0000950135-04-004413.txt : 20120829
0000950135-04-004413.hdr.sgml : 20120829
20040908143547
ACCESSION NUMBER: 0000950135-04-004413
CONFORMED SUBMISSION TYPE: N-2/A
PUBLIC DOCUMENT COUNT: 15
FILED AS OF DATE: 20040908
DATE AS OF CHANGE: 20040921
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Eaton Vance Floating-Rate Income Trust
CENTRAL INDEX KEY: 0001288992
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: N-2/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-117357
FILM NUMBER: 041020450
BUSINESS ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
BUSINESS PHONE: 617-482-8260
MAIL ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Eaton Vance Floating-Rate Income Trust
CENTRAL INDEX KEY: 0001288992
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: N-2/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-21574
FILM NUMBER: 041020451
BUSINESS ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
BUSINESS PHONE: 617-482-8260
MAIL ADDRESS:
STREET 1: TWO INTERNATIONAL PLACE
CITY: BOSTON
STATE: MA
ZIP: 02110
N-2/A
1
b51660efnv2za.txt
EATON VANCE FLOATING-RATE INCOME TRUST
As filed with the Securities and Exchange Commission on September 8, 2004
1933 Act File No. 333- 117357
1940 Act File No. 811-21574
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5 [X]
(CHECK APPROPRIATE BOX OR BOXES)
EATON VANCE FLOATING-RATE INCOME TRUST
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
-----------------------------------------------------------------
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
NAME AND ADDRESS (OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ. THOMAS A. HALE, ESQ.
KIRKPATRICK & LOCKHART LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
75 STATE STREET 333 WEST WACKER DRIVE
BOSTON, MASSACHUSETTS 02109 SUITE 2100
CHICAGO, IL 60606
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis in reliance on Rule 415 under the Securities
Act of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box):
[ ] when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT BEING OFFERING AGGREGATE AMOUNT OF
REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEES
TITLE OF SECURITIES BEING REGISTERED (1) (1) (1) (1)(2)
------------------------------------ ------------ -------------- -------------- -----------------
Auction Preferred Shares, $0.01 par 17,400 $25,000 $435,000,000 $55,114.50
value
(1) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(o) under the Securities Act of 1933.
(2) A registration fee of $126.70 was previously paid in connection with the
initial filing on July 14, 2004.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION September 8, 2004
--------------------------------------------------------------------------------
$435,000,000
[EATON VANCE LOGO]
EATON VANCE FLOATING-RATE INCOME TRUST
3,480 SHARES, SERIES A
3,480 SHARES, SERIES B
3,480 SHARES, SERIES C
3,480 SHARES, SERIES D
3,480 SHARES, SERIES E
AUCTION PREFERRED SHARES
LIQUIDATION PREFERENCE $25,000 PER SHARE
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES. Eaton Vance Floating-Rate Income Trust (the
"Trust") is a recently organized, diversified, closed-end management investment
company. The Trust's investment objective is to provide a high level of current
income. The Trust will, as a secondary objective, also seek preservation of
capital to the extent consistent with its primary goal of high current income.
The Trust will seek to achieve its investment objectives by investing primarily
in senior, secured floating rate loans ("Senior Loans"). Under normal market
conditions, Eaton Vance Management, the Trust's investment adviser, expects the
Trust to maintain an average duration of less than one year (including the
effect of leverage).
INVESTMENT ADVISER. The Trust's investment adviser is Eaton Vance Management
("Eaton Vance" or the "Adviser"). As of July 31, 2004, Eaton Vance and its
subsidiaries managed approximately $89.5 billion on behalf of funds,
institutional clients and individuals. As of July 31, 2004, Eaton Vance and its
subsidiaries managed approximately $13.8 billion in funds, in other commingled
investment vehicles and for institutional accounts which invest primarily in
Senior Loans.
PORTFOLIO CONTENTS. The Trust will pursue its objectives by investing its
assets primarily in Senior Loans. Under normal market conditions, the Trust will
invest at least 80% of its total assets in Senior Loans. Senior Loans are made
to corporations, partnerships and other business entities ("Borrowers") which
operate in various industries and geographical regions, including foreign
Borrowers. Senior Loans pay interest at rates which are redetermined
periodically on the basis of a floating base lending rate plus a premium. Senior
Loans typically are of below investment grade quality and have below investment
grade credit ratings, which ratings are associated with securities having high
risk, speculative characteristics. Because of the protective features of Senior
Loans (being both senior in a Borrower's capital structure and secured by
specific collateral), the Adviser believes, based on its experience, that Senior
Loans tend to have more favorable loss recovery rates compared to most other
types of below investment grade obligations which are subordinated and
unsecured. (continued on inside cover page)
INVESTING IN AUCTION PREFERRED SHARES ("APS") INVOLVES CERTAIN RISKS. SEE
"INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK CONSIDERATIONS" BEGINNING ON
PAGE 20.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PRICE TO PUBLIC SALES LOAD PROCEEDS TO TRUST(1)
------------------------------------------------------------------------------------------------------------------
Per share $25,000 $250 $24,750
------------------------------------------------------------------------------------------------------------------
Total $ 435,000,000 $4,350,000 $430,650,000
------------------------------------------------------------------------------------------------------------------
(1) Plus accumulated dividends, if any, from the date the APS are issued, but
before offering expenses payable by the Trust estimated to be approximately
$436,115. The Trust and Adviser have agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
The Underwriters are offering the APS subject to various conditions. The
Underwriters expect to deliver the APS in book-entry form, through the
facilities of The Depository Trust Company to purchasers on or about September
, 2004.
UBS INVESTMENT BANK
CITIGROUP
MERRILL LYNCH & CO.
WACHOVIA SECURITIES
--------------------------------------------------------------------------------
(continued from the previous page)
Capitalized terms not otherwise defined are defined in the Glossary that appears
at the end of this Prospectus. The APS are offered at a price per share of
$25,000 subject to a sales load of $250 per share.
Dividends on the APS of the Trust offered hereby will be cumulative from the
Date of Original Issue and payable commencing on the dates specified below (an
"Initial Dividend Payment Date") and thereafter generally on the days specified
below, subject to certain exceptions. The cash dividend rate (the "Applicable
Rate") on the APS for the Initial Dividend Period on such dates will be the per
annum rate specified below:
INITIAL DIVIDEND INITIAL
PAYMENT DATE APPLICABLE RATE
---------------- ---------------
Series A.................................................... %
Series B.................................................... %
Series C.................................................... %
Series D (1)................................................ %
Series E (2)................................................ %
---------------
(1) The Initial Dividend Period for Series D will be a Dividend Period of days
ending , 2004.
(2) The Initial Dividend Period for Series E will be a Dividend Period of days
ending , 2004.
The APS will not be registered on any stock exchange or on any automated
quotation system. APS may only be bought or sold through an Order at an Auction
with or through a broker-dealer that has entered into an agreement with the
Auction Agent of the Trust or in a secondary market that may be maintained by
certain broker-dealers. These broker-dealers are not required to maintain this
market and it may not provide you with liquidity. An increase in the level of
interest rates, particularly during any Special Dividend Period that is a
Long-Term Dividend Period as discussed in "Description of APS--Dividends and
Dividend Periods--General," likely will have an adverse effect on the secondary
market price of the APS, and a selling shareholder may sell APS between Auctions
at a price per share of less than $25,000.
Each prospective purchaser should review carefully the detailed information
regarding the Auction Procedures which appears in this Prospectus and the
Trust's Statement of Additional Information and should note that (i) an Order
constitutes an irrevocable commitment to hold, purchase or sell APS based upon
the results of the related Auction, (ii) the Auctions will be conducted through
telephone communications, (iii) settlement for purchases and sales will be on
the Business Day following the Auction and (iv) ownership of APS will be
maintained in book-entry form by or through the Securities Depository. In
certain circumstances, holders of APS ("APS Shareholders") may be unable to sell
their APS in an Auction and thus may lack liquidity of investment. The APS may
only be transferred pursuant to a Bid or a Sell Order placed in an Auction
through a Broker-Dealer to the Auction Agent or in the secondary market, if any.
This Prospectus sets forth concisely information you should know before
investing in the APS. Please read and retain this Prospectus for future
reference. A Statement of Additional Information for the Trust dated September
, 2004 has been filed with the SEC and can be obtained without charge by
calling 1-800-225-6265 or by writing to the Trust. The table of contents to the
Statement of Additional Information is located at page 53 of this Prospectus.
This Prospectus incorporates by reference the entire Statement of Additional
Information of the Trust. The Statement of Additional Information is available
along with other Trust-related materials at the SEC's internet web site
(http://www.sec.gov). The Trust's address is The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109, and its telephone number is 1-800-225-6265.
The APS do not represent a deposit or obligation of, and are not guaranteed or
endorsed by, any bank or other insured depository institution and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
You should rely only on the information contained or incorporated by reference
in this Prospectus. The Trust has not authorized any other person to provide you
with different information. The Trust is not making an offer of these securities
in any state where the offer is not permitted.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Prospectus summary.................... 1
Financial highlights.................. 6
The Trust............................. 7
Use of proceeds....................... 7
Capitalization........................ 8
Portfolio composition................. 8
Investment objectives, policies and
risks............................... 9
Management of the Trust............... 24
Description of APS.................... 26
The Auctions.......................... 35
Taxes................................. 43
Description of capital structure...... 47
Certain provisions of the Declaration
of Trust............................ 48
Underwriting.......................... 50
Shareholder Servicing Agent, custodian
and transfer agent.................. 50
Legal opinions........................ 52
Independent registered public
accounting firm..................... 52
Additional information................ 52
Table of contents for the Statement of
Additional Information.............. 53
The Trust's privacy policy............ 53
Glossary.............................. 54
--------------------------------------------------------------------------------
Prospectus summary
This is only a summary. You should review the more detailed information
contained in this Prospectus and in the Trust's Statement of Additional
Information.
THE TRUST
Eaton Vance Floating-Rate Income Trust (the "Trust") is a recently organized,
diversified, closed-end management investment company. The Trust was organized
as a Massachusetts business trust on April 28, 2004. The Trust has registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust's principal office is located at The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109, and its telephone number is 1-800-225-6265.
The Trust commenced operations on June 29, 2004 upon the closing of an initial
public offering of its common shares of beneficial interest, par value $0.01 per
share ("Common Shares"). The Common Shares of the Trust are traded on the New
York Stock Exchange ("NYSE") under the symbol "EFT." In connection with the
initial public offering of the Trust's Common Shares, the underwriters of the
Common Shares offering were granted an option to purchase additional shares to
cover over-allotments.
Certain of the capitalized terms used in this Prospectus are defined in the
Glossary that appears at the end of this Prospectus.
THE OFFERING
The Trust is offering, pursuant to this Prospectus, preferred shares of
beneficial interest, par value $0.01 per share, which have been designated
Auction Preferred Shares, Series A, Series B, Series C, Series D and Series E
(collectively, the "APS"). Issuance of the APS represents the leveraged
financing contemplated in connection with the offering of the Common Shares of
the Trust.
The Trust is offering 3,480 Auction Preferred Shares, Series A, 3,480 Auction
Preferred Shares, Series B, 3,480 Auction Preferred Shares, Series C, 3,480
Auction Preferred Shares, Series D and 3,480 Auction Preferred Shares, Series E
at a purchase price of $25,000 per share plus accumulated dividends, if any,
from the Date of Original Issue. The APS are being offered through a group of
underwriters (collectively, the "Underwriters") led by UBS Securities LLC. See
"Underwriting."
INVESTMENT OBJECTIVES AND POLICIES
The Trust's investment objective is to provide a high level of current income.
The Trust will, as a secondary objective, also seek preservation of capital to
the extent consistent with its primary goal of high current income. Under normal
market conditions, Eaton Vance expects the Trust to maintain a duration of less
than one year (including the effect of leverage). The Trust will pursue its
objectives by investing primarily in Senior Loans. Senior Loans are made to
corporations, partnerships and other business entities ("Borrowers") which
operate in various industries and geographical regions. Senior Loans pay
interest at rates which are redetermined periodically by reference to a base
lending rate, primarily the London-Interbank Offered Rate ("LIBOR"), plus a
premium. It is anticipated that the proceeds of the Senior Loans in which the
Trust will acquire interests primarily will be used to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases,
refinancing, and internal growth and for other corporate purposes of Borrowers.
Under normal market conditions, the Trust will invest at least 80% of its total
assets in Senior Loans. The Trust may invest up to 20% of its total assets in
(i) loan interests which have (a) a second lien on collateral ("Second Lien"),
(b) no security interest in the collateral, or (c) lower than a senior claim on
collateral; (ii) other income-producing securities, such as investment and
non-investment grade corporate debt securities and U.S. government and U.S.
dollar-denominated foreign government or supranational debt securities; and
(iii) warrants and equity securities issued by a Borrower or its
1
affiliates as part of a package of investments in the Borrower or its
affiliates. The Adviser anticipates that most of the Trust's investments,
including investments in Senior Loans, will be of below investment-grade
quality. The Trust may invest up to 20% of its total assets in corporate bonds
of below investment grade quality ("Non-Investment Grade Bonds"), commonly
referred to as "junk bonds," which are bonds that are rated below investment
grade by each of the national rating agencies who cover the security, or, if
unrated, are determined to be of comparable quality by the Adviser. Standard &
Poor's Ratings Group ("S&P") and Fitch Ratings ("Fitch") consider securities
rated below BBB- to be below investment grade and Moody's Investors Service,
Inc. ("Moody's") considers securities rated below Baa3 to be below investment
grade. The Trust's credit quality policies apply only at the time a security is
purchased, and the Trust 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 objectives, policies and risks--Risk
considerations--Non-investment grade securities risk."
The Trust will only invest in U.S. dollar denominated securities. The Trust may
invest in U.S. dollar denominated Senior Loans and other securities of
non-United States issuers. The Trust's investments may have significant exposure
to certain sectors of the economy and thus may react differently to political or
economic developments than the market as a whole.
Under normal market conditions, the Trust expects to maintain an average
duration of less than one year (including the effect of leverage). In comparison
to maturity (which is the date on which a debt instrument ceases and the issuer
is obligated to repay the principal amount), duration is a measure of the price
volatility of a debt instrument as a result of changes in market rates of
interest, based on the weighted average timing of the instrument's expected
principal and interest payments. Duration differs from maturity in that it
considers a security's yield, coupon payments, principal payments and call
features in addition to the amount of time until the security finally matures.
As the value of a security changes over time, so will its duration. Prices of
securities with longer durations tend to be more sensitive to interest rate
changes than securities with shorter durations. In general, a portfolio of
securities with a longer duration can be expected to be more sensitive to
interest rate changes than a portfolio with a shorter duration.
Investing in Senior Loans involves investment risk. Some Borrowers default on
their Senior Loan payments. The Trust attempts to manage this credit risk
through portfolio diversification and ongoing analysis and monitoring of
Borrowers. The Trust also is subject to market, liquidity, interest rate and
other risks. See "Investment objectives, policies and risks."
Scott H. Page and Payson F. Swaffield (each a Vice President of Eaton Vance) are
the portfolio managers of the Trust. Mr. Page and Mr. Swaffield have co-managed
other Eaton Vance portfolios investing primarily in Senior Loans since 1996. The
Trust's investments are actively managed, and Senior Loans and other securities
may be bought or sold on a daily basis.
The Adviser's staff monitors the credit quality and price of Senior Loans and
other securities held by the Trust, as well as other securities that are
available to the Trust. The Trust may invest in individual Senior Loans and
other securities of any credit quality. Although the Adviser considers ratings
when making investment decisions, it performs its own credit and investment
analysis and does not rely primarily on the ratings assigned by the rating
services. In evaluating the quality of particular Senior Loans or other
securities, whether rated or unrated, the Adviser will normally take into
consideration, among other things, the issuer's financial resources and
operating history, its sensitivity to economic conditions and trends, the
ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects.
The Trust may purchase or sell derivative instruments (which derive their value
from another instrument, security or index) for risk management purposes, such
as hedging against fluctuations in
2
Senior Loans and other securities prices or interest rates; diversification
purposes; changing the duration of the Trust; or leveraging the Trust.
Transactions in derivative instruments may include the purchase or sale of
futures contracts on securities, indices and other financial instruments,
credit-linked notes, tranches of collateralized loan obligations and/or
collateralized debt obligations, options on futures contracts, and
exchange-traded and over-the-counter options on securities or indices, and
interest rate, total return and credit default swaps. Guidelines of any rating
organization that rates any Preferred Shares issued by the Trust, including the
APS, may limit the Trust's ability to engage in such transactions. Subject to
the Trust's policy of investing at least 80% of its total assets in Senior Loans
and subject to the limitations on the use of futures contracts and related
options imposed by Rule 4.5 of the Commodity Futures Trading Commission, the
Trust may invest, without limitation, in the foregoing derivative instruments
for the purposes stated herein.
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance, a wholly-owned subsidiary of Eaton Vance Corp., is the Trust's
investment adviser and administrator. See "Management of the Trust." As of July
31, 2004, Eaton Vance and its subsidiaries managed approximately $89.5 billion
on behalf of funds, institutional clients and individuals. As of July 31, 2004,
Eaton Vance and its subsidiaries managed approximately $13.8 billion in funds,
in other commingled investment vehicles and for institutional accounts which
invest primarily in Senior Loans.
RISK FACTORS SUMMARY
Risk is inherent in all investing. Therefore, before investing in the Trust you
should consider certain risks carefully. The primary risks of investing in APS
are:
+ If an Auction fails, you may not be able to sell some or all of your APS;
+ Because of the nature of the market for APS, you may receive less than the
price you paid for your shares if you sell them outside of the Auction,
especially when market interest rates are rising;
+ A Rating Agency could downgrade APS, which could affect liquidity;
+ The Trust may be forced to redeem your APS to meet regulatory or Rating Agency
requirements or may elect to redeem your APS in certain circumstances;
+ In extraordinary circumstances, the Trust may not earn sufficient income from
its investments to pay dividends;
+ If long-term interest rates rise, the value of the Trust's investment
portfolio will decline, reducing the asset coverage for its APS;
+ If an issuer of an obligation in which the Trust invests is downgraded or
defaults, there may be a negative impact on the income and/or asset value of
the Trust's portfolio; and
+ The Trust's investments in Non-Investment Grade Bonds are predominantly
speculative because of the credit risk of their issuers. While offering a
greater potential opportunity for capital appreciation and higher yields,
Non-Investment Grade Bonds typically entail greater potential price volatility
and may be less liquid than higher-rated securities. Issuers of Non-Investment
Grade Bonds are more likely to default on their payments of interest and
principal owed to the Trust, and such defaults will reduce the Trust's net
asset value and income distributions. The prices of these lower rated
obligations are more sensitive to negative developments than higher rated
securities. Adverse business conditions, such as a decline in the issuer's
revenues or an economic downturn, generally lead to a higher non-payment rate.
In addition, a security may lose significant value before a default occurs as
the market adjusts to expected higher non-payment rates.
For additional general risks of investing in APS of the Trust, see "Investment
objectives, policies and risks--Risk considerations."
3
TRADING MARKET
APS are not listed on an exchange. Instead, you may buy or sell APS at an
Auction that normally is held once every seven days in the cases of Series A
APS, Series B APS and Series C APS and once every 28 days in the cases of Series
D APS and Series E APS by submitting Orders to a broker-dealer that has entered
into an agreement with the Auction Agent (a "Broker-Dealer") or to a
broker-dealer that has entered into a separate agreement with a Broker-Dealer.
In addition to the Auctions, Broker-Dealers and other broker-dealers may
maintain a secondary trading market in APS outside of Auctions but may
discontinue this activity at any time. There is no assurance that a secondary
market will develop, or if it does develop, that it will provide shareholders
with liquidity. You may transfer APS outside of Auctions only to or through a
Broker-Dealer or a broker-dealer that has entered into a separate agreement with
a Broker-Dealer.
The table below shows the first Auction Date for each series of APS of the Trust
and the day on which each subsequent Auction will normally be held for each such
series. The first Auction Date for each series of APS of the Trust will be the
Business Day before the Dividend Payment Date for the Initial Dividend Period
for each such series. The start date for Subsequent Dividend Periods normally
will be the Business Day following the Auction Date unless the then-current
Dividend Period is a Special Dividend Period, or the day that normally would be
the Auction Date or the first day of the Subsequent Dividend Period is not a
Business Day.
FIRST AUCTION SUBSEQUENT
DATE AUCTION
---------------------------------------------------------------------------------------------
Series A............................................
Series B............................................
Series C............................................
Series D............................................
Series E............................................
DIVIDENDS AND DIVIDEND PERIODS
The table below shows the dividend rate for the Initial Dividend Period of the
APS offered in this Prospectus. For Subsequent Dividend Periods, APS will pay
dividends based on a rate set at Auctions. Dividends are generally paid on the
day following the end of the Dividend Period. The rate set at Auction will not
exceed the Maximum Applicable Rate. See "The Auctions--Auction Procedures."
Finally, the table below shows the numbers of days of the Initial Dividend
Period for the APS. Subsequent Dividend Periods generally will be seven days for
Series A, Series B and Series C and 28 days for Series D APS and Series E APS.
The Dividend Payment Date for Special Dividend Periods of other than seven days
in the cases of Series A, Series B and Series C and 28 days in the case of
Series D APS and Series E APS, will be set out in the notice designating a
Special Dividend Period. See "Description of APS--Dividends and Dividend
Periods."
NUMBER OF
DAYS OF
INITIAL DATE OF DIVIDEND PAYMENT INITIAL
DIVIDEND ACCUMULATION DATE FOR INITIAL SUBSEQUENT DIVIDEND DIVIDEND
RATE OF INITIAL RATE DIVIDEND PERIOD PAYMENT DATE PERIOD
-------------------------------------------------------------------------------------------------------
Series A............. %
Series B............. %
Series C............. %
Series D............. %
Series E............. %
4
TAXATION
Dividends paid with respect to APS should constitute dividends for federal
income tax purposes to the extent attributable to the Trust's current or
accumulated earnings and profits. For a further discussion of the tax treatment
of dividends paid by the Trust see "Taxes--General." Distributions of net
capital gain, to the extent so designated, will be treated as long-term capital
gains. Dividends with respect to the APS generally will not constitute
"qualified dividend income" for federal income tax purposes and thus will not be
eligible for the favorable long-term capital gains tax rates. There can be no
assurances as to what percentage of the dividends paid on the APS will consist
of long-term capital gains, which are taxed at more favorable tax rates than
ordinary income.
REDEMPTION
Although the Trust will not ordinarily redeem APS, it may be required to redeem
APS if, for example, the Trust does not meet an asset coverage ratio required by
law or in order to correct a failure to meet a Rating Agency guideline in a
timely manner. See "Description of APS--Redemption--Mandatory redemption." The
Trust may voluntarily redeem APS in certain circumstances. See "Description of
APS--Redemption--Optional redemption."
LIQUIDATION PREFERENCE
The liquidation preference of the APS of each series is $25,000 per share, plus
an amount equal to accumulated but unpaid dividends (whether or not earned or
declared). See "Description of APS--Liquidation rights."
RATING
Shares of APS of the Trust will be issued with a credit quality rating of AAA or
Aaa from both Fitch and Moody's. The Trust may at some future time look to have
its APS rated by additional or Substitute Rating Agencies. Because the Trust is
required to maintain at least two ratings, it must own portfolio securities of
sufficient value with adequate credit quality to meet each Rating Agency's
guidelines. See "Description of APS--Rating Agency guidelines and asset
coverage."
VOTING RIGHTS
The 1940 Act requires that the APS Shareholders and any other Preferred Shares
of the Trust, voting as a separate class, have the right to elect at least two
Trustees of the Trust at all times and to elect a majority of the Trustees at
any time when two years' dividends on the APS or any other Preferred Shares are
unpaid. The APS Shareholders and holders of any other Preferred Shares of the
Trust will vote as a separate class on certain other matters as required under
the Trust's Agreement and Declaration of Trust ("Declaration of Trust") and the
1940 Act. See "Description of APS--Voting rights" and "Certain provisions of the
Declaration of Trust."
5
Financial highlights
Information contained in the tables below under the headings "Income (loss) from
operations" and "Ratios/ Supplemental data" shows the unaudited operating
performance of the Trust from the commencement of the Trust's investment
operations on June 29, 2004 until July 31, 2004. Since the Trust commenced
operations on June 29, 2004, the tables cover approximately four weeks of
operations, during which a substantial portion of the Trust's assets were
invested in high-quality, short-term debt securities. Accordingly, the
information presented may not provide a meaningful picture of the Trust's
operating performance.
FINANCIAL STATEMENTS (UNAUDITED)
FINANCIAL HIGHLIGHTS
AS OF JULY 31, 2004
PERIOD ENDED
JULY 31, 2004(2)(3)
------------------------------------------------------------------------------------
Net asset value--Beginning of period(4)..................... $ 19.100
INCOME (LOSS) FROM OPERATIONS
Net investment income....................................... $ 0.034
Net realized and unrealized loss............................ $ (0.018)
--------
Total income from operations................................ $ 0.016
--------
Common share offering costs................................. $ (0.016)
--------
Net asset value--End of period.............................. $ 19.100
--------
Market value--End of period................................. $ 20.000
--------
Total Investment Return on Net Asset Value(5)............... (4.50)%
Total Investment Return on Market Value(5).................. 0.00%
RATIOS/SUPPLEMENTAL DATA(1)
Net assets, end of period (000's omitted)................... $649,400
Ratios (As a percentage of average daily net assets):
Net expenses.............................................. 0.66%(6)
Net investment income..................................... 1.98%(6)(7)
Portfolio Turnover.......................................... 45%
------------
(1) The operating expenses of the Trust reflect a reduction of the investment
adviser fee and a reimbursement of expenses by the Adviser. Had such action
not been taken, the ratios and net investment income per share would have
been as follows:
Ratios (As a percentage of average daily net assets):
Expenses................................................. 0.87%(6)
Net investment income.................................... 1.77%(6)(7)
Net investment income per share............................. $ 0.030
(2) For the period from the start of business, June 29, 2004, to July 31, 2004.
(3) Computed using average Common Shares outstanding.
(4) Net asset value at beginning of period reflects the deduction of the sales
load of $0.90 per share paid by the shareholder from the $20.00 offering
price.
(5) Total investment return on net asset value is calculated assuming a purchase
at the offering price of $20.00 paid by the shareholder on the first day and
a sale at the net asset value on the last day of the period reported. Total
investment return on market value is calculated assuming a purchase at the
offering price of $20.00 paid by the shareholder on the first day and a sale
at the current market price on the last day of the period reported. After
deducting the sales load of $0.90 per share paid by the Common Shareholders,
total investment return on net asset value and market value is 0.00% and
4.71%, respectively. Total investment return on net asset value and total
investment return on market value are not computed on an annualized basis.
(6) Annualized. These expense numbers do not reflect the Trust's anticipated
leverage. Expenses attributable to Common Shares will be higher once
leverage is utilized.
(7) The Trust's past performance is no guarantee of future results. This
annualized income is based on only a one month period during the start-up
phase of the Trust's operations. The annualized income quoted should be
considered in this context; the Trust's current income may be lower or
higher than the quoted annualized income.
6
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The Trust
Eaton Vance Floating-Rating Income Trust (the "Trust") is a diversified,
closed-end management investment company. The Trust was organized as a
Massachusetts business trust on April 28, 2004. The Trust has registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust's
principal office is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109, and its telephone number is 1-800-225-6265.
The Trust commenced operations on June 29, 2004 upon the closing of an initial
public offering of shares of its common shares of beneficial interest, $0.01 par
value (the "Common Shares"). The proceeds of such offering were $649,400,000
before the payment of offering expenses borne by the Trust. The Common Shares of
the Trust are traded on the New York Stock Exchange ("NYSE") under the symbol
"EFT." In connection with the initial public offering of the Trust's Common
Shares, the underwriters of the Common Shares offering were granted an option to
purchase, at a price of $20.00 per Common Share, 5,100,000 additional Common
Shares to cover over-allotments. On August 11, 2004, the Trust issued 3,200,000
Common Shares pursuant to a partial exercise of the over-allotment option.
Certain of the capitalized terms used in this Prospectus are defined in the
Glossary that appears at the end of this Prospectus.
Use of proceeds
The net proceeds of this offering will be approximately $430,213,885 after the
payment of the sales load and expected offering costs. See "Underwriting." The
Trust will invest the net proceeds of the offering in accordance with its
investment objectives and policies stated below. It is presently anticipated
that the Trust will be able to invest substantially all of the net proceeds in
securities that meet the investment objectives and policies during a period
estimated not to exceed three months from the completion of the offering of the
APS depending on market conditions and the availability of appropriate
securities. Pending such investment, the proceeds may be invested in high
quality, short-term debt securities.
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7
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Capitalization
The following table sets forth the unaudited capitalization of the Trust as of
July 31, 2004 as if the Common Shares of the Trust purchased by the Underwriters
pursuant to their overallotment option on August 11, 2004 ("Overallotment Common
Shares") had been issued on that date and as adjusted to give effect to the
issuance of the APS offered hereby. (1) The APS offering costs to be borne by
the Trust and thus holders of Common Shares ("Common Shareholders") are
estimated to be $436,115.
ACTUAL AS ADJUSTED
-----------------------------------------------------------------------------------------
(unaudited) (unaudited)
Preferred shares, par value, $0.01 per share (no shares
issued; 17,400 as adjusted, at $25,000 per share
liquidation preference)................................... $ -- $435,000,000
============ ============
SHAREHOLDERS' EQUITY:
Common Shares, par value, $0.01 per share (37,205,000 shares
issued and outstanding)................................... $ 372,050 $ 372,050
Capital in excess of par value attributable to Common
Shares.................................................... 709,679,185 704,893,070
Net undistributed investment income......................... 1,156,775 1,156,775
Net accumulated realized gain (loss)........................ 48,980 48,980
Net unrealized appreciation on investments.................. (745,414) (745,414)
------------ ------------
Net Assets.................................................. $710,511,576 $705,725,461
============ ============
------------
(1) The following Capitalization table includes the Underwriters' partial
exercise of their overallotment option in the net amount of $61,120,000
combined with the net assets of the Trust as of July 31, 2004 of
$649,400,000.
Portfolio composition
As of July 31, 2004, the following sets forth certain information with respect
to the characteristics and composition of the Trust's investment portfolio:
Percentage of total investment portfolio invested in Senior
Loans and other loans..................................... 61.9%
Percentage of total investment portfolio invested in other
debt obligations.......................................... 35.3%
NUMBER OF
S&P(1) MOODY'S(1) FITCH(1) ISSUERS VALUE PERCENT
---------------------------------------------------------------------------------
AAA Aaa AAA 3 $115,532,275 18%
BB Ba BB 50 163,197,898 25%
B B B 101 244,269,151 38%
CCC Caa CCC 4 3,151,325 0%
Unrated 13 30,247,502 5%
Cash and cash equivalents................. -- 92,045,795 14%
--- ------------ ---
Total....................................... 171 $648,443,946 100%
=== ============ ===
------------
(1) Ratings: Using the higher of S&P's, Moody's or Fitch's ratings on the
Trust's investments. S&P and Fitch rating categories may be modified
further by a plus (+) or minus (--) in AA, A, BBB, BB, B, and CCC ratings.
Moody's rating categories may be modified further by a 1, 2 or 3 in Aa, A,
Baa, Ba, B, and Caa ratings.
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8
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Investment objectives, policies and risks
INVESTMENT OBJECTIVES
The Trust's investment objective is to provide a high level of current income.
The Trust will, as a secondary objective, also seek preservation of capital to
the extent consistent with its primary goal of high current income. Under normal
market conditions, Eaton Vance expects the Trust to maintain a duration of less
than one year (including the effect of leverage). The Trust will pursue its
objectives by investing its assets primarily in senior, secured floating rate
loans ("Senior Loans"). Investment in such floating rate instruments is expected
to minimize changes in the underlying principal value of the Senior Loans, and
therefore the Trust's net asset value, resulting from changes in market interest
rates. Senior Loans are made to corporations, partnerships and other business
entities ("Borrowers") which operate in various industries and geographical
regions. Senior Loans pay interest at rates which are redetermined periodically
by reference to a base lending rate, primarily the London-Interbank Offered Rate
("LIBOR"), plus a premium.
PRIMARY INVESTMENT POLICIES
GENERAL COMPOSITION OF THE TRUST
Under normal market conditions, the Trust will invest at least 80% of its total
assets (generally by the purchase of assignments) in interests in Senior Loans
of domestic or foreign Borrowers (so long as foreign loans are U.S.
dollar-denominated and payments of interest and repayments of principal are
required to be made in U.S. dollars). The Trust may invest up to 20% of its
total assets in (i) loan interests which have (a) a second lien on collateral
("Second Lien"), (b) no security interest in the collateral, or (c) lower than a
senior claim on collateral; (ii) other income-producing securities, such as
investment and non-investment grade corporate debt securities and U.S.
government and U.S. dollar-denominated foreign government or supranational debt
securities; and (iii) warrants and equity securities issued by a Borrower or its
affiliates as part of a package of investments in the Borrower or its
affiliates. If the Adviser determines that market conditions temporarily warrant
a defensive investment policy, the Trust may invest up to 100% of its assets in
cash and/or high quality, short-term debt securities, which would not be
consistent with the Trust's investment objectives. While temporarily invested,
the Trust may not achieve its investment objectives. The Adviser anticipates
that most of the Trust's investments, including investments in Senior Loans,
will be of below investment-grade quality. The Trust may invest up to 20% of its
total assets in corporate bonds of below investment grade quality
("Non-Investment Grade Bonds"), commonly referred to as "junk bonds," which are
bonds that are rated below investment grade by each of the nationally recognized
statistical rating agencies ("Rating Agencies") who cover the security, or, if
unrated, are determined to be of comparable quality by the Adviser. Standard &
Poor's Ratings Group ("S&P") and Fitch Ratings ("Fitch") consider securities
rated below BBB- to be below investment grade and Moody's Investors Service,
Inc. ("Moody's") considers securities rated below Baa3 to be below investment
grade. The Trust's credit quality policies apply only at the time a security is
purchased, and the Trust is not required to dispose of a security in the event
of a downgrade of an assessment of credit quality, the withdrawal of a rating,
or in the event of a default. In determining whether to retain or sell such a
security, Eaton Vance may consider such factors as Eaton Vance's assessment of
the credit quality of the issuers 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. 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 objectives, policies and
risks--Risk considerations--Non-investment grade securities risk."
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9
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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The Trust will only invest in U.S. dollar denominated securities. The Trust may
invest in U.S. dollar denominated securities of non-United States issuers. The
Trust's investments may have significant exposure to certain sectors of the
economy and thus may react differently to political or economic developments
than the market as a whole.
The Trust's policy of investing, under normal market conditions, at least 80% of
its total assets in Senior Loans is not considered to be fundamental by the
Trust and can be changed without a vote of the Trust's shareholders. However,
this policy may only be changed by the Trust's Board following the provision of
60 days prior written notice to the Trust's shareholders.
Under normal market conditions, the Trust expects to maintain an average
duration of less than one year (including the effect of leverage). In comparison
to maturity (which is the date on which a debt instrument ceases and the issuer
is obligated to repay the principal amount), duration is a measure of the price
volatility of a debt instrument as a result of changes in market rates of
interest, based on the weighted average timing of the instrument's expected
principal and interest payments. Duration differs from maturity in that it
considers a security's yield, coupon payments, principal payments and call
features in addition to the amount of time until the security finally matures.
As the value of a security changes over time, so will its duration. Prices of
securities with longer durations tend to be more sensitive to interest rate
changes than securities with shorter durations. In general, a portfolio of
securities with a longer duration can be expected to be more sensitive to
interest rate changes than a portfolio with a shorter duration.
The Adviser's staff monitors the credit quality and the price of Senior Loans
and other securities held by the Trust, as well as other securities that are
available to the Trust. The Trust may invest in Senior Loans and other
securities of any credit quality. Although the Adviser considers ratings when
making investment decisions, it performs its own credit and investment analysis
and does not rely primarily on the ratings assigned by the Rating Agencies. In
evaluating the quality of a particular security, whether rated or unrated, the
Adviser will normally take into consideration, among other things, the issuer's
financial resources and operating history, its sensitivity to economic
conditions and trends, the ability of its management, its debt maturity
schedules and borrowing requirements, and relative values based on anticipated
cash flow, interest and asset coverage, and earnings prospects. The Adviser will
attempt to reduce the risks of investing in lower rated or unrated debt
instruments through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
The Trust may purchase shares of other investment companies with a similar
investment objective and policies as permitted under the Investment Company Act.
Such investments are limited to 10% of total assets overall, with no more than
5% invested in any one issuer. The value of shares of other closed-end
investment companies is affected by risks similar to those of the Trust, such as
demand for those securities regardless of the demand for the underlying
portfolio assets. Investment companies bear fees and expenses that the Trust
will bear indirectly, so investors in the Trust will be subject to duplication
of fees. The Trust also may invest up to 5% of its total assets in structured
notes or derivatives with rates of return determined by reference to the total
rate of return on one or more Senior Loans referenced in such notes or
instruments. The rate of return on the structured note may be determined by
applying a multiplier to the rate of total return on the referenced Senior Loan
or Loans. Application of a multiplier is comparable to the use of financial
leverage, a speculative technique. Leverage magnifies the potential for gain and
the risk of loss; as a result, a relatively small decline in the value of a
referenced Senior Loan could result in a relatively large loss in the value of a
structured note or derivative. Common Shares of other investment companies and
structured notes or derivatives as discussed above that invest in Senior Loans
or baskets of Senior Loans will be treated as Senior Loans for purposes of the
Trust's policy of normally investing at least 80% of its assets in Senior Loans,
and may be subject to the Trust's leverage limitations.
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10
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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SENIOR LOANS
Senior Loans hold the most senior position in the capital structure of a
Borrower, are typically secured with specific collateral and have a claim on the
assets and/or stock of the Borrower that is senior to that held by subordinated
debt holders and stockholders of the Borrower. The capital structure of a
Borrower may include Senior Loans, senior and junior subordinated debt,
preferred stock and common stock issued by the Borrower, typically in descending
order of seniority with respect to claims on the Borrower's asset. Senior Loans
are typically secured by specific collateral. As also discussed above, the
proceeds of Senior Loans primarily are used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, refinancing and
internal growth and for other corporate purposes.
Senior Loans in which the Trust will invest generally pay interest at rates,
which are redetermined periodically by reference to a base lending rate, plus a
premium. Senior Loans typically have rates of interest which are redetermined
either daily, monthly, quarterly or semi-annually by reference to a base lending
rate, plus a premium or credit spread. These base lending rates are primarily
LIBOR, and secondarily the prime rate offered by one or more major United States
banks (the "Prime Rate") and the certificate of deposit ("CD") rate or other
base lending rates used by commercial lenders. As floating rate loans, the
frequency of how often a loan resets its interest rate will impact how closely
such loans track current market interest rate. The Senior Loans held by the
Trust will have a dollar-weighted average period until the next interest rate
adjustment of approximately 90 days or less. As a result, as short-term interest
rates increase, interest payable to the Trust from its investments in Senior
Loans should increase, and as short-term interest rates decrease, interest
payable to the Trust from its investments in Senior Loans should decrease. The
Trust may utilize derivative instruments to shorten the effective interest rate
redetermination period of Senior Loans in its portfolio. Senior Loans typically
have a stated term of between one and ten years. In the experience of the
Adviser over the last decade, however, the average life of Senior Loans has been
two to four years because of prepayments.
The Trust expects primarily to purchase Senior Loans by assignment from a
participant in the original syndicate of lenders or from subsequent assignees of
such interests. The Trust may also purchase participations in the original
syndicate making Senior Loans. Such indebtedness may be secured or unsecured.
Loan participations typically represent direct participations in a loan to a
corporate borrower, and generally are offered by banks or other financial
institutions or lending syndicates. The Trust may participate in such
syndications, or can buy part of a loan, becoming a part lender. When purchasing
loan participations, the Trust assumes the credit risk associated with the
corporate Borrower and may assume the credit risk associated with an interposed
bank or other financial intermediary. The participation interests in which the
Trust intends to invest may not be rated by any Rating Agency.
The Trust may purchase and retain in its portfolio Senior Loans where the
Borrowers have experienced, or may be perceived to be likely to experience,
credit problems, including default, involvement in or recent emergence from
bankruptcy reorganization proceedings or other forms of debt restructuring. At
times, in connection with the restructuring of a Senior Loan either outside of
bankruptcy court or in the context of bankruptcy court proceedings, the Trust
may determine or be required to accept equity securities or junior debt
securities in exchange for all or a portion of a Senior Loan.
The Trust may also purchase unsecured loans, other floating rate debt securities
such as notes, bonds and asset-backed securities (such as special purpose trusts
investing in bank loans), credit-linked notes, tranches of collateralized loan
obligations, investment grade fixed income debt obligations and money market
instruments, such as commercial paper.
Senior Loans and other floating-rate debt instruments are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Trust,
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11
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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a reduction in the value of the investment and a potential decrease in the net
asset value of the Trust. There can be no assurance that the liquidation of any
collateral securing a loan would satisfy the Borrower's obligation in the event
of non-payment of scheduled interest or principal payments, or that such
collateral could be readily liquidated. In the event of bankruptcy of a
Borrower, the Trust could experience delays or limitations with respect to its
ability to realize the benefits of the collateral securing a Senior Loan. The
collateral securing a Senior Loan may lose all or substantially all of its value
in the event of bankruptcy of a Borrower. Some Senior Loans are subject to the
risk that a court, pursuant to fraudulent conveyance or other similar laws,
could subordinate such Senior Loans to presently existing or future indebtedness
of the Borrower or take other action detrimental to the holders of Senior Loans,
including, in certain circumstances, invalidating such Senior Loans or causing
interest previously paid to be refunded to the Borrower. If interest were
required to be refunded, it could negatively affect the Trust's performance.
Many Senior Loans in which the Trust will invest may not be rated by a Rating
Agency, will not be registered with the Securities and Exchange Commission or
any state securities commission and will not be listed on any national
securities exchange. The amount of public information available with respect to
Senior Loans will generally be less extensive than that available for registered
or exchange listed securities. In evaluating the creditworthiness of Borrowers,
the Adviser will consider, and may rely in part, on analyses performed by
others. Borrowers may have outstanding debt obligations that are rated below
investment grade by a Rating Agency. Many of the Senior Loans held by the Trust
will have been assigned ratings below investment grade by Rating Agencies. In
the event Senior Loans are not rated, they are likely to be the equivalent of
below investment grade quality. Because of the protective features of Senior
Loans, the Adviser believes, based on its experience, that Senior Loans tend to
have more favorable loss recovery rates as compared to more junior types of
below investment grade debt obligations. The Adviser does not view ratings as
the determinative factor in its investment decisions and relies more upon its
credit analysis abilities than upon ratings.
No active trading market may exist for some loans and some loans may be subject
to restrictions on resale. A secondary market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which may impair the ability to realize full value and thus cause a material
decline in the Trust's net asset value. During periods of limited supply and
liquidity of Senior Loans, the Trust's yield may be lower.
When interest rates decline, the value of a fund invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a fund invested in fixed-rate obligations can be expected to decline.
Although changes in prevailing interest rates can be expected to cause some
fluctuations in the value of Senior Loans (due to the fact that floating rates
on Senior Loans only reset periodically), the value of Senior Loans is
substantially less sensitive to changes in market interest rates than fixed-rate
instruments. As a result, the Adviser expects the Trust's policy of investing a
portion of its assets in floating-rate Senior Loans will make the Trust less
volatile and less sensitive to changes in market interest rates than if the
Trust invested exclusively in fixed-rate obligations. Similarly, a sudden and
significant increase in market interest rates may cause a decline in the value
of these investments and in the Trust's net asset value. Other factors
(including, but not limited to, rating downgrades, credit deterioration, a large
downward movement in stock prices, a disparity in supply and demand of certain
Senior Loans and other securities or market conditions that reduce liquidity)
can reduce the value of Senior Loans and other debt obligations, impairing the
Trust's net asset value.
The Adviser uses an independent pricing service to value most loans and other
debt securities at their market value. The Adviser may use the fair value method
to value loans or other securities if market quotations for them are not readily
available or are deemed unreliable, or if events occurring after the close of a
securities market and before the Trust values its assets would materially affect
net asset value. A security that is fair valued may be valued at a price higher
or lower than actual market
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12
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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quotations or the value determined by other funds using their own fair valuation
procedures. Because foreign securities trade on days when the Common Shares are
not priced, net asset value can change at times when Common Shares cannot be
sold.
ADDITIONAL INVESTMENT PRACTICES
SECOND LIEN LOANS AND DEBT SECURITIES
The Trust may invest in loans and other debt securities that have the same
characteristics as Senior Loans except that such loans are second in lien
priority rather than first. Such "second lien" loans and securities like Senior
Loans typically have adjustable floating rate interest payments. Accordingly,
the risks associated with "second lien" loans are higher than the risks of loans
with first priority over the collateral. In the event of default on a "second
lien" loan, the first priority lien holder has first claim to the underlying
collateral of the loan. It is possible, that no collateral value would remain
for the second priority lien holder and therefore result in a loss of investment
to the Trust.
COLLATERALIZED LOAN OBLIGATIONS ("CLOS")
The Trust may invest in certain asset-backed securities as discussed below.
Asset-backed securities are payment claims that are securitized in the form of
negotiable paper that is issued by a financing company (generically called a
Special Purpose Vehicle or "SPV"). These securitized payment claims are, as a
rule, corporate financial assets brought into a pool according to specific
diversification rules. The SPV is a company founded solely for the purpose of
securitizing these claims and its only asset is the risk arising out of this
diversified asset pool. On this basis, marketable securities are issued which,
due to the diversification of the underlying risk, generally represent a lower
level of risk than the original assets. The redemption of the securities issued
by the SPV takes place at maturity out of the cash flow generated by the
collected claims.
A CLO is a structured credit security issued by an SPV that was created to
reapportion the risk and return characteristics of a pool of assets. The assets,
typically Senior Loans, are used as collateral supporting the various debt
tranches issued by the SPV. The key feature of the CLO structure is the
prioritization of the cash flows from a pool of debt securities among the
several classes of CLO holders, thereby creating a series of obligations with
varying rates and maturities appealing to a wide range of investors. CLOs
generally are secured by an assignment to a trustee under the indenture pursuant
to which the bonds are issued of collateral consisting of a pool of debt
instruments, usually, non-investment grade bank loans. Payments with respect to
the underlying debt securities generally are made to the trustee under the
indenture. CLOs are designed to be retired as the underlying debt instruments
are repaid. In the event of sufficient early prepayments on such debt
instruments, the class or series of CLO first to mature generally will be
retired prior to maturity. Therefore, although in most cases the issuer of CLOs
will not supply additional collateral in the event of such prepayments, there
will be sufficient collateral to secure their priority with respect to other CLO
tranches that remain outstanding. The credit quality of these securities depends
primarily upon the quality of the underlying assets, their priority with respect
to other CLO tranches and the level of credit support and/or enhancement
provided.
The underlying assets (e.g., loans) are subject to prepayments which shorten the
securities' weighted average maturity and may lower their return. If the credit
support or enhancement is exhausted, losses or delays in payment may result if
the required payments of principal and interest are not made. The value of these
securities also may change because of changes in market value, that is changes
in the market's perception of the creditworthiness of the servicing agent for
the pool, the originator of the pool, or the financial institution or fund
providing the credit support or enhancement.
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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COLLATERALIZED DEBT OBLIGATIONS ("CDOS")
The Trust may invest in CDOs. A CDO is a structured credit security issued by an
SPV that was created to reapportion the risk and return characteristics of a
pool of assets. The assets, typically non-investment grade bonds, leveraged
loans, and other asset-backed obligations, are used as collateral supporting the
various debt and equity tranches issued by the SPV. The key feature of the CDO
structure is the prioritization of the cash flows from a pool of debt securities
among the several classes of CDO holders, thereby creating a series of
obligations with varying rates and maturities appealing to a wide range of
investors. CDOs generally are secured by an assignment to a trustee under the
indenture pursuant to which the bonds are issued of collateral consisting of a
pool of debt securities, usually, non-investment grade bonds. Payments with
respect to the underlying debt securities generally are made to the trustee
under the indenture. CDOs are designed to be retired as the underlying debt
securities are repaid. In the event of sufficient early prepayments on such debt
securities, the class or series of CDO first to mature generally will be retired
prior to maturity. Therefore, although in most cases the issuer of CDOs will not
supply additional collateral in the event of such prepayments, there will be
sufficient collateral to secure CDOs that remain outstanding. The credit quality
of these securities depends primarily upon the quality of the underlying assets
and the level of credit support and/or enhancement provided. CDOs operate
similarly to CLOs and are subject to the same inherent risks.
FOREIGN SECURITIES
Although the Trust will only invest in U.S. dollar-denominated income
securities, the Trust may invest in Senior Loans and other debt securities of
non-U.S. issuers. Investment in securities of non-U.S. issuers involves special
risks, including that non-U.S. issuers may be subject to less rigorous
accounting and reporting requirements than U.S. issuers, less rigorous
regulatory requirements, differing legal systems and laws relating to creditors'
rights, the potential inability to enforce legal judgments and the potential for
political, social and economic adversity. The willingness and ability of
sovereign issuers to pay principal and interest on government securities depends
on various economic factors, including among others the issuer's balance of
payments, overall debt level, and cash flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in the payment or
delivery of securities and interest or in the recovery of assets held abroad)
and expenses not present in the settlement of domestic investments. Investments
may include securities issued by the governments of lesser-developed countries,
which are sometimes referred to as "emerging markets." There may be a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, confiscatory taxation, political or financial
instability, armed conflict and diplomatic developments which could affect the
value of the Trust's investments in certain foreign countries.
CORPORATE BONDS AND OTHER DEBT SECURITIES
The Trust 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 Trust 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. The Trust may invest in bonds and other debt securities of any quality. As
discussed below, Non-Investment Grade Bonds, commonly known as "junk bonds," are
considered to be predominantly speculative in nature because of the credit risk
of the issuers.
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NON-INVESTMENT GRADE BONDS
As indicated above, Non-Investment Grade Bonds are those rated lower than
investment grade (i.e., bonds rated lower than Baa3 by Moody's and lower than
BBB- by S&P and Fitch) or are unrated and of comparable quality as determined by
the Adviser. Non-Investment Grade Bonds rated BB and Ba have speculative
characteristics, while lower rated Non-Investment Grade Bonds are predominantly
speculative.
The Trust may hold securities that are unrated or in the lowest rating
categories (rated C by Moody's or D by S&P or Fitch). Bonds rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated D by S&P or Fitch are in payment default or a
bankruptcy petition has been filed and debt service payments are jeopardized. In
order to enforce its rights with defaulted securities, the Trust may be required
to retain legal counsel and/or a financial adviser. This may increase the
Trust's operating expenses and adversely affect net asset value.
The credit quality of most securities held by the Trust reflects a greater than
average possibility that adverse changes in the financial condition of an
issuer, or in general economic conditions, or both, may impair the ability of
the issuer to make payments of interest and principal. The inability (or
perceived inability) of issuers to make timely payment of interest and principal
would likely make the values of securities held by the Trust more volatile and
could limit the Trust's ability to sell its securities at favorable prices. In
the absence of a liquid trading market for securities held by it, the Trust may
have difficulties determining the fair market value of such securities.
Although the Adviser considers security ratings when making investment
decisions, it performs its own credit and investment analysis and does not rely
primarily on the ratings assigned by the Rating Agencies. In evaluating the
quality of a particular security, whether rated or unrated, the Adviser will
normally take into consideration, among other things, the issuer's financial
resources and operating history, its sensitivity to economic conditions and
trends, the ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects. Because of the greater number of
investment considerations involved in investing in high yield, high risk bonds,
the achievement of the Trust's objectives depends more on the Adviser's judgment
and analytical abilities than would be the case if the Trust invested primarily
in securities in the higher rating categories. While the Adviser will attempt to
reduce the risks of investing in lower rated or unrated securities through
active Trust management, diversification, credit analysis and attention to
current developments and trends in the economy and the financial markets, there
can be no assurance that a broadly diversified fund of such securities would
substantially lessen the risk of defaults brought about by an economic downturn
or recession. In recent years, issuances of Non-Investment Grade Bonds by
companies in various sectors has increased. Accordingly, the Trust's investments
may have significant exposure to certain sectors of the economy and thus may
react differently to political or economic developments than the market as a
whole.
The Trust's high yield securities may have fixed or variable principal payments
and all types of interest rate and dividend payment and reset terms, including
fixed rate, adjustable rate, zero coupon, contingent, deferred, and payment in
kind features.
CONVERTIBLE SECURITIES
The Trust may invest in convertible securities. A convertible security is a debt
security or preferred stock that is exchangeable for an equity security of the
issuer at a predetermined price. Depending upon the relationship of the
conversion price to the market value of the underlying security, a convertible
security may trade more like an equity security than a debt instrument. The
Trust may invest in convertible securities of any rating.
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GOVERNMENT SECURITIES
U.S. Government securities include (1) U.S. Treasury obligations, which differ
in their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one year to
ten years) and U.S. Treasury bonds (generally maturities of greater than ten
years) and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by any of the following: (a) the full faith
and credit of the U.S. Treasury, (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the U.S. Treasury, (c) discretionary
authority of the U.S. Government to purchase certain obligations of the U.S.
Government agency or instrumentality or (d) the credit of the agency or
instrumentality. The Trust may also invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association,
Government National Mortgage Association, Student Loan Marketing Association,
United States Postal Service, Small Business Administration, Tennessee Valley
Authority and any other enterprise established or sponsored by the U.S.
Government. Because the U.S. Government generally is not obligated to provide
support to its instrumentalities, the Trust will invest in obligations issued by
these instrumentalities only if the Adviser determines that the credit risk with
respect to such obligations is minimal.
The principal of and/or interest on certain U.S. Government securities which may
be purchased by the Trust could be (a) payable in foreign currencies rather than
U.S. dollars or (b) increased or diminished as a result of changes in the value
of the U.S. dollar relative to the value of foreign currencies. The value of
such portfolio securities may be affected favorably by changes in the exchange
rate between foreign currencies and the U.S. dollar.
SAMIS AND OTHER SENIOR LOAN BASED DERIVATIVES
As discussed above, the Trust may obtain exposure to senior loans and baskets of
senior loans through the use of derivative instruments. Such derivative
instruments have recently become increasingly available. The Adviser reserves
the right to utilize these instruments and similar instruments that may be
available in the future. The Trust currently intends to invest in a derivative
instrument known as the Select Aggregate Market Index ("SAMI") which provides
investors with exposure to a reference basket of Senior Loans. SAMIs are
structured as floating rate instruments. SAMIs consists of a basket of credit
default swaps whose underlying reference securities are senior secured loans.
While investing in SAMIs will increase the universe of floating rate debt
securities to which the Trust is exposed, such investments entail risks that are
not typically associated with investments in other floating rate debt
securities. The liquidity of the market for SAMIs will be subject to liquidity
in the secured loan and credit derivatives markets. Investment in SAMIs involves
many of the risks associated with investments in derivative instruments
discussed generally below. The Trust may also be subject to the risk that the
counterparty in a derivative transaction will default on its obligations.
Derivative transactions generally involve the risk of loss due to unanticipated
adverse changes in securities prices, interest rates, the inability to close out
a position, 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 potential loss on derivative
instruments may be substantial relative to the initial investment therein.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by corporations such as banks or bank holding companies and finance
companies. The rate of return on commercial paper may be linked or indexed to
the level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
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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 yield on a
comparable security when the transaction is consummated may vary from the yield
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 Trust may invest without limitation in Senior Loans and other 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 Trust 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 the 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
Trust may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Trust 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.
DERIVATIVES
As described more specifically below, the Trust may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security or index) to seek to hedge against fluctuations in
securities prices or interest rates or for purposes of leveraging the Trust. The
Trust's transactions in derivative instruments may include the purchase or sale
of futures contracts on securities, credit-linked notes, securities indices,
other indices or other financial instruments; options on futures contracts;
exchange-traded and over-the-counter options on securities or indices;
index-linked securities; and interest rate swaps. The Trust's transactions in
derivative instruments involve a risk of loss or depreciation due to:
unanticipated adverse changes in securities prices, interest rates, the other
financial instruments' prices; the inability to close out a position; default by
the counterparty; imperfect correlation between a position and the desired
hedge; tax constraints on closing out positions; and portfolio management
constraints on securities subject to such transactions. The loss on derivative
instruments (other than purchased options) may substantially exceed the Trust's
initial investment in these instruments. In addition, the Trust may lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Trust. Transaction costs will be incurred in opening
and closing positions in derivative instruments. There can be no assurance that
Eaton Vance's use of derivative instruments will be advantageous to the Trust.
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CREDIT-LINKED NOTES
The Trust may invest in credit-linked notes ("CLN") for risk management
purposes, including diversification. A CLN is a derivative instrument. It is a
synthetic obligation between two or more parties where the payment of principal
and/or interest is based on the performance of some obligation (a reference
obligation). In this type of investment, the Trust is subject to credit risks,
including, but not limited to, default risks, associated with the issuer of the
CLN's reference obligation. Material events or circumstances impacting the
issuer of the CLN's reference obligation will affect the payments between the
derivative instrument's parties because such events or circumstances will impact
the performance of the reference obligation. The reference obligation may be
loan obligations such as Senior Loans and other debt obligations. In addition to
credit risk of the reference obligation and interest rate risk, the buyer/seller
of the CLN is subject to counterparty risk.
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, or to mitigate default risk. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) to be exchanged or "swapped" between the parties, which returns
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate or in a "basket" of securities representing a particular index.
Interest rate swaps. The Trust will enter into interest rate and total return
swaps only on a net basis, i.e., the two payment streams are netted out, with
the Trust receiving or paying, as the case may be, only the net amount of the
two payments. Interest rate swaps involve the exchange by the Trust with another
party of their respective commitments to pay or receive interest (e.g., an
exchange of fixed rate payments for floating rate payments). The Trust will only
enter into interest rate swaps on a net basis. If the other party to an interest
rate swap defaults, the Trust's risk of loss consists of the net amount of
payments that the Trust is contractually entitled to receive. The net amount of
the excess, if any, of the Trust's obligations over its entitlements will be
maintained in a segregated account by the Trust's custodian. The Trust will not
enter into any interest rate 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 Trust will have
contractual remedies pursuant to the agreements related to the transaction.
These instruments are traded in the over-the-counter market.
The Trust may use interest rate swaps for risk management purposes only and not
as a speculative investment and would typically use interest rate swaps to
shorten the average interest rate reset time of the Trust's holdings. Interest
rate swaps involve the exchange by the Trust with another party of their
respective commitments to pay or receive interest (e.g., an exchange of fixed
rate payments for floating rate payments). The use of interest rate 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 Trust would be
unfavorably affected.
Total return swaps. As stated above, the Trust will enter into total return
swaps only on a net basis. 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).
Credit default swaps. The Trust may enter into credit default swap contracts
for risk management purposes, including diversification. When the Trust is the
buyer of a credit default swap contract, the Trust is entitled to receive the
par (or other agreed-upon) value of a referenced debt obligation from the
counterparty to the contract in the event of a default by a third party, such as
a U.S. or foreign
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corporate issuer, on the debt obligation. In return, the Trust would pay the
counterparty a periodic stream of payments over the term of the contract
provided that no event of default has occurred. If no default occurs, the Trust
would have spent the stream of payments and received no benefit from the
contract. When the Trust is the seller of a credit default swap contract, it
receives the stream of payments, but is obligated to pay upon default of the
referenced debt obligation. As the seller, the Trust would effectively add
leverage to its portfolio because, in addition to its total net assets, the
Trust would be subject to investment exposure on the notional amount of the
swap. The Trust will segregate assets in the form of cash and cash equivalents
in an amount equal to the aggregate market value of the credit default swaps of
which it is the seller, marked to market on a daily basis. These transactions
involve certain risks, including the risk that the seller may be unable to
fulfill the transaction.
FUTURES AND OPTIONS ON FUTURES
The Trust may purchase and sell various kinds of financial futures contracts and
options thereon to seek to hedge against changes in interest rates or for other
risk management purposes. Futures contracts may be based on various debt
securities and securities indices (such as the Municipal Bond Index traded on
the Chicago Board of Trade). Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed the Trust's initial investment in these contracts. The Trust 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 Trust. Rating Agency guidelines on any
Preferred Shares issued by the Trust, including the APS, may limit use of these
transactions.
SECURITIES LENDING
The Trust may seek to earn income by lending portfolio securities to
broker-dealers or other institutional borrowers. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities fails financially. In the
judgment of the Adviser, the loans will be made only to organizations whose
credit quality or claims paying ability is considered to be at least investment
grade and when the expected returns, net of administrative expenses and any
finders' fees, justifies the attendant risk. Securities loans currently are
required to be secured continuously by collateral in cash, cash equivalents
(such as money market instruments) or other liquid securities held by the
custodian and maintained in an amount at least equal to the market value of the
securities loaned. The financial condition of the borrower will be monitored by
the Adviser on an ongoing basis. Under current Rating Agency guidelines in
connection with the APS, securities lending by the Trust may not exceed 15% of
the Trust's total gross assets.
BORROWINGS
The Trust may borrow money to the extent permitted under the 1940 Act as
interpreted, modified or otherwise permitted by the regulatory authority having
jurisdiction. Subject to Rating Agency guidelines regarding the APS and the
Trust's ability to maintain a rating of AAA/Aaa on the APS, the Trust may from
time to time borrow money to add leverage to the portfolio. The Trust may also
borrow money for temporary administrative purposes.
REPURCHASE AGREEMENTS
The Trust may enter into repurchase agreements (the purchase of a security
coupled with an agreement to resell at a higher price) with respect to its
permitted investments. In the event of the bankruptcy of the other party to a
repurchase agreement, the Trust might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Trust
purchased may have decreased,
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the Trust could experience a loss. The Trust's repurchase agreements will
provide that the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest earned on the agreement, and will be marked to market daily.
REVERSE REPURCHASE AGREEMENTS
The Trust may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Trust 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 Trust agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, which reflects an
interest payment. The Trust 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.
When the Trust 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 Trust's assets. As a result, such transactions may increase fluctuations
in the market value of the Trust's assets. While there is a risk that large
fluctuations in the market value of the Trust's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,
they constitute a form of leverage. Such agreements will be treated as subject
to investment restrictions regarding "borrowings." If the Trust 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 Trust's yield.
PORTFOLIO TURNOVER
The Trust cannot accurately predict its portfolio turnover rate, but the annual
turnover rate 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 expenses to the Trust and may result in a realization of net
short-term capital gains. The Trust may engage in active short-term trading to
benefit from yield disparities among different issues of securities or among the
markets for fixed income securities of different countries, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. Such
trading will increase the Trust's rate of turnover and may increase the
incidence of net short-term capital gains which, upon distribution by the Trust,
are taxable to the Trust's shareholders as ordinary income.
RISK CONSIDERATIONS
Risk is inherent in all investing. Investing in any investment company security
involves risk, including the risk that you may receive little or no return on
your investment or even that you may lose part or all of your investment.
Therefore, before investing you should consider carefully the following risks
that you assume when you invest in APS.
INTEREST RATE RISK
When interest rates decline, the value of a portfolio invested in Senior Loans
may rise. Conversely, when interest rates rise, the value of a portfolio
invested in Senior Loans may decline. Interest rates are at historical lows and,
as a result, it is likely that they will rise. Because floating or variable
rates on Senior Loans only reset periodically, changes in prevailing interest
rates may cause some fluctuations in the Trust's net asset value. Similarly, a
sudden and significant increase in market interest rates may cause a decline in
the Trust's net asset value. A material decline in the Trust's net asset value
may impair the Trust's ability to maintain required levels of asset coverage.
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AUCTION RISK
APS Shareholders may not be able to sell APS at an Auction if the Auction fails;
that is, if there are more APS offered for sale than there are buyers for those
APS. Also, if a Bid is placed at an Auction only at a specified rate, and that
bid rate exceeds the rate set at the Auction, the APS will not be retained.
Finally, if you elect to buy or retain APS without specifying a rate below which
you would not wish to continue to hold those APS, and the Auction sets a below
market rate, you may receive a lower rate of return on your APS then the market
rate. See "Description of APS" and "The Auctions--Auction Procedures."
SECONDARY MARKET RISK
It may not be possible to sell APS between Auctions or it may only be possible
to sell them for a price of less than $25,000 per share plus any accumulated
dividends. If the Trust has designated a Special Dividend Period (a Dividend
Period of other than seven days in the cases of Series A APS, Series B APS and
Series C APS and 28 days in the case of Series D APS and Series E APS), changes
in interest rates could affect the price of APS sold in the secondary market.
Broker-dealers may maintain a secondary trading market in the APS outside of
Auctions; however, they have no obligation to do so and there can be no
assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the broker-dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long-Term Dividend Period, likely will have an adverse
effect on the secondary market price of the APS, and a selling APS Shareholder
may sell APS between Auctions at a price per share of less than $25,000. Accrued
APS dividends, however, should at least partially compensate for the increased
market interest rate.
RATINGS AND ASSETS COVERAGE RISKS
While Fitch and Moody's assign a rating of "AAA" or "Aaa" to the APS, the
ratings do not eliminate or necessarily mitigate the risks of investing in APS.
A Rating Agency could downgrade APS, which may make APS less liquid at an
Auction or in the secondary market, although the downgrade would probably result
in higher dividend rates. If a Rating Agency downgrades APS of the Trust, the
Trust will alter its portfolio or redeem APS. The Trust may voluntarily redeem
APS under certain circumstances. A preferred share rating is an assessment of
the capacity and willingness of an issuer to pay preferred share obligations.
The ratings on the Preferred Shares are not recommendations to purchase, hold,
or sell those shares, inasmuch as the ratings do not comment as to market price
or suitability for a particular investor. The Rating Agency guidelines described
above also do not address the likelihood that an owner of the Preferred Shares
will be able to sell such shares in an Auction or otherwise. See "Description of
APS--Rating Agency guidelines and asset coverage" for a description of the asset
maintenance tests the Trust must meet.
INCOME RISK
The income investors receive from the Trust is based primarily on the interest
it earns from its investments, which can vary widely over the short and
long-term. If prevailing market interest rates drop, investors' income from the
Trust could drop as well. The Trust's income could also be affected adversely
when prevailing short-term interest rates increase and the Trust is utilizing
leverage, although this risk is mitigated by the Trust's investment in Senior
Loans, which pay floating rates of interest.
CREDIT RISK
Credit risk is the risk that one or more debt obligations in the Trust's
portfolio will decline in price, or fail to pay interest or principal when due,
because the issuer of the obligation experiences a decline in
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its financial status. Credit risk involves two basic elements: delinquency and
default. Delinquency refers to interruptions in the payment of interest and
principal. Default refers to the potential for unrecoverable principal loss from
the sale of foreclosed collateral or the Trust's inherent right to forgive
principal or modify a debt instrument.
PREPAYMENT RISK
During periods of declining interest rates or for other purposes, Borrowers may
exercise their option to prepay principal earlier than scheduled. For
fixed-income securities, such payments often occur during periods of declining
interest rates, forcing the Trust to reinvest in lower yielding securities. This
is known as call or prepayment risk. Non-Investment Grade Bonds frequently have
call features that allow the issuer to redeem the security at dates prior to its
stated maturity at a specified price (typically greater than par) only if
certain prescribed conditions are met ("call protection"). An issuer may redeem
a Non-Investment Grade Bond if, for example, the issuer can refinance the debt
at a lower cost due to declining interest rates or an improvement in the credit
standing of the issuer. Senior Loans typically have no such call protection. For
premium bonds (bonds acquired at prices that exceed their par or principal
value) purchased by the Trust, prepayment risk may be enhanced.
ISSUER RISK
The value of corporate income-producing securities held by the Trust may decline
for a number of reasons, which directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the issuer's goods and
services.
SENIOR LOANS RISK
The risks associated with Senior Loans are similar to the risks of
Non-Investment Grade Bonds (discussed below), although Senior Loans are
typically senior and secured in contrast to Non-Investment Grade Bonds, which
are often subordinated and unsecured. Senior Loans' higher standing has
historically resulted in generally higher recoveries in the event of a corporate
reorganization or other restructuring. In addition, because their interest rates
are adjusted for changes in short-term interest rates, Senior Loans generally
have less interest rate risk than Non-Investment Grade Bonds, which are
typically fixed rate. The Trust's investments in Senior Loans are typically
below investment grade and are considered speculative because of the credit risk
of their issuers. Such companies are more likely to default on their payments of
interest and principal owed to the Trust, and such defaults could reduce the
Trust's net asset value and income distributions. An economic downturn generally
leads to a higher non-payment rate, and a debt obligation may lose significant
value before a default occurs. Moreover, any specific collateral used to secure
a loan may decline in value or lose all its value or become illiquid, which
would adversely affect the loan's value.
Economic and other events (whether real or perceived) can reduce the demand for
certain Senior Loans or Senior Loans generally, which may reduce market prices
and cause the Trust's net asset value per share to fall. The frequency and
magnitude of such changes cannot be predicted.
Loans and other debts securities are also subject to the risk of price declines
and to increases in prevailing interest rates, although floating-rate debt
instruments are less exposed to this risk than fixed-rate debt instruments.
Interest rate changes may also increase prepayments of debt obligations and
require the Trust to invest assets at lower yields. No active trading market may
exist for certain loans, which may impair the ability of the Trust to realize
full value in the event of the need to liquidate such assets. Adverse market
conditions may impair the liquidity of some actively traded loans.
NON-INVESTMENT GRADE BONDS RISK
The Trust's investments in Non-Investment Grade Bonds are predominantly
speculative because of the credit risk of their issuers. While offering a
greater potential opportunity for capital appreciation and
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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higher yields, Non-Investment Grade Bonds typically entail greater potential
price volatility and may be less liquid than higher-rated securities. Issuers of
Non-Investment Grade Bonds are more likely to default on their payments of
interest and principal owed to the Trust, and such defaults will reduce the
Trust's net asset value and income distributions. The prices of these lower
rated obligations are more sensitive to negative developments than higher rated
securities. Adverse business conditions, such as a decline in the issuer's
revenues or an economic downturn, generally lead to a higher non-payment rate.
In addition, a security may lose significant value before a default occurs as
the market adjusts to expected higher non-payment rates.
DERIVATIVES RISK
Derivative transactions (such as futures contracts and options thereon, options
and swaps) subject the Trust to increased risk of principal loss due to
imperfect correlation or unexpected price or interest rate movements. The Trust
also will be subject to credit risk with respect to the counterparties to the
derivatives contracts purchased by the Trust. If a counterparty becomes bankrupt
or otherwise fails to perform its obligations under a derivative contract due to
financial difficulties, the Trust may experience significant delays in obtaining
any recovery under the derivative contract in a bankruptcy or other
reorganization proceeding. The Trust may obtain only a limited recovery or may
obtain no recovery in such circumstances.
FOREIGN SECURITIES RISK
The Trust may invest up to 15% of its total assets in foreign securities
including emerging markets. The prices of foreign securities may be affected by
factors not present with the U.S. securities, including currency exchange rates,
political and economic conditions, less stringent regulation and higher
volatility. As a result, many foreign securities may be less liquid and more
volatile than U.S. securities.
LIQUIDITY RISK
The Trust may invest in Senior Loans and other securities for which there is no
readily available trading market or which are otherwise illiquid. Most Senior
Loans are valued by an independent pricing service that uses market quotations
of investors and traders in Senior Loans. Economic and other events (whether
real or perceived) can reduce the demand for certain Senior Loans or Senior
Loans generally, which may reduce market prices and cause the Trust's net asset
value per share to fall. The frequency and magnitude of such changes cannot be
predicted.
Some Senior Loans are not readily marketable and may be subject to restrictions
on resale. Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no active trading market may exist
for some of the Senior Loans in which the Trust will invest. Where a secondary
market exists, such market for some Senior Loans may be subject to irregular
activity, wide bid/ask spreads and extended trade settlement periods. Senior
Loans that are illiquid may impair the Trust's ability to realize the full value
of its assets in the event of a voluntary or involuntary liquidation of such
assets and thus may cause a decline in the Trust's net asset value. The Trust
has no limitation on the amount of its assets which may be invested in
securities which are not readily marketable or are subject to restrictions on
resale.
REINVESTMENT RISK
Income from the Trust's portfolio will decline if and when the Trust invests the
proceeds from matured, traded or called debt obligations into lower yielding
instruments.
INFLATION RISK
Inflation risk is the risk that the value of assets or income from investment
will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the APS and
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23
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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distributions thereon can decline. In an inflationary period, however, it is
expected that through the Auction process, APS dividends would increase, tending
to offset the risk. This risk is mitigated to some degree by the Trust's
investments in Senior Loans.
MANAGEMENT RISK
The Trust 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
Trust, but there can be no guarantee that these will produce the desired
results.
REGULATORY RISK
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans, particularly in
connection with highly leveraged transactions, the availability of Senior Loans
for investment may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans.
MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Trust cannot predict the
effects of similar events in the future on the U.S. economy and securities
markets. These terrorist attacks and related events, including the war in Iraq,
its aftermath and continuing occupation of Iraq by coalition forces, have led to
increased short-term market volatility and may have long-term effects on U.S.
and world economies and markets. A similar disruption of the financial markets
could impact interest rates, Auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares and the APS. In
particular, Non-Investment Grade Bonds and Senior Loans tend to be more volatile
than higher rated fixed income securities so that these events and any actions
resulting from them may have a greater impact on the prices and volatility on
Non-Investment Grade Bonds and Senior Loans than on higher rated fixed income
securities.
Management of the Trust
BOARD OF TRUSTEES
The management of the Trust, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the
responsibility of the Trust's Board under the laws of The Commonwealth of
Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Trust's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of
individuals and institutions since 1924 and of investment companies since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $89.5 billion as of July 31,
2004. Additionally, Eaton Vance and its subsidiaries managed approximately $13.8
billion in funds, in other commingled investment vehicles and for institutional
accounts which invest primarily in Senior Loans.
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MANAGEMENT OF THE TRUST
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Eaton Vance is a 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 Trust's Board, the Adviser will carry out
the investment and reinvestment of the assets of the Trust, will furnish
continuously an investment program with respect to the Trust, will determine
which securities should be purchased, sold or exchanged, and will implement such
determinations. The Adviser will furnish to the Trust investment advice and
office facilities, equipment and personnel for servicing the investments of the
Trust. The Adviser will compensate all Trustees and officers of the Trust who
are members of the Adviser's organization and who render investment services to
the Trust, and will also compensate all other Adviser personnel who provide
research and investment services to the Trust. In return for these services,
facilities and payments, the Trust has agreed to pay the Adviser as compensation
under the Advisory Agreement a fee in the amount of 0.75% of the average daily
gross assets of the Trust, subject to the expense reimbursement agreement
described below. Eaton Vance has contractually agreed to reimburse the Trust for
fees and other expenses in the amount of 0.20% of average daily total assets of
the Trust for the first five full years of the Trust's operations, 0.15% of
average daily total assets of the Trust in year six, 0.10% in year seven and
0.05% in year eight. Eaton Vance may voluntarily reimburse additional fees and
expenses but is under no obligation to do so. Any such voluntary reimbursements
may be terminated at any time. Gross assets of the Trust shall be calculated by
deducting accrued liabilities of the Trust not including the amount of any
Preferred Shares, including the APS, outstanding or the principal amount of any
indebtedness for money borrowed. During periods in which the Trust is using
leverage, the fees paid to Eaton Vance for investment advisory services will be
higher than if the Trust did not use leverage because the fees paid will be
calculated on the basis of the Trust's gross assets, including proceeds from any
borrowings and from the issuance of Preferred Shares. The management fee borne
by Common Shares as a percentage of net assets assuming the issuance of the APS
contemplated by this Prospectus would be 1.21% without giving effect to the fee
and expense reimbursement in effect during the first five years of the Trust's
operations.
Scott H. Page and Payson F. Swaffield are responsible for the overall and
day-to-day management of the Trust's investments. Among other portfolios, Mr.
Page and Mr. Swaffield have each been Eaton Vance portfolio managers since 1996,
and are Vice Presidents of Eaton Vance. They currently co-manage (i) the
following registered closed-end interval funds: Eaton Vance Prime Rate Reserves,
Eaton Vance Advisers Senior Floating-Rate Fund, Eaton Vance Institutional Senior
Floating Rate Fund and Eaton Vance Classic Senior Floating-Rate Fund; (ii) the
following registered open-end funds: Eaton Vance Floating-Rate Fund and Eaton
Vance Floating-Rate High Income Fund (the Senior Loan portion); (iii) Eaton
Vance Senior Income Trust, a registered closed-end fund listed on the New York
Stock Exchange, (iv) Eaton Vance Limited Duration Income Fund, a registered
closed-end fund listed on the New York Stock Exchange (the Senior Loan portion);
(v) Eaton Vance Senior Floating-Rate Trust, a registered closed-end fund listed
on the New York Stock Exchange and (vi) Eaton Vance VT Floating-Rate Income
Fund, a registered open-end fund offered primarily to insurance company separate
accounts, all of which employ investment strategies primarily focused on Senior
Loans. As of July 31, 2004, these funds had combined assets of approximately
$13.8 billion. See "Additional investment information and
restrictions--Litigation involving Eaton Vance" in the Statement of Additional
Information for further information.
The Trust and the Adviser have adopted Codes of Ethics relating to personal
securities transactions. The Codes of Ethics permit Adviser personnel to invest
in securities (including securities that may be purchased or held by the Trust)
for their own accounts, subject to the provisions of the Codes of Ethics and
certain employees are also subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes of Ethics.
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MANAGEMENT OF THE TRUST
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Eaton Vance serves as administrator of the Trust but currently receives no
compensation for providing administrative services to the Trust. Under an
Administration Agreement with the Trust ("Administration Agreement"), Eaton
Vance is responsible for managing the business affairs of the Trust, subject to
the supervision of the Trust's Board. Eaton Vance will furnish to the Trust all
office facilities, equipment and personnel for administering the affairs of the
Trust. 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 Trust'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 Trust's business.
Description of APS
The following is a brief description of the terms of the APS. This description
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Trust's Declaration of Trust and Amended By-Laws, including
the provisions thereof establishing the APS. The Trust's Declaration of Trust
and the form of Amended By-Laws establishing the terms of the APS have been
filed as exhibits to or incorporated by reference in the Registration Statement
of which this Prospectus is a part. The Amended By-Laws for the Trust may be
found in Appendix B to the Trust's Statement of Additional Information.
GENERAL
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including Preferred
Shares, having a par value of $0.01 per share, in one or more series, with
rights as determined by the Board of Trustees, by action of the Board of
Trustees without the approval of the Shareholders. The Trust's Amended By-Laws
currently authorize the number of shares of APS of each series set forth below
in "Description of Capital Structure." The APS will have a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared). See "Description of
APS--Liquidation rights."
The APS of each series will rank on parity with shares of any other series of
APS and with shares of other series of Preferred Shares of the Trust, as to the
payment of dividends and the distribution of assets upon liquidation. All shares
of APS carry one vote per share on all matters on which such shares are entitled
to be voted. APS, when issued, will be fully paid and, subject to matters
discussed in "Description of capital structure" non-assessable and have no
preemptive, conversion or cumulative voting rights. The APS will not be
convertible into Common Shares or other capital stock of the Trust, and the
holders thereof will have no preemptive or cumulative voting rights.
DIVIDENDS AND DIVIDEND PERIODS
GENERAL
After the Initial Dividend Period, each Subsequent Dividend Period for the APS
will generally consist of seven days in the cases of Series A APS , Series B APS
and Series C APS (a "7-Day Dividend Period") and 28 days in the case of Series D
APS and Series E APS (a "28-Day Dividend Period"); provided, however, that prior
to any Auction, the Trust may elect, subject to certain limitations described
herein, upon giving notice to holders thereof, a Special Dividend Period as
discussed below. The holders of the Trust's APS will be entitled to receive,
when, as and if declared by the Trust's Board of Trustees, out of funds
legally-available therefor, cumulative cash dividends on their APS, at the
Applicable Rate determined as set forth below under "--Determination of dividend
rate," payable on the dates set forth below. Dividends on the APS of the Trust
so declared and payable shall be paid
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DESCRIPTION OF APS
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in preference to and in priority over any dividends declared and payable on the
Trust's Common Shares.
Dividends on the APS will accumulate from the date on which the Trust originally
issues the APS (the "Date of Original Issue") and will be payable on the APS on
the dates described below. Dividends on the APS with respect to the Initial
Dividend Period shall be payable on the applicable Initial Dividend Payment
Date. Following the Initial Dividend Payment Date, dividends on the APS will be
payable, at the option of the Trust, either (i) with respect to any 7-Day
Dividend Period, any 28-Day Dividend Period and any Short-Term Dividend Period
of 28 or fewer days, on the day next succeeding the last day thereof or (ii)
with respect to any Short-Term Dividend Period of more than 28 days and with
respect to any Long-Term Dividend Period, monthly on the first Business Day of
each calendar month during such Short-Term Dividend Period or Long-Term Dividend
Period and on the day next succeeding the last day thereof (each such date
referred to in clause (i) or (ii) being referred to herein as a "Normal Dividend
Payment Date"), except that if such Normal Dividend Payment Date is not a
Business Day, the Dividend Payment Date shall be the first Business Day next
succeeding such Normal Dividend Payment Date. Although any particular Dividend
Payment Date may not occur on the originally scheduled date because of the
exceptions discussed above, the next succeeding Dividend Payment Date, subject
to such exceptions, will occur on the next Business Day following originally
scheduled date. If for any reason a Dividend Payment Date cannot be fixed as
described above, then the Board of Trustees shall fix the Dividend Payment Date.
The Board of Trustees by resolution prior to authorization of a dividend by the
Board of Trustees may change a Dividend Payment Date if such change does not
adversely affect the contract rights of the APS Shareholders set forth in the
Amended By-Laws. The Initial Dividend Period, 7-Day Dividend Periods, 28-Day
Dividend Periods and Special Dividend Periods are hereinafter sometimes referred
to as "Dividend Periods." Each dividend payment date determined as provided
above is hereinafter referred to as a "Dividend Payment Date."
Each dividend will be paid to the record holder of the APS, which holder is
expected to be the nominee of the Securities Depository. See "The
Auctions--General--Securities Depository." The Securities Depository will credit
the accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in same-day
funds. The Agent Member of an Existing Holder will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
Existing Holder in accordance with the instructions of such Existing Holder.
Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the nominee
of the Securities Depository. Any dividend payment made on the APS first shall
be credited against the earliest declared but unpaid dividends accumulated with
respect to such shares.
APS Shareholders will not be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends except as described
under "Non-Payment Period; late charge" below. No interest will be payable in
respect of any dividend payment or payments on the APS which may be in arrears.
The amount of cash dividends per share of APS payable (if declared) on each
Dividend Payment Date shall be computed by multiplying the Applicable Rate for
such Dividend Period by a fraction, the numerator of which will be the number of
days in such Dividend Period or part thereof that such share was outstanding and
for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent.
NOTIFICATION OF DIVIDEND PERIOD
The Trust, at its sole option and to the extent permitted by law, by telephonic
and written notice (a "Request for Special Dividend Period") to the Auction
Agent and to each Broker-Dealer, may request
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DESCRIPTION OF APS
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that the next succeeding Dividend Period for the APS will be a number of days
(other than seven in the cases of Series A APS, Series B APS and Series C APS,
and other than 28, in the case of Series D APS and Series E APS) evenly
divisible by seven, and not fewer than seven nor more than three hundred
sixty-four in the case of a Short-Term Dividend Period or one year but not
greater than five years in the case of a Long-Term Dividend Period, specified in
such notice, provided that the Trust may not give a Request for Special Dividend
Period of greater than 28 days (and any such request shall be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids shall have existed in the last occurring Auction and unless full cumulative
dividends and any amounts due with respect to redemptions prior to such date
have been paid in full. Such Request for Special Dividend Period, in the case of
a Short-Term Dividend Period, shall be given on or prior to the second Business
Day but not more than seven Business Days prior to an Auction Date for the APS
and, in the case of a Long-Term Dividend Period, shall be given on or prior to
the second Business Day but not more than 28 days prior to an Auction Date for
the APS. Upon receiving such Request for Special Dividend Period, the
Broker-Dealers jointly shall determine whether, given the factors set forth
below, it is advisable that the Trust issue a Notice of Special Dividend Period
as contemplated by such Request for Special Dividend Period and shall determine
the Optional Redemption Price of the APS during such Special Dividend Period and
the Specific Redemption Provisions and shall give the Trust and the Auction
Agent written notice (a "Response") of such determination by no later than the
second Business Day prior to such Auction Date. In making such determination,
the Broker-Dealers will consider (i) existing short-term and long-term market
rates and indices of such short-term and long-term rates, (ii) existing market
supply and demand for short-term and long-term securities, (iii) existing yield
curves for short-term and long-term securities comparable to the APS, (iv)
industry and financial conditions which may affect the APS, (v) the investment
objectives of the Trust and (vi) the Dividend Periods and dividend rates at
which current and potential beneficial holders of the APS would remain or become
beneficial holders.
If the Broker-Dealers shall not give the Trust and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Trust give a Notice of Special Dividend
Period for the APS, the Trust may not give a Notice of Special Dividend Period
in respect of such Request for Special Dividend Period. In the event the
Response indicates that it is advisable that the Trust give a Notice of Special
Dividend Period for the APS, the Trust, by no later than the second Business Day
prior to such Auction Date, may give a notice (a "Notice of Special Dividend
Period") to the Auction Agent, the Securities Depository and each Broker-
Dealer, which notice will specify (i) the duration of the Special Dividend
Period, (ii) the Optional Redemption Price as specified in the related Response
and (iii) the Specific Redemption Provisions, if any, as specified in the
related Response. The Trust also shall provide a copy of such Notice of Special
Dividend Period to Fitch and Moody's. The Trust shall not give a Notice of
Special Dividend Period, and, if such Notice of Special Dividend Period shall
have been given already, shall give telephonic and written notice of its
revocation (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer,
and the Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act APS Asset Coverage is not
satisfied or the Trust shall fail to maintain Fitch Eligible Assets with an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value at least equal to 1.2
times the APS Basic Maintenance Amount, on each of the two Valuation Dates
immediately preceding the Business Day prior to the relevant Auction Date on an
actual basis and on a pro forma basis giving effect to the proposed Special
Dividend Period (using as a pro forma dividend rate with respect to such Special
Dividend Period the dividend rate which the Broker-Dealers shall advise the
Trust is an approximately equal rate for securities similar to the APS with an
equal dividend period), (y) sufficient funds for the payment of dividends
payable on the immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of business on the
third
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DESCRIPTION OF APS
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Business Day preceding the related Auction Date or (z) the Broker-Dealers
jointly advise the Trust that, after consideration of the factors listed above,
they have concluded that it is advisable to give a Notice of Revocation. The
Trust also shall provide a copy of such Notice of Revocation to Fitch and
Moody's. If the Trust is prohibited from giving a Notice of Special Dividend
Period as a result of the factors enumerated in clause (x), (y) or (z) above or
if the Trust gives a Notice of Revocation with respect to a Notice of Special
Dividend Period, the next succeeding Dividend Period for that series will be a
7-Day Dividend Period in the cases of Series A APS, Series B APS, and Series C
APS and 28-Day Dividend Period in the case of Series D APS and Series E APS. In
addition, in the event Sufficient Clearing Bids are not made in any Auction,
including an Auction held on the Auction Date immediately preceding the first
day of such proposed Special Dividend Period, or an Auction is not held for any
reason, the next succeeding Dividend Period will be a 7-Day Dividend Period in
the cases of Series A APS, Series B APS and Series C APS and 28-Day Dividend
Period in the case of Series D APS and Series E APS, and the Trust may not again
give a Notice of Special Dividend Period (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an Auction with
respect to a 7-Day Dividend Period in the cases of Series A APS, Series B APS,
Series C APS and 28-Day Dividend Period in the case of Series D APS and Series E
APS.
DETERMINATION OF DIVIDEND RATE
The dividend rate on the APS during the period from and including the Date of
Original Issue for the APS to but excluding the Initial Dividend Payment Date
for the APS (the "Initial Dividend Period") will be the rate per annum set forth
on the inside cover page hereof. Commencing on the Initial Dividend Payment Date
for the APS, the Applicable Rate on the APS for each Subsequent Dividend Period,
which Subsequent Dividend Period shall be a period commencing on and including a
Dividend Payment Date and ending on and including the calendar day prior to the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from the Auction with respect to such Subsequent Dividend
Period. The Initial Dividend Period and Subsequent Dividend Period for the APS
is referred to herein as a "Dividend Period." Cash dividends shall be calculated
as set forth above under "--Dividends and Dividend Periods--General."
NON-PAYMENT PERIOD; LATE CHARGE
A Non-Payment Period will commence if the Trust fails to (i) declare, prior to
the close of business on the second Business Day preceding any Dividend Payment
Date, for payment on or (to the extent permitted as described below) within
three Business Days after such Dividend Payment Date to the persons who held
such shares as of 12:00 noon, New York City time, on the Business Day preceding
such Dividend Payment Date, the full amount of any dividend on the APS payable
on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such
Dividend Payment Date the full amount of any cash dividend on such shares (if
declared) payable on such Dividend Payment Date or (B) on any redemption date
for the APS called for redemption, the Mandatory Redemption Price per share of
such APS or, in the case of an optional redemption, the Optional Redemption
Price per share. Such Non-Payment Period will consist of the period commencing
on and including the aforementioned Dividend Payment Date or redemption date, as
the case may be, and ending on and including the Business Day on which, by 12:00
noon, New York City time, all unpaid cash dividends and unpaid redemption prices
shall have been so deposited or otherwise shall have been made available to the
applicable holders in same-day funds, provided that a Non-Payment Period for the
APS will not end unless the Trust shall have given at least five days' but no
more than 30 days' written notice of such deposit or availability to the Auction
Agent, the Securities Depository and all APS Shareholders of such series.
Notwithstanding the foregoing, the failure by the Trust to deposit funds as
provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or
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DESCRIPTION OF APS
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redemption date, as the case may be, in each case to the extent contemplated
below, shall not constitute a "Non-Payment Period." The Applicable Rate for each
Dividend Period for the APS of any series, commencing during a Non-Payment
Period, will be equal to the Non-Payment Period Rate; and each Dividend Period
commencing after the first day of, and during, a Non-Payment Period shall be a
7-Day Dividend Period in the cases of Series A APS, Series B APS and Series C
APS and 28-Day Dividend Period in the case of Series D APS and Series E APS. Any
dividend on the APS due on any Dividend Payment Date for such shares (if, prior
to the close of business on the second Business Day preceding such Dividend
Payment Date, the Trust has declared such dividend payable on such Dividend
Payment Date to the persons who held such shares as of 12:00 noon, New York City
time, on the Business Day preceding such Dividend Payment Date) or redemption
price with respect to such shares not paid to such persons when due may be paid
to such persons in the same form of funds by 12:00 noon, New York City time, on
any of the first three Business Days after such Dividend Payment Date or due
date, as the case may be, provided that such amount is accompanied by a late
charge calculated for such period of non-payment at the Non-Payment Period Rate
applied to the amount of such non-payment based on the actual number of days
comprising such period divided by 360. In the case of a willful failure of the
Trust to pay a dividend on a Dividend Payment Date or to redeem any APS on the
date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time will be considered equivalent to payment to that person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
The Non-Payment Period Rate initially will be 275% of the applicable Reference
Rate, provided that the Board of Trustees of the Trust shall have the authority
to adjust, modify, alter or change from time to time the initial Non-Payment
Period Rate if the Board of Trustees of the Trust determines and Fitch and
Moody's (or any Substitute Rating Agency in lieu of Fitch and Moody's in the
event such party shall not rate the APS) advises the Trust in writing that such
adjustment, modification, alteration or change will not adversely affect its
then-current rating on the APS.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENTS
Under the 1940 Act, the Trust may not declare dividends or make other
distributions on Common Shares or purchase any such shares if, at the time of
the declaration, distribution or purchase, as applicable (and after giving
effect thereto), asset coverage (as defined in the 1940 Act) with respect to the
outstanding APS would be less than 200% (or such other percentage as in the
future may be required by law). Under the Code, the Trust must, among other
things, distribute each year at least 90% of the sum of its investment company
taxable income and certain other income in order to maintain its qualification
for tax treatment as a regulated investment company. The foregoing limitations
on dividends, other distributions and purchases in certain circumstances may
impair the Trust's ability to maintain such qualification. See "Taxes."
Upon any failure to pay dividends on the APS for two years or more, the APS
Shareholders will acquire certain additional voting rights. See "--Voting
rights" below.
For so long as any APS are outstanding, the Trust will not declare, pay or set
apart for payment any dividend or other distribution (other than a dividend or
distribution paid in shares of, or options, warrants or rights to subscribe for
or purchase, Common Shares or other shares of beneficial interest, if any,
ranking junior to the APS as to dividends or upon liquidation) in respect of
Common Shares or any other shares of beneficial interest of the Trust ranking
junior to or on a parity with the APS as to
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30
DESCRIPTION OF APS
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dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Shares or shares of any other
such junior shares of beneficial interest (except by conversion into or exchange
for shares of beneficial interest of the Trust ranking junior to APS as to
dividends and upon liquidation) or any such parity shares of beneficial interest
(except by conversion into or exchange for shares of beneficial interest of the
Trust ranking junior to or on a parity with APS as to dividends and upon
liquidation), unless (A) immediately after such transaction, the Trust would
have Fitch Eligible Assets with an aggregate Discounted Value equal to or
greater than the APS Basic Maintenance Amount and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than 1.2 times the APS Basic
Maintenance Amount and the 1940 Act APS Asset Coverage (see "--Rating Agency
guidelines and asset coverage" and "--Redemption" below) would be satisfied, (B)
full cumulative dividends on the APS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, and
(C) the Trust has redeemed the full number of APS required to be redeemed by any
provision for mandatory redemption contained in the Amended By-Laws.
REDEMPTION
MANDATORY REDEMPTION
The Trust will be required to redeem, out of funds legally available therefor,
at the Mandatory Redemption Price per share, the APS to the extent permitted
under the 1940 Act and Massachusetts law, on a date fixed by the Board of
Trustees, if the Trust fails to maintain Fitch Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than 1.2 times the APS Basic Maintenance Amount or to satisfy the 1940 Act APS
Asset Coverage and such failure is not cured on or before the APS Basic
Maintenance Cure Date or the 1940 Act Cure Date (herein collectively referred to
as a "Cure Date"), as the case may be. "Mandatory Redemption Price" of APS means
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for redemption. Any such
redemption will be limited to the lesser number of APS necessary to restore the
Discounted Value or the 1940 Act APS Asset Coverage, as the case may be, or the
maximum number that can be redeemed with funds legally available under the
Declaration of Trust and applicable law.
OPTIONAL REDEMPTION
To the extent permitted under the 1940 Act and under Massachusetts law, upon
giving a notice of redemption, as provided below, the Trust, at its option, may
redeem the APS, in whole or in part, out of funds legally available therefor, at
the Optional Redemption Price per share on any Dividend Payment Date; provided
that no APS may be redeemed at the option of the Trust during (a) the Initial
Dividend Period with respect to the APS or (b) a Non-Call Period to which such
share is subject. "Optional Redemption Price" means $25,000 per share of APS
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) to the date fixed for redemption plus any applicable redemption
premium, if any, attributable to the designation of a Premium Call Period. The
Trust has the authority to redeem the APS for any reason and may redeem all or
part of the outstanding APS if it anticipates that the Trust's leveraged capital
structure will result in a lower rate of return to holders of Common Shares for
any significant period of time than that obtainable if the Common Shares were
unleveraged.
Notwithstanding the provisions for redemption described above, no APS shall be
subject to optional redemption (i) unless all dividends in arrears on all
remaining outstanding APS, and all capital shares of the Trust ranking on a
parity with the APS with respect to the payment of dividends or upon
liquidation, have been or are being contemporaneously paid or declared and set
aside for payment and (ii) if redemption thereof would result in the Trust's
failure to maintain Fitch Eligible Assets with an
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31
DESCRIPTION OF APS
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aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount or Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than 1.2 times the APS Basic Maintenance Amount; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
APS of such series pursuant to a successful completion of an otherwise lawful
purchase or exchange offer made on the same terms to, and accepted by, holders
of all outstanding APS of such series.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Trust, whether voluntary
or involuntary, the APS Shareholders will be entitled to receive, out of the
assets of the Trust available for distribution to Shareholders, before any
distribution or payment is made upon any Common Shares or any other shares of
beneficial interest of the Trust ranking junior in right of payment upon
liquidation of APS, $25,000 per share together with the amount of any dividends
accumulated but unpaid (whether or not earned or declared) thereon to the date
of distribution, and after such payment the APS Shareholders will be entitled to
no other payment. If such assets of the Trust shall be insufficient to make the
full liquidation payment on outstanding APS and liquidation payments on any
other outstanding class or series of Preferred Shares of the Trust ranking on a
parity with the APS as to payment upon liquidation, then such assets will be
distributed among the APS Shareholders and the holders of shares of such other
class or series ratably in proportion to the respective preferential amounts to
which they are entitled. After payment of the full amount of liquidation
distribution to which they are entitled, the APS Shareholders will not be
entitled to any further participation in any distribution of assets by the
Trust. A consolidation, merger or share exchange of the Trust with or into any
other entity or entities or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all or any part of the assets
of the Trust shall not be deemed or construed to be a liquidation, dissolution
or winding up of the Trust.
RATING AGENCY GUIDELINES AND ASSET COVERAGE
The Trust will be required to satisfy two separate asset maintenance
requirements under the terms of the Amended By-Laws. These requirements are
summarized below.
1940 ACT APS ASSET COVERAGE
The Trust will be required under the Amended By-Laws to maintain, with respect
to the APS, as of the last Business Day of each month in which any APS are
outstanding, asset coverage of at least 200% with respect to senior securities
which are beneficial interests in the Trust, including the APS (or such other
asset coverage as in the future may be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are beneficial interests of a
closed-end investment company as a condition of paying dividends on its common
shares) ("1940 Act APS Asset Coverage"). If the Trust fails to maintain 1940 Act
APS Asset Coverage and such failure is not cured as of the last Business Day of
the following month (the "1940 Act Cure Date"), the Trust will be required under
certain circumstances to redeem certain of the APS. See "Redemption" above.
The 1940 Act APS Asset Coverage immediately following the issuance of APS
offered hereby (after giving effect to the deduction of the sales load and
offering expenses for the APS) computed using the Trust's net assets as of July
31, 2004 and assuming the Overallotment Common Shares and the APS had been
issued as of such date will be as follows:
Value of Trust assets less liabilities not
constituting senior securities $1,140,725,461
------------------------------------------- -------------- = 262%
Senior securities representing indebtedness $435,000,000
plus liquidation value of APS
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32
DESCRIPTION OF APS
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APS BASIC MAINTENANCE AMOUNT
The Trust intends that, so long as APS are outstanding, the composition of its
portfolio will reflect guidelines established by Fitch and Moody's in connection
with the Trust's receipt of a rating for such shares on or prior to their Date
of Original Issue of at least AAA/Aaa from Fitch and Moody's. Fitch and Moody's,
which are Rating Agencies, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines described below
have been developed by Fitch and Moody's in connection with issuances of
asset-backed and similar securities, including debt obligations and variable
rate preferred shares, generally on a case-by-case basis through discussions
with the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred shares will be varied
sufficiently and will be of sufficient quality and amount to justify investment
grade ratings. The guidelines do not have the force of law but have been adopted
by the Trust in order to satisfy current requirements necessary for Fitch and
Moody's to issue the above-described ratings for APS, which ratings generally
are relied upon by institutional investors in purchasing such securities. The
guidelines provide a set of tests for portfolio composition and asset coverage
that supplement (and in some cases are more restrictive than) the applicable
requirements under the 1940 Act.
The Trust intends to maintain a Discounted Value for its portfolio at least
equal to 1.2 times the APS Basic Maintenance Amount. Both Fitch and Moody's have
established guidelines for determining Discounted Value. These guidelines define
eligible portfolio assets ("Fitch Eligible Assets" and "Moody's Eligible
Assets"). To the extent any particular portfolio holding does not satisfy these
guidelines, all or a portion of such holding's value will not be included in the
calculation of Discounted Value of the Trust's portfolio assets. The Fitch and
Moody's guidelines do not impose any limitations on the percentage of Trust
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Trust's portfolio. The amount of such
assets included in the portfolio of the Trust at any time may vary depending
upon the rating, diversification and other characteristics of eligible assets
included in the portfolio, although it is not anticipated in the normal course
of business that the value of such assets will exceed 20% of the Trust's total
assets. The APS basic maintenance amount includes the sum of (a) the aggregate
liquidation preference of APS then outstanding and (b) certain accrued and
projected payment obligations of the Trust.
Upon any failure to maintain the required aggregate Discounted Value, the Trust
will seek to alter the composition of its portfolio to retain a Discounted Value
at least equal to 1.2 times the APS Basic Maintenance Amount on or prior to the
APS Basic Maintenance Cure Date, thereby incurring additional transaction costs
and possible losses and/or gains on dispositions of portfolio securities. To the
extent any such failure is not cured in a timely manner, the APS will be subject
to mandatory redemption. See "--Redemption" above. The APS Basic Maintenance
Amount includes the sum of (i) the aggregate liquidation value of APS then
outstanding and (ii) certain accrued and projected payment obligations of the
Trust.
The Trust may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Fitch and Moody's. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any Rating
Agency providing a rating for the APS, at any time, may change or withdraw any
such rating. As set forth in the Amended By-Laws, the Trust's Board of Trustees,
without Shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Trust pursuant to the Rating Agency guidelines,
provided the Board of Trustees has obtained written confirmation from Fitch or
Moody's that any such change would not impair the ratings then assigned by Fitch
or Moody's to the APS as applicable.
As recently described by Fitch and Moody's, a preferred shares rating is an
assessment of the capacity and willingness of an issuer to pay preferred shares
obligations. The ratings on the APS are not
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33
DESCRIPTION OF APS
--------------------------------------------------------------------------------
recommendations to purchase, hold or sell APS, inasmuch as the ratings do not
comment as to market price or suitability for a particular investor, nor do the
Rating Agency guidelines described above address the likelihood that a holder of
APS will be able to sell such shares in an Auction. The ratings are based on
current information furnished to Fitch and Moody's by the Trust and the Adviser
and information obtained from other sources. The ratings may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of, such
information. The Common Shares have not been rated by a Rating Agency.
A Rating Agency's guidelines will apply to the Trust's APS only so long as such
agency is rating such shares. The Trust will pay certain fees to each Rating
Agency that rates the Trust's APS.
VOTING RIGHTS
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, APS Shareholders of the Trust will be entitled to
one vote per share on each matter submitted to a vote of Shareholders and will
vote together with holders of Common Shares and other Preferred Shares of the
Trust as a single class.
In connection with the election of the Trust's Trustees, APS Shareholders and
any other Preferred Shares, voting as a separate class, shall be entitled at all
times to elect two of the Trust's Trustees, and the remaining Trustees will be
elected by holders of Common Shares and APS and any other Preferred Shares,
voting together as a single class. In addition, if at any time dividends on
outstanding APS shall be unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any Preferred Shares are
entitled, together with the APS Shareholders, to elect a majority of the
Trustees of the Trust under the 1940 Act, then the number of Trustees
constituting the Board of Trustees automatically shall be increased by the
smallest number that, when added to the two Trustees elected exclusively by the
APS Shareholders and any other holders of Preferred Shares as described above,
would constitute a majority of the Board of Trustees as so increased by such
smallest number, and at a special meeting of Shareholders which will be called
and held as soon as practicable, and at all subsequent meetings at which
Trustees are to be elected, the APS Shareholders and any other Preferred Shares,
voting as a separate class, will be entitled to elect the smallest number of
additional Trustees that, together with the two Trustees which such holders in
any event will be entitled to elect, constitutes a majority of the total number
of Trustees of the Trust as so increased. The terms of office of the persons who
are Trustees at the time of that election will continue. If the Trust thereafter
shall pay, or declare and set apart for payment in full, all dividends payable
on all outstanding APS and any other Preferred Shares for all past Dividend
Periods, the additional voting rights of the APS Shareholders and any other
holders of Preferred Shares as described above shall cease, and the terms of
office of all of the additional Trustees elected by the APS Shareholders and any
other holders of Preferred Shares (but not of the Trustees with respect to whose
election the holders of Common Shares were entitled to vote or the two Trustees
the APS Shareholders and any other holders of Preferred Shares have the right to
elect in any event) will terminate automatically.
The affirmative vote of a majority of the votes entitled to be cast by holders
of outstanding APS and any other Preferred Shares, voting as a separate class,
will be required to (i) authorize, create or issue any class or series of shares
ranking prior to the APS or any other series of Preferred Shares with respect to
the payment of dividends or the distribution of assets on liquidation; provided,
however, that no vote is required to authorize the issuance of another class of
Preferred Shares which is substantially identical in all respects to the APS or
(ii) amend, alter or repeal the provisions of the Declaration of Trust or the
Amended By-Laws, whether by merger, consolidation or otherwise, so as to affect
adversely any of the contract rights expressly set forth in the Declaration of
Trust or the Amended By-Laws of APS Shareholders or any other Preferred Shares.
To the extent permitted under the 1940 Act, in the event shares of more than one
series of APS are outstanding, the Trust shall not
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34
DESCRIPTION OF APS
--------------------------------------------------------------------------------
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of Trust of a
holder of shares of a series of APS differently than those of a holder of shares
of any other series of APS without the affirmative vote of at least a majority
of votes entitled to be cast by APS Shareholders of each series adversely
affected and outstanding at such time (each such adversely affected series
voting separately as a class). The Board of Trustees, however, without
Shareholder approval, may amend, alter or repeal any or all of the various
Rating Agency guidelines described herein in the event the Trust receives
confirmation from the Rating Agencies that any such amendment, alteration or
repeal would not impair the ratings then assigned to the APS. Unless a higher
percentage is provided for under "Certain provisions in the Declaration of
Trust," the affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding APS and any other Preferred Shares, voting as a separate
class, will be required to approve any plan of reorganization (including
bankruptcy proceedings) adversely affecting such shares or any action requiring
a vote of security holders under Section 13(a) of the 1940 Act including, among
other things, changes in the Trust's investment objectives or changes in the
investment restrictions described as fundamental policies under "Investment
objectives, policies and risks." The class vote of APS Shareholders and any
other holders of Preferred Shares described above in each case will be in
addition to a separate vote of the requisite percentage of Common Shares and APS
and any other Preferred Shares, voting together as a single class, necessary to
authorize the action in question.
The foregoing voting provisions will not apply to the APS if, at or prior to the
time when the act with respect to which such vote otherwise would be required,
such shares shall have been (i) redeemed or (ii) called for redemption and
sufficient funds shall have been deposited in trust to effect such redemption.
The Auctions
GENERAL
APS Shareholders will be entitled to receive cumulative cash dividends on their
shares when, as and if declared by the Board of Trustees of the Trust, out of
the funds legally available therefor, on the Initial Dividend Payment Date with
respect to the Initial Dividend Period and, thereafter, on each Dividend Payment
Date with respect to a Subsequent Dividend Period at the rate per annum equal to
the Applicable Rate for each such Dividend Period.
The provisions of the Amended By-Laws establishing the terms of the APS offered
hereby will provide that the Applicable Rate for each Dividend Period after the
Initial Dividend Period therefor will be equal to the rate per annum that the
Auction Agent advises has resulted on the Business Day preceding the first day
of such Dividend Period due to implementation of the auction procedures set
forth in the Amended By-Laws (the "Auction Procedures") in which persons
determine to hold or offer to purchase or sell the APS. The Amended By-Laws,
which contain the Auction Procedures, are attached as Appendix B to the Trust's
Statement of Additional Information. Each periodic operation of such procedures
with respect to the APS is referred to hereinafter as an "Auction." If, however,
the Trust should fail to pay or duly provide for the full amount of any dividend
on or the redemption price of the APS called for redemption, the Applicable Rate
for the APS will be determined as set forth under "Description of APS--Dividends
and Dividend Periods-Determination of dividend rate."
AUCTION AGENT AGREEMENT
The Trust will enter into an agreement (the "Auction Agent Agreement") with
Deutsche Bank Trust Company Americas ("Auction Agent" and together with any
successor bank or trust company or other entity entering into a similar
agreement with the Trust, the "Auction Agent"), which provides, among
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35
THE AUCTIONS
--------------------------------------------------------------------------------
other things, that the Auction Agent will follow the Auction Procedures for the
purpose of determining the Applicable Rate for the APS. The Trust will pay the
Auction Agent compensation for its services under the Auction Agent Agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to the
Trust, which termination may be no earlier than 60 days following delivery of
such notice. If the Auction Agent resigns, the Trust will use its best efforts
to enter into an agreement with a successor Auction Agent containing
substantially the same terms and conditions as the Auction Agent Agreement. The
Trust may terminate the Auction Agent Agreement, provided that prior to such
termination the Trust shall have entered into such an agreement with respect
thereto with a successor Auction Agent.
In addition to serving as the Auction Agent, the Auction Agent will be the
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS. The Auction Agent, however, will serve merely as the agent of the
Trust, acting in accordance with the Trust's instructions and will not be
responsible for any evaluation or verification of any matters certified to it.
BROKER-DEALER AGREEMENTS
The Auctions require the participation of one or more broker-dealers. The
Auction Agent will enter into agreements with UBS Financial Services Inc. (an
affiliate of UBS Securities LLC), Citigroup Global Markets Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Wachovia Capital Markets, LLC with
respect to the Trust and may enter into similar agreements (collectively, the
"Broker-Dealer Agreements") with one or more other broker-dealers (collectively,
the "Broker-Dealers") selected by the Trust, which provide for the participation
of such Broker-Dealers in Auctions. A Broker-Dealer Agreement may be terminated
by the Auction Agent or a Broker-Dealer on five days' notice to the other party,
provided that the Broker-Dealer Agreement with UBS Financial Services Inc. may
not be terminated without the prior written consent of the Trust, which consent
may not be unreasonably withheld.
The Auction Agent after each Auction will pay a service charge from funds
provided by the Trust to each Broker-Dealer on the basis of the purchase price
of APS placed by such Broker-Dealer at such Auction. The service charge (i) for
any 7-Day Dividend Period in the cases of Series A APS, Series B APS and Series
C APS and 28-Day Dividend Period in the case of Series D APS and Series E APS
shall be payable at the annual rate of 0.25% of the purchase price of the APS
placed by such Broker-Dealer in any such Auction and (ii) for any Special
Dividend Period shall be determined by mutual consent of the Trust and any such
Broker-Dealer or Broker-Dealers and shall be based upon a selling concession
that would be applicable to an underwriting of fixed or variable rate preferred
shares with a similar final maturity or variable rate dividend period,
respectively, at the commencement of the Dividend Period with respect to such
Auction. For the purposes of the preceding sentence, the APS will be placed by a
Broker-Dealer if such shares were (i) the subject of Hold Orders deemed to have
been made by Beneficial Owners that were acquired by such Beneficial Owners
through such Broker-Dealer or (ii) the subject of the following Orders submitted
by such Broker-Dealer: (A) a Submitted Bid of a Beneficial Owner that resulted
in such Beneficial Owner continuing to hold such shares as a result of the
Auction, (B) a Submitted Bid of a Potential Beneficial Owner that resulted in
such Potential Beneficial Owner purchasing such shares as a result of the
Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders in
Auctions for its own account, unless the Trust notifies all Broker-Dealers that
they no longer may do so; provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders. Any Broker-Dealer submitting an Order for its own
account in any Auction could have an advantage over other Potential Holders in
that it would have knowledge of other Orders placed through it in that Auction.
A Broker-Dealer would not, however, have knowledge of Orders submitted by other
Broker-Dealers, if any. As a result of bidding by the Broker-Dealer in an
Auction, the Applicable Rate may be higher or lower than the
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36
THE AUCTIONS
--------------------------------------------------------------------------------
rate that would have prevailed had the Broker-Dealer not bid. A Broker-Dealer
may also bid in an Auction in order to prevent what would otherwise be (1) a
failed Auction, (2) an "all-hold" Auction, or (3) the implementation of an
Applicable Rate that the Broker-Dealer believes, in its sole judgment, does not
reflect the market for such securities at the time of the Auction.
Broker-Dealers may, but are not obligated to, advise owners of APS that the rate
that will apply in an "all-hold" Auction is often a lower rate than would apply
if owners submit Bids, and such advice if given, may facilitate the submission
of Bids by existing owners that would avoid the occurrence of an "all-hold"
Auction. In the Broker-Dealer Agreements, the Broker-Dealers agree to handle
customers' orders in accordance with their respective duties under applicable
securities laws and rules.
The information in this paragraph has been furnished by the Underwriters for
inclusion in this Prospectus. According to published news reports, the SEC has
requested information from a number of broker-dealers regarding certain of their
practices in connection with auction rate securities, such as the practices
described in the preceding paragraph. Such published news reports also indicate
that the SEC has requested that each broker-dealer receiving the request for
information voluntarily conduct an investigation regarding its practices and
procedures in auction rate securities markets. The Underwriters have advised the
Trust that they and certain other participants in the auction rate securities
markets, including both taxable and tax-exempt markets, have received the
request for information from the SEC described above. The Underwriters are
cooperating with the SEC in providing the requested information. No assurance
can be given as to whether the results of this process will affect the market
for the APS or the Auctions therefor.
SECURITIES DEPOSITORY
The Depository Trust Company initially will act as the Securities Depository for
the Agent Members with respect to the APS. One or more registered certificates
for all of the shares of each series of APS initially will be registered in the
name of Cede & Co., as nominee of the Securities Depository. The certificate
will bear a legend to the effect that such certificate is issued subject to the
provisions restricting transfers of the APS contained in the Amended By-Laws.
Cede & Co. initially will be the holder of record of all APS, and Beneficial
Owners will not be entitled to receive certificates representing their ownership
interest in such shares. The Securities Depository will maintain lists of its
participants and will maintain the positions (ownership interests) of the APS
held by each Agent Member, whether as the Beneficial Owner thereof for its own
account or as nominee for the Beneficial Owner thereof. Payments made by the
Trust to APS Shareholders will be duly made by making payments to the nominee of
the Securities Depository.
AUCTION PROCEDURES
The following is a brief summary of the procedures to be used in conducting
Auctions. This summary is qualified by reference to the Amended By-Laws set
forth in Appendix B to the Trust's Statement of Additional Information.
AUCTION DATE
An Auction to determine the Applicable Rate for the APS offered hereby for each
Dividend Period for such shares (other than the Initial Dividend Period
therefor) will be held on the last Business Day preceding the first day of such
Dividend Period, which first day is also the Dividend Payment Date for the
preceding Dividend Period (the date of each Auction being referred to herein as
an "Auction Date").
The Auction Date and the first day of the related Dividend Period (both of which
must be Business Days) need not be consecutive calendar days. See "Description
of APS--Dividends and Dividend
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37
THE AUCTIONS
--------------------------------------------------------------------------------
Periods" for information concerning the circumstances under which a Dividend
Payment Date may fall on a date other than the days specified above, which may
affect the Auction Date.
ORDERS BY BENEFICIAL OWNER, POTENTIAL BENEFICIAL OWNERS, EXISTING HOLDERS AND
POTENTIAL HOLDERS
On or prior to each Auction Date for a series of APS:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone
orders ("Orders") with respect to a series of APS as follows:
(i) Hold Order--indicating the number of outstanding APS, if any, that
such Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for the next Dividend Period for such shares;
(ii) Bid--indicating the number of outstanding APS, if any, that such
Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next Dividend Period for such shares is
not less than the rate per annum then specified by such Beneficial
Owner; and/or
(iii) Sell Order--indicating the number of outstanding APS, if any, that
such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of APS to determine whether such Potential Beneficial Owners
desire to submit Bids indicating the number of APS which they offer to
purchase provided that the Applicable Rate for the next Dividend Period
for such shares is not less than the rates per annum specified in such
Bids.
A Beneficial Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to APS then held by such Beneficial Owner, as well as Bids for
additional APS. For information concerning the priority given to different types
of Orders placed by Beneficial Owners, see "--Submission of Orders by
Broker-Dealers to Auction Agent" below.
For Subsequent Dividend Periods, APS will pay dividends based on a rate set at
Auctions. The rate set at an Auction will not exceed the Maximum Applicable
Rate. The Maximum Applicable Rate for the APS will be the higher of the
Applicable Percentage of the Reference Rate or the "Applicable Spread Over the
Reference Rate" (as defined in the Glossary at the end of this Prospectus and as
more particularly described below). The Auction Agent will round each applicable
Maximum Applicable Rate to the nearest one-thousandth (0.001) of one percent per
annum, with any such number ending in five ten-thousandths of one percent being
rounded upwards to the nearest one-thousandth (0.001) of one percent. The
Auction Agent will not round the applicable Reference Rate as part of its
calculation of the Maximum Applicable Rate.
The Maximum Applicable Rate for the APS will depend on the credit rating or
ratings assigned to such shares. The Maximum Applicable Rate for any Dividend
Period will be the higher of the Applicable Percentage of the Reference Rate or
the Applicable Spread Over the Reference Rate. The Applicable Percentage of the
Reference Rate or Applicable Spread Over the Reference Rate will
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be determined based on the credit rating assigned on such date to such shares by
Fitch and Moody's (or if Fitch or Moody's shall not make such rating available,
the equivalent of such rating by a Substitute Rating Agency) as follows:
CREDIT RATINGS
-------------------------------------------------------- APPLICABLE PERCENTAGE
MOODY'S S&P/FITCH OF THE REFERENCE RATE APPLICABLE SPREAD
------- --------- --------------------- -------------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Ba1 and lower BB+ and lower 300% 300 bps
Assuming the Trust maintains an AAA/Aaa rating on the APS, the practical effect
of the different methods used to calculate the Maximum Applicable Rate is shown
in the table below:
MAXIMUM APPLICABLE RATE USING MAXIMUM APPLICABLE RATE METHOD USED TO
REFERENCE THE APPLICABLE PERCENTAGE OF THE USING THE APPLICABLE SPREAD DETERMINE THE
RATE REFERENCE RATE OVER THE REFERENCE RATE MAXIMUM APPLICABLE RATE
--------- -------------------------------- --------------------------- -----------------------
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.50% 7.25% Percentage
Prior to each Dividend Payment Date, the Trust is required to deposit with the
Auction Agent sufficient funds for the payment of declared dividends. The
failure to make such deposit will not result in the cancellation of any Auction.
The Trust does not intend to establish any reserves for the payment of
dividends.
There is no minimum Applicable Rate in respect of any Dividend Period.
The Trust will take all reasonable action necessary to enable Fitch and Moody's
to provide a rating for the APS. If Fitch or Moody's shall not make such a
rating available, the Adviser or their affiliates and successors, after
consultation with the Trust and the Broker-Dealers, will select another Rating
Agency (a "Substitute Rating Agency") to act as a Substitute Rating Agency.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
rejection of Submitted Bids and Submitted Sell Orders and allocation of shares."
Neither the Trust nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. A Broker-Dealer also may
hold APS in its own account as a Beneficial Owner. A Broker-Dealer thus may
submit Orders to the Auction Agent as a Beneficial Owner or a Potential
Beneficial Owner and therefore participate in an Auction as an Existing Holder
or Potential Holder on behalf of both itself and its customers. Any Order placed
with the Auction Agent by a Broker-Dealer as or on behalf of a Beneficial Owner
or a Potential Beneficial Owner will be treated in the same manner as an Order
placed with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial
Owner. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent
an Order in respect of any APS held by it or its customers who are Beneficial
Owners will be treated in the same manner as an Existing Holder's failure to
submit to its Broker-Dealer an Order in respect to APS held by it, as
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described in the next paragraph. Inasmuch as a Broker-Dealer participates in an
Auction as an Existing Holder or a Potential Holder only to represent the
interests of a Beneficial Owner or Potential Beneficial Owner, whether it be its
customers or itself, all discussion herein relating to the consequences of an
Auction for Existing Holders and Potential Holders also applies to the
underlying beneficial ownership interests represented thereby. For information
concerning the priority given to different types of Orders placed by Existing
Holders, see "--Submission of Orders by Broker-Dealers to Auction Agent." Each
purchase or sale in an Auction will be settled on the Business Day next
succeeding the Auction Date at a price per share equal to $25,000. See
"--Notification of results; settlement."
If one or more Orders covering in the aggregate all of the outstanding APS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, either because a Broker-Dealer failed to contact such
Existing Holder or otherwise, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period, which is not a Special
Dividend Period, of 91 days or less) and a Sell Order (in the case of an Auction
relating to a Dividend Period of longer than 91 days or any Special Dividend
Period) to have been submitted by or on behalf of such Existing Holder covering
the number of outstanding APS held by such Existing Holder and not subject to
Orders submitted to the Auction Agent.
If all of the outstanding APS are subject to Submitted Hold Orders, the Dividend
Period next succeeding the Auction automatically shall be the same length as the
immediately preceding Dividend Period, and the Applicable Rate for the next
Dividend Period for all the APS will be 90% of the Reference Rate on the date of
the applicable Auction.
For the purposes of an Auction, the APS for which the Trust shall have given
notice of redemption and deposited moneys therefor with the Auction Agent in
trust or segregated in an account at the Trust's custodian bank for the benefit
of the Auction Agent, as set forth under "Description of APS--Redemption," will
not be considered as outstanding and will not be included in such Auction.
Pursuant to the Amended By-Laws of the Trust, the Trust will be prohibited from
reissuing and its affiliates (other than the Underwriters) will be prohibited
from transferring (other than to the Trust) any APS they may acquire. Neither
the Trust nor any affiliate of the Trust (other than the Underwriters) may
submit an Order in any Auction, except that an affiliate of the Trust that is a
Broker-Dealer may submit an Order.
SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 1:30 p.m., New York City time, on each Auction Date, or such other time
on the Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Trust) as the Existing
Holder or Potential Holder in respect of the APS subject to such Orders. Any
Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate per annum
up to the next highest one-thousandth (0.001) of 1%. If one or more Orders of an
Existing Holder are submitted to the Auction Agent and such Orders cover in the
aggregate more than the number of outstanding APS held by such Existing Holder,
such Orders will be considered valid in the following order of priority:
(i) any Hold Order will be considered valid up to and including the number
of outstanding APS held by such Existing Holder, provided that if more
than one Hold Order is submitted by such Existing Holder and the
number of APS subject to such Hold Orders exceeds the
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number of outstanding APS held by such Existing Holder, the number of
APS subject to each of such Hold Orders will be reduced pro rata so
that such Hold Orders, in the aggregate, will cover exactly the number
of outstanding APS held by such Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding APS held by such Existing Holder over the number of
outstanding APS subject to any Hold Order referred to in clause (i)
above (and if more than one Bid submitted by such Existing Holder
specifies the same rate per annum and together they cover more than
the remaining number of shares that can be the subject of valid Bids
after application of clause (i) above and of the foregoing portion of
this clause (ii) to any Bid or Bids specifying a lower rate or rates
per annum, the number of shares subject to each of such Bids will be
reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of outstanding shares); and the number of
outstanding shares, if any, subject to Bids not valid under this
clause (ii) shall be treated as the subject of a Bid by a Potential
Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding APS held by such Existing Holder
over the sum of the number of APS subject to Hold Orders referred to
in clause (i) above and the number of APS subject to valid Bids by
such Existing Holder referred to in clause (ii) above; provided that,
if more than one Sell Order is submitted by any Existing Holder and
the number of APS subject to such Sell Orders is greater than such
excess, the number of APS subject to each of such Sell Orders will be
reduced pro rata so that such Sell Orders, in the aggregate, will
cover exactly the number of APS equal to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction, each
Bid submitted in such Auction will be considered a separate Bid with the rate
per annum and number of APS therein specified.
DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE
Not earlier than the Submission Deadline for each Auction, the Auction Agent
will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding APS over the number of outstanding APS subject to
Submitted Hold Orders (such excess being referred to as the "Available APS") and
whether Sufficient Clearing Bids have been made in such Auction. Sufficient
Clearing Bids will have been made if the number of outstanding APS that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate). If Sufficient Clearing Bids have been made,
the Auction Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the number of
shares subject to Submitted Bids specifying such rate per annum or a lower rate
per annum being at least equal to the available APS. If Sufficient Clearing Bids
have been made, the Winning Bid Rate will be the Applicable Rate for the next
Dividend Period for the APS then outstanding. If Sufficient Clearing Bids have
not been made (other than because all outstanding APS are the subject of
Submitted Hold Orders), the Dividend Period next following the Auction
automatically will be a 7-Day Dividend Period, in the cases of Series A APS,
Series B APS, and
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Series C APS and 28-Day Dividend Period in the case of Series D APS and Series E
APS, and the Applicable Rate for such Dividend Period will be equal to the
Maximum Applicable Rate.
If Sufficient Clearing Bids have not been made, Beneficial Owners that have
Submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any, of the APS subject to such Submitted Sell Orders. See
"--Acceptance and rejection of Submitted Bids and Submitted Sell Orders and
allocation of shares." Thus, under some circumstances, Beneficial Owners may not
have liquidity of investment.
ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES
Based on the determinations described under "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and subject to the
discretion of the Auction Agent to round, the Auction Procedures include a pro
rata allocation of shares for purchase and sale, which may result in an Existing
Holder continuing to hold or selling or a Potential Holder purchasing, a number
of shares of a series of APS that is fewer than the number of shares of such
series specified in its Order. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as Existing Holders or
Potential Holders in respect of customer Orders will be required to make
appropriate pro rata allocations among their respective customers. See the
Trust's Amended By-Laws set forth in Appendix B to the Trust's Statement of
Additional Information.
NOTIFICATION OF RESULTS; SETTLEMENT
The Auction Agent will advise each Broker-Dealer who submitted a Bid or Sell
Order in an Auction whether such Bid or Sell Order was accepted or rejected in
whole or in part and of the Applicable Rate for the next Dividend Period for the
related APS by telephone approximately 3:00 p.m., New York City time, on the
Auction Date for such Auction. Each such Broker-Dealer that submitted an Order
for the account of a customer then will advise such customer whether such Bid or
Sell Order was accepted or rejected, will confirm purchases and sales with each
customer purchasing or selling APS as a result of the Auction and will advise
each customer purchasing or selling APS to give instructions to its Agent Member
of the Securities Depository to pay the purchase price against delivery of such
shares or to deliver such shares against payment therefor as appropriate.
In accordance with the Securities Depository's normal procedures, on the day
after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of APS as determined in such Auction.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds. If the procedures
of the Securities Depository applicable to APS shall be changed to provide for
payment in next-day funds, then purchasers may be required to make payment in
next-day funds. If the certificates for the APS are not held by the Securities
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.
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The following is a simplified example of how a typical Auction works. Assume
that the Trust has 1,000 outstanding APS and three Existing Holders. The three
Existing Holders and three Potential Holders submit orders through
Broker-Dealers at the Auction:
Existing Holder A...................... Owns 500 shares, wants to sell Bid order of 2.10% rate for all
all 500 shares if Applicable 500 shares
Rate is less than 2.10%
Existing Holder B...................... Owns 300 shares, wants to hold Hold Order--will take the
Applicable Rate
Existing Holder C...................... Owns 200 shares, wants to sell Bid order of 1.90% rate for all
all 200 shares if Applicable 200 shares
Rate is less than 1.90%
Potential Holder D..................... Wants to buy 200 shares Places order to buy at or above
2.00%
Potential Holder E..................... Wants to buy 300 shares Places order to buy at or above
1.90%
Potential Holder F..................... Wants to buy 200 shares Places order to buy at or above
2.10%
The lowest dividend rate that will result in all 1,000 APS continuing to be held
is 2.00% (the offer by D). Therefore, the Applicable Rate will be 2.00%.
Existing Holders B and C will continue to own their shares. Existing Holder A
will sell its shares because A's dividend rate bid was higher than the
Applicable Rate. Potential Holder D will buy 200 shares and Potential Holder E
will buy 300 shares because their bid rates were at or below the Applicable
Rate. Potential Holder F will not buy shares because its bid rate was above the
Applicable Rate.
SECONDARY MARKET TRADING AND TRANSFER OF APS
The Broker-Dealers may maintain a secondary trading market in the APS outside of
Auctions; however, they have no obligation to do so and there can be no
assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the Broker-Dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long-Term Dividend Period, likely will have an adverse
effect on the secondary market price of the APS, and a selling APS Shareholder
may sell APS between Auctions at a price per share of less than $25,000.
Taxes
GENERAL
The following is a summary discussion of the material U.S. federal income tax
consequences that may be relevant to a Shareholder of acquiring, holding and
disposing of the APS of the Trust as of the date of this Prospectus. This
discussion addresses only U.S. federal income tax consequences to U.S.
Shareholders who hold their shares as capital assets and does not address all of
the U.S. federal income tax consequences that may be relevant to particular
Shareholders in light of their individual circumstances. In addition, the
discussion does not address any state, local, or foreign tax consequences, and
it does not address any U.S. federal tax consequences other than U.S. federal
income tax consequences. The discussion is based upon present provisions of the
Code, the regulations
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promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change or differing interpretations (possibly with
retroactive effect). No attempt is made to present a detailed explanation of all
U.S. federal income tax concerns affecting the Trust and its Shareholders, and
the discussion set forth herein does not constitute tax advice. Investors are
urged to consult their own tax advisers to determine the specific tax
consequences to them of investing in the Trust, including the applicable
federal, state, local and foreign tax consequences to them and the effect of
possible changes in tax laws.
The Trust has elected and intends to qualify each year for the special tax
treatment afforded to regulated investment companies ("RICs") under the Code. As
long as the Trust so qualifies, in any taxable year in which it distributes at
least 90% of the sum of its investment company taxable income (consisting
generally of taxable net investment income, net short-term capital gain and net
realized gains from certain hedging transactions) and certain other income, the
Trust (but not its Shareholders) will not be subject to federal income tax to
the extent that it distributes its investment company taxable income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss). The Trust intends to distribute substantially all of such income
and gain each year.
The APS will constitute stock of the Trust, and distributions by the Trust with
respect to its APS (other than distributions in redemption of APS that are
treated as exchanges of stock under Section 302(b) of the Code) thus will
constitute dividends to the extent of the Trust's current and accumulated
earnings and profits as calculated for federal income tax purposes. It is
possible, however, that the IRS might take a contrary position, asserting, for
example, that the APS constitute debt of the Trust. If this position were
upheld, the discussion of the treatment of distributions below would not apply.
Instead, distributions by the Trust to APS Shareholders would constitute
interest, whether or not they exceeded the earnings and profits of the Trust,
would be included in full in the income of the recipient and would be taxed as
ordinary income. Kirkpatrick & Lockhart LLP, counsel to the Trust, believes that
such a position, if asserted by the IRS, would be unlikely to prevail if the
issue were properly litigated.
Distributions of any taxable net investment income and net short-term capital
gain will generally be taxable as ordinary income. Distributions of the Trust's
net capital gain, if any, will be taxable to Shareholders as long-term capital
gains, regardless of the length of time they held their shares. Distributions,
if any, in excess of the Trust's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after that basis has been reduced
to zero, will constitute capital gains to the Shareholder (assuming the shares
are held as a capital asset).
Dividends and other distributions declared by the Trust in October, November or
December of any year and payable to Shareholders of record on a date in any of
those months will be deemed to have been paid by the Trust and received by the
Shareholders on December 31 of that year if the distributions are paid by the
Trust during the following January. Accordingly, those distributions will be
taxed to Shareholders for the year in which that December 31 falls.
The Trust will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class's proportionate share of
a particular type of income for a year is determined according to the percentage
of total dividends paid by the RIC during that year to the class. Accordingly,
the Trust intends to designate a portion of its distributions as capital gain
dividends in compliance with the IRS position.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Trust, under current law the manner in which the Trust intends to
allocate items of ordinary income, net capital gain and qualified
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dividend income among the Trust's Common Shares and APS will be respected for
federal income tax purposes. It is possible that the IRS could disagree with
counsel's opinion and attempt to reallocate the Trust's net capital gain and
qualified dividend income or other taxable income.
If at any time when APS are outstanding the Trust does not meet the asset
coverage requirements of the 1940 Act, the Trust will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
See "Description of APS--Dividends and Dividend Periods--Restrictions on
dividends and other payments." Such a suspension may prevent the Trust from
distributing at least 90% of the sum of its investment company taxable income
and certain other income and may, therefore, jeopardize the Trust's
qualification for taxation as a RIC. Upon any failure to meet the asset coverage
requirements of the 1940 Act, the Trust, in its sole discretion, may redeem APS
in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Trust and its Shareholders of failing to qualify for
treatment as a RIC. See "Description of APS--Redemption." There can be no
assurance, however, that any such action would achieve that objective.
Certain of the Trust's investment practices are subject to special Code
provisions that, among other things, may defer the use of certain losses of the
Trust and affect the holding period of securities held by the Trust and the
character of the gains or losses realized by the Trust. These provisions may
also require the Trust to recognize income or gain without receiving cash with
which to make distributions in the amounts necessary to satisfy the requirements
for maintaining RIC status and for avoiding income and excise taxes. The Trust
will monitor its transactions and may make certain tax elections in order to
mitigate the effect of these rules and prevent disqualification of the Trust as
a RIC.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the "Tax
Act"), the U.S. federal income tax rate on long-term capital gains recognized by
individuals has been reduced to 15% (or 5% for individuals in the 10% or 15% tax
brackets), and "qualified dividend income" received by individuals from certain
domestic and foreign corporations will also be taxed at this reduced capital
gains tax rate provided certain holding period and other requirements are
satisfied. The reduced long-term capital gains tax rate will apply to capital
gains realized by Shareholders who sell Common Shares of the Trust that they
have held for more than one year. The reduced rates, which do not apply to
short-term capital gains, generally apply to long-term capital gains from sales
or exchanges recognized on or after May 6, 2003 (and to Trust distributions of
such gain), and will cease to apply for taxable years beginning after December
31, 2008. Distributions from the Trust designated as capital gain dividends
should be eligible for the reduced rate applicable to long-term capital gains.
Ordinary income dividends paid by the Trust will be eligible to be treated by
individual Trust Shareholders as qualified dividend income taxed at the reduced
capital gains rate to the extent that some portion of the Trust's dividends are
attributable to such qualified dividend income received by the Trust and to the
extent that the Trust designates such portion as qualified dividend income. The
tax treatment applies only if certain holding period and other requirements are
satisfied by the Shareholder. For this purpose, "qualified dividend income"
means dividends received by the Trust from United States corporations and
"qualified foreign corporations," provided that the Trust satisfies certain
holding period and other requirements in respect of the stock of such
corporations. Dividends with respect to the APS generally will not constitute
"qualified dividend income" for federal income tax purposes and thus will not be
eligible for the favorable long-term capital gains tax rates.
Dividends and interest received, and gains realized, by the Trust 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 Trust's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Trust will be eligible to, and may, file an election with the IRS that will
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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 Trust 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 Trust 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 Trust will report to its Shareholders shortly after each taxable year their
respective shares of foreign taxes paid and the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.
SALES OF APS
A selling Shareholder will generally recognize gain or loss in an amount equal
to the difference between the Shareholder's adjusted tax basis in the Shares
sold and the amount received. If the Shares are held as a capital asset, the
gain or loss will be a capital gain or loss. The maximum tax rate applicable to
net capital gains recognized by individuals and other non-corporate taxpayers is
(i) the same as the maximum ordinary income tax rate in the case of gains
recognized on the sale of capital assets held for one year or less or (ii) 15%
for gains recognized on the sale of capital assets held for more than one year
(as well as certain capital gain dividends) (5% for individuals in the 10% or
15% tax brackets). Any loss on a disposition of Shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividends received with respect to those Shares. For purposes of
determining whether Shares have been held for six months or less, the holding
period is suspended for any periods during which the Shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or short
sales. Any loss realized on a sale or exchange of Shares will be disallowed to
the extent those Shares are replaced by other Shares within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the
Shares (whether through the reinvestment of distributions, which could occur,
for example, if the Shareholder is a participant in the Trust's dividend
reinvestment plan or otherwise). In that event, the basis of the replacement
Shares will be adjusted to reflect the disallowed loss.
An investor should also be aware that the benefits of the reduced tax rate
applicable to long-term capital gains and qualified dividend income may be
impacted by the application of the alternative minimum tax to individual
Shareholders.
BACKUP WITHHOLDING
The Trust is required to withhold a percentage of all taxable dividends, capital
gain distributions and repurchase proceeds payable to any individuals and
certain other non-corporate Shareholders who do not provide the Trust with a
correct taxpayer identification number. Such withholding from taxable dividends
and capital gain distributions is also required for such Shareholders who fail
to provide certain certifications or otherwise are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
from payments made to a Shareholder may be refunded or credited against the
Shareholder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
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Description of capital structure
The Trust is an unincorporated business trust established under the laws of The
Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
April 28, 2004 ("Declaration of Trust"). The Declaration of Trust provides that
the Trustees of the Trust may authorize separate classes of shares of beneficial
interest. The Trustees of the Trust have authorized an unlimited number of
shares of beneficial interest, par value $0.01 per share, all of which shares
were initially classified as Common Shares. The Declaration of Trust also
authorizes the issuance of an unlimited number of shares of beneficial interest
with preference rights, including Preferred Shares, having a par value of $0.01
per share, in one or more series, with rights as determined by the Board of
Trustees, by action of the Board of Trustees without the approval of the
Shareholders. For a description of the APS, see "Description of APS." The
following table shows the amount of (i) shares authorized, (ii) shares held by
the Trust for its own account and (iii) shares outstanding, for each class of
authorized securities of the Trust as of August 31, 2004.
AMOUNT
OUTSTANDING
(EXCLUSIVE OF
AMOUNT HELD BY AMOUNT HELD BY
TRUST FOR ITS OWN TRUST FOR ITS OWN
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT)
------------------------------------------------------------------------------------------------------
Common Shares.............................. Unlimited -0- 37,205,000
Auction Preferred Shares
Series A................................. 3,480 -0- -0-
Series B................................. 3,480 -0- -0-
Series C................................. 3,480 -0- -0-
Series D................................. 3,480 -0- -0-
Series E................................. 3,480 -0- -0-
Holders of Common Shares are entitled to share equally in dividends declared by
a Board of Trustees payable to holders of Common Shares and in the net assets of
the Trust available for distribution to holders of Common Shares after payment
of the preferential amounts payable to holders of any outstanding Preferred
Shares, including the APS. Neither holders of Common Shares nor holders of
Preferred Shares have pre-emptive or conversion rights and Common Shares are not
redeemable. Upon liquidation of the Trust, after paying or adequately providing
for the payment of all liabilities of the Trust 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 Trust among
the holders of the Common Shares. The Declaration of Trust provides that
Shareholders are not liable for any liabilities of the Trust, permits inclusion
of a clause to that effect in every agreement entered into by the Trust and in
coordination with the Trust'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 Trust as though they were general
partners, the provisions of the Declaration of Trust and the Trust's By-Laws
described in the foregoing sentence make the likelihood of such personal
liability remote.
Holders of Common Shares are entitled to one vote for each share held and will
vote with the holders of any outstanding APS or other Preferred Shares on each
matter submitted to a vote of holders of Common Shares, except as described
under "Description of APS--Voting rights."
Shareholders are entitled to one vote for each share held. The Common Shares,
APS and any other Preferred Shares do not have cumulative voting rights, which
means that the holders of more than
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47
DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------
50% of the Common Shares, APS and any other Preferred Shares voting for the
election of Trustees can elect all of the Trustees standing for election by such
holders, and, in such event, the holders of the remaining Common Shares, APS and
any other Preferred Shares will not be able to elect any of such Trustees.
So long as any APS or any other Preferred Shares are outstanding, holders of
Common Shares will not be entitled to receive any dividends of or other
distributions from the Trust, unless at the time of such declaration, (1) all
accrued dividends on Preferred Shares or accrued interest on borrowings has been
paid and (2) the value of the Trust's total assets (determined after deducting
the amount of such dividend or other distribution), less all liabilities and
indebtedness of the Trust 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 Trust is required to comply
with other asset coverage requirements as a condition of the Trust obtaining a
rating of the Preferred Shares from a Rating Agency. These requirements include
an asset coverage test more stringent than under the 1940 Act. See "Description
of APS--Dividends and Dividend Periods--Restrictions on dividends and other
payments."
The Trust will send unaudited reports at least semi-annually and audited
financial statements annually to all of its Shareholders.
The Common Shares of the Trust commenced trading on the NYSE on June 25, 2004.
As of August 31, 2004, the net asset value per share of Common Shares and the
closing price per share of Common Shares on the NYSE were $19.07, and $19.35,
respectively.
PREFERRED SHARES
Under the 1940 Act, the Trust is permitted to have outstanding more than one
series of Preferred Shares as long as no single series has priority over another
series as to the distribution of assets of the Trust or the payment of
dividends. Neither holders of Common Shares nor holders of Preferred Shares have
pre-emptive rights to purchase any APS or any other Preferred Shares that might
be issued. It is anticipated that the net asset value per share of the APS will
equal its original purchase price per share plus accumulated dividends per
share.
Certain provisions of the Declaration of Trust
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The Declaration of Trust includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Trust or to change the composition of its Board, and could have the effect of
depriving holders of Common Shares of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Trust. These provisions may have the effect of
discouraging attempts to acquire control of the Trust, which attempts could have
the effect of increasing the expenses of the Trust and interfering with the
normal operation of the Trust. The Board is divided into three classes, with the
term of one class expiring at each annual meeting of holders of Common Shares
and Preferred Shares. At each annual meeting, one class of Trustees is elected
to a three-year term. This provision could delay for up to two years the
replacement of a majority of the Board of Trustees. A Trustee may be removed
from office
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48
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
--------------------------------------------------------------------------------
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 Trust
that elected such Trustee and is entitled to vote on the matter.
In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Trust, 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 Trust. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Trust or any
subsidiary of the Trust with or into any Principal Shareholder; (ii) the
issuance of any securities of the Trust to any Principal Shareholder for cash;
(iii) the sale, lease or exchange of all or any substantial part of the assets
of the Trust 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 Trust or any subsidiary thereof, in exchange for securities of the Trust,
of any assets of any Principal Shareholder (except assets having an aggregate
fair market value of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board has determined that provisions with respect to the Board and the 75%
voting requirements described above, which voting requirements are greater than
the minimum requirements under Massachusetts law or the 1940 Act, are in the
best interest of holders of Common Shares and Preferred Shares generally.
Reference should be made to the Declaration of Trust on file with the SEC for
the full text of these provisions.
CONVERSION TO OPEN-END FUND
The Trust may be converted to an open-end investment company at any time if
approved by the lesser of (i) two-thirds or more of the Trust's then outstanding
Common Shares and Preferred Shares, each voting separately as a class, or (ii)
more than 50% of the then outstanding Common Shares and Preferred Shares, voting
separately as a class if such conversion is recommended by at least 75% of the
Trustees then in office. If approved in the foregoing manner, conversion of the
Trust 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 Trust to an open-end investment
company also would require the redemption of any outstanding Preferred Shares,
including the APS, and could require the repayment of borrowings. The Board
believes that the closed-end structure is desirable, given the Trust's
investment objectives and policies. Investors should assume, therefore, that it
is unlikely that the Board would vote to convert the Trust to an open-end
investment company.
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49
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Underwriting
The underwriters named below (the "Underwriters"), acting through UBS Securities
LLC, 299 Park Avenue, New York New York, as lead manager and Citigroup Global
Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Wachovia
Capital Markets, LLC as their representatives (together with the lead manager,
the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement with the Trust and the Adviser, to
purchase from the Trust the number of APS set forth below their respective
names. The Underwriters are committed to purchase and pay for all of the Trust's
APS if any are purchased.
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------------------------
UBS Securities LLC..........................................
Citigroup Global Markets Inc. ..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Wachovia Capital Markets, LLC...............................
----------------
Total..................................................
================
The Underwriters have advised the Trust that they propose initially to offer the
APS of the Trust to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed. Investors must pay for any APS purchased
on or before September , 2004.
The Underwriters (or their affiliates) will act in Auctions as Broker-Dealers as
set forth under "The Auctions--General--Broker-Dealer Agreements" and will be
entitled to fees for services as Broker-Dealers as set forth therein. The
Underwriters also may provide information to be used in ascertaining the
Reference Rate.
The Trust anticipates that the Representatives and certain other Underwriters
may from time to time act as brokers and dealers in connection with the
execution of the Trust's portfolio transactions after they have ceased to be
principal underwriters of the Trust under the 1940 Act and, subject to certain
conditions, may act as such brokers while they are principal underwriters.
In connection with this offering, certain of the Underwriters or selected
dealers may distribute prospectuses electronically.
The Trust and the Adviser have agreed to indemnify the Underwriters against
certain liabilities including liabilities under the Securities Act of 1933, as
amended.
Shareholder Servicing Agent, custodian and transfer agent
Pursuant to a shareholder servicing agreement ("Shareholder Servicing
Agreement") between UBS Securities LLC (the "Shareholder Servicing Agent") and
Eaton Vance, the Shareholder Servicing Agent will (i) at the request of and as
specified by Eaton Vance, undertake to make available public information
pertaining to the Trust on an ongoing basis and to communicate to investors and
prospective investors the Trust'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
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50
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AGENT
--------------------------------------------------------------------------------
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 Trust (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 Trust in the investor community; (iii) at the
request of Eaton Vance or the Trust, provide certain economic research and
statistical information and reports, if reasonably obtainable, to Eaton Vance or
the Trust and consult with representatives of Eaton Vance and/or Trustees of the
Trust in connection therewith, which information and reports shall include: (a)
statistical and financial market information with respect to the Trust's market
performance; and (b) comparative information regarding the Trust 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
Trust 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 Trust 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 Trust, provide
information to and consult with Eaton Vance and/or the Board of Trustees of the
Trust 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
Trust, conversion of the Trust 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 Trust's
average daily gross assets. Under the terms of the Shareholder Servicing
Agreement, the Shareholder Servicing Agent is relieved from liability to Eaton
Vance or the Trust for any act or omission to act by the Shareholder Servicing
Agent in the course of its performances under the Shareholder Servicing
Agreement in the absence of gross negligence or willful misconduct on the part
of the Shareholder Servicing Agent. The Shareholder Servicing Agreement will
continue so long as the Advisory Agreement remains in effect between the Trust
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 Trust and will maintain custody of
the securities and cash of the Trust. IBT maintains the Trust's general ledger
and computes net asset value per share at least weekly. IBT also attends to
details in connection with the sale, exchange, substitution, transfer and other
dealings with the Trust'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 Trust.
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51
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Legal opinions
Certain legal matters in connection with the APS will be passed upon for the
Trust by Kirkpatrick & Lockhart LLP, Boston, Massachusetts, and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois.
Independent registered public accounting firm
Deloitte & Touche LLP, Boston, Massachusetts is the independent registered
public accounting firm for the Trust and will audit the Trust'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 Trust has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its rules and regulations. The Statement
of Additional Information can be obtained without charge by calling
1-800-225-6265.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
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52
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Table of contents for the
Statement of Additional Information
PAGE
----
Additional investment information and restrictions.......... 2
Trustees and officers....................................... 14
Investment advisory and other services...................... 22
Determination of net asset value............................ 24
Portfolio trading........................................... 25
Taxes....................................................... 29
Other information........................................... 32
Independent registered public accounting firm............... 32
Independent registered public accounting firm's report...... 33
Financial Statements........................................ 34
Notes to Financial Statements............................... 57
Appendix A: Ratings......................................... A-1
Appendix B: Amended By-Laws................................. B-1
The Trust's privacy policy
The Trust is committed to ensuring your financial privacy. This notice is being
sent to comply with privacy regulations of the Securities and Exchange
Commission. The Trust 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 Trust 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 Trust's privacy policies call 1-800-262-1122.
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53
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Glossary
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"28-Day Dividend Period" means a Dividend Period consisting of 28 days.
"1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
"1940 Act APS Asset Coverage" has the meaning set forth on page 31 of this
Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 31 of this Prospectus.
"Adviser" means Eaton Vance Management.
"Agent Member" means the member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more APS or on behalf of a Potential
Beneficial Owner.
"Amended By-Laws" means the By-laws of the Trust, as amended August 16, 2004,
specifying the powers, preferences and rights of the APS. The Trust's Amended
By-Laws are contained in Appendix B to the Trust's Statement of Additional
Information.
"Applicable Percentage of the Reference Rate" has the meaning set forth on page
38 and 39 of this Prospectus.
"Applicable Rate" means the rate per annum at which cash dividends are payable
on APS for any Dividend Period.
"Applicable Spread" has the meaning set forth on page 39 of this Prospectus.
"Applicable Spread Over the Reference Rate" means the rate equaling the sum of
the Applicable Spread plus the Reference Rate.
"APS" means the Auction Preferred Shares with a par value of $0.01 per share and
a liquidation preference of $25,000 per share, plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared), of
the Trust.
"APS Basic Maintenance Amount" has the meaning set forth on page 33 of this
Prospectus.
"APS Basic Maintenance Cure Date" has the meaning set forth on page 31 of this
Prospectus.
"APS Shareholders" has the meaning set forth on the inside cover page of this
Prospectus.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Deutsche Bank Trust Company Americas, unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Trust or a duly authorized
committee thereof enters into an agreement with each to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS.
"Auction Agent Agreement" means the agreement entered into between the Trust and
the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" has the meaning set forth on page 37 of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth in
Section 10 of Article VII of the Trust's Amended By-Laws contained in Appendix B
to the Trust's Statement of Additional Information.
"Available APS" has the meaning specified in Paragraph 10(d)(i) of the Auction
Procedures.
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54
GLOSSARY
--------------------------------------------------------------------------------
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of APS or a Broker-Dealer that holds APS for its own account.
"Bid" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Bidder" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Board of Trustees" or "Board" means the Board of Trustees of the Trust.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law to
perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Trust and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in New
York City are authorized or obligated by law to close.
"Cede & Co." means the nominee of DTC, and in whose name the shares of APS
initially will be registered.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the common shares of beneficial interest, par value $0.01
per share, of the Trust.
"Date of Original Issue" means, with respect to each series of APS, the date on
which such share first is issued by the Trust.
"Declaration of Trust" means the Agreement and Declaration of Trust of the
Trust.
"Discounted Value" of any asset of each means with respect to a Fitch Eligible
Asset and Moody's Eligible Asset, the quotient of the market value thereof
divided by the applicable Fitch Discount Factor and Moody's Discount Factor.
"Dividend Payment Date" has the meaning set forth on page 27 of this Prospectus.
"Dividend Periods" has the meaning set forth on page 27 of this Prospectus.
"DTC" means The Depository Trust Company.
"Eligible Assets" means Fitch Eligible Assets and Moody's Eligible Assets.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Trust that is listed as the holder of record of APS in the
records of the Auction Agent.
"Fitch" means Fitch Ratings or its successors.
"Fitch Eligible Assets" has the meaning set forth on page 33 of this Prospectus.
"Hold Order" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"IBT" means Investors Bank & Trust Company, the custodian of the Trust's assets.
"Initial Dividend Payment Date" has the meaning set forth on the inside cover
page of this Prospectus.
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55
GLOSSARY
--------------------------------------------------------------------------------
"Initial Dividend Period" means, with respect to the APS, the period from and
including the Date of Original Issue to but excluding the Initial Dividend
Payment Date of the APS.
"IRS" means the Internal Revenue Service.
"LIBOR" means the London Interbank Offered Rate.
"LIBOR Rate" has the meaning specified in Subsection 1(a) of Article VII of the
Trust's Amended By-Laws contained in Appendix B to the Trust's Statement of
Additional Information.
"Long-Term Dividend Period" has the meaning set forth on page 27 of this
Prospectus.
"Mandatory Redemption Price" has the meaning set forth on page 31 of this
Prospectus.
"Maximum Applicable Rate" has the meaning specified under "The Auctions--Auction
Procedures--Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders" in this Prospectus.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Eligible Assets" has the meaning set forth on page 33 of this
Prospectus.
"Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page 29 of this Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page 30 of this
Prospectus.
"Notice of Revocation" has the meaning set forth on page 28 of this Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page 28 of this
Prospectus.
"Optional Redemption Price" has the meaning set forth on page 31 of this
Prospectus.
"Order" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of APS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
APS.
"Potential Holder" means any Broker-Dealer or any such other person as may be
permitted by the Trust, including any Existing Holder, who may be interested in
acquiring APS (or, in the case of an Existing Holder, additional APS).
"Preferred Shares" means preferred shares of beneficial interest, par value
$0.01 per share, of the Trust.
"Premium Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Rating Agencies" has the meaning set forth on page 9 of this Prospectus.
"Reference Rate" means (i) with respect to a Dividend Period having 364 or fewer
days, the applicable LIBOR Rate and (ii) with respect to a Dividend Period
having 365 or more days, the applicable U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth on page 27 and
28 of this Prospectus.
"Response" has the meaning set forth on page 28 of this Prospectus.
"S&P" means Standard & Poor's, or its successors.
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56
GLOSSARY
--------------------------------------------------------------------------------
"Securities Depository" means The Depository Trust Company and its successors
and assigns or any successor securities depository selected by the Trust that
agrees to follow the procedures required to be followed by such securities
depository in connection with the APS.
"Sell Order" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Shareholder" means holders of Common Shares or Preferred Shares of the Trust.
"Shares" means Common Shares and/or APS.
"Short-Term Dividend Period" has the meaning set forth on page 27 this
Prospectus.
"Special Dividend Period" has the meaning set forth on page 21 of this
Prospectus.
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Trust, after consultation with the
Auction Agent and the Broker-Dealers, during which the APS subject to such
Dividend Period shall not be subject to redemption at the option of the Trust
and (ii) a period (a "Premium Call Period"), consisting of a number of whole
years and determined by the Board of Trustees of the Trust, after consultation
with the Auction Agent and the Broker-Dealers, during each year of which the APS
subject to such Dividend Period shall be redeemable at the Trust's option at a
price per share equal to $25,000 plus accumulated but unpaid dividends plus a
premium expressed as a percentage of $25,000, as determined by the Board of
Trustees of the Trust after consultation with the Auction Agent and the
Broker-Dealers.
"Submission Deadline" has the meaning specified in Subsection 10(a)(x) of the
Auction Procedures.
"Submitted Bid" has the meaning specified in Subsection 10(d)(i) of the Auction
Procedures.
"Submitted Hold Order" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
"Submitted Order" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
"Submitted Sell Order" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by the
Adviser, or its respective affiliates and successors, after consultation with
the Trust and the Broker-Dealers, to act as a substitute Rating Agency or
substitute Rating Agencies, as the case may be, to determine the credit ratings
of the APS.
"Sufficient Clearing Bids" has the meaning specified in Subsection 10(d)(i) of
the Auction Procedures.
"Trust" means Eaton Vance Floating-Rate Income Trust, a Massachusetts business
trust that is the issuer of APS.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price
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57
GLOSSARY
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quotations as of any time on the Business Day immediately preceding such date,
obtained from at least three recognized primary U.S. government securities
dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust is
maintaining the APS Basic Maintenance Amount, each Business Day commencing with
September , 2004.
"Winning Bid Rate" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
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58
[EATON VANCE LOGO]
STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION SEPTEMBER 8 2004
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
, 2004
EATON VANCE FLOATING-RATE INCOME TRUST
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265
TABLE OF CONTENTS
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PAGE
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Additional investment information and restrictions.......... 2
Trustees and officers....................................... 14
Investment advisory and other services...................... 22
Determination of net asset value............................ 24
Portfolio trading........................................... 25
Taxes....................................................... 29
Other information........................................... 32
Independent registered public accounting firm............... 32
Independent registered public accounting firm report........ 33
Financial Statements........................................ 34
Notes to Financial Statements............................... 57
APPENDIX A: Ratings......................................... A-1
APPENDIX B: Amended By-Laws................................. B-1
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE FLOATING-RATE INCOME TRUST (THE
"TRUST") DATED , 2004, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH
SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING
YOUR FINANCIAL INTERMEDIARY OR CALLING THE TRUST AT 1-800-225-6265.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION, WHICH IS NOT A PROSPECTUS, IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Trust'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
Trust's investment objectives.
SENIOR LOANS
STRUCTURE OF SENIOR LOANS
A Senior Loan is typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a group of loan investors ("Loan Investors"). The
Agent typically administers and enforces the Senior Loan on behalf of the other
Loan Investors in the syndicate. In addition, an institution, typically but not
always the Agent, holds any collateral on behalf of the Loan Investors.
Senior Loans primarily include senior floating rate loans to corporations and
secondarily institutionally traded senior floating rate debt obligations issued
by an asset-backed pool, and interests therein. Loan interests primarily take
the form of assignments purchased in the primary or secondary market. Loan
interests may also take the form of participation interests in a Senior Loan.
Such loan interests may be acquired from U.S. or foreign commercial banks,
insurance companies, finance companies or other financial institutions who have
made loans or are Loan Investors or from other investors in loan interests.
The Trust typically purchases "Assignments" from the Agent or other Loan
Investors. The purchaser of an Assignment typically succeeds to all the rights
and obligations under the Loan Agreement of the assigning Loan Investor and
becomes a Loan Investor under the Loan Agreement with the same rights and
obligations as the assigning Loan Investor. Assignments may, however, be
arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Loan Investor.
The Trust also may invest in "Participations." Participations by the Trust in a
Loan Investor's portion of a Senior Loan typically will result in the Trust
having a contractual relationship only with such Loan Investor, not with the
Borrower. As a result, the Trust may have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Loan
Investor selling the Participation and only upon receipt by such Loan Investor
of such payments from the Borrower. In connection with purchasing
Participations, the Trust generally will have no right to enforce compliance by
the Borrower with the terms of the loan agreement, nor any rights with respect
to any funds acquired by other Loan Investors through set-off against the
Borrower and the Trust may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. As a result, the
Trust may assume the credit risk of both the Borrower and the Loan Investor
selling the Participation. In the event of the insolvency of the Loan Investor
selling Participation, the Trust may be treated as a general creditor of such
Loan Investor. The selling Loan Investors and other persons interpositioned
between such Loan Investors and the Trust with respect to such Participations
will likely conduct their principal business activities in the banking, finance
and financial services industries. Persons engaged in such industries may be
more susceptible to, among other things, fluctuations in interest rates, changes
in the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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The Trust will only acquire Participations if the Loan Investor selling the
Participation, and any other persons interpositioned between the Trust and the
Loan Investor, at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB- or A-3 or higher by Standard & Poor's
Ratings Group ("S&P") or Baa3 or P-3 or higher by Moody's Investors Service,
Inc. ("Moody's") or comparably rated by another nationally recognized rating
agency) or determined by the Adviser to be of comparable quality. Securities
rated Baa3 by Moody's have speculative characteristics. Long-term debt rated
BBB- by S&P is regarded by S&P as having adequate capacity to pay interest and
repay principal and debt rated Baa3 by Moody's is regarded by Moody's as a
medium grade obligation, i.e., it is neither highly protected nor poorly
secured. Commercial paper rated A-3 by S&P indicates that S&P believes such
obligations exhibit adequate protection parameters but that 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 and
issues of commercial paper rated P-3 by Moody's are considered by Moody's to
have an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Indebtedness of companies whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Some companies may
never pay off their indebtedness, or may pay only a small fraction of the amount
owed. Consequently, when investing in indebtedness of companies with poor
credit, the Trust bears a substantial risk of losing the entire amount invested.
The following table is intended to provide investors with a comparison of
short-term money market rates, a representative base commercial lending rate,
and a representative indicator of the premium over such base lending rate for
Senior Loans. This comparison should not be considered a representation of
future money market rates, spreads of Senior Loans over base reference rates nor
what an investment in the Trust may earn or what an investor's yield or total
return may be in the future.
SEPT. SEPT. SEPT. SEPT. SEPT. SEPT.
1993 1995 1997 1999 2001 2003
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3 Month Treasury Bill(1)....................... 2.98% 5.42% 5.11% 4.86% 2.38% 0.95%
3 Month LIBOR(2)............................... 3.21 5.87 5.80 5.57 3.03 1.14
CSFB Leveraged Loan Index(3)................... 5.71 8.18 8.13 8.04 6.18 4.34
------------
(1) Source: Bloomberg
(2) The London InterBank Offer Rate; Source: Bloomberg
(3) The CSFB Leveraged Loan Index is a representative index of tradable, senior
secured, U.S. dollar-denominated leveraged loans. Investors cannot invest
directly in an index. Source for the CSFB Leveraged Loan Index Returns:
Credit Suisse First Boston LLC; Thomson Financial.
LOAN COLLATERAL
In order to borrow money pursuant to a Senior Loan, a Borrower will frequently,
for the term of the Senior Loan, pledge collateral, including but not limited
to, (i) working capital assets, such as accounts receivable and inventory; (ii)
tangible fixed assets, such as real property, buildings and equipment; (iii)
intangible assets, such as trademarks and patent rights (but excluding
goodwill); and (iv) security interests in shares of stock of subsidiaries or
affiliates. In the case of Senior Loans made to non-public companies, the
company's shareholders or owners may provide collateral in the form of secured
guarantees and/or security interests in assets that they own. In many instances,
a Senior Loan may be secured only by stock in the Borrower or its subsidiaries.
Collateral may consist of assets that may not be readily liquidated, and there
is no assurance that the liquidation of such assets would satisfy fully a
Borrower's obligations under a Senior Loan.
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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CERTAIN FEES PAID TO THE TRUST
In the process of buying, selling and holding Senior Loans, the Trust may
receive and/or pay certain fees. These fees are in addition to interest payments
received and may include facility fees, commitment fees, amendment fees,
commissions and prepayment penalty fees. When the Trust buys a Senior Loan it
may receive a facility fee and when it sells a Senior Loan it may pay a facility
fee. On an ongoing basis, the Trust may receive a commitment fee based on the
undrawn portion of the underlying line of credit portion of a Senior Loan. In
certain circumstances, the Trust may receive a prepayment penalty fee upon the
prepayment of a Senior Loan by a Borrower. Other fees received by the Trust may
include covenant waiver fees and covenant modification fees.
BORROWER COVENANTS
A Borrower must comply with various restrictive covenants contained in a loan
agreement or note purchase agreement between the Borrower and the holders of the
Senior Loan (the "Loan Agreement"). Such covenants, in addition to requiring the
scheduled payment of interest and principal, may include restrictions on
dividend payments and other distributions to stockholders, provisions requiring
the Borrower to maintain specific minimum financial ratios, and limits on total
debt. In addition, the Loan Agreement may contain a covenant requiring the
Borrower to prepay the Senior Loan with any free cash flow. Free cash flow is
generally defined as net cash flow after scheduled debt service payments and
permitted capital expenditures, and includes the proceeds from asset
dispositions or sales of securities. A breach of a covenant that is not waived
by the Agent, or by the Loan Investors directly, as the case may be, is normally
an event of acceleration; i.e., the Agent, or the Loan Investors directly, as
the case may be, has the right to call the outstanding Senior Loan. The typical
practice of an Agent or a Loan Investor in relying exclusively or primarily on
reports from the Borrower to monitor the Borrower's compliance with covenants
may involve a risk of fraud by the Borrower. In the case of a Senior Loan in the
form of Participation, the agreement between the buyer and seller may limit the
rights of the holder to vote on certain changes that may be made to the Loan
Agreement, such as waiving a breach of a covenant. However, the holder of the
Participation will, in almost all cases, have the right to vote on certain
fundamental issues such as changes in principal amount, payment dates and
interest rate.
ADMINISTRATION OF LOANS
In a typical Senior Loan, the Agent administers the terms of the Loan Agreement.
In such cases, the Agent is normally responsible for the collection of principal
and interest payments from the Borrower and the apportionment of these payments
to the credit of all institutions that are parties to the Loan Agreement. The
Trust will generally rely upon the Agent or an intermediate participant to
receive and forward to the Trust its portion of the principal and interest
payments on the Senior Loan. Furthermore, unless under the terms of a
Participation Agreement the Trust has direct recourse against the Borrower, the
Trust will rely on the Agent and the other Loan Investors to use appropriate
credit remedies against the Borrower. The Agent is typically responsible for
monitoring compliance with covenants contained in the Loan Agreement based upon
reports prepared by the Borrower. The seller of the Senior Loan usually does,
but is often not obligated to, notify holders of Senior Loans of any failures of
compliance. The Agent may monitor the value of the collateral and, if the value
of the collateral declines, may accelerate the Senior Loan, may give the
Borrower an opportunity to provide additional collateral or may seek other
protection for the benefit of the participants in the Senior Loan. The Agent is
compensated by the Borrower for providing these services under a Loan Agreement,
and such compensation may include special fees paid upon structuring and funding
the Senior Loan and other fees paid on a continuing basis. With respect to
Senior Loans for which the Agent does not perform such administrative and
enforcement functions, the Trust will perform such tasks on its own behalf,
although a collateral bank will typically hold any collateral on behalf of the
Trust and the other Loan Investors pursuant to the applicable Loan Agreement.
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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A financial institution's appointment as Agent may usually be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement should remain available to holders of Senior
Loans. However, if assets held by the Agent for the benefit of the Trust were
determined to be subject to the claims of the Agent's general creditors, the
Trust might incur certain costs and delays in realizing payment on a Senior
Loan, or suffer a loss of principal and/or interest. In situations involving
intermediate participants, similar risks may arise.
PREPAYMENTS
Senior Loans will usually require, in addition to scheduled payments of interest
and principal, the prepayment of the Senior Loan from a portion of free cash
flow, as defined above. The degree to which Borrowers prepay Senior Loans,
whether as a contractual requirement or at their election, may be affected by
general business conditions, the financial condition of the Borrower and
competitive conditions among Loan Investors, among other factors. As such,
prepayments cannot be predicted with accuracy. Upon a prepayment, either in part
or in full, the actual outstanding debt on which the Trust derives interest
income will be reduced. However, the Trust may receive both a prepayment penalty
fee from the prepaying Borrower and a facility fee upon the purchase of a new
Senior Loan with the proceeds from the prepayment of the former. Prepayments
generally will not materially affect the Trust's performance because the Trust
typically is able to reinvest prepayments in other Senior Loans that have
similar yields and because receipt of such fees may mitigate any adverse impact
on the Trust's yield.
OTHER INFORMATION REGARDING SENIOR LOANS
From time to time the Adviser and its affiliates may borrow money from various
banks in connection with their business activities. Such banks may also sell
interests in Senior Loans to or acquire them from the Trust or may be
intermediate participants with respect to Senior Loans in which the Trust owns
interests. Such banks may also act as Agents for Senior Loans held by the Trust.
The Trust may acquire interests in Senior Loans that are designed to provide
temporary or "bridge" financing to a Borrower pending the sale of identified
assets or the arrangement of longer-term loans or the issuance and sale of debt
obligations. The Trust may also invest in Senior Loans of Borrowers that have
obtained bridge loans from other parties. A Borrower's use of bridge loans
involves a risk that the Borrower may be unable to locate permanent financing to
replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.
The Trust will be subject to the risk that collateral securing a loan will
decline in value or have no value. Such a decline, whether as a result of
bankruptcy proceedings or otherwise, could cause the Senior Loan to be
undercollateralized or unsecured. In most credit agreements, there is no formal
requirement to pledge additional collateral. In addition, the Trust may invest
in Senior Loans guaranteed by, or secured by assets of, shareholders or owners,
even if the Senior Loans are not otherwise collateralized by assets of the
Borrower; provided, however, that such guarantees are fully secured. There may
be temporary periods when the principal asset held by a Borrower is the stock of
a related company, which may not legally be pledged to secure a Senior Loan. On
occasions when such stock cannot be pledged, the Senior Loan will be temporarily
unsecured until the stock can be pledged or is exchanged for or replaced by
other assets, which will be pledged as security for the Senior Loan. However,
the Borrower's ability to dispose of such securities, other than in connection
with such pledge or replacement, will be strictly limited for the protection of
the holders of Senior Loans and, indirectly, Senior Loans themselves.
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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If a Borrower becomes involved in bankruptcy proceedings, a court may invalidate
the Trust's security interest in the loan collateral or subordinate the Trust's
rights under the Senior Loan to the interests of the Borrower's unsecured
creditors or cause interest previously paid to be refunded to the Borrower. If a
court required interest to be refunded, it could negatively affect the Trust's
performance. Such action by a court could be based, for example, on a
"fraudulent conveyance" claim to the effect that the Borrower did not receive
fair consideration for granting the security interest in the loan collateral to
the Trust. For Senior Loans made in connection with a highly leveraged
transaction, consideration for granting a security interest may be deemed
inadequate if the proceeds of the Loan were not received or retained by the
Borrower, but were instead paid to other persons (such as shareholders of the
Borrower) in an amount that left the Borrower insolvent or without sufficient
working capital. There are also other events, such as the failure to perfect a
security interest due to faulty documentation or faulty official filings, which
could lead to the invalidation of the Trust's security interest in loan
collateral. If the Trust's security interest in loan collateral is invalidated
or the Senior Loan is subordinated to other debt of a Borrower in bankruptcy or
other proceedings, the Trust would have substantially lower recovery, and
perhaps no recovery on the full amount of the principal and interest due on the
Senior Loan.
The Trust may acquire warrants and other equity securities as part of a unit
combining a Senior Loan and equity securities of a Borrower or its affiliates.
The acquisition of such equity securities will only be incidental to the Trust's
purchase of a Senior Loan. The Trust may also acquire equity securities or debt
securities (including non-dollar denominated debt securities) issued in exchange
for a Senior Loan, issued in connection with the debt restructuring or
reorganization of a Borrower, if such acquisition, in the judgment of the
Adviser, may enhance the value of a Senior Loan or if such acquisition would
otherwise be consistent with the Trust's investment policies including its
policy of generally only investing in U.S.-dollar denominated securities.
DEBTOR-IN-POSSESSION FINANCING
The Trust may invest in debtor-in-possession financings (commonly called "DIP
financings"). DIP financings are arranged when an entity seeks the protections
of the bankruptcy court under chapter 11 of the U.S. Bankruptcy Code. These
financings allow the entity to continue its business operations while
reorganizing under chapter 11. Such financings are senior liens on unencumbered
security (i.e., security not subject to other creditors claims). There is a risk
that the entity will not emerge from chapter 11 and be forced to liquidate its
assets under chapter 7 of the Bankruptcy Code. In such event, the Trust's only
recourse will be against the property securing the DIP financing.
LITIGATION INVOLVING EATON VANCE
On October 15, 2001, an amended consolidated complaint was filed in the United
States District Court for the District of Massachusetts against four Eaton Vance
closed-end interval funds (the "Interval Funds"); their Trustees and certain
officers of the Interval Funds; Eaton Vance, the Interval Funds' administrator;
Boston Management and Research, the Interval Funds' investment adviser; and
Eaton Vance Corp., the parent of Eaton Vance and Boston Management and Research.
The Complaint, framed as a class action, alleges that for the period between May
25, 1998 and March 5, 2001, the Interval Funds' assets were incorrectly valued
and certain matters were not properly disclosed, in violation of the federal
securities laws. The Complaint seeks unspecified damages. The named defendants
believe that the Complaint is without merit and are vigorously contesting the
lawsuit. Eaton Vance believes that the lawsuit is not likely to have a material
adverse affect on its ability to render services to the Trust.
REGULATORY CHANGES
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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loans, particularly in connection with highly leveraged transactions, the
availability of Senior Loans for investment may be adversely affected. Further,
such legislation or regulation could depress the market value of Senior Loans.
CREDIT QUALITY
Many Senior Loans in which the Trust may invest are of below investment grade
credit quality. Accordingly, these Senior Loans are subject to similar or
identical risks and other characteristics described below in relation to
Non-Investment Grade 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 Trust 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, their market prices will normally be affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities that 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 Trust may have greater
difficulty selling these securities. The Trust 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
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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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 Trust,
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 Trust 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.
CONVERTIBLE SECURITIES
The Trust may invest in convertible securities. Convertible securities include
any corporate debt security or preferred stock that may be converted into
underlying shares of common stock. The common stock underlying convertible
securities may be issued by a different entity than the issuer of the
convertible securities. Convertible securities entitle the holder to receive
interest payments paid on corporate debt securities or the dividend preference
on a preferred stock until such time as the convertible security matures or is
redeemed or until the holder elects to exercise the conversion privilege. As a
result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in non-convertible form.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security typically will fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security
will be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock.
If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price
of the convertible security is governed principally by its investment value. If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed income
security. Holders of convertible securities have a claim on the assets of the
issuer prior to the common stockholders, but may be subordinated to holders of
similar non-convertible securities of the same issuer.
OTHER INVESTMENTS
FIXED INCOME SECURITIES
Fixed income securities include preferred, preference and convertible
securities, equipment lease certificates, equipment trust certificates and
conditional sales contracts. Preference stocks are stocks that have many
characteristics of preferred stocks, but are typically junior to an existing
class of preferred stocks. Equipment lease certificates are debt obligations
secured by leases on equipment (such as railroad cars, airplanes or office
equipment), with the issuer of the certificate being the owner and
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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lessor of the equipment. Equipment trust certificates are debt obligations
secured by an interest in property (such as railroad cars or airplanes), the
title of which is held by a trustee while the property is being used by the
borrower. Conditional sales contracts are agreements under which the seller of
property continues to hold title to the property until the purchase price is
fully paid or other conditions are met by the buyer.
Fixed-rate bonds may have a demand feature allowing the holder to redeem the
bonds at specified times. These bonds are more defensive than conventional
long-term bonds (protecting to some degree against a rise in interest rates)
while providing greater opportunity than comparable intermediate term bonds,
since they may be retained if interest rates decline. Acquiring these kinds of
bonds provides the contractual right to require the issuer of the bonds to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement or instrument. Since this
right is assignable only with the bond, it will not be assigned any separate
value.
Certain securities may permit the issuer at its option to "call," or redeem, the
securities. If an issuer were to redeem securities during a time of declining
interest rates, the Trust may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The rating assigned to a security by a rating agency does not reflect assessment
of the volatility of the security's market value or of the liquidity of an
investment in the securities. Credit ratings are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of rating, and the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition. Credit
quality in the high yield, high risk bond market can change from time to time,
and recently issued credit ratings may not fully reflect the actual risks posed
by a particular high yield security. In addition to lower rated securities, the
Trust also may invest in higher rated securities. For a description of corporate
bond ratings, see Appendix A.
REPURCHASE AGREEMENTS
The Trust may enter into repurchase agreements (the purchase of a security
coupled with an agreement to resell at a higher price) with respect to its
permitted investments. In the event of the bankruptcy of the other party to a
repurchase agreement, the Trust might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Trust
purchased may have decreased, the Trust could experience a loss. Repurchase
agreements that mature in more than seven days will be treated as illiquid. The
Trust's repurchase agreements will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the agreement, and
will be marked to market daily.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations that do not require the periodic payment
of interest and are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. The Trust is required to
accrue income from zero coupon bonds on a current basis, even though it does not
receive that income currently in cash and the Trust is required to distribute
its income for each taxable year. Thus, the Trust may have to sell other
investments to obtain cash needed to make income distributions.
INDEXED SECURITIES
The Trust may invest in securities that fluctuate in value with an index. Such
securities generally will either be issued by the U.S. Government or one of its
agencies or instrumentalities or, if privately issued, collateralized by
mortgages that are insured, guaranteed or otherwise backed by the U.S.
Government, its agencies or instrumentalities. The interest rate or, in some
cases, the principal payable at the maturity of an indexed security may change
positively or inversely in relation to one or
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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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more interest rates, financial indices, securities prices or other financial
indicators ("reference prices"). An indexed security may be leveraged to the
extent that the magnitude of any change in the interest rate or principal
payable on an indexed security is a multiple of the change in the reference
price. Thus, indexed securities may decline in value due to adverse market
changes in reference prices. Because indexed securities derive their value from
another instrument, security or index, they are considered derivative debt
securities, and are subject to different combinations of prepayment, extension,
interest rate and/or other market risks.
SHORT SALES
The Trust may utilize short sales for hedging purposes. A short sale is effected
by selling a security which the Trust does not own, or, if the Trust does own
the security, is not to be delivered upon consummation of the sale. The Trust
may engage in short sales "against the box" (i.e., short sales of securities the
Trust already owns) for hedging purposes. If the price of the security in the
short sale decreases, the Trust will realize a profit to the extent that the
short sale price for the security exceeds the market price. If the price of the
security increases, the Trust will realize a loss to the extent that the market
price exceeds the short sale price. Selling securities short runs the risk of
losing an amount greater than the initial investment therein.
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 Trust 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 Trust reserves the right to utilize short sales, the Adviser is under no
obligation to utilize short-sales at all.
FOREIGN INVESTMENTS
The Trust may invest in U.S. dollar denominated securities of non-U.S. issuers.
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 is 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 that 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 a foreign issuer 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,
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10
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are
established without the participation of the issuer. Unsponsored receipts may
involve higher expenses, they may not pass-through voting or other shareholder
rights, and they may be less liquid.
OPTIONS
Call options may be purchased to provide exposure to increases in the market
(e.g., with respect to temporary cash positions) or to hedge against an increase
in the price of securities or other investments that the Trust intends to
purchase or has sold short. Similarly, put options may be purchased for
speculative purposes or to hedge against a decrease in the market generally or
in the price of securities or other investments held by the Trust. Buying
options may reduce the Trust's returns, but by no more than the amount of the
premiums paid for the options.
The Trust may write covered call options (i.e., where the Trust owns the
security or other investment that is subject to the call) to enhance returns
when the Adviser perceives that the option premium offered is in excess of the
premium that the Adviser would expect to be offered under existing market
conditions, or if the exercise price of the option is in excess of the price
that the Adviser expects the security or other underlying investment to reach
during the life of the option. Writing covered call options may limit the
Trust's gain on portfolio investments if the option is exercised because the
Trust will have to sell the underlying investments below the current market
price. Purchasing and writing put and call options are highly specialized
activities and entail greater than ordinary market risks.
SECURITIES LENDING
As described in the Prospectus, the Trust may lend a portion of its portfolio
Senior Loans or other 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 Trust 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 Trust may also seek
to earn income on securities loans by reinvesting cash collateral in
mortgage-backed securities ("MBS") or other securities consistent with its
investment objectives 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.
Senior Loans and other securities 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 Trust 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 Trust or the borrower at any time. Upon termination
and the return of the loaned securities, the Trust 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 Trust
realizing a loss at a time when it would not otherwise do so. The Trust 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 Trust will receive amounts equivalent to any interest or other distributions
paid on securities while they are on loan, and the Trust will not be entitled to
exercise voting or other beneficial rights on loaned securities. The Trust will
exercise its right to terminate loans and thereby regain these rights
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11
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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whenever the Adviser considers it to be in the Trust's interest to do so, taking
into account the related loss of reinvestment income and other factors.
SHORT-TERM TRADING
Securities may be sold in anticipation of market decline (a rise in interest
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold. In addition, a security may be sold and another purchased
at approximately the same time to take advantage of what the Adviser believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
fixed income securities or changes in the investment objectives of investors.
TEMPORARY INVESTMENTS
The Trust 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 Trust are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Trust's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Trust present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
present or represented at the meeting or (b) more than 50% of outstanding shares
of the Trust. As a matter of fundamental policy the Trust may not:
(1) Borrow money, except as permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act currently requires that any
indebtedness incurred by a closed-end investment company have an asset
coverage of at least 300%;
(2) Issue senior securities, as defined in the 1940 Act, other than (i)
preferred shares which immediately after issuance will have asset coverage
of at least 200%, (ii) indebtedness which immediately after issuance will
have asset coverage of at least 300%, or (iii) the borrowings permitted by
investment restriction (1) above. The 1940 Act currently defines "senior
security" as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness, and any stock of a
class having priority over any other class as to distribution of assets or
payment of dividends. Debt and equity securities issued by a closed-end
investment company meeting the foregoing asset coverage provisions are
excluded from the general 1940 Act prohibition on the issuance of senior
securities;
(3) Purchase securities on margin (but the Trust 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 Trust is
authorized to invest in accordance with its investment objectives and
policies, (b) entering into repurchase agreements, (c) lending its
portfolio securities and (d) lending cash consistent with applicable law;
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12
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------
(6) Purchase or sell real estate, although it may purchase and sell securities
that are secured by interests in real estate and securities of issuers that
invest or deal in real estate. The Trust 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 or other financial
instruments; and
(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; or
invest 25% or more of its total assets in any single industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
The Trust 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 Trust
securities. The 1940 Act currently requires that the Trust have 300% asset
coverage with respect to all borrowings other than temporary borrowings.
Pursuant to investment restriction 5(d) above, as disclosed in the Prospectus,
the Trust may make loans to participate in the origination of Senior Loans and
other secured floating-rate loans.
For purposes of construing restriction (8), securities of the U.S. Government,
its agencies, or instrumentalities are not considered to represent industries.
Municipal obligations backed by the credit of a governmental entity are also not
considered to represent industries.
The Trust has adopted the following nonfundamental investment policy, which may
be changed by the Board without approval of the Trust's shareholders. As a
matter of nonfundamental policy, the Trust 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 issuer as, and equal in amount to, the
securities sold short.
The Trust 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 section 12(d) of the 1940 Act and rules
thereunder.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Trust'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 Trust to dispose of such security or other
asset. Notwithstanding the foregoing, the Trust must always be in compliance
with the borrowing policies set forth above.
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13
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Trustees and officers
The Trustees of the Trust are responsible for the overall management and
supervision of the affairs of the Trust. The Trustees and officers of the Trust
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
Trust, 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 TRUST OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
----------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
James B. Hawkes Trustee(2) and Since 5/21/04 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
Trust.
NON-iNTERESTED TRUSTEES
Samuel L. Hayes, Trustee(2) Since 5/21/04 Jacob H. Schiff 196 Director of
III(A) 2/23/35 Three Years Professor of Investment Tiffany & Co.
Banking Emeritus, (specialty
Harvard University retailer) and
Graduate School of Telect, Inc.
Business (telecommunication
Administration. services company)
William H. Park Trustee(3) Since 5/21/04 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).
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14
TRUSTEES AND OFFICERS
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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 TRUST OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
----------------------------------------------------------------------------------------------------------------
Ronald A. Pearlman Trustee(3) Since 5/21/04 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(A) Trustee(4) Since 5/21/04 President, Chief 196 None
9/21/35 Three Years Executive Officer and a
Director of Asset
Management Finance
Corp. (a specialty
finance company serving
the investment
management industry)
(since October 2003).
President, Unicorn
Corporation (an
investment and
financial advisory
services company)
(since September 2000).
Formerly, Chairman,
Hellman, Jordan
Management Co., Inc.
(an investment
management company)
(2000-2003). Formerly,
Advisory Director of
Berkshire Capital
Corporation (investment
banking firm) (2002-
2003). Formerly,
Chairman of the Board,
United Asset Management
Corporation (a holding
company owning
institutional
investment management
firms) and Chairman,
President and Director,
UAM Funds (mutual
funds) (1980-2000).
Lynn A. Stout Trustee(4) Since 5/21/04 Professor of Law, 196 None
9/14/57 Three Years University of
California at Los
Angeles School of Law
(since July 2001).
Formerly, Professor of
Law, Georgetown
University Law Center.
------------
(A) Auction Preferred Share Trustee
(1) Includes both master and feeder funds in master-feeder structure.
(2) Class I Trustees whose term expires in 2005.
(3) Class II Trustees whose term expires in 2006.
(4) Class III Trustees whose term expires in 2007.
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15
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF OFFICE
POSITION(S) AND LENGTH
NAME AND DATE OF BIRTH WITH THE TRUST OF SERVICE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------------------------------------------------------------------------------------------
Payson F. Swaffield President and Since 4/28/04 Vice President of Eaton Vance and BMR.
8/13/56 Chief Executive Officer of 13 registered investment
Officer companies managed by Eaton Vance or BMR.
Thomas E. Faust Jr. Vice President Since 4/28/04 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.
Scott H. Page Vice President Since 4/28/04 Vice President of Eaton Vance and BMR.
11/30/59 Officer of 13 registered investment
companies managed by Eaton Vance or BMR.
Michael W. Weilheimer Vice President Since 4/28/04 Vice President of Eaton Vance and BMR.
2/11/61 Officer of 10 registered investment
companies managed by Eaton Vance or BMR.
Barbara E. Campbell Treasurer and Since 4/28/04 Vice President of BMR and Eaton Vance.
6/19/57 Principal Officer of 196 registered investment
Financial and companies managed by Eaton Vance or BMR.
Accounting
Officer
Alan R. Dynner Secretary Since 4/28/04 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 Trust 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 Trust is comprised of
the noninterested Trustees. Ms. Stout currently serves as chairperson of the
Governance Committee. The purpose of the Governance Committee is to consider,
evaluate and make recommendations to the Board of Trustees with respect to the
structure, membership and operation of the Board of Trustees and the Committees
thereof, including the nomination and selection of noninterested Trustees and
the compensation of noninterested Trustees.
The Governance Committee will, when a vacancy exists or is anticipated, consider
any nominee for noninterested Trustee recommended by a shareholder if such
recommendation is submitted to the
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TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
Governance Committee, contains sufficient background information concerning the
candidate and is received in a sufficiently timely manner.
Messrs. Reamer (Chairman), Hayes and Park and Ms. Stout are members of the Audit
Committee of the Board of Trustees of the Trust. The Board of Trustees has
designated Messrs. Hayes, Park and Reamer, each a noninterested Trustee, as
audit committee financial experts. The Audit Committee's purposes are to (i)
oversee the Trust's accounting and financial reporting processes, its internal
control over financial reporting, and, as appropriate, the internal control over
financial reporting of certain service providers; (ii) oversee or, as
appropriate, assist Board oversight of the quality and integrity of the Trust's
financial statements and the independent audit thereof; (iii) oversee, or, as
appropriate, assist Board oversight of, the Trust's compliance with legal and
regulatory requirements that relate to the Trust's accounting and financial
reporting, internal control over financial reporting and independent audits;
(iv) approve prior to appointment the engagement and, when appropriate,
replacement of the independent registered public accounting firm, and, if
applicable, nominate the independent registered public accounting firm to be
proposed for shareholder ratification in any proxy statement of a Trust; (v)
evaluate the qualifications, independence and performance of the independent
registered public accounting firm and the audit partner in charge of leading the
audit; and (vi) prepare, as necessary, audit committee reports consistent with
the requirements of Rule 306 of Regulation S-K for inclusion in the proxy
statement of a Trust.
Messrs. Hayes (Chairman), Park, Pearlman, Reamer and Ms. Stout are currently
members of the Special Committee of the Board of Trustees of the Trust. 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 Trust, including
advisory, subadvisory, transfer agency, custodial and fund accounting,
distribution services and administrative services; (ii) any and all other
matters in which any of the Trust service providers (including Eaton Vance or
any affiliated entity thereof) has an actual or potential conflict of interest
with the interests of the Trust, 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 Trust. In addition, the Special Committee established a
Contract Review Subcommittee to perform certain functions, including to request
and evaluate, not less frequently than annually, such information as may
reasonably be necessary to allow the Subcommittee to evaluate the terms of
proposed new or amended or existing contracts for the provision of services by
any investment adviser, sub-adviser, underwriter, administrator and any
affiliate of the foregoing. On August 16, 2004, the Special Committee adopted a
revised Special Committee Charter which eliminated the Contract Review
Subcommittee, because it was determined that its function could be carried out
by the full Special Committee. The members of the Contract Review Subcommittee
were Messrs. Hayes (Chairman), Park, Pearlman and Reamer.
As of the date of this SAI, the Governance Committee has held two meetings, and
the Audit and Special Committees have each held one meeting.
When considering approval of the Advisory Agreement between the Trust and the
Adviser, the Contract Review Subcommittee of the Special Committee considered,
among other things, the following:
+ An independent report comparing the advisory fees and expenses of the Trust
and certain profitability analyses prepared by Eaton Vance;
+ Information on the relevant peer group(s) of funds and appropriate indices;
+ 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;
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TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
+ Arrangements regarding the distribution of Trust shares;
+ The procedures used to determine the fair value of the Trust's assets;
+ The allocation of brokerage and the benefits received by the Adviser as the
result of brokerage allocation; including allocations to soft dollar
brokerage and allocations to firms that sell Eaton Vance fund shares;
+ Eaton Vance's management of the relationship with the custodian,
subcustodians and fund accountants;
+ The resources devoted to Eaton Vance's compliance efforts undertaken on
behalf of the funds it manages and the record of compliance with the
investment policies and restrictions and with policies on personal securities
transactions;
+ The quality nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;
+ The terms of the advisory agreement and the reasonableness and
appropriateness of the particular fee paid by the Trust for the services
described therein;
+ Operating expenses (including transfer agency expenses) to be paid to third
parties; and
+ Information to be provided to investors, including the Trust's shareholders.
In evaluating the Advisory Agreement between the Trust and Eaton Vance, the
Contract Review Subcommittee of the Special Committee reviewed material
furnished by Eaton Vance at the initial Board meeting held on May 21, 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 Trust and the other funds in the complex. The Contract
Review Subcommittee evaluated the level of skill required to manage the Trust
and concluded that the human resources available at Eaton Vance were appropriate
to fulfill effectively the duties of the Adviser on behalf of the Trust. 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 received information concerning the investment
philosophy and investment process to be applied by Eaton Vance in managing the
Trust. 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 Trust 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 Trust, given the Trust's investment objectives 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 Trust. The
Contract Review Subcommittee considered the profits realized by Eaton Vance and
its affiliates in connection with the operation of the Trust. The Contract
Review Subcommittee also considered profit margins of Eaton Vance in comparison
with available industry data. In addition the Contract Review Subcommittee
considered the fiduciary duty assumed by the Adviser in connection with the
service rendered to the Trust and the business reputation of the Adviser, its
financial resources and its professional liability insurance coverage.
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18
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
The Contract Review Subcommittee 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
concluded that the approval of the Advisory Agreement, including the fee
structure (described herein) is in the interests of shareholders.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Trust 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 TRUST EATON VANCE FUND COMPLEX
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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; (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; (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 Trust or any of their immediate family members
served as an officer.
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19
TRUSTEES AND OFFICERS
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Trustees of the Trust 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 Trust 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
Trust's assets, liabilities, and net income per share, and will not obligate the
Trust to retain the services of any Trustee or obligate the Trust to pay any
particular level of compensation to the Trustee. The Trust does not have a
retirement plan for its Trustees.
The fees and expenses of the Trustees of the Trust are paid by the Trust. (A
Trustee of the Trust who is a member of the Eaton Vance organization receives no
compensation from the Trust.) During the Trust's fiscal year ending May 31,
2005, it is anticipated that the Trustees of the Trust 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
-------------------------------------------------------------------------------------------------
Trust*............................... $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500
Fund Complex......................... $183,750 $98,333(2) $85,000 $170,833 $167,500(3)
------------
* Estimated
(1) As of September 1, 2004, the Eaton Vance fund complex consisted of 197
registered investment companies or series thereof.
(2) Includes $60,920 of deferred compensation.
(3) Includes $23,250 of deferred compensation.
PROXY VOTING POLICY. The Trust 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 Trust'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 Trust's shareholders
and the Adviser or any of its affiliates or any affiliate of the Trust, the
Adviser will generally refrain from voting the proxies related to the companies
giving rise to such conflict until it consults with the Board's Special
Committee 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 registered public
accounting firms, 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.
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20
TRUSTEES AND OFFICERS
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In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Trust's shareholders and the Adviser or any of its
affiliates or any affiliate of the Trust 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 Trust will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the Adviser identified in the Policies. Such
members of senior management will determine if a conflict exists. If a conflict
does exist, the proxy will either be voted strictly in accordance with the
Policies or the Adviser will seek instruction on how to vote from the Special
Committee. Information on how the Trust voted proxies relating to portfolio
securities during the 12 month period ended June 30, 2004 is 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.
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21
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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
fixed-income group focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The senior loan group focuses on senior floating
rate loans, unsecured loans and other floating rate debt securities such as
notes, bonds and asset backed securities. The equity group covers stocks ranging
from blue chip to emerging growth companies. Eaton Vance and its affiliates act
as adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Trust 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 Trust
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 Trust shares;
and investment advisory and administration fees. The Trust will also bear
expenses incurred in connection with any litigation in which the Trust 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 May 21, 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 Trust 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 Trust or by
vote of a majority of the outstanding interests of the Trust. The Trust'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
Trust's Trustees. Each agreement may be terminated at any time without penalty
on sixty (60) days' written notice by the Trustees of the Trust or Eaton Vance,
as applicable, or by vote of the majority of the outstanding shares of the
Trust. 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 Trust under such agreements on the part of Eaton Vance, Eaton Vance shall
not be liable to the Trust 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 wholly-owned subsidiaries of EVC,
a Maryland corporation and publicly-held holding company. EVC through its
subsidiaries and affiliates engages primarily in investment management,
administration and marketing activities. The Directors of EVC are James B.
Hawkes, 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,
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22
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------
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 Eaton Vance and its affiliates who are also officers,
or officers and Directors of EVC and EV. As indicated under "Trustees and
Officers", all of the officers of the Trust (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 Trust, 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 Trust and such banks.
INVESTMENT ADVISORY SERVICES
Under the general supervision of the Trust's Board of Trustees, Eaton Vance will
carry out the investment and reinvestment of the assets of the Trust, will
furnish continuously an investment program with respect to the Trust, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Eaton Vance will furnish to the Trust investment
advice and provide related office facilities and personnel for servicing the
investments of the Trust. Eaton Vance will compensate all Trustees and officers
of the Trust who are members of the Eaton Vance organization and who render
investment services to the Trust, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Trust.
ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the
business affairs of the Trust, subject to the supervision of the Trust's Board
of Trustees. Eaton Vance will furnish to the Trust all office facilities,
equipment and personnel for administering the affairs of the Trust. Eaton Vance
will compensate all Trustees and officers of the Trust who are members of the
Eaton Vance organization and who render executive and administrative services to
the Trust, and will also compensate all other Eaton Vance personnel who perform
management and administrative services for the Trust. 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 Trust'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 Trust's business.
CODE OF ETHICS
The Adviser and the Trust have adopted Codes of Ethics governing personal
securities transactions. Under the Codes of Ethics, Eaton Vance employees may
purchase and sell securities (including securities held or eligible for purchase
by the Trust) subject to the provisions of the Codes of Ethics and certain
employees are also subject to certain pre-clearance, reporting requirements and
other procedures.
The Codes of Ethics can be reviewed and copied at the Securities and Exchange
Commission's public reference room in Washington, DC (call 1-202-942-8090 for
information on the operation of the public reference room); on the EDGAR
Database on the SEC's Internet site (http://www.sec.gov); or, upon payment of
copying fees, by writing the SEC's public reference section, Washington, DC
20549-0102, or by electronic mail at publicinfo@sec.gov.
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23
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Determination of net asset value
The net asset value per Common Share of the Trust is determined no less
frequently than daily, generally on each day of the week 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 Trust's net
asset value per Common Share is determined by IBT, in the manner authorized by
the Trustees of the Trust. Net asset value is computed by dividing the value of
the Trust's total assets, less its liabilities by the number of shares
outstanding.
The Adviser uses an independent pricing service to value most loans and other
debt securities at their market value. The Adviser may use the fair value method
to value loans or other securities if market quotations for them are not readily
available or are deemed unreliable, or if events occurring after the close of a
securities market and before the Trust values its assets would materially affect
net asset value. A security that is fair valued may be valued at a price higher
or lower than actual market quotations or the value determined by other funds
using their own fair valuation procedures.
The Trustees have approved and monitor the procedures under which Senior Loans,
CLOs and CDOs are valued. The Adviser and the Valuation Committee may implement
new pricing methodologies or expand mark-to-market valuation of Senior Loans,
CLOs and CDOs in the future, which may result in a change in the Trust's net
asset value per share. The Trust's net asset value per share will also be
affected by fair value pricing decisions and by changes in the market for Senior
Loans, CLOs and CDOs. In determining the fair value of a Senior Loan, CLOs and
CDOs, the Adviser will consider relevant factors, data, and information,
including: (i) the characteristics of and fundamental analytical data relating
to the Senior Loan (or underlying collateral in the case of CLOs and CDOs),
including the cost, size, current interest rate, period until next interest rate
reset, maturity and base lending rate of the Senior Loan (or underlying
collateral in the case of CLOs and CDOs), the terms and conditions of the Senior
Loan (or underlying collateral in the case of CLOs and CDOs) and any related
agreements, and the position of the Senior Loan (or underlying collateral in the
case of CLOs and CDOs) in the Borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Trust'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
Senior Loan (or underlying collateral in the case of CLOs and CDOs), including
price quotations for and trading in the Senior Loan (or underlying collateral in
the case of CLOs and CDOs) and interests in similar Senior Loans (or underlying
collateral in the case of CLOs and CDOs) and the market environment and investor
attitudes towards the Senior Loan and interests in similar Senior Loans (or
underlying collateral in the case of CLOs and CDOs); (v) the experience,
reputation, stability and financial condition of the Agent and any intermediate
participants in the Senior Loan (or underlying collateral in the case of CLOs
and CDOs); and (vi) general economic and market conditions affecting the fair
value of the Senior Loan (or underlying collateral in the case of CLOs and
CDOs). The fair value of each Senior Loan, CLO and CDO is reviewed and approved
by the Adviser's Valuation Committee and the Trust's Trustees.
Non-loan holdings (other than debt securities, including short term obligations)
may be valued on the basis of prices furnished by one or more pricing services
that determine prices for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. Marketable
securities listed on the NASDAQ National
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24
DETERMINATION OF NET ASSET VALUE
--------------------------------------------------------------------------------
Market System are valued at the NASDAQ official closing price. The value of
interest rate swaps will be based upon a dealer quotation.
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 that determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. Securities for which there is no such quotation or
valuation and all other assets are valued at fair value as determined in good
faith by or at the direction of the Trust's Trustees.
Generally, trading in the foreign securities owned by the Trust is substantially
completed each day at various times prior to the close of the Exchange. The
values of these securities used in determining the net asset value of the Trust
generally are computed as of such times. Occasionally, events affecting the
value of foreign securities may occur between such times and the close of the
Exchange, which will not be reflected in the computation of the Trust's net
asset value (unless the Trust deems that such events would materially affect its
net asset value, in which case an adjustment would be made and reflected in such
computation). The Trust may rely on an independent fair valuation service in
making any such adjustment. Foreign securities and currency held by the Trust
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 Senior Loan and other 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 Trust 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 that are advantageous to
the Trust 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.
The Trust will acquire Senior Loans from major international banks, selected
domestic regional banks, insurance companies, finance companies and other
financial institutions. In selecting financial institutions from which Senior
Loans may be acquired, the Adviser will consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. While these financial institutions are generally
not required to repurchase Senior Loans that they have sold, they may act as
principal or on an agency basis in connection with their sale by the Trust.
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25
PORTFOLIO TRADING
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Other fixed income obligations that may be purchased and sold by the Trust 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 Trust may also purchase fixed income and other securities
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters.
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.
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 that 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 Trust may receive a commission that 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 either 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 that execute portfolio transactions for the clients of such advisers and
from affiliates of executing broker-dealers. Investment advisers also commonly
receive Research Services from research providers that are not affiliated with
an executing broker-dealer, but which have entered into payment arrangements
involving an executing broker-dealer ("Third Party Research Services"). Under a
typical Third Party Research Services payment arrangement, the research provider
agrees to provide services to an investment adviser in exchange for specified
payments to the research provider by a broker-dealer that executes portfolio
transactions for clients of the investment adviser. The investment adviser and
the executing broker-dealer enter into a related agreement specifying the amount
of brokerage business the investment adviser will direct to the executing
broker-dealer to offset payments made by the executing broker-dealer for Third
Party Research Services received by the investment adviser. For example, an
investment adviser may agree to direct brokerage business generating $45,000 in
commissions on
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26
PORTFOLIO TRADING
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portfolio transactions to a broker-dealer firm as consideration for the
executing broker-dealer making payments of $30,000 to a provider of Third Party
Research Services. The ratio of the commissions to be paid to an executing
broker-dealer as consideration for Third Party Research Services over the cost
borne by the executing broker-dealer in connection with providing such services
to the investment adviser is referred to herein as the "Third Party Research
Services Payment Ratio."
Consistent with the foregoing practices, the Adviser receives Research Services
from many broker-dealer firms with which the Adviser places transactions and may
receive them from third parties with which these broker-dealers have
arrangements. The Trust and the Adviser may also receive Research Services from
underwriters and dealers in fixed-price offerings, which Research Services are
reviewed and evaluated by the Adviser in connection with its investment
responsibilities.
Research Services received by the Adviser include such matters as general
economic, political, business and market information, industry and company
reviews, evaluations of securities and portfolio strategies and transactions,
proxy voting data and analysis services, technical analysis of various aspects
of the securities markets, recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment and
services, and research oriented computer hardware, software, data bases and
services. Any particular Research Service obtained through a broker-dealer may
be used by the Adviser in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research Service
may be broadly useful and of value to the Adviser in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a few
clients' accounts, or may be useful for the management of merely a segment of
certain clients' accounts, regardless of whether any such account or accounts
paid commissions to the broker-dealer through which such Research Service was
obtained. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and may attempt to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.
In the event that the Adviser executes Trust securities transactions with a
broker-dealer and the associated commission is consideration for Third Party
Research Services (as described above), the Adviser has agreed to reduce the
advisory fee payable by the Trust by an amount equal to the commission payment
associated with the transaction divided by the applicable Third Party Research
Services Payment Ratio.
Some executing broker-dealers develop and make available directly to their
brokerage customers proprietary Research Services ("Proprietary Research
Services"). As a general matter, broker-dealers bundle the cost of Proprietary
Research Services with trade execution services rather than charging separately
for each. In such circumstances, the cost or other value of the Proprietary
Research Services cannot be determined. The advisory fee paid by the Trust will
not be reduced in connection with the receipt of Proprietary Research Services
by the Adviser.
The investment companies sponsored by the Adviser or its affiliates may allocate
brokerage commissions to acquire information relating to the performance, fees
and expenses of such companies and other investment companies, 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 Senior Loan and other 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 Trust
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27
PORTFOLIO TRADING
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shares or shares of other investment companies sponsored by the Adviser or its
affiliates. This policy is not inconsistent with a rule of the 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 Trust 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 Trust and one or more of
such other accounts simultaneously, the Adviser will allocate the security
transactions (including "new" 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 Trust 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
Trust from time to time, it is the opinion of the Trustees of the Trust that the
benefits from the Adviser organization outweigh any disadvantage that may arise
from exposure to simultaneous transactions.
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28
--------------------------------------------------------------------------------
Taxes
The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Trust.
The following is a summary discussion of the material U.S. federal income tax
consequences that may be relevant to a shareholder of acquiring, holding and
disposing of the APS of the Trust. This discussion addresses only U.S. federal
income tax consequences to U.S. shareholders who hold their shares as capital
assets and does not address all of the U.S. federal income tax consequences that
may be relevant to particular shareholders in light of their individual
circumstances. In addition, the discussion does not address any state, local, or
foreign tax consequences, and it does not address any U.S. federal tax
consequences other than U.S. federal income tax consequences. The discussion is
based upon present provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change or
differing interpretations (possibly with retroactive effect). No attempt is made
to present a detailed explanation of all U.S. federal income tax concerns
affecting the Trust and its shareholders, and the discussion set forth herein
does not constitute tax advice. Investors are urged to consult their own tax
advisers to determine the specific tax consequences to them of investing in the
Trust, including the applicable federal, state, local and foreign tax
consequences to them and the effect of possible changes in tax laws.
The Trust has elected and intends to qualify each year as a regulated investment
company ("RIC") under the Code. Accordingly, the Trust 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 Trust 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 Trust distribute (or be deemed to have distributed)
by December 31 of each calendar year an amount at least equal to the sum of (i)
98% of its ordinary income for such year and (ii) 98% of its capital gain net
income (which is the excess of its realized net long-term capital gain over its
realized net short-term capital loss), generally computed on the basis of the
one-year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, plus 100% of any ordinary income and
capital gain net income from the prior year (as previously computed) that were
not paid out during such year and on which the Trust paid no federal income tax.
Under current law, provided that the Trust qualifies as a RIC for federal income
tax purposes, the Trust should not be liable for any income, corporate excise or
franchise tax in The Commonwealth of Massachusetts.
If the Trust does not qualify as a RIC for any taxable year, the Trust'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 Trust may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
The Trust's investment in zero coupon 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 Trust and, in order to
avoid a tax payable by the Trust, the Trust may be required to liquidate
securities that it might otherwise have continued to hold in order to generate
cash so that the Trust may make required distributions to its shareholders.
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29
TAXES
--------------------------------------------------------------------------------
The Trust may invest a portion of its total assets in "high yield" securities,
commonly known as "junk bonds." Investments in these types of securities may
present special tax issues for the Trust. Federal income tax rules are not
entirely clear about issues such as when the Trust may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income and
whether exchanges of debt obligations in a bankruptcy or workout context are
taxable. These and other issues will be addressed by the Trust, in the event it
invests in such debt securities, in order to seek to preserve its status as a
regulated investment company and to not become subject to U.S. federal income or
excise tax.
Any recognized gain or income attributable to market discount on long-term debt
obligations (i.e., on 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 Trust 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 Trust's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to the Trust, defer Trust losses, cause adjustments in the
holding periods of securities held by the Trust, 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 Trust 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 Trust shares with a holding
period of 6 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 redemption or other
disposition of Trust shares may be disallowed under "wash sale" rules to the
extent the shareholder acquires other shares of the same Trust (whether through
the reinvestment of distributions or otherwise) within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the Common
Shares. Any disallowed loss will result in an adjustment to the shareholder's
tax basis in some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Trust (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 Trust's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Trust'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 Trust'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 Trust'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
--------------------------------------------------------------------------------
30
TAXES
--------------------------------------------------------------------------------
Trust may be "spilled back" and treated as paid by the Trust (except for
purposes of the 4% 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 paid out of the
Trust's investment company taxable income are generally taxable to a shareholder
as ordinary income to the extent of the Trust's earnings and profits. Dividends
with respect to the APS generally will not constitute "qualified dividend
income" for federal income tax purposes and thus will not be eligible for the
favorable long-term capital gains tax rates.
Amounts paid by the Trust to individuals and certain other shareholders who have
not provided the Trust with their correct taxpayer identification number ("TIN")
and certain certifications required by the Internal Revenue Service (the "IRS")
as well as shareholders with respect to whom the Trust has received certain
information from the IRS or a broker may be subject to "backup" withholding of
federal income tax arising from the Trust's taxable dividends and other
distributions as well as the gross proceeds of sales of shares, at a rate of up
to 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 U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
The Trust will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class's proportionate share of
a particular type of income for a year is determined according to the percentage
of total dividends paid by the RIC during that year to the class. Accordingly,
the Trust intends to designate a portion of its distributions as capital gain
dividends in proportion to the relative interests of its Common Shares and, when
issued, its preferred shares in accordance with the IRS position.
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Trust, under current law the manner in which the Trust intends to
allocate items of ordinary income and net capital gain among the Common Shares
and, when issued, preferred shares will be respected for federal income tax
purposes. It is possible that the IRS could disagree with counsel's opinion and
attempt to reallocate the Trust's net capital gain or other taxable income.
If at any time when APS are outstanding the Trust does not meet the asset
coverage requirements of the 1940 Act, the Trust will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
Such a suspension may prevent the Trust from distributing at least 90% of the
sum of its investment company taxable income and certain other income and may,
therefore, jeopardize the Trust's qualification for taxation as a RIC. Upon any
failure to meet the asset coverage requirements of the 1940 Act, the Trust, in
its sole discretion, may redeem APS in order to maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Trust and its
shareholders of failing to qualify for treatment as a RIC. There can be no
assurance, however, that any such action would achieve that objective.
STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local tax
consequences of investing in the Trust.
--------------------------------------------------------------------------------
31
--------------------------------------------------------------------------------
Other information
The Trust 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 Trust property or the acts,
obligations or affairs of the Trust. The Declaration of Trust, in coordination
with the Trust's By-laws, also provides for indemnification out of the Trust
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 Trust itself is unable to meet its obligations. The Trust has been advised
by its counsel that the risk of any shareholder incurring any liability for the
obligations of the Trust 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 Trust 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 Trust's custodian or
by votes cast at a meeting called for that purpose. The Declaration of Trust
further provides that the Trustees of the Trust 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 so to do by the record
holders of not less than 10 per centum of the outstanding shares.
The Trust's Prospectus and this SAI do not contain all of the information set
forth in the Registration Statement that the Trust has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.
Independent registered public accounting firm
Deloitte & Touche LLP, Boston, Massachusetts are the independent registered
public accounting firm for the Trust, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the SEC.
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32
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT
To the Trustees and Shareholder of
Eaton Vance Floating-Rate Income Trust:
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Floating-Rate Income Trust (the "Trust") as of June 14, 2004 and the
related statement of operations for the period from April 28, 2004 (date of
organization) through June 14, 2004. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 Floating-Rate
Income Trust as of June 14, 2004, and the results of its operations for the
period from April 28, 2004 (date of organization) through June 14, 2004 in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Boston, Massachusetts
June 15, 2004
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33
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Eaton Vance Floating-Rate Income Trust
STATEMENT OF ASSETS AND LIABILITIES
JUNE 14, 2004
ASSETS
Cash...................................................... $100,000
Offering costs............................................ 500,000
Receivable from Adviser................................... 7,500
--------
Total assets.............................................. $607,500
========
LIABILITIES
Accrued offering costs.................................... $500,000
Accrued organization costs................................ 7,500
--------
Total liabilities......................................... $507,500
========
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 APRIL 28, 2004 (DATE OF ORGANIZATION) THROUGH JUNE 14, 2004.
INVESTMENT INCOME........................................... $ --
--------
EXPENSES
Organization costs........................................ $ 7,500
Expense reimbursement..................................... (7,500)
--------
Net expenses........................................... $ --
--------
NET INVESTMENT INCOME....................................... $ --
========
See notes to financial statements.
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34
Notes to financial statements
NOTE 1: ORGANIZATION
The Eaton Vance Floating-Rate Income Trust (the "Trust") was organized as a
Massachusetts business trust on April 28, 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 Trust'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.
The Trust's investment objective is to provide a high level of current income.
The Trust may, as a secondary objective, also seek preservation of capital to
the extent consistent with its primary goal of high current income.
NOTE 2: ACCOUNTING POLICIES
The Trust'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 Trust'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 Trust operations. The offering costs reflected above assume the sale of
12,500,000 common shares.
NOTE 3: INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment advisory agreement between the Adviser and the Trust,
the Trust has agreed to pay an investment advisory fee, payable on a monthly
basis, at an annual rate of 0.75% of the average daily gross assets of the
Trust. Gross assets of the Trust shall be calculated by deducting accrued
liabilities of the Trust 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 Trust 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 Trust's operations, 0.15% of average weekly
gross assets in year 6, 0.10% in year 7 and 0.05% in year 8. This reimbursement
is exclusive of the Trust's organizational and offering costs.
NOTE 4: FEDERAL INCOME TAXES
The Trust 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. Accordingly, no
provision for federal income tax is required.
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35
Portfolio of investments (unaudited) as of
July 31, 2004
SENIOR, FLOATING RATE INTERESTS--61.9% (1)
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
ADVERTISING--0.5%
ADAMS OUTDOOR ADVERTISING, L.P.
Term Loan, Maturing October 15, 2011........................ $ 2,000,000 2,025,834
LAMAR MEDIA CORP.
Term Loan, Maturing June 30, 2010........................... 1,000,000 1,011,750
--------------
$ 3,037,584
==============
AEROSPACE AND DEFENSE--1.2%
ARINC, INC.
Term Loan, Maturing March 10, 2010.......................... $ 2,992,500 3,033,647
DRS TECHNOLOGIES, INC.
Term Loan, Maturing November 4, 2010........................ 3,844,814 3,882,062
TRANSDIGM, INC.
Term Loan, Maturing July 22, 2010........................... 995,006 1,009,154
--------------
$ 7,924,863
==============
AUTO COMPONENTS--6.4%
DAYCO PRODUCTS, LLC
Term Loan, Maturing June 23, 2011........................... $ 1,550,000 1,575,673
FEDERAL-MOGUL CORP.
Term Loan, Maturing February 24, 2005....................... 563,750 567,978
Revolving Loan, Maturing February 24, 2005.................. 4,334,001 4,323,166
GLEASON CORP.
Term Loan, Maturing July 27, 2011........................... 585,000 585,000
HLI OPERATING CO., INC.
Term Loan, Maturing June 3, 2009............................ 1,345,781 1,373,958
KEY AUTOMOTIVE GROUP
Term Loan, Maturing June 29, 2010........................... 1,250,000 1,269,922
METALDYNE, INC.
Term Loan, Maturing December 31, 2009....................... 6,271,519 6,283,278
R.J. TOWER CORP.
Term Loan, Maturing January 29, 2010........................ 4,000,000 4,013,332
Term Loan, Maturing January 29, 2010........................ 2,000,000 2,046,250
THE GOODYEAR TIRE & RUBBER CO.
Term Loan, Maturing March 31, 2006.......................... 5,500,000 5,570,471
TI AUTOMOTIVE, LTD.
Term Loan, Maturing June 30, 2011........................... 9,000,000 9,050,625
--------------------------------------------------------------------------------
36
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
TRW AUTOMOTIVE, INC.
Term Loan, Maturing February 28, 2011....................... 3,990,000 4,064,812
UNITED COMPONENTS, INC.
Term Loan, Maturing June 30, 2010........................... 870,000 882,506
--------------
$ 41,606,971
==============
BROADCAST MEDIA--2.4%
CANWEST MEDIA, INC.
Term Loan, Maturing August 15, 2009......................... $ 3,948,708 4,005,471
CUMULUS MEDIA, INC.
Term Loan, Maturing March 28, 2009.......................... 1,100,000 1,108,938
Term Loan, Maturing March 28, 2010.......................... 3,300,000 3,342,798
EMMIS OPERATING CO.
Term Loan, Maturing November 10, 2011....................... 2,000,000 2,024,218
SINCLAIR TELEVISION GROUP, INC.
Term Loan, Maturing June 30, 2009........................... 1,900,000 1,909,500
Term Loan, Maturing December 31, 2009....................... 3,100,000 3,138,750
--------------
$ 15,529,675
==============
CABLE TELEVISION--3.6%
ATLANTIC BROADBAND FINANCE, LLC
Term Loan, Maturing February 10, 2011....................... $ 2,000,000 2,032,188
BRESNAN COMMUNICATIONS, LLC
Term Loan, Maturing September 30, 2010...................... 1,884,762 1,913,034
CHARTER COMMUNICATIONS OPERATING, LLC
Term Loan, Maturing April 27, 2011.......................... 15,500,000 15,252,319
INSIGHT MIDWEST HOLDINGS, LLC
Term Loan, Maturing December 31, 2008....................... 1,880,000 1,882,115
MCC IOWA, LLC
Term Loan, Maturing March 31, 2010.......................... 2,500,000 2,498,048
--------------
$ 23,577,704
==============
CASINOS AND GAMING--0.7%
MARINA DISTRICT FINANCE CO.
Term Loan, Maturing December 31, 2007....................... $ 805,924 814,319
Term Loan, Maturing December 31, 2008....................... 4,035,270 4,072,471
--------------
$ 4,886,790
==============
CHEMICALS--4.0%
CELANESE AG
Term Loan, Maturing June 4, 2011............................ $ 3,104,170 3,157,847
Term Loan, Maturing December 8, 2011........................ 2,000,000 2,067,500
HUNTSMAN INTERNATIONAL, LLC
Term Loan, Maturing December 31, 2010....................... 921,129 936,212
--------------------------------------------------------------------------------
37
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
KOSA B.V.
Term Loan, Maturing April 29, 2010.......................... 9,000,000 9,045,000
Term Loan, Maturing April 29, 2011.......................... 1,735,294 1,762,408
Term Loan, Maturing April 29, 2011.......................... 764,706 776,654
KRATON POLYMERS, LLC
Term Loan, Maturing December 5, 2008........................ 980,834 997,386
POLYMER GROUP, INC.
Term Loan, Maturing April 27, 2010.......................... 3,914,286 3,946,089
Term Loan, Maturing April 27, 2011.......................... 2,500,000 2,509,375
RIPPLEWOOD PHOSPHORUS, LLC
Term Loan, Maturing July 20, 2011........................... 575,000 582,188
--------------
$ 25,780,659
==============
COAL--0.3%
PEABODY ENERGY CORP.
Term Loan, Maturing March 31, 2010.......................... $ 1,975,000 1,999,071
--------------
$ 1,999,071
==============
COMMERCIAL SERVICES--2.0%
CORRECTIONS CORP. OF AMERICA
Term Loan, Maturing March 31, 2008.......................... $ 2,363,455 2,401,123
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS, INC.
Term Loan, Maturing December 12, 2008....................... 1,713,784 1,725,567
GEO GROUP
Term Loan, Maturing July 9, 2009............................ 1,051,169 1,062,994
PIKE ELECTRIC
Term Loan, Maturing July 1, 2012............................ 5,796,200 5,904,879
UNITED RENTALS, INC.
Term Loan, Maturing February 14, 2011....................... 334,029 340,919
Term Loan, Maturing February 14, 2011....................... 1,665,971 1,697,624
--------------
$ 13,133,106
==============
COMMUNICATIONS EQUIPMENT--0.3%
LANGUAGE LINE, LLC
Term Loan, Maturing June 11, 2011........................... $ 2,000,000 2,023,750
--------------
$ 2,023,750
==============
COMPUTER SOFTWARE & SERVICES--0.6%
UGS CORP.
Term Loan, Maturing May 27, 2011............................ $ 4,000,000 4,043,752
--------------
$ 4,043,752
==============
--------------------------------------------------------------------------------
38
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.8%
FORMICA CORP.
Term Loan, Maturing June 10, 2010........................... $ 359,910 365,309
Term Loan, Maturing June 10, 2010........................... 879,711 892,906
Term Loan, Maturing June 10, 2010........................... 449,888 456,636
Term Loan, Maturing June 10, 2010........................... 1,310,491 1,330,149
PLY GEM INDUSTRIES, INC.
Term Loan, Maturing February 12, 2011....................... 1,700,000 1,706,907
Term Loan, Maturing February 12, 2011....................... 300,000 301,219
--------------
$ 5,053,126
==============
CONTAINERS AND PACKAGING--METAL AND GLASS--1.8%
BWAY CORP.
Term Loan, Maturing June 30, 2011........................... $ 6,810,000 6,927,050
OWENS-ILLINOIS, INC.
Term Loan, Maturing April 1, 2007........................... 2,000,000 2,027,916
SILGAN HOLDINGS, INC.
Term Loan, Maturing December 31, 2008....................... 2,727,506 2,762,025
--------------
$ 11,716,991
==============
CONTAINERS AND PACKAGING--PAPER--0.5%
GRAHAM PACKAGING CO.
Term Loan, Maturing February 16, 2010....................... $ 1,497,355 1,508,896
SOLO CUP CO.
Term Loan, Maturing February 27, 2011....................... 2,000,000 2,025,834
--------------
$ 3,534,730
==============
EDUCATIONAL SERVICES--0.3%
JOSTENS, INC.
Term Loan, Maturing July 15, 2010........................... $ 909,633 923,277
WEEKLY READER CORP.
Term Loan, Maturing March 18, 2009.......................... 1,000,000 1,000,625
==============
$ 1,923,902
==============
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.2%
INVENSYS INTERNATIONAL HOLDINGS, LTD.
Term Loan, Maturing September 5, 2009....................... $ 3,492,730 3,551,669
SECURITYCO, INC.
Term Loan, Maturing June 28, 2010........................... 1,000,000 1,005,000
Term Loan, Maturing June 28, 2011........................... 3,000,000 3,015,000
--------------
$ 7,571,669
==============
--------------------------------------------------------------------------------
39
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
ENTERTAINMENT--2.8%
METRO-GOLDWYN-MAYER STUDIOS, INC.
Term Loan, Maturing April 26, 2011.......................... $12,000,000 12,072,000
SIX FLAGS THEME PARKS, INC.
Term Loan, Maturing June 30, 2009........................... 4,000,000 4,050,000
WMG ACQUISITION CORP.
Term Loan, Maturing February 28, 2011....................... 2,000,000 2,031,428
--------------
$ 18,153,428
==============
ENVIRONMENTAL SERVICES--0.5%
ALLIED WASTE INDUSTRIES, INC.
Term Loan, Maturing January 5, 2010......................... $ 1,000,000 1,015,000
Term Loan, Maturing July 15, 2010........................... 2,000,000 2,029,424
--------------
$ 3,044,424
==============
FOOD, BEVERAGES AND TOBACCO--1.6%
CONSTELLATION BRANDS, INC.
Term Loan, Maturing November 30, 2008....................... $ 3,125,000 3,173,550
DR. PEPPER/SEVEN UP BOTTLING GROUP, INC.
Term Loan, Maturing December 19, 2010....................... 3,132,742 3,169,944
PIERRE MERGER CORP.
Term Loan, Maturing June 30, 2010........................... 720,000 729,225
REDDY ICE GROUP, INC.
Term Loan, Maturing July 31, 2009........................... 1,488,750 1,508,911
SOUTHERN WINE & SPIRITS OF AMERICA, INC.
Term Loan, Maturing June 28, 2008........................... 1,994,839 2,019,152
--------------
$ 10,600,782
==============
HEALTH CARE--EQUIPMENT & SUPPLIES--1.2%
HANGER ORTHOPEDIC GROUP, INC.
Term Loan, Maturing September 30, 2009...................... $ 2,500,000 2,519,793
LEINER HEALTH PRODUCTS, INC.
Term Loan, Maturing May 27, 2011............................ 2,000,000 2,035,000
SOLA INTERNATIONAL, INC.
Term Loan, Maturing December 11, 2009....................... 2,962,500 3,010,641
--------------
$ 7,565,434
==============
HEALTH CARE--PROVIDERS & SERVICES--2.2%
DAVITA, INC.
Term Loan, Maturing March 31, 2009.......................... $ 3,984,568 4,031,172
EXPRESS SCRIPTS, INC.
Term Loan, Maturing February 13, 2010....................... 3,000,000 3,029,376
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Term Loan, Maturing February 21, 2010....................... 1,496,250 1,511,057
--------------------------------------------------------------------------------
40
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
IASIS HEALTHCARE, LLC
Term Loan, Maturing June 16, 2011........................... 4,000,000 4,066,252
MEDCATH HOLDINGS CORP.
Term Loan, Maturing July 2, 2011............................ 1,565,000 1,587,987
--------------
$ 14,225,844
==============
HOTELS--0.7%
WYNDHAM INTERNATIONAL, INC.
Term Loan, Maturing June 30, 2004........................... $ 1,995,785 1,990,618
Term Loan, Maturing June 30, 2006........................... 2,495,785 2,479,518
--------------
$ 4,470,136
==============
HOUSEHOLD FURNISHING & APPLIANCES--1.1%
HOME INTERIORS & GIFTS, INC.
Term Loan, Maturing March 31, 2011.......................... $ 3,000,000 2,901,564
SIMMONS CO.
Term Loan, Maturing December 19, 2011....................... 3,917,038 3,983,138
--------------
$ 6,884,702
==============
INSURANCE--1.9%
CONSECO, INC.
Term Loan, Maturing June 22, 2010........................... $12,500,000 12,691,413
--------------
$ 12,691,413
==============
LEISURE EQUIPMENT & PRODUCTS--0.6%
BOMBARDIER RECREATIONAL PRODUCTS, INC.
Term Loan, Maturing December 18, 2010....................... $ 2,933,000 2,967,829
Term Loan, Maturing December 18, 2010....................... 1,257,000 1,276,248
--------------
$ 4,244,077
==============
MANUFACTURING--2.0%
DRESSER, INC.
Term Loan, Maturing March 31, 2007.......................... $ 585,366 597,659
ENERSYS HOLDINGS, INC.
Term Loan, Maturing March 17, 2011.......................... 1,000,000 1,017,031
HARBOR FREIGHT TOOLS USA, INC.
Term Loan, Maturing July 15, 2010........................... 3,500,000 3,542,658
MUELLER GROUP, INC.
Term Loan, Maturing April 23, 2011.......................... 2,834,862 2,864,098
SYNTHETIC INDUSTRIES, INC.
Term Loan, Maturing December 30, 2007....................... 4,981,916 4,944,551
--------------
$ 12,965,997
==============
--------------------------------------------------------------------------------
41
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
MISCELLANEOUS--0.9%
COINSTAR, INC.
Term Loan, Maturing July 7, 2011............................ $ 6,075,000 6,181,313
--------------
$ 6,181,313
==============
OFFICE EQUIPMENT AND SUPPLIES--0.3%
IRON MOUNTAIN, INC.
Term Loan, Maturing January 31, 2005........................ $ 1,907,904 1,915,058
--------------
$ 1,915,058
==============
OIL & GAS--1.3%
BELDON & BLAKE CORP.
Term Loan, Maturing July 21, 2011........................... $ 2,520,000 2,520,000
BPL ACQUISITION, L.P.
Term Loan, Maturing May 4, 2010............................. 2,000,000 2,025,000
LA GRANGE ACQUISITION, L.P.
Term Loan, Maturing January 18, 2008........................ 2,000,000 2,031,876
PRIDE OFFSHORE, INC.
Term Loan, Maturing July 7, 2011............................ 1,630,000 1,652,413
--------------
$ 8,229,289
==============
PAPER AND FOREST PRODUCTS--0.7%
APPLETON PAPERS, INC.
Term Loan, Maturing June 11, 2010........................... $ 1,000,000 1,013,281
KOCH CELLULOSE, LLC
Term Loan, Maturing May 7, 2011............................. 692,603 702,560
Term Loan, Maturing May 7, 2011............................. 2,804,389 2,844,702
--------------
$ 4,560,543
==============
PERSONAL PRODUCTS--0.6%
PRESTIGE BRANDS, INC.
Term Loan, Maturing April 7, 2011........................... $ 1,496,250 1,521,499
Term Loan, Maturing April 7, 2011........................... 1,000,000 1,011,250
REVLON CONSUMER PRODUCTS CORP.
Term Loan, Maturing July 9, 2010............................ 1,225,000 1,249,691
--------------
$ 3,782,440
==============
PUBLISHING & PRINTING--2.4%
DEX MEDIA EAST, LLC
Term Loan, Maturing May 8, 2009............................. $ 4,920,103 5,003,129
DEX MEDIA WEST, LLC
Term Loan, Maturing March 9, 2010........................... 1,994,819 2,034,508
FREEDOM COMMUNICATIONS HOLDINGS, INC.
Term Loan, Maturing May 18, 2012............................ 2,000,000 2,032,812
--------------------------------------------------------------------------------
42
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
MEDIANEWS GROUP, INC.
Term Loan, Maturing December 31, 2006....................... 597,000 605,458
MORRIS PUBLISHING GROUP, LLC
Term Loan, Maturing March 31, 2011.......................... 2,950,000 2,987,798
R.H. DONNELLEY, INC.
Term Loan, Maturing June 30, 2010........................... 985,259 998,037
TRANSWESTERN PUBLISHING CO., LLC
Term Loan, Maturing February 25, 2011....................... 1,995,000 2,024,303
--------------
$ 15,686,045
==============
RESTAURANTS--0.8%
BUFFETS, INC.
Term Loan, Maturing June 28, 2009........................... $ 1,000,000 1,017,500
Term Loan, Maturing June 28, 2009........................... 1,485,019 1,511,703
CKE RESTAURANTS, INC.
Term Loan, Maturing July 2, 2008............................ 2,849,643 2,903,074
--------------
$ 5,432,277
==============
RETAIL--FOOD AND DRUG--0.4%
GENERAL NUTRITION CENTERS, INC.
Term Loan, Maturing December 5, 2009........................ $ 995,000 1,007,811
PATHMARK STORES, INC.
Term Loan, Maturing July 15, 2007........................... 1,511,021 1,531,167
--------------
$ 2,538,978
==============
RETAIL--SPECIALTY--1.4%
FTD, INC.
Term Loan, Maturing February 28, 2011....................... $ 1,993,750 2,013,688
GETTY PETROLEUM MARKETING, INC.
Term Loan, Maturing May 19, 2010............................ 4,500,000 4,575,938
ORIENTAL TRADING CO.
Term Loan, Maturing August 4, 2010.......................... 2,348,459 2,373,411
--------------
$ 8,963,037
==============
ROAD & RAIL--0.4%
HELM HOLDING CORP.
Term Loan, Maturing July 2, 2010............................ $ 475,000 481,036
RAILAMERICA, INC.
Term Loan, Maturing May 31, 2009............................ 209,262 212,375
Term Loan, Maturing May 31, 2009............................ 322,921 327,724
Term Loan, Maturing May 31, 2009............................ 1,426,233 1,447,448
--------------
$ 2,468,583
==============
--------------------------------------------------------------------------------
43
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--WIRELESS--5.5%
AAT COMMUNICATIONS CORP.
Term Loan, Maturing December 31, 2011....................... $ 2,000,000 2,025,000
AMERICAN TOWER, L.P.
Term Loan, Maturing August 31, 2011......................... 1,500,000 1,523,907
CELLULAR SOUTH, INC.
Term Loan, Maturing May 4, 2011............................. 500,000 507,188
CENTENNIAL CELLULAR OPERATING CO., LLC
Term Loan, Maturing February 9, 2011........................ 5,000,000 5,030,805
DOBSON CELLULAR SYSTEMS, INC.
Term Loan, Maturing March 31, 2010.......................... 4,972,462 4,988,777
NEXTEL COMMUNICATIONS
Term Loan, Maturing December 15, 2010....................... 9,000,000 9,071,901
NEXTEL PARTNERS OPERATING CORP.
Term Loan, Maturing May 31, 2011............................ 5,000,000 5,086,875
WESTERN WIRELESS CORP.
Term Loan, Maturing May 28, 2011............................ 7,179,487 7,291,028
--------------
$ 35,525,481
==============
TELECOMMUNICATIONS--WIRELINE--2.7%
CONSOLIDATED COMMUNICATIONS, INC.
Term Loan, Maturing April 14, 2012.......................... $ 2,000,000 2,038,126
NTELOS, INC.
Term Loan, Maturing July 25, 2008........................... 4,721,709 4,674,491
QWEST CORP.
Term Loan, Maturing June 30, 2007........................... 8,000,000 8,312,504
SBA SENIOR FINANCE, INC.
Term Loan, Maturing October 31, 2008........................ 2,230,769 2,250,636
--------------
$ 17,275,757
==============
TEXTILES AND APPAREL--0.3%
SPRINGS INDUSTRIES, INC.
Term Loan, Maturing September 5, 2008....................... $ 1,907,855 1,932,100
--------------
$ 1,932,100
==============
THEATERS--1.4%
REGAL CINEMAS CORP.
Term Loan, Maturing November 10, 2010....................... $ 8,704,773 8,819,023
--------------
$ 8,819,023
==============
--------------------------------------------------------------------------------
44
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
BORROWER/TRANCHE DESCRIPTION AMOUNT VALUE
-------------------------------------------------------------------------------------------
TRANSPORTATION--0.5%
HORIZON LINES, LLC
Term Loan, Maturing July 7, 2011............................ $ 3,025,000 3,080,775
--------------
$ 3,080,775
==============
UTILITY--1.1%
CENTERPOINT ENERGY, INC.
Term Loan, Maturing October 7, 2006......................... $ 4,986,413 5,053,939
DYNEGY HOLDINGS, INC.
Term Loan, Maturing May 28, 2010............................ 2,000,000 2,039,376
--------------
$ 7,093,315
==============
TOTAL SENIOR, FLOATING RATE INTERESTS (IDENTIFIED COST $402,186,564)...... $ 401,674,594
==============
CORPORATE BONDS & NOTES--6.0%
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE--0.2%
ARGO TECH CORP., SR. NOTES
9.25%, 6/1/11(2)............................................ $ 500 527,500
SEQUA CORP.
8.875%, 4/1/08.............................................. 500 535,000
--------------
$ 1,062,500
==============
APPAREL--0.1%
J CREW OPERATING CORP., SR. SUB. NOTES
10.375%, 10/15/07........................................... $ 110 112,750
LEVI STRAUSS & CO.
7.00%, 11/1/06.............................................. 530 516,750
--------------
$ 629,500
==============
AUTO COMPONENTS--0.2%
KEYSTONE AUTOMOTIVE OPERATIONS, INC., SR. SUB. NOTES
9.75%, 11/1/13.............................................. $ 500 537,500
METALDYNE CORP., SR. NOTES
10.00%, 11/1/13(2).......................................... 500 502,500
--------------
$ 1,040,000
==============
--------------------------------------------------------------------------------
45
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
BANKS AND MONEY SERVICES--0.0%
REFCO FINANCE HOLDINGS, SR. SUB. NOTES
9.00%, 8/1/12(2)............................................ $ 270 271,350
--------------
$ 271,350
==============
BROADCASTING AND CABLE--0.8%
CCO HOLDINGS LLC / CCO CAPITAL CORP., SENIOR NOTES
8.75%, 11/15/13............................................. $ 1,000 965,000
KABEL DEUTSCHLAND GMBH
10.625%, 7/1/14(2).......................................... 870 896,100
PAXSON COMMUNICATIONS CORP.
4.35%, 1/15/10(2)........................................... 3,500 3,530,625
--------------
$ 5,391,725
==============
BUILDING MATERIALS--0.1%
COLLINS & AIKMAN FLOOR COVER
9.75%, 2/15/10.............................................. $ 400 416,000
--------------
$ 416,000
==============
CASINOS AND GAMING--0.1%
MAJESTIC STAR CASINO LLC
9.50%, 10/15/10............................................. $ 500 507,500
--------------
$ 507,500
==============
CHEMICALS--0.4%
BCP CAYLUX HOLDINGS, SR. SUB. NOTES
9.625%, 6/15/14(2).......................................... $ 745 780,387
OM GROUP, INC.
9.25%, 12/15/11............................................. 1,000 1,027,500
RHODIA SA, SR. NOTES
10.25%, 6/1/10(2)........................................... 530 543,250
ROCKWOOD SPECIALTIES GROUP, SR. SUB. NOTES
10.625%, 5/15/11............................................ 450 486,000
--------------
$ 2,837,137
==============
--------------------------------------------------------------------------------
46
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
COAL--0.0%
ALPHA NATURAL RESOURCES, SR. NOTES
10.00%, 6/1/12(2)........................................... $ 90 97,200
--------------
$ 97,200
==============
COMMERCIAL SERVICES--0.0%
UNITED RENTALS NORTH AMERICA, INC., SR. SUB. NOTES
7.00%, 2/15/14.............................................. $ 145 133,037
--------------
$ 133,037
==============
COMPUTER SOFTWARE & SERVICES--0.0%
UGS CORP., SR. SUB. NOTES
10.00%, 6/1/12(2)........................................... $ 55 58,575
--------------
$ 58,575
==============
CONSUMER PRODUCTS--0.1%
AMSCAN HOLDINGS, INC., SR. SUB. NOTES
8.75%, 5/1/14(2)............................................ $ 530 531,325
FEDDERS NORTH AMERICA, INC., SR. NOTES
9.875%, 3/1/14.............................................. 15 12,450
--------------
$ 543,775
==============
CONTAINERS AND PACKAGING--PAPER--0.1%
INTERTAPE POLYMER US, INC., SR. SUB. NOTES
8.50%, 8/1/14(2)............................................ $ 950 940,500
--------------
$ 940,500
==============
ELECTRIC UTILITIES--0.1%
NRG ENERGY, INC., SR. NOTES
8.00%, 12/15/13(2).......................................... $ 750 770,625
--------------
$ 770,625
==============
ENGINEERING--0.0%
SHAW GROUP, INC., SR. NOTES
10.75%, 3/15/10............................................. $ 45 44,775
--------------
$ 44,775
==============
--------------------------------------------------------------------------------
47
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
ENTERTAINMENT--0.0%
LCE ACQUISITION CORP., SR. SUB. NOTES
9.00%, 8/1/14(2)............................................ $ 215 212,850
--------------
$ 212,850
==============
FOOD, BEVERAGES AND TOBACCO--0.1%
WH HOLDINGS LTD. AND WH CAPITAL CORP., SR. NOTES
9.50%, 4/1/11............................................... $ 500 525,000
--------------
$ 525,000
==============
HEALTH CARE--EQUIPMENT & SUPPLIES--0.1%
INVERNESS MEDICAL INNOVATIONS, INC., SR. SUB. NOTES
8.75%, 2/15/12(2)........................................... $ 530 516,750
MEDICAL DEVICE MANUFACTURING, INC., SR. SUB. NOTES
10.00%, 7/15/12(2).......................................... 200 206,000
--------------
$ 722,750
==============
HEALTH CARE--PROVIDERS & SERVICES--0.1%
HEALTHSOUTH CORP.
7.625%, 6/1/12.............................................. $ 50 47,187
HEALTHSOUTH CORP., SR. NOTES
8.375%, 10/1/11............................................. 50 48,500
TENET HEALTHCARE CORP., SR. NOTES
9.875%, 7/1/14(2)........................................... 270 281,813
--------------
$ 377,500
==============
MACHINERY--0.1%
THERMADYNE HOLDINGS CORP., SR. SUB. NOTES
9.25%, 2/1/14............................................... $ 750 753,750
--------------
$ 753,750
==============
MANUFACTURING--0.3%
AMSTED INDUSTRIES, INC., SR. NOTES
10.25%, 10/15/11(2)......................................... $ 1,000 1,085,000
MUELLER GROUP, INC., SR. SUB. NOTES
10.00%, 5/1/12(2)........................................... 600 633,000
--------------
$ 1,718,000
==============
--------------------------------------------------------------------------------
48
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
MISCELLANEOUS--2.2%
DOW JONES CDX HY
8.00%, 12/29/09(2).......................................... $ 15,000 14,587,500
--------------
$ 14,587,500
==============
OIL & GAS--0.1%
BELDEN & BLAKE CORP., SR. NOTES
8.75%, 7/15/12(2)........................................... $ 45 46,069
TRANSMONTAIGNE, INC., SR. SUB. NOTES
9.125%, 6/1/10.............................................. 515 558,775
--------------
$ 604,844
==============
PAPER AND FOREST PRODUCTS--0.1%
CARAUSTAR INDUSTRIES, INC., SR. SUB. NOTES
9.875%, 4/1/11.............................................. $ 280 291,200
PLASTIPAK HOLDINGS, INC.
10.75%, 9/1/11.............................................. 500 540,625
--------------
$ 831,825
==============
PUBLISHING AND PRINTING--0.1%
HOUGHTON MIFFLIN CO., SR. SUB. NOTES
9.875%, 2/1/13.............................................. $ 500 516,250
--------------
$ 516,250
==============
RETAIL--FOOD AND DRUG--0.1%
JEAN COUTU GROUP, INC., SR. SUB. NOTES
8.50%, 8/1/14(2)............................................ $ 315 313,819
--------------
$ 313,819
==============
RETAIL--GENERAL--0.2%
AFFINITY GROUP, INC., SR. SUB. NOTES
9.00%, 2/15/12(2)........................................... $ 500 520,625
PETRO STOPPING CENTERS LP/PETRO FINANCIAL CORP., SR. NOTES
9.00%, 2/15/12.............................................. 500 510,000
--------------
$ 1,030,625
==============
--------------------------------------------------------------------------------
49
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
SEMICONDUCTORS--0.1%
AMKOR TECHNOLOGIES, INC.
5.75%, 6/1/06............................................... $ 315 290,194
FREESCALE SEMICONDUCTOR, SR. NOTES
6.875%, 7/15/11(2).......................................... 35 35,438
--------------
$ 325,632
==============
SERVICES--0.0%
ALLIED SECURITY ESCROW, SR. SUB. NOTES
11.375%, 7/15/11(2)......................................... $ 45 46,800
--------------
$ 46,800
==============
TELECOMMUNICATIONS--0.0%
PANAMSAT CORP.
9.00%, 8/15/14(2)........................................... $ 170 170,000
--------------
$ 170,000
==============
TELECOMMUNICATIONS--WIRELINE--0.2%
NTL CABLE PLC, SR. NOTES
8.75%, 4/15/14(2)........................................... $ 245 255,413
QWEST SERVICES CORP.
14.00%, 12/15/14(2)......................................... 1,000 1,205,000
--------------
$ 1,460,413
==============
TRANSPORTATION--0.0%
HORIZON LINES, LLC
9.00%, 11/1/12(2)........................................... $ 150 156,375
--------------
$ 156,375
==============
WASTE MANAGEMENT--0.0%
WASTE SERVICES, INC., SR. SUB. NOTES
9.50%, 4/15/14(2)........................................... $ 90 93,150
--------------
$ 93,150
==============
TOTAL CORPORATE BONDS & NOTES (IDENTIFIED COST
$39,427,226).............................................. $ 39,191,282
==============
--------------------------------------------------------------------------------
50
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S
SECURITY OMITTED) VALUE
---------------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS--5.0%
Federal Home Loan Discount Note:
1.27%, with maturity at 2004.............................. $ 31,448 31,445,781
First CLO, Ltd., Sr. Sub. Notes:
3.96%, with maturity at 2016(2)........................... 1,000 1,000,000
--------------
TOTAL MORTGAGE PASS-THROUGHS (IDENTIFIED COST
$32,445,781).............................................. $ 32,445,781
==============
U.S. TREASURY OBLIGATIONS--12.8%
United States Treasury Note, 2.125%, 8/31/04................ $ 16,000 16,016,256
United States Treasury Note, 2.25%, 7/31/04................. 38,000 38,000,000
United States Treasury Note, 7.25%, 8/15/04................. 29,000 29,070,238
--------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST
$83,083,994).............................................. $ 83,086,494
==============
COMMERCIAL PAPER--6.8%
BANKS AND MONEY SERVICES--6.8%
CAFCO, LLC
1.34%, 8/20/04(3)........................................... $ 12,000 11,991,067
CIESCO, LLC
1.31%, 8/20/04.............................................. 12,000 11,991,266
CORTEZ CAPITAL CORP.
1.34%, 8/2/04............................................... 8,100 8,099,397
CRC FUNDING, LLC
1.38%, 8/25/04.............................................. 12,000 11,988,500
--------------
$ 44,070,230
==============
TOTAL COMMERCIAL PAPER (AMORTIZED COST $44,070,230)......................... $ 44,070,230
==============
--------------------------------------------------------------------------------
51
PORTFOLIO OF INVESTMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.6%
PRINCIPAL
AMOUNT
(000'S
BORROWER OMITTED) AMOUNT
---------------------------------------------------------------------------------------
INVESTORS BANK & TRUST COMPANY TIME DEPOSIT 1.34%
08/02/04.................................................. $30,000 30,000,000
------------
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $30,000,000)............... $ 30,000,000
------------
TOTAL INVESTMENTS--97.1% (IDENTIFIED COST $631,213,795)................. $630,468,381
============
OTHER ASSETS, LESS LIABILITIES--2.9%.................................... $ 18,931,304
============
NET ASSETS APPLICABLE TO COMMON SHARES--100.0%.......................... $649,399,685
============
------------
NOTE: The Trust has made commitments to fund specified amounts under certain
existing credit arrangements. Pursuant to the terms of these arrangements,
the Portfolio had unfunded loan commitments of $2,076,284 as of July 31,
2004.
(1) Senior floating-rate interests often require prepayments from excess cash
flows or permit the borrower to repay at its election. The degree to which
borrowers repay, whether as a contractual requirement or at their election,
cannot be predicted with accuracy. As a result, the actual remaining
maturity may be substantially less than the stated maturities shown.
However, it is anticipated that the senior floating-rate interests will
have an expected average life of approximately two to four years.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At July 31, 2004
the aggregate value of the securities is $30,815,539 or 4.7% of the net
assets.
(3) A security which has been issued under section 4(2) of the Securities Act
of 1933 and is generally regarded as restricted and illiquid. This security
may be resold in transactions exempt from registration or to the public if
the security is registered. All such securities held have been deemed by
the Portfolio's Trustees to be liquid and were purchased with the
expectation that resale would not be necessary.
See notes to financial statements.
--------------------------------------------------------------------------------
52
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
AS OF JULY 31, 2004
ASSETS
Investments, at value (identified cost, $631,213,795)..... $630,468,381
Cash...................................................... 17,975,565
Receivable for investments sold........................... 227,357
Receivable from the Investment Adviser.................... 7,500
Interest receivable....................................... 3,481,089
------------
TOTAL ASSETS................................................ $652,159,892
============
LIABILITIES
Payable for investments purchased......................... $ 2,236,925
Payable to affiliate for Trustees' fees................... 1,320
Accrued expenses.......................................... 521,962
------------
TOTAL LIABILITIES........................................... $ 2,760,207
============
NET ASSETS APPLICABLE TO 34,005,000 COMMON SHARES
OUTSTANDING............................................... $649,399,685
============
SOURCES OF NET ASSETS
Common Shares, $0.01 par value, unlimited number of shares
authorized, 34,005,000 shares issued and outstanding... $ 340,050
Additional paid-in capital................................ 648,599,294
Accumulated net realized gain (computed on the basis of
identified cost)....................................... 48,980
Accumulated undistributed net investment income........... 1,156,775
Net unrealized depreciation (computed on the basis of
identified cost)....................................... (745,414)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $649,399,685
============
NET ASSET VALUE PER COMMON SHARE
($649,399,685 / 34,005,000 COMMON SHARES ISSUED AND
OUTSTANDING).............................................. $ 19.10
============
See notes to financial statements.
--------------------------------------------------------------------------------
53
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JULY 31, 2004(1)
INVESTMENT INCOME
Interest.................................................. $1,544,322
----------
TOTAL INVESTMENT INCOME..................................... $1,544,322
==========
EXPENSES
Investment adviser fee.................................... $ 435,586
Trustees' fees and expenses............................... 1,320
Custodian fee............................................. 23,420
Organization expenses..................................... 7,500
Legal and accounting services............................. 7,425
Printing and postage...................................... 6,600
Transfer and dividend disbursing agent fees............... 5,610
Miscellaneous............................................. 21,140
----------
TOTAL EXPENSES.............................................. $ 508,601
==========
Deduct--
Reduction of investment adviser fee....................... $ 113,554
Expense reimbursement..................................... 7,500
----------
TOTAL EXPENSE REDUCTIONS.................................... $ 121,054
==========
NET EXPENSES................................................ $ 387,547
==========
NET INVESTMENT INCOME....................................... $1,156,775
==========
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)--
Investment transactions (identified cost basis)........ $ 48,980
----------
NET REALIZED GAIN........................................... $ 48,980
==========
Change in unrealized appreciation (depreciation)--
Investments (identified cost basis).................... $ (745,414)
----------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)........ $ (745,414)
==========
NET REALIZED AND UNREALIZED LOSS............................ $ (696,434)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 460,341
==========
------------
(1) For the period from the start of business, June 29, 2004, to July 31, 2004.
See notes to financial statements.
--------------------------------------------------------------------------------
54
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
JULY 31, 2004
(UNAUDITED)(1)
--------------
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
From operations--
Net investment income..................................... $ 1,156,775
Net realized gain from investment transactions............ 48,980
Net change in unrealized appreciation (depreciation) from
investments............................................ (745,414)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 460,341
============
Capital share transactions--
Proceeds from sale of shares(2)........................... $649,400,000
Offering cost............................................. (560,656)
------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS.............................................. $648,839,344
============
NET INCREASE IN NET ASSETS.................................. $649,299,685
============
NET ASSETS
At beginning of period...................................... $ 100,000
------------
AT END OF PERIOD............................................ $649,399,685
============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN
NET ASSETS
AT END OF PERIOD............................................ $ 1,156,775
============
------------
(1) For the period from the start of business, June 29, 2004, to July 31, 2004.
(2) Proceeds from sales of shares net of sales load paid of $30,600,000.
See notes to financial statements.
--------------------------------------------------------------------------------
55
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding during the periods stated
PERIOD ENDED
JULY 31, 2004
(UNAUDITED)(1)(2)
-----------------
-------------------------------------------------------------------------------
Net asset value--Beginning of period(3)..................... $ 19.100
--------
INCOME (LOSS) FROM OPERATIONS
Net investment income....................................... $ 0.034
Net realized and unrealized loss............................ (0.018)
--------
TOTAL INCOME FROM OPERATIONS................................ $ 0.016
========
COMMON SHARE OFFERING COSTS................................. $(0.016)
========
NET ASSET VALUE--END OF PERIOD.............................. $ 19.100
========
MARKET VALUE--END OF PERIOD................................. $ 20.000
========
TOTAL INVESTMENT RETURN ON NET ASSET VALUE(4)............... (4.50)%
========
TOTAL INVESTMENT RETURN ON MARKET VALUE(4).................. 0.00%
========
RATIOS/SUPPLEMENTAL DATA+
Net assets end of period (000's omitted).................... $649,400
Net expenses.............................................. 0.66%(5)
Net investment income..................................... 1.98%(5)(6)
Portfolio Turnover.......................................... 45%
------------
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee and a reimbursement of expenses by the Adviser. Had such actions
not been taken, the ratios and net investment income per share would have
been as follows:
Ratios (As a percentage of average daily net assets):
Expenses.................................................. 0.87%(5)
Net investment income..................................... 1.77%(5)(6)
Net investment income per share............................. $0.030
(1) For the period from the start of business, June 29, 2004, to July 31, 2004.
(2) Computed using average common shares outstanding.
(3) Net asset value at beginning of period reflects the deduction of the sales
load of $0.900 per share paid by the shareholder from the $20.000 offering
price.
(4) Total investment return on net asset value is calculated assuming a
purchase price at the offering price of $20.000 paid by the shareholder on
the first day and a sale at the net asset value on the last day of the
period reported. Total investment return on market value is calculated
assuming a purchase price at the offering price of $20.000 paid by the
shareholder on the first day and a sale at the current market price on the
last day of the period reported. After deducting the sales load of $0.90
per share paid by the Common Shareholders total investment return on net
asset value and market value is 0.00% and 4.71%, respectively. Total
investment return on net asset value and total investment return on market
value are not computed on an annualized basis.
(5) Annualized. These expense numbers do not reflect the Trust's anticipated
leverage. Expenses attributable to Common Shares will be higher once
leverage is utilized.
(6) The Trust's past performance is no guarantee of future results. This
annualized income is based on only a one month period during the start-up
phase of the Trust's operations. The annualized income quoted should be
considered in this context; the Trust's current income may be lower or
higher than the quoted annualized income.
See notes to financial statements.
--------------------------------------------------------------------------------
56
Eaton Vance Floating-Rate Income Trust
As of July 31, 2004
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1: SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Floating-Rate Income Trust (the Trust) is registered under the
Investment Company Act of 1940 (the 1940 Act), as amended, as a diversified,
closed-end management investment company. The Trust was organized under the laws
of the Commonwealth of Massachusetts by an Agreement and Declaration of Trust
dated April 28, 2004. The Trust's investment objective is to provide a high
level of current income. The Trust may, as a secondary objective, also seek
preservation of capital to the extent consistent with its primary goal of high
current income. The Trust pursues its objectives by investing primarily in
senior, secured floating rate loans (Senior Loans). The following is a summary
of significant accounting policies of the Trust. The policies are in conformity
with accounting principles generally accepted in the United States of America.
A: INVESTMENT VALUATION
Certain Senior Loans are deemed to be liquid if reliable market quotations are
readily available for them. Liquid Senior Loans are valued on the basis of
prices furnished by a pricing service. Other Senior Loans are valued at fair
value by the Trust's investment advisor, Eaton Vance Management (EVM), under
procedures established by the Trustees as permitted by Section 2(a)(41) of the
Investment Company Act of 1940. Such procedures include the consideration of
relevant factors, data and information relating to fair value, including (i) the
characteristics of and fundamental analytical data relating to the Senior Loan,
including the cost, size, current interest rate, period until next interest rate
reset, maturity and base lending rate of the Senior Loan, the terms and
conditions of the Senior Loan and any related agreements, and the position of
the Senior Loan in the Borrower's debt structure; (ii) the nature, adequacy and
value of the collateral, including the Trust'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 Senior Loan
including price quotations for and trading in the Senior Loan, and interests in
similar Senior Loans and the market environment and investor attitudes towards
the Senior Loan and interests in similar Senior Loans; (v) the experience,
reputation, stability and financial condition of the agent and any intermediate
participant in the Senior Loan; and (vi) general economic and market conditions
affecting the fair value of the Senior Loan. Other portfolio securities (other
than short-term obligations, but including listed issues) may be valued on the
basis of prices furnished by one or more pricing services which determine prices
for normal, institutional-size trading units of such securities which may use
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders. In certain circumstances, portfolio securities will be valued at the
last sale price on the exchange that is the primary market for such securities,
or the average of the last quoted bid price and asked price for those securities
for which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. Marketable securities
listed in the NASDAQ National Market System are valued at the NASDAQ official
closing price. The value of interest rate swaps will be based on dealer
quotations. Short-term obligations which mature in 60 days or less, are valued
at amortized cost, if their original term to maturity when acquired by the Trust
was 60 days or less or are valued at amortized cost using their value on the
61st day prior to maturity, if their original term to maturity when acquired by
the Trust was more than 60 days, unless in each case this is determined not to
represent fair value. OTC options are valued at the mean between bid and asked
price provided by dealers. Financial futures contracts listed on commodity
exchanges and exchange traded options are
--------------------------------------------------------------------------------
57
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
valued at closing settlement prices. Securities for which there is no such
quotation or valuation are valued at fair value using methods determined in good
faith by or at the direction of the Trustees. Repurchase agreements are valued
at cost plus accrued interest. Other portfolio securities for which there are no
quotations or valuations are valued at fair value as determined in good faith by
or on behalf of the Trustees.
B: INCOME
Interest income from Senior Loans is recorded on the accrual basis at the
then-current interest rate, while all other interest income is determined on the
basis of interest accrued, adjusted for amortization of premium or accretion of
discount. Dividend income is recorded on the ex-dividend date for dividends
received in cash and/or securities.
C: FEDERAL TAXES
The Trust's policy is to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to distribute to shareholders
each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal income or excise tax is
necessary.
D: INVESTMENT TRANSACTIONS
Investment transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined using the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuations during this period. To the extent
that when-issued or delayed delivery purchases are outstanding, the Trust
instructs the custodian to segregate assets in a separate account, with a
current value at least equal to the amount of its purchase commitments.
E: OFFERING COSTS
Costs incurred by the Trust in connection with the offering of the common shares
were recorded as a reduction of capital paid in excess of par applicable to
common shares.
F: EXPENSE REDUCTION
Investors Bank & Trust Company (IBT) serves as custodian of the Trust. Pursuant
to the custodian agreement, IBT receives a fee reduced by credits which are
determined based on the average daily cash balances the Trust maintains with
IBT. All credit balances used to reduce the Trust's custodian fees are reported
as a reduction of expenses on the Statement of Operations.
G: WRITTEN OPTIONS
Upon the writing of a call or a put option, an amount equal to the premium
received by the Trust is included in the Statement of Assets and Liabilities as
a liability. The amount of the liability is subsequently marked-to-market to
reflect the current value of the option written in accordance with the Trust's
policies on investment valuations discussed above. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are added to or offset
against the proceeds or amount paid on the transaction to determine the realized
gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Trust. The Trust, as writer of an option, may
have no control over
--------------------------------------------------------------------------------
58
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
whether the underlying securities may be sold (call) or purchased (put) and, as
a result, bears the market risk of an unfavorable change in the price of the
securities underlying the written option.
H: PURCHASED OPTIONS
Upon the purchase of a call or put option, the premium paid by the Trust is
included in the Statement of Assets and Liabilities as an investment. The amount
of the investment is subsequently marked-to-market to reflect the current market
value of the option purchased, in accordance with the Trust's policies on
investment valuations discussed above. If an option which the Trust has
purchased expires on the stipulated expiration date, the Trust will realize a
loss in the amount of the cost of the option. If the Trust enters into a closing
sale transaction, the Trust will realize a gain or loss, depending on whether
the sales proceeds from the closing sale transaction are greater or less than
the cost of the option. If the Trust exercises a put option, it will realize a
gain or loss from the sale of the underlying security, and the proceeds from
such sale will be decreased by the premium originally paid. If the Trust
exercises a call option, the cost of the security which the Trust purchases upon
exercise will be increased by the premium originally paid.
I: FINANCIAL FUTURES CONTRACTS
Upon entering into a financial futures contract, the Trust is required to
deposit an amount (initial margin) either in cash or securities equal to a
certain percentage of the purchase price indicated in the financial futures
contract. Subsequent payments are made or received by the Trust (margin
maintenance) each day, dependent on the daily fluctuations in the value of the
underlying securities, and are recorded for book purposes as unrealized gains or
losses by the Trust.
If the Trust enters into a closing transaction, the Trust will realize, for book
purposes, a gain or loss equal to the difference between the value of the
financial futures contract to sell and the financial futures contract to buy.
The Trust's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Trust may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
J: REVERSE REPURCHASE AGREEMENTS
The Trust may enter into reverse repurchase agreements. Under such an agreement,
the Trust temporarily transfers possession, but not ownership, of a security to
a counterparty, in return for cash. At the same time, the Trust agrees to
repurchase the security at an agreed-upon price and time in the future. The
Trust may enter into reverse repurchase agreements for temporary purposes, such
as to Trust withdrawals, or for use as hedging instruments where the underlying
security is denominated in a foreign currency. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market value
of the Trust's assets or in its yield. Liabilities to counterparties under
reverse repurchase agreements are recognized in the Statement of Assets and
Liabilities at the same time at which cash is received by the Trust. The
securities underlying such agreements continue to be treated as owned by the
Trust and remain in the Portfolio of Investments. Interest charged on amounts
borrowed by the Trust under reverse repurchase agreements is accrued daily.
K: TOTAL RETURN SWAPS
The Trust may enter into swap agreements to enhance return, to hedge against
fluctuations in securities prices or interest rates or as substitution for the
purchase or sale of securities. Pursuant to these agreements, the Trust makes
monthly payments at a rate equal to a predetermined spread to the one-month
LIBOR. In exchange, the Trust receives payments based on the rate of return of a
benchmark industry index. During the term of the outstanding swap agreement,
changes in the underlying value of
--------------------------------------------------------------------------------
59
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
the swap are recorded as unrealized gains and losses. Payments received or made
at the end of the measurement period are recorded as realized gains and losses.
The value of the swap is determined by changes in the relationship between the
rate of interest and the benchmark industry index. The Trust is exposed to
credit loss in the event of non-performance by the swap counterparty. However,
the Trust does not anticipate non-performance by the counterparty. Risk may also
arise from the unanticipated movements in value of interest rates or the index.
L: USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual results could
differ from those estimates.
M: INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and Trustees may be
indemnified against certain liabilities and expenses arising out of the
performance of their duties to the Trust, and shareholders are indemnified
against personal liability for obligations of the Trust. Additionally, in the
normal course of business, the Trust enters into agreements with service
providers that may contain indemnification clauses. The Trust's maximum exposure
under these arrangements is unknown as this would involve future claims that may
be made against the Trust that have not yet occurred.
N: INTERIM FINANCIAL STATEMENTS
The interim financial statements relating to July 31, 2004 and for the period
then ended have not been audited by an independent registered public accounting
firm, but in the opinion of the Trust's management reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial statements.
2: DISTRIBUTION TO SHAREHOLDERS
The Trust intends to make monthly distributions of net investment income.
Distributions are recorded on the ex-dividend date. In addition, at least
annually, the Trust intends to distribute net capital gain, if any. The Trust
distinguishes between distribution on a tax basis and a financial reporting
basis. Accounting principles generally accepted in the United States of America
require that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Permanent
differences between book and tax accounting relating to distributions are
reclassified to paid in capital. These differences relate primarily to the
method for amortizing premiums.
3: INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
EVM serves as the administrator of the Trust, but currently receives no
compensation for providing administrative services to the Trust. The investment
adviser fee is earned by EVM, as compensation for management and investment
advisory services rendered to the Trust. Under the advisory agreement, EVM
receives a monthly advisory fee in the amount equal to 0.75% annually of average
daily gross assets of the Trust. For the period from the start of business, June
29, 2004 to July 31, 2004, the advisory fee amounted to $435,586.
In addition, the Adviser has contractually agreed to reimburse the Trust for
fees and other expenses in the amount of 0.20% of the average daily gross assets
of the Trust for the first five full years of the Trust's operations, 0.15% of
average daily gross assets in year six, 0.10% in year seven and 0.05% in
--------------------------------------------------------------------------------
60
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
year eight. Pursuant to this agreement, the Investment Adviser waived $113,554
of its advisory fee for the period from the start of business, June 29, 2004 to
July 31, 2004. In addition, the Adviser has agreed to reimburse the Trust for
all organizational costs, estimated at $7,500, which is payable by the Adviser
at July 31, 2004.
Certain officers and Trustees of the Trust are officers of the above
organization.
4: PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $664,350,507 and $138,032,168 respectively, for the period from the
start of business, June 29, 2004, to July 31, 2004.
5: FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of investments
owned by the Trust at July 31, 2004, as computed on a federal income tax basis,
were as follows:
AGGREGATE COST.............................................. $631,461,070
------------
Gross unrealized appreciation............................... $ 687,107
Gross unrealized depreciation............................... (1,679,796)
------------
NET UNREALIZED DEPRECIATION................................. $ (992,689)
------------
6: COMMON SHARES OF BENEFICIAL INTEREST
The Agreement and Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional $0.01 par value common shares of
beneficial interest. Transactions in common shares were as follows:
PERIOD ENDED
JULY 31, 2004
(UNAUDITED)(1)
-----------------------------------------------------------------------------
Sales....................................................... 34,005,000
----------
NET INCREASE................................................ 34,005,000
==========
------------
(1) For the period from the start of business, June 29, 2004 to July 31, 2004.
7: FINANCIAL INSTRUMENTS
The Trust may trade in financial instruments with off-balance sheet risk in the
normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options and
financial futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Trust has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. The Trust did not have any
open obligations under these financial instruments at July 31, 2004.
--------------------------------------------------------------------------------
61
APPENDIX A: RATINGS
--------------------------------------------------------------------------------
Description of securities ratings+
Moody's Investors Service, Inc.
LONG-TERM DEBT SECURITIES RATINGS
AAA: Bonds that 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 that 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 that make the
long term risk appear somewhat larger than the Aaa securities.
A: Bonds that 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 that 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 lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds that 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 that 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 that 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 that 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 that 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 that would be given to these securities on the date of the Trust'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 rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has 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 rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit 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 rated BB, B, CCC, CC and C is 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 rated BB has 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 rated B has 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 rated CCC has 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
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt 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 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. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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A-3
DESCRIPTION OF SECURITIES RATINGS
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PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
COMMERCIAL PAPER
COMMERCIAL PAPER RATING DEFINITIONS
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from A for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1: A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B: A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
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DESCRIPTION OF SECURITIES RATINGS
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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 BOND RATINGS
AAA: Bonds 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 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 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 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.
HIGH YIELD BOND RATINGS
BB: Bonds 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 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 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 are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D: Bonds 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.
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DESCRIPTION OF SECURITIES RATINGS
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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 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 Trust 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
APPENDIX B
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EATON VANCE FLOATING-RATE INCOME TRUST
AMENDMENT NO. 1 TO BY-LAWS--STATEMENT
CREATING FIVE SERIES OF
AUCTION PREFERRED SHARES
WHEREAS, Section 5.1 of Article VI of the Agreement and Declaration of Trust
dated April 28, 2004 of Eaton Vance Floating-Rate Income Trust (the "Declaration
of Trust"), a copy of which is on file in the office of the Secretary of the
Commonwealth of The Commonwealth of Massachusetts, provides that the Trustees
may, without shareholder approval, authorize one or more classes of shares
(which classes may be divided into two or more series), shares of each such
class or series having such preferences, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, as the Trustees may determine and as shall be set forth in the
By-laws; and
WHEREAS, pursuant to authority expressly vested in the Trustees of the Trust by
Section 5.1 of Article VI of the Declaration of Trust, the Trustees have
authorized, in addition to that Trust's common shares, a class of 17,400
preferred shares which are now to be issued divided into one series of 3,480
shares, one series of 3,480 shares, one series of 3,480 shares, one series of
3,480 shares, and one series of 3,480 shares of its authorized preferred shares,
$0.01 par value, liquidation preference $25,000 per share plus accumulated but
unpaid dividends thereon, if any (whether or not earned or declared), plus the
premium, if any, resulting from the designation of a Premium Call Period,
designated respectively Series A Auction Preferred Shares, Series B Auction
Preferred Shares, Series C Auction Preferred Shares, Series D Auction Preferred
Shares and Series E Auction Preferred Shares.
NOW, THEREFORE, the By-laws of Eaton Vance Floating-Rate Income Trust are hereby
amended as follows:
1. ARTICLES VII through XIII shall be redesignated as ARTICLES VIII
through XIV and all affected cross references therein hereby are
amended accordingly.
2. A new ARTICLE VII shall be added as follows:
ARTICLE VII
STATEMENT CREATING FIVE SERIES OF AUCTION PREFERRED SHARES
DESIGNATION
Auction Preferred Shares, Series A: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series A." Each share of Auction Preferred Shares, Series A (sometimes referred
to herein as "Series A APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series A
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series A APS shall be identical.
Auction Preferred Shares, Series B: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred
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B-1
Shares, Series B." Each share of Auction Preferred Shares, Series B (sometimes
referred to herein as "Series B APS") may be issued on a date to be determined
by the Board of Trustees of the Trust or pursuant to their delegated authority;
have an Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series B
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series B APS shall be identical.
Auction Preferred Shares, Series C: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series C." Each share of Auction Preferred Shares, Series C (sometimes referred
to herein as "Series C APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series C
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series C APS shall be identical.
Auction Preferred Shares, Series D: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series D." Each share of Auction Preferred Shares, Series D (sometimes referred
to herein as "Series D APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series D
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series D APS shall be identical.
Auction Preferred Shares, Series E: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series E." Each share of Auction Preferred Shares, Series E (sometimes referred
to herein as "Series E APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series E
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series E APS shall be identical. The Series A APS, the Series B
APS, the Series C APS, the Series D APS, and Series E APS are sometimes
collectively referred to herein as the "APS."
1. DEFINITIONS. (a) Unless the context or use indicates another or different
meaning or intent, in these Amended By-Laws the following terms have the
following meanings, whether used in the singular or plural:
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"28-Day Dividend Period" means a Dividend Period consisting of 28 days.
"1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
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B-2
"1940 Act APS Asset Coverage" means asset coverage, as defined in section 18(h)
of the 1940 Act, of at least 200% with respect to all outstanding senior
securities of the Trust which are shares of beneficial interest, including all
outstanding shares of APS and Other APS (or such other asset coverage as may in
the future be specified in or under the 1940 Act as the minimum asset coverage
for senior securities which are shares of beneficial interest of a closed-end
investment company as a condition of paying dividends on its Common Shares).
"1940 Act Cure Date," with respect to the failure by the Trust to maintain the
1940 Act APS Asset Coverage (as required by paragraph 6 of these Amended
By-Laws) as of the last Business Day of each month, means the last Business Day
of the following month.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of these
Amended By-Laws.
"Adviser" means the Trust's investment adviser, which initially shall be Eaton
Vance Management.
"Affiliate" means any person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided that Eaton Vance
Management shall not be deemed to be an Affiliate nor shall any corporation or
any person controlled by, in control of or under common control with such
entity, one of the trustees, directors or executive officers of which is also a
trustee, director or executive officer of the Trust, be deemed to be an
Affiliate.
"Agent Member" means a member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more shares of APS or a Potential
Beneficial Owner.
"Amended By-Laws" means the By-Laws of the Trust, as amended by this Statement
creating the APS and as may otherwise be amended from time-to-time.
"Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii) of
these Amended By-Laws.
"Applicable Rates" means the rates per annum at which cash dividends are payable
on each Series of APS or Other APS, as the case may be, for any Dividend Period.
"Applicable Spread Over the Reference Rate" means the rate equaling the sum of
the Applicable Spread plus the Reference Rate.
"Approved Price" means the "fair value" as determined by the Trust in accordance
with the valuation procedures adopted from time to time by the Board of Trustees
of the Trust and for which the Trust receives a marked-to-market price (which,
for the purpose of clarity, shall not mean Market Value) from an independent
source at least semi-annually.
"APS" means, as the case may be, the Auction Preferred Shares.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean the dollar
amount equal to the sum of (i)(A) the product of the number of Outstanding
shares of each Series of APS on such date by the Liquidation Preference (and
redemption premium, if any) per share of such Series; (B) the aggregate amount
of dividends that will have accumulated at the respective Applicable Rates
(whether or not earned or declared) to (but not including) the first respective
Dividend Payment Dates for each Series of APS Outstanding that follows such
Valuation Date; (C) the aggregate amount of dividends that would accumulate on
Outstanding Preferred Shares from such first Dividend Payment Dates therefor
referenced in (B) of this paragraph through the 45th day after such Valuation
Date at the respective Applicable Rates referenced in (B) of this paragraph; (D)
the amount of anticipated non-interest expenses of the Trust for the 90 days
subsequent to such Valuation Date; (E) the amount of the current outstanding
balances of any indebtedness or obligations of the Trust senior in right of
payment to the Preferred Shares plus interest actually accrued together with 30
days additional interest on the current outstanding balances calculated at the
current rate; and (F) any other current liabilities payable during the 30 days
subsequent to such Valuation Date, including, without limitation, indebtedness
due within one year and any redemption premium due with respect to the Preferred
Shares for which a Notice of Redemption has been sent, as of such Valuation
Date, to the extent not
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B-3
reflected in any of (i)(A) through (i)(E) (including, without limitation, any
liabilities incurred for the purpose of clearing securities transactions) less
(ii) the sum of any cash plus the value of any of the Trust's assets irrevocably
deposited by the Trust for the payment of any of (i)(A) through (i)(F) ("value,"
for purposes of this clause (ii), means the Discounted Value of the security,
except that if the security matures prior to the relevant redemption payment
date and is either fully guaranteed by the U.S. Government or is rated P2 by
Moody's and A2 by Fitch, it will be valued at its face value).
"APS Basic Maintenance Amount Test" means a test which is met if: (a) the
aggregate Discounted Values of the Moody's Eligible Assets meets or exceeds 1.2
times the APS Basic Maintenance Amount and (b) the aggregate Discounted Values
of the Fitch Eligible Assets meets or exceeds 1.0 times the APS Basic
Maintenance Amount.
"APS Basic Maintenance Cure Date," with respect to the failure by the Trust to
satisfy the APS Basic Maintenance Amount (as required by paragraph 7(a) of these
Amended By-Laws) as of a given Valuation Date, means the second Business Day
following such Valuation Date.
"APS Basic Maintenance Report" means a report signed by any of the President,
Treasurer, any Senior Vice President or any Vice President of the Trust which
sets forth, as of the related Valuation Date, the assets of the Trust, the
Market Value and the Discounted Value thereof (seriatim and in aggregate), and
the APS Basic Maintenance Amount.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Deutsche Bank Trust Company Americas unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Trust or a duly authorized
committee thereof enters into an agreement with the Trust to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS and Other APS.
"Auction Procedures" means the procedures for conducting Auctions set forth in
paragraph 10 of this Article VII, of these Amended By-Laws.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of APS or a Broker-Dealer that holds APS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law to
perform the functions required of a Broker-Dealer in paragraph 10 of this
Article VII, of these Amended By-Laws, that has been selected by the Trust and
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a
Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of this Article VII, of these Amended
By-Laws.
"Business Day" means a day on which The New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the shares of beneficial interest designated as common
shares, par value $0.01 per share, of the Trust.
"Date of Original Issue" means, with respect to any share of APS or Other APS,
the date on which the Trust originally issues such share.
"Declaration of Trust" means the Agreement and Declaration of Trust, as amended
and supplemented (including these Amended By-Laws), of the Trust.
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B-4
"Deposit Securities" means cash and Senior Loans rated at least A2 (having a
remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by Moody's or A
(having a remaining maturity of 12 months or less), F-1+ by Fitch.
"Discounted Value" as of any Valuation Date, means (i) with respect to an Fitch
Eligible Asset, the quotient of the Market Value thereof divided by the
applicable Fitch Discount Factor and (ii)(a) with respect to a Moody's Eligible
Asset that is not currently callable as of such Valuation Date at the option of
the issuer thereof, the quotient of the Market Value thereof divided by the
applicable Moody's Discount Factor, or (b) with respect to a Moody's Eligible
Asset that is currently callable as of such Valuation Date at the option of the
issuer thereof, the quotient of (1) the lesser of the Market Value or call price
thereof, including any call premium, divided by (2) the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to APS, has the meaning set forth in
paragraph 2(b)(i) of these Amended By-Laws and, with respect to Other APS, has
the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend Period,
any 28-Day Dividend Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may be
permitted by the Trust that is listed as the holder of record of shares of APS
in the Share Books.
"Fitch" means Fitch Ratings and its successors at law.
"Fitch Discount Factor" means for purposes of determining the Discounted Value
of any Fitch Eligible Asset, the percentage determined as follows. The Fitch
Discount Factor for any Fitch Eligible Asset other than the securities set forth
below will be the percentage provided in writing by Fitch.
(i) Corporate Debt Securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS (NON-CONVERTIBLES)
TERMS TO MATURITY AAA AA A BBB BB B NR(1)
----------------- --- --- --- --- --- --- -----
1 year or less................................... 106 108 110 112 130 152 152
2 years or less (but longer than 1 year)......... 106 108 110 112 130 152 152
3 years or less (but longer than 2 years)........ 106 108 110 112 130 152 152
4 years or less (but longer than 3 years)........ 111 113 115 117 134 152 152
5 years or less (but longer than 4 years)........ 111 113 115 117 134 152 152
7 years or less (but longer than 5 years)........ 114 116 118 120 136 152 152
10 years or less (but longer than 7 years)....... 116 118 120 122 137 152 152
15 years or less (but longer than 10 years)...... 120 122 124 124 139 152 152
30 years or less (but longer than 15 years)...... 124 127 129 129 145 152 152
Greater than 30 years............................ 124 127 129 129 145 152 152
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Trust will use the
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B-5
percentage set forth under "not rated" in this table. Securities rated below
B by Fitch shall be treated the same as securities not rated by Fitch.
The Fitch Discount Factors presented in the immediately preceding table apply to
corporate debt securities that are Performing and have a Market Value determined
by a Pricing Service or an Approved Price. The Fitch Discount Factor noted in
the table above for a debt security rated B by Fitch shall apply to any
non-Performing debt security with a price equal to or greater than $0.90. The
Fitch Discount Factor noted in the table above for a debt security rated B by
Fitch shall apply to any non-Performing debt security with a price less than
$0.90 but equal to or greater than $0.20. If a debt security does not have a
Market Value determined by a Pricing Service or an Approved Price, a rating two
rating categories below the actual rating on the debt security will be used
(e.g., where the actual rating is A-, the rating for Debt Securities rated BB-
will be used). The Fitch Discount Factor for a debt security issued by a limited
partnership that is not a Rule 144A Security shall be the Discount Factor
determined in accordance with the table set forth above multiplied by 105%.
The Fitch Discount Factors presented in the immediately preceding table will
also apply to corporate obligations backed by a guaranty, a letter of credit or
insurance issued by a third party. If the third-party credit rating is the basis
for the rating on the obligation, then the rating on the third party will be
used to determine the Fitch Discount Factor in the table.
(ii) Preferred stock: The percentage determined by references to the rating of
a preferred stock in accordance with the table set forth below.
PREFERRED STOCK(1) DISCOUNT FACTOR
------------------ ---------------
AAA......................................................... 130%
AA.......................................................... 133%
A........................................................... 135%
BBB......................................................... 139%
BB.......................................................... 154%
Not rated or below BB....................................... 161%
Investment Grade DRD........................................ 164%
Not rated or below Investment Grade DRD..................... 200%
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Trust will use the percentage set forth under "not
rated" in this table.
(iii) Convertible securities: The Fitch Discount Factor applied to convertible
securities is (A) 200% for investment grade convertibles and (B) 222% for below
investment grade convertibles so long as such convertible debt securities have
neither (x) conversion premium greater than 100% nor (y) have a yield to
maturity or yield to worst of greater than 15.00% above the relevant Treasury
curve.
The Fitch Discount Factor applied to convertible debt securities which have
conversion premiums of greater than 100% is (A) 152% for investment grade
convertibles and (B) 179% for below investment grade convertibles so long as
such convertible debt securities do not have a yield to maturity or yield to
worst of greater than 15.00% above the relevant Treasury curve.
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B-6
The Fitch Discount Factor applied to convertible debt securities which have a
yield to maturity or yield to worse of greater than 15.00% above the relevant
Treasury curve is 370%.
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Discount Factor (e.g., where the only rating on a security
is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only
rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be
used). If a security is not rated by any Rating Agency, the Trust will treat the
security as if it were below investment grade.
(iv) U.S. Government Securities:
TIME REMAINING TO MATURITY DISCOUNT FACTOR
-------------------------- ---------------
1 year or less.............................................. 101.5%
2 years or less (but longer than 1 year).................... 103%
3 years or less (but longer than 2 years)................... 105%
4 years or less (but longer than 3 years)................... 107%
5 years or less (but longer than 4 years)................... 109%
7 years or less (but longer than 5 years)................... 112%
10 years or less (but longer than 7 years).................. 114%
15 years or less (but longer than 10 years)................. 122%
20 years or less (but longer than 15 years)................. 130%
25 years or less (but longer than 20 years)................. 146%
Greater than 30 years....................................... 154%
(v) Short-Term Investments and Cash: The Fitch Discount Factor applied to
short-term portfolio securities, including without limitation Debt Securities,
Short Term Money Market Instruments and municipal debt obligations, will be (A)
100%, so long as such portfolio securities mature or have a demand feature at
par exercisable within the Fitch Exposure Period; (B) 115%, so long as such
portfolio securities mature or have a demand feature at par not exercisable
within the Fitch Exposure Period; and (C) 125%, so long as such portfolio
securities neither mature nor have a demand feature at par exercisable within
the Fitch Exposure Period. A Fitch Discount Factor of 100% will be applied to
cash.
(vi) Rule 144A Securities: The Fitch Discount Factor applied to Rule 144A
Securities shall be the Discount Factor determined in accordance with the table
above under Corporate Debt Securities in subsection (i) multiplied by 110% until
such securities are registered under the Securities Act.
(vii) Senior Loans: The Fitch Discount Factor applied to Senior Loans (as
defined below) shall be the percentage specified in the table below opposite
such Fitch Loan Category:
FITCH LOAN CATEGORY DISCOUNT FACTOR
------------------- ---------------
A........................................................... 115%
B........................................................... 130%
C........................................................... 152%
D........................................................... 370%
(viii) Secured Debt securities or secured loans, other than Corporate Debt
Securities and Senior Loans: The Fitch Discount Factor applied to secured debt
securities and secured loans, other than Corporate Debt Securities and Senior
Loans shall be the same as set forth under "Corporate Debt Securities" above.
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B-7
(ix) Futures and call options: For purposes of the APS Basic Maintenance
Amount, futures held by the Trust and call options sold by the Trust shall not
be included as Fitch Eligible Assets. However, such assets shall be valued at
Market Value by subtracting the good faith margin and the maximum daily trading
variance as of a Valuation Date. For call options purchased by the Trust, the
Market Value of the call option will be included as Fitch Eligible Asset subject
to a Fitch Discount Factor mutually agreed to between the Trust and Fitch based
on the characteristics of the option contract such as its maturity and the
underlying security of the contract.
(x) Securities lending: The Trust may engage in securities lending in an
amount not to exceed 15% of the Trust's total gross assets. For purposes of
calculating the APS Basic Maintenance Amount, such securities lent shall be
included as Fitch Eligible Assets with the appropriate Fitch Discount Factor
applied to such lent security. The obligation to return such collateral shall
not be included as an obligation/liability for purposes of calculating the APS
Basic Maintenance Amount. However, the Trust may reinvest cash collateral for
securities lent in conformity with its investment objectives and policies and
the provisions of these bylaws. In such event, to the extent that securities
lending collateral received is invested by the Trust in assets that otherwise
would be Fitch Eligible Assets and the value of such assets exceeds the amount
of the Trust's obligation to return the collateral on a Valuation Date, such
excess amount shall be included in the calculation of Fitch Eligible Assets by
applying the applicable Fitch Discount Factor to this amount and adding the
product to total Fitch Eligible Assets. Conversely, if the value of assets in
which securities lending collateral has been invested is less then the amount of
the Trust's obligation to return the collateral on a Valuation Date, such
difference shall be included as an obligation/liability of the Trust for
purposes of calculating the APS Basic Maintenance Amount. Collateral received by
the Trust in a securities lending transaction and maintained by the Trust in the
form received shall not be included as a Fitch Eligible Asset for purposes of
calculating the APS Basic Maintenance Amount.
(xi) Swaps (including Total Return Swaps, Interest Rate Swaps and Credit
Default Swaps): Total Return and Interest Rate Swaps are subject to the
following provisions:
If the Trust has an outstanding gain from a swap transaction on a Valuation
Date, the gain will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor on the counterparty to the swap transaction. At the time a swap
is executed, the Trust will only enter into swap transactions where the
counterparty has at least a Fitch rating of A- or Moody's rating of A3.
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Trust has an outstanding liability from a swap transaction on a
Valuation Date, the Trust count such liability as an outstanding liability from
the total Fitch Eligible Assets in calculating the APS Basic Maintenance Amount.
(B) In addition, for swaps other than Total Return Swaps, the Market Value of
the position (positive or negative) will be included as a Fitch Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS.
(C) (1) The underlying securities subject to a Credit Default Swap sold by the
Trust will be subject to the applicable Fitch Discount Factor for each security
subject to the swap;
(2) If the Trust purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor assessed based on the counterparty risk; and
(3) The Trust will not include a Credit Default Swap as a Fitch Eligible Asset
purchased by the Trust without the Trust holding the underlying security or when
the Trust buys a Credit Default Swap for a basket of securities without holding
all the securities in the basket.
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B-8
"Fitch Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) BBB or
higher by Fitch or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A or higher by Fitch
or the equivalent by another Rating Agency if the payment date is within thirty
days of the Valuation Date, and (C) A+ or higher by Fitch or the equivalent by
another Rating Agency if the payment date is within the Fitch Exposure Period)
and receivables for Fitch Eligible Assets sold if the receivable is due within
five (5) Business Days of the Valuation Date, and if the trades which generated
such receivables are settled within five (5) Business Days;
(ii) Short Term Money Market Instruments so long as (A) such securities are
rated at least F1+ by Fitch or the equivalent by another Rating Agency, (B) in
the case of demand deposits, time deposits and overnight funds, the supporting
entity is rated at least A by Fitch or the equivalent by another Rating Agency,
or (C) in all other cases, the supporting entity (1) is rated at least A by
Fitch or the equivalent by another Rating Agency and the security matures within
one month, (2) is rated at least A by Fitch or the equivalent by another Rating
Agency and the security matures within three months or (3) is rated at least AA
by Fitch or the equivalent by another Rating Agency and the security matures
within six months;
(iii) U.S. Government Securities;
(iv) Debt securities if such securities have been registered under the
Securities Act or are restricted as to resale under federal securities laws but
are eligible for resale pursuant to Rule 144A under the Securities Act as
determined by the Trust's investment manager or portfolio manager acting
pursuant to procedures approved by the Board of Trustees of the Trust; and such
securities are issued by (1) a U.S. corporation, limited liability company or
limited partnership, (2) a corporation, limited liability company or limited
partnership domiciled in Argentina, Australia, Brazil, Chile, France, Germany,
Italy, Japan, Korea, Mexico, Spain or the United Kingdom or other country if
Fitch does not inform the Trust that including debt securities from such foreign
country will adversely impact Fitch's rating of the APS (the "Approved Foreign
Nations"), (3) the government of any Approved Foreign Nation or any of its
agencies, instrumentalities or political subdivisions (the debt securities of
Approved Foreign Nation issuers being referred to collectively as "Foreign
Bonds"), (4) a corporation, limited liability company or limited partnership
domiciled in Canada or (5) the Canadian government or any of its agencies,
instrumentalities or political subdivisions (the debt securities of Canadian
issuers being referred to collectively as "Canadian Bonds"). Foreign Bonds held
by the Trust will qualify as Fitch Eligible Assets only up to a maximum of 20%
of the aggregate Market Value of all assets constituting Fitch Eligible Assets.
Similarly, Canadian Bonds held by the Trust will qualify as Fitch Eligible
Assets only up to a maximum of 20% of the aggregate Market Value of all assets
constituting Fitch Eligible Assets. Notwithstanding the limitations in the two
preceding sentences, Foreign Bonds and Canadian Bonds held by the Trust will
qualify as Fitch Eligible Assets only up to a maximum of 30% of the aggregate
Market Value of all assets constituting Fitch Eligible Assets. All debt
securities satisfying the foregoing requirements and restrictions of this
paragraph (iv) are herein referred to as "Debt Securities."
(v) Preferred stocks if (i) dividends on such preferred stock are cumulative,
(ii) such securities provide for the periodic payment of dividends thereon in
cash in U.S. dollars or euros and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive equity capital
at any time over the respective lives of such securities, (iii) the issuer of
such a preferred stock has common stock listed on either the New York Stock
Exchange or the American Stock Exchange, (iv) the issuer of such a preferred
stock has a senior debt rating or preferred stock rating from Fitch of BBB- or
higher or the equivalent rating by another Rating Agency. In addition, the
preferred stocks issue must be at least $50 million;
(vi) Rule 144A Securities;
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B-9
(vii) Interest Rate Swaps entered into according to International Swap Dealers
Association ("ISDA") standards if (1) the counterparty to the swap transaction
has a short-term rating of not less than F1 by Fitch or the equivalent by
another Rating Agency, or, if the swap counterparty does not have a short-term
rating, the counterparty's senior unsecured long-term debt rating is AA or
higher by Fitch or the equivalent by another Rating Agency and (2) the original
aggregate notional amount of the Interest Rate Swap transaction or transactions
is not greater than the liquidation preference of the APS originally issued;
(viii) Swaps, including total return and Credit Default Swaps entered into
according to ISDA;
(ix) Senior Loans;
(x) Loans, other than Senior Loans; and
(xi) Fitch Hedging Transactions.
Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of the
Investment Company Act, and other securities or assets not otherwise provided
for in this definition may be included in Fitch Eligible Assets, but, with
respect to any financial contract or other securities or assets, only upon
receipt by the Trust of a writing from Fitch specifying any conditions on
including such financial contract or other securities or assets in Fitch
Eligible Assets and assuring the Trust that including such financial contract or
other securities or assets in the manner so specified would not affect the
credit rating assigned by Fitch to the APS.
Where the Trust sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Trust is required to pay upon repurchase of such asset
will count as a liability for the purposes of the APS Basic Maintenance Amount.
Where the Trust purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Trust thereby will constitute a Fitch Eligible
Asset if the long-term debt of such other party is rated at least A- by Fitch or
the equivalent by another Rating Agency and such agreement has a term of 30 days
or less; otherwise the Discounted Value of such purchased asset will constitute
a Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch Eligible
Asset to the extent that it has been irrevocably deposited for the payment of
(i)(A) through (i)(E) under the definition of APS Basic Maintenance Amount or to
the extent it is subject to any liens, except for (A) liens which are being
contested in good faith by appropriate proceedings and which Fitch has indicated
to the Trust will not affect the status of such asset as a Fitch Eligible Asset,
(B) liens for taxes that are not then due and payable or that can be paid
thereafter without penalty, (C) liens to secure payment for services rendered or
cash advanced to the Trust by its investment manager or portfolio manager, the
Trust's custodian, transfer agent or registrar or the Auction Agent and (D)
liens arising by virtue of any repurchase agreement.
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B-10
FITCH DIVERSIFICATION LIMITATIONS:
Portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Fitch's
Eligible Assets:
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
SECURITY RATED AT LEAST ISSUER(1) INDUSTRY(1),(2) ($ IN MILLION)(3)
----------------------- -------------- --------------- ------------------
AAA................................. 100% 100% $100
AA-................................. 20 75 100
A-.................................. 10 50 100
BBB-................................ 6 25 100
BB-................................. 4 16 50
B-.................................. 3 12 50
CCC................................. 2 8 50
------------
(1) Percentages represent a portion of the aggregate Market Value of corporate
debt securities.
(2) Industries are determined according to Fitch's Industry Classifications, as
defined herein.
(3) Preferred stock has a minimum issue size of $50 million, and mortgage pass
throughs issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association ("FNMA") or the Government National
Mortgage Association ("GNMA"), which has no minimum issue size.
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Diversification Limitations (e.g., where the only rating on
a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and
where the only rating on a security is a Moody's rating of Ba, a Fitch rating of
BB will be used). If a security is not rated by any Rating Agency, the Trust
will use the percentage set forth under "not rated" in this table.
"Fitch Exposure Period" means the period commencing on (and including) a given
Valuation Date and ending 41 days thereafter.
"Fitch General Portfolio Requirements" means that the Trust's portfolio must
meet the following diversification requirements: (a) no more than 25% by par
value of the Trust's total assets can be invested in the securities of borrowers
and other issuers having their principal business activities in the same Fitch
Industry Classification; provided, that this limitation shall not apply with
respect to U.S. Government Securities and provided further that for purposes of
this subsection (a), the term "issuer" shall not include a lender selling a
participation to the Trust or any other person interpositioned between such
lender and the Trust with respect to a participation and (b) no more than 10% by
par value of the Trust's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Trust together with any other persons
interpositioned between such lender and the Trust with respect to such
participation.
"Fitch Hedging Transactions" means purchases or sales of exchange-traded
financial futures contracts based on any index approved by Fitch, LIBOR or
Treasury Bonds, and purchases, writings or sales of exchange-traded put options
on such futures contracts, and purchases, writings or sales of exchange-
--------------------------------------------------------------------------------
B-11
traded call options on such financial futures contracts, and put and call
options on such financial futures contracts ("Fitch Hedging Transactions"),
subject to the following limitations:
(i) The Trust may not engage in any Fitch Hedging Transaction based on any
index approved by Fitch (other than transactions that terminate a futures
contract or option held by the Trust by the Trust's taking the opposite position
thereto ("closing transactions")) that would cause the Trust at the time of such
transaction to own or have sold outstanding financial futures contracts based on
such index exceeding in number 10% of the average number of daily traded
financial futures contracts based on such index in the 30 days preceding the
time of effecting such transaction as reported by The Wall Street Journal.
(ii) The Trust will not engage in any Fitch Hedging Transaction based on
Treasury Bonds or LIBOR (other than closing transactions) that would cause the
Trust at the time of such transaction to own or have sold:
(A) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 60% of the
aggregate Market Value of Fitch Eligible Assets owned by the Trust and at least
rated AA by Fitch (or, if not rated by Fitch Ratings, rated at least Aa by
Moody's; or, if not rated by Moody's, rated AAA by S&P); or
(B) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Fitch Eligible Assets owned by the Trust (other
than Fitch Eligible Assets already subject to a Fitch Hedging Transaction) and
rated at least A or BBB by Fitch (or, if not rated by Fitch Ratings, rated at
least Baa by Moody's; or, if not rated by Moody's, rated at least A or AA by
S&P) (for purposes of the foregoing clauses (i) and (ii), the Trust shall be
deemed to own futures contracts that underlie any outstanding options written by
the Trust);
(iii) The Trust may engage in closing transactions to close out any outstanding
financial futures contract based on any index approved by Fitch if the amount of
open interest in such index as reported by The Wall Street Journal is less than
an amount to be mutually determined by Fitch and the Trust.
(iv) The Trust may not enter into an option or futures transaction unless,
after giving effect thereto, the Trust would continue to have Fitch Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS
Shares Basic Maintenance Amount.
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B-12
"Fitch Industry Classification" means, for the purposes of determining Fitch
Eligible Assets, each of the following industry classifications:
FITCH INDUSTRY CLASSIFICATIONS SIC CODE (MAJOR GROUPS)
------------------------------ -----------------------
Aerospace and Defense....................................... 37, 45
Automobiles................................................. 37, 55
Banking, Finance and Real Estate............................ 60, 65, 67
Broadcasting and Media...................................... 27, 48
Building and Materials...................................... 15-17, 32, 52
Cable....................................................... 48
Chemicals................................................... 28, 30
Computers and Electronics................................... 35, 36
Consumer Products........................................... 23, 51
Energy...................................................... 13, 29, 49
Environmental Services...................................... 87
Farming and Agriculture..................................... 1-3, 7-9
Food, Beverage and Tobacco.................................. 20, 21, 54
Gaming, Lodging and Restaurants............................. 70, 58
Health Care and Pharmaceuticals............................. 38, 28, 80
Industrial/Manufacturing.................................... 35
Insurance................................................... 63, 64
Leisure and Entertainment................................... 78, 79
Metals and Mining........................................... 10, 12, 14, 33, 34
Miscellaneous............................................... 50, 72-76, 99
Paper and Forest Products................................... 8, 24, 26
Retail...................................................... 53, 56, 59
Sovereign................................................... NA
Supermarkets and Drug Stores................................ 54
Telecommunications.......................................... 48
Textiles and Furniture...................................... 22, 25, 31, 57
Transportation.............................................. 40, 42-47
Utilities................................................... 49
Structured Finance Obligations.............................. NA
Packaging and Containers.................................... 26, 32, 34
Business Services........................................... 73, 87
The Trust shall use its discretion in determining which industry classification
is applicable to a particular investment.
"Fitch Loan Category" means the following four categories (and, for purposes of
this categorization, the Market Value of a Fitch Eligible Asset trading at par
is equal to $1.00):
(i) "Fitch Loan Category A" means Performing Loans which have a Market Value or
an Approved Price greater than or equal to $0.90.
(ii) "Fitch Loan Category B" means: (A) Performing Loans which have a Market
Value or an Approved Price of greater than or equal to $0.80 but less than
$0.90; and (B) non-Performing Loans which have a Market Value or an Approved
Price greater than or equal to $0.85.
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B-13
(iii) "Fitch Loan Category C" means: (A) Performing Loans which have a Market
Value or an Approved Price of greater than or equal to $0.70 but less than
$0.80; (B) non-Performing Loans which have a Market Value or an Approved Price
of greater than or equal to $0.75 but less than $0.85; and (C) Performing Loans
without an Approved Price rated BB- or higher by Fitch. If a security is not
rated by Fitch but is rated by two other Rating Agencies, then the lower of the
ratings on the security from the two other Rating Agencies will be used to
determine the Fitch Discount Factor (e.g., where the S&P rating is A- and the
Moody's rating is Baa1, a Fitch rating of BBB+ will be used). If a security is
not rated by Fitch but is rated by only one other Rating Agency, then the rating
on the security from the other Rating Agency will be used to determine the Fitch
Discount Factor (e.g., where the only rating on a security is an S&P rating of
AAA-, a Fitch rating of AAA- will be used, and where the only rating on a
security is a Moody's rating of Ba3, a Fitch rating of BB- will be used).
(iv) "Fitch Loan Category D" means Loans not described in any of the foregoing
categories.
Notwithstanding any other provision contained above, for purposes of determining
whether a Fitch Eligible Asset falls within a specific Fitch Loan Category, to
the extent that any Fitch Eligible Asset would fall within more than one of the
Fitch Loan Categories, such Fitch Eligible Asset shall be deemed to fall into
the Fitch Loan Category with the lowest applicable Fitch Discount Factor.
"Holder" means a Person identified as a holder of record of shares of APS in the
Share Register.
"Independent Accountant" means a nationally recognized accountant, or firm of
accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date as
determined by the Board of Trustees of the Trust or their designee with respect
to each series of APS or Other APS, as the case may be.
"Initial Dividend Period" has the meaning set forth in paragraph 2(c)(i) of this
Article VII, of these Amended By-Laws and, with respect to Other APS, has the
equivalent meaning.
"Initial Dividend Rate" means the rate per annum established by the Board of
Trustees or their designee, applicable to the Initial Dividend Period for such
series of APS and, with respect to Other APS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with a broker
as a margin payment at the time of purchase or sale of a futures contract.
"Interest Rate Swaps" means the exchange by the Trust with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
fixed rate payments for floating rate payments.
"LIBOR" means the London Interbank Offered Rate.
"LIBOR Dealers" means UBS Securities LLC and such other dealer or dealers as the
Trust may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"LIBOR Rate" means on any Auction Date, means (i) the rate for deposits in U.S.
dollars for the designated Dividend Period, which appears on display page 3750
of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page as
may replace that page on that service, or such other service as may be selected
by the LIBOR Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m.,
London time, on the day that is the London Business Day preceding the Auction
Date (the "LIBOR Determination Date"), or (ii) if such rate does not appear on
Telerate Page 3750 or such other page as may replace such Telerate Page 3750,
(A) the LIBOR Dealer shall determine the arithmetic mean of the offered
quotations of the Reference Banks to leading banks in the London
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B-14
interbank market for deposits in U.S. dollars for the designated Dividend Period
in an amount determined by such LIBOR Dealer by reference to requests for
quotations as of approximately 11:00 a.m. (London time) on such date made by
such LIBOR Dealer to the Reference Banks, (B) if at least two of the Reference
Banks provide such quotations, LIBOR Rate shall equal such arithmetic mean of
such quotations, (C) if only one or none of the Reference Banks provide such
quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the LIBOR
Dealer (after obtaining the Trust's approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Dividend
Period in an amount determined by the LIBOR Dealer (after obtaining the Trust's
approval) that is representative of a single transaction in such market at such
time by reference to the principal London offices of leading banks in the London
interbank market; provided, however, that if one of the LIBOR Dealers does not
quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Trust to
provide such rate or rates not being supplied by the LIBOR Dealer; provided
further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures
provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous
Auction Date. If the number of Dividend Period days shall be (i) 7 days or more
but fewer than 21 days, such rate shall be the seven-day LIBOR rate; (ii) 21
days or more but fewer than 49 days, such rate shall be one-month LIBOR rate;
(iii) 49 or more but fewer than 77 days, such rate shall be the two-month LIBOR
rate; (iv) 77 or more but fewer than 112 days, such rate shall be the
three-month LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall
be the four-month LIBOR rate; (vi) 140 or more but fewer than 168 days, such
rate shall be the five-month LIBOR rate; (vii) 168 or more but fewer than 189
days, such rate shall be the six-month LIBOR rate; (viii) 189 or more but fewer
than 217 days, such rate shall be the seven-month LIBOR rate; (ix) 217 or more
but fewer than 252 days, such rate shall be the eight-month LIBOR rate; (x) 252
or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate;
(xi) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR
rate; (xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more but fewer than 365 days, such
rate shall be the twelve-month LIBOR rate.
"London Business Day" means any day on which commercial banks are generally open
for business in London.
"Loan" means any assignment of or participation in any bank loan denominated in
U.S. dollars including term loans, the funded and unfunded portions of revolving
credit lines (provided that the Trust shall place in reserve an amount equal to
any unfunded portion of any revolving credit line) and debtor-in possession
financings; provided that such loan (a) is not extended for the purpose of
purchasing or carrying any margin stock and (b) is similar to those typically
made, syndicated, purchased or participated by a commercial bank in the ordinary
course of business.
"Long Term Dividend Period" means a Special Dividend Period consisting of a
specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of APS plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption.
"Market Value" of any asset of the Trust shall be the market value thereof
determined by the Pricing Service or by the Trust in accordance with procedures
approved by the Board of Trustees. Market Value of any asset shall include any
interest accrued thereon. The Pricing Service or the Trust shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service or the Trust using methods which
include consideration of: yields or prices of obligations of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market
--------------------------------------------------------------------------------
B-15
conditions. The Pricing Service or the Trust may employ electronic data
processing techniques and/or a matrix system to determine valuations. At the
Trust's discretion, in the event the Pricing Service is unable to value a
security, the security shall be valued at the lower of two dealer bids obtained
by the Trust from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Trustees.
"Maximum Applicable Rate," with respect to APS, has the meaning set forth in
paragraph 10(a)(vii) of this Article VII, of these Amended By-Laws and, with
respect to Other APS, has the equivalent meaning.
"Monthly Valuation Date" means the last Business Day of each month in each
fiscal year of the Trust, commencing from the Date of Original Issue.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its
successors.
"Moody's Discount Factor" means for purposes of determining the Discounted Value
of any Moody's Eligible Asset, the percentage determined as follows. The Moody's
Discount Factor for any Moody's Eligible Asset other than the securities set
forth below will be the percentage provided in writing by Moody's.
(i) Corporate debt securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS (NON-CONVERTIBLES)
TERMS TO MATURITY OF NON-INVESTMENT GRADE BONDS AAA AA A BAA BA B NR(1)
----------------------------------------------- --- --- --- --- --- --- -----
1 year or less................................ 109 112 115 118 137 150 250
2 years or less (but longer than 1 year)...... 115 118 122 125 146 160 250
3 years or less (but longer than 2 years)..... 120 123 127 131 153 168 250
4 years or less (but longer than 3 years)..... 126 129 133 138 161 176 250
5 years or less (but longer than 4 years)..... 132 135 139 144 168 185 250
7 years or less (but longer than 5 years)..... 139 143 147 152 179 197 250
10 years or less (but longer than 7 years).... 145 150 155 160 189 208 250
15 years or less (but longer than 10 years)... 150 155 160 165 196 216 250
20 years or less (but longer than 15 years)... 150 155 160 165 196 228 250
30 years or less (but longer than 20 years)... 150 155 160 165 196 229 250
Greater than 30 years......................... 165 173 181 189 205 240 250
------------
(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Trust's assets can be derived
from other sources, securities rated below B by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch,
are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or
other debt security is unrated by Moody's, S&P or Fitch, the Trust will use
the percentage set forth under "Below B and Unrated" in this table. Ratings
assigned by S&P or Fitch are generally accepted by Moody's at face value.
However, adjustments to face value may be made to particular categories of
credits for which the S&P and/or Fitch rating does not seem to approximate a
Moody's rating equivalent.
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B-16
The Moody's Discount Factors presented in the immediately preceding table will
also apply to corporate debt securities that do not pay interest in U.S. dollars
or euros, provided that the Moody's Discount Factor determined from the table
shall be multiplied by a factor of 1.20% for purposes of calculating the
Discounted Value of such securities.
(ii) Preferred stock: The Moody's Discount Factor for preferred stock shall be
(A) for preferred stocks issued by a utility, 155%; (B) for preferred stocks of
industrial and financial issuers, 197%; and (C) for auction rate preferred
stocks and all other preferred stocks, 350%.
(iii) Short-term instruments: The Moody's Discount Factor applied to
short-term portfolio securities, including without limitation corporate debt
securities, Short Term Money Market Instruments and municipal debt obligations,
will be (A) 100%, so long as such portfolio securities mature or have a demand
feature at par exercisable within the Moody's Exposure Period; (B) 115%, so long
as such portfolio securities mature or have a demand feature at par not
exercisable within the Moody's Exposure Period; and (C) 125%, if such securities
are not rated by Moody's, so long as such portfolio securities are rated at
least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period. A Moody's Discount Factor of
100% will be applied to cash.
(v) Rule 144A Securities: The Moody's Discount Factor applied to Rule 144A
Securities for Rule 144A Securities whose terms include rights to registration
under the Securities Act within one year and Rule 144A Securities which do not
have registration rights within one year will be 120% and 130%, respectively, of
the Moody's Discount Factor which would apply were the securities registered
under the Securities Act.
(vi) Bank Loans: The Moody's Discount Factor applied to secured floating rate
loans ("Bank Loans") shall be the percentage specified in accordance with the
table set forth below (or such lower percentage as Moody's may approve in
writing from time to time):
MOODY'S RATING CATEGORY CAA AND BELOW
------------------------------------------------------------- (INCLUDING DISTRESSED
TYPE OF LOAN AAA-A BAA AND BA(1) B(1) AND UNRATED)(1)
------------ ----- ------------- ---- ---------------------
Senior Loans greater than $250 MM..... 118% 136% 149% 250%
Non-Senior Bank Loans greater than
$250 MM............................. 128% 146% 159% 250%
Bank Loans less than $250 MM.......... 138% 156% 169% 270%
Second Lien Bank Loans................ 168% 185% 200% 270%
------------
(1) If a Bank Loan is not rated by any of Moody's, S&P or Fitch Ratings, the
Trust will use the applicable percentage set forth under the column entitled
"Caa and below (including distressed and unrated)" in the table above.
Ratings assigned the S&P and/or Fitch are generally accepted by Moody's at
face value. However, adjustments to face value may be made to particular
categories of securities for which the ratings by S&P and/or Fitch do not
seem to approximate a Moody's rating equivalent. Split-rated securities
assigned by S&P and Fitch (i.e., these Rating Agencies assign different
rating categories to the security) will be accepted at the lower of the two
ratings; provided however, that, in a situation where a security is rated
"B" (or equivalent) by a given rating agency and rated "CCC" (or equivalent)
by another rating agency, the Trust will use the applicable percentage set
forth under the column entitled "B" in the table above.
"Moody's Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) Baa3 or
higher by Moody's or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A2 or higher by
Moody's or the equivalent by another Rating Agency if the payment date is within
thirty days of the Valuation Date, and (C) A1 or higher by Moody's or the
equivalent by another Rating Agency if the payment date is within the Moody's
Exposure Period) and receivables for Moody's Eligible Assets sold if the
receivable is due within five (5) Business Days of the Valuation Date, and if
the trades which generated such receivables are (A) settled through clearing
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B-17
house firms with respect to which the Trust has received prior written
authorization from Moody's or (B) (1) with counterparties having a Moody's
long-term debt rating of at least Baa3 or the equivalent by another Rating
Agency or (2) with counterparties having a Moody's Short Term Money Market
Instrument rating of at least P-1or the equivalent by another Rating Agency;
(ii) Short Term Money Market Instruments, so long as (A) such securities are
rated at least P-1 or the equivalent by another Rating Agency, (B) in the case
of demand deposits, time deposits and overnight funds, the supporting entity is
rated at least A2 or the equivalent by another Rating Agency, or (C) in all
other cases, the supporting entity (1) is rated A2 or the equivalent by another
Rating Agency and the security matures within one month, (2) is rated A1 or the
equivalent by another Rating Agency and the security matures within three months
or (3) is rated at least A3 or the equivalent by another Rating Agency and the
security matures within six months; provided, however, that for purposes of this
definition, such instruments (other than commercial paper rated by S&P and not
rated by Moody's) need not meet any otherwise applicable S&P rating criteria;
(iii) U.S. Government Securities;
(iv) Rule 144A Securities;
(v) Bank Loans;
(vi) Corporate debt securities if (A) such securities are rated B3 or higher by
Moody's or the equivalent by another Rating Agency; (B) such securities provide
for the periodic payment of interest in cash in U.S. dollars or euros, except
that such securities that do not pay interest in U.S. dollars or euros shall be
considered Moody's Eligible Assets if they are rated by Moody's, S&P or Fitch;
(C) for securities which provide for conversion or exchange at the option of the
issuer into equity capital at some time over their lives, the issuer must be
rated at least B3 by Moody's or the equivalent by another Rating Agency and the
discount factor will be 250%; (D) for debt securities rated Ba1 and below, no
more than 10% of the original amount of such issue may constitute Moody's
Eligible Assets or the equivalent by another Rating Agency; (E) such securities
have been registered under the Securities Act or are restricted as to resale
under federal securities laws but are eligible for resale pursuant to Rule 144A
under the Securities Act as determined by the Trust's investment manager or
portfolio manager acting pursuant to procedures approved by the Board of
Trustees, except that such securities that are not subject to U.S. federal
securities laws shall be considered Moody's Eligible Assets if they are publicly
traded; and (F) such securities are not subject to extended settlement.
Notwithstanding the foregoing limitations, (x) corporate debt securities not
rated at least B3 by Moody's or not rated by Moody's shall be considered to be
Moody's Eligible Assets only to the extent the Market Value of such corporate
debt securities does not exceed 10% of the aggregate Market Value of all Moody's
Eligible Assets; provided, however, that if the Market Value of such corporate
debt securities exceeds 10% of the aggregate Market Value of all Moody's
Eligible Assets, a portion of such corporate debt securities (selected by the
Trust) shall not be considered Moody's Eligible Assets, so that the Market Value
of such corporate debt securities (excluding such portion) does not exceed 10%
of the aggregate Market Value of all Moody's Eligible Assets; and (y) corporate
debt securities rated by neither Moody's, S&P nor Fitch shall be considered to
be Moody's Eligible Assets only to the extent such securities are issued by
entities which (i) have not filed for bankruptcy within the past three years,
(ii) are current on all principal and interest in their fixed income
obligations, (iii) are current on all preferred stock dividends, and (iv)
possess a current, unqualified auditor's report without qualified, explanatory
language.
(vii) Preferred stocks if (A) dividends on such preferred stock are cumulative,
(B) such securities provide for the periodic payment of dividends thereon in
cash in U.S. dollars or euros and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (C) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (D) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baa1 or
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B-18
higher or a preferred stock rating from Moody's of Baa3 or higher and (E) such
preferred stock has paid consistent cash dividends in U.S. dollars or euros over
the last three years or has a minimum rating of A1 (if the issuer of such
preferred stock has other preferred issues outstanding that have been paying
dividends consistently for the last three years, then a preferred stock without
such a dividend history would also be eligible). In addition, the preferred
stocks must have the following diversification requirements: (X) the preferred
stock issue must be greater than $50 million and (Y) the minimum holding by the
Trust of each issue of preferred stock is $500,000 and the maximum holding of
preferred stock of each issue is $5 million. In addition, preferred stocks
issued by transportation companies will not be considered Moody's Eligible
Assets;
(viii) Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii)
of the Investment Company Act of 1940, as amended, and other securities or
assets not otherwise provided for in this definition, but only upon receipt by
the Trust of a letter from Moody's specifying any conditions on including such
financial contract or other securities or assets in Moody's Eligible Assets and
assuring the Trust that including such financial contract or other securities or
assets in the manner so specified would not affect the credit rating assigned by
Moody's to the APS ; and
(ix) Moody's Hedging Transactions.
MOODY'S DIVERSIFICATION LIMITATIONS:
In addition, portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Moody's
Eligible Assets:
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
RATINGS(1) ISSUER(2),(3) INDUSTRY(3),(4) ($ IN MILLIONS)(5)
---------- -------------- --------------- ------------------
Aaa................................... 100% 100% $100
Aa.................................... 20 60 100
A..................................... 10 40 100
Baa................................... 6 20 100
Ba.................................... 4 12 50(6)
B1-B2................................. 3 8 50(6)
B3 or below........................... 2 5 50(6)
------------
(1) Refers to the securities of the portfolio holding.
(2) Companies subject to common ownership of 25% or more are considered as one
issuer.
(3) Percentages represent a portion of the aggregate Market Value of securities.
(4) Industries are determined according to Moody's Industry Classifications, as
defined herein.
(5) Except for preferred stock, which has a minimum issue size of $50 million,
and mortgage pass throughs issued by FNMA, FHLMC or GNMA, which has no
minimum issue size.
(6) Portfolio holdings from issues ranging from $50 million to $100 million are
limited to 20% of the Trust's total assets.
Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Trust's assets can be derived from
other sources, securities rated below B by Moody's and unrated securities, which
are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of
Moody's Eligible Assets. If a corporate, municipal or other debt security is
unrated by Moody's, S&P or Fitch, the Trust will use the percentage set forth
under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are
generally accepted by Moody's at face value. However, adjustments to face value
may be made to particular categories of credits for which the S&P and/or Fitch
rating does not seem to approximate a Moody's rating equivalent.
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B-19
Where the Trust sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Trust is required to pay upon repurchase of such asset
will count as a liability for the purposes of the APS Basic Maintenance Amount.
Where the Trust purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Trust thereby will constitute a Moody's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and such agreement has a term of 30 days or less; otherwise the Discounted Value
of such purchased asset will constitute a Moody's Eligible Asset. For the
purposes of calculation of Moody's Eligible Assets, portfolio securities which
have been called for redemption by the issuer thereof shall be valued at the
lower of Market Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(E) under the definition of APS Basic Maintenance
Amount or to the extent it is subject to any Liens, except for (A) Liens which
are being contested in good faith by appropriate proceedings and which Moody's
has indicated to the Trust will not affect the status of such asset as a Moody's
Eligible Asset, (B) Liens for taxes that are not then due and payable or that
can be paid thereafter without penalty, (C) Liens to secure payment for services
rendered or cash advanced to the Trust by its investment manager or portfolio
manager, the Trust's custodian, transfer agent or registrar or the Auction Agent
and (D) Liens arising by virtue of any repurchase agreement.
"Moody's Exposure Period" means the period commencing on a given Valuation Date
and ending 49 days thereafter.
"Moody's General Portfolio Requirements" means that the Trust's portfolio must
meet the following diversification requirements: (a) no more than 25% by par
value of the Trust's total assets can be invested in the securities of borrowers
and other issuers having their principal business activities in the same Moody's
Industry Classification; provided, that this limitation shall not apply with
respect to U.S. Government Securities and provided further that for purposes of
this subsection (a), the term "issuer" shall not include a lender selling a
participation to the Trust or any other person interpositioned between such
lender and the Trust with respect to a participation and (b) no more than 10% by
par value of the Trust's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Trust together with any other persons
interpositioned between such lender and the Trust with respect to such
participation.
"Moody's Hedging Transactions" has the meaning set forth in paragraph 8(a) of
these Amended By-Laws.
"Moody's Industry Classification" means, for the purposes of determining Moody's
Eligible Assets, each of the following industry classifications (or such other
classifications as Moody's may from time to time approve for application to the
Preferred Shares):
1. Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar,
Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry
Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood,
Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
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B-20
5. Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate,
Real Estate Development, REITs, Land Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating Containers
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and
Waste Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers,
Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture
Chemicals, Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals,
Hospital Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games,
Toy Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales of the foregoing
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
25. Personal, Food and Miscellaneous
26. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
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B-21
27. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
28. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
29. Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
30. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
31. Personal Transportation: Air, Bus, Rail, Car Rental
32. Utilities: Electric, Water, Hydro Power, Gas
33. Broadcasting and Entertainment: Recording Industry, Motion Exhibition
Theaters, Motion Picture Production and Distribution, Radio, T.V.,
Cable Broadcasting and Broadcasting Equipment
34. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
Supra-national Agencies
The Trust will use its discretion in determining which industry classification
is applicable to a particular investment in consultation with the Independent
Accountant and Moody's, to the extent the Trust considers necessary.
"Non-Call Period" has the meaning set forth under the definition of "Specific
Redemption Provisions".
"Non-Investment Grade Bonds" means "Non-Investment Grade Bonds" as defined in
the Trust's Registration Statement on Form N-2 (File No. 333-117357) relating to
the APS on file with the Securities Exchange Commission, as such Registration
Statement may be amended from time to time.
"Non-Payment Period" means any period commencing on and including the day on
which the Trust shall fail to (i) declare, prior to the close of business on the
second Business Day preceding any Dividend Payment Date, for payment on or (to
the extent permitted by paragraph 2(c)(i) of this Article VII, of these Amended
By-Laws) within three Business Days after such Dividend Payment Date to the
Holders as of 12:00 noon, New York City time, on the Business Day preceding such
Dividend Payment Date, the full amount of any dividend on shares of APS payable
on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such
Dividend Payment Date the full amount of any cash dividend on such shares
payable (if declared) on such Dividend Payment Date or (B) on any redemption
date for any shares of APS called for redemption, the Mandatory Redemption Price
per share of such APS or, in the case of an optional redemption, the Optional
Redemption Price per share, and ending on and including the Business Day on
which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid
redemption prices shall have been so deposited or shall have otherwise been made
available to Holders in same-day funds; provided that, a Non-Payment Period
shall not end unless the Trust shall have given at least five days' but no more
than 30 days' written notice of such deposit or availability to the Auction
Agent, all Existing Holders (at their addresses appearing in the Share Books)
and the Securities Depository. Notwithstanding the foregoing, the failure by the
Trust to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above
within three Business Days after any Dividend Payment Date or redemption date,
as the case may be, in each case to the extent contemplated by paragraph 2(c)(i)
of these Amended By-Laws, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 275% of the applicable Reference
Rate, provided that the Board of Trustees of the Trust shall have the authority
to adjust, modify, alter or change from time to time the initial Non-Payment
Period Rate if the Board of Trustees of the Trust determines and Fitch and/or
Moody's (and any Substitute Rating Agency in lieu of Fitch and/or Moody's, as
applicable, in the event such party shall not rate the APS) advise the Trust in
writing that such adjustment, modification, alteration or change will not
adversely affect its then current ratings on the APS.
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B-22
"Normal Dividend Payment Date" has the meaning set forth in paragraph 2(b)(i) of
Article VII, of these Amended By-Laws.
"Notice of Redemption" means any notice with respect to the redemption of shares
of APS pursuant to paragraph 4 of Article VII, of these Amended By-Laws.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of
Article VII, of these Amended By-Laws.
"Notice of Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Optional Redemption Price" means $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) to the date
fixed for redemption plus any applicable redemption premium attributable to the
designation of a Premium Call Period.
"Other APS" means the auction rate Preferred Shares of the Trust, other than the
APS.
"Outstanding" means, as of any date (i) with respect to APS, shares of APS
therefor issued by the Trust except, without duplication, (A) any shares of APS
theretofore canceled or delivered to the Auction Agent for cancellation, or
redeemed by the Trust, or as to which a Notice of Redemption shall have been
given and Deposit Securities shall have been deposited in trust or segregated by
the Trust pursuant to paragraph 4(c) and (B) any shares of APS as to which the
Trust or any Affiliate thereof shall be a Beneficial Owner, provided that shares
of APS held by an Affiliate shall be deemed outstanding for purposes of
calculating the APS Basic Maintenance Amount and (ii) with respect to shares of
other Preferred Shares, has the equivalent meaning.
"Parity Shares" means the APS and each other outstanding series of Preferred
Shares the holders of which, together with the holders of the APS, shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Performing" means that no default as to the payment of principal or interest
has occurred and is continuing.
"Person" means and includes an individual, a partnership, a Trust, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of APS but that wishes to
purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of APS.
"Potential Holder" means any Broker-Dealer or any such other Person as may be
permitted by the Trust, including any Existing Holder, who may be interested in
acquiring shares of APS (or, in the case of an Existing Holder, additional
shares of APS).
"Preferred Shares" means the preferred shares of beneficial interest, par value
$0.01 per share, of the Trust, and includes APS and Other APS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Pricing Service" means any pricing service designated by the Board of Trustees
of the Trust provided the Trust obtains written assurance from Moody's and Fitch
that such designation will not impair the rating then assigned by Moody's and
Fitch, as applicable, to the APS.
"Rating Agency" means a nationally recognized statistical rating organization.
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"Reference Banks" means four major banks in the London interbank market selected
by UBS Securities LLC or its affiliates or successors or such other party as the
Trust may from time to time appoint.
"Reference Rate" means (i) with respect to a Dividend Period having 364 or fewer
days, the applicable LIBOR Rate and (ii) with respect to a Dividend Period
having 365 or more days, the applicable U.S. Treasury Note Rate.
"REITs" means real estate investment trusts.
"Request for Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Response" has the meaning set forth in paragraph 2(c)(iii) of Article VII, of
these Amended By-Laws.
"Rule 144A Securities" means securities which are restricted as to resale under
federal securities laws but are eligible for resale pursuant to Rule 144A under
the Securities Act as determined by the Trust's investment manager or portfolio
manager acting pursuant to procedures approved by the Board of Trustees of the
Trust.
"S&P" means Standard & Poor's Corporation, a New York Corporation, and its
successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company or any successor
company or other entities elected by the Trust as securities depository for the
shares of APS that agrees to follow the procedures required to be followed by
such securities depository in connection with the shares of APS.
"Senior Loans" means "Senior Loans" as defined in the Trust's Registration
Statement on Form N-2 (File No. 333-117357) relating to the APS on file with the
Securities Exchange Commission, as such Registration Statement may be amended
from time to time.
"Series A APS" means the Auction Preferred Shares, Series A.
"Series B APS" means the Auction Preferred Shares, Series B.
"Series C APS" means the Auction Preferred Shares, Series C.
"Series D APS" means the Auction Preferred Shares, Series D.
"Series E APS" means the Auction Preferred Shares, Series E.
"Service" means the United States Internal Revenue Service.
"Share Books" means the books maintained by the Auction Agent setting forth at
all times a current list, as determined by the Auction Agent, of Existing
Holders of the APS.
"Share Register" means the register of Holders maintained on behalf of the Trust
by the Auction Agent in its capacity as transfer agent and registrar for the
APS.
"Short Term Dividend Period" means a Special Dividend Period consisting of a
specified number of days (other than seven in the case of Series A APS, Series B
APS and Series C APS and other than 28 in the case of Series D APS and Series E
APS), evenly divisible by seven and not fewer than seven nor more than 364.
"Short Term Money Market Instruments" means the following types of instruments
if, on the date of purchase or other acquisition thereof by the Trust, the
remaining term to maturity thereof is not in excess of 180 days (or 270 days for
instruments rated at least Aaa for purposes of determining Moody's Eligible
Assets):
(i) commercial paper rated either F-1 by Fitch or A-1 by S&P if such commercial
paper matures in 30 days or P-1 by Moody's and either F-1+ by Fitch or A-1+ by
S&P if such commercial paper matures in over 30 days;
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B-24
(ii) demand or time deposits in, and banker's acceptances and certificates of
deposit of, (A) a depository institution or trust company incorporated under the
laws of the United States of America or any state thereof or the District of
Columbia or (B) a United States branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to banking
regulation under the laws of the United States, any state thereof or the
District of Columbia);
(iii) overnight funds;
(iv) U.S. Government Securities; and
(v) Eurodollar demand or time deposits in, or certificates of deposit of, the
head office or the London branch office of a depository institution or trust
company if the certificates of deposit, if any, and the long-term unsecured debt
obligations (other than such obligations the ratings of which are based on the
credit of a person or entity other than such depository institution or trust
company) of such depository institution or trust company that have (1) credit
ratings on each Valuation Date of at least P-1 from Moody's and either F-1+ from
Fitch or A-1+ from S&P, in the case of commercial paper or certificates of
deposit, and (2) credit ratings on each Valuation Date of at least Aa3 from
Moody's and either AA from Fitch or AA- from S&P, in the case of long-term
unsecured debt obligations; provided, however, that in the case of any such
investment that matures in no more than one Business Day from the date of
purchase or other acquisition by the Trust, all of the foregoing requirements
shall be applicable except that the required long-term unsecured debt credit
rating of such depository institution or trust company from Moody's, Fitch and
S&P shall be at least A2, A-2 and A, respectively; and provided further,
however, that the foregoing credit rating requirements shall be deemed to be met
with respect to a depository institution or trust company if (1) such depository
institution or trust company is the principal depository institution in a
holding company system, (2) the certificates of deposit, if any, of such
depository institution or trust company are not rated on any Valuation Date
below P-1 by Moody's, F-1+ by Fitch or A-1+ by S&P and there is no long-term
rating, and (3) the holding company shall meet all of the foregoing credit
rating requirements (including the preceding proviso in the case of investments
that mature in no more than one Business Day from the date of purchase or other
acquisition by the Trust); and provided further, that the interest receivable by
the Trust shall not be subject to any withholding or similar taxes.
"Special Dividend Period" means a Dividend Period consisting of (i) a specified
number of days (other than seven in the cases of Series A APS, Series B APS and
Series C APS and 28 in the case of Series D APS and Series E APS) or (ii) a
specified period of one whole year or more but not greater than five years (in
each case subject to adjustment as provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Trust, after consultation with the
Auction Agent and the Broker-Dealers, during which the shares of APS subject to
such Dividend Period shall not be subject to redemption at the option of the
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the shares of APS subject to such Dividend Period shall be redeemable at
the Trust's option at a price per share equal to $25,000 plus accumulated but
unpaid dividends plus a premium expressed as a percentage of $25,000, as
determined by the Board of Trustees of the Trust after consultation with the
Auction Agent and the Broker-Dealers.
"Subsequent Dividend Period," with respect to APS, has the meaning set forth in
paragraph 2(c)(i) of Article VII, of these Amended By-Laws and, with respect to
Other APS, has the equivalent meaning.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally
recognized statistical rating organization or two nationally recognized
statistical rating organizations, respectively, selected by Eaton Vance
Management or its affiliates and successors, after consultation with the Trust
and the Broker-Dealers, to act as the substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of APS.
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B-25
"Swap" means a derivative transaction between two parties who contractually
agree to exchange the returns (or differentials in rates of return) to be
exchanged or "swapped" between the parties, which returns are calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate or in a "basket"
of securities representing a particular index.
(i) "Interest Rate Swap" means an arrangement whereby two parties (called
counterparties) enter into an agreement to exchange periodic interest payments.
The dollar amount the counterparties pay each other is an agreed-upon periodic
interest rate multiplied by some predetermined dollar principal, called the
notional principal amount. No principal (no notional amount) is exchanged
between parties to the transaction; only interest is exchanged.
(ii) "Total Return Swap" means an agreement between counterparties in which one
party agrees to make payments of the total return from the underlying asset(s)
which may include securities, baskets of securities, or securities indices
during the specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from other underlying asset(s).
(iii) "Credit Default Swap" means an agreement between counterparties in which
one party is entitled to receive the par (or other agreed-upon) value of a
referenced debt obligation from the counterparty to the agreement in the event
of a default by a third party on the debt obligation. In return, such party
would pay the counterparty a periodic stream of payments over the term of the
contract provided that no event of default has occurred.
"Treasury Bonds" means United States Treasury Bills, Bonds or Notes.
"Trust" means Eaton Vance Floating-Rate Income Trust, a Massachusetts business
trust.
"U.S. Government Securities" means direct obligations of the United States or of
its agencies or instrumentalities that are entitled to the full faith and credit
of the United States and that, other than Treasury bills, provide for the
periodic payment of interest and the full payment of principal at maturity or
call for redemption.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust is
maintaining the APS Basic Maintenance Amount, each Business Day commencing with
the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures contract
owned or sold by the Trust, the amount of cash or securities paid to or received
from a broker (subsequent to the Initial Margin payment) from time to time as
the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, APS Basic
Maintenance Amount, APS Basic Maintenance Cure Date, APS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Fitch Discount Factor, Fitch Eligible Asset, Fitch Exposure Period,
Fitch Industry Classification, Fitch Hedging Transactions, Market Value, Maximum
Applicable Rate, Moody's Exposure Period, Moody's Hedging Transactions, Moody's
Discount Factor, Moody's Eligible Asset, Moody's Industry Classification,
Performing, Short Term Money Market Instruments,
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B-26
Treasury Bonds, U.S. Government Securities, Valuation Date, Variation Margin
1940 Act Cure Date, and 1940 Act APS Asset Coverage (and any terms defined with
such definitions) have been determined by the Board of Trustees of the Trust in
order to obtain a AAA rating from Fitch and Aaa rating from Moody's on the APS
on their Date of Original Issue; and the Board of Trustees of the Trust shall
have the authority, without shareholder approval, to amend, alter or repeal from
time to time the foregoing definitions and the restrictions and guidelines set
forth thereunder if Moody's, Fitch or any Substitute Rating Agency advises the
Trust in writing that such amendment, alteration or repeal will not adversely
affect its then current rating on the APS.
(c) The Trust agrees to notify Moody's and Fitch with no less than thirty (30)
days' notification of: (i) any material changes to the Trust's organizational
documents and material contracts, as determined by the Trust's officers, in
their sole discretion, (ii) any redemptions of APS by the Trust, or (iii) any
failed Auctions.
2. DIVIDENDS. (a) The Holders of a particular series of APS shall be entitled
to receive, when, as and if declared by the Board of Trustees of the Trust, out
of funds legally available therefor, cumulative dividends each consisting of
cash at the Applicable Rate, and no more, payable on the respective dates set
forth below. Dividends on the shares of each series of APS so declared and
payable shall be paid in preference to and in priority over any dividends
declared and payable on the Common Shares.
(b) (i) Cash dividends on shares of each series of APS shall accumulate from
the Date of Original Issue and shall be payable, when, as and if declared by the
Board of Trustees, out of funds legally available therefor, commencing on the
Initial Dividend Payment Date. Following the Initial Dividend Payment Date for a
series of APS, dividends on that series of APS will be payable, at the option of
the Trust, either (i) with respect to any 7-Day Dividend Period, any 28-Day
Dividend Period and any Short Term Dividend Period of 28 or fewer days, on the
day next succeeding the last day thereof, or (ii) with respect to any Short Term
Dividend Period of more than 28 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the first Business Day next succeeding such Normal
Dividend Payment Date. Although any particular Dividend Payment Date may not
occur on the originally scheduled date because of the exception discussed above,
the next succeeding Dividend Payment Date, subject to such exception, will occur
on the next following originally scheduled date. If for any reason a Dividend
Payment Date cannot be fixed as described above, then the Board of Trustees
shall fix the Dividend Payment Date. The Board of Trustees by resolution prior
to authorization of a dividend by the Board of Trustees may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
Holders of shares of APS set forth in the Declaration of Trust or the Amended
By-Laws. The Initial Dividend Period, 7-Day Dividend Periods, 28-Day Dividend
Periods and Special Dividend Periods with respect to a series of APS are
hereinafter sometimes referred to as Dividend Periods. Each dividend payment
date determined as provided above is hereinafter referred to as a "Dividend
Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the Stock
Register as of 12:00 noon, New York City time, on the Business Day preceding the
Dividend Payment Date. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as they appear on the Stock Register on a date, not
exceeding 15 days prior to the payment date therefor, as may be fixed by the
Board of Trustees of the Trust.
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B-27
(c) (i) During the period from and including the Date of Original Issue to but
excluding the Initial Dividend Payment Date for each series of APS (the "Initial
Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate.
Commencing on the Initial Dividend Payment Date for each series of APS, the
Applicable Rate for each subsequent dividend period (hereinafter referred to as
a "Subsequent Dividend Period"), which Subsequent Dividend Period shall commence
on and include a Dividend Payment Date and shall end on and include the calendar
day prior to the next Dividend Payment Date (or last Dividend Payment Date in a
Dividend Period if there is more than one Dividend Payment Date), shall be equal
to the rate per annum that results from implementation of the Auction
Procedures.
The Applicable Rate for each Dividend Period commencing during a Non-Payment
Period shall be equal to the Non-Payment Period Rate; and each Dividend Period,
commencing after the first day of, and during, a Non-Payment Period shall be a
7-Day Dividend Period in the cases of Series A APS, Series B APS and Series C
APS and a 28-Day Dividend Period in the case of Series D APS and Series E APS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any shares of APS on the date set for such
redemption, any amount of any dividend due on any Dividend Payment Date (if,
prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Trust has declared such dividend payable on such
Dividend Payment Date to the Holders of such shares of APS as of 12:00 noon, New
York City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any shares of APS not paid to such Holders when
due may be paid to such Holders in the same form of funds by 12:00 noon, New
York City time, on any of the first three Business Days after such Dividend
Payment Date or due date, as the case may be, provided that, such amount is
accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 360. In the case of a
willful failure of the Trust to pay a dividend on a Dividend Payment Date or to
redeem any shares of APS on the date set for such redemption, the preceding
sentence shall not apply and the Applicable Rate for the Dividend Period
commencing during the Non-Payment Period resulting from such failure shall be
the Non-Payment Period Rate. For the purposes of the foregoing, payment to a
person in same-day funds on any Business Day at any time shall be considered
equivalent to payment to such person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of any series of APS payable (if
declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period, each
28-Day Dividend Period and each Dividend Payment Date of each Short Term
Dividend Period shall be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the numerator of which will be the number of days
in such Dividend Period or part thereof that such share was outstanding and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent. During any Long Term
Dividend Period, the amount of cash dividends per share of a series of APS
payable (if declared) on any Dividend Payment Date shall be computed by
multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be such number of days in such part of such Dividend
Period that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 360, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent.
(iii) The Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of APS be a number of days (other than seven in the
cases of Series A APS, Series B APS and Series C APS and 28 in the case of
Series D APS and Series E APS), evenly divisible by seven and not fewer than
seven nor more than 364 in the case
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B-28
of a Short Term Dividend Period or one whole year or more but not greater than
five years in the case of a Long Term Dividend Period, specified in such notice,
provided that the Trust may not give a Request for Special Dividend Period of
greater than 28 days (and any such request shall be null and void) unless, for
any Auction occurring after the initial Auction, Sufficient Clearing Bids shall
have existed in the last occurring Auction and unless full cumulative dividends,
any amounts due with respect to redemption's, payable prior to such date have
been paid in full. Such Request for Special Dividend Period, in the case of a
Short Term Dividend Period, shall be given on or prior to the second Business
Day but not more than seven Business Days prior to an Auction Date for a series
of APS and, in the case of a Long Term Dividend Period, shall be given on or
prior to the second Business Day but not more than 28 days prior to an Auction
Date for a series of APS. Upon receiving such Request for Special Dividend
Period, the Broker-Dealer(s) shall jointly determine whether, given the factors
set forth below, it is advisable that the Trust issue a Notice of Special
Dividend Period for the series of APS as contemplated by such Request for
Special Dividend Period and the Optional Redemption Price of the APS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the Trust and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination the Broker-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the APS, (4) industry and financial conditions which
may affect the APS, (5) the investment objective of the Trust, and (6) the
Dividend Periods and dividend rates at which current and potential beneficial
holders of the APS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Trust and the Auction Agent a Response by
such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Trust give a Notice of Special Dividend
Period for the series of APS, the Trust may not give a Notice of Special
Dividend Period in respect of such Request for Special Dividend Period. In the
event the Response indicates that it is advisable that the Trust give a Notice
of Special Dividend Period for the series of APS, the Trust may by no later than
the second Business Day prior to such Auction Date give a notice (a "Notice of
Special Dividend Period") to the Auction Agent, the Securities Depository and
each Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Trust also shall provide a copy of such Notice of
Special Dividend Period to Moody's and Fitch. The Trust shall not give a Notice
of Special Dividend Period and, if the Trust has given a Notice of Special
Dividend Period, the Trust is required to give telephonic and written notice of
its revocation (a "Notice of Revocation") to the Auction Agent, each Broker-
Dealer, and the Securities Depository on or prior to the Business Day prior to
the relevant Auction Date if (x) either the 1940 Act APS Asset Coverage is not
satisfied or the Trust shall fail to maintain Fitch Eligible Assets with an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value at least equal to 1.2
times the APS Basic Maintenance Amount, on each of the two Valuation Dates
immediately preceding the Business Day prior to the relevant Auction Date on an
actual basis and on a pro forma basis giving effect to the proposed Special
Dividend Period (using as a pro forma dividend rate with respect to such Special
Dividend Period the dividend rate which the Broker-Dealers shall advise the
Trust is an approximately equal rate for securities similar to the APS with an
equal dividend period), (y) sufficient funds for the payment of dividends
payable on the immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of business on the
third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Trust that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Trust also shall provide a copy of such Notice of Revocation
to Fitch and Moody's. If the Trust is prohibited from giving a Notice of Special
Dividend Period as a result of any of the factors enumerated in clause (x), (y)
or (z) above or if the Trust gives a Notice of Revocation with respect to a
Notice of Special Dividend Period for any series of APS, the next succeeding
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B-29
Dividend Period will be a 7-Day Dividend Period in the cases of Series A APS,
Series B APS and Series C APS and a 28-Day Dividend Period in the case of Series
D APS and Series E APS. In addition, in the event Sufficient Clearing Bids are
not made in the applicable Auction or such Auction is not held for any reason,
such next succeeding Dividend Period will be a 7-Day Dividend Period in the case
of Series A APS, Series B APS, and Series C APS and 28-Day Dividend Period in
the case of Series D APS and Series E APS and the Trust may not again give a
Notice of Special Dividend Period for the APS (and any such attempted notice
shall be null and void) until Sufficient Clearing Bids have been made in an
Auction with respect to a 7-Day Dividend Period in the cases of Series A APS,
Series B APS, and Series C APS and a 28-Day Dividend Period in the case of
Series D APS and Series E APS.
(d) (i) Holders shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends and applicable
late charges, as herein provided, on the shares of APS. Except for the late
charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
on the shares of APS that may be in arrears.
(ii) For so long as any share of APS is Outstanding, the Trust shall not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Shares or other shares of beneficial
interest, if any, ranking junior to the shares of APS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of beneficial
interest of the Trust ranking junior to or on a parity with the shares of APS as
to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to the shares of APS as to dividends and upon liquidation)
or any other such Parity Shares (except by conversion into or exchange for stock
of the Trust ranking junior to or on a parity with the shares of APS as to
dividends and upon liquidation), unless (A) immediately after such transaction,
the Trust shall have Fitch Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount and Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than 1.2 times the
APS Basic Maintenance Amount and the Trust shall maintain the 1940 Act APS Asset
Coverage, (B) full cumulative dividends on shares of APS and shares of Other APS
due on or prior to the date of the transaction have been declared and paid or
shall have been declared and sufficient funds for the payment thereof deposited
with the Auction Agent, and (C) the Trust has redeemed the full number of shares
of APS required to be redeemed by any provision for mandatory redemption
contained herein.
(e) No fractional shares of APS shall be issued.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the APS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments. If upon any liquidation, dissolution or winding up of the Trust, the
amounts payable with respect to the APS and any other Outstanding class or
series of Preferred Shares of the Trust ranking on a parity with the APS as to
payment upon liquidation are not paid in full, the Holders and the holders of
such other class or series will share ratably in any such distribution of assets
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Trust. A consolidation, merger or statutory
share exchange of the Trust with or into any other Trust or entity or a sale,
whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the assets of the Trust shall not be deemed or
construed to be a liquidation, dissolution or winding up of the Trust.
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B-30
4. REDEMPTION. (a) Shares of APS shall be redeemable by the Trust as provided
below:
(i) To the extent permitted under the 1940 Act and Massachusetts law, upon
giving a Notice of Redemption, the Trust at its option may redeem shares of any
series of APS, in whole or in part, out of funds legally available therefor, at
the Optional Redemption Price per share, on any Dividend Payment Date; provided
that no share of APS may be redeemed at the option of the Trust during (A) the
Initial Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. The Trust may not give a Notice of
Redemption relating to an optional redemption as described in this paragraph
4(a)(i) unless, at the time of giving such Notice of Redemption, the Trust has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount due to Holders by reason of the redemption of their shares of APS on
such redemption date, and the Discounted Value of Fitch Eligible Assets and
Moody's Eligible Assets at least equals the APS Basic Maintenance Amount Test,
and would at least equal the APS Basic Maintenance Amount Test immediately
subsequent to such redemption if such redemption were to occur on such date.
(ii) The Trust shall redeem, out of funds legally available therefor, at the
Mandatory Redemption Price per share, shares of APS to the extent permitted
under the 1940 Act and Massachusetts law, on a date fixed by the Board of
Trustees, if the Trust fails to maintain Fitch Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than 1.2 times the APS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act APS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the APS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. The number of shares of APS to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of APS the redemption of which, if
deemed to have occurred immediately prior to the opening of business on the Cure
Date, together with all shares of other Preferred Shares then Outstanding
subject to redemption or retirement, would result in the Trust having Fitch
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount and Moody's Eligible Assets with an aggregate
Discounted Value equal to or greater than 1.2 times the APS Basic Maintenance
Amount or satisfaction of the 1940 Act APS Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such minimum number of shares
of APS and shares of other Preferred Shares the redemption of which would have
such result, all shares of APS and shares of other Preferred Shares then
Outstanding shall be redeemed), and (ii) the maximum number of shares of APS,
together with all shares of other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor on such redemption date. In determining the number of shares of APS
required to be redeemed in accordance with the foregoing, the Trust shall
allocate the number required to be redeemed which would result in the Trust
having Fitch Eligible Assets with an aggregate Discounted Value equal to or
greater than the APS Basic Maintenance Amount and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than 1.2 the APS Basic
Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage, as the
case may be, pro rata among shares of APS of all series, Other APS and other
Preferred Shares subject to redemption pursuant to provisions similar to those
contained in this paragraph 4(a)(ii); provided that, shares of APS which may not
be redeemed at the option of the Trust due to the designation of a Non-Call
Period applicable to such shares (A) will be subject to mandatory redemption
only to the extent that other shares are not available to satisfy the number of
shares required to be redeemed and (B) will be selected for redemption in an
ascending order of outstanding number of days in the Non-Call Period (with
shares with the lowest number of days to be redeemed first) and by lot in the
event of shares having an equal number of days in such Non-Call Period. The
Trust shall effect such redemption on a Business Day which is not later than 35
days after such Cure Date, except that if the Trust does not have funds legally
available for the redemption of all of the required number of shares of APS and
shares of other Preferred Shares which are subject to mandatory redemption or
the Trust otherwise is unable to effect such redemption on or prior to 35 days
after
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such Cure Date, the Trust shall redeem those shares of APS which it is unable to
redeem on the earliest practicable date on which it is able to effect such
redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares of APS
may be redeemed pursuant to paragraph 4(a)(i) of Article VII, of these Amended
By-Laws (i) unless all dividends in arrears on all remaining outstanding shares
of Parity Shares shall have been or are being contemporaneously paid or declared
and set apart for payment and (ii) if redemption thereof would result in the
Trust's failure to maintain Fitch Eligible Assets with an aggregate Discounted
Value equal to or greater than the APS Basic Maintenance Amount and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than 1.2
times the APS Basic Maintenance Amount. In the event that less than all the
outstanding shares of a series of APS are to be redeemed and there is more than
one Holder, the shares of that series of APS to be redeemed shall be selected by
lot or such other method as the Trust shall deem fair and equitable.
(c) Whenever shares of APS are to be redeemed, the Trust, not less than 17 nor
more than 30 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
shares of APS to be redeemed and to the Auction Agent. The Trust shall cause the
Notice of Redemption to also be published in the eastern and national editions
of The Wall Street Journal. The Notice of Redemption shall set forth (i) the
redemption date, (ii) the amount of the redemption price, (iii) the aggregate
number of shares of APS of such series to be redeemed, (iv) the place or places
where shares of APS of such series are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
shall cease to accumulate on such redemption date and (vi) the provision of
these Amended By-Laws pursuant to which such shares are being redeemed. No
defect in the Notice of Redemption or in the mailing or publication thereof
shall affect the validity of the redemption proceedings, except as required by
applicable law.
If the Notice of Redemption shall have been given as aforesaid and, concurrently
or thereafter, the Trust shall have deposited in trust with the Auction Agent,
or segregated in an account at the Trust's custodian bank for the benefit of the
Auction Agent, Deposit Securities (with a right of substitution) having an
aggregate Discounted Value (utilizing in the case of Fitch the Fitch Exposure
Period of 41 Business Days and in the case of Moody's the Moody's Exposure
Period of 49 days) equal to the redemption payment for the shares of APS as to
which such Notice of Redemption has been given with irrevocable instructions and
authority to pay the redemption price to the Holders of such shares, then upon
the date of such deposit or, if no such deposit is made, then upon such date
fixed for redemption (unless the Trust shall default in making the redemption
payment), all rights of the Holders of such shares as shareholders of the Trust
by reason of the ownership of such shares will cease and terminate (except their
right to receive the redemption price in respect thereof, but without interest),
and such shares shall no longer be deemed Outstanding. The Trust shall be
entitled to receive, from time to time, from the Auction Agent the interest, if
any, on such Deposit Securities deposited with it and the Holders of any shares
so redeemed shall have no claim to any of such interest. In case the Holder of
any shares so called for redemption shall not claim the redemption payment for
his shares within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Trust such amount remaining on deposit and
the Auction Agent shall thereupon be relieved of all responsibility to the
Holder of such shares called for redemption and such Holder thereafter shall
look only to the Trust for the redemption payment.
5. VOTING RIGHTS. (a) General. Except as otherwise provided in the Declaration
of Trust or Amended By-Laws, each Holder of shares of APS shall be entitled to
one vote for each share held on each matter submitted to a vote of shareholders
of the Trust, and the holders of Outstanding shares of Preferred Shares,
including APS, and of shares of Common Shares shall vote together as a single
class; provided that, at any meeting of the shareholders of the Trust held for
the election of trustees, the holders of Outstanding shares of Preferred Shares,
including APS, shall be entitled, as a class, to the exclusion of
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B-32
the holders of all other securities and classes of capital stock of the Trust,
to elect two trustees of the Trust. Subject to paragraph 5(b) hereof, the
holders of Outstanding shares of beneficial interest of the Trust, including the
holders of outstanding shares of Preferred Shares, including APS, voting as a
single class, shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in which
any one or more of the conditions described below shall exist (such period being
referred to herein as a "Voting Period"), the number of trustees constituting
the Board of Trustees shall be automatically increased by the smallest number
that, when added to the two directors elected exclusively by the holders of
shares of Preferred Shares, would constitute a majority of the Board of Trustees
as so increased by such smallest number; and the holders of shares of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Trust), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared,
and whether or not funds are then legally available in an amount sufficient
therefor) on the outstanding shares of APS equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified securities
shall not have been deposited with the Auction Agent for the payment of such
accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Shares are
entitled to elect a majority of the trustees of the Trust under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in this
paragraph 5(b) shall cease, subject always, however, to the reverting of such
voting rights in the Holders upon the further occurrence of any of the events
described in this paragraph 5(b)
(c) Right to Vote with Respect to Certain Other Matters. So long as any shares
of APS are Outstanding, the Trust shall not, without the affirmative vote of the
Holders of at least a majority of the shares of Preferred Shares Outstanding at
the time, voting separately as one class, approve any conversion of the Trust
from a closed-end to an open-end investment company and (i) authorize, create or
issue any class or series of shares of beneficial interest ranking prior to the
APS or any other series of Preferred Shares with respect to payment of dividends
or the distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Declaration of Trust, whether by merger, consolidation or
otherwise, so as to adversely affect any of the contract rights expressly set
forth in the Declaration of Trust of holders of shares of APS or any other
Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of APS are Outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of Trust of a
Holder of shares of a series of APS differently than those of a Holder of shares
of any other series of APS without the affirmative vote of the holders of at
least a majority of the shares of APS of each series adversely affected and
Outstanding at such time (each such adversely affected series voting separately
as a class). The Trust shall notify Fitch and Moody's ten (10) Business Days
prior to any such vote described in clause (i) or (ii). Unless a higher
percentage is provided for under the Declaration of Trust, the affirmative vote
of the holders of a majority of the Outstanding shares of Preferred Shares,
including APS, voting together as a single class, will be required to approve
any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred
Shares, including APS, described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common Shares and shares
of Preferred Shares, including APS, voting together as a single class necessary
to authorize the action in question.
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(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of
shares of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Trust does not call such a special meeting, it may
be called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on any
matter or the number of shares required to constitute a quorum, whether such
right is created by these Amended By-Laws, by the other provisions of the
Declaration of Trust, by statute or otherwise, a share of APS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust at the
time of a special meeting of Holders and holders of other Preferred Shares to
elect trustees shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of trustees that they are
entitled to elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent trustees elected by the Holders and
such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms of office
of the additional trustees elected by the Holders and holders of other Preferred
Shares pursuant to paragraph 5(b) above shall terminate, the remaining trustees
shall constitute the trustees of the Trust and the voting rights of the Holders
and such other holders to elect additional trustees pursuant to paragraph 5(b)
above shall cease, subject to the provisions of the last sentence of paragraph
5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of shares
of APS shall not have any rights or preferences other than those specifically
set forth herein. The Holders of shares of APS shall have no preemptive rights
or rights to cumulative voting. In the event that the Trust fails to pay any
dividends on the shares of APS, the exclusive remedy of the Holders shall be the
right to vote for trustees pursuant to the provisions of this paragraph 5.
(f) Notification to Fitch and Moody's. In the event a vote of Holders of APS
is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Trust shall, not later than ten Business Days prior to the date on which such
vote is to be taken, notify Fitch and Moody's that such vote is to be taken and
the nature of the action with respect to which such vote is to be taken and, not
later than ten Business Days after the date on which such vote is taken, notify
Fitch and Moody's of the result of such vote.
6. 1940 ACT APS ASSET COVERAGE. The Trust shall maintain, as of the last
Business Day of each month in which any share of APS is Outstanding, the 1940
Act APS Asset Coverage.
7. APS BASIC MAINTENANCE AMOUNT. The following references in this paragraph 7
to Fitch Eligible Assets and/or Moody's Eligible Assets, as the case may be, are
only applicable if Fitch and/or Moody's, as the case may be, is rating the APS.
(a) The Trust shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date Fitch Eligible Assets
and
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Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the APS Basic Maintenance Amount Test. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to retain a Discounted Value at least equal to the
APS Basic Maintenance Amount Test on or prior to the APS Basic Maintenance Cure
Date.
(b) On or before 5:00 p.m., New York City time, on the third Business Day after
a Valuation Date on which the Trust fails to satisfy the APS Basic Maintenance
Amount Test, the Trust shall complete and deliver to the Auction Agent, Moody's
and Fitch, a complete APS Basic Maintenance Report as of the date of such
failure, which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Trust mails to the Auction Agent
for delivery on the next Business Day the complete APS Basic Maintenance Report.
The Trust will deliver an APS Basic Maintenance Report to the Auction Agent,
Moody's and Fitch, on or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Trust cures its failure to
maintain Fitch Eligible Assets and Moody's, with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount Test or on which the
Trust fails to maintain Fitch Eligible Assets and Moody's Eligible Assets, with
an aggregate Discounted Value which exceeds the APS Basic Maintenance Amount by
5% or more. The Trust will also deliver an APS Basic Maintenance Report to the
Auction Agent, Fitch, and Moody's as of each Monthly Valuation Date on or before
the third Business Day after such date. Additionally, on or before 5:00 p.m.,
New York City time, on the third Business Day after the first day of a Special
Dividend Period, the Trust will deliver an APS Basic Maintenance Report to
Fitch, Moody's and the Auction Agent. The Trust shall also provide Fitch and
Moody' with an APS Basic Maintenance Report when specifically requested by Fitch
or Moody's, as applicable. A failure by the Trust to deliver an APS Basic
Maintenance Report under this paragraph 7(b) shall be deemed to be delivery of
an APS Basic Maintenance Report indicating the Discounted Value for Fitch
Eligible Assets and Moody's Eligible Assets of the Trust is less than the APS
Basic Maintenance Amount Test, as of the relevant Valuation Date.
(c) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Valuation Date as of the last Business Day of the Trust's fiscal year, the
Independent Accountant will confirm in writing to the Auction Agent, Moody's and
Fitch (i) the mathematical accuracy of the calculations reflected in such Report
(and in any other APS Basic Maintenance Report, randomly selected by the
Independent Accountant, that was delivered by the Trust at year-end on such
Valuation Date), (ii) that, in such Report (and in such randomly selected
Report), the Trust correctly determined the assets of the Trust which constitute
Fitch Eligible Assets and Moody's Eligible Assets at such Monthly Valuation Date
in accordance with these Amended By-Laws, (iii) that, in such Report (and in
such randomly selected Report), the Trust determined whether the Trust had, at
such Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with these Amended By-Laws, Fitch Eligible Assets
and Moody's Eligible Assets of an aggregate Discounted Value at least equal to
the APS Basic Maintenance Amount Test, (iv) with respect to the Fitch ratings on
debt securities, the issuer name, issue size and coupon rate listed in such
Report, that the Independent Accountant has requested that Fitch verify such
information and the Independent Accountant shall provide a listing in its letter
of any differences, (v) with respect to the Moody's ratings on debt securities,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Trust has satisfied
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B-35
the requirements of paragraph 8(a) of these Amended By-Laws (such confirmation
is herein called the "Accountant's Confirmation").
(d) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to any
Valuation Date on which the Trust failed to maintain Fitch Eligible Assets with
an aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount and Moody's Eligible Assets with an aggregate Discounted Value equal to
or greater than 1.2 times the APS Basic Maintenance Amount, and relating to the
APS Basic Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, Moody's and Fitch an Accountant's
Confirmation as to such APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraphs (c) or
(d) of this paragraph 7 shows that an error was made in the APS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all Fitch Eligible Assets and Moody's
Eligible Assets of the Trust was determined by the Independent Accountant, the
calculation or determination made by such Independent Accountant shall be final
and conclusive and shall be binding on the Trust, and the Trust shall
accordingly amend and deliver the APS Basic Maintenance Report to the Auction
Agent, Moody's and Fitch promptly following receipt by the Trust of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day after
the Date of Original Issue of the shares of APS, the Trust will complete and
deliver to Fitch and Moody's an APS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to Fitch
and Moody's (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the aggregate Discounted Value of Fitch Eligible Assets or
Moody's Eligible Assets, as applicable reflected thereon equals or exceeds the
APS Basic Maintenance Amount Test reflected thereon. Also, on or before 5:00
p.m., New York City time, on the first Business Day after shares of Common
Shares are repurchased by the Trust, the Trust will complete and deliver to
Fitch and Moody's an APS Basic Maintenance Report as of the close of business on
such date that Common Shares is repurchased.
8. CERTAIN OTHER MOODY'S RESTRICTIONS AND REQUIREMENTS.
(a) For so long as any APS are rated by Moody's, the Trust may buy or sell
financial futures contracts, write, purchase or sell call options on financial
futures contracts or purchase put options on financial futures contracts or
write call options on portfolio securities, swaps and securities lending unless
it receives written confirmation from Moody's that engaging in such transactions
would impair the ratings then assigned to the APS by Moody's, (collectively
"Moody's Hedging Transactions"), subject to the following limitations:
(i) Futures and call options: For purposes of the APS Basic Maintenance
Amount, futures held by the Trust and call options sold by the Trust shall not
be included as Moody's Eligible Assets. However, such assets shall be valued at
Market Value by subtracting the good faith margin and the maximum daily trading
variance as of a Valuation Date. For call options purchased by the Trust, the
Market Value of the call option will be included as Moody's Eligible Asset
subject to a Moody's Discount Factor mutually agreed to between the Trust and
Moody's based on the characteristics of the option contract such as its maturity
and the underlying security of the contract.
(ii) Securities lending: The Trust may engage in securities lending in an
amount not to exceed 15% of the Trust's total gross assets. For purposes of
calculating the APS Basic Maintenance Amount, such securities lent shall be
included as Moody's Eligible Assets with the appropriate Moody's Discount Factor
applied to such lent security. The obligation to return such collateral shall
not be included as an obligation/liability for purposes of calculating the APS
Basic Maintenance Amount. However, the Trust may reinvest cash collateral for
securities lent in conformity with its investment objectives and policies and
the provisions of these bylaws. In such event, to the extent that securities
lending collateral
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B-36
received is invested by the Trust in assets that otherwise would be Moody's
Eligible Assets and the value of such assets exceeds the amount of the Trust's
Moody's Eligible Assets by applying the applicable Moody's Discount Factor to
this amount and adding the product to total Moody's Eligible Assets. Conversely,
if the value of assets in which securities lending collateral has been invested
is less then the amount of the Trust's obligation to return the collateral on a
Valuation Date, such difference shall be included as an obligation/liability of
the Trust for purposes of calculating the APS Basic Maintenance Amount.
Collateral received by the Trust in a securities lending transaction and
maintained by the Trust in the form received shall not be included as a Moody's
Eligible Asset for purposes of calculating the APS Basic Maintenance Amount.
(iii) Swaps (including Total Return Swaps, Interest Rate Swaps and Credit
Default Swaps): Total return and Interest Rate Swaps are subject to the
following provisions:
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Trust has an outstanding gain from a swap transaction on a
Valuation Date, the gain will be included as a Moody's Eligible Asset subject to
the Moody's Discount Factor on the counterparty to the swap transaction. If the
Trust has an outstanding liability from a swap transaction on a Valuation Date,
the Trust will subtract the outstanding liability from the total Moody's
Eligible Assets in calculating the APS Basic Maintenance Amount.
In addition, for swaps other than Total Return Swaps, the Market Value of the
position (positive or negative) will be included as a Moody's Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS. At the time a swap is executed, the Trust
will only enter into swap transactions where the counterparty has at least a
Fitch rating of A- or Moody's long-term rating of A3.
(B) (1) The underlying securities subject to a Credit Default Swap sold by the
Trust will be subject to the applicable Moody's Discount Factor for each
security subject to the swap;
(2) If the Trust purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Moody's Eligible Asset subject to the Moody's
Discount Factor assessed based on the counterparty risk and the duration of the
swap agreement; and
(3) The Trust will not include a Credit Default Swap as a Moody's Eligible
Asset purchased by the Trust without the Trust holding the underlying security
or when the Trust buys a Credit Default Swap for a basket of securities without
holding all the securities in the basket.
If not otherwise provided for in (a)(i)-(iii) above, derivative instruments
shall be treated as follows: Any derivative instruments will be valued pursuant
to the Trust's valuation procedures on a Valuation Date. The amount of the net
payment obligation and the cost of a closing transaction, as appropriate, on any
derivative instrument on a Valuation Date will be counted as a liability for
purposes of determining the APS Basic Maintenance Amount (e.g., a written call
option that is in the money for the holder). Any derivative instrument with
respect to which the Trust is owed payment on the Valuation Date that is not
based upon an individual security or securities that are Moody's Eligible Assets
will have a mutually agreed upon valuation by Moody's and the Trust for purposes
of determining Moody's Eligible Assets. Any derivative instrument with respect
to which the Trust is owed payment on the valuation date that is based upon an
individual security or securities that are Moody's Eligible Assets (e.g., a
purchased call option on a bond that is in the money) will be valued as follows
for purposes of determining Moody's Eligible Assets: (A) For such derivative
instruments that are exchange traded, the value of the in-the-money amount of
the payment obligation to the Trust will be reduced by applying the Moody's
Discount Factor (as it would apply to the underlying security or securities) and
then added to Moody's Eligible Assets; and (B) for such derivative instruments
that are not exchange traded, the value of the in-the-money amount of the
payment obligation to the Trust will be (1) reduced as described in (A) and (B)
further reduced by applying to the remaining amount
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the Moody's Discount Factor determined by reference to the credit rating of the
derivative counterparty with the remaining amount after these reductions then
added to Moody's Eligible Assets.
For purposes of determining whether the Trust has Moody's Eligible Assets with
an aggregate Discounted Value that equals or exceeds the APS Basic Maintenance
Amount Test, the Discounted Value of all Forward Commitments to which the Trust
is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.
A preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock obligations. The ratings on the Preferred Shares
are not recommendations to purchase, hold, or sell those shares, inasmuch as the
ratings do not comment as to market price or suitability for a particular
investor. The rating agency guidelines described above also do not address the
likelihood that an owner of Preferred Shares will be able to sell such shares in
an Auction or otherwise.
The Trust agrees to notify Moody's and Fitch with no less than thirty (30) days'
notification of: (i) any material changes to the Trust's organizational
documents and material contracts, as determined by the Trust's officers, in
their sole discretion, (ii) any redemptions of APS by the Trust, or (iii) any
failed Auctions.
9. NOTICE. All notices or communications, unless otherwise specified in the
Amended By-Laws of the Trust or these Amended By-Laws, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date 7 days after which such notice is mailed.
10. AUCTION PROCEDURES. (a) Certain definitions. As used in this paragraph 10,
the following terms shall have the following meanings, unless the context
otherwise requires:
(i) "APS" means the shares of APS being auctioned pursuant to this paragraph
10.
(ii) "Auction Date" means the first Business Day preceding the first day of a
Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the higher of
the Applicable Percentage of the Reference Rate or the "Applicable Spread Over
the Reference Rate" which term shall mean the rate equaling the sum of the
Applicable Spread (as more particularly set forth below) plus the Reference
Rate. The Applicable Percentage will be determined based on the credit rating
assigned on such date to such shares by Fitch and Moody's (or if Fitch or
Moody's shall not make such rating available, the equivalent of such rating by a
Substitute Rating Agency) as follows:
CREDIT RATINGS APPLICABLE PERCENTAGE
----------------------------- OF THE REFERENCE
MOODY'S S&P/FITCH RATE APPLICABLE SPREAD
------------- ------------- --------------------- ------------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Ba1 and lower BB+ and lower 300% 300 bps
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B-38
Assuming the Trust maintains an AAA/Aaa rating on the APS, the practical effect
of the different methods used to calculate the Maximum Applicable Rate is shown
in the table below:
MAXIMUM APPLICABLE MAXIMUM APPLICABLE METHOD USED TO
RATE USING THE RATE USING THE DETERMINE THE
APPLICABLE PERCENTAGE APPLICABLE SPREAD MAXIMUM APPLICABLE
REFERENCE RATE OF THE REFERENCE RATE OVER THE REFERENCE RATE RATE
-------------- --------------------- ----------------------- ------------------
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.50% 7.25% Percentage
The Trust shall take all reasonable action necessary to enable Fitch and Moody's
to provide a rating for each series of APS. If Fitch or Moody's shall not make
such a rating available, Eaton Vance Management or its affiliates and
successors, after consultation with the Trust and the Broker-Dealers, shall
select a nationally recognized statistical rating organization to act as a
Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i) below.
(x) "Submission Deadline" means 1:30 p.m., New York City time, on any Auction
Date or such other time on any Auction Date as may be specified by the Auction
Agent from time to time as the time by which each Broker-Dealer must submit to
the Auction Agent in writing all Orders obtained by it for the Auction to be
conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph 10(d)(i)
below.
(xiii) "Submitted Order" has the meaning specified in paragraph 10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph 10(d)(i)
below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph 10(d)(i)
below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph 10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and Potential
Beneficial Owners may only participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in respect of shares subject to
Orders submitted or deemed submitted to them by Beneficial Owners and as
Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information as to:
(1) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for the next succeeding Dividend Period;
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B-39
(2) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners that shall
be maintained in good faith for the purpose of conducting a competitive Auction,
shall contact Potential Beneficial Owners, including Persons that are not
Beneficial Owners, on such list to determine the number of Outstanding shares,
if any, of APS which each such Potential Beneficial Owner offers to purchase,
provided that the Applicable Rate for the next succeeding Dividend Period shall
not be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or the communication by a Broker-Dealer
acting for its own account to the Auction Agent, of information referred to in
clause (A) or (B) of this paragraph 10(b)(i) is hereinafter referred to as an
"Order" and each Beneficial Owner and each Potential Beneficial Owner placing an
Order, including a Broker-Dealer acting in such capacity for its own account, is
hereinafter referred to as a "Bidder"; an Order containing the information
referred to in clause (A)(1) of this paragraph 10(b)(i) is hereinafter referred
to as a "Hold Order"; an Order containing the information referred to in clause
(A)(2) or (B) of this paragraph 10(b)(i) is hereinafter referred to as a "Bid";
and an Order containing the information referred to in clause (A)(3) of this
paragraph 10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be less than the rate per
annum specified in such Bid; or (1) such number or a lesser number of
Outstanding shares of APS to be determined as set forth in paragraph 10(e)(i)(D)
if the Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined as set forth
in paragraph 10(e)(ii)(C) if such specified rate per annum shall be higher than
the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Sell Order; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 10(e)(ii)(C) if Sufficient Clearing Bids do
not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be higher than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 10(e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum specified
therein.
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B-40
(c) Submission of Orders by Broker-Dealers to Auction Agent
(i) Each Broker-Dealer shall submit in writing or through the Auction Agent's
Auction Processing System to the Auction Agent prior to the Submission Deadline
on each Auction Date all Orders obtained by such Broker-Dealer, designating
itself (unless otherwise permitted by the Trust) as an Existing Holder in
respect of shares subject to Orders submitted or deemed submitted to it by
Beneficial Owners and as a Potential Holder in respect of shares subject to
Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the Broker-Dealer
unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding shares of APS that are the subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of APS subject to any Hold Order
placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of APS subject to any Bid placed
by such Existing Holder and the rate per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of APS subject to any Sell Order
placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per annum
specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of APS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order (in the case of
an Auction relating to a Dividend Period, which is not a Special Dividend Period
of 91 days or less) and a Sell Order (in the case of an Auction relating to a
Dividend Period of longer than 91 days or any Special Dividend Period) to have
been submitted on behalf of such Existing Holder covering the number of
Outstanding shares of APS held by such Existing Holder and not subject to Orders
submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall be
considered valid up to and including the number of Outstanding shares of APS
held by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of shares of APS
subject to such Hold Orders exceeds the number of Outstanding shares of APS held
by such Existing Holder, the number of shares of APS subject to each of such
Hold Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding shares of APS held by
such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be considered
valid, in the ascending order of their respective rates per annum if more than
one Bid is submitted on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of APS held by such Existing Holder
over the number of shares of APS subject to any Hold Order referred to in
paragraph 10(c)(iv)(A) above (and if more than one Bid submitted on behalf of
such Existing Holder specifies the same rate per annum and together they cover
more than the remaining number of shares that can be the subject of valid Bids
after application of paragraph 10(c)(iv)(A) above and of the
--------------------------------------------------------------------------------
B-41
foregoing portion of this paragraph 10(c)(iv)(B) to any Bid or Bids specifying a
lower rate or rates per annum, the number of shares subject to each of such Bids
shall be reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of shares); and the number of shares, if any, subject to
Bids not valid under this paragraph 10(c)(iv)(B) shall be treated as the subject
of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the excess of
the number of Outstanding shares of APS held by such Existing Holder over the
number of shares of APS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B); provided that if
more than one Sell Order is submitted on behalf of any Existing Holder and the
number of shares of APS subject to such Sell Orders is greater than such excess,
the number of shares of APS subject to each of such Sell Orders shall be reduced
pro rata so that such Sell Orders, in the aggregate, cover exactly the number of
shares of APS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder, each
Bid submitted shall be a separate Bid with the rate per annum and number of
shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential Beneficial Owner
to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date shall be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the Auction
Agent shall assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of APS over the number
of Outstanding shares of APS that are the subject of Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS");
(B) from the Submitted Orders whether the number of Outstanding shares of APS
that are the subject of Submitted Bids by Potential Holders specifying one or
more rates per annum equal to or lower than the Maximum Applicable Rate exceeds
or is equal to the sum of:
(1) the number of Outstanding shares of APS that are the subject of Submitted
Bids by Existing Holders specifying one or more rates per annum higher than the
Maximum Applicable Rate, and
(2) the number of Outstanding shares of APS that are subject to Submitted Sell
Orders (if such excess or such equality exists (other than because the number of
Outstanding shares of APS in clause (1) above and this clause (2) are each zero
because all of the Outstanding shares of APS are the subject of Submitted Hold
Orders), such Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum specified in
the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the Winning Bid Rate
and all other Submitted Bids from Existing Holders specifying lower rates per
annum were rejected, thus entitling such Existing Holders to continue to hold
the shares of APS that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the Winning Bid Rate
and all other Submitted Bids from Potential Holders specifying lower rates per
annum were accepted, thus entitling the Potential Holders to purchase the shares
of APS that are the subject of such Submitted Bids, would
--------------------------------------------------------------------------------
B-42
result in the number of shares subject to all Submitted Bids specifying the
Winning Bid Rate or a lower rate per annum being at least equal to the Available
APS.
(ii) Promptly after the Auction Agent has made the determinations pursuant to
paragraph 10(d)(i), the Auction Agent shall advise the Trust of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all of the
Outstanding shares of APS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to the
Maximum Applicable Rate; or
(C) if all of the Outstanding shares of APS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction shall automatically
be the same length as the immediately preceding Dividend Period and the
Applicable Rate for the next succeeding Dividend Period shall be equal to 90% of
the Reference Rate on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations made pursuant to paragraph
10(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions of
paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and Submitted Sell
Orders shall be accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted and the
Submitted Bid of each of the Existing Holders specifying any rate per annum that
is higher than the Winning Bid Rate shall be accepted, thus requiring each such
Existing Holder to sell the Outstanding shares of APS that are the subject of
such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid, unless the number of Outstanding shares
of APS subject to all such Submitted Bids shall be greater than the number of
Outstanding shares of APS ("Remaining Shares") equal to the excess of the
Available APS over the number of Outstanding shares of APS subject to Submitted
Bids described in paragraph 10(e)(i)(B) and paragraph 10(e)(i)(C), in which
event the Submitted Bids of each such Existing Holder shall be accepted, and
each such Existing Holder shall be required to sell Outstanding shares of APS,
but only in an amount equal to the difference between (1) the number of
Outstanding shares of APS then held by such Existing Holder subject to such
Submitted Bid and (2) the number of shares of APS obtained by multiplying (x)
the number of Remaining Shares by (y) a fraction the numerator of which shall be
the number of Outstanding shares of APS held by such Existing Holder subject to
such Submitted Bid and the denominator of which shall be the sum of the number
of Outstanding shares of APS subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the Potential Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be accepted but only in an
amount equal to the number of Outstanding
--------------------------------------------------------------------------------
B-43
shares of APS obtained by multiplying (x) the difference between the Available
APS and the number of Outstanding shares of APS subject to Submitted Bids
described in paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph
10(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
Outstanding shares of APS subject to such Submitted Bid and the denominator of
which shall be the sum of the number of Outstanding shares of APS subject to
such Submitted Bids made by all such Potential Holders that specified rates per
annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because all of
the Outstanding shares of APS are subject to Submitted Hold Orders), subject to
the provisions of paragraph 10(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be rejected,
thus entitling such Existing Holder to continue to hold the Outstanding shares
of APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be accepted,
thus requiring such Potential Holder to purchase the Outstanding shares of APS
that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate per annum
that is higher than the Maximum Applicable Rate shall be accepted and the
Submitted Sell Orders of each Existing Holder shall be accepted, in both cases
only in an amount equal to the difference between (1) the number of Outstanding
shares of APS then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of APS obtained by multiplying
(x) the difference between the Available APS and the aggregate number of
Outstanding shares of APS subject to Submitted Bids described in paragraph
10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of APS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding shares of APS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 10(e)(i) or
paragraph 10(e)(ii), any Existing Holder would be entitled or required to sell,
or any Potential Holder would be entitled or required to purchase, a fraction of
a share of APS on any Auction Date, the Auction Agent shall, in such manner as
in its sole discretion it shall determine, round up or down the number of shares
of APS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that each Outstanding share of APS purchased or sold by
each Existing Holder or Potential Holder on such Auction Date shall be a whole
share of APS.
(iv) If, as a result of the procedures described in paragraph 10(e)(i), any
Potential Holder would be entitled or required to purchase less than a whole
share of APS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of APS for purchase
among Potential Holders so that only whole shares of APS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of APS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall determine,
with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf
of Existing Holders or Potential Holders, the aggregate number of Outstanding
shares of APS to be purchased and the aggregate number of the Outstanding shares
of APS to be sold by such Potential Holders and Existing Holders and, to the
extent that such aggregate number of Outstanding shares to be purchased and such
aggregate number of Outstanding shares to be sold differ, the Auction Agent
shall determine to which other Broker-Dealer or Broker-Dealers acting for one or
more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS.
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B-44
(f) Miscellaneous. The Trust may interpret the provisions of this paragraph 10
to resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not substantially adversely affect the
rights of Beneficial Owners of APS. A Beneficial Owner or an Existing Holder (A)
may sell, transfer or otherwise dispose of shares of APS only pursuant to a Bid
or Sell Order in accordance with the procedures described in this paragraph 10
or to or through a Broker-Dealer, provided that in the case of all transfers
other than pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the shares of APS held by it maintained in book entry form by the
Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Beneficial Owner's beneficial ownership. Neither the
Trust nor any Affiliate shall submit an Order in any Auction. Any Beneficial
Owner that is an Affiliate shall not sell, transfer or otherwise dispose of
shares of APS to any Person other than the Trust. All of the Outstanding shares
of APS of a series shall be represented by a single certificate registered in
the name of the nominee of the Securities Depository unless otherwise required
by law or unless there is no Securities Depository. If there is no Securities
Depository, at the Trust's option and upon its receipt of such documents as it
deems appropriate, any shares of APS may be registered in the Stock Register in
the name of the Beneficial Owner thereof and such Beneficial Owner thereupon
will be entitled to receive certificates therefor and required to deliver
certificates therefor upon transfer or exchange thereof.
11. SECURITIES DEPOSITORY; STOCK CERTIFICATES. (a) If there is a Securities
Depository, one certificate for all of the shares of APS of each series shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent shares of APS. All such certificates shall bear a legend to the effect
that such certificates are issued subject to the provisions restricting the
transfer of shares of APS contained in these Amended By-Laws. Unless the Trust
shall have elected, during a Non-Payment Period, to waive this requirement, the
Trust will also issue stop-transfer instructions to the Auction Agent for the
shares of APS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of APS of a series shall be
the Non-Payment Period Rate or there is no Securities Depository, the Trust may
at its option issue one or more new certificates with respect to such shares
(without the legend referred to in paragraph 11(a)) registered in the names of
the Beneficial Owners or their nominees and rescind the stop-transfer
instructions referred to in paragraph 11(a) with respect to such shares.
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EATON VANCE FLOATING-RATE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
, 2004
---------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Included in Part A:
Financial Highlights
Included in Part B:
Independent Registered Public Accounting Firm Report
Statement of Assets and Liabilities
Notes to Financial Statement
Unaudited Financial Statements
(2) EXHIBITS:
(a) Agreement and Declaration of Trust dated April 30, 2004 is
incorporated herein by reference to the Registrant's initial
Registration Statement on Form N-2 (File Nos. 333-115087 and
811-21574) as to the Registrant's common shares of beneficial
interest ("Common Shares") filed with the Securities and Exchange
Commission on May 3, 2004 (Accession No. 0000898432-04-000406)
("Initial Common Shares Registration Statement").
(b) (1) By-Laws are incorporated herein by reference to the
Registrant's Initial Common Shares Registration Statement.
(2) Form of Amended By-Laws filed herewith.
(c) Not applicable.
(d) (1) Form of Specimen Certificate for Common Shares of Beneficial
Interest is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Initial Common Shares
Registration Statement filed with the Commission on May 24,
2004 (Accession No. 0000950135-04-002778) ("Pre-Effective
Amendment No. 1 to the Registrant's Initial Common Shares
Registration Statement").
(2) Form of Specimen Certificate of Series A Auction Preferred
Shares filed herewith.
(3) Form of Specimen Certificate of Series B Auction Preferred
Shares filed herewith.
(4) Form of Specimen Certificate of Series C Auction Preferred
Shares filed herewith.
(5) Form of Specimen Certificate of Series D Auction Preferred
Shares filed herewith.
(6) Form of Specimen Certificate of Series E Auction Preferred
Shares filed herewith.
(e) Dividend Reinvestment Plan is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Initial Common
Shares Registration Statement.
(f) Not applicable.
(g) (1) Investment Advisory Agreement dated May 21, 2004 is
incorporated by reference to Pre-Effective Amendment No. 1 to
the Registrant's Initial Common Shares Registration Statement.
(2) Expense Reimbursement Arrangement dated May 21, 2004 is
incorporated by reference to Pre-Effective Amendment No. 1 to
the Registrant's Initial Common Shares Registration Statement.
(h) (1) Form of Underwriting Agreement is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Initial
Common Shares Registration Statement.
(2) Form of Master Agreement Among Underwriters is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Initial Common Shares Registration Statement.
(3) Form of Master Selected Dealers Agreement is incorporated by
reference to Pre- Effective Amendment No. 1 to the
Registrant's Initial Common Shares Registration Statement.
(4) Form of Underwriting Agreement as to Registrant's Auction
Preferred Shares filed herewith.
(5) Form of Master Agreement Among Underwriters as to Registrant's
Auction Preferred Shares is incorporated herein by reference
to Registrant's Pre-Effective Amendment No. 1 to the Initial
Common Shares Registration Statement.
(6) Form of Master Selected Dealers Agreement as to Registrant's
Auction Preferred Shares is incorporated herein by reference
to Registrant's Pre-Effective Amendment No. 1 to the Initial
Common Shares Registration Statement.
(i) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
matter of Capital Exchange Fund, Inc., Release No. IC-20671
(November 1, 1994).
(j) (1) Master Custodian Agreement with Investors Bank & Trust Company
dated May 21, 2004 is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Initial
Common Shares Registration Statement.
(2) Extension Agreement dated August 31, 2000 to Master Custodian
Agreement with Investors Bank & Trust Company filed as Exhibit
(g)(4) to Post-Effective Amendment No. 85 of Eaton Vance
Municipals Trust (File Nos. 33-572, 811-4409) filed with the
Commission on January 23, 2001 (Accession No.
0000940394-01-500027) and incorporated herein by reference.
(3) Delegation Agreement dated December 11, 2000, with Investors
Bank & Trust Company filed as Exhibit (j)(e) to the Eaton
Vance Prime Rate Reserves N-2,
Amendment No. 5 (File Nos. 333-32267, 811-05808) filed April
3, 2002 (Accession No. 0000940394-01-500126) and incorporated
herein by reference.
(k) (1) Supplement to the Transfer Agency and Services Agreement dated
May 21, 2004 is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Initial Common Shares
Registration Statement.
(2) Transfer Agency and Services Agreement as amended and restated
on June 16, 2003, filed as Exhibit (k)(2) to the Registration
Statement of Eaton Vance Tax-Advantaged Dividend Income Fund
(File Nos. 333-107050 and 811-21400) filed July 15, 2003
(Accession No. 0000898432-03- 000638) and incorporated herein
by reference.
(3) Administration Agreement dated May 21, 2004 is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Initial Common Shares Registration Statement.
(4) Form of Shareholder Servicing Agreement is incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Initial Common Shares Registration Statement.
(5) Form of Additional Compensation Agreement is incorporated by
reference to Pre- Effective Amendment No. 1 to the
Registrant's Initial Common Shares Registration Statement.
(6) Form of Auction Agreement between Registrant and the Auction
Agent as to Registrant's Auction Preferred Shares filed
herewith.
(7) Form of Broker-Dealer Agreement as to Registrant's Auction
Preferred Shares filed herewith.
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP as to Registrant's
Auction Preferred Shares filed herewith.
(m) Not applicable.
(n) Consent of Independent Registered Public Accounting Firm filed
herewith.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Initial Common Shares Registration Statement filed with the
Commission on June 23, 2004 (Accession No. 0000950135-04-003212).
(q) Not applicable.
(r) Code of Ethics adopted by Eaton Vance Corp., Eaton Vance Management,
Boston Management and Research, Eaton Vance Distributors, Inc. and
the Eaton Vance Funds effective September 1, 2000, as revised June
4, 2002, filed as Exhibit (p) to Post- Effective Amendment No. 45 of
Eaton Vance Investment Trust (File Nos. 33-1121, 811-4443) filed
July 24, 2002 (Accession No. 0000940394-02-000462) and incorporated
herein by reference.
(s) Power of Attorney dated May 21, 2004 is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Initial Common
Shares Registration Statement.
ITEM 25. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement filed herewith.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
Registration and Filing Fees $ 55,114.50
National Association of Securities Dealers, Inc. Fees 0.00
Initial Rating Agency Fees $165,000.00
Costs of Printing and Engraving $ 75,000.00
Accounting Fees and Expenses $ 16,000.00
Legal Fees and Expenses $125,000.00
===========
Total $436,114.50
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of September 2, 2004,
of each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial interest, par value 8
$0.01 per share
Series A Auction Preferred Shares, par value 0
$0.01 per share
Series B Auction Preferred Shares, par value 0
$0.01 per share
Series C Auction Preferred Shares, par value 0
$0.01 per share
Series D Auction Preferred Shares, par value 0
$0.01 per share
Series E Auction Preferred Shares, par value 0
$0.01 per share
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws filed in the Registrant's Initial Common Shares
Registration Statement, the Amended By-Laws filed herewith, the Form of
Underwriting Agreement filed in Pre-Effective Amendment No. 1 to the Initial
Common Shares Registration Statement and the Form of Underwriting Agreement
filed herewith contain provisions limiting the liability, and providing for
indemnification, of the Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their official capacities as
such. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Investment advisory and other services" in the Statement of Additional
Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange
Act of 1934 (File No. 001-8100); and (iii) the Form ADV of Eaton Vance
Management (File No. 801-15930) filed with the Commission, all of which are
incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940, as
amended, and the Rules promulgated thereunder are in the possession and custody
of the Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon
Street, 16th Floor, Boston, MA 02116, and its transfer agent, PFPC Inc., 4400
Computer Drive, Westborough, MA 01581-5120, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody of Eaton Vance Management, The Eaton Vance Building, 255 State
Street, Boston, MA 02109. Registrant is informed that all applicable accounts,
books and documents required to be maintained by registered investment advisers
are in the custody and possession of Eaton Vance Management.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend offering of Common Shares until
the prospectus is amended if (1) subsequent to the effective date of this
Registration Statement, the net asset value declines
more than 10 percent from its net asset value as of the effective date of this
Registration Statement or (2) the net asset value increases to an amount greater
than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. for the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to 497(h) under the
Securities Act shall be deemed to be part of the Registration Statement as of
the time it was declared effective; and
b. for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of an oral or written request, its Statement of Additional Information.
NOTICE
A copy of the Agreement and Declaration of Trust of Eaton Vance
Floating-Rate Income Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but are binding only upon the assets and property of the
Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Pre-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Boston and the Commonwealth of Massachusetts, on the 8th day of September 2004.
EATON VANCE FLOATING-RATE
INCOME TRUST
By: /s/ Payson F. Swaffield
-----------------------
Payson F. Swaffield
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Payson F. Swaffield President and Principal Executive Officer September 8, 2004
-----------------------
Payson F. Swaffield
/s/ Barbara E. Campbell Treasurer and Principal Financial and Accounting Officer September 8, 2004
-----------------------
Barbara E. Campbell
/s/ James B. Hawkes Trustee September 8, 2004
-------------------
James B. Hawkes
Samuel L. Hayes, III* Trustee September 8, 2004
--------------------
Samuel L. Hayes, III
William H. Park* Trustee September 8, 2004
---------------
William H. Park
Ronald A. Pearlman* Trustee September 8, 2004
------------------
Ronald A. Pearlman
Norton H. Reamer* Trustee September 8, 2004
----------------
Norton H. Reamer
Lynn A. Stout* Trustee September 8, 2004
-------------
Lynn A. Stout
*By: /s/ James L. O'Connor
---------------------
James L. O'Connor (As attorney in-fact)
INDEX TO EXHIBITS
(b)(2) Form of Amended By-Laws
(d)(2) Form of Specimen Certificate of Series A Auction Preferred Shares
(d)(3) Form of Specimen Certificate of Series B Auction Preferred Shares
(d)(4) Form of Specimen Certificate of Series C Auction Preferred Shares
(d)(5) Form of Specimen Certificate of Series D Auction Preferred Shares
(d)(6) Form of Specimen Certificate of Series E Auction Preferred Shares
(h)(4) Form of Underwriting Agreement as to Registrant's Auction Preferred
Shares
(k)(6) Form of Auction Agent Agreement
(k)(7) Form of Broker-Dealer Agreement
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP
(n) Consent of Independent Registered Public Accounting Firm
EX-99.(B)(2)
2
b51660efexv99wxbyx2y.txt
FORM OF AMENDED BY-LAWS
APPENDIX B
--------------------------------------------------------------------------------
EATON VANCE FLOATING-RATE INCOME TRUST
AMENDMENT NO. 1 TO BY-LAWS--STATEMENT
CREATING FIVE SERIES OF
AUCTION PREFERRED SHARES
WHEREAS, Section 5.1 of Article VI of the Agreement and Declaration of Trust
dated April 28, 2004 of Eaton Vance Floating-Rate Income Trust (the "Declaration
of Trust"), a copy of which is on file in the office of the Secretary of the
Commonwealth of The Commonwealth of Massachusetts, provides that the Trustees
may, without shareholder approval, authorize one or more classes of shares
(which classes may be divided into two or more series), shares of each such
class or series having such preferences, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, as the Trustees may determine and as shall be set forth in the
By-laws; and
WHEREAS, pursuant to authority expressly vested in the Trustees of the Trust by
Section 5.1 of Article VI of the Declaration of Trust, the Trustees have
authorized, in addition to that Trust's common shares, a class of 17,400
preferred shares which are now to be issued divided into one series of 3,480
shares, one series of 3,480 shares, one series of 3,480 shares, one series of
3,480 shares, and one series of 3,480 shares of its authorized preferred shares,
$0.01 par value, liquidation preference $25,000 per share plus accumulated but
unpaid dividends thereon, if any (whether or not earned or declared), plus the
premium, if any, resulting from the designation of a Premium Call Period,
designated respectively Series A Auction Preferred Shares, Series B Auction
Preferred Shares, Series C Auction Preferred Shares, Series D Auction Preferred
Shares and Series E Auction Preferred Shares.
NOW, THEREFORE, the By-laws of Eaton Vance Floating-Rate Income Trust are hereby
amended as follows:
1. ARTICLES VII through XIII shall be redesignated as ARTICLES VIII
through XIV and all affected cross references therein hereby are
amended accordingly.
2. A new ARTICLE VII shall be added as follows:
ARTICLE VII
STATEMENT CREATING FIVE SERIES OF AUCTION PREFERRED SHARES
DESIGNATION
Auction Preferred Shares, Series A: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series A." Each share of Auction Preferred Shares, Series A (sometimes referred
to herein as "Series A APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series A
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series A APS shall be identical.
Auction Preferred Shares, Series B: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred
--------------------------------------------------------------------------------
B-1
Shares, Series B." Each share of Auction Preferred Shares, Series B (sometimes
referred to herein as "Series B APS") may be issued on a date to be determined
by the Board of Trustees of the Trust or pursuant to their delegated authority;
have an Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series B
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series B APS shall be identical.
Auction Preferred Shares, Series C: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series C." Each share of Auction Preferred Shares, Series C (sometimes referred
to herein as "Series C APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series C
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series C APS shall be identical.
Auction Preferred Shares, Series D: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series D." Each share of Auction Preferred Shares, Series D (sometimes referred
to herein as "Series D APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series D
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series D APS shall be identical.
Auction Preferred Shares, Series E: 3,480 shares of beneficial interest of
Preferred Shares, par value $0.01 per share, liquidation preference $25,000 per
share plus an amount equal to accumulated but unpaid dividends (whether or not
earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series E." Each share of Auction Preferred Shares, Series E (sometimes referred
to herein as "Series E APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustees of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series E
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series E APS shall be identical. The Series A APS, the Series B
APS, the Series C APS, the Series D APS, and Series E APS are sometimes
collectively referred to herein as the "APS."
1. DEFINITIONS. (a) Unless the context or use indicates another or different
meaning or intent, in these Amended By-Laws the following terms have the
following meanings, whether used in the singular or plural:
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"28-Day Dividend Period" means a Dividend Period consisting of 28 days.
"1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
--------------------------------------------------------------------------------
B-2
"1940 Act APS Asset Coverage" means asset coverage, as defined in section 18(h)
of the 1940 Act, of at least 200% with respect to all outstanding senior
securities of the Trust which are shares of beneficial interest, including all
outstanding shares of APS and Other APS (or such other asset coverage as may in
the future be specified in or under the 1940 Act as the minimum asset coverage
for senior securities which are shares of beneficial interest of a closed-end
investment company as a condition of paying dividends on its Common Shares).
"1940 Act Cure Date," with respect to the failure by the Trust to maintain the
1940 Act APS Asset Coverage (as required by paragraph 6 of these Amended
By-Laws) as of the last Business Day of each month, means the last Business Day
of the following month.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of these
Amended By-Laws.
"Adviser" means the Trust's investment adviser, which initially shall be Eaton
Vance Management.
"Affiliate" means any person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided that Eaton Vance
Management shall not be deemed to be an Affiliate nor shall any corporation or
any person controlled by, in control of or under common control with such
entity, one of the trustees, directors or executive officers of which is also a
trustee, director or executive officer of the Trust, be deemed to be an
Affiliate.
"Agent Member" means a member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more shares of APS or a Potential
Beneficial Owner.
"Amended By-Laws" means the By-Laws of the Trust, as amended by this Statement
creating the APS and as may otherwise be amended from time-to-time.
"Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii) of
these Amended By-Laws.
"Applicable Rates" means the rates per annum at which cash dividends are payable
on each Series of APS or Other APS, as the case may be, for any Dividend Period.
"Applicable Spread Over the Reference Rate" means the rate equaling the sum of
the Applicable Spread plus the Reference Rate.
"Approved Price" means the "fair value" as determined by the Trust in accordance
with the valuation procedures adopted from time to time by the Board of Trustees
of the Trust and for which the Trust receives a marked-to-market price (which,
for the purpose of clarity, shall not mean Market Value) from an independent
source at least semi-annually.
"APS" means, as the case may be, the Auction Preferred Shares.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean the dollar
amount equal to the sum of (i)(A) the product of the number of Outstanding
shares of each Series of APS on such date by the Liquidation Preference (and
redemption premium, if any) per share of such Series; (B) the aggregate amount
of dividends that will have accumulated at the respective Applicable Rates
(whether or not earned or declared) to (but not including) the first respective
Dividend Payment Dates for each Series of APS Outstanding that follows such
Valuation Date; (C) the aggregate amount of dividends that would accumulate on
Outstanding Preferred Shares from such first Dividend Payment Dates therefor
referenced in (B) of this paragraph through the 45th day after such Valuation
Date at the respective Applicable Rates referenced in (B) of this paragraph; (D)
the amount of anticipated non-interest expenses of the Trust for the 90 days
subsequent to such Valuation Date; (E) the amount of the current outstanding
balances of any indebtedness or obligations of the Trust senior in right of
payment to the Preferred Shares plus interest actually accrued together with 30
days additional interest on the current outstanding balances calculated at the
current rate; and (F) any other current liabilities payable during the 30 days
subsequent to such Valuation Date, including, without limitation, indebtedness
due within one year and any redemption premium due with respect to the Preferred
Shares for which a Notice of Redemption has been sent, as of such Valuation
Date, to the extent not
--------------------------------------------------------------------------------
B-3
reflected in any of (i)(A) through (i)(E) (including, without limitation, any
liabilities incurred for the purpose of clearing securities transactions) less
(ii) the sum of any cash plus the value of any of the Trust's assets irrevocably
deposited by the Trust for the payment of any of (i)(A) through (i)(F) ("value,"
for purposes of this clause (ii), means the Discounted Value of the security,
except that if the security matures prior to the relevant redemption payment
date and is either fully guaranteed by the U.S. Government or is rated P2 by
Moody's and A2 by Fitch, it will be valued at its face value).
"APS Basic Maintenance Amount Test" means a test which is met if: (a) the
aggregate Discounted Values of the Moody's Eligible Assets meets or exceeds 1.2
times the APS Basic Maintenance Amount and (b) the aggregate Discounted Values
of the Fitch Eligible Assets meets or exceeds 1.0 times the APS Basic
Maintenance Amount.
"APS Basic Maintenance Cure Date," with respect to the failure by the Trust to
satisfy the APS Basic Maintenance Amount (as required by paragraph 7(a) of these
Amended By-Laws) as of a given Valuation Date, means the second Business Day
following such Valuation Date.
"APS Basic Maintenance Report" means a report signed by any of the President,
Treasurer, any Senior Vice President or any Vice President of the Trust which
sets forth, as of the related Valuation Date, the assets of the Trust, the
Market Value and the Discounted Value thereof (seriatim and in aggregate), and
the APS Basic Maintenance Amount.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Deutsche Bank Trust Company Americas unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Trust or a duly authorized
committee thereof enters into an agreement with the Trust to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS and Other APS.
"Auction Procedures" means the procedures for conducting Auctions set forth in
paragraph 10 of this Article VII, of these Amended By-Laws.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of APS or a Broker-Dealer that holds APS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law to
perform the functions required of a Broker-Dealer in paragraph 10 of this
Article VII, of these Amended By-Laws, that has been selected by the Trust and
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a
Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of this Article VII, of these Amended
By-Laws.
"Business Day" means a day on which The New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the shares of beneficial interest designated as common
shares, par value $0.01 per share, of the Trust.
"Date of Original Issue" means, with respect to any share of APS or Other APS,
the date on which the Trust originally issues such share.
"Declaration of Trust" means the Agreement and Declaration of Trust, as amended
and supplemented (including these Amended By-Laws), of the Trust.
--------------------------------------------------------------------------------
B-4
"Deposit Securities" means cash and Senior Loans rated at least A2 (having a
remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by Moody's or A
(having a remaining maturity of 12 months or less), F-1+ by Fitch.
"Discounted Value" as of any Valuation Date, means (i) with respect to an Fitch
Eligible Asset, the quotient of the Market Value thereof divided by the
applicable Fitch Discount Factor and (ii)(a) with respect to a Moody's Eligible
Asset that is not currently callable as of such Valuation Date at the option of
the issuer thereof, the quotient of the Market Value thereof divided by the
applicable Moody's Discount Factor, or (b) with respect to a Moody's Eligible
Asset that is currently callable as of such Valuation Date at the option of the
issuer thereof, the quotient of (1) the lesser of the Market Value or call price
thereof, including any call premium, divided by (2) the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to APS, has the meaning set forth in
paragraph 2(b)(i) of these Amended By-Laws and, with respect to Other APS, has
the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend Period,
any 28-Day Dividend Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may be
permitted by the Trust that is listed as the holder of record of shares of APS
in the Share Books.
"Fitch" means Fitch Ratings and its successors at law.
"Fitch Discount Factor" means for purposes of determining the Discounted Value
of any Fitch Eligible Asset, the percentage determined as follows. The Fitch
Discount Factor for any Fitch Eligible Asset other than the securities set forth
below will be the percentage provided in writing by Fitch.
(i) Corporate Debt Securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS (NON-CONVERTIBLES)
TERMS TO MATURITY AAA AA A BBB BB B NR(1)
----------------- --- --- --- --- --- --- -----
1 year or less................................... 106 108 110 112 130 152 152
2 years or less (but longer than 1 year)......... 106 108 110 112 130 152 152
3 years or less (but longer than 2 years)........ 106 108 110 112 130 152 152
4 years or less (but longer than 3 years)........ 111 113 115 117 134 152 152
5 years or less (but longer than 4 years)........ 111 113 115 117 134 152 152
7 years or less (but longer than 5 years)........ 114 116 118 120 136 152 152
10 years or less (but longer than 7 years)....... 116 118 120 122 137 152 152
15 years or less (but longer than 10 years)...... 120 122 124 124 139 152 152
30 years or less (but longer than 15 years)...... 124 127 129 129 145 152 152
Greater than 30 years............................ 124 127 129 129 145 152 152
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Trust will use the
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B-5
percentage set forth under "not rated" in this table. Securities rated below
B by Fitch shall be treated the same as securities not rated by Fitch.
The Fitch Discount Factors presented in the immediately preceding table apply to
corporate debt securities that are Performing and have a Market Value determined
by a Pricing Service or an Approved Price. The Fitch Discount Factor noted in
the table above for a debt security rated B by Fitch shall apply to any
non-Performing debt security with a price equal to or greater than $0.90. The
Fitch Discount Factor noted in the table above for a debt security rated B by
Fitch shall apply to any non-Performing debt security with a price less than
$0.90 but equal to or greater than $0.20. If a debt security does not have a
Market Value determined by a Pricing Service or an Approved Price, a rating two
rating categories below the actual rating on the debt security will be used
(e.g., where the actual rating is A-, the rating for Debt Securities rated BB-
will be used). The Fitch Discount Factor for a debt security issued by a limited
partnership that is not a Rule 144A Security shall be the Discount Factor
determined in accordance with the table set forth above multiplied by 105%.
The Fitch Discount Factors presented in the immediately preceding table will
also apply to corporate obligations backed by a guaranty, a letter of credit or
insurance issued by a third party. If the third-party credit rating is the basis
for the rating on the obligation, then the rating on the third party will be
used to determine the Fitch Discount Factor in the table.
(ii) Preferred stock: The percentage determined by references to the rating of
a preferred stock in accordance with the table set forth below.
PREFERRED STOCK(1) DISCOUNT FACTOR
------------------ ---------------
AAA......................................................... 130%
AA.......................................................... 133%
A........................................................... 135%
BBB......................................................... 139%
BB.......................................................... 154%
Not rated or below BB....................................... 161%
Investment Grade DRD........................................ 164%
Not rated or below Investment Grade DRD..................... 200%
------------
(1) If a security is not rated by Fitch but is rated by two other Rating
Agencies, then the lower of the ratings on the security from the two other
Rating Agencies will be used to determine the Fitch Discount Factor (e.g.,
where the S&P rating is A and the Moody's rating is Baa, a Fitch rating of
BBB will be used). If a security is not rated by Fitch but is rated by only
one other Rating Agency, then the rating on the security from the other
Rating Agency will be used to determine the Fitch Discount Factor (e.g.,
where the only rating on a security is an S&P rating of AAA, a Fitch rating
of AAA will be used, and where the only rating on a security is a Moody's
rating of Ba, a Fitch rating of BB will be used). If a security is not rated
by any Rating Agency, the Trust will use the percentage set forth under "not
rated" in this table.
(iii) Convertible securities: The Fitch Discount Factor applied to convertible
securities is (A) 200% for investment grade convertibles and (B) 222% for below
investment grade convertibles so long as such convertible debt securities have
neither (x) conversion premium greater than 100% nor (y) have a yield to
maturity or yield to worst of greater than 15.00% above the relevant Treasury
curve.
The Fitch Discount Factor applied to convertible debt securities which have
conversion premiums of greater than 100% is (A) 152% for investment grade
convertibles and (B) 179% for below investment grade convertibles so long as
such convertible debt securities do not have a yield to maturity or yield to
worst of greater than 15.00% above the relevant Treasury curve.
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B-6
The Fitch Discount Factor applied to convertible debt securities which have a
yield to maturity or yield to worse of greater than 15.00% above the relevant
Treasury curve is 370%.
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Discount Factor (e.g., where the only rating on a security
is an S&P rating of AAA, a Fitch rating of AAA will be used, and where the only
rating on a security is a Moody's rating of Ba, a Fitch rating of BB will be
used). If a security is not rated by any Rating Agency, the Trust will treat the
security as if it were below investment grade.
(iv) U.S. Government Securities:
TIME REMAINING TO MATURITY DISCOUNT FACTOR
-------------------------- ---------------
1 year or less.............................................. 101.5%
2 years or less (but longer than 1 year).................... 103%
3 years or less (but longer than 2 years)................... 105%
4 years or less (but longer than 3 years)................... 107%
5 years or less (but longer than 4 years)................... 109%
7 years or less (but longer than 5 years)................... 112%
10 years or less (but longer than 7 years).................. 114%
15 years or less (but longer than 10 years)................. 122%
20 years or less (but longer than 15 years)................. 130%
25 years or less (but longer than 20 years)................. 146%
Greater than 30 years....................................... 154%
(v) Short-Term Investments and Cash: The Fitch Discount Factor applied to
short-term portfolio securities, including without limitation Debt Securities,
Short Term Money Market Instruments and municipal debt obligations, will be (A)
100%, so long as such portfolio securities mature or have a demand feature at
par exercisable within the Fitch Exposure Period; (B) 115%, so long as such
portfolio securities mature or have a demand feature at par not exercisable
within the Fitch Exposure Period; and (C) 125%, so long as such portfolio
securities neither mature nor have a demand feature at par exercisable within
the Fitch Exposure Period. A Fitch Discount Factor of 100% will be applied to
cash.
(vi) Rule 144A Securities: The Fitch Discount Factor applied to Rule 144A
Securities shall be the Discount Factor determined in accordance with the table
above under Corporate Debt Securities in subsection (i) multiplied by 110% until
such securities are registered under the Securities Act.
(vii) Senior Loans: The Fitch Discount Factor applied to Senior Loans (as
defined below) shall be the percentage specified in the table below opposite
such Fitch Loan Category:
FITCH LOAN CATEGORY DISCOUNT FACTOR
------------------- ---------------
A........................................................... 115%
B........................................................... 130%
C........................................................... 152%
D........................................................... 370%
(viii) Secured Debt securities or secured loans, other than Corporate Debt
Securities and Senior Loans: The Fitch Discount Factor applied to secured debt
securities and secured loans, other than Corporate Debt Securities and Senior
Loans shall be the same as set forth under "Corporate Debt Securities" above.
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B-7
(ix) Futures and call options: For purposes of the APS Basic Maintenance
Amount, futures held by the Trust and call options sold by the Trust shall not
be included as Fitch Eligible Assets. However, such assets shall be valued at
Market Value by subtracting the good faith margin and the maximum daily trading
variance as of a Valuation Date. For call options purchased by the Trust, the
Market Value of the call option will be included as Fitch Eligible Asset subject
to a Fitch Discount Factor mutually agreed to between the Trust and Fitch based
on the characteristics of the option contract such as its maturity and the
underlying security of the contract.
(x) Securities lending: The Trust may engage in securities lending in an
amount not to exceed 15% of the Trust's total gross assets. For purposes of
calculating the APS Basic Maintenance Amount, such securities lent shall be
included as Fitch Eligible Assets with the appropriate Fitch Discount Factor
applied to such lent security. The obligation to return such collateral shall
not be included as an obligation/liability for purposes of calculating the APS
Basic Maintenance Amount. However, the Trust may reinvest cash collateral for
securities lent in conformity with its investment objectives and policies and
the provisions of these bylaws. In such event, to the extent that securities
lending collateral received is invested by the Trust in assets that otherwise
would be Fitch Eligible Assets and the value of such assets exceeds the amount
of the Trust's obligation to return the collateral on a Valuation Date, such
excess amount shall be included in the calculation of Fitch Eligible Assets by
applying the applicable Fitch Discount Factor to this amount and adding the
product to total Fitch Eligible Assets. Conversely, if the value of assets in
which securities lending collateral has been invested is less then the amount of
the Trust's obligation to return the collateral on a Valuation Date, such
difference shall be included as an obligation/liability of the Trust for
purposes of calculating the APS Basic Maintenance Amount. Collateral received by
the Trust in a securities lending transaction and maintained by the Trust in the
form received shall not be included as a Fitch Eligible Asset for purposes of
calculating the APS Basic Maintenance Amount.
(xi) Swaps (including Total Return Swaps, Interest Rate Swaps and Credit
Default Swaps): Total Return and Interest Rate Swaps are subject to the
following provisions:
If the Trust has an outstanding gain from a swap transaction on a Valuation
Date, the gain will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor on the counterparty to the swap transaction. At the time a swap
is executed, the Trust will only enter into swap transactions where the
counterparty has at least a Fitch rating of A- or Moody's rating of A3.
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Trust has an outstanding liability from a swap transaction on a
Valuation Date, the Trust count such liability as an outstanding liability from
the total Fitch Eligible Assets in calculating the APS Basic Maintenance Amount.
(B) In addition, for swaps other than Total Return Swaps, the Market Value of
the position (positive or negative) will be included as a Fitch Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS.
(C) (1) The underlying securities subject to a Credit Default Swap sold by the
Trust will be subject to the applicable Fitch Discount Factor for each security
subject to the swap;
(2) If the Trust purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Fitch Eligible Asset subject to the Fitch
Discount Factor assessed based on the counterparty risk; and
(3) The Trust will not include a Credit Default Swap as a Fitch Eligible Asset
purchased by the Trust without the Trust holding the underlying security or when
the Trust buys a Credit Default Swap for a basket of securities without holding
all the securities in the basket.
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B-8
"Fitch Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) BBB or
higher by Fitch or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A or higher by Fitch
or the equivalent by another Rating Agency if the payment date is within thirty
days of the Valuation Date, and (C) A+ or higher by Fitch or the equivalent by
another Rating Agency if the payment date is within the Fitch Exposure Period)
and receivables for Fitch Eligible Assets sold if the receivable is due within
five (5) Business Days of the Valuation Date, and if the trades which generated
such receivables are settled within five (5) Business Days;
(ii) Short Term Money Market Instruments so long as (A) such securities are
rated at least F1+ by Fitch or the equivalent by another Rating Agency, (B) in
the case of demand deposits, time deposits and overnight funds, the supporting
entity is rated at least A by Fitch or the equivalent by another Rating Agency,
or (C) in all other cases, the supporting entity (1) is rated at least A by
Fitch or the equivalent by another Rating Agency and the security matures within
one month, (2) is rated at least A by Fitch or the equivalent by another Rating
Agency and the security matures within three months or (3) is rated at least AA
by Fitch or the equivalent by another Rating Agency and the security matures
within six months;
(iii) U.S. Government Securities;
(iv) Debt securities if such securities have been registered under the
Securities Act or are restricted as to resale under federal securities laws but
are eligible for resale pursuant to Rule 144A under the Securities Act as
determined by the Trust's investment manager or portfolio manager acting
pursuant to procedures approved by the Board of Trustees of the Trust; and such
securities are issued by (1) a U.S. corporation, limited liability company or
limited partnership, (2) a corporation, limited liability company or limited
partnership domiciled in Argentina, Australia, Brazil, Chile, France, Germany,
Italy, Japan, Korea, Mexico, Spain or the United Kingdom or other country if
Fitch does not inform the Trust that including debt securities from such foreign
country will adversely impact Fitch's rating of the APS (the "Approved Foreign
Nations"), (3) the government of any Approved Foreign Nation or any of its
agencies, instrumentalities or political subdivisions (the debt securities of
Approved Foreign Nation issuers being referred to collectively as "Foreign
Bonds"), (4) a corporation, limited liability company or limited partnership
domiciled in Canada or (5) the Canadian government or any of its agencies,
instrumentalities or political subdivisions (the debt securities of Canadian
issuers being referred to collectively as "Canadian Bonds"). Foreign Bonds held
by the Trust will qualify as Fitch Eligible Assets only up to a maximum of 20%
of the aggregate Market Value of all assets constituting Fitch Eligible Assets.
Similarly, Canadian Bonds held by the Trust will qualify as Fitch Eligible
Assets only up to a maximum of 20% of the aggregate Market Value of all assets
constituting Fitch Eligible Assets. Notwithstanding the limitations in the two
preceding sentences, Foreign Bonds and Canadian Bonds held by the Trust will
qualify as Fitch Eligible Assets only up to a maximum of 30% of the aggregate
Market Value of all assets constituting Fitch Eligible Assets. All debt
securities satisfying the foregoing requirements and restrictions of this
paragraph (iv) are herein referred to as "Debt Securities."
(v) Preferred stocks if (i) dividends on such preferred stock are cumulative,
(ii) such securities provide for the periodic payment of dividends thereon in
cash in U.S. dollars or euros and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive equity capital
at any time over the respective lives of such securities, (iii) the issuer of
such a preferred stock has common stock listed on either the New York Stock
Exchange or the American Stock Exchange, (iv) the issuer of such a preferred
stock has a senior debt rating or preferred stock rating from Fitch of BBB- or
higher or the equivalent rating by another Rating Agency. In addition, the
preferred stocks issue must be at least $50 million;
(vi) Rule 144A Securities;
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B-9
(vii) Interest Rate Swaps entered into according to International Swap Dealers
Association ("ISDA") standards if (1) the counterparty to the swap transaction
has a short-term rating of not less than F1 by Fitch or the equivalent by
another Rating Agency, or, if the swap counterparty does not have a short-term
rating, the counterparty's senior unsecured long-term debt rating is AA or
higher by Fitch or the equivalent by another Rating Agency and (2) the original
aggregate notional amount of the Interest Rate Swap transaction or transactions
is not greater than the liquidation preference of the APS originally issued;
(viii) Swaps, including total return and Credit Default Swaps entered into
according to ISDA;
(ix) Senior Loans;
(x) Loans, other than Senior Loans; and
(xi) Fitch Hedging Transactions.
Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of the
Investment Company Act, and other securities or assets not otherwise provided
for in this definition may be included in Fitch Eligible Assets, but, with
respect to any financial contract or other securities or assets, only upon
receipt by the Trust of a writing from Fitch specifying any conditions on
including such financial contract or other securities or assets in Fitch
Eligible Assets and assuring the Trust that including such financial contract or
other securities or assets in the manner so specified would not affect the
credit rating assigned by Fitch to the APS.
Where the Trust sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Fitch Eligible
Asset and the amount the Trust is required to pay upon repurchase of such asset
will count as a liability for the purposes of the APS Basic Maintenance Amount.
Where the Trust purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Trust thereby will constitute a Fitch Eligible
Asset if the long-term debt of such other party is rated at least A- by Fitch or
the equivalent by another Rating Agency and such agreement has a term of 30 days
or less; otherwise the Discounted Value of such purchased asset will constitute
a Fitch Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Fitch Eligible
Asset to the extent that it has been irrevocably deposited for the payment of
(i)(A) through (i)(E) under the definition of APS Basic Maintenance Amount or to
the extent it is subject to any liens, except for (A) liens which are being
contested in good faith by appropriate proceedings and which Fitch has indicated
to the Trust will not affect the status of such asset as a Fitch Eligible Asset,
(B) liens for taxes that are not then due and payable or that can be paid
thereafter without penalty, (C) liens to secure payment for services rendered or
cash advanced to the Trust by its investment manager or portfolio manager, the
Trust's custodian, transfer agent or registrar or the Auction Agent and (D)
liens arising by virtue of any repurchase agreement.
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B-10
FITCH DIVERSIFICATION LIMITATIONS:
Portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Fitch's
Eligible Assets:
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
SECURITY RATED AT LEAST ISSUER(1) INDUSTRY(1),(2) ($ IN MILLION)(3)
----------------------- -------------- --------------- ------------------
AAA................................. 100% 100% $100
AA-................................. 20 75 100
A-.................................. 10 50 100
BBB-................................ 6 25 100
BB-................................. 4 16 50
B-.................................. 3 12 50
CCC................................. 2 8 50
------------
(1) Percentages represent a portion of the aggregate Market Value of corporate
debt securities.
(2) Industries are determined according to Fitch's Industry Classifications, as
defined herein.
(3) Preferred stock has a minimum issue size of $50 million, and mortgage pass
throughs issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association ("FNMA") or the Government National
Mortgage Association ("GNMA"), which has no minimum issue size.
If a security is not rated by Fitch but is rated by two other Rating Agencies,
then the lower of the ratings on the security from the two other Rating Agencies
will be used to determine the Fitch Discount Factor (e.g., where the S&P rating
is A and the Moody's rating is Baa, a Fitch rating of BBB will be used). If a
security is not rated by Fitch but is rated by only one other Rating Agency,
then the rating on the security from the other Rating Agency will be used to
determine the Fitch Diversification Limitations (e.g., where the only rating on
a security is an S&P rating of AAA, a Fitch rating of AAA will be used, and
where the only rating on a security is a Moody's rating of Ba, a Fitch rating of
BB will be used). If a security is not rated by any Rating Agency, the Trust
will use the percentage set forth under "not rated" in this table.
"Fitch Exposure Period" means the period commencing on (and including) a given
Valuation Date and ending 41 days thereafter.
"Fitch General Portfolio Requirements" means that the Trust's portfolio must
meet the following diversification requirements: (a) no more than 25% by par
value of the Trust's total assets can be invested in the securities of borrowers
and other issuers having their principal business activities in the same Fitch
Industry Classification; provided, that this limitation shall not apply with
respect to U.S. Government Securities and provided further that for purposes of
this subsection (a), the term "issuer" shall not include a lender selling a
participation to the Trust or any other person interpositioned between such
lender and the Trust with respect to a participation and (b) no more than 10% by
par value of the Trust's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Trust together with any other persons
interpositioned between such lender and the Trust with respect to such
participation.
"Fitch Hedging Transactions" means purchases or sales of exchange-traded
financial futures contracts based on any index approved by Fitch, LIBOR or
Treasury Bonds, and purchases, writings or sales of exchange-traded put options
on such futures contracts, and purchases, writings or sales of exchange-
--------------------------------------------------------------------------------
B-11
traded call options on such financial futures contracts, and put and call
options on such financial futures contracts ("Fitch Hedging Transactions"),
subject to the following limitations:
(i) The Trust may not engage in any Fitch Hedging Transaction based on any
index approved by Fitch (other than transactions that terminate a futures
contract or option held by the Trust by the Trust's taking the opposite position
thereto ("closing transactions")) that would cause the Trust at the time of such
transaction to own or have sold outstanding financial futures contracts based on
such index exceeding in number 10% of the average number of daily traded
financial futures contracts based on such index in the 30 days preceding the
time of effecting such transaction as reported by The Wall Street Journal.
(ii) The Trust will not engage in any Fitch Hedging Transaction based on
Treasury Bonds or LIBOR (other than closing transactions) that would cause the
Trust at the time of such transaction to own or have sold:
(A) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 60% of the
aggregate Market Value of Fitch Eligible Assets owned by the Trust and at least
rated AA by Fitch (or, if not rated by Fitch Ratings, rated at least Aa by
Moody's; or, if not rated by Moody's, rated AAA by S&P); or
(B) Outstanding financial futures contracts based on Treasury Bonds or LIBOR
with such contracts having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Fitch Eligible Assets owned by the Trust (other
than Fitch Eligible Assets already subject to a Fitch Hedging Transaction) and
rated at least A or BBB by Fitch (or, if not rated by Fitch Ratings, rated at
least Baa by Moody's; or, if not rated by Moody's, rated at least A or AA by
S&P) (for purposes of the foregoing clauses (i) and (ii), the Trust shall be
deemed to own futures contracts that underlie any outstanding options written by
the Trust);
(iii) The Trust may engage in closing transactions to close out any outstanding
financial futures contract based on any index approved by Fitch if the amount of
open interest in such index as reported by The Wall Street Journal is less than
an amount to be mutually determined by Fitch and the Trust.
(iv) The Trust may not enter into an option or futures transaction unless,
after giving effect thereto, the Trust would continue to have Fitch Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS
Shares Basic Maintenance Amount.
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B-12
"Fitch Industry Classification" means, for the purposes of determining Fitch
Eligible Assets, each of the following industry classifications:
FITCH INDUSTRY CLASSIFICATIONS SIC CODE (MAJOR GROUPS)
------------------------------ -----------------------
Aerospace and Defense....................................... 37, 45
Automobiles................................................. 37, 55
Banking, Finance and Real Estate............................ 60, 65, 67
Broadcasting and Media...................................... 27, 48
Building and Materials...................................... 15-17, 32, 52
Cable....................................................... 48
Chemicals................................................... 28, 30
Computers and Electronics................................... 35, 36
Consumer Products........................................... 23, 51
Energy...................................................... 13, 29, 49
Environmental Services...................................... 87
Farming and Agriculture..................................... 1-3, 7-9
Food, Beverage and Tobacco.................................. 20, 21, 54
Gaming, Lodging and Restaurants............................. 70, 58
Health Care and Pharmaceuticals............................. 38, 28, 80
Industrial/Manufacturing.................................... 35
Insurance................................................... 63, 64
Leisure and Entertainment................................... 78, 79
Metals and Mining........................................... 10, 12, 14, 33, 34
Miscellaneous............................................... 50, 72-76, 99
Paper and Forest Products................................... 8, 24, 26
Retail...................................................... 53, 56, 59
Sovereign................................................... NA
Supermarkets and Drug Stores................................ 54
Telecommunications.......................................... 48
Textiles and Furniture...................................... 22, 25, 31, 57
Transportation.............................................. 40, 42-47
Utilities................................................... 49
Structured Finance Obligations.............................. NA
Packaging and Containers.................................... 26, 32, 34
Business Services........................................... 73, 87
The Trust shall use its discretion in determining which industry classification
is applicable to a particular investment.
"Fitch Loan Category" means the following four categories (and, for purposes of
this categorization, the Market Value of a Fitch Eligible Asset trading at par
is equal to $1.00):
(i) "Fitch Loan Category A" means Performing Loans which have a Market Value or
an Approved Price greater than or equal to $0.90.
(ii) "Fitch Loan Category B" means: (A) Performing Loans which have a Market
Value or an Approved Price of greater than or equal to $0.80 but less than
$0.90; and (B) non-Performing Loans which have a Market Value or an Approved
Price greater than or equal to $0.85.
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B-13
(iii) "Fitch Loan Category C" means: (A) Performing Loans which have a Market
Value or an Approved Price of greater than or equal to $0.70 but less than
$0.80; (B) non-Performing Loans which have a Market Value or an Approved Price
of greater than or equal to $0.75 but less than $0.85; and (C) Performing Loans
without an Approved Price rated BB- or higher by Fitch. If a security is not
rated by Fitch but is rated by two other Rating Agencies, then the lower of the
ratings on the security from the two other Rating Agencies will be used to
determine the Fitch Discount Factor (e.g., where the S&P rating is A- and the
Moody's rating is Baa1, a Fitch rating of BBB+ will be used). If a security is
not rated by Fitch but is rated by only one other Rating Agency, then the rating
on the security from the other Rating Agency will be used to determine the Fitch
Discount Factor (e.g., where the only rating on a security is an S&P rating of
AAA-, a Fitch rating of AAA- will be used, and where the only rating on a
security is a Moody's rating of Ba3, a Fitch rating of BB- will be used).
(iv) "Fitch Loan Category D" means Loans not described in any of the foregoing
categories.
Notwithstanding any other provision contained above, for purposes of determining
whether a Fitch Eligible Asset falls within a specific Fitch Loan Category, to
the extent that any Fitch Eligible Asset would fall within more than one of the
Fitch Loan Categories, such Fitch Eligible Asset shall be deemed to fall into
the Fitch Loan Category with the lowest applicable Fitch Discount Factor.
"Holder" means a Person identified as a holder of record of shares of APS in the
Share Register.
"Independent Accountant" means a nationally recognized accountant, or firm of
accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date as
determined by the Board of Trustees of the Trust or their designee with respect
to each series of APS or Other APS, as the case may be.
"Initial Dividend Period" has the meaning set forth in paragraph 2(c)(i) of this
Article VII, of these Amended By-Laws and, with respect to Other APS, has the
equivalent meaning.
"Initial Dividend Rate" means the rate per annum established by the Board of
Trustees or their designee, applicable to the Initial Dividend Period for such
series of APS and, with respect to Other APS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with a broker
as a margin payment at the time of purchase or sale of a futures contract.
"Interest Rate Swaps" means the exchange by the Trust with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
fixed rate payments for floating rate payments.
"LIBOR" means the London Interbank Offered Rate.
"LIBOR Dealers" means UBS Securities LLC and such other dealer or dealers as the
Trust may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"LIBOR Rate" means on any Auction Date, means (i) the rate for deposits in U.S.
dollars for the designated Dividend Period, which appears on display page 3750
of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page as
may replace that page on that service, or such other service as may be selected
by the LIBOR Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m.,
London time, on the day that is the London Business Day preceding the Auction
Date (the "LIBOR Determination Date"), or (ii) if such rate does not appear on
Telerate Page 3750 or such other page as may replace such Telerate Page 3750,
(A) the LIBOR Dealer shall determine the arithmetic mean of the offered
quotations of the Reference Banks to leading banks in the London
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B-14
interbank market for deposits in U.S. dollars for the designated Dividend Period
in an amount determined by such LIBOR Dealer by reference to requests for
quotations as of approximately 11:00 a.m. (London time) on such date made by
such LIBOR Dealer to the Reference Banks, (B) if at least two of the Reference
Banks provide such quotations, LIBOR Rate shall equal such arithmetic mean of
such quotations, (C) if only one or none of the Reference Banks provide such
quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the LIBOR
Dealer (after obtaining the Trust's approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Dividend
Period in an amount determined by the LIBOR Dealer (after obtaining the Trust's
approval) that is representative of a single transaction in such market at such
time by reference to the principal London offices of leading banks in the London
interbank market; provided, however, that if one of the LIBOR Dealers does not
quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Trust to
provide such rate or rates not being supplied by the LIBOR Dealer; provided
further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures
provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous
Auction Date. If the number of Dividend Period days shall be (i) 7 days or more
but fewer than 21 days, such rate shall be the seven-day LIBOR rate; (ii) 21
days or more but fewer than 49 days, such rate shall be one-month LIBOR rate;
(iii) 49 or more but fewer than 77 days, such rate shall be the two-month LIBOR
rate; (iv) 77 or more but fewer than 112 days, such rate shall be the
three-month LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall
be the four-month LIBOR rate; (vi) 140 or more but fewer than 168 days, such
rate shall be the five-month LIBOR rate; (vii) 168 or more but fewer than 189
days, such rate shall be the six-month LIBOR rate; (viii) 189 or more but fewer
than 217 days, such rate shall be the seven-month LIBOR rate; (ix) 217 or more
but fewer than 252 days, such rate shall be the eight-month LIBOR rate; (x) 252
or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate;
(xi) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR
rate; (xii) 315 or more but fewer than 343 days, such rate shall be the
eleven-month LIBOR rate; and (xiii) 343 or more but fewer than 365 days, such
rate shall be the twelve-month LIBOR rate.
"London Business Day" means any day on which commercial banks are generally open
for business in London.
"Loan" means any assignment of or participation in any bank loan denominated in
U.S. dollars including term loans, the funded and unfunded portions of revolving
credit lines (provided that the Trust shall place in reserve an amount equal to
any unfunded portion of any revolving credit line) and debtor-in possession
financings; provided that such loan (a) is not extended for the purpose of
purchasing or carrying any margin stock and (b) is similar to those typically
made, syndicated, purchased or participated by a commercial bank in the ordinary
course of business.
"Long Term Dividend Period" means a Special Dividend Period consisting of a
specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of APS plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption.
"Market Value" of any asset of the Trust shall be the market value thereof
determined by the Pricing Service or by the Trust in accordance with procedures
approved by the Board of Trustees. Market Value of any asset shall include any
interest accrued thereon. The Pricing Service or the Trust shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service or the Trust using methods which
include consideration of: yields or prices of obligations of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market
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B-15
conditions. The Pricing Service or the Trust may employ electronic data
processing techniques and/or a matrix system to determine valuations. At the
Trust's discretion, in the event the Pricing Service is unable to value a
security, the security shall be valued at the lower of two dealer bids obtained
by the Trust from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Trustees.
"Maximum Applicable Rate," with respect to APS, has the meaning set forth in
paragraph 10(a)(vii) of this Article VII, of these Amended By-Laws and, with
respect to Other APS, has the equivalent meaning.
"Monthly Valuation Date" means the last Business Day of each month in each
fiscal year of the Trust, commencing from the Date of Original Issue.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its
successors.
"Moody's Discount Factor" means for purposes of determining the Discounted Value
of any Moody's Eligible Asset, the percentage determined as follows. The Moody's
Discount Factor for any Moody's Eligible Asset other than the securities set
forth below will be the percentage provided in writing by Moody's.
(i) Corporate debt securities: The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.
DISCOUNT FACTORS FOR CORPORATE DEBT SECURITIES INCLUDING NON-INVESTMENT GRADE
BONDS (NON-CONVERTIBLES)
TERMS TO MATURITY OF NON-INVESTMENT GRADE BONDS AAA AA A BAA BA B NR(1)
----------------------------------------------- --- --- --- --- --- --- -----
1 year or less................................ 109 112 115 118 137 150 250
2 years or less (but longer than 1 year)...... 115 118 122 125 146 160 250
3 years or less (but longer than 2 years)..... 120 123 127 131 153 168 250
4 years or less (but longer than 3 years)..... 126 129 133 138 161 176 250
5 years or less (but longer than 4 years)..... 132 135 139 144 168 185 250
7 years or less (but longer than 5 years)..... 139 143 147 152 179 197 250
10 years or less (but longer than 7 years).... 145 150 155 160 189 208 250
15 years or less (but longer than 10 years)... 150 155 160 165 196 216 250
20 years or less (but longer than 15 years)... 150 155 160 165 196 228 250
30 years or less (but longer than 20 years)... 150 155 160 165 196 229 250
Greater than 30 years......................... 165 173 181 189 205 240 250
------------
(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Trust's assets can be derived
from other sources, securities rated below B by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch,
are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or
other debt security is unrated by Moody's, S&P or Fitch, the Trust will use
the percentage set forth under "Below B and Unrated" in this table. Ratings
assigned by S&P or Fitch are generally accepted by Moody's at face value.
However, adjustments to face value may be made to particular categories of
credits for which the S&P and/or Fitch rating does not seem to approximate a
Moody's rating equivalent.
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B-16
The Moody's Discount Factors presented in the immediately preceding table will
also apply to corporate debt securities that do not pay interest in U.S. dollars
or euros, provided that the Moody's Discount Factor determined from the table
shall be multiplied by a factor of 1.20% for purposes of calculating the
Discounted Value of such securities.
(ii) Preferred stock: The Moody's Discount Factor for preferred stock shall be
(A) for preferred stocks issued by a utility, 155%; (B) for preferred stocks of
industrial and financial issuers, 197%; and (C) for auction rate preferred
stocks and all other preferred stocks, 350%.
(iii) Short-term instruments: The Moody's Discount Factor applied to
short-term portfolio securities, including without limitation corporate debt
securities, Short Term Money Market Instruments and municipal debt obligations,
will be (A) 100%, so long as such portfolio securities mature or have a demand
feature at par exercisable within the Moody's Exposure Period; (B) 115%, so long
as such portfolio securities mature or have a demand feature at par not
exercisable within the Moody's Exposure Period; and (C) 125%, if such securities
are not rated by Moody's, so long as such portfolio securities are rated at
least A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period. A Moody's Discount Factor of
100% will be applied to cash.
(v) Rule 144A Securities: The Moody's Discount Factor applied to Rule 144A
Securities for Rule 144A Securities whose terms include rights to registration
under the Securities Act within one year and Rule 144A Securities which do not
have registration rights within one year will be 120% and 130%, respectively, of
the Moody's Discount Factor which would apply were the securities registered
under the Securities Act.
(vi) Bank Loans: The Moody's Discount Factor applied to secured floating rate
loans ("Bank Loans") shall be the percentage specified in accordance with the
table set forth below (or such lower percentage as Moody's may approve in
writing from time to time):
MOODY'S RATING CATEGORY CAA AND BELOW
------------------------------------------------------------- (INCLUDING DISTRESSED
TYPE OF LOAN AAA-A BAA AND BA(1) B(1) AND UNRATED)(1)
------------ ----- ------------- ---- ---------------------
Senior Loans greater than $250 MM..... 118% 136% 149% 250%
Non-Senior Bank Loans greater than
$250 MM............................. 128% 146% 159% 250%
Bank Loans less than $250 MM.......... 138% 156% 169% 270%
Second Lien Bank Loans................ 168% 185% 200% 270%
------------
(1) If a Bank Loan is not rated by any of Moody's, S&P or Fitch Ratings, the
Trust will use the applicable percentage set forth under the column entitled
"Caa and below (including distressed and unrated)" in the table above.
Ratings assigned the S&P and/or Fitch are generally accepted by Moody's at
face value. However, adjustments to face value may be made to particular
categories of securities for which the ratings by S&P and/or Fitch do not
seem to approximate a Moody's rating equivalent. Split-rated securities
assigned by S&P and Fitch (i.e., these Rating Agencies assign different
rating categories to the security) will be accepted at the lower of the two
ratings; provided however, that, in a situation where a security is rated
"B" (or equivalent) by a given rating agency and rated "CCC" (or equivalent)
by another rating agency, the Trust will use the applicable percentage set
forth under the column entitled "B" in the table above.
"Moody's Eligible Asset" means:
(i) Cash (including interest and dividends due on assets rated (A) Baa3 or
higher by Moody's or the equivalent by another Rating Agency if the payment date
is within five (5) Business Days of the Valuation Date, (B) A2 or higher by
Moody's or the equivalent by another Rating Agency if the payment date is within
thirty days of the Valuation Date, and (C) A1 or higher by Moody's or the
equivalent by another Rating Agency if the payment date is within the Moody's
Exposure Period) and receivables for Moody's Eligible Assets sold if the
receivable is due within five (5) Business Days of the Valuation Date, and if
the trades which generated such receivables are (A) settled through clearing
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B-17
house firms with respect to which the Trust has received prior written
authorization from Moody's or (B) (1) with counterparties having a Moody's
long-term debt rating of at least Baa3 or the equivalent by another Rating
Agency or (2) with counterparties having a Moody's Short Term Money Market
Instrument rating of at least P-1or the equivalent by another Rating Agency;
(ii) Short Term Money Market Instruments, so long as (A) such securities are
rated at least P-1 or the equivalent by another Rating Agency, (B) in the case
of demand deposits, time deposits and overnight funds, the supporting entity is
rated at least A2 or the equivalent by another Rating Agency, or (C) in all
other cases, the supporting entity (1) is rated A2 or the equivalent by another
Rating Agency and the security matures within one month, (2) is rated A1 or the
equivalent by another Rating Agency and the security matures within three months
or (3) is rated at least A3 or the equivalent by another Rating Agency and the
security matures within six months; provided, however, that for purposes of this
definition, such instruments (other than commercial paper rated by S&P and not
rated by Moody's) need not meet any otherwise applicable S&P rating criteria;
(iii) U.S. Government Securities;
(iv) Rule 144A Securities;
(v) Bank Loans;
(vi) Corporate debt securities if (A) such securities are rated B3 or higher by
Moody's or the equivalent by another Rating Agency; (B) such securities provide
for the periodic payment of interest in cash in U.S. dollars or euros, except
that such securities that do not pay interest in U.S. dollars or euros shall be
considered Moody's Eligible Assets if they are rated by Moody's, S&P or Fitch;
(C) for securities which provide for conversion or exchange at the option of the
issuer into equity capital at some time over their lives, the issuer must be
rated at least B3 by Moody's or the equivalent by another Rating Agency and the
discount factor will be 250%; (D) for debt securities rated Ba1 and below, no
more than 10% of the original amount of such issue may constitute Moody's
Eligible Assets or the equivalent by another Rating Agency; (E) such securities
have been registered under the Securities Act or are restricted as to resale
under federal securities laws but are eligible for resale pursuant to Rule 144A
under the Securities Act as determined by the Trust's investment manager or
portfolio manager acting pursuant to procedures approved by the Board of
Trustees, except that such securities that are not subject to U.S. federal
securities laws shall be considered Moody's Eligible Assets if they are publicly
traded; and (F) such securities are not subject to extended settlement.
Notwithstanding the foregoing limitations, (x) corporate debt securities not
rated at least B3 by Moody's or not rated by Moody's shall be considered to be
Moody's Eligible Assets only to the extent the Market Value of such corporate
debt securities does not exceed 10% of the aggregate Market Value of all Moody's
Eligible Assets; provided, however, that if the Market Value of such corporate
debt securities exceeds 10% of the aggregate Market Value of all Moody's
Eligible Assets, a portion of such corporate debt securities (selected by the
Trust) shall not be considered Moody's Eligible Assets, so that the Market Value
of such corporate debt securities (excluding such portion) does not exceed 10%
of the aggregate Market Value of all Moody's Eligible Assets; and (y) corporate
debt securities rated by neither Moody's, S&P nor Fitch shall be considered to
be Moody's Eligible Assets only to the extent such securities are issued by
entities which (i) have not filed for bankruptcy within the past three years,
(ii) are current on all principal and interest in their fixed income
obligations, (iii) are current on all preferred stock dividends, and (iv)
possess a current, unqualified auditor's report without qualified, explanatory
language.
(vii) Preferred stocks if (A) dividends on such preferred stock are cumulative,
(B) such securities provide for the periodic payment of dividends thereon in
cash in U.S. dollars or euros and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (C) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (D) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baa1 or
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B-18
higher or a preferred stock rating from Moody's of Baa3 or higher and (E) such
preferred stock has paid consistent cash dividends in U.S. dollars or euros over
the last three years or has a minimum rating of A1 (if the issuer of such
preferred stock has other preferred issues outstanding that have been paying
dividends consistently for the last three years, then a preferred stock without
such a dividend history would also be eligible). In addition, the preferred
stocks must have the following diversification requirements: (X) the preferred
stock issue must be greater than $50 million and (Y) the minimum holding by the
Trust of each issue of preferred stock is $500,000 and the maximum holding of
preferred stock of each issue is $5 million. In addition, preferred stocks
issued by transportation companies will not be considered Moody's Eligible
Assets;
(viii) Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii)
of the Investment Company Act of 1940, as amended, and other securities or
assets not otherwise provided for in this definition, but only upon receipt by
the Trust of a letter from Moody's specifying any conditions on including such
financial contract or other securities or assets in Moody's Eligible Assets and
assuring the Trust that including such financial contract or other securities or
assets in the manner so specified would not affect the credit rating assigned by
Moody's to the APS ; and
(ix) Moody's Hedging Transactions.
MOODY'S DIVERSIFICATION LIMITATIONS:
In addition, portfolio holdings as described below must be within the following
diversification and issue size requirements in order to be included in Moody's
Eligible Assets:
MAXIMUM SINGLE MAXIMUM SINGLE MINIMUM ISSUE SIZE
RATINGS(1) ISSUER(2),(3) INDUSTRY(3),(4) ($ IN MILLIONS)(5)
---------- -------------- --------------- ------------------
Aaa................................... 100% 100% $100
Aa.................................... 20 60 100
A..................................... 10 40 100
Baa................................... 6 20 100
Ba.................................... 4 12 50(6)
B1-B2................................. 3 8 50(6)
B3 or below........................... 2 5 50(6)
------------
(1) Refers to the securities of the portfolio holding.
(2) Companies subject to common ownership of 25% or more are considered as one
issuer.
(3) Percentages represent a portion of the aggregate Market Value of securities.
(4) Industries are determined according to Moody's Industry Classifications, as
defined herein.
(5) Except for preferred stock, which has a minimum issue size of $50 million,
and mortgage pass throughs issued by FNMA, FHLMC or GNMA, which has no
minimum issue size.
(6) Portfolio holdings from issues ranging from $50 million to $100 million are
limited to 20% of the Trust's total assets.
Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Trust's assets can be derived from
other sources, securities rated below B by Moody's and unrated securities, which
are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of
Moody's Eligible Assets. If a corporate, municipal or other debt security is
unrated by Moody's, S&P or Fitch, the Trust will use the percentage set forth
under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are
generally accepted by Moody's at face value. However, adjustments to face value
may be made to particular categories of credits for which the S&P and/or Fitch
rating does not seem to approximate a Moody's rating equivalent.
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B-19
Where the Trust sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Trust is required to pay upon repurchase of such asset
will count as a liability for the purposes of the APS Basic Maintenance Amount.
Where the Trust purchases an asset and agrees to sell it to a third party in the
future, cash receivable by the Trust thereby will constitute a Moody's Eligible
Asset if the long-term debt of such other party is rated at least A2 by Moody's
and such agreement has a term of 30 days or less; otherwise the Discounted Value
of such purchased asset will constitute a Moody's Eligible Asset. For the
purposes of calculation of Moody's Eligible Assets, portfolio securities which
have been called for redemption by the issuer thereof shall be valued at the
lower of Market Value or the call price of such portfolio securities.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(E) under the definition of APS Basic Maintenance
Amount or to the extent it is subject to any Liens, except for (A) Liens which
are being contested in good faith by appropriate proceedings and which Moody's
has indicated to the Trust will not affect the status of such asset as a Moody's
Eligible Asset, (B) Liens for taxes that are not then due and payable or that
can be paid thereafter without penalty, (C) Liens to secure payment for services
rendered or cash advanced to the Trust by its investment manager or portfolio
manager, the Trust's custodian, transfer agent or registrar or the Auction Agent
and (D) Liens arising by virtue of any repurchase agreement.
"Moody's Exposure Period" means the period commencing on a given Valuation Date
and ending 49 days thereafter.
"Moody's General Portfolio Requirements" means that the Trust's portfolio must
meet the following diversification requirements: (a) no more than 25% by par
value of the Trust's total assets can be invested in the securities of borrowers
and other issuers having their principal business activities in the same Moody's
Industry Classification; provided, that this limitation shall not apply with
respect to U.S. Government Securities and provided further that for purposes of
this subsection (a), the term "issuer" shall not include a lender selling a
participation to the Trust or any other person interpositioned between such
lender and the Trust with respect to a participation and (b) no more than 10% by
par value of the Trust's total assets can be invested in securities of a single
issuer, and provided further that for purposes of this subsection (b), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Trust together with any other persons
interpositioned between such lender and the Trust with respect to such
participation.
"Moody's Hedging Transactions" has the meaning set forth in paragraph 8(a) of
these Amended By-Laws.
"Moody's Industry Classification" means, for the purposes of determining Moody's
Eligible Assets, each of the following industry classifications (or such other
classifications as Moody's may from time to time approve for application to the
Preferred Shares):
1. Aerospace and Defense: Major Contractor, Subsystems, Research,
Aircraft Manufacturing, Arms, Ammunition
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar,
Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry
Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood,
Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
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B-20
5. Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate,
Real Estate Development, REITs, Land Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural),
Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives,
Coatings, Paints, Varnish, Fabricating Containers
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made
of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only):
Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School
Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and
Waste Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components,
Controllers, Motors, Household Appliances, Information Service
Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers,
Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture
Chemicals, Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals,
Hospital Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer
Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games,
Toy Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills,
Fabricating, Distribution and Sales of the foregoing
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and
Drilling
25. Personal, Food and Miscellaneous
26. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
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B-21
27. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
28. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
29. Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
30. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
31. Personal Transportation: Air, Bus, Rail, Car Rental
32. Utilities: Electric, Water, Hydro Power, Gas
33. Broadcasting and Entertainment: Recording Industry, Motion Exhibition
Theaters, Motion Picture Production and Distribution, Radio, T.V.,
Cable Broadcasting and Broadcasting Equipment
34. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
Supra-national Agencies
The Trust will use its discretion in determining which industry classification
is applicable to a particular investment in consultation with the Independent
Accountant and Moody's, to the extent the Trust considers necessary.
"Non-Call Period" has the meaning set forth under the definition of "Specific
Redemption Provisions".
"Non-Investment Grade Bonds" means "Non-Investment Grade Bonds" as defined in
the Trust's Registration Statement on Form N-2 (File No. 333-117357) relating to
the APS on file with the Securities Exchange Commission, as such Registration
Statement may be amended from time to time.
"Non-Payment Period" means any period commencing on and including the day on
which the Trust shall fail to (i) declare, prior to the close of business on the
second Business Day preceding any Dividend Payment Date, for payment on or (to
the extent permitted by paragraph 2(c)(i) of this Article VII, of these Amended
By-Laws) within three Business Days after such Dividend Payment Date to the
Holders as of 12:00 noon, New York City time, on the Business Day preceding such
Dividend Payment Date, the full amount of any dividend on shares of APS payable
on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day
funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such
Dividend Payment Date the full amount of any cash dividend on such shares
payable (if declared) on such Dividend Payment Date or (B) on any redemption
date for any shares of APS called for redemption, the Mandatory Redemption Price
per share of such APS or, in the case of an optional redemption, the Optional
Redemption Price per share, and ending on and including the Business Day on
which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid
redemption prices shall have been so deposited or shall have otherwise been made
available to Holders in same-day funds; provided that, a Non-Payment Period
shall not end unless the Trust shall have given at least five days' but no more
than 30 days' written notice of such deposit or availability to the Auction
Agent, all Existing Holders (at their addresses appearing in the Share Books)
and the Securities Depository. Notwithstanding the foregoing, the failure by the
Trust to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above
within three Business Days after any Dividend Payment Date or redemption date,
as the case may be, in each case to the extent contemplated by paragraph 2(c)(i)
of these Amended By-Laws, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 275% of the applicable Reference
Rate, provided that the Board of Trustees of the Trust shall have the authority
to adjust, modify, alter or change from time to time the initial Non-Payment
Period Rate if the Board of Trustees of the Trust determines and Fitch and/or
Moody's (and any Substitute Rating Agency in lieu of Fitch and/or Moody's, as
applicable, in the event such party shall not rate the APS) advise the Trust in
writing that such adjustment, modification, alteration or change will not
adversely affect its then current ratings on the APS.
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"Normal Dividend Payment Date" has the meaning set forth in paragraph 2(b)(i) of
Article VII, of these Amended By-Laws.
"Notice of Redemption" means any notice with respect to the redemption of shares
of APS pursuant to paragraph 4 of Article VII, of these Amended By-Laws.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of
Article VII, of these Amended By-Laws.
"Notice of Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Optional Redemption Price" means $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) to the date
fixed for redemption plus any applicable redemption premium attributable to the
designation of a Premium Call Period.
"Other APS" means the auction rate Preferred Shares of the Trust, other than the
APS.
"Outstanding" means, as of any date (i) with respect to APS, shares of APS
therefor issued by the Trust except, without duplication, (A) any shares of APS
theretofore canceled or delivered to the Auction Agent for cancellation, or
redeemed by the Trust, or as to which a Notice of Redemption shall have been
given and Deposit Securities shall have been deposited in trust or segregated by
the Trust pursuant to paragraph 4(c) and (B) any shares of APS as to which the
Trust or any Affiliate thereof shall be a Beneficial Owner, provided that shares
of APS held by an Affiliate shall be deemed outstanding for purposes of
calculating the APS Basic Maintenance Amount and (ii) with respect to shares of
other Preferred Shares, has the equivalent meaning.
"Parity Shares" means the APS and each other outstanding series of Preferred
Shares the holders of which, together with the holders of the APS, shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Performing" means that no default as to the payment of principal or interest
has occurred and is continuing.
"Person" means and includes an individual, a partnership, a Trust, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of APS but that wishes to
purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of APS.
"Potential Holder" means any Broker-Dealer or any such other Person as may be
permitted by the Trust, including any Existing Holder, who may be interested in
acquiring shares of APS (or, in the case of an Existing Holder, additional
shares of APS).
"Preferred Shares" means the preferred shares of beneficial interest, par value
$0.01 per share, of the Trust, and includes APS and Other APS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Pricing Service" means any pricing service designated by the Board of Trustees
of the Trust provided the Trust obtains written assurance from Moody's and Fitch
that such designation will not impair the rating then assigned by Moody's and
Fitch, as applicable, to the APS.
"Rating Agency" means a nationally recognized statistical rating organization.
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B-23
"Reference Banks" means four major banks in the London interbank market selected
by UBS Securities LLC or its affiliates or successors or such other party as the
Trust may from time to time appoint.
"Reference Rate" means (i) with respect to a Dividend Period having 364 or fewer
days, the applicable LIBOR Rate and (ii) with respect to a Dividend Period
having 365 or more days, the applicable U.S. Treasury Note Rate.
"REITs" means real estate investment trusts.
"Request for Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of Article VII, of these Amended By-Laws.
"Response" has the meaning set forth in paragraph 2(c)(iii) of Article VII, of
these Amended By-Laws.
"Rule 144A Securities" means securities which are restricted as to resale under
federal securities laws but are eligible for resale pursuant to Rule 144A under
the Securities Act as determined by the Trust's investment manager or portfolio
manager acting pursuant to procedures approved by the Board of Trustees of the
Trust.
"S&P" means Standard & Poor's Corporation, a New York Corporation, and its
successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company or any successor
company or other entities elected by the Trust as securities depository for the
shares of APS that agrees to follow the procedures required to be followed by
such securities depository in connection with the shares of APS.
"Senior Loans" means "Senior Loans" as defined in the Trust's Registration
Statement on Form N-2 (File No. 333-117357) relating to the APS on file with the
Securities Exchange Commission, as such Registration Statement may be amended
from time to time.
"Series A APS" means the Auction Preferred Shares, Series A.
"Series B APS" means the Auction Preferred Shares, Series B.
"Series C APS" means the Auction Preferred Shares, Series C.
"Series D APS" means the Auction Preferred Shares, Series D.
"Series E APS" means the Auction Preferred Shares, Series E.
"Service" means the United States Internal Revenue Service.
"Share Books" means the books maintained by the Auction Agent setting forth at
all times a current list, as determined by the Auction Agent, of Existing
Holders of the APS.
"Share Register" means the register of Holders maintained on behalf of the Trust
by the Auction Agent in its capacity as transfer agent and registrar for the
APS.
"Short Term Dividend Period" means a Special Dividend Period consisting of a
specified number of days (other than seven in the case of Series A APS, Series B
APS and Series C APS and other than 28 in the case of Series D APS and Series E
APS), evenly divisible by seven and not fewer than seven nor more than 364.
"Short Term Money Market Instruments" means the following types of instruments
if, on the date of purchase or other acquisition thereof by the Trust, the
remaining term to maturity thereof is not in excess of 180 days (or 270 days for
instruments rated at least Aaa for purposes of determining Moody's Eligible
Assets):
(i) commercial paper rated either F-1 by Fitch or A-1 by S&P if such commercial
paper matures in 30 days or P-1 by Moody's and either F-1+ by Fitch or A-1+ by
S&P if such commercial paper matures in over 30 days;
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B-24
(ii) demand or time deposits in, and banker's acceptances and certificates of
deposit of, (A) a depository institution or trust company incorporated under the
laws of the United States of America or any state thereof or the District of
Columbia or (B) a United States branch office or agency of a foreign depository
institution (provided that such branch office or agency is subject to banking
regulation under the laws of the United States, any state thereof or the
District of Columbia);
(iii) overnight funds;
(iv) U.S. Government Securities; and
(v) Eurodollar demand or time deposits in, or certificates of deposit of, the
head office or the London branch office of a depository institution or trust
company if the certificates of deposit, if any, and the long-term unsecured debt
obligations (other than such obligations the ratings of which are based on the
credit of a person or entity other than such depository institution or trust
company) of such depository institution or trust company that have (1) credit
ratings on each Valuation Date of at least P-1 from Moody's and either F-1+ from
Fitch or A-1+ from S&P, in the case of commercial paper or certificates of
deposit, and (2) credit ratings on each Valuation Date of at least Aa3 from
Moody's and either AA from Fitch or AA- from S&P, in the case of long-term
unsecured debt obligations; provided, however, that in the case of any such
investment that matures in no more than one Business Day from the date of
purchase or other acquisition by the Trust, all of the foregoing requirements
shall be applicable except that the required long-term unsecured debt credit
rating of such depository institution or trust company from Moody's, Fitch and
S&P shall be at least A2, A-2 and A, respectively; and provided further,
however, that the foregoing credit rating requirements shall be deemed to be met
with respect to a depository institution or trust company if (1) such depository
institution or trust company is the principal depository institution in a
holding company system, (2) the certificates of deposit, if any, of such
depository institution or trust company are not rated on any Valuation Date
below P-1 by Moody's, F-1+ by Fitch or A-1+ by S&P and there is no long-term
rating, and (3) the holding company shall meet all of the foregoing credit
rating requirements (including the preceding proviso in the case of investments
that mature in no more than one Business Day from the date of purchase or other
acquisition by the Trust); and provided further, that the interest receivable by
the Trust shall not be subject to any withholding or similar taxes.
"Special Dividend Period" means a Dividend Period consisting of (i) a specified
number of days (other than seven in the cases of Series A APS, Series B APS and
Series C APS and 28 in the case of Series D APS and Series E APS) or (ii) a
specified period of one whole year or more but not greater than five years (in
each case subject to adjustment as provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Trust, after consultation with the
Auction Agent and the Broker-Dealers, during which the shares of APS subject to
such Dividend Period shall not be subject to redemption at the option of the
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the shares of APS subject to such Dividend Period shall be redeemable at
the Trust's option at a price per share equal to $25,000 plus accumulated but
unpaid dividends plus a premium expressed as a percentage of $25,000, as
determined by the Board of Trustees of the Trust after consultation with the
Auction Agent and the Broker-Dealers.
"Subsequent Dividend Period," with respect to APS, has the meaning set forth in
paragraph 2(c)(i) of Article VII, of these Amended By-Laws and, with respect to
Other APS, has the equivalent meaning.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally
recognized statistical rating organization or two nationally recognized
statistical rating organizations, respectively, selected by Eaton Vance
Management or its affiliates and successors, after consultation with the Trust
and the Broker-Dealers, to act as the substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the
shares of APS.
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B-25
"Swap" means a derivative transaction between two parties who contractually
agree to exchange the returns (or differentials in rates of return) to be
exchanged or "swapped" between the parties, which returns are calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate or in a "basket"
of securities representing a particular index.
(i) "Interest Rate Swap" means an arrangement whereby two parties (called
counterparties) enter into an agreement to exchange periodic interest payments.
The dollar amount the counterparties pay each other is an agreed-upon periodic
interest rate multiplied by some predetermined dollar principal, called the
notional principal amount. No principal (no notional amount) is exchanged
between parties to the transaction; only interest is exchanged.
(ii) "Total Return Swap" means an agreement between counterparties in which one
party agrees to make payments of the total return from the underlying asset(s)
which may include securities, baskets of securities, or securities indices
during the specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from other underlying asset(s).
(iii) "Credit Default Swap" means an agreement between counterparties in which
one party is entitled to receive the par (or other agreed-upon) value of a
referenced debt obligation from the counterparty to the agreement in the event
of a default by a third party on the debt obligation. In return, such party
would pay the counterparty a periodic stream of payments over the term of the
contract provided that no event of default has occurred.
"Treasury Bonds" means United States Treasury Bills, Bonds or Notes.
"Trust" means Eaton Vance Floating-Rate Income Trust, a Massachusetts business
trust.
"U.S. Government Securities" means direct obligations of the United States or of
its agencies or instrumentalities that are entitled to the full faith and credit
of the United States and that, other than Treasury bills, provide for the
periodic payment of interest and the full payment of principal at maturity or
call for redemption.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 p.m. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust is
maintaining the APS Basic Maintenance Amount, each Business Day commencing with
the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures contract
owned or sold by the Trust, the amount of cash or securities paid to or received
from a broker (subsequent to the Initial Margin payment) from time to time as
the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, APS Basic
Maintenance Amount, APS Basic Maintenance Cure Date, APS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Fitch Discount Factor, Fitch Eligible Asset, Fitch Exposure Period,
Fitch Industry Classification, Fitch Hedging Transactions, Market Value, Maximum
Applicable Rate, Moody's Exposure Period, Moody's Hedging Transactions, Moody's
Discount Factor, Moody's Eligible Asset, Moody's Industry Classification,
Performing, Short Term Money Market Instruments,
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B-26
Treasury Bonds, U.S. Government Securities, Valuation Date, Variation Margin
1940 Act Cure Date, and 1940 Act APS Asset Coverage (and any terms defined with
such definitions) have been determined by the Board of Trustees of the Trust in
order to obtain a AAA rating from Fitch and Aaa rating from Moody's on the APS
on their Date of Original Issue; and the Board of Trustees of the Trust shall
have the authority, without shareholder approval, to amend, alter or repeal from
time to time the foregoing definitions and the restrictions and guidelines set
forth thereunder if Moody's, Fitch or any Substitute Rating Agency advises the
Trust in writing that such amendment, alteration or repeal will not adversely
affect its then current rating on the APS.
(c) The Trust agrees to notify Moody's and Fitch with no less than thirty (30)
days' notification of: (i) any material changes to the Trust's organizational
documents and material contracts, as determined by the Trust's officers, in
their sole discretion, (ii) any redemptions of APS by the Trust, or (iii) any
failed Auctions.
2. DIVIDENDS. (a) The Holders of a particular series of APS shall be entitled
to receive, when, as and if declared by the Board of Trustees of the Trust, out
of funds legally available therefor, cumulative dividends each consisting of
cash at the Applicable Rate, and no more, payable on the respective dates set
forth below. Dividends on the shares of each series of APS so declared and
payable shall be paid in preference to and in priority over any dividends
declared and payable on the Common Shares.
(b) (i) Cash dividends on shares of each series of APS shall accumulate from
the Date of Original Issue and shall be payable, when, as and if declared by the
Board of Trustees, out of funds legally available therefor, commencing on the
Initial Dividend Payment Date. Following the Initial Dividend Payment Date for a
series of APS, dividends on that series of APS will be payable, at the option of
the Trust, either (i) with respect to any 7-Day Dividend Period, any 28-Day
Dividend Period and any Short Term Dividend Period of 28 or fewer days, on the
day next succeeding the last day thereof, or (ii) with respect to any Short Term
Dividend Period of more than 28 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the first Business Day next succeeding such Normal
Dividend Payment Date. Although any particular Dividend Payment Date may not
occur on the originally scheduled date because of the exception discussed above,
the next succeeding Dividend Payment Date, subject to such exception, will occur
on the next following originally scheduled date. If for any reason a Dividend
Payment Date cannot be fixed as described above, then the Board of Trustees
shall fix the Dividend Payment Date. The Board of Trustees by resolution prior
to authorization of a dividend by the Board of Trustees may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
Holders of shares of APS set forth in the Declaration of Trust or the Amended
By-Laws. The Initial Dividend Period, 7-Day Dividend Periods, 28-Day Dividend
Periods and Special Dividend Periods with respect to a series of APS are
hereinafter sometimes referred to as Dividend Periods. Each dividend payment
date determined as provided above is hereinafter referred to as a "Dividend
Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the Stock
Register as of 12:00 noon, New York City time, on the Business Day preceding the
Dividend Payment Date. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as they appear on the Stock Register on a date, not
exceeding 15 days prior to the payment date therefor, as may be fixed by the
Board of Trustees of the Trust.
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B-27
(c) (i) During the period from and including the Date of Original Issue to but
excluding the Initial Dividend Payment Date for each series of APS (the "Initial
Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate.
Commencing on the Initial Dividend Payment Date for each series of APS, the
Applicable Rate for each subsequent dividend period (hereinafter referred to as
a "Subsequent Dividend Period"), which Subsequent Dividend Period shall commence
on and include a Dividend Payment Date and shall end on and include the calendar
day prior to the next Dividend Payment Date (or last Dividend Payment Date in a
Dividend Period if there is more than one Dividend Payment Date), shall be equal
to the rate per annum that results from implementation of the Auction
Procedures.
The Applicable Rate for each Dividend Period commencing during a Non-Payment
Period shall be equal to the Non-Payment Period Rate; and each Dividend Period,
commencing after the first day of, and during, a Non-Payment Period shall be a
7-Day Dividend Period in the cases of Series A APS, Series B APS and Series C
APS and a 28-Day Dividend Period in the case of Series D APS and Series E APS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any shares of APS on the date set for such
redemption, any amount of any dividend due on any Dividend Payment Date (if,
prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Trust has declared such dividend payable on such
Dividend Payment Date to the Holders of such shares of APS as of 12:00 noon, New
York City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any shares of APS not paid to such Holders when
due may be paid to such Holders in the same form of funds by 12:00 noon, New
York City time, on any of the first three Business Days after such Dividend
Payment Date or due date, as the case may be, provided that, such amount is
accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 360. In the case of a
willful failure of the Trust to pay a dividend on a Dividend Payment Date or to
redeem any shares of APS on the date set for such redemption, the preceding
sentence shall not apply and the Applicable Rate for the Dividend Period
commencing during the Non-Payment Period resulting from such failure shall be
the Non-Payment Period Rate. For the purposes of the foregoing, payment to a
person in same-day funds on any Business Day at any time shall be considered
equivalent to payment to such person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of any series of APS payable (if
declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period, each
28-Day Dividend Period and each Dividend Payment Date of each Short Term
Dividend Period shall be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the numerator of which will be the number of days
in such Dividend Period or part thereof that such share was outstanding and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent. During any Long Term
Dividend Period, the amount of cash dividends per share of a series of APS
payable (if declared) on any Dividend Payment Date shall be computed by
multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be such number of days in such part of such Dividend
Period that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 360, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent.
(iii) The Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of APS be a number of days (other than seven in the
cases of Series A APS, Series B APS and Series C APS and 28 in the case of
Series D APS and Series E APS), evenly divisible by seven and not fewer than
seven nor more than 364 in the case
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B-28
of a Short Term Dividend Period or one whole year or more but not greater than
five years in the case of a Long Term Dividend Period, specified in such notice,
provided that the Trust may not give a Request for Special Dividend Period of
greater than 28 days (and any such request shall be null and void) unless, for
any Auction occurring after the initial Auction, Sufficient Clearing Bids shall
have existed in the last occurring Auction and unless full cumulative dividends,
any amounts due with respect to redemption's, payable prior to such date have
been paid in full. Such Request for Special Dividend Period, in the case of a
Short Term Dividend Period, shall be given on or prior to the second Business
Day but not more than seven Business Days prior to an Auction Date for a series
of APS and, in the case of a Long Term Dividend Period, shall be given on or
prior to the second Business Day but not more than 28 days prior to an Auction
Date for a series of APS. Upon receiving such Request for Special Dividend
Period, the Broker-Dealer(s) shall jointly determine whether, given the factors
set forth below, it is advisable that the Trust issue a Notice of Special
Dividend Period for the series of APS as contemplated by such Request for
Special Dividend Period and the Optional Redemption Price of the APS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the Trust and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination the Broker-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the APS, (4) industry and financial conditions which
may affect the APS, (5) the investment objective of the Trust, and (6) the
Dividend Periods and dividend rates at which current and potential beneficial
holders of the APS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Trust and the Auction Agent a Response by
such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Trust give a Notice of Special Dividend
Period for the series of APS, the Trust may not give a Notice of Special
Dividend Period in respect of such Request for Special Dividend Period. In the
event the Response indicates that it is advisable that the Trust give a Notice
of Special Dividend Period for the series of APS, the Trust may by no later than
the second Business Day prior to such Auction Date give a notice (a "Notice of
Special Dividend Period") to the Auction Agent, the Securities Depository and
each Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Trust also shall provide a copy of such Notice of
Special Dividend Period to Moody's and Fitch. The Trust shall not give a Notice
of Special Dividend Period and, if the Trust has given a Notice of Special
Dividend Period, the Trust is required to give telephonic and written notice of
its revocation (a "Notice of Revocation") to the Auction Agent, each Broker-
Dealer, and the Securities Depository on or prior to the Business Day prior to
the relevant Auction Date if (x) either the 1940 Act APS Asset Coverage is not
satisfied or the Trust shall fail to maintain Fitch Eligible Assets with an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value at least equal to 1.2
times the APS Basic Maintenance Amount, on each of the two Valuation Dates
immediately preceding the Business Day prior to the relevant Auction Date on an
actual basis and on a pro forma basis giving effect to the proposed Special
Dividend Period (using as a pro forma dividend rate with respect to such Special
Dividend Period the dividend rate which the Broker-Dealers shall advise the
Trust is an approximately equal rate for securities similar to the APS with an
equal dividend period), (y) sufficient funds for the payment of dividends
payable on the immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of business on the
third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Trust that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Trust also shall provide a copy of such Notice of Revocation
to Fitch and Moody's. If the Trust is prohibited from giving a Notice of Special
Dividend Period as a result of any of the factors enumerated in clause (x), (y)
or (z) above or if the Trust gives a Notice of Revocation with respect to a
Notice of Special Dividend Period for any series of APS, the next succeeding
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Dividend Period will be a 7-Day Dividend Period in the cases of Series A APS,
Series B APS and Series C APS and a 28-Day Dividend Period in the case of Series
D APS and Series E APS. In addition, in the event Sufficient Clearing Bids are
not made in the applicable Auction or such Auction is not held for any reason,
such next succeeding Dividend Period will be a 7-Day Dividend Period in the case
of Series A APS, Series B APS, and Series C APS and 28-Day Dividend Period in
the case of Series D APS and Series E APS and the Trust may not again give a
Notice of Special Dividend Period for the APS (and any such attempted notice
shall be null and void) until Sufficient Clearing Bids have been made in an
Auction with respect to a 7-Day Dividend Period in the cases of Series A APS,
Series B APS, and Series C APS and a 28-Day Dividend Period in the case of
Series D APS and Series E APS.
(d) (i) Holders shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends and applicable
late charges, as herein provided, on the shares of APS. Except for the late
charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
on the shares of APS that may be in arrears.
(ii) For so long as any share of APS is Outstanding, the Trust shall not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Shares or other shares of beneficial
interest, if any, ranking junior to the shares of APS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of beneficial
interest of the Trust ranking junior to or on a parity with the shares of APS as
to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to the shares of APS as to dividends and upon liquidation)
or any other such Parity Shares (except by conversion into or exchange for stock
of the Trust ranking junior to or on a parity with the shares of APS as to
dividends and upon liquidation), unless (A) immediately after such transaction,
the Trust shall have Fitch Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount and Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than 1.2 times the
APS Basic Maintenance Amount and the Trust shall maintain the 1940 Act APS Asset
Coverage, (B) full cumulative dividends on shares of APS and shares of Other APS
due on or prior to the date of the transaction have been declared and paid or
shall have been declared and sufficient funds for the payment thereof deposited
with the Auction Agent, and (C) the Trust has redeemed the full number of shares
of APS required to be redeemed by any provision for mandatory redemption
contained herein.
(e) No fractional shares of APS shall be issued.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the APS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments. If upon any liquidation, dissolution or winding up of the Trust, the
amounts payable with respect to the APS and any other Outstanding class or
series of Preferred Shares of the Trust ranking on a parity with the APS as to
payment upon liquidation are not paid in full, the Holders and the holders of
such other class or series will share ratably in any such distribution of assets
in proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Trust. A consolidation, merger or statutory
share exchange of the Trust with or into any other Trust or entity or a sale,
whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the assets of the Trust shall not be deemed or
construed to be a liquidation, dissolution or winding up of the Trust.
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4. REDEMPTION. (a) Shares of APS shall be redeemable by the Trust as provided
below:
(i) To the extent permitted under the 1940 Act and Massachusetts law, upon
giving a Notice of Redemption, the Trust at its option may redeem shares of any
series of APS, in whole or in part, out of funds legally available therefor, at
the Optional Redemption Price per share, on any Dividend Payment Date; provided
that no share of APS may be redeemed at the option of the Trust during (A) the
Initial Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. The Trust may not give a Notice of
Redemption relating to an optional redemption as described in this paragraph
4(a)(i) unless, at the time of giving such Notice of Redemption, the Trust has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount due to Holders by reason of the redemption of their shares of APS on
such redemption date, and the Discounted Value of Fitch Eligible Assets and
Moody's Eligible Assets at least equals the APS Basic Maintenance Amount Test,
and would at least equal the APS Basic Maintenance Amount Test immediately
subsequent to such redemption if such redemption were to occur on such date.
(ii) The Trust shall redeem, out of funds legally available therefor, at the
Mandatory Redemption Price per share, shares of APS to the extent permitted
under the 1940 Act and Massachusetts law, on a date fixed by the Board of
Trustees, if the Trust fails to maintain Fitch Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance Amount or
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than 1.2 times the APS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act APS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the APS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. The number of shares of APS to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of APS the redemption of which, if
deemed to have occurred immediately prior to the opening of business on the Cure
Date, together with all shares of other Preferred Shares then Outstanding
subject to redemption or retirement, would result in the Trust having Fitch
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount and Moody's Eligible Assets with an aggregate
Discounted Value equal to or greater than 1.2 times the APS Basic Maintenance
Amount or satisfaction of the 1940 Act APS Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such minimum number of shares
of APS and shares of other Preferred Shares the redemption of which would have
such result, all shares of APS and shares of other Preferred Shares then
Outstanding shall be redeemed), and (ii) the maximum number of shares of APS,
together with all shares of other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor on such redemption date. In determining the number of shares of APS
required to be redeemed in accordance with the foregoing, the Trust shall
allocate the number required to be redeemed which would result in the Trust
having Fitch Eligible Assets with an aggregate Discounted Value equal to or
greater than the APS Basic Maintenance Amount and Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than 1.2 the APS Basic
Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage, as the
case may be, pro rata among shares of APS of all series, Other APS and other
Preferred Shares subject to redemption pursuant to provisions similar to those
contained in this paragraph 4(a)(ii); provided that, shares of APS which may not
be redeemed at the option of the Trust due to the designation of a Non-Call
Period applicable to such shares (A) will be subject to mandatory redemption
only to the extent that other shares are not available to satisfy the number of
shares required to be redeemed and (B) will be selected for redemption in an
ascending order of outstanding number of days in the Non-Call Period (with
shares with the lowest number of days to be redeemed first) and by lot in the
event of shares having an equal number of days in such Non-Call Period. The
Trust shall effect such redemption on a Business Day which is not later than 35
days after such Cure Date, except that if the Trust does not have funds legally
available for the redemption of all of the required number of shares of APS and
shares of other Preferred Shares which are subject to mandatory redemption or
the Trust otherwise is unable to effect such redemption on or prior to 35 days
after
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such Cure Date, the Trust shall redeem those shares of APS which it is unable to
redeem on the earliest practicable date on which it is able to effect such
redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares of APS
may be redeemed pursuant to paragraph 4(a)(i) of Article VII, of these Amended
By-Laws (i) unless all dividends in arrears on all remaining outstanding shares
of Parity Shares shall have been or are being contemporaneously paid or declared
and set apart for payment and (ii) if redemption thereof would result in the
Trust's failure to maintain Fitch Eligible Assets with an aggregate Discounted
Value equal to or greater than the APS Basic Maintenance Amount and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than 1.2
times the APS Basic Maintenance Amount. In the event that less than all the
outstanding shares of a series of APS are to be redeemed and there is more than
one Holder, the shares of that series of APS to be redeemed shall be selected by
lot or such other method as the Trust shall deem fair and equitable.
(c) Whenever shares of APS are to be redeemed, the Trust, not less than 17 nor
more than 30 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
shares of APS to be redeemed and to the Auction Agent. The Trust shall cause the
Notice of Redemption to also be published in the eastern and national editions
of The Wall Street Journal. The Notice of Redemption shall set forth (i) the
redemption date, (ii) the amount of the redemption price, (iii) the aggregate
number of shares of APS of such series to be redeemed, (iv) the place or places
where shares of APS of such series are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
shall cease to accumulate on such redemption date and (vi) the provision of
these Amended By-Laws pursuant to which such shares are being redeemed. No
defect in the Notice of Redemption or in the mailing or publication thereof
shall affect the validity of the redemption proceedings, except as required by
applicable law.
If the Notice of Redemption shall have been given as aforesaid and, concurrently
or thereafter, the Trust shall have deposited in trust with the Auction Agent,
or segregated in an account at the Trust's custodian bank for the benefit of the
Auction Agent, Deposit Securities (with a right of substitution) having an
aggregate Discounted Value (utilizing in the case of Fitch the Fitch Exposure
Period of 41 Business Days and in the case of Moody's the Moody's Exposure
Period of 49 days) equal to the redemption payment for the shares of APS as to
which such Notice of Redemption has been given with irrevocable instructions and
authority to pay the redemption price to the Holders of such shares, then upon
the date of such deposit or, if no such deposit is made, then upon such date
fixed for redemption (unless the Trust shall default in making the redemption
payment), all rights of the Holders of such shares as shareholders of the Trust
by reason of the ownership of such shares will cease and terminate (except their
right to receive the redemption price in respect thereof, but without interest),
and such shares shall no longer be deemed Outstanding. The Trust shall be
entitled to receive, from time to time, from the Auction Agent the interest, if
any, on such Deposit Securities deposited with it and the Holders of any shares
so redeemed shall have no claim to any of such interest. In case the Holder of
any shares so called for redemption shall not claim the redemption payment for
his shares within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Trust such amount remaining on deposit and
the Auction Agent shall thereupon be relieved of all responsibility to the
Holder of such shares called for redemption and such Holder thereafter shall
look only to the Trust for the redemption payment.
5. VOTING RIGHTS. (a) General. Except as otherwise provided in the Declaration
of Trust or Amended By-Laws, each Holder of shares of APS shall be entitled to
one vote for each share held on each matter submitted to a vote of shareholders
of the Trust, and the holders of Outstanding shares of Preferred Shares,
including APS, and of shares of Common Shares shall vote together as a single
class; provided that, at any meeting of the shareholders of the Trust held for
the election of trustees, the holders of Outstanding shares of Preferred Shares,
including APS, shall be entitled, as a class, to the exclusion of
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B-32
the holders of all other securities and classes of capital stock of the Trust,
to elect two trustees of the Trust. Subject to paragraph 5(b) hereof, the
holders of Outstanding shares of beneficial interest of the Trust, including the
holders of outstanding shares of Preferred Shares, including APS, voting as a
single class, shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in which
any one or more of the conditions described below shall exist (such period being
referred to herein as a "Voting Period"), the number of trustees constituting
the Board of Trustees shall be automatically increased by the smallest number
that, when added to the two directors elected exclusively by the holders of
shares of Preferred Shares, would constitute a majority of the Board of Trustees
as so increased by such smallest number; and the holders of shares of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Trust), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared,
and whether or not funds are then legally available in an amount sufficient
therefor) on the outstanding shares of APS equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or specified securities
shall not have been deposited with the Auction Agent for the payment of such
accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Shares are
entitled to elect a majority of the trustees of the Trust under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in this
paragraph 5(b) shall cease, subject always, however, to the reverting of such
voting rights in the Holders upon the further occurrence of any of the events
described in this paragraph 5(b)
(c) Right to Vote with Respect to Certain Other Matters. So long as any shares
of APS are Outstanding, the Trust shall not, without the affirmative vote of the
Holders of at least a majority of the shares of Preferred Shares Outstanding at
the time, voting separately as one class, approve any conversion of the Trust
from a closed-end to an open-end investment company and (i) authorize, create or
issue any class or series of shares of beneficial interest ranking prior to the
APS or any other series of Preferred Shares with respect to payment of dividends
or the distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Declaration of Trust, whether by merger, consolidation or
otherwise, so as to adversely affect any of the contract rights expressly set
forth in the Declaration of Trust of holders of shares of APS or any other
Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of APS are Outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of Trust of a
Holder of shares of a series of APS differently than those of a Holder of shares
of any other series of APS without the affirmative vote of the holders of at
least a majority of the shares of APS of each series adversely affected and
Outstanding at such time (each such adversely affected series voting separately
as a class). The Trust shall notify Fitch and Moody's ten (10) Business Days
prior to any such vote described in clause (i) or (ii). Unless a higher
percentage is provided for under the Declaration of Trust, the affirmative vote
of the holders of a majority of the Outstanding shares of Preferred Shares,
including APS, voting together as a single class, will be required to approve
any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred
Shares, including APS, described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common Shares and shares
of Preferred Shares, including APS, voting together as a single class necessary
to authorize the action in question.
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B-33
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of
shares of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Trust does not call such a special meeting, it may
be called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on any
matter or the number of shares required to constitute a quorum, whether such
right is created by these Amended By-Laws, by the other provisions of the
Declaration of Trust, by statute or otherwise, a share of APS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust at the
time of a special meeting of Holders and holders of other Preferred Shares to
elect trustees shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of trustees that they are
entitled to elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent trustees elected by the Holders and
such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms of office
of the additional trustees elected by the Holders and holders of other Preferred
Shares pursuant to paragraph 5(b) above shall terminate, the remaining trustees
shall constitute the trustees of the Trust and the voting rights of the Holders
and such other holders to elect additional trustees pursuant to paragraph 5(b)
above shall cease, subject to the provisions of the last sentence of paragraph
5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of shares
of APS shall not have any rights or preferences other than those specifically
set forth herein. The Holders of shares of APS shall have no preemptive rights
or rights to cumulative voting. In the event that the Trust fails to pay any
dividends on the shares of APS, the exclusive remedy of the Holders shall be the
right to vote for trustees pursuant to the provisions of this paragraph 5.
(f) Notification to Fitch and Moody's. In the event a vote of Holders of APS
is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Trust shall, not later than ten Business Days prior to the date on which such
vote is to be taken, notify Fitch and Moody's that such vote is to be taken and
the nature of the action with respect to which such vote is to be taken and, not
later than ten Business Days after the date on which such vote is taken, notify
Fitch and Moody's of the result of such vote.
6. 1940 ACT APS ASSET COVERAGE. The Trust shall maintain, as of the last
Business Day of each month in which any share of APS is Outstanding, the 1940
Act APS Asset Coverage.
7. APS BASIC MAINTENANCE AMOUNT. The following references in this paragraph 7
to Fitch Eligible Assets and/or Moody's Eligible Assets, as the case may be, are
only applicable if Fitch and/or Moody's, as the case may be, is rating the APS.
(a) The Trust shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date Fitch Eligible Assets
and
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B-34
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the APS Basic Maintenance Amount Test. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to retain a Discounted Value at least equal to the
APS Basic Maintenance Amount Test on or prior to the APS Basic Maintenance Cure
Date.
(b) On or before 5:00 p.m., New York City time, on the third Business Day after
a Valuation Date on which the Trust fails to satisfy the APS Basic Maintenance
Amount Test, the Trust shall complete and deliver to the Auction Agent, Moody's
and Fitch, a complete APS Basic Maintenance Report as of the date of such
failure, which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Trust mails to the Auction Agent
for delivery on the next Business Day the complete APS Basic Maintenance Report.
The Trust will deliver an APS Basic Maintenance Report to the Auction Agent,
Moody's and Fitch, on or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Trust cures its failure to
maintain Fitch Eligible Assets and Moody's, with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount Test or on which the
Trust fails to maintain Fitch Eligible Assets and Moody's Eligible Assets, with
an aggregate Discounted Value which exceeds the APS Basic Maintenance Amount by
5% or more. The Trust will also deliver an APS Basic Maintenance Report to the
Auction Agent, Fitch, and Moody's as of each Monthly Valuation Date on or before
the third Business Day after such date. Additionally, on or before 5:00 p.m.,
New York City time, on the third Business Day after the first day of a Special
Dividend Period, the Trust will deliver an APS Basic Maintenance Report to
Fitch, Moody's and the Auction Agent. The Trust shall also provide Fitch and
Moody' with an APS Basic Maintenance Report when specifically requested by Fitch
or Moody's, as applicable. A failure by the Trust to deliver an APS Basic
Maintenance Report under this paragraph 7(b) shall be deemed to be delivery of
an APS Basic Maintenance Report indicating the Discounted Value for Fitch
Eligible Assets and Moody's Eligible Assets of the Trust is less than the APS
Basic Maintenance Amount Test, as of the relevant Valuation Date.
(c) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Valuation Date as of the last Business Day of the Trust's fiscal year, the
Independent Accountant will confirm in writing to the Auction Agent, Moody's and
Fitch (i) the mathematical accuracy of the calculations reflected in such Report
(and in any other APS Basic Maintenance Report, randomly selected by the
Independent Accountant, that was delivered by the Trust at year-end on such
Valuation Date), (ii) that, in such Report (and in such randomly selected
Report), the Trust correctly determined the assets of the Trust which constitute
Fitch Eligible Assets and Moody's Eligible Assets at such Monthly Valuation Date
in accordance with these Amended By-Laws, (iii) that, in such Report (and in
such randomly selected Report), the Trust determined whether the Trust had, at
such Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with these Amended By-Laws, Fitch Eligible Assets
and Moody's Eligible Assets of an aggregate Discounted Value at least equal to
the APS Basic Maintenance Amount Test, (iv) with respect to the Fitch ratings on
debt securities, the issuer name, issue size and coupon rate listed in such
Report, that the Independent Accountant has requested that Fitch verify such
information and the Independent Accountant shall provide a listing in its letter
of any differences, (v) with respect to the Moody's ratings on debt securities,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Trust has satisfied
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B-35
the requirements of paragraph 8(a) of these Amended By-Laws (such confirmation
is herein called the "Accountant's Confirmation").
(d) Within ten (10) Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to any
Valuation Date on which the Trust failed to maintain Fitch Eligible Assets with
an aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount and Moody's Eligible Assets with an aggregate Discounted Value equal to
or greater than 1.2 times the APS Basic Maintenance Amount, and relating to the
APS Basic Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, Moody's and Fitch an Accountant's
Confirmation as to such APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraphs (c) or
(d) of this paragraph 7 shows that an error was made in the APS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all Fitch Eligible Assets and Moody's
Eligible Assets of the Trust was determined by the Independent Accountant, the
calculation or determination made by such Independent Accountant shall be final
and conclusive and shall be binding on the Trust, and the Trust shall
accordingly amend and deliver the APS Basic Maintenance Report to the Auction
Agent, Moody's and Fitch promptly following receipt by the Trust of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day after
the Date of Original Issue of the shares of APS, the Trust will complete and
deliver to Fitch and Moody's an APS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to Fitch
and Moody's (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the aggregate Discounted Value of Fitch Eligible Assets or
Moody's Eligible Assets, as applicable reflected thereon equals or exceeds the
APS Basic Maintenance Amount Test reflected thereon. Also, on or before 5:00
p.m., New York City time, on the first Business Day after shares of Common
Shares are repurchased by the Trust, the Trust will complete and deliver to
Fitch and Moody's an APS Basic Maintenance Report as of the close of business on
such date that Common Shares is repurchased.
8. CERTAIN OTHER MOODY'S RESTRICTIONS AND REQUIREMENTS.
(a) For so long as any APS are rated by Moody's, the Trust may buy or sell
financial futures contracts, write, purchase or sell call options on financial
futures contracts or purchase put options on financial futures contracts or
write call options on portfolio securities, swaps and securities lending unless
it receives written confirmation from Moody's that engaging in such transactions
would impair the ratings then assigned to the APS by Moody's, (collectively
"Moody's Hedging Transactions"), subject to the following limitations:
(i) Futures and call options: For purposes of the APS Basic Maintenance
Amount, futures held by the Trust and call options sold by the Trust shall not
be included as Moody's Eligible Assets. However, such assets shall be valued at
Market Value by subtracting the good faith margin and the maximum daily trading
variance as of a Valuation Date. For call options purchased by the Trust, the
Market Value of the call option will be included as Moody's Eligible Asset
subject to a Moody's Discount Factor mutually agreed to between the Trust and
Moody's based on the characteristics of the option contract such as its maturity
and the underlying security of the contract.
(ii) Securities lending: The Trust may engage in securities lending in an
amount not to exceed 15% of the Trust's total gross assets. For purposes of
calculating the APS Basic Maintenance Amount, such securities lent shall be
included as Moody's Eligible Assets with the appropriate Moody's Discount Factor
applied to such lent security. The obligation to return such collateral shall
not be included as an obligation/liability for purposes of calculating the APS
Basic Maintenance Amount. However, the Trust may reinvest cash collateral for
securities lent in conformity with its investment objectives and policies and
the provisions of these bylaws. In such event, to the extent that securities
lending collateral
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received is invested by the Trust in assets that otherwise would be Moody's
Eligible Assets and the value of such assets exceeds the amount of the Trust's
Moody's Eligible Assets by applying the applicable Moody's Discount Factor to
this amount and adding the product to total Moody's Eligible Assets. Conversely,
if the value of assets in which securities lending collateral has been invested
is less then the amount of the Trust's obligation to return the collateral on a
Valuation Date, such difference shall be included as an obligation/liability of
the Trust for purposes of calculating the APS Basic Maintenance Amount.
Collateral received by the Trust in a securities lending transaction and
maintained by the Trust in the form received shall not be included as a Moody's
Eligible Asset for purposes of calculating the APS Basic Maintenance Amount.
(iii) Swaps (including Total Return Swaps, Interest Rate Swaps and Credit
Default Swaps): Total return and Interest Rate Swaps are subject to the
following provisions:
(A) Only the cumulative unsettled profit and loss from a Total Return Swap
transaction will be calculated when determining the APS Basic Maintenance
Amount. If the Trust has an outstanding gain from a swap transaction on a
Valuation Date, the gain will be included as a Moody's Eligible Asset subject to
the Moody's Discount Factor on the counterparty to the swap transaction. If the
Trust has an outstanding liability from a swap transaction on a Valuation Date,
the Trust will subtract the outstanding liability from the total Moody's
Eligible Assets in calculating the APS Basic Maintenance Amount.
In addition, for swaps other than Total Return Swaps, the Market Value of the
position (positive or negative) will be included as a Moody's Eligible Asset.
The aggregate notional value of all swaps will not exceed the Liquidation
Preference of the Outstanding APS. At the time a swap is executed, the Trust
will only enter into swap transactions where the counterparty has at least a
Fitch rating of A- or Moody's long-term rating of A3.
(B) (1) The underlying securities subject to a Credit Default Swap sold by the
Trust will be subject to the applicable Moody's Discount Factor for each
security subject to the swap;
(2) If the Trust purchases a Credit Default Swap and holds the underlying
security, the Market Value of the Credit Default Swap and the underlying
security will be included as a Moody's Eligible Asset subject to the Moody's
Discount Factor assessed based on the counterparty risk and the duration of the
swap agreement; and
(3) The Trust will not include a Credit Default Swap as a Moody's Eligible
Asset purchased by the Trust without the Trust holding the underlying security
or when the Trust buys a Credit Default Swap for a basket of securities without
holding all the securities in the basket.
If not otherwise provided for in (a)(i)-(iii) above, derivative instruments
shall be treated as follows: Any derivative instruments will be valued pursuant
to the Trust's valuation procedures on a Valuation Date. The amount of the net
payment obligation and the cost of a closing transaction, as appropriate, on any
derivative instrument on a Valuation Date will be counted as a liability for
purposes of determining the APS Basic Maintenance Amount (e.g., a written call
option that is in the money for the holder). Any derivative instrument with
respect to which the Trust is owed payment on the Valuation Date that is not
based upon an individual security or securities that are Moody's Eligible Assets
will have a mutually agreed upon valuation by Moody's and the Trust for purposes
of determining Moody's Eligible Assets. Any derivative instrument with respect
to which the Trust is owed payment on the valuation date that is based upon an
individual security or securities that are Moody's Eligible Assets (e.g., a
purchased call option on a bond that is in the money) will be valued as follows
for purposes of determining Moody's Eligible Assets: (A) For such derivative
instruments that are exchange traded, the value of the in-the-money amount of
the payment obligation to the Trust will be reduced by applying the Moody's
Discount Factor (as it would apply to the underlying security or securities) and
then added to Moody's Eligible Assets; and (B) for such derivative instruments
that are not exchange traded, the value of the in-the-money amount of the
payment obligation to the Trust will be (1) reduced as described in (A) and (B)
further reduced by applying to the remaining amount
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B-37
the Moody's Discount Factor determined by reference to the credit rating of the
derivative counterparty with the remaining amount after these reductions then
added to Moody's Eligible Assets.
For purposes of determining whether the Trust has Moody's Eligible Assets with
an aggregate Discounted Value that equals or exceeds the APS Basic Maintenance
Amount Test, the Discounted Value of all Forward Commitments to which the Trust
is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.
A preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock obligations. The ratings on the Preferred Shares
are not recommendations to purchase, hold, or sell those shares, inasmuch as the
ratings do not comment as to market price or suitability for a particular
investor. The rating agency guidelines described above also do not address the
likelihood that an owner of Preferred Shares will be able to sell such shares in
an Auction or otherwise.
The Trust agrees to notify Moody's and Fitch with no less than thirty (30) days'
notification of: (i) any material changes to the Trust's organizational
documents and material contracts, as determined by the Trust's officers, in
their sole discretion, (ii) any redemptions of APS by the Trust, or (iii) any
failed Auctions.
9. NOTICE. All notices or communications, unless otherwise specified in the
Amended By-Laws of the Trust or these Amended By-Laws, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date 7 days after which such notice is mailed.
10. AUCTION PROCEDURES. (a) Certain definitions. As used in this paragraph 10,
the following terms shall have the following meanings, unless the context
otherwise requires:
(i) "APS" means the shares of APS being auctioned pursuant to this paragraph
10.
(ii) "Auction Date" means the first Business Day preceding the first day of a
Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the higher of
the Applicable Percentage of the Reference Rate or the "Applicable Spread Over
the Reference Rate" which term shall mean the rate equaling the sum of the
Applicable Spread (as more particularly set forth below) plus the Reference
Rate. The Applicable Percentage will be determined based on the credit rating
assigned on such date to such shares by Fitch and Moody's (or if Fitch or
Moody's shall not make such rating available, the equivalent of such rating by a
Substitute Rating Agency) as follows:
CREDIT RATINGS APPLICABLE PERCENTAGE
----------------------------- OF THE REFERENCE
MOODY'S S&P/FITCH RATE APPLICABLE SPREAD
------------- ------------- --------------------- ------------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Ba1 and lower BB+ and lower 300% 300 bps
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Assuming the Trust maintains an AAA/Aaa rating on the APS, the practical effect
of the different methods used to calculate the Maximum Applicable Rate is shown
in the table below:
MAXIMUM APPLICABLE MAXIMUM APPLICABLE METHOD USED TO
RATE USING THE RATE USING THE DETERMINE THE
APPLICABLE PERCENTAGE APPLICABLE SPREAD MAXIMUM APPLICABLE
REFERENCE RATE OF THE REFERENCE RATE OVER THE REFERENCE RATE RATE
-------------- --------------------- ----------------------- ------------------
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.50% 7.25% Percentage
The Trust shall take all reasonable action necessary to enable Fitch and Moody's
to provide a rating for each series of APS. If Fitch or Moody's shall not make
such a rating available, Eaton Vance Management or its affiliates and
successors, after consultation with the Trust and the Broker-Dealers, shall
select a nationally recognized statistical rating organization to act as a
Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i) below.
(x) "Submission Deadline" means 1:30 p.m., New York City time, on any Auction
Date or such other time on any Auction Date as may be specified by the Auction
Agent from time to time as the time by which each Broker-Dealer must submit to
the Auction Agent in writing all Orders obtained by it for the Auction to be
conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph 10(d)(i)
below.
(xiii) "Submitted Order" has the meaning specified in paragraph 10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph 10(d)(i)
below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph 10(d)(i)
below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph 10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and Potential
Beneficial Owners may only participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in respect of shares subject to
Orders submitted or deemed submitted to them by Beneficial Owners and as
Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information as to:
(1) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for the next succeeding Dividend Period;
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B-39
(2) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of APS held by such Beneficial
Owner which such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners that shall
be maintained in good faith for the purpose of conducting a competitive Auction,
shall contact Potential Beneficial Owners, including Persons that are not
Beneficial Owners, on such list to determine the number of Outstanding shares,
if any, of APS which each such Potential Beneficial Owner offers to purchase,
provided that the Applicable Rate for the next succeeding Dividend Period shall
not be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or the communication by a Broker-Dealer
acting for its own account to the Auction Agent, of information referred to in
clause (A) or (B) of this paragraph 10(b)(i) is hereinafter referred to as an
"Order" and each Beneficial Owner and each Potential Beneficial Owner placing an
Order, including a Broker-Dealer acting in such capacity for its own account, is
hereinafter referred to as a "Bidder"; an Order containing the information
referred to in clause (A)(1) of this paragraph 10(b)(i) is hereinafter referred
to as a "Hold Order"; an Order containing the information referred to in clause
(A)(2) or (B) of this paragraph 10(b)(i) is hereinafter referred to as a "Bid";
and an Order containing the information referred to in clause (A)(3) of this
paragraph 10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be less than the rate per
annum specified in such Bid; or (1) such number or a lesser number of
Outstanding shares of APS to be determined as set forth in paragraph 10(e)(i)(D)
if the Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined as set forth
in paragraph 10(e)(ii)(C) if such specified rate per annum shall be higher than
the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the number of Outstanding shares of APS specified in such Sell Order; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 10(e)(ii)(C) if Sufficient Clearing Bids do
not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the number of Outstanding shares of APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be higher than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of APS to be
determined as set forth in paragraph 10(e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum specified
therein.
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B-40
(c) Submission of Orders by Broker-Dealers to Auction Agent
(i) Each Broker-Dealer shall submit in writing or through the Auction Agent's
Auction Processing System to the Auction Agent prior to the Submission Deadline
on each Auction Date all Orders obtained by such Broker-Dealer, designating
itself (unless otherwise permitted by the Trust) as an Existing Holder in
respect of shares subject to Orders submitted or deemed submitted to it by
Beneficial Owners and as a Potential Holder in respect of shares subject to
Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the Broker-Dealer
unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding shares of APS that are the subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of APS subject to any Hold Order
placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of APS subject to any Bid placed
by such Existing Holder and the rate per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of APS subject to any Sell Order
placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per annum
specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of APS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order (in the case of
an Auction relating to a Dividend Period, which is not a Special Dividend Period
of 91 days or less) and a Sell Order (in the case of an Auction relating to a
Dividend Period of longer than 91 days or any Special Dividend Period) to have
been submitted on behalf of such Existing Holder covering the number of
Outstanding shares of APS held by such Existing Holder and not subject to Orders
submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall be
considered valid up to and including the number of Outstanding shares of APS
held by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of shares of APS
subject to such Hold Orders exceeds the number of Outstanding shares of APS held
by such Existing Holder, the number of shares of APS subject to each of such
Hold Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding shares of APS held by
such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be considered
valid, in the ascending order of their respective rates per annum if more than
one Bid is submitted on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of APS held by such Existing Holder
over the number of shares of APS subject to any Hold Order referred to in
paragraph 10(c)(iv)(A) above (and if more than one Bid submitted on behalf of
such Existing Holder specifies the same rate per annum and together they cover
more than the remaining number of shares that can be the subject of valid Bids
after application of paragraph 10(c)(iv)(A) above and of the
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B-41
foregoing portion of this paragraph 10(c)(iv)(B) to any Bid or Bids specifying a
lower rate or rates per annum, the number of shares subject to each of such Bids
shall be reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of shares); and the number of shares, if any, subject to
Bids not valid under this paragraph 10(c)(iv)(B) shall be treated as the subject
of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the excess of
the number of Outstanding shares of APS held by such Existing Holder over the
number of shares of APS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B); provided that if
more than one Sell Order is submitted on behalf of any Existing Holder and the
number of shares of APS subject to such Sell Orders is greater than such excess,
the number of shares of APS subject to each of such Sell Orders shall be reduced
pro rata so that such Sell Orders, in the aggregate, cover exactly the number of
shares of APS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder, each
Bid submitted shall be a separate Bid with the rate per annum and number of
shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential Beneficial Owner
to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date shall be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the Auction
Agent shall assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of APS over the number
of Outstanding shares of APS that are the subject of Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS");
(B) from the Submitted Orders whether the number of Outstanding shares of APS
that are the subject of Submitted Bids by Potential Holders specifying one or
more rates per annum equal to or lower than the Maximum Applicable Rate exceeds
or is equal to the sum of:
(1) the number of Outstanding shares of APS that are the subject of Submitted
Bids by Existing Holders specifying one or more rates per annum higher than the
Maximum Applicable Rate, and
(2) the number of Outstanding shares of APS that are subject to Submitted Sell
Orders (if such excess or such equality exists (other than because the number of
Outstanding shares of APS in clause (1) above and this clause (2) are each zero
because all of the Outstanding shares of APS are the subject of Submitted Hold
Orders), such Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum specified in
the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the Winning Bid Rate
and all other Submitted Bids from Existing Holders specifying lower rates per
annum were rejected, thus entitling such Existing Holders to continue to hold
the shares of APS that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the Winning Bid Rate
and all other Submitted Bids from Potential Holders specifying lower rates per
annum were accepted, thus entitling the Potential Holders to purchase the shares
of APS that are the subject of such Submitted Bids, would
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B-42
result in the number of shares subject to all Submitted Bids specifying the
Winning Bid Rate or a lower rate per annum being at least equal to the Available
APS.
(ii) Promptly after the Auction Agent has made the determinations pursuant to
paragraph 10(d)(i), the Auction Agent shall advise the Trust of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all of the
Outstanding shares of APS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to the
Maximum Applicable Rate; or
(C) if all of the Outstanding shares of APS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction shall automatically
be the same length as the immediately preceding Dividend Period and the
Applicable Rate for the next succeeding Dividend Period shall be equal to 90% of
the Reference Rate on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations made pursuant to paragraph
10(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions of
paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and Submitted Sell
Orders shall be accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted and the
Submitted Bid of each of the Existing Holders specifying any rate per annum that
is higher than the Winning Bid Rate shall be accepted, thus requiring each such
Existing Holder to sell the Outstanding shares of APS that are the subject of
such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any rate per
annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the Outstanding shares of APS that
are the subject of such Submitted Bid, unless the number of Outstanding shares
of APS subject to all such Submitted Bids shall be greater than the number of
Outstanding shares of APS ("Remaining Shares") equal to the excess of the
Available APS over the number of Outstanding shares of APS subject to Submitted
Bids described in paragraph 10(e)(i)(B) and paragraph 10(e)(i)(C), in which
event the Submitted Bids of each such Existing Holder shall be accepted, and
each such Existing Holder shall be required to sell Outstanding shares of APS,
but only in an amount equal to the difference between (1) the number of
Outstanding shares of APS then held by such Existing Holder subject to such
Submitted Bid and (2) the number of shares of APS obtained by multiplying (x)
the number of Remaining Shares by (y) a fraction the numerator of which shall be
the number of Outstanding shares of APS held by such Existing Holder subject to
such Submitted Bid and the denominator of which shall be the sum of the number
of Outstanding shares of APS subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the Potential Holders specifying a rate per
annum that is equal to the Winning Bid Rate shall be accepted but only in an
amount equal to the number of Outstanding
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B-43
shares of APS obtained by multiplying (x) the difference between the Available
APS and the number of Outstanding shares of APS subject to Submitted Bids
described in paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph
10(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
Outstanding shares of APS subject to such Submitted Bid and the denominator of
which shall be the sum of the number of Outstanding shares of APS subject to
such Submitted Bids made by all such Potential Holders that specified rates per
annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because all of
the Outstanding shares of APS are subject to Submitted Hold Orders), subject to
the provisions of paragraph 10(e)(iii), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be rejected,
thus entitling such Existing Holder to continue to hold the Outstanding shares
of APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per annum
that is equal to or lower than the Maximum Applicable Rate shall be accepted,
thus requiring such Potential Holder to purchase the Outstanding shares of APS
that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate per annum
that is higher than the Maximum Applicable Rate shall be accepted and the
Submitted Sell Orders of each Existing Holder shall be accepted, in both cases
only in an amount equal to the difference between (1) the number of Outstanding
shares of APS then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of APS obtained by multiplying
(x) the difference between the Available APS and the aggregate number of
Outstanding shares of APS subject to Submitted Bids described in paragraph
10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of APS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding shares of APS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 10(e)(i) or
paragraph 10(e)(ii), any Existing Holder would be entitled or required to sell,
or any Potential Holder would be entitled or required to purchase, a fraction of
a share of APS on any Auction Date, the Auction Agent shall, in such manner as
in its sole discretion it shall determine, round up or down the number of shares
of APS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that each Outstanding share of APS purchased or sold by
each Existing Holder or Potential Holder on such Auction Date shall be a whole
share of APS.
(iv) If, as a result of the procedures described in paragraph 10(e)(i), any
Potential Holder would be entitled or required to purchase less than a whole
share of APS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of APS for purchase
among Potential Holders so that only whole shares of APS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of APS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall determine,
with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf
of Existing Holders or Potential Holders, the aggregate number of Outstanding
shares of APS to be purchased and the aggregate number of the Outstanding shares
of APS to be sold by such Potential Holders and Existing Holders and, to the
extent that such aggregate number of Outstanding shares to be purchased and such
aggregate number of Outstanding shares to be sold differ, the Auction Agent
shall determine to which other Broker-Dealer or Broker-Dealers acting for one or
more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS.
--------------------------------------------------------------------------------
B-44
(f) Miscellaneous. The Trust may interpret the provisions of this paragraph 10
to resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not substantially adversely affect the
rights of Beneficial Owners of APS. A Beneficial Owner or an Existing Holder (A)
may sell, transfer or otherwise dispose of shares of APS only pursuant to a Bid
or Sell Order in accordance with the procedures described in this paragraph 10
or to or through a Broker-Dealer, provided that in the case of all transfers
other than pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the shares of APS held by it maintained in book entry form by the
Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Beneficial Owner's beneficial ownership. Neither the
Trust nor any Affiliate shall submit an Order in any Auction. Any Beneficial
Owner that is an Affiliate shall not sell, transfer or otherwise dispose of
shares of APS to any Person other than the Trust. All of the Outstanding shares
of APS of a series shall be represented by a single certificate registered in
the name of the nominee of the Securities Depository unless otherwise required
by law or unless there is no Securities Depository. If there is no Securities
Depository, at the Trust's option and upon its receipt of such documents as it
deems appropriate, any shares of APS may be registered in the Stock Register in
the name of the Beneficial Owner thereof and such Beneficial Owner thereupon
will be entitled to receive certificates therefor and required to deliver
certificates therefor upon transfer or exchange thereof.
11. SECURITIES DEPOSITORY; STOCK CERTIFICATES. (a) If there is a Securities
Depository, one certificate for all of the shares of APS of each series shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent shares of APS. All such certificates shall bear a legend to the effect
that such certificates are issued subject to the provisions restricting the
transfer of shares of APS contained in these Amended By-Laws. Unless the Trust
shall have elected, during a Non-Payment Period, to waive this requirement, the
Trust will also issue stop-transfer instructions to the Auction Agent for the
shares of APS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of APS of a series shall be
the Non-Payment Period Rate or there is no Securities Depository, the Trust may
at its option issue one or more new certificates with respect to such shares
(without the legend referred to in paragraph 11(a)) registered in the names of
the Beneficial Owners or their nominees and rescind the stop-transfer
instructions referred to in paragraph 11(a) with respect to such shares.
--------------------------------------------------------------------------------
B-45
EX-99.(D)(2)
3
b51660efexv99wxdyx2y.txt
FORM OF SPECIMEN CERTIFICATE OF SERIES A
EXHIBIT (d)(2)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 3,480
EATON VANCE FLOATING-RATE INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares, Series A
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 278279 20 3
This certifies that The Depository Trust Company is the owner of 3,480
fully paid and non-assessable shares of Auction Preferred Shares, Series A, $.01
par value per share, $25,000 Liquidation Preference Per Share, of Eaton Vance
Floating-Rate Income Trust (the "Trust") transferable only on the books of the
Trust by the holder thereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this 15th day
of September A.D. 2004.
DEUTSCHE BANK TRUST COMPANY AMERICAS EATON VANCE FLOATING-RATE INCOME TRUST
As Transfer Agent and Registrar
By: ___________________________ By: ________________________________
Authorized Signature Payson F. Swaffield, President
Attest: ________________________________
Barbara E. Campbell, Treasurer
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto _____________________________ Shares represented by
this Certificate, and do hereby irrevocably constitute and appoint _____________
______________________ Attorney to transfer the said Shares on the books of the
within named Trust with full power of substitution in the premises.
Dated ____________, _______
In presence of
_______________________________ _______________________________
Shares of Auction Preferred Shares evidenced by this Certificate may
be sold, transferred, or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as
amended, a copy of which may be obtained at the office of the
Secretary of the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so far
as they have been determined, and the authority of the Board of
Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be addressed
to the Secretary of the Trust.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EX-99.(D)(3)
4
b51660efexv99wxdyx3y.txt
FORM OF SPECIMEN CERTIFICATE OF SERIES B
EXHIBIT (d)(3)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 3,480
EATON VANCE FLOATING-RATE INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares, Series B
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 278279 30 2
This certifies that The Depository Trust Company is the owner of 3,480
fully paid and non-assessable shares of Auction Preferred Shares, Series B, $.01
par value per share, $25,000 Liquidation Preference Per Share, of Eaton Vance
Floating-Rate Income Trust (the "Trust") transferable only on the books of the
Trust by the holder thereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this 15th day
of September A.D. 2004.
DEUTSCHE BANK TRUST COMPANY AMERICAS EATON VANCE FLOATING-RATE INCOME TRUST
As Transfer Agent and Registrar
By: ____________________________ By: ___________________________________
Authorized Signature Payson F. Swaffield, President
Attest: ___________________________________
Barbara E. Campbell, Treasurer
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto _____________________________ Shares represented by
this Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________, _________
In presence of
_______________________________ _______________________________
Shares of Auction Preferred Shares evidenced by this Certificate may
be sold, transferred, or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as
amended, a copy of which may be obtained at the office of the
Secretary of the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so far
as they have been determined, and the authority of the Board of
Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be addressed
to the Secretary of the Trust.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EX-99.(D)(4)
5
b51660efexv99wxdyx4y.txt
FORM OF SPECIMEN CERTIFICATE OF SERIES C
EXHIBIT (d)(4)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 3,480
EATON VANCE FLOATING-RATE INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares, Series C
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 278279 40 1
This certifies that The Depository Trust Company is the owner of 3,480
fully paid and non-assessable shares of Auction Preferred Shares, Series C, $.01
par value per share, $25,000 Liquidation Preference Per Share, of Eaton Vance
Floating-Rate Income Trust (the "Trust") transferable only on the books of the
Trust by the holder thereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this 15th day
of September A.D. 2004.
DEUTSCHE BANK TRUST COMPANY AMERICAS EATON VANCE FLOATING-RATE INCOME TRUST
As Transfer Agent and Registrar
By: _________________________ By: ________________________________
Authorized Signature Payson F. Swaffield, President
Attest: ________________________________
Barbara E. Campbell, Treasurer
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto _____________________________ Shares represented by
this Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________,________
In presence of
_____________________________ _____________________________
Shares of Auction Preferred Shares evidenced by this Certificate may
be sold, transferred, or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as
amended, a copy of which may be obtained at the office of the
Secretary of the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so far
as they have been determined, and the authority of the Board of
Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be addressed
to the Secretary of the Trust.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EX-99.(D)(5)
6
b51660efexv99wxdyx5y.txt
FORM OF SPECIMEN CERTIFICATE OF SERIES D
EXHIBIT (d)(5)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 3,480
EATON VANCE FLOATING-RATE INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares, Series D
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 278279 50 0
This certifies that The Depository Trust Company is the owner of 3,480
fully paid and non-assessable shares of Auction Preferred Shares, Series D, $.01
par value per share, $25,000 Liquidation Preference Per Share, of Eaton Vance
Floating-Rate Income Trust (the "Trust") transferable only on the books of the
Trust by the holder thereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this 15th day
of September A.D. 2004.
DEUTSCHE BANK TRUST COMPANY AMERICAS EATON VANCE FLOATING-RATE INCOME TRUST
As Transfer Agent and Registrar
By: ___________________________ By: ______________________________
Authorized Signature Payson F. Swaffield, President
Attest: ______________________________
Barbara E. Campbell, Treasurer
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto _____________________________ Shares represented by
this Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________, _______
In presence of
______________________________ ______________________________
Shares of Auction Preferred Shares evidenced by this Certificate may
be sold, transferred, or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as
amended, a copy of which may be obtained at the office of the
Secretary of the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so far
as they have been determined, and the authority of the Board of
Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be addressed
to the Secretary of the Trust.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EX-99.(D)(6)
7
b51660efexv99wxdyx6y.txt
FORM OF SPECIMEN CERTIFICATE OF SERIES E
EXHIBIT (d)(6)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 3,480
EATON VANCE FLOATING-RATE INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares, Series E
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No. 278279 60 9
This certifies that The Depository Trust Company is the owner of 3,480
fully paid and non-assessable shares of Auction Preferred Shares, Series E, $.01
par value per share, $25,000 Liquidation Preference Per Share, of Eaton Vance
Floating-Rate Income Trust (the "Trust") transferable only on the books of the
Trust by the holder thereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class authorized to be issued, will be furnished by the Trust to any
shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this 15th day
of September A.D. 2004.
DEUTSCHE BANK TRUST COMPANY AMERICAS EATON VANCE FLOATING-RATE INCOME TRUST
As Transfer Agent and Registrar
By: ___________________________ By: _______________________________
Authorized Signature Payson F. Swaffield, President
Attest: _______________________________
Barbara E. Campbell, Treasurer
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto _____________________________ Shares represented by
this Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________, ______
In presence of
____________________________ __________________________
Shares of Auction Preferred Shares evidenced by this Certificate may
be sold, transferred, or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as
amended, a copy of which may be obtained at the office of the
Secretary of the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or
series of capital stock of the Trust authorized to be issued, so far
as they have been determined, and the authority of the Board of
Trustees to determine the relative rights and preferences of
subsequent classes or series. Any such request should be addressed
to the Secretary of the Trust.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EX-99.(H)(4)
8
b51660efexv99wxhyx4y.txt
FORM OF UNDERWRITING AGREEMENT
EXHIBIT (h)(4)
Eaton Vance Floating-Rate Income Trust
Auction Preferred Shares
Par Value $0.01 Per Share
UNDERWRITING AGREEMENT
September 13, 2004
UNDERWRITING AGREEMENT
September 13, 2004
UBS Securities LLC
[ ]
as Representatives
c/o UBS Securities LLC
as Managing Representative
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
Eaton Vance Floating-Rate Income Trust, a voluntary association with
transferable shares organized and existing under and by virtue of the laws of
The Commonwealth of Massachusetts (commonly referred to as a Massachusetts
business trust) (the "Fund"), proposes to issue and sell to the underwriters
named in Schedule A annexed hereto (the "Underwriters") an aggregate of 3,480
preferred shares of beneficial interest, par value $0.01 per share, designated
Series A Auction Preferred Shares, 3,480 preferred shares of beneficial
interest, par value $0.01 per share, designated Series B Auction Preferred
Shares, 3,480 preferred shares of beneficial interest, par value $0.01 per
share, designated Series C Auction Preferred Shares, 3,480 preferred shares of
beneficial interest, par value $0.01 per share, designated Series D Auction
Preferred Shares, and 3,480 preferred shares of beneficial interest, par value
$0.01 per share, designated Series E Auction Preferred Shares, each with a
liquidation preference of $25,000 per share (the "Shares"), of the Fund. The
Shares are described in the Prospectus which is defined below.
The Fund has filed, in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations thereunder (collectively called
the "Securities Act"), and with the provisions of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder (collectively called
the "Investment Company Act"), with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (File Nos. 333-117357 and
811-21574), including a prospectus and a statement of additional information,
relating to the Shares. The Fund has furnished to the Representatives, for use
by the Underwriters and by dealers, copies of one or more preliminary
prospectuses (including a preliminary statement of additional information) (each
thereof, including such preliminary statement of additional information, being
herein called a "Preliminary Prospectus") relating to the Shares. Except where
the context otherwise requires, the registration statement, as amended when it
becomes effective (the "Effective Date"), including all documents filed as a
part thereof or incorporated by reference therein, and including any information
contained in a
2
prospectus subsequently filed with the Commission pursuant to Rule 497 under the
Securities Act and deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act is herein called
the "Registration Statement," and the prospectus (including the statement of
additional information), in the form filed by the Fund with the Commission
pursuant to Rule 497 under the Securities Act or, if no such filing is required,
the form of final prospectus (including the form of final statement of
additional information) included in the Registration Statement at the time it
became effective, is herein called the "Prospectus." In addition, the Fund has
filed a Notification of Registration on Form N-8A (the "Notification") pursuant
to Section 8 of the Investment Company Act. UBS Securities LLC ("UBS Securities"
or the "Managing Representative") will act as managing representative for the
Underwriters.
Eaton Vance Management, a Massachusetts business trust ("Eaton
Vance" or the "Investment Adviser") will act as the Fund's investment adviser
pursuant to an Investment Advisory Agreement by and between the Fund and the
Investment Adviser, dated as of May 21, 2004 (the "Investment Advisory
Agreement"). Investors Bank & Trust Company will act as the custodian (the
"Custodian") of the Fund's cash and portfolio assets pursuant to a Custodian
Agreement, dated as of May 21, 2004 (the "Custodian Agreement"). PFPC Inc. will
act as the Fund's transfer agent, registrar, and dividend disbursing agent (the
"Transfer Agent") pursuant to a Transfer Agency Services Agreement, dated as of
May 21, 2004 (the "Transfer Agency Agreement"). Eaton Vance will act as the
administrator of the Fund pursuant to an Administration Agreement, dated as of
May 21, 2004 (the "Administration Agreement"). UBS Securities will act as the
Fund's Shareholder Servicing Agent pursuant to a Shareholder Servicing
Agreement, dated as of June 29, 2004 (the "Shareholder Servicing Agreement").
Deutsche Bank Trust Company Americas will act as the Fund's auction agent
pursuant to an Auction Agency Agreement, dated as of [ ], 2004 (the "Auction
Agency Agreement"). The Fund has entered into a Letter Agreement, dated as of [
], 2004, with the Depository Trust Company (the "DTC Agreement"). In addition,
the Fund has adopted a dividend reinvestment plan (the "Dividend Reinvestment
Plan") pursuant to which holders of Shares may have their dividends
automatically reinvested in additional Common Shares of the Fund if so elected.
The Fund, the Investment Adviser and the Underwriters agree as
follows:
1. SALE AND PURCHASE. Upon the basis of the warranties and representations
and subject to the terms and conditions herein set forth, the Fund agrees
to sell to the respective Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase from the Fund the aggregate
number of Shares set forth opposite the name of such Underwriter in
Schedule A attached hereto in each case at a purchase price of $24,750.00
per Share. The Fund is advised that the Underwriters intend (i) to make a
public offering of their respective portions of the Shares as soon after
the effective date of the Registration Statement as is advisable and (ii)
initially to offer the Shares upon the terms set forth in the Prospectus.
The Underwriters may from time to time increase or decrease the
3
public offering price after the initial public offering to such extent as
they may determine.
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Shares shall
be made by the Underwriters to the Fund by Federal Funds wire transfer,
against delivery of the Shares to you through the facilities of the
Depository Trust Company ("DTC") for the respective accounts of the
Underwriters. Such payment and delivery shall be made at 10:00 A.M., New
York City time on the third business day following the date of this
Underwriting Agreement (unless another date or time shall be agreed to by
you and the Fund). The time at which such payment and delivery are
actually made is hereinafter sometimes called the "Time of Purchase" or
the "Closing Date." Certificates for the Shares, if any, shall be
delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding
the Time of Purchase. For the purpose of expediting the checking of the
certificates for the Shares by you, the Fund agrees to make such
certificates, if any, available to you for such purpose at least one full
business day preceding the Time of Purchase.
3. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE INVESTMENT ADVISER.
Each of the Fund and the Investment Adviser jointly and severally
represents and warrants to each Underwriter as follows:
(a) On (i) the Effective Date and the date on which the Prospectus is
first filed with the Commission pursuant to Rule 497(b), (h) or (j)
under the Securities Act, as the case may be, (ii) the date on which
any post-effective amendment to the Registration Statement (except
any post-effective amendment which is filed with the Commission
after the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is
completed) became or becomes effective or any amendment or
supplement to the Prospectus was or is filed with the Commission and
(iii) the Closing Dates, the Registration Statement, the Prospectus
and any such amendment or supplement thereto and the Notification
complied or will comply in all material respects with the
requirements of the Securities Act and the Investment Company Act,
as the case may be. On the Effective Date and on the date that any
post-effective amendment to the Registration Statement (except any
post-effective amendment which is filed with the Commission after
the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is
completed) became or becomes effective, neither the Registration
Statement nor any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact
required to be stated in it or necessary to make the statements in
it not misleading. Except as permitted under Rule 430 under the
Securities Act (and other applicable rules under Regulation C under
the Securities Act), the Preliminary Prospectus dated [ ], 2004 did
not, as of such date, contain any untrue statement of a material
fact or omit to state a
4
material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they
were made, not misleading. At the Effective Date and, if applicable,
the date the Prospectus or any amendment or supplement to the
Prospectus was or is filed with the Commission and at the Closing
Dates, the Prospectus did not or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a
material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they
were made, not misleading. The foregoing representations in this
Section 3(a) do not apply to statements or omissions relating to the
Underwriters made in reliance on and in conformity with information
furnished in writing to the Fund by the Underwriters expressly for
use in the Registration Statement, the Prospectus, or any amendments
or supplements thereto, as described in Section 9(f) hereof.
(b) The Fund has been duly formed, is validly existing as a business
trust under the laws of The Commonwealth of Massachusetts, with full
power and authority to conduct all the activities conducted by it,
to own or lease all assets owned or leased by it and to conduct its
business as described in the Registration Statement and Prospectus,
and the Fund is duly licensed and qualified to do business and in
good standing in each jurisdiction in which its ownership or leasing
of property or its conducting of business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the Fund,
and the Fund owns, possesses or has obtained and currently maintains
all governmental licenses, permits, consents, orders, approvals and
other authorizations, whether foreign or domestic, necessary to
carry on its business as contemplated in the Prospectus. The Fund
has no subsidiaries.
(c) The capitalization of the Fund is as set forth in the Registration
Statement and the Prospectus. The Common Shares conform in all
material respects to the description of them in the Prospectus. All
the outstanding Common Shares have been duly authorized and are
validly issued, fully paid and nonassessable (except as described in
the Registration Statement). The Shares to be issued and delivered
to and paid for by the Underwriters in accordance with this
Underwriting Agreement against payment therefor as provided by this
Underwriting Agreement have been duly authorized and when issued and
delivered to the Underwriters will have been validly issued and will
be fully paid and nonassessable (except as described in the
Registration Statement). No person is entitled to any preemptive or
other similar rights with respect to the Shares.
(d) The Fund is duly registered with the Commission under the Investment
Company Act as a diversified, closed-end management investment
company, and, subject to the filing of any final amendment to the
Registration Statement (a "Final Amendment"), if not already filed,
all action under the Securities Act and the Investment Company Act,
as the
5
case may be, necessary to make the public offering and consummate
the sale of the Shares as provided in this Underwriting Agreement
has or will have been taken by the Fund.
(e) The Fund has full power and authority to enter into each of this
Underwriting Agreement, the Investment Advisory Agreement, the
Custodian Agreement, the Transfer Agency Agreement, the Auction
Agency Agreement, the DTC Agreement and the Dividend Reinvestment
Plan (collectively, the "Fund Agreements") and to perform all of the
terms and provisions hereof and thereof to be carried out by it and
(i) each Fund Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Fund, (ii) each Fund
Agreement does not violate in any material respect any of the
applicable provisions of the Investment Company Act or the
Investment Advisers Act of 1940, as amended, and the rules and
regulations thereunder (collectively called the "Advisers Act"), as
the case may be, and (iii) assuming due authorization, execution and
delivery by the other parties thereto, each Fund Agreement
constitutes the legal, valid and binding obligation of the Fund
enforceable in accordance with its terms, (A) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (B) except as rights to
indemnity thereunder may be limited by federal or state securities
laws.
(f) None of (i) the execution and delivery by the Fund of the Fund
Agreements, (ii) the issue and sale by the Fund of the Shares as
contemplated by this Underwriting Agreement and (iii) the
performance by the Fund of its obligations under any of the Fund
Agreements or consummation by the Fund of the other transactions
contemplated by the Fund Agreements conflicts with or will conflict
with, or results or will result in a breach of, the Declaration of
Trust of the Fund, as amended through the date hereof, or the
Amended and Restated By-laws of the Fund, adopted in connection with
the issuance of the Shares and as amended through the date hereof
(the "Amended Bylaws") or any agreement or instrument to which the
Fund is a party or by which the Fund is bound, or any law, rule or
regulation, or order of any court, governmental instrumentality,
securities exchange or association or arbitrator, whether foreign or
domestic, applicable to the Fund, other than state securities or
"blue sky" laws applicable in connection with the purchase and
distribution of the Shares by the Underwriters pursuant to this
Underwriting Agreement.
(g) The Fund is not currently in breach of, or in default under, any
written agreement or instrument to which it is a party or by which
it or its property is bound or affected.
6
(h) No person has any right to the registration of any securities of the
Fund because of the filing of the registration statement.
(i) No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association,
whether foreign or domestic, is required by the Fund for the
consummation by the Fund of the transactions to be performed by the
Fund or the performance by the Fund of all the terms and provisions
to be performed by or on behalf of it in each case as contemplated
in the Fund Agreements, except such as (i) have been obtained under
the Securities Act, the Investment Company Act, or the Advisers Act,
and (ii) may be required by the New York Stock Exchange or under
state securities or "blue sky" laws, in connection with the purchase
and distribution of the Shares by the Underwriters pursuant to this
Underwriting Agreement.
(j) The Common Shares are listed on the New York Stock Exchange.
(k) Deloitte & Touche LLP, whose report appears in the Prospectus, are
independent public accountants with respect to the Fund as required
by the Securities Act and the Investment Company Act.
(l) The statement of assets and liabilities included in the Registration
Statement and the Prospectus presents fairly in all material
respects, in accordance with generally accepted accounting
principles in the United States applied on a consistent basis, the
financial position of the Fund as of the date indicated.
(m) The Fund will maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets
through an asset reconciliation procedure or otherwise at reasonable
intervals and appropriate action is taken with respect to any
differences.
(n) Since the date as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein,
(i) there has been no material adverse change in the condition,
financial or otherwise, business affairs or business of the Fund,
whether or not arising in the ordinary course of business, (ii)
there have been no transactions entered into by the Fund other than
those in the ordinary course of its business and (iii) there has
been no dividend or distribution of any kind declared, paid or made
on any class of its capital shares.
7
(o) There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending, or,
to the knowledge of the Fund, threatened against or affecting the
Fund, which (i) might result in any material adverse change in the
condition, financial or otherwise, business affairs or business
prospects of the Fund or might materially adversely affect the
properties or assets of the Fund or (ii) is of a character required
to be described in the Registration Statement or the Prospectus; and
there are no contracts, franchises or other documents that are of a
character required to be described in, or that are required to be
filed as exhibits to, the Registration Statement that have not been
described or filed as required.
(p) The Shares have been, or prior to the Closing Date will be, assigned
a rating of "AAA" by Fitch and "Aaa" by Moody's.
(q) The Fund intends to direct the investment of the proceeds of the
offering of the Shares in such a manner as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code").
(r) To the knowledge of the Fund after due inquiry, no advertising,
sales literature or other promotional materials (excluding road show
slides or road show tapes) were authorized or prepared by or on
behalf of the Fund or the Investment Adviser or any representative
thereof for use in connection with the public offering or sale of
the Shares (collectively, the "sales materials"); any sales
materials and any road show slides or road show tapes complied and
comply in all material respects with the applicable requirements of
the Securities Act and the rules and interpretations of the National
Association of Securities Dealers, Inc.; and no broker kits, road
show slides, road show tapes or sales materials authorized or
prepared by the Fund or authorized or prepared on behalf of the Fund
by the Investment Adviser or any representative thereof for use in
connection with the public offering or sale of the Shares contained
or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
In addition, any certificate signed by any officer of the Fund and
delivered to the Underwriters or counsel for the Underwriters in
connection with the offering of the Shares shall be deemed to be a
representation and warranty by the Fund as to matters covered thereby, to
each Underwriter.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTMENT ADVISER. The Investment
Adviser represents to each Underwriter as follows:
8
(a) The Investment Adviser has been duly formed, is validly existing as
a business trust under the laws of The Commonwealth of Massachusetts
with full power and authority to conduct all of the activities
conducted by it, to own or lease all of the assets owned or leased
by it and to conduct its business as described in the Registration
Statement and Prospectus, and the Investment Adviser is duly
licensed and qualified to do business and in good standing in each
jurisdiction in which it is required to be so qualified, except to
the extent that failure to be so qualified or be in good standing
would not have a material adverse affect on the Investment Adviser's
ability to provide services to the Fund; and the Investment Adviser
owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and
other authorizations, whether foreign or domestic, necessary to
carry on its business as contemplated in the Registration Statement
and the Prospectus.
(b) The Investment Adviser is (i) duly registered as an investment
adviser under the Advisers Act and (ii) not prohibited by the
Advisers Act or the Investment Company Act from acting as the
investment adviser for the Fund as contemplated by the Investment
Advisory Agreement, the Registration Statement and the Prospectus.
(c) The Investment Adviser has full power and authority to enter into
each of this Underwriting Agreement, the Investment Advisory
Agreement, the Administration Agreement, and the Shareholder
Servicing Agreement (collectively, the "Investment Adviser
Agreements") and to carry out all the terms and provisions hereof
and thereof to be carried out by it; and each Investment Adviser
Agreement has been duly and validly authorized, executed and
delivered by the Investment Adviser; none of the Investment Adviser
Agreements violate in any material respect any of the applicable
provisions of the Investment Company Act or the Advisers Act; and
assuming due authorization, execution and delivery by the other
parties thereto, each Investment Adviser Agreement constitutes a
legal, valid and binding obligation of the Investment Adviser,
enforceable in accordance with its terms, (i) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (ii) except as rights to
indemnity thereunder may be limited by federal or state securities
laws.
(d) Neither (i) the execution and delivery by the Investment Adviser of
any Investment Adviser Agreement nor (ii) the consummation by the
Investment Adviser of the transactions contemplated by, or the
performance of its obligations under any Investment Adviser
Agreement conflicts or will conflict with, or results or will result
in a breach of, the Declaration of Trust or By-Laws of the
Investment Adviser or any agreement or instrument to which the
Investment Adviser is a party or by which the Investment Adviser is
bound, or any law, rule or regulation, or
9
order of any court, governmental instrumentality, securities
exchange or association or arbitrator, whether foreign or domestic,
applicable to the Investment Adviser.
(e) No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association,
whether foreign or domestic, is required for the consummation of the
transactions contemplated in, or the performance by the Investment
Adviser of its obligations under, any Investment Adviser Agreement,
as the case may be, except such as (i) have been obtained under the
Act, the Investment Company Act, or the Advisers Act, and (ii) may
be required by the New York Stock Exchange or under state securities
or "blue sky" laws, in connection with the purchase and distribution
of the Shares by the Underwriters pursuant to this Underwriting
Agreement.
(f) The description of the Investment Adviser and its business and the
statements attributable to the Investment Adviser in the
Registration Statement and the Prospectus comply with the
requirements of the Securities Act and the Investment Company Act
and do not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
(g) There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to
the knowledge of the Investment Adviser, threatened against or
affecting the Investment Adviser of a nature required to be
disclosed in the Registration Statement or Prospectus or that might
reasonably be expected to result in any material adverse change in
the condition, financial or otherwise, business affairs or business
prospects of the Investment Adviser or the ability of the Investment
Adviser to fulfill its respective obligations under any Investment
Adviser Agreement.
(h) In the event that the Fund or the Investment Adviser makes available
any promotional materials (other than the sales materials) intended
for use only by qualified broker-dealers and registered
representatives thereof by means of an Internet web site or similar
electronic means, the Investment Adviser will install and maintain
pre-qualification and password-protection or similar procedures
which will effectively prohibit access to such promotional materials
by persons other than qualified broker-dealers and registered
representatives thereof.
In addition, any certificate signed by any officer of the Investment
Adviser and delivered to the Underwriters or counsel for the Underwriters
in connection with the offering of the Shares shall be deemed to be a
representation and
10
warranty by the Investment Adviser as to matters covered thereby, to each
Underwriter.
5. AGREEMENTS OF THE PARTIES.
(a) If the registration statement relating to the Shares has not yet
become effective, the Fund will promptly file a Final Amendment, if
not previously filed, with the Commission, and will use its best
efforts to cause such registration statement to become effective
and, as soon as the Fund is advised, will advise the Managing
Representative when the Registration Statement or any amendment
thereto has become effective. If the Registration Statement has
become effective and the Prospectus contained therein omits certain
information at the time of effectiveness pursuant to Rule 430A under
the Act, the Fund will file a 430A Prospectus pursuant to Rule
497(h) under the Act as promptly as practicable, but no later than
the second business day following the earlier of the date of the
determination of the offering price of the Shares or the date the
Prospectus is first used after the Effective Date. If the
Registration Statement has become effective and the Prospectus
contained therein does not so omit such information, the Fund will
file a Prospectus pursuant to Rule 497(b) or a certification
pursuant to Rule 497(j) under the Act as promptly as practicable,
but no later than the fifth business day following the date of the
later of the Effective Date or the commencement of the public
offering of the Shares after the Effective Date. In either case, the
Fund will provide the Managing Representative satisfactory evidence
of the filing. The Fund will not file with the Commission any
Prospectus or any other amendment (except any post-effective
amendment which is filed with the Commission after the later of (x)
one year from the date of this Underwriting Agreement or (y) the
date on which distribution of the Shares is completed) or supplement
to the Registration Statement or the Prospectus unless a copy has
first been submitted to the Managing Representative a reasonable
time before its filing and the Managing Representative has not
objected to it in writing within a reasonable time after receiving
the copy.
(b) For the period of three years from the date hereof, the Fund will
advise the Managing Representative promptly (i) of the issuance by
the Commission of any order in respect of the Fund or the Investment
Adviser which relates to the Fund, or which relates to any material
arrangements or proposed material arrangements involving the Fund or
the Investment Adviser, (ii) of the initiation or threatening of any
proceedings for, or receipt by the Fund of any notice with respect
to, any suspension of the qualification of the Shares for sale in
any jurisdiction or the issuance of any order by the Commission
suspending the effectiveness of the Registration Statement, (iii) of
receipt by the Fund, or any representative or attorney of the Fund,
of any other communication from the Commission relating in any
material way to the Fund, the Registration Statement, the
11
Notification, any Preliminary Prospectus, the Prospectus or to the
transactions contemplated by this Underwriting Agreement and (iv)
the issuance by any court, regulatory body, administrative agency or
other governmental agency or body, whether foreign or domestic, of
any order, ruling or decree, or the threat to initiate any
proceedings with respect thereto, regarding the Fund, which relates
in any material way to the Fund or any material arrangements or
proposed material arrangements involving the Fund. The Fund will
make every reasonable effort to prevent the issuance of any order
suspending the effectiveness of the Registration Statement and, if
any such order is issued, to obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this Underwriting Agreement,
the Fund will deliver to the Managing Representative, without
charge, a signed copy of the Registration Statement and the
Notification and of any amendments (except any post-effective
amendment which is filed with the Commission after the later of (x)
one year from the date of this Underwriting Agreement or (y) the
date on which the distribution of the Shares is completed) to either
the Registration Statement or the Notification (including all
exhibits filed with any such document) and as many conformed copies
of the Registration Statement and any amendments thereto (except any
post-effective amendment which is filed with the Commission after
the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is
completed) (excluding exhibits) as the Managing Representative may
reasonably request.
(d) During such period as a prospectus is required by law to be
delivered by an underwriter or a dealer, the Fund will deliver,
without charge, to the Representatives, the Underwriters and any
dealers, at such office or offices as the Representatives may
designate, as many copies of the Prospectus as the Representatives
may reasonably request, and, if any event occurs during such period
as a result of which it is necessary to amend or supplement the
Prospectus, in order to make the statements therein, in light of the
circumstances under which they were made, not misleading in any
material respect, or if during such period it is necessary to amend
or supplement the Prospectus to comply with the Act or the
Investment Company Act, the Fund promptly will prepare, submit to
the Managing Representative, file with the Commission and deliver,
without charge, to the Underwriters and to dealers (whose names and
addresses the Managing Representative will furnish to the Fund) to
whom Shares may have been sold by the Underwriters, and to other
dealers on request, amendments or supplements to the Prospectus so
that the statements in such Prospectus, as so amended or
supplemented, will not, in light of the circumstances under which
they were made, be misleading in any material respect and will
comply with the Act and the Investment Company Act. Delivery by the
Underwriters of any such amendments or supplements to
12
the Prospectus will not constitute a waiver of any of the conditions
in Section 6 hereof.
(e) The Fund will make generally available to holders of the Fund's
securities, as soon as practicable but in no event later than the
last day of the 18th full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement, if
applicable, satisfying the provisions of the last paragraph of
Section 11(a) of the Securities Act and, at the option of the Fund,
Rule 158 under the Securities Act.
(f) The Fund will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Fund's counsel and accountants in
connection with the registration of the Shares and all other
expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing
and delivering of copies thereof to the Underwriters and dealers;
(ii) the cost of printing or reproducing this Underwriting Agreement
and any other documents in connection with the offering, purchase,
sale and delivery of the Shares (including advertising expenses of
the Underwriters, if any); (iii) the cost of preparing share
certificates; (iv) the expenses (including, but not limited to,
travel, hotels and other accommodations) incurred by the Trust's or
the Investment Adviser's directors, officers, employees and other
personnel in connection with meetings held with registered brokers
in connection with the offering of the Shares, the preparing to
market and the marketing of the Shares; (v) any fees charged by
securities rating services for rating the Shares; (vi) the fees and
expenses of the Depository Trust Company and its nominee, the
Custodian and the Auction Agent; and (vii) all other costs and
expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for. The Fund and the
Adviser may otherwise agree between themselves as to the payment of
the foregoing expenses, whether or not the transactions contemplated
by this Underwriting Agreement are consummated, provided, however,
that in no event shall the Underwriters be obligated to pay any of
the foregoing expenses. It is understood, however, that, except as
provided in this Section 5 and Section 8 hereof, the Underwriters
will pay all of their own costs and expenses, including the fees of
their counsel and stock transfer taxes, if any, on resale of any of
the Shares by them, except any advertising expenses connected with
any offers they may make.
(g) If the transactions contemplated by this Underwriting Agreement are
not consummated, except as otherwise provided herein, no party will
be under any liability to any other party, except that (i) if this
Underwriting Agreement is terminated by (x) the Fund or the
Investment Adviser pursuant to any of the provisions hereof or (y)
by the Representatives or the Underwriters because of any inability,
failure or refusal on the part of the Fund or the Investment Adviser
to comply with any material terms or
13
because any of the conditions in Section 6 are not satisfied, the
Investment Adviser or an affiliate and the Fund, jointly and
severally, will reimburse the Underwriters for all out-of-pocket
expenses (including the reasonable fees, disbursements and other
charges of their counsel) reasonably incurred by them in connection
with the proposed purchase and sale of the Shares and (ii) no
Underwriter who has failed or refused to purchase the Shares agreed
to be purchased by it under this Underwriting Agreement, in breach
of its obligations pursuant to this Underwriting Agreement, will be
relieved of liability to the Fund, the Investment Adviser and the
other Underwriters for damages occasioned by its default.
(h) Without the prior written consent of the Managing Representative,
the Fund will not offer, sell or register with the Commission, or
announce an offering of, any equity securities of the Fund, within
180 days after the Effective Date, except for the Shares as
described in the Prospectus and any issuances of Common Shares
pursuant to the Dividend Reinvestment Plan.
(i) The Fund will direct the investment of the net proceeds of the
offering of the Shares in such a manner as to comply with the
investment objective and policies of the Fund as described in the
Prospectus.
(j) No later than the Closing Date, the Underwriters will provide, and
will cause any selling group member to whom they have sold Shares to
provide, the Auction Agent with a list of the record names of the
persons to whom they have sold Shares, the number of Shares sold to
each such person, and the number of Shares they are holding as of
the Closing Date; provided that in lieu of thereof, an Underwriter
may provide the Auction Agent with a list indicating itself as the
sole holder of all the Shares sold by such Underwriter.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase the Shares are subject to the accuracy on the
date of this Underwriting Agreement, and on the Closing Date, of the
representations of the Fund and the Investment Adviser in this
Underwriting Agreement, to the accuracy and completeness of all material
statements made by the Fund or the Investment Adviser or any of their
respective officers in any certificate delivered to the Managing
Representative or its counsel pursuant to this Underwriting Agreement, to
performance by the Fund and the Investment Adviser of their respective
obligations under this Underwriting Agreement and to each of the following
additional conditions:
(a) The Registration Statement must have become effective by 5:30 p.m.,
New York City time, on the date of this Underwriting Agreement or
such later date and time as the Managing Representative consents to
in writing. The Prospectus must have been filed in accordance with
Rule 497(b) or
14
(h) or a certificate must have been filed in accordance with Rule
497(j), as the case may be, under the Securities Act.
(b) No order suspending the effectiveness of the Registration Statement
may be in effect and no proceedings for such purpose may be pending
before or, to the knowledge of counsel to the Underwriters,
threatened by the Commission, and any requests for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) must be
complied with or waived to the reasonable satisfaction of the
Managing Representative.
(c) Since the dates as of which information is given in the Registration
Statement and the Prospectus, (i) there must not have been any
material change in the Common Shares, the Shares or the liabilities
of the Fund except as set forth in or contemplated by the
Prospectus; (ii) there must not have been any material adverse
change in the general affairs, prospects, management, business,
financial condition or results of operations of the Fund or the
Investment Adviser whether or not arising from transactions in the
ordinary course of business as set forth in or contemplated by the
Prospectus which in the judgment of the Managing Representative
would materially adversely affect the market for the Shares; (iii)
the Fund must not have sustained any material loss or interference
with its business from any court or from legislative or other
governmental action, order or decree, whether foreign or domestic,
or from any other occurrence not described in the Registration
Statement and Prospectus; and (iv) there must not have occurred any
event that makes untrue or incorrect in any material respect any
statement or information contained in the Registration Statement or
Prospectus or that is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the
statements or information therein (in the case of the Prospectus, in
light of the circumstances in which they were made) not misleading
in any material respect; if, in the judgment of the Managing
Representative, any such development referred to in clause (i),
(ii), (iii), or (iv) of this paragraph (c) makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares
pursuant to this Underwriting Agreement by the Underwriters, at the
initial public offering price of the Shares.
(d) The Managing Representative must have received on the Closing Date a
certificate, dated such date, of the President or a Vice-President
and the chief financial or accounting officer of each of the Fund
and the Investment Adviser certifying (in their capacity as such
officers and, with respect to clauses (ii), (iii) and (vi) below, on
behalf of the Fund and the Investment Adviser, as the case may be)
that (i) the signers have carefully examined the Registration
Statement, the Prospectus, and this Underwriting Agreement, (ii) the
representations of the Fund (with respect to the certificates from
such Fund officers) and the representations of the
15
Investment Adviser (with respect to the certificates from such
officers of the Investment Adviser) in this Underwriting Agreement
are accurate on and as of the date of the certificate, (iii) there
has not been any material adverse change in the general affairs,
prospects, management, business, financial condition or results of
operations of the Fund (with respect to the certificates from such
Fund officers) or the Investment Adviser (with respect to the
certificates from such officers of the Investment Adviser), which
change would materially and adversely affect the ability of the Fund
or the Investment Adviser, as the case may be, to fulfill its
obligations under this Underwriting Agreement or the Investment
Advisory Agreement, whether or not arising from transactions in the
ordinary course of business, (iv) with respect to the Fund only, to
the knowledge of such officers after reasonable investigation, no
order suspending the effectiveness of the Registration Statement,
prohibiting the sale of any of the Shares or otherwise having a
material adverse effect on the Fund has been issued and no
proceedings for any such purpose are pending before or threatened by
the Commission or any other regulatory body, whether foreign or
domestic, (v) to the knowledge of the officers of the Investment
Adviser, after reasonable investigation, no order having a material
adverse effect on the ability of the Investment Adviser to fulfill
its obligations under this Underwriting Agreement or the Investment
Advisory Agreement, as the case may be, has been issued and no
proceedings for any such purpose are pending before or threatened by
the Commission or any other regulatory body, whether foreign or
domestic, and (vi) each of the Fund (with respect to the
certificates from such Fund officers) and the Investment Adviser
(with respect to the certificates from such officers of the
Investment Adviser) has performed all of its respective agreements
that this Underwriting Agreement requires it to perform by such
Closing Date (to the extent not waived in writing by the Managing
Representative).
(e) The Managing Representative must have received on the Closing Date
the opinions dated such Closing Date substantially in the form of
Schedules B and C to this Underwriting Agreement from the counsel
identified in each such Schedules.
(f) The Managing Representative must have received on the Closing Date
from Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated
entities an opinion dated such Closing Date with respect to the
Fund, the Shares, the Registration Statement and the Prospectus,
this Underwriting Agreement and the form and sufficiency of all
proceedings taken in connection with the sale and delivery of the
Shares. Such opinion and proceedings shall fulfill the requirements
of this Section 6(f) only if such opinion and proceedings are
satisfactory in all respects to the Managing Representative. The
Fund and the Investment Adviser must have furnished to such counsel
such documents as counsel may reasonably request for the purpose of
enabling them to render such opinion.
16
(g) The Managing Representative must have received on the date this
Underwriting Agreement is signed and delivered by you a signed
letter, dated such date, substantially in the form of Schedule D to
this Underwriting Agreement from the firm of accountants designated
in such Schedule. The Managing Representative also must have
received on each Closing Date a signed letter from such accountants,
dated as of such Closing Date, confirming on the basis of a review
in accordance with the procedures set forth in their earlier letter
that nothing has come to their attention during the period from a
date not more than five business days before the date of this
Underwriting Agreement, specified in the letter, to a date not more
than five business days before such Closing Date, that would require
any change in their letter referred to in the foregoing sentence.
(h) The Shares shall have been accorded a rating of "AAA" by Fitch and
"Aaa" by Moody's, and a letter to such effect, dated on or before
the Closing Date, shall have been delivered to the Managing
Representative.
(i) As of the Closing Date, and assuming the receipt of the net proceeds
from the sale of the Shares, the 1940 Act APS Asset Coverage and the
APS Basic Maintenance Amount (each as defined in the Prospectus)
each will be met.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Underwriting Agreement will comply only if they are in
form and scope reasonably satisfactory to counsel for the Underwriters,
provided that any such documents, forms of which are annexed hereto, shall
be deemed satisfactory to such counsel if substantially in such form.
7. TERMINATION. This Underwriting Agreement may be terminated by the Managing
Representative by notifying the Fund at any time:
(a) before the later of the effectiveness of the Registration Statement
and the time when any of the Shares are first generally offered
pursuant to this Underwriting Agreement by the Managing
Representative to dealers by letter or telegram;
(b) at or before the Closing Date if, in the sole judgment of the
Managing Representative, payment for and delivery of the Shares is
rendered impracticable or inadvisable because (i) trading in the
equity securities of the Fund is suspended by the Commission or by
the principal exchange that lists the Common Shares, (ii) trading in
securities generally on the New York Stock Exchange or the Nasdaq
Stock Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such
exchange or over-the-counter market, (iii) additional material
governmental restrictions, not in force on the date of this
Underwriting Agreement, have been imposed upon trading in
17
securities or trading has been suspended on any U.S. securities
exchange, (iv) a general banking moratorium has been established by
U.S. federal or New York authorities or (v) any material adverse
change in the financial or securities markets in the United States
or in political, financial or economic conditions in the United
States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or
other calamity, terrorist activity or crisis shall have occurred the
effect of any of which is such as to make it, in the sole judgment
of the Managing Representative, impracticable or inadvisable to
market the Shares on the terms and in the manner contemplated by the
Prospectus; or
(c) at or before the Closing Date, if any of the conditions specified in
Section 6 have not been fulfilled when and as required by this
Underwriting Agreement.
8. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters fails
(other than for a reason sufficient to justify the termination of this
Underwriting Agreement) to purchase on the Closing Date the Shares agreed
to be purchased on the Closing Date by such Underwriter or Underwriters,
the Managing Representative may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Managing
Representative deems advisable, or one or more of the remaining
Underwriters may agree to purchase such Shares in such proportions as may
be approved by the Managing Representative, in each case upon the terms
set forth in this Underwriting Agreement. If no such arrangements have
been made within 36 hours after the Closing Date, and
(a) the number of Shares to be purchased by the defaulting Underwriters
on the Closing Date does not exceed 10% of the Shares that the
Underwriters are obligated to purchase on the Closing Date, each of
the nondefaulting Underwriters will be obligated to purchase such
Shares on the terms set forth in this Underwriting Agreement in
proportion to their respective obligations under this Underwriting
Agreement, or
(b) the number of Shares to be purchased by the defaulting Underwriters
on the Closing Date exceeds 10% of the Shares to be purchased by all
the Underwriters on such Closing Date, the Fund will be entitled to
an additional period of 24 hours within which to find one or more
substitute underwriters reasonably satisfactory to the Managing
Representative to purchase such Shares on the terms set forth in
this Underwriting Agreement.
Upon the occurrence of the circumstances described in the foregoing
paragraph (b), either the Managing Representative or the Fund will have
the right to postpone the Closing Date for not more than five business
days in order that necessary changes and arrangements (including any
necessary amendments or
18
supplements to the Registration Statement or the Prospectus) may be
effected by the Managing Representative and the Fund. If the number of
Shares to be purchased on the Closing Date by such defaulting Underwriter
or Underwriters exceeds 10% of the Shares that the Underwriters are
obligated to purchase on the Closing Date, and none of the nondefaulting
Underwriters or the Fund makes arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Underwriting Agreement
will terminate without liability on the part of any nondefaulting
Underwriter, the Fund, or the Investment Adviser, except as provided in
Sections 5(g) and 9 hereof. Any action taken under this Section will not
affect the liability of any defaulting Underwriter to the Fund or the
Investment Adviser or to any nondefaulting Underwriters arising out of
such default. A substitute underwriter will become an Underwriter for all
purposes of this Underwriting Agreement.
9. INDEMNITY AND CONTRIBUTION.
(a) Each of the Fund and the Investment Adviser, jointly and severally,
agrees to indemnify, defend and hold harmless each Underwriter, its
partners, directors and officers, and any person who controls any
Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, and their successors and assigns
of all of the foregoing persons from and against any loss, damage,
expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Underwriter or
any such person may incur under the Securities Act, the Exchange
Act, the Investment Company Act, the Advisers Act, the common law or
otherwise, insofar as such loss, damage, expense, liability or claim
arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Fund) or in a Prospectus
(the term "Prospectus" for the purpose of this Section 9 being
deemed to include any Preliminary Prospectus, the sales materials,
the Prospectus and the Prospectus as amended or supplemented by the
Fund), or arises out of or is based upon any omission or alleged
omission to state a material fact required to be stated in either
such Registration Statement or Prospectus or necessary to make the
statements made therein (with respect to the Prospectus, in light of
the circumstances under which they were made) not misleading, except
insofar as any such loss, damage, expense, liability or claim arises
out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of any Underwriter
to the Fund or the Investment Adviser expressly for use with
reference to any Underwriter in such Registration Statement or such
Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such
information required to be stated in such Registration Statement or
such Prospectus or necessary to make such information (with respect
to the Prospectus, in light of the circumstances
19
under which they were made) not misleading, provided, however, that
the indemnity agreement contained in this subsection (a) with
respect to any Preliminary Prospectus or amended Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person controlling such Underwriter) from whom
the person asserting any such loss, damage, expense, liability or
claim purchased the Shares which is the subject thereof if the
Prospectus corrected any such alleged untrue statement or omission
and if such Underwriter failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of
the sale of such Shares to such person, unless the failure is the
result of noncompliance by the Fund with Section 5(d) hereof.
If any action, suit or proceeding (together, a "Proceeding")
is brought against an Underwriter or any such person in respect of
which indemnity may be sought against the Fund or the Investment
Adviser pursuant to the foregoing paragraph, such Underwriter or
such person shall promptly notify the Fund and the Investment
Adviser in writing of the institution of such Proceeding and the
Fund or the Investment Adviser shall assume the defense of such
Proceeding, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and
expenses; provided, however, that the omission to so notify the Fund
or the Investment Adviser shall not relieve the Fund or the
Investment Adviser from any liability which the Fund or the
Investment Adviser may have to any Underwriter or any such person or
otherwise. Such Underwriter or such person shall have the right to
employ its or their own counsel in any such case, but the reasonable
fees and expenses of such counsel shall be at the expense of such
Underwriter or of such person unless the employment of such counsel
shall have been authorized in writing by the Fund or the Investment
Adviser, as the case may be, in connection with the defense of such
Proceeding or the Fund or the Investment Adviser shall not have,
within a reasonable period of time in light of the circumstances,
employed counsel to have charge of the defense of such Proceeding or
such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are
different from, additional to or in conflict with those available to
the Fund or the Investment Adviser (in which case the Fund or the
Investment Adviser shall not have the right to direct the defense of
such Proceeding on behalf of the indemnified party or parties), in
any of which events such reasonable fees and expenses shall be borne
by the Fund or the Investment Adviser and paid as incurred (it being
understood, however, that the Fund or the Investment Adviser shall
not be liable for the expenses of more than one separate counsel (in
addition to any local counsel) in any one Proceeding or series of
related Proceedings in the same jurisdiction representing the
indemnified parties who are parties to such Proceeding). Neither the
Fund nor the Investment Adviser shall be liable for any settlement
of any Proceeding effected without its written consent but if
settled with the written consent of the Fund or the
20
Investment Adviser, the Fund or the Investment Adviser, as the case
may be, agrees to indemnify and hold harmless any Underwriter and
any such person from and against any loss or liability by reason of
such settlement. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for reasonable fees and expenses
of counsel as contemplated by the second sentence of this paragraph,
then the indemnifying party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent if
(i) such settlement is entered into more than 60 business days after
receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the
indemnifying party at least 30 days' prior notice of its intention
to settle. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any
pending or threatened Proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such Proceeding
and does not include an admission of fault, culpability or a failure
to act, by or on behalf of such indemnified party.
(b) Each Underwriter severally agrees to indemnify, defend and hold
harmless the Fund and the Investment Adviser, and each of their
respective shareholders, partners, managers, members, trustees,
directors and officers, and any person who controls the Fund or the
Investment Adviser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the successors
and assigns of all of the foregoing persons from and against any
loss, damage, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, the Fund or the
Investment Adviser or any such person may incur under the Securities
Act, the Exchange Act, the Investment Company Act, the Advisers Act,
the common law or otherwise, insofar as such loss, damage, expense,
liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained
in and in conformity with information furnished in writing by or on
behalf of such Underwriter to the Fund or the Investment Adviser
expressly for use with reference to such Underwriter in the
Registration Statement (or in the Registration Statement as amended
by any post-effective amendment thereof by the Fund) or in a
Prospectus, or arises out of or is based upon any omission or
alleged omission to state a material fact in connection with such
information required to be stated in such Registration Statement or
such Prospectus or necessary to make such information not misleading
(with respect to the Prospectus, in light of the circumstances under
which they were made).
21
If any Proceeding is brought against the Fund, the Investment
Adviser or any such person in respect of which indemnity may be
sought against any Underwriter pursuant to the foregoing paragraph,
the Fund, the Investