Adviser anticipates that the use
of leverage should result in higher income to Common Shareholders over time. The
Fund generally will not use leverage, however, if the Adviser anticipates that
it would result in a lower return to Common Shareholders for any significant
amount of time. The Fund also 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.
Leverage creates risks for holders of Common Shares, including the likelihood of
greater volatility of net asset value and market price of the Common Shares.
There is a risk that fluctuations in the dividend rates on any preferred shares
may adversely affect the return to the holders of Common Shares. If the income
from the securities purchased with such funds is not sufficient to cover the
cost of leverage, the return on the Fund will be less than if leverage had not
been used, and therefore the amount available for distribution to Common
Shareholders as dividends and other distributions will be
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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reduced. The Adviser in its best judgment nevertheless may determine to maintain
the Fund's leveraged position if it deems such action to be appropriate in the
circumstances.
Changes in the value of the Fund's portfolio (including investments bought with
the proceeds of the expected preferred shares offering or borrowing program)
will be borne entirely by the Common Shareholders. If there is a net decrease
(or increase) in the value of the Fund's investment portfolio, the leverage will
decrease (or increase) the net asset value per share to a greater extent than if
the Fund were not leveraged. 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 average daily gross assets, including proceeds from
borrowings and the issuance of preferred shares. As discussed under "Description
of capital structure," the Fund's issuance of preferred shares may alter the
voting power of Common Shareholders.
Capital raised through leverage will be subject to dividend or interest
payments, which may exceed the income and appreciation on the assets purchased.
The issuance of preferred shares or the commencement of a borrowing program
involves expenses and other costs and may limit the Fund's freedom to pay
dividends on Common Shares or to engage in other activities. The issuance of a
class of preferred shares or incurrence of borrowings having priority over the
Fund's Common Shares creates an opportunity for greater return per Common Share,
but at the same time such leveraging is a speculative technique in that it will
increase the Fund's exposure to capital risk. Unless the income and
appreciation, if any, on assets acquired with leverage proceeds exceed the
associated costs of such preferred shares or borrowings (and other Fund
expenses), the use of leverage will diminish the investment performance of the
Fund's Common Shares compared with what it would have been without leverage.
The Fund may be subject to certain restrictions on investments imposed by
guidelines of one or more Rating Agencies that may issue ratings for any
preferred shares issued by the Fund and by borrowing program covenants. These
guidelines and covenants may impose asset coverage or Fund composition
requirements that are more stringent than those imposed on the Fund by the 1940
Act. It is not anticipated that these covenants or guidelines will significantly
impede the Adviser from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies.
Under the Investment Company Act, the Fund is not permitted to issue preferred
shares unless immediately after such issuance the total asset value of the
Fund's portfolio is at least 200% of the liquidation value of the outstanding
preferred shares (i.e., such liquidation value may not exceed 50% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
such liquidation value. If preferred shares are issued, the Fund intends, to the
extent possible, to purchase or redeem preferred shares, as necessary, to
maintain coverage of any preferred shares of at least 200%. If the Fund
leverages in an amount of 35%, there will be an asset coverage of 286%.
Normally, holders of the Common Shares and holders of any preferred shares
voting as a single class will elect four of the Trustees of the Fund and holders
of any preferred shares will elect two. In the event the Fund failed to pay
dividends on its preferred shares for two years, preferred shareholders would be
entitled to elect a majority of the Trustees until the dividends are paid.
To qualify for federal income taxation as a "regulated investment company," the
Fund must distribute in each taxable year at least 90% of its net investment
income (including net interest income and net short-term gain). The Fund also
will be required to distribute annually substantially all of its ordinary income
and capital gain, if any, to avoid imposition of a nondeductible 4% federal
excise tax. If the Fund is precluded from making distributions on the Common
Shares because of any applicable asset coverage requirements, the terms of the
preferred shares may provide that any amounts so precluded
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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from being distributed, but required to be distributed for the Fund to meet the
distribution requirements for qualification as a regulated investment company,
will be paid to the holders of the preferred shares as a special dividend. This
dividend can be expected to decrease the amount that holders of preferred shares
would be entitled to receive upon redemption or liquidation of the preferred
shares.
The Fund's willingness to issue new securities for investment purposes, and the
amount the Fund will issue, will depend on many factors, the most important of
which are market conditions and interest rates. Successful use of a leveraging
strategy may depend on the Adviser's ability to predict correctly interest rates
and market movements, and there is no assurance that a leveraging strategy will
be successful during any period in which it is employed.
Assuming the utilization of leverage in the amount of 35% of the Fund's gross
assets and an annual dividend rate on preferred shares of 1.20% and 1.50% on
borrowings payable on such leverage based on market rates as of the date of this
Prospectus, the additional income that the Fund must earn (net of expenses) in
order to cover such payments is 0.43%. The Fund's actual cost of leverage will
be based on market rates at the time the Fund undertakes a leveraging strategy,
and such actual cost of leverage may be higher or lower than that assumed in the
previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Shares of leverage in the amount of approximately
35% of the Fund's gross assets, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to Common Shareholders when portfolio return is
positive and greater than the cost of leverage and decreases the return when the
portfolio return is negative or less than the cost of leverage. The figures
appearing in the table are hypothetical and actual returns may be greater or
less than those appearing in the table.
Assumed portfolio return (net of expenses)......... (10)% (5)% 0% 5% 10%
Corresponding Common Share return assuming 35%
leverage......................................... (16.05)% (8.35)% (0.66)% 7.03% 14.72%
Until the Fund issues preferred shares or incurs borrowings, the Common Shares
will not be leveraged, and the risks and special considerations related to
leverage described in this Prospectus will not apply. Such leveraging of the
Common Shares cannot be achieved until the proceeds resulting from the use of
leverage have been invested in accordance with the Fund's investment objective
and policies.
ADDITIONAL RISK CONSIDERATIONS
NO OPERATING HISTORY
The Fund is a closed-end investment company with no history of operations and is
designed for long-term investors and not as a trading vehicle.
INVESTMENT AND MARKET RISK
An investment in Common Shares is subject to investment risk, including the
possible loss of the entire principal amount invested. An investment in Common
Shares represents an indirect investment in the securities owned by the Fund,
which are generally traded on a securities exchange or in the over-the-counter
markets. The value of these securities, like other market investments, may move
up or down, sometimes rapidly and unpredictably. The Common Shares at any point
in time may be worth less than the original investment, even after taking into
account any reinvestment of dividends and distributions.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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ISSUER RISK
The value of common and preferred stocks may decline for a number of reasons
that directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services.
INCOME RISK
The income Common Shareholders 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 and Common
Shareholder's income from the Fund could drop as well. The Fund's income also
would likely be affected adversely when prevailing short-term interest rates
increase and the Fund is utilizing leverage.
TAX RISK
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.
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 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 price 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 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
EFFECTS OF LEVERAGE
There can be no assurance that a leveraging strategy will be utilized by the
Fund or that, if utilized, it will be successful during any period in which it
is employed. See "Investment objective, policies and risks--Use of Leverage and
Related Risks."
NON-INVESTMENT GRADE SECURITIES RISK
The Fund's investments in preferred stocks and bonds of below investment grade
quality, if any, are predominantly speculative because of the credit risk of
their issuers. While offering a greater potential opportunity for capital
appreciation and higher yields, preferred stocks and bonds of below investment
grade quality entail greater potential price volatility and may be less liquid
than higher-rated securities. Issuers of below investment grade quality
preferred stocks and bonds are more likely to default on their payments of
dividends/interest and liquidation value/principal owed to the Fund, and such
defaults will reduce the Fund's net asset value and income distributions. The
prices of these lower quality preferred stocks and bonds are more sensitive to
negative developments than higher rated securities. Adverse business conditions,
such as a decline in the issuer's revenues or an economic downturn, generally
lead to a higher non-payment rate. In addition, such a security may lose
significant value before a default occurs as the market adjusts to expected
higher non-payment rates. The Fund will not invest in preferred stocks or bonds
that are rated, at the time of purchase, below B as determined by S&P, Moody's
or Fitch, or, if unrated, determined to be of comparable quality by Eaton Vance.
The Fund will not invest more than 10% of its total managed assets in preferred
stocks and bonds 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.
INTEREST RATE RISK
Interest rate risk is the risk that preferred stocks paying fixed dividend rates
and fixed-rate debt securities will decline in value because of changes in
market interest rates. When interest rates rise, the market value of such
securities generally will fall. The Fund's investment in preferred stocks and
fixed-rate debt securities means that the net asset value and price of the
Common Shares may decline if market interest rates rise. 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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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.
SECTOR RISK
The Fund may invest a significant portion of its assets in securities of issuers
in any single industry or sector of the economy if companies in that industry or
sector meet the Fund's investment criteria. The Fund may invest a significant
portion of its assets of issuers in each of the energy, raw materials, real
estate, utilities and financial services sectors. This may make the Fund more
susceptible to adverse economic, political, or regulatory occurrences affecting
these sectors. As concentration in a sector increases, so does the potential for
fluctuation in the net asset value of Common Shares.
Energy Sector Risk. The energy industry can be significantly affected by
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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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such Real Estate Companies. Many Real Estate Companies, including REITs, utilize
leverage (and some may be highly leveraged), which increases investment risk and
could adversely affect a Real Estate Company's operations and market value in
periods of rising interest rates. Since interest rates are at or near historical
lows, it is likely that they will rise in the near future. The value of
investments in the real estate sector may be adversely affected by a change in
inflation. Other factors such as lack of adequate insurance or environmental
issues may contribute to the risks involved in a real estate investment.
Real Estate Companies may operate within particular sectors of the real estate
industry that are subject to specific sector-related risks. Real Estate
Companies tend to be small to medium-sized companies. Real Estate Company
shares, like other smaller company shares, may be more volatile than, and
perform differently from, larger company shares. REITs are subject to highly
technical and complex provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). There is a possibility that a REIT may fail to qualify for
conduit income tax treatment under the Code or may fail to maintain exemption
from registration under the 1940 Act, either of which could adversely affect its
operations.
Utilities Sector Risk. The utilities sector generally includes companies
engaged in the manufacture, production, generation, transmission, sale or
distribution of electric energy, gas, or water, or, in certain instances, the
providing of communications services. Certain segments of this sector and
individual companies within such segments may not perform as well as the sector
as a whole. Many utility companies historically have been subject to risks of
increases in fuel, purchased power and other operating costs, high interest
costs on borrowings needed for capital improvement programs and costs associated
with compliance with and changes in environmental and other governmental
regulations. In particular, regulatory changes with respect to nuclear and
conventionally fueled power generating and transmission facilities could
increase costs or impair the ability of the utility companies to operate and
utilize such facilities, thus reducing the utility companies' earnings or
resulting in losses. Rates of return on investment of certain utility companies
are subject to review by government regulators. There can be no assurance that
changes in regulatory policies or accounting standards will not negatively
affect utility companies' earnings or dividends. Costs incurred by utilities,
such as fuel and purchased power costs, often are subject to immediate market
action resulting from such things as political or military forces operating in
geographic regions where oil production is concentrated or global or regional
weather conditions, such as droughts, while the rate of return of utility
companies generally is subject to review and limitation by state public utility
commissions, which often results in a lag or an absence of correlation between
costs and return. It is also possible that costs may not be offset by return.
Utilities have, in recent years, been affected by increased competition, which
could adversely affect the profitability or viability of such utilities.
Electric utilities may 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
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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governing capitalization and the savings and loan industry. While providing
diversification, this relatively new legislation could expose banks to
well-established competitors, particularly as the historical distinctions
between banks and other financial institutions erode. Increased competition can
also result from the broadening of regional and national interstate banking
powers, which has already reduced the number of publicly traded banks. In
addition, general economic conditions are important to banks that face exposure
to credit losses and can be significantly affected by changes in interest rates.
The brokerage and investment management industries can be significantly affected
by changes in regulations, brokerage commission structure, and a competitive
environment combined with the high operating leverage inherent in companies in
this industry. The performance of companies in these industries can be closely
tied to the stock and bond markets and can suffer during market declines.
Revenues can depend on overall market activity.
The insurance industry can be significantly affected by interest rates, general
economic conditions, and price and marketing competition. Property and casualty
insurance profits can be affected by weather catastrophes and other natural
disasters. Life and health insurance profits can be affected by mortality and
morbidity rates. Insurance companies can be adversely affected by inadequacy of
cash reserves, the inability to collect from reinsurance carriers, liability for
the coverage of environmental clean-up costs from past years, and as yet
unanticipated liabilities. Also, insurance companies are subject to extensive
government regulation, including the imposition of maximum rate levels, and can
be adversely affected by proposed or potential tax law changes.
DERIVATIVES RISK
Derivative transactions (such as futures contracts and options thereon, options,
swaps and short sales) subject the Fund to increased risk of principal loss due
to imperfect correlation or unexpected price or interest rate movements. The
Fund also will be subject to credit risk with respect to the counterparties to
the derivatives contracts purchased by the Fund. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery under the derivative contract in a bankruptcy
or other reorganization proceeding. The Fund may obtain only a limited recovery
or may obtain no recovery in such circumstances. As a general matter, dividends
received on hedged stock positions are characterized as ordinary income and are
not eligible for favorable tax treatment. In addition, use of derivatives may
give rise to short-term capital gains and other income that would not qualify
for payments by the Fund of tax-advantaged dividends.
LIQUIDITY RISK
The Fund may invest up to 15% of its total managed assets in securities for
which there is no readily available trading market or which are otherwise
illiquid. The Fund may not be able readily to dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund may
have to sell other investments or engage in borrowing transactions if necessary
to raise cash to meet its obligations. In addition, the limited liquidity could
affect the market price of the securities, thereby adversely affecting the
Fund's net asset value.
INFLATION RISK
Although the Fund, in its investment program, will consider the potential
effects of inflation on shareholder capital, there is no assurance that this
effort will be successful. Inflation risk is the risk that the purchasing power
of assets or income from investment will be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value
of the Common Shares and distributions thereon can decline. In addition, during
any periods of rising inflation, dividend rates of preferred shares of the Fund
and the costs of Fund borrowings would likely increase, which would tend to
reduce distributions to Common Shareholders.
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
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MARKET PRICE OF SHARES
The shares of closed-end management investment companies often trade at a
discount from their net asset value, and the Fund's Common Shares may likewise
trade at a discount from net asset value. The trading price of the Fund's Common
Shares may be less than the public offering price. The returns earned by Common
Shareholders who sell their Common Shares below net asset value will be reduced.
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.
ANTI-TAKEOVER PROVISIONS
The Fund's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Fund or to change the composition of its Board. See "Description
of capital structure--Anti-takeover Provisions in the Declaration of Trust."
Management of the Fund
BOARD OF TRUSTEES
The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the
responsibility of the Fund's Board under the laws of The Commonwealth of
Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Fund's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of
individuals and institutions since 1924 and of investment funds since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment funds and various individual and institutional clients with combined
assets under management of approximately $84.9 billion as of March 31, 2004,
including approximately $27.2 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
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MANAGEMENT OF THE FUND
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of the Fund who are members of the Adviser's organization and who render
investment services to the Fund, and will also compensate all other Adviser
personnel who provide research and investment services to the Fund. In return
for these services, facilities and payments, the Fund has agreed to pay the
Adviser as compensation under the Advisory Agreement a fee in the amount of
0.85% of the average daily gross assets of the Fund, subject to the expense
reimbursement arrangements described below. Eaton Vance has contractually agreed
to reimburse the Fund for fees and other expenses in the amount of 0.20% of
average daily total assets of the Fund for the first 5 full years of the Fund's
operations, 0.15% of average daily total assets of the Fund in year 6, 0.10% in
year 7 and 0.05% in year 8. Eaton Vance may voluntarily reimburse additional
fees and expenses but is under no obligation to do so. Any such voluntary
reimbursements may be terminated at any time. Gross assets of the Fund means
total assets of the Fund, including any form of investment leverage, minus all
accrued expenses incurred in the normal course of operations, but not excluding
any liabilities or obligations attributable to investment leverage obtained
through (i) indebtedness of any type (including, without limitation, borrowing
through a credit facility/commercial paper program or the issuance debt
securities), (ii) the issuance of preferred shares or other similar preference
securities, (iii) the reinvestment of collateral received for securities loaned
in accordance with the Fund's investment objective and policies, and/or (iv) any
other means. During periods in which the Fund is using leverage, the fees paid
to Eaton Vance for investment advisory services will be higher than if the Fund
did not use leverage because the fees paid will be calculated on the basis of
the Fund's gross assets, including proceeds from any borrowings and from the
issuance of preferred shares.
Duncan W. Richardson (Senior Vice President and Chief Equity Investment Officer
of Eaton Vance), Michael R. Mach, Judith A. Saryan, Thomas H. Luster and other
Eaton Vance investment professionals comprise the investment team responsible
for the overall management of the Fund's investments as well as allocations of
the Fund's assets between common and preferred stocks. Mr. Mach, Ms. Saryan, and
Mr. Luster are the portfolio managers responsible for the day-to-day management
of specific segments of the Fund's investment portfolio.
Mr. Mach has been an Eaton Vance portfolio manager since 1999 and is a Vice
President of Eaton Vance and Boston Management and Research, an Eaton Vance
subsidiary ("BMR"). He also manages other Eaton Vance value equity portfolios.
Prior to joining Eaton Vance, Mr. Mach was a Managing Director and Senior
Analyst for Robertson Stephens (1998-1999). Additionally, he served as managing
director and senior analyst of Piper Jaffray's Industrial Select research
product (1996-1998). Mr. Mach previously served as a Senior Vice President at
Putnam Investments, with responsibilities that included equity analysis, mutual
fund management and institutional account management (1989-1996).
Ms. Saryan has been an Eaton Vance portfolio manager since 1999 and is a Vice
President of Eaton Vance and BMR. She also manages Eaton Vance's utilities
portfolio. Prior to joining Eaton Vance, Ms. Saryan was a portfolio manager and
equity analyst for State Street Global Advisors (1980-1999).
Mr. Luster has been an Eaton Vance portfolio manager and analyst since 1994 and
is a Vice President of Eaton Vance and BMR. He is co-head of Eaton Vance's
Investment Grade Fixed Income Group. Prior to joining Eaton Vance, Mr. Luster
consulted for Deloitte & Touche (1990-1994).
Mr. Mach, Ms. Saryan and Mr. Luster currently co-manage Eaton Vance
Tax-Advantaged Dividend Income Fund and Eaton Vance Tax-Advantaged Global
Dividend Income Fund.
The Fund and the Adviser have adopted a Code of Ethics relating to personal
securities transactions. The Code of Ethics permits Adviser personnel to invest
in securities (including securities that may be purchased or held by the Fund)
for their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Code of Ethics.
Eaton Vance serves as administrator of the Fund, but currently receives no
compensation for providing administrative services to the Fund. Under an
Administration Agreement with the Fund
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MANAGEMENT OF THE FUND
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("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.
Distributions
The Fund intends to make regular monthly cash distributions to Common
Shareholders of the net investment income of the Fund, after payment of interest
on any outstanding borrowings or dividends on any outstanding preferred shares.
A significant portion of the Fund's distributed income is expected to consist of
tax-advantaged dividends. A portion of the Fund's distributed income may also be
fully taxable. Any such income distributions, as well as any distributions by
the Fund of net realized short-term capital gains, will be taxed as ordinary
income. Distributions to Common Shareholders cannot be assured, and the amount
of each monthly distribution will vary depending on a number of factors,
including dividends payable on preferred shares of the Fund or other costs of
financial leverage. As portfolio and market conditions change, the rate of
dividends on the Common Shares and the Fund's dividend policy could change. Over
time, the Fund will distribute all of its net investment income (after it pays
accrued dividends on any outstanding preferred shares or other costs of
financial leverage). In addition, at least annually, the Fund intends to
distribute any net short-term capital gain and any net capital gain (which is
the excess of net long-term capital gain over short-term capital loss). The
initial distribution is expected to be declared approximately 45 days and paid
approximately 60 to 90 days after the completion of this offering, depending on
market conditions. Common Shareholders may elect automatically to reinvest some
or all of their distributions in additional Common Shares under the Fund's
dividend reinvestment plan. See "Dividend reinvestment plan." While there are
any borrowings or preferred shares outstanding, the Fund may not be permitted to
declare any cash dividend or other distribution on its Common Shares in certain
circumstances. See "Description of capital structure."
The Fund has applied for an order from the SEC granting exemption from Section
19(b) of the Investment Company Act and Rule 19b-1 thereunder to permit the Fund
to include realized capital gains as a part of its regular distributions to
Common Shareholders more frequently than would otherwise be permitted by the
Investment Company Act. The Fund will not pursue this distribution policy until
it receives such an exemptive order. There is no guarantee that the SEC will
grant such exemptive relief. However, if the Fund fails to receive the requested
relief and the Fund is unable to include realized capital gains in regular
distributions more frequently than would otherwise be permitted by the
Investment Company Act, the Adviser does not believe that the distribution
policy, as set forth above, will otherwise be adversely affected.
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Fund. The Fund intends to elect to be
treated and to qualify each year as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute substantially all of its net
income and net short-term and long-term capital gains (after reduction by any
available capital loss carryforwards) in accordance with
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DISTRIBUTIONS
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the timing requirements imposed by the Code, so as to maintain its regulated
investment company status and to avoid paying any federal income or excise tax.
To the extent it qualifies for treatment as a regulated investment company and
satisfies the above-mentioned distribution requirements, the Fund will not be
subject to federal income tax on income paid to its shareholders in the form of
dividends or capital gains distributions.
The Fund intends to make monthly distributions of net investment income. The
Fund intends to distribute annually any net short-term capital gain (which is
taxable as ordinary income) and any net capital gain. Distributions of the
Fund's net capital gain ("capital gain dividends"), if any, are taxable to
Common Shareholders as long-term capital gain, regardless of the length of time
Common Shares have been held by Common Shareholders. Distributions, if any, in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's Common Shares and, after that basis has been reduced to
zero, will constitute capital gain to the Common Shareholder (assuming the
Common Shares are held as a capital asset). See below for a summary of the
maximum tax rates applicable to capital gain (including capital gain dividends).
A corporation that owns Fund shares generally will not be entitled to the
dividends received deduction with respect to all the dividends it receives from
the Fund. Fund dividend payments that are attributable to qualifying dividends
received by the Fund from certain domestic corporations may be designated by the
Fund as being eligible for the dividends received deduction.
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
and other requirements are satisfied by the Common Shareholder and the dividends
are attributable to qualified dividend income received by the Fund itself. For
this purpose, "qualified dividend income" means dividends received by the Fund
from United States corporations and "qualified foreign corporations," provided
that the Fund satisfies certain holding period and other requirements in respect
of the stock of such corporations. In 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 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 that the Secretary of the Treasury
determines is satisfactory for these purposes and which includes an exchange of
information program (the "treaty test"). The Secretary of the Treasury has
currently identified tax treaties between the United States and 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" 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.
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DISTRIBUTIONS
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The Tax Act, in amending certain Code provisions to provide that dividends paid
by a regulated investment company, such as the Fund, would be treated as
"qualified dividend income" to the extent that such dividends were derived from
qualified dividend income received by the regulated investment company, failed
to make certain conforming amendments to other provisions of the Code. As a
result, the Code contains certain contradictory provisions creating some
ambiguity as to whether the Code authorizes the Fund to designate in certain
circumstances as qualified dividend income that portion of its dividends that is
derived from dividends it has received from qualified foreign corporations. The
Fund believes, however, that the intention of the Tax Act was to authorize the
Fund's designation of such dividends as qualified dividend income. Further,
bills proposing to make technical corrections to the Tax Act (the "Technical
Corrections Bills") have been filed in both the Senate and the House of
Representatives, and these Technical Corrections Bills would amend the Code to
make it clear that dividends paid by a regulated investment company 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 forms 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 paid by the Fund to a Common Shareholder (whether paid in cash or
reinvested in additional Fund shares) will not be treated as qualified dividend
income of the Common Shareholder if (1) the dividend is received with respect to
any share held for fewer than 61 days during the 120-day period beginning on the
date which is 60 days before the date on which such share becomes ex-dividend
with respect to such dividend (the 120-day period would be expanded to a 121-day
period under the Technical Corrections Bills), (2) to the extent that the
shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest.
The Fund will inform Common Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Selling Common Shareholders will generally recognize gain or loss in an amount
equal to the difference between the Common Shareholder's adjusted tax basis in
the Common Shares sold and the amount received. If the Common Shares are held as
a capital asset, the gain or loss will be a capital gain or loss. The maximum
tax rate applicable to net capital gains recognized by individuals and other
non-corporate taxpayers is (i) the same as the maximum ordinary income tax rate
for gains recognized on the sale of capital assets held for one year or less, or
(ii) 15% for gains recognized on the sale of capital assets held for more than
one year (as well as certain capital gain dividends) (5% for individuals in the
10% or 15% tax brackets). Any loss on a disposition of Common Shares held for
six months or less will be treated as a long-term capital loss to the extent of
any capital gain dividends received with respect to those Common Shares. For
purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the Common
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of Common Shares
will be disallowed to the extent those Common Shares are replaced by other
Common Shares within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition of the Common Shares (whether through the
reinvestment of distributions, which could occur, for example, if the Common
Shareholder is a participant in the Plan (as defined below) or otherwise). In
that event, the basis of the replacement Common Shares will be adjusted to
reflect the disallowed loss.
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DISTRIBUTIONS
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An investor should be aware that, if Common Shares are purchased shortly before
the record date for any taxable dividend (including a capital gain dividend),
the purchase price likely will reflect the value of the dividend and the
investor then would receive a taxable distribution likely to reduce the trading
value of such Common Shares, in effect resulting in a taxable return of some of
the purchase price. Taxable distributions to individuals and certain other
non-corporate Common Shareholders, including those who have not provided their
correct taxpayer identification number and other required certifications, may be
subject to "backup" federal income tax withholding at the fourth lowest rate of
tax applicable to a single individual (in 2004, 28%).
An investor should also be aware that the benefits of the reduced tax rate
applicable to long-term capital gains and qualified dividend income may be
impacted by the application of the alternative minimum tax to individual
shareholders.
Finally, the Tax Act was only recently enacted, and its application is subject
to interpretation by and guidance from the Treasury Department and the IRS and
subject to change with retroactive effect.
The foregoing briefly summarizes some of the important federal income tax
consequences to Common Shareholders of investing in Common Shares, reflects the
federal tax law as of the date of this Prospectus, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors. Investors should consult their tax advisors regarding other
federal, state or local tax considerations that may be applicable in their
particular circumstances, as well as any proposed tax law changes.
Dividend reinvestment plan
Pursuant to the Fund's dividend reinvestment plan (the "Plan"), a Common
Shareholder may elect to have all distributions of dividends (including all
capital gain dividends) automatically reinvested in Common Shares. Common
Shareholders may elect to participate in the Plan by completing the dividend
reinvestment plan application form. If Common Shareholders do not participate,
such Common Shareholders will receive all distributions in cash paid by check
mailed directly to them by PFPC Inc., as dividend paying agent.
PFPC Inc. (the "Plan Agent") serves as agent for the Common Shareholders in
administering the Plan. Common Shareholders who elect not to participate in the
Plan will receive all distributions of dividends in cash paid by check mailed
directly to the Common Shareholder of record (or if the Common Shares are held
in street or other nominee name, then to the nominee) by PFPC Inc., as
disbursing agent. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if received
by the Plan Agent prior to any dividend record date.
Common Shares will be acquired by the Plan Agent or an independent broker-dealer
for the participants' accounts, depending upon the circumstances described
below, either (i) through receipt of additional previously authorized but
unissued Common Shares from the Fund ("newly issued Common Shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases") on the New York Stock Exchange or elsewhere. If, on the payment date
for the dividend, the net asset value per Common Share is equal to or less than
the market price per Common Share plus estimated brokerage commissions (such
condition being referred to herein as "market premium"), the Plan Agent will
invest the dividend amount in newly issued Common Shares on behalf of the
participants. The number of newly issued Common Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
dividend by the net asset value per Common Share on the date the Common Shares
are issued, provided that the maximum discount from the then current market
price per Common Share on the date of issuance may not exceed 5%. If on the
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DIVIDEND REINVESTMENT PLAN
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dividend payment date the net asset value per Common Share is greater than the
market value plus estimated brokerage commissions (such condition being referred
to herein as "market discount"), the Plan Agent will invest the dividend amount
in Common Shares acquired on behalf of the participants in open-market
purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have up to 30 days after the dividend payment date to invest the dividend
amount in Common Shares acquired in open-market purchases. If, before the Plan
Agent has completed its open-market purchases, the market price of a Common
Share exceeds the net asset value per Common Share, the average per Common Share
purchase price paid by the Plan Agent may exceed the net asset value of the
Fund's Common Shares, resulting in the acquisition of fewer Common Shares than
if the dividend had been paid in newly issued Common Shares on the dividend
payment date. Therefore, the Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during the purchase
period or if the market discount shifts to a market premium during the purchase
period, the Plan Agent will cease making open-market purchases and will invest
the uninvested portion of the dividend amount in newly issued Common Shares.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by Common Shareholders for tax records. Common Shares in the
account of each Plan participant will be held by the Plan Agent on behalf of the
Plan participant, and each Common Shareholder proxy will include those Common
Shares purchased or received pursuant to the Plan. The Plan Agent will forward
all proxy solicitation materials to participants and vote proxies for Common
Shares held pursuant to the Plan in accordance with the instructions of the
participants. In the case of Common Shareholders such as banks, brokers or
nominees that hold Common Shares for others who are the beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of Common Shares
certified from time to time by the record Common Shareholder's name and held for
the account of beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to Common Shares issued directly
by the Fund as a result of dividends payable either in Common Shares or in cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in connection
with the reinvestment of dividends.
Common Shareholders participating in the Plan may receive benefits not available
to Common Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Common Shares is above their net asset value,
participants in the Plan will receive Common Shares of the Fund at less than
they could otherwise purchase them and will have Common Shares with a cash value
greater than the value of any cash distribution they would have received on
their Common Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Common Shares with a net asset
value greater than the per Common Share value of any cash distribution they
would have received on their Common Shares. However, there may be insufficient
Common Shares available in the market to make distributions in Common Shares at
prices below the net asset value. Also, since the Fund does not redeem its
Common Shares, the price on resale may be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable. Accordingly,
upon 30 days' notice to Plan participants, the Fund reserves the right to amend
or terminate the Plan. Common Shareholders will be charged a $5.00 service
charge and pay brokerage charges if such Common Shareholder directs the Plan
Agent to sell Common Shares held in a dividend reinvestment account.
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DIVIDEND REINVESTMENT PLAN
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All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027. Please call
1-800-331-1710 between the hours of 9:00 a.m. and 5:00 p.m. Eastern Standard
Time if you have questions regarding the Plan.
Description of capital structure
The Fund is an unincorporated business trust established under the laws of The
Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated and
filed with the Secretary of The Commonwealth on February 27, 2004 (the
"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 have authorized an unlimited number of Common Shares. The Fund intends
to hold annual meetings of Common Shareholders in compliance with the
requirements of the New York Stock Exchange.
COMMON SHARES
The Declaration of Trust permits the Fund to issue an unlimited number of full
and fractional common shares of beneficial interest, $0.01 par value per share.
Each Common Share represents an equal proportionate interest in the assets of
the Fund with each other Common Share in the Fund. Holders of Common Shares will
be entitled to the payment of dividends when, as and if declared by the Board.
The 1940 Act or the terms of any borrowings or preferred shares may limit the
payment of dividends to the holders of Common Shares. Each whole Common Share
shall be entitled to one vote as to matters on which it is entitled to vote
pursuant to the terms of the Declaration of Trust on file with the SEC. Upon
liquidation of the Fund, after paying or adequately providing for the payment of
all liabilities of the Fund and the liquidation preference with respect to any
outstanding preferred shares, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the Trustees
may distribute the remaining assets of the Fund among the holders of the Common
Shares. The Declaration of Trust provides that Common Shareholders are not
liable for any liabilities of the Fund, and permits inclusion of a clause to
that effect in agreements entered into by the Fund and in coordination with the
Fund's By-laws indemnifies shareholders against any such liability. Although
shareholders of an unincorporated business trust established under Massachusetts
law, 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 by-laws described in the foregoing sentence make
the likelihood of such personal liability remote.
While there are any borrowings or preferred shares outstanding, the Fund may not
be permitted to declare any cash dividend or other distribution on its Common
Shares, unless at the time of such declaration, (i) all accrued dividends on
preferred shares or accrued interest on borrowings have been paid and (ii) the
value of the Fund's total assets (determined after deducting the amount of such
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 may be 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 may
include an asset coverage test more stringent than under the 1940 Act. This
limitation on the Fund's ability to make distributions on its Common Shares
could in certain circumstances impair the ability of the Fund to maintain its
qualification for taxation as a
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DESCRIPTION OF CAPITAL STRUCTURE
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regulated investment company for federal income tax purposes. The Fund intends,
however, to the extent possible to purchase or redeem preferred shares or reduce
borrowings from time to time to maintain compliance with such asset coverage
requirements and may pay special dividends to the holders of the preferred
shares in certain circumstances in connection with any such impairment of the
Fund's status as a regulated investment company. See "Investment objective,
policies and risks" and "Distributions." Depending on the timing of any such
redemption or repayment, the Fund may be required to pay a premium in addition
to the liquidation preference of the preferred shares to the holders thereof.
The Fund has no present intention of offering additional Common Shares, except
as described herein. Other offerings of its Common Shares, if made, will require
approval of the Board. Any additional offering will not be sold at a price per
Common Share below the then current net asset value (exclusive of underwriting
discounts and commissions) except in connection with an offering to existing
Common Shareholders or with the consent of a majority of the Fund's outstanding
Common Shares. The Common Shares have no preemptive rights.
The Fund generally will not issue Common Share certificates. However, upon
written request to the Fund's transfer agent, a share certificate will be issued
for any or all of the full Common Shares credited to an investor's account.
Common Share certificates that have been issued to an investor may be returned
at any time.
CREDIT FACILITY/COMMERCIAL PAPER PROGRAM
In the event the Fund leverages through borrowings, the Fund may enter into
definitive agreements with respect to a credit facility/commercial paper program
or other borrowing program. The Fund may negotiate with commercial banks to
arrange a credit facility/commercial paper program pursuant to which the Fund
would expect to be entitled to borrow an amount up to approximately 3.5% of the
Fund's total assets (inclusive of the amount borrowed) as of the closing of the
offer and sale of the Common Shares offered hereby. Any such borrowings would
constitute financial leverage. Such a facility/commercial paper program is not
expected to be convertible into any other securities of the Fund, outstanding
amounts are expected to be prepayable by the Fund prior to final maturity
without significant penalty and there are not expected to be any sinking fund or
mandatory retirement provisions. Outstanding amounts would be payable at
maturity or such earlier times as required by the agreement. The Fund may be
required to prepay outstanding amounts under the facility/program or incur a
penalty rate of interest in the event of the occurrence of certain events of
default. The Fund would be expected to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program.
In addition, the Fund expects that such a credit facility/program would contain
covenants that, among other things, likely will limit the Fund's ability to pay
dividends in certain circumstances, incur additional debt, change its
fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and may require asset coverage ratios in addition to
those required by the 1940 Act. The Fund may be required to pledge its assets
and to maintain a portion of its assets in cash or high-grade securities as a
reserve against interest or principal payments and expenses. The Fund expects
that any credit facility/program would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Fund will
enter into an agreement for a credit facility/program on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any such credit facility/program may in the
future be replaced or refinanced by one or more credit facilities having
substantially different terms or by the issuance of preferred shares or debt
securities.
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DESCRIPTION OF CAPITAL STRUCTURE
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REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT MEASURES
Because shares of closed-end management investment companies frequently trade at
a discount to their net asset values, the Board has determined that from time to
time it may be in the interest of Common Shareholders for the Fund to take
corrective actions. The Board, in consultation with Eaton Vance, will review at
least annually the possibility of open market repurchases and/or tender offers
for the Common Shares and will consider such factors as the market price of the
Common Shares, the net asset value of the Common Shares, the liquidity of the
assets of the Fund, the effect on the Fund's expenses, whether such transactions
would impair the Fund's status as a regulated investment company or result in a
failure to comply with applicable asset coverage requirements, general economic
conditions and such other events or conditions, which may have a material effect
on the Fund's ability to consummate such transactions. There are no assurances
that the Board will, in fact, decide to undertake either of these actions or, if
undertaken, that such actions will result in the Fund's Common Shares trading at
a price, which is equal to or approximates their net asset value. In recognition
of the possibility that the Common Shares might trade at a discount to net asset
value and that any such discount may not be in the interest of Common
Shareholders, the Board, in consultation with Eaton Vance, from time to time may
review possible actions to reduce any such discount.
PREFERRED SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including preferred shares
(the "preferred shares"), having a par value of $0.01 per share, in one or more
series, with rights as determined by the Board, by action of the Board without
the approval of the Common Shareholders.
Under the requirements of the 1940 Act, the Fund must, immediately after the
issuance of any preferred shares, have an "asset coverage" of at least 200%.
Asset coverage means the ratio which the value of the total assets of the Fund,
less all liability and indebtedness not represented by senior securities (as
defined in the 1940 Act), bears to the aggregate amount of senior securities
representing indebtedness of the Fund, if any, plus the aggregate liquidation
preference of the preferred shares. If the Fund seeks a rating of the preferred
shares, asset coverage requirements, in addition to those set forth in the 1940
Act, may be imposed. The liquidation value of the preferred shares is expected
to equal their aggregate original purchase price plus redemption premium, if
any, together with any accrued and unpaid dividends thereon (on a cumulative
basis), whether or not earned or declared. The terms of the preferred shares,
including their dividend rate, voting rights, liquidation preference and
redemption provisions, will be determined by the Board (subject to applicable
law and the Fund's Declaration of Trust) if and when it authorizes the preferred
shares. The Fund may issue preferred shares that provide for the periodic
redetermination of the dividend rate at relatively short intervals through an
auction or remarketing procedure, although the terms of the preferred shares may
also enable the Fund to lengthen such intervals. At times, the dividend rate as
redetermined on the Fund's preferred shares may approach or exceed the Fund's
return after expenses on the investment of proceeds from the preferred shares
and the Fund's leveraged capital structure would result in a lower rate of
return to Common Shareholders than if the Fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Fund, the terms of any preferred shares may entitle the holders of
preferred shares to receive a preferential liquidating distribution (expected to
equal the original purchase price per share plus redemption premium, if any,
together with accrued and unpaid dividends, whether or not earned or declared
and on a cumulative basis) before any distribution of assets is made to holders
of Common Shares. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred shareholders would not be
entitled to any further participation in any distribution of assets by the Fund.
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DESCRIPTION OF CAPITAL STRUCTURE
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Holders of preferred shares, voting as a class, shall be entitled to elect two
of the Fund's Trustees. Under the 1940 Act, if at any time dividends on the
preferred shares are unpaid in an amount equal to two full years' dividends
thereon, the holders of all outstanding preferred shares, voting as a class,
will be allowed to elect a majority of the Fund's Trustees until all dividends
in default have been paid or declared and set apart for payment. In addition, if
required by the Rating Agency rating the preferred shares or if the Board
determines it to be in the best interests of the Common Shareholders, issuance
of the preferred shares may result in more restrictive provisions than required
by the 1940 Act being imposed. In this regard, holders of the preferred shares
may be entitled to elect a majority of the Fund's Board in other circumstances,
for example, if one payment on the preferred shares is in arrears.
The Fund currently intends to seek a AAA/Aaa credit rating for the preferred
shares from a Rating Agency. The Fund intends that, as long as preferred shares
are outstanding, the composition of its portfolio will reflect guidelines
established by such Rating Agency. Although, as of the date hereof, no such
Rating Agency has established guidelines relating to the preferred shares, based
on previous guidelines established by such Rating Agencies for the securities of
other issuers, the Fund anticipates that the guidelines with respect to the
preferred shares will establish a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. Although, at this time, no assurance
can be given as to the nature or extent of the guidelines, which may be imposed
in connection with obtaining a rating of the preferred shares, the Fund
currently anticipates that such guidelines will include asset coverage
requirements, which are more restrictive than those under the 1940 Act,
restrictions on certain portfolio investments and investment practices,
requirements that the Fund maintain a portion of its assets in short-term,
high-quality, fixed-income securities and certain mandatory redemption
requirements relating to the preferred shares. No assurance can be given that
the guidelines actually imposed with respect to the preferred shares by such
Rating Agency will be more or less restrictive than as described in this
Prospectus.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The Declaration of Trust includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board and could have the effect of depriving
Common Shareholders of an opportunity to sell their Common Shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. These provisions may have the effect of discouraging
attempts to acquire control of the Fund, which attempts could have the effect of
increasing the expenses of the Fund and interfering with the normal operation of
the Fund. The Board is divided into three classes, with the term of one class
expiring at each annual meeting of Common Shareholders. At each annual meeting,
one class of Trustees is elected to a three-year term. This provision could
delay for up to two years the replacement of a majority of the Board. A Trustee
may be removed from office only for cause by a written instrument signed by the
remaining Trustees or by a vote of the holders of at least two-thirds of the
class of shares of the Fund that elected such Trustee and are entitled to vote
on the matter.
In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Fund, voting as a
class, then entitled to vote to approve, adopt or authorize certain transactions
with 5%-or-greater holders of a class of shares and their associates, unless the
Board shall by resolution have approved a memorandum of understanding with such
holders, in which case normal voting requirements would be in effect. For
purposes of these provisions, a 5%-or-greater holder of a class of shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and associates,
beneficially owns 5% or more of the outstanding shares of any class of
beneficial interest of the Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of
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DESCRIPTION OF CAPITAL STRUCTURE
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the Fund or any subsidiary of the Fund with or into any Principal Shareholder;
(ii) the issuance of any securities of the Fund to any Principal Shareholder for
cash; (iii) the sale, lease or exchange of all or any substantial part of the
assets of the Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the purpose
of such computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); or (iv) the sale, lease or
exchange to the Fund or any subsidiary thereof, in exchange for securities of
the Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the
purposes of such computation all assets sold, leased or exchanged in any series
of similar transactions within a twelve-month period).
The Board has determined that provisions with respect to the Board and the 75%
voting requirements described above, which voting requirements are greater than
the minimum requirements under Massachusetts law or the 1940 Act, are in the
best interest of Common Shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of these provisions.
CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end management investment company at any
time if approved by the lesser of (i) two-thirds or more of the Fund's then
outstanding Common Shares and preferred shares (if any), each voting separately
as a class, or (ii) more than 50% of the then outstanding Common Shares and
preferred shares (if any), voting separately as a class if such conversion is
recommended by at least 75% of the Trustees then in office. If approved in the
foregoing manner, conversion of the Fund could not occur until 90 days after the
shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all shareholders. Conversion of the
Fund to an open-end management investment company also would require the
redemption of any outstanding preferred shares and could require the repayment
of borrowings, which would eliminate the leveraged capital structure of the Fund
with respect to the Common Shares. In the event of conversion, the Common Shares
would cease to be listed on the New York Stock Exchange or other national
securities exchange or market system. The Board believes that the closed-end
structure is desirable, given the Fund's investment objective and policies.
Investors should assume, therefore, that it is unlikely that the Board would
vote to convert the Fund to an open-end management investment company.
Shareholders of an open-end management investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption. If
the Fund were to convert to an open-end investment company, the Fund expects it
would pay all such redemption requests in cash, but would likely reserve the
right to pay redemption requests in a combination of cash or securities. If such
partial payment in securities were made, investors may incur brokerage costs in
converting such securities to cash. If the Fund were converted to an open-end
fund, it is likely that new Common Shares would be sold at net asset value plus
a sales load.
--------------------------------------------------------------------------------
49
--------------------------------------------------------------------------------
Underwriting
The underwriters named below (the "Underwriters"), acting through UBS Securities
LLC, 299 Park Avenue, New York, New York, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, 4 World Financial Center, New York, New York, and Wachovia Capital
Markets, LLC, 7 St. Paul Street, 1st Floor, Baltimore, Maryland as lead managers
and A.G. Edwards & Sons, Inc., RBC Dain Rauscher Incorporated, H&R Block
Financial Advisors, Inc., Janney Montgomery Scott LLC, Oppenheimer & Co. Inc.,
Quick & Reilly, Inc., a FleetBoston Financial Company, and Wells Fargo
Securities, LLC, as their representatives (together with the lead managers, the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement with the Fund and Eaton Vance (the "Underwriting
Agreement"), to purchase from the Fund the number of Common Shares set forth
opposite their respective names. The Underwriters are committed to purchase and
pay for all of such Common Shares (other than those covered by the
over-allotment option described below) if any are purchased.
NUMBER OF
UNDERWRITERS COMMON SHARES
---------------------------------------------------------------------------
UBS Securities LLC.......................................... 2,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 2,000,000
Wachovia Capital Markets, LLC............................... 2,000,000
A.G. Edwards & Sons, Inc. .................................. 750,000
RBC Dain Rauscher Incorporated.............................. 600,000
H&R Block Financial Advisors, Inc. ......................... 600,000
Janney Montgomery Scott LLC................................. 600,000
Oppenheimer & Co. Inc. ..................................... 600,000
Quick & Reilly, Inc., a FleetBoston Financial Company....... 600,000
Wells Fargo Securities, LLC................................. 600,000
Robert W. Baird & Co. Incorporated.......................... 200,000
Deutsche Bank Securities Inc. .............................. 200,000
Ferris, Baker Watts, Incorporated........................... 200,000
Legg Mason Wood Walker, Incorporated........................ 200,000
KeyBanc Capital Markets, A Division of McDonald Investments
Inc. ..................................................... 200,000
Piper Jaffray & Co. ........................................ 200,000
Ryan, Beck & Co., Inc. ..................................... 200,000
SunTrust Capital Markets, Inc. ............................. 200,000
TD Waterhouse Investor Services, Inc. ...................... 200,000
Advest, Inc. ............................................... 100,000
William Blair & Company, L.L.C. ............................ 100,000
D.A. Davidson & Co. Inc. ................................... 100,000
J.J.B. Hilliard, W.L. Lyons, Inc. .......................... 100,000
Jesup & Lamont Securities Corporation....................... 100,000
Morgan Keegan & Company, Inc. .............................. 100,000
Parker/Hunter Incorporated.................................. 100,000
Royal Alliance Associates, Inc. a SunAmerica Company........ 100,000
Wedbush Morgan Securities Inc............................... 100,000
Boenning & Scattergood, Inc. ............................... 75,000
J.B. Hanauer & Co. ......................................... 75,000
Mesirow Financial, Inc. .................................... 75,000
--------------------------------------------------------------------------------
50
UNDERWRITING
--------------------------------------------------------------------------------
NUMBER OF
UNDERWRITERS COMMON SHARES
---------------------------------------------------------------------------
Morgan Wilshire Securities.................................. 75,000
Fifth Third Securities, Inc. ............................... 75,000
M.L. Stern & Co., Inc. ..................................... 75,000
Arthurs, Lestrange & Company Incorporated................... 50,000
Axiom Capital Management, Inc. ............................. 50,000
BB&T Capital Markets, a division of Scott & Stingfellow,
Inc. ..................................................... 50,000
City Securities Corporation................................. 50,000
Gilford Securities Incorporated............................. 50,000
Gunnallen Financial, Inc. .................................. 50,000
Howe Barnes Investments, Inc. .............................. 50,000
Wayne Hummer & Co. ......................................... 50,000
Johnston, Lemon & Co. Incorporated.......................... 50,000
Kirlin Securities Inc. ..................................... 50,000
LaSalle St. Securities LLC.................................. 50,000
David A. Noyes & Company.................................... 50,000
Paulson Investment Company, Incorporated.................... 50,000
Smith Hayes Financial Services Corporation.................. 50,000
SouthTrust Securities, Inc. ................................ 50,000
Southwest Securities, Inc. ................................. 50,000
Spelman & Co., Inc. ........................................ 50,000
Spencer Clarke LLC.......................................... 50,000
Walnut Street Securities, Inc. ............................. 50,000
B.C. Ziegler and Company.................................... 50,000
-------------
Total.................................................. 14,500,000
=============
The Fund has granted to the Underwriters an option, exercisable for 45 days from
the date of this Prospectus, to purchase up to an additional 2,175,000 Common
Shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering
underwriting over-allotments incurred in the sale of the Common Shares offered
hereby. To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase an additional number of Common Shares proportionate to such
Underwriter's initial commitment.
The Fund has agreed to pay a commission to the Underwriters in the amount of
$0.90 per Common Share (4.5% of the public offering price per Common Share). The
Representatives have advised the Fund that the Underwriters may pay up to $0.60
per Common Share from such commission to selected dealers who sell the Common
Shares and that such dealers may reallow a concession of up to $0.10 per Common
Share to certain other dealers who sell Common Shares. Eaton Vance or an
affiliate has agreed to (i) reimburse all organizational costs and (ii) pay all
offering costs of the Fund (other than sales loads) that exceed $0.04 per Common
Share. Investors must pay for any Common Shares purchased on or before April 30,
2004.
Prior to this offering, there has been no public market for the Common Shares or
any other securities of the Fund. Consequently, the offering price for the
Common Shares was determined by negotiation among the Fund and the
Representatives. There can be no assurance, however, that the price at which
Common Shares sell after this offering will not be lower than the price at which
they are sold by the
--------------------------------------------------------------------------------
51
UNDERWRITING
--------------------------------------------------------------------------------
Underwriters or that an active trading market in the Common Shares will develop
and continue after this offering. The minimum investment requirement is 100
Common Shares ($2,000).
The Fund and Eaton Vance have each agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Fund has agreed not to offer, sell or register with the Securities and
Exchange Commission any additional equity securities of the Fund, other than
issuances of Common Shares, including pursuant to the Fund's Plan, and issuances
in connection with any preferred shares, each as contemplated in this
Prospectus, for a period of 180 days after the date of the Underwriting
Agreement without the prior written consent of the Representatives.
The Representatives have informed the Fund that the Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
In connection with this offering, the Underwriters may purchase and sell Common
Shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Shares and syndicate short positions involve
the sale by the Underwriters of a greater number of Common Shares than they are
required to purchase from the Fund in this offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Shares sold in this offering
for their account may be reclaimed by the syndicate if such Common Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Shares, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time without notice. These transactions may be effected on the New York
Stock Exchange or otherwise.
The Fund anticipates that the Representatives and certain other Underwriters may
from time to time act as brokers or dealers in connection with the execution of
its portfolio transactions after they have ceased to be Underwriters and,
subject to certain restrictions, may act as such brokers while they are
Underwriters.
In connection with the offering, certain of the Underwriters or selected dealers
may distribute prospectuses electronically.
Eaton Vance (and not the Fund) has agreed pursuant to an additional compensation
agreement (the "Additional Compensation Agreement") to pay to certain qualifying
Underwriters who meet specified sales targets ("Qualifying Underwriters"),
quarterly in arrears, an annual fee of up to 0.15% of the Fund's average daily
gross assets attributable to Common Shares sold by such Qualifying Underwriters
(including a proportionate share of assets acquired using leverage). Such sales
targets may be waived or lowered with respect to any Underwriter in the sole
discretion of Eaton Vance. These fee payments will remain in effect only so long
as the Advisory Agreement remains in effect between the Fund and Eaton Vance or
any successor in interest or affiliate of Eaton Vance, as and to the extent that
such Advisory Agreement is renewed periodically in accordance with the 1940 Act.
The sum of the additional compensation payable to the Qualifying Underwriters
will not exceed 1.471% of the aggregate initial offering price of the Common
Shares offered hereby. Merrill Lynch, Pierce, Fenner & Smith Incorporated will
receive additional compensation which will not exceed 0.776% of the aggregate
initial offering price of the Common Shares offered hereby and Wachovia Capital
Markets, LLC will receive additional compensation which will not exceed 0.695%
of the aggregate initial offering price of the Common Shares offered hereby.
--------------------------------------------------------------------------------
52
UNDERWRITING
--------------------------------------------------------------------------------
As described below under "Shareholder Servicing Agent, custodian and transfer
agent," UBS Securities LLC will provide shareholder services to the Fund
pursuant to a shareholder servicing agreement with Eaton Vance.
Compensation received by Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Wachovia Capital Markets, LLC pursuant to the Additional Compensation Agreement
and compensation received by UBS Securities LLC pursuant to the Shareholder
Servicing Agreement (as defined below) together will not exceed 4.5% of the
aggregate initial offering price of the Common Shares offered hereby, and the
total compensation received by the Underwriters will not exceed 9.0% of the
aggregate initial offering price of the Common Shares offered hereby.
Shareholder Servicing Agent, custodian and transfer agent
Pursuant to a shareholder servicing agreement (the "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 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. The sum of the payments payable to the Shareholder
Servicing Agent under the Shareholder Servicing Agreement will not exceed 3.029%
of the aggregate initial offering price of the Common Shares offered hereby.
Under the terms of the Shareholder Servicing Agreement, the
--------------------------------------------------------------------------------
53
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AGENT
--------------------------------------------------------------------------------
Shareholder Servicing Agent is relieved from liability to Eaton Vance or the
Fund for any act or omission to act in the course of its performance under the
Shareholder Servicing Agreement in the absence of bad faith, 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 daily. IBT also attends to details in
connection with the sale, exchange, substitution, transfer and other dealings
with the Fund's investments and receives and disburses all funds. IBT also
assists in preparation of shareholder reports and the electronic filing of such
reports with the SEC.
PFPC Inc., P.O. Box 43027, Providence, Rhode Island 02940-3027 is the transfer
agent and dividend disbursing agent of the Fund.
Legal opinions
Certain legal matters in connection with the Common Shares will be passed upon
for the Fund by Kirkpatrick & Lockhart LLP, Boston, Massachusetts, and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois.
Reports to shareholders
The Fund will send to Common Shareholders unaudited semi-annual and audited
annual reports, including a list of investments held.
Independent auditors
Deloitte & Touche LLP, Boston, Massachusetts are the independent auditors for
the Fund and will audit the Fund's financial statements.
Additional information
The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Fund has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its rules and regulations. The Statement
of Additional Information can be obtained without charge by calling
1-800-225-6265.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
--------------------------------------------------------------------------------
54
--------------------------------------------------------------------------------
Table of contents for the
Statement of Additional Information
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....................................................... 20
Other information........................................... 25
Independent auditors........................................ 25
Statement Of Assets And Liabilities......................... 27
Notes to financial statements............................... 28
APPENDIX A: Ratings......................................... A-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.
--------------------------------------------------------------------------------
55
(EATON VANCE LOGO)
CE-TAGDOFP
STATEMENT OF ADDITIONAL INFORMATION APRIL 27, 2004
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 27, 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....................................................... 20
Other information........................................... 25
Independent auditors........................................ 25
Statement Of Assets And Liabilities......................... 27
Notes to financial statements............................... 28
APPENDIX A: Ratings......................................... A-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 APRIL 27, 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.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Fund's Prospectus.
Additional investment information and restrictions
Primary investment strategies are described in the Prospectus. The following is
a description of the various investment policies that may be engaged in, whether
as a primary or secondary strategy, and a summary of certain attendant risks.
Eaton Vance may not buy any of the following instruments or use any of the
following techniques unless it believes that doing so will help to achieve the
Fund's investment objective.
Tax-managed investing. Taxes are a major influence on the net returns that
investors receive on their taxable investments. There are five components of the
returns of the Fund--appreciation in the value of the Fund shares, distributions
of tax-advantaged dividends, distributions of other investment income and
distributions of realized short-term and long-term capital gains--which are
treated differently for federal income tax purposes. Distributions of income
other than tax-advantaged dividends and distributions of net realized short-term
gains (on stocks held for one year or less) are taxed as ordinary income, at
rates currently as high as 35%. Distributions to individuals and other
non-corporate shareholders of tax-advantaged dividends and net realized
long-term gains (on stocks held for more than one year) are currently taxed at
rates up to 15%. Generally, returns derived from appreciation in the value of
the Fund shares are not taxable until the shareholder sells his or her Fund
shares. Upon sale, a capital gain or loss (short-term if the shareholder has
held his or her shares for one year or less, otherwise long-term) equal to the
difference between the net proceeds of such sale and the shareholder's adjusted
tax basis is realized. As described in the Prospectus, the Fund seeks to achieve
favorable after-tax returns in part by minimizing the taxes incurred by
shareholders in connection with the Fund's net investment income and net
realized gains.
Equity investments. The Fund invests primarily in dividend-paying common stocks
and preferred stocks. The Fund also may invest in debt securities, warrants and
other securities and instruments.
Preferred Stocks. The Fund may invest in preferred stocks of both domestic and
foreign issuers. Under normal market conditions, the Fund expects, with respect
to that portion of its total assets invested in preferred stocks, to invest
primarily in preferred stocks of investment grade quality as determined by S&P,
Fitch or Moody's or, if unrated, determined to be of comparable quality by Eaton
Vance. However, the Fund may from time to time purchase preferred stocks of
below investment grade quality that, at the time of purchase, are rated at least
B as determined by S&P, Fitch or Moody's or, if unrated, are determined to be of
comparable quality by Eaton Vance. Securities of below investment grade quality
commonly are referred to as "junk" preferred stocks and bonds, as the case may
be. The foregoing credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security in the event of
a downgrade of an assessment of credit quality or the withdrawal of a rating.
Preferred stocks involve credit risk, which is the risk that a preferred stock
will decline in price, or fail to pay dividends when expected, because the
issuer experiences a decline in its financial status. In addition to credit
risk, investment in preferred stocks involves certain other risks as more fully
described in the Prospectus.
Derivative instruments. Derivative instruments (which are instruments that
derive their value from another instrument, security, index or currency) may be
purchased or sold to enhance return (which may be considered speculative), to
hedge against fluctuations in securities prices, market conditions or currency
exchange rates, or as a substitute for the purchase or sale of securities or
currencies. Such transactions may be in the U.S. or abroad and may include the
purchase or sale of futures contracts on indices and options on stock index
futures, the purchase of put options and the sale of call options on securities
held, equity swaps and the purchase and sale of currency futures and forward
foreign currency exchange contracts. Transactions in derivative instruments
involve a risk of loss or depreciation due to: unanticipated adverse changes in
securities prices, interest rates, indices, the other financial instruments'
prices or currency exchange rates; the inability to close out a position;
default by
--------------------------------------------------------------------------------
2
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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 than 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 therefor is not subject to registration or
regulation as a CPO. There can be no assurance that the use of derivative
instruments will be advantageous.
Foreign exchange traded futures contracts and options thereon may be used only
if the Adviser determines that trading on such foreign exchange does not entail
risks, including credit and liquidity risks, that are materially greater than
the risks associated with trading on CFTC-regulated exchanges.
A put option on a security may be written only if the Adviser intends to acquire
the security. Call options written on securities will be covered by ownership of
the securities subject to the call option or an offsetting option.
CORPORATE BONDS AND OTHER DEBT SECURITIES
The Fund may invest in corporate bonds including below investment grade quality,
commonly known as "junk bonds" ("Non-Investment Grade Bonds"). Investments in
Non-Investment Grade Bonds generally provide greater income and increased
opportunity for capital appreciation than investments in higher quality
securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and
bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and interest
payments. Debt securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of higher
quality securities.
Non-Investment Grade Bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in Non-Investment Grade Bond prices because the
advent of recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of Non-Investment Grade
Bonds defaults, in addition to risking payment of all or a portion of interest
and principal, the Fund may incur additional expenses to seek recovery. In the
case of Non-Investment Grade Bonds structured as zero-coupon, step-up or
payment-in-kind securities, market prices of such securities will normally be
--------------------------------------------------------------------------------
3
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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
Common 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 next sixty days after the hedging transaction is closed.
Failure to meet these requirements would trigger
--------------------------------------------------------------------------------
4
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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.
Securities loans may result in delays in recovering, or a failure of the
borrower to return, the loaned securities. The defaulting borrower ordinarily
would be liable to the Fund for any losses resulting from such delays or
failures, and the collateral provided in connection with the loan normally would
also be available for that purpose. Securities loans normally may be terminated
by either the Fund or the borrower at any time. Upon termination and the return
of the loaned securities, the Fund would be required to return the related cash
or securities collateral to the borrower and it may be required to liquidate
longer term portfolio securities in order to do so. To the extent that such
securities have decreased in value, this may result in the Fund realizing a loss
at a time when it would not otherwise do so. The Fund also may incur losses if
it is unable to reinvest cash collateral at rates higher than applicable rebate
rates paid to borrowers and related administrative costs. These risks are
substantially the same as those incurred through investment leverage, and will
be subject to the investment policies, restrictions and risk considerations
described in the Prospectus and in this SAI.
The Fund will receive amounts equivalent to any interest or other distributions
paid on securities while they are on loan, and the Fund will not be entitled to
exercise voting or other beneficial rights on loaned securities. The Fund will
exercise its right to terminate loans and thereby regain these rights whenever
the Adviser considers it to be in the Fund's interest to do so, taking into
account the related loss of reinvestment income and other factors.
TEMPORARY INVESTMENTS
The Fund may invest temporarily in cash or cash equivalents. Cash equivalents
are highly liquid, short-term securities such as commercial paper, time
deposits, certificates of deposit, short-term notes and short-term U.S.
government obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Fund present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
--------------------------------------------------------------------------------
5
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
present or represented at the meeting or (b) more than 50% of outstanding shares
of the Fund. As a matter of fundamental policy the Fund may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act currently requires that any
indebtedness incurred by a closed-end investment company have an asset
coverage of at least 300%;
(2) Issue senior securities, as defined in the 1940 Act, other than (a)
preferred shares which immediately after issuance will have asset coverage
of at least 200%, (b) indebtedness which immediately after issuance will
have asset coverage of at least 300%, or (c) the borrowings permitted by
investment restriction (1) above. The 1940 Act currently defines "senior
security" as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness and any stock of a
class having priority over any other class as to distribution of assets or
payment of dividends. Debt and equity securities issued by a closed-end
investment company meeting the foregoing asset coverage provisions are
excluded from the general 1940 Act prohibition on the issuance of senior
securities;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of investment assets with the proceeds of a
permitted borrowing or securities offering will not be deemed to be the
purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as it may
technically be deemed to be an underwriter under the Securities Act of
1933, as amended, in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell securities
which are secured by interests in real estate and securities of issuers
which invest or deal in real estate. The Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the
ownership of securities;
(7) Purchase or sell physical commodities or contracts for the purchase or sale
of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices, currencies,
interest or other financial instruments;
(8) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of a single issuer or purchase more than 10% of
the outstanding voting securities of a single issuer, except obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities and except securities of other investment companies; and
(9) Invest 25% or more of its total assets in any single industry or group of
industries (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
The Fund may borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund
securities. The 1940 Act currently requires that the Fund have 300% asset
coverage with respect to all borrowings other than temporary borrowings.
For purposes of construing restriction (9), securities of the U.S. government,
its agencies, or instrumentalities are not considered to represent industries.
The Fund reserves the right to invest 25% or more of its assets in each of the
energy, raw materials, real estate, utilities and financial services
--------------------------------------------------------------------------------
6
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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) and Since 3/15/04 Chairman, President and 196 Director of EVC
11/9/41 Vice President Three Years Chief Executive Officer
of BMR, Eaton Vance,
EVC and EV; Director of
EV; Vice President and
Director of EVD.
Trustee and/or officer
of 196 registered
investment companies in
the Eaton Vance Fund
Complex. Mr. Hawkes is
an interested person
because of his
positions with BMR,
Eaton Vance, EVC and
EV, which are
affiliates of the Fund.
NON-INTERESTED TRUSTEES
Samuel L. Hayes, III Trustee(2) Since 3/15/04 Jacob H. Schiff 196 Director of
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 3/15/04 President and Chief 193 None
9/19/47 Three Years Executive Officer,
Prizm Capital
Management, LLC
(investment management
firm) (since 2002).
Executive Vice
President and Chief
Financial Officer,
United Asset Management
Corporation (a holding
company owning
institutional
investment management
firms) (1982-2001).
--------------------------------------------------------------------------------
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 3/15/04 Professor of Law, 193 None
7/10/40 Three Years Georgetown University
Law Center (since
1999). Tax Partner,
Covington & Burling,
Washington, DC (1991-
2000).
Norton H. Reamer Trustee(4) Since 3/15/04 President and Chief 196 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 9/14/57 Trustee(4) Since 3/15/04 Professor of Law, 196 None
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.
--------------------------------------------------------------------------------
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 Executive Investment Officer of Eaton Vance and BMR.
Officer Officer of 44 registered investment
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 55 registered investment
companies managed by Eaton Vance or BMR.
Thomas H. Luster Vice President Since 2/27/04 Vice President of Eaton Vance or BMR.
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 196 registered investment
companies managed by Eaton Vance or BMR.
The Board of Trustees of the Fund has several standing Committees, including the
Governance Committee, the Audit Committee, and the Special Committee. Each such
Committee is comprised of only noninterested Trustees.
The Governance Committee of the Board of Trustees of the Fund is comprised of
the noninterested Trustees. Ms. Stout currently serves as chairperson of the
Governance Committee. The purpose of the Governance Committee is to consider,
evaluate and make recommendations to the Board of Trustees with respect to the
structure, membership and operation of the Board of Trustees and the Committees
--------------------------------------------------------------------------------
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 not met, the Audit
Committee and Special Committee have each held one meeting and the Contract
Review Subcommittee has held two meetings.
When considering approval of the Advisory Agreement between the Fund and the
Adviser, the Contract Review Sub-Committee of the Special Committee considered,
among other things, the following:
+ 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;
+ The allocation of brokerage, including allocations to soft dollar brokerage
and allocations to firms that sell Eaton Vance fund shares;
--------------------------------------------------------------------------------
11
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
+ 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.
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
--------------------------------------------------------------------------------
12
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
approval of the Advisory Agreement, including the fee structure (described
herein) is in the interests of shareholders.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the
Trustee as of December 31, 2003.
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES OWNED IN ALL REGISTERED
EQUITY SECURITIES FUNDS OVERSEEN BY TRUSTEE IN THE
NAME OF TRUSTEE OWNED IN THE FUND EATON VANCE FUND COMPLEX
-------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
James B. Hawkes....................... None over $100,000
NONINTERESTED TRUSTEES
Samuel L. Hayes, III.................. None over $100,000
William H. Park....................... None over $100,000
Ronald A. Pearlman.................... None over $100,000
Norton H. Reamer...................... None over $100,000
Lynn A. Stout......................... None $50,001--$100,000
As of December 31, 2003, no noninterested Trustee or any of their immediate
family members owned beneficially or of record any class of securities of EVC,
EVD or any person controlling, controlled by or under common control with EVC or
EVD.
During the calendar years ended December 31, 2002 and December 31, 2003, no
noninterested Trustee (or their immediate family members) had:
1. Any direct or indirect interest in Eaton Vance, EVC, EVD or any person
controlling, controlled by or under common control with EVC or EVD;
2. Any direct or indirect material interest in any transaction or series of
similar transactions with (i) the Trust or any Fund; (ii) another fund
managed by EVC, distributed by EVD or a person controlling, controlled by or
under common control with EVC or EVD; (iii) EVC or EVD; (iv) a person
controlling, controlled by or under common control with EVC or EVD; or (v)
an officer of any of the above; or
3. Any direct or indirect relationship with (i) the Trust or any Fund; (ii)
another fund managed by EVC, distributed by EVD or a person controlling,
controlled by or under common control with EVC or EVD; (iii) EVC or EVD;
(iv) a person controlling, controlled by or under common control with EVC or
EVD; or (v) an officer of any of the above.
During the calendar years ended December 31, 2002 and December 31, 2003, no
officer of EVC, EVD or any person controlling, controlled by or under common
control with EVC or EVD served on the Board of Directors of a company where a
noninterested Trustee of the Fund or any of their immediate family members
served as an officer.
Trustees of the Fund who are not affiliated with the Adviser may elect to defer
receipt of all or a percentage of their annual fees in accordance with the terms
of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Fund in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Fund's assets, liabilities, and net income per share, and will not obligate the
--------------------------------------------------------------------------------
13
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
Fund to retain the services of any Trustee or obligate the Fund to pay any
particular level of compensation to the Trustee. The Fund does not have a
retirement plan for its Trustees.
The fees and expenses of the Trustees of the Fund are paid by the Fund. (A
Trustee of the Fund who is a member of the Eaton Vance organization receives no
compensation from the Fund.) For the Fund's fiscal year ending March 31, 2005,
it is anticipated that the Trustees of the Fund will earn the following
compensation in their capacities as Trustees. For the year ended December 31,
2003, the Trustees earned the compensation set forth below in their capacities
as Trustees from the funds in the Eaton Vance fund complex(1).
SAMUEL L. WILLIAM H. RONALD A. NORTON H. LYNN A.
SOURCE OF COMPENSATION HAYES, III PARK PEARLMAN REAMER STOUT
-------------------------------------------------------------------------------------------------
Fund*.............................. $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Fund Complex....................... $183,750 $98,333(3)(4) $85,000(4) $170,830 $167,500(2)
------------
* Estimated
(1) As of March 15, 2004, the Eaton Vance fund complex consisted of 197
registered investment companies or series thereof.
(2) Includes $8,417 of deferred compensation.
(3) Includes $42,830 of deferred compensation.
(4) Messrs. Park and Pearlman became Trustees in 2003.
PROXY VOTING POLICY
The Fund is subject to the Eaton Vance Funds Proxy Voting Policy and Procedures
(the "Fund Policy"), pursuant to which the Trustees have delegated proxy voting
responsibility to the Adviser and adopted the Adviser's proxy voting policies
and procedures (the "Policies") which are described below. The Trustees will
review the Fund's proxy voting records from time to time and will annually
consider approving the Policies for the upcoming year. In the event that a
conflict of interest arises between the Fund's shareholders and the Adviser or
any of its affiliates or any affiliate of the Fund, the Adviser will generally
refrain from voting the proxies related to the companies giving rise to such
conflict until it consults with the Board of the Fund, except as contemplated
under the Fund Policy. The Board's Special Committee will instruct the Adviser
on the appropriate course of action.
The Policies are designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The Adviser will generally support company management on proposals
relating to environmental and social policy issues, on matters regarding the
state of organization of the company and routine matters related to corporate
administration which are not expected to have a significant economic impact on
the company or its shareholders. On all other matters, the Adviser will review
each matter on a case-by-case basis and reserves the right to deviate from the
Policies' guidelines when it believes the situation warrants such a deviation.
The Policies include voting guidelines for matters relating to, among other
things, the election of directors, approval of independent auditors, executive
compensation, corporate structure and anti-takeover defenses. The Adviser may
abstain from voting from time to time where it determines that the costs
associated with voting a proxy outweigh the benefits derived from exercising the
right to vote.
In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Fund's shareholders and the Adviser or any of its
affiliates or any affiliate of the Fund by maintaining a list of significant
existing and prospective corporate clients. The Adviser's personnel responsible
for reviewing and voting proxies on behalf of the Fund will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the Adviser identified in the Policies. Such
members of senior management will determine if a conflict exists. If a conflict
does exist, the proxy will either be voted strictly in accordance with the
Policies or the Adviser
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14
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
will seek instruction on how to vote from the Special Committee. Effective
August 31, 2004, information on how the Fund voted proxies relating to portfolio
securities during the 12 month period ended June 30, 2004 will be available (1)
without charge, upon request, by calling 1-800-262-1122, and (2) on the
Securities and Exchange Commission's website at http://www.sec.gov.
Investment advisory and other services
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and of investment companies
since 1931. They maintain a large staff of experienced fixed-income, senior loan
and equity investment professionals to service the needs of their clients. The
equity group covers stocks ranging from blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds, and
individual and various institutional accounts. The fixed-income group focuses on
all kinds of taxable investment-grade and high-yield securities, tax-exempt
investment-grade and high-yield securities, and U.S. government securities. The
senior loan group focuses on senior floating rate loans, unsecured loans and
other floating rate debt securities such as notes, bonds and asset backed
securities, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Fund
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Fund shares; and
investment advisory and administration fees. The Fund will also bear expenses
incurred in connection with any litigation in which the Fund is a party and any
legal obligation to indemnify its officers and Trustees with respect thereto, to
the extent not covered by insurance.
The Advisory Agreement with the Adviser continues in effect to March 15, 2006
and from year to year so long as such continuance is approved at least annually
(i) by the vote of a majority of the noninterested Trustees of the Fund or of
the Adviser cast in person at a meeting specifically called for the purpose of
voting on such approval and (ii) by the Board of Trustees of the Fund or by vote
of a majority of the outstanding Shares of the Fund. The Fund's Administration
Agreement continues in effect from year to year so long as such continuance is
approved at least annually by the vote of a majority of the Fund's Trustees.
Each agreement may be terminated at any time without penalty on sixty (60) days'
written notice by the Trustees of the Fund or Eaton Vance, as applicable, or by
vote of the majority of the outstanding shares of the Fund. Each agreement will
terminate automatically in the event of its assignment. Each agreement provides
that, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties to the Fund under such
agreements on the part of Eaton Vance, Eaton Vance shall not be liable to the
Fund for any loss incurred, to the extent not covered by insurance.
Eaton Vance is a business trust organized under Massachusetts law. EV serves as
trustee of Eaton Vance. Eaton Vance and EV are subsidiaries of EVC, a Maryland
corporation and publicly-held holding company. EVC through its subsidiaries and
affiliates engages primarily in investment
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15
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------
management, administration and marketing activities. The Directors of EVC are
James B. Hawkes, John G. L. Cabot, Thomas E. Faust Jr., Leo I. Higdon, Jr., John
M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. All shares of the
outstanding Voting Common Stock of EVC are deposited in a voting trust, the
voting trustees of which are Messrs. James B. Hawkes, Jeffrey P. Beale, Alan R.
Dynner, Thomas E. Faust Jr., Thomas J. Fetter, Scott H. Page, Duncan W.
Richardson, William M. Steul, Payson F. Swaffield, Michael W. Weilheimer and
Wharton P. Whitaker (all of whom are officers of Eaton Vance). The voting
trustees have unrestricted voting rights for the election of Directors of EVC.
All of the outstanding voting trust receipts issued under said voting trust are
owned by certain of the officers of BMR and Eaton Vance who are also officers,
or officers and Directors of EVC and EV. As indicated under "Trustees and
officers", all of the officers of the Fund (as well as Mr. Hawkes who is also a
Trustee) hold positions in the Eaton Vance organization.
EVC and its affiliates and their officers and employees from time to time have
transactions with various banks, including the custodian of the Fund, IBT. It is
Eaton Vance's opinion that the terms and conditions of such transactions were
not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such banks.
CODE OF ETHICS
The Adviser and the Fund have adopted a Code of Ethics governing personal
securities transactions. Under the Code of Ethics, Eaton Vance employees may
purchase and sell securities (including securities held or eligible for purchase
by the Fund) subject to certain pre-clearance and reporting requirements and
other procedures.
The Code of Ethics can be reviewed and copied at the Securities and Exchange
Commission's public reference room in Washington, DC (call 1-202-942-8090 for
information on the operation of the public reference room); on the EDGAR
Database on the SEC's Internet site (http://www.sec.gov); or, upon payment of
copying fees, by writing the SEC's public reference section, Washington, DC
20549-0102, or by electronic mail at publicinfo@sec.gov.
INVESTMENT ADVISORY SERVICES
Under the general supervision of the Fund's Board of Trustees, Eaton Vance will
carry out the investment and reinvestment of the assets of the Fund, will
furnish continuously an investment program with respect to the Fund, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Eaton Vance will furnish to the Fund investment
advice and provide related office facilities and personnel for servicing the
investments of the Fund. Eaton Vance will compensate all Trustees and officers
of the Fund who are members of the Eaton Vance organization and who render
investment services to the Fund, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Fund.
ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the
business affairs of the Fund, subject to the supervision of the Fund's Board of
Trustees. Eaton Vance will furnish to the Fund all office facilities, equipment
and personnel for administering the affairs of the Fund. Eaton Vance will
compensate all Trustees and officers of the Fund who are members of the Eaton
Vance organization and who render executive and administrative services to the
Fund, and will also compensate all other Eaton Vance personnel who perform
management and administrative services for the Fund. Eaton Vance's
administrative services include recordkeeping, preparation and filing of
documents required to comply with federal and state securities laws, supervising
the activities of the Fund's custodian and transfer agent, providing assistance
in connection with the Trustees' and shareholders' meetings, providing services
in connection with repurchase offers, if any, and other administrative services
necessary to conduct the Fund's business.
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16
--------------------------------------------------------------------------------
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 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
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17
DETERMINATION OF NET ASSET VALUE
--------------------------------------------------------------------------------
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.
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.
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18
PORTFOLIO TRADING
--------------------------------------------------------------------------------
Although spreads or commissions paid on portfolio security transactions will, in
the judgment of the Adviser, be reasonable in relation to the value of the
services provided, commissions exceeding those which another firm might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Adviser's clients in part for providing brokerage and research
services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, as
amended, a broker or dealer who executes a portfolio transaction on behalf of
the Fund may receive a commission which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Adviser determines in good faith that such compensation was reasonable in
relation to the value of the brokerage and research services provided. This
determination may be made on the basis of that particular transaction or on the
basis of overall responsibilities which the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the advisers
of investment companies, institutions and other investors to receive research,
analytical, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, the Adviser receives Research Services from many
broker-dealer firms with which the Adviser places the Fund's transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic, political, business
and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, proxy voting data and analysis
services, technical analysis of various aspects of the securities market,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, databases and services. Any particular Research
Service obtained through a broker-dealer may be used by the Adviser in
connection with client accounts other than those accounts which pay commissions
to such broker-dealer. Any such Research Service may be broadly useful and of
value to the Adviser in rendering investment advisory services to all or a
significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may be
useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory fee
paid by the Fund is not reduced because the Adviser receives such Research
Services. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.
The Fund and the Adviser may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by the Adviser in connection with
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19
PORTFOLIO TRADING
--------------------------------------------------------------------------------
its investment responsibilities. The investment companies sponsored by the
Adviser or its affiliates may allocate trades in such offerings to acquire
information relating to the performance, fees and expenses of such companies and
other mutual funds, which information is used by the Trustees of such companies
to fulfill their responsibility to oversee the quality of the services provided
by various entities, including the Adviser, to such companies. Such companies
may also pay cash for such information.
Subject to the requirement that the Adviser shall use its best efforts to seek
and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by the Adviser.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc. ("NASD"), which rule provides that no firm which is a
member of the NASD shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Securities considered as investments for the Fund may also be appropriate for
other investment accounts managed by the Adviser or its affiliates. Whenever
decisions are made to buy or sell securities by the Fund and one or more of such
other accounts simultaneously, the Adviser will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where the Fund will not participate in a transaction that is allocated
among other accounts. If an aggregated order cannot be filled completely,
allocations will generally be made on a pro rata basis. An order may not be
allocated on a pro rata basis where, for example: (i) consideration is given to
portfolio managers who have been instrumental in developing or negotiating a
particular investment; (ii) consideration is given to an account with
specialized investment policies that coincide with the particulars of a specific
investment; (iii) pro rata allocation would result in odd-lot or de minimis
amounts being allocated to a portfolio or other client; or (iv) where the
Adviser reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Trustees of the Fund that the
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
Taxes
The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Fund. The Fund intends to elect to be
treated and to qualify each year as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its net
income and net short-term and long-term capital gains (after reduction by any
available capital loss carryforwards) in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status and to avoid paying any
federal income or excise tax. To the extent it qualifies for treatment as a RIC
and satisfies the above-mentioned distribution requirements, the Fund will not
be subject to federal income tax on income paid to its shareholders in the form
of dividends or capital gain distributions.
In order to avoid incurring a nondeductible 4% federal excise tax obligation,
the Code requires that the Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year an amount at least equal to the sum of (i) 98%
of its ordinary income for such year and (ii) 98% of its capital gain net income
(which is the excess of its realized net long-term capital gain over its
realized
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20
TAXES
--------------------------------------------------------------------------------
net short-term capital loss), generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by any available
capital loss carryforwards, plus 100% of any ordinary income and capital gain
net income from the prior year (as previously computed) that were not paid out
during such year and on which the Fund paid no federal income tax. Under current
law, provided that the Fund qualifies as a RIC for federal income tax purposes,
the Fund should not be liable for any income, corporate excise or franchise tax
in The Commonwealth of Massachusetts.
If the Fund does not qualify as a RIC for any taxable year, the Fund's taxable
income will be subject to corporate income taxes, and all distributions from
earnings and profits, including distributions of net capital gain (if any), will
be taxable to the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, the Fund may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax
Act"), certain income distributions paid by the Fund (whether paid in cash or
reinvested in additional Fund Shares) to individual taxpayers are taxed at rates
applicable to net long-term capital gains (15%, or 5% for individuals in the 10%
or 15% tax brackets). This tax treatment applies only if certain holding period
requirements and other requirements are satisfied by the Common Shareholder and
the dividends are attributable to qualified dividend income received by the Fund
itself. For this purpose, "qualified dividend income" means dividends received
by the Fund from United States corporations and "qualified foreign
corporations," provided that the Fund satisfies certain holding period and other
requirements in respect of the stock of such corporations. In 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
--------------------------------------------------------------------------------
21
TAXES
--------------------------------------------------------------------------------
dividend income received by the RIC, failed to make certain conforming
amendments to other provisions of the Code. As a result, the Code contains
certain contradictory provisions creating some ambiguity as to whether the Code
authorizes the Fund to designate in certain circumstances as qualified dividend
income that portion of its dividends that is derived from dividends it has
received from qualified foreign corporations. The Fund believes, however, that
the intention of the Tax Act was to authorize the Fund's designation of such
dividends as qualified dividend income. Further, bills proposing to make
technical corrections to the Tax Act (the "Technical Corrections Bills") have
been filed in both the Senate and the House of Representatives, and these
Technical Corrections Bills would amend the Code to make it clear that a RIC's
dividends can be designated qualified dividend income to the extent that they
are derived from dividends received from qualified foreign corporations. The
Fund cannot predict whether or in what form the Technical Corrections Bills will
be enacted or, if enacted, when that will occur. Nevertheless, the Treasury
Department and the IRS have announced that they will apply the provision of the
Technical Corrections Bill relating to qualified dividend income in advance of
the enactment of such legislation.
A dividend (whether paid in cash or reinvested in additional Fund shares) will
not be treated as qualified dividend income (whether received by the Fund or
paid by the Fund to a shareholder) if (1) the dividend is received with respect
to any share held for fewer than 61 days during the 120-day period beginning on
the date which is 60 days before the date on which such share becomes ex-
dividend with respect to such dividend (the 120-day period would be expanded to
a 121-day period under the Technical Corrections Bills), (2) to the extent that
the shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
The benefits of the reduced tax rates applicable to long-term capital gains and
qualified dividend income may be impacted by the application of the alternative
minimum tax to individual shareholders.
The Fund's investment in zero coupon, payment in kind and certain other
securities will cause it to realize income prior to the receipt of cash payments
with respect to these securities. Such income will be accrued daily by the Fund
and, in order to avoid a tax payable by the Fund, the Fund may be required to
liquidate securities that it might otherwise have continued to hold in order to
generate cash so that the Fund may make required distributions to its
shareholders.
Investments in lower rated or unrated securities may present special tax issues
for the Fund to the extent that the issuers of these securities default on their
obligations pertaining thereto. The Code is not entirely clear regarding the
federal income tax consequences of the Fund's taking certain positions in
connection with ownership of such distressed securities.
Any recognized gain or income attributable to market discount on long-term debt
obligations (i.e., obligations with a term of more than one year except to the
extent of a portion of the discount attributable to original issue discount)
purchased by the Fund is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if purchased after its
original issue at a price less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis exclusion.
The Fund's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-
--------------------------------------------------------------------------------
22
TAXES
--------------------------------------------------------------------------------
market, constructive sale, straddle, wash sale, short sale and other rules), the
effect of which may be to accelerate income to the Fund, defer Fund losses,
cause adjustments in the holding periods of securities held by the Fund, convert
capital gain into ordinary income and convert short-term capital losses into
long-term capital losses. These rules could therefore affect the amount, timing
and character of distributions to shareholders. The Fund may be required to
limit its activities in options and futures contracts in order to enable it to
maintain its RIC status.
Any loss realized upon the sale or exchange of Fund shares with a holding period
of six months or less will be treated as a long-term capital loss to the extent
of any capital gain distributions received with respect to such shares. In
addition, all or a portion of a loss realized on a sale or other disposition of
Fund shares may be disallowed under "wash sale" rules to the extent the
shareholder acquires other shares of the same Fund (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date. Any
disallowed loss will result in an adjustment to the shareholder's tax basis in
some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Fund (or of another fund) pursuant to
the reinvestment or exchange privilege. Any disregarded amounts will result in
an adjustment to the shareholder's tax basis in some or all of any other shares
acquired.
Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses. Certain distributions declared in October, November or December and paid
in the following January will be taxed to shareholders as if received on
December 31 of the year in which they were declared. In addition, certain other
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid by the Fund (except for purposes of the non-
deductible 4% federal excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distributions were actually made.
Dividends and interest received, and gains realized, by the Fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the return on its securities. Tax conventions between certain countries
and the United States, however, may reduce or eliminate foreign taxes, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign issuers, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service (the "IRS") that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder (1) would be required to include in gross
income, and treat as paid by such shareholder, a proportionate share of those
taxes, (2) would be required to treat such share of those taxes and of any
dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as such shareholder's own income from those sources, and (3)
could either deduct the foreign taxes deemed paid in computing taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of foreign taxes paid
and the income from sources within, and taxes paid to, foreign countries and
--------------------------------------------------------------------------------
23
TAXES
--------------------------------------------------------------------------------
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 foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in the Fund.
--------------------------------------------------------------------------------
24
TAXES
--------------------------------------------------------------------------------
STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local tax
consequences of investing in the Fund.
Other information
The Fund is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Fund property or the acts,
obligations or affairs of the Fund. The Declaration of Trust in coordination
with the Fund's By-laws also provides for indemnification out of the Fund
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself is unable to meet its obligations. The Fund has been advised by
its counsel that the risk of any shareholder incurring any liability for the
obligations of the Fund is remote.
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Fund or its shareholders
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office. Voting rights are not cumulative, which means that
the holders of more than 50% of the shares voting for the election of Trustees
can elect 100% of the Trustees and, in such event, the holders of the remaining
less than 50% of the shares voting on the matter will not be able to elect any
Trustees.
The Declaration of Trust provides that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Fund's custodian or
by votes cast at a meeting called for that purpose. The Declaration of Trust
further provides that the Trustees of the Fund shall promptly call a meeting of
the shareholders for the purpose of voting upon a question of removal of any
such Trustee or Trustees when requested in writing to do so by the record
holders of not less than 10 per centum of the outstanding shares.
The Fund's Prospectus and this SAI do not contain all of the information set
forth in the Registration Statement that the Fund has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.
Independent auditors
Deloitte & Touche LLP, Boston, Massachusetts, are the independent auditors for
the Fund, providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
--------------------------------------------------------------------------------
25
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
26
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
27
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.
--------------------------------------------------------------------------------
28
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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
A 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.
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A-5
DESCRIPTION OF SECURITIES RATINGS
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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
EATON VANCE TAX-ADVANTAGED GLOBAL DIVIDEND OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 27, 2004
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INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116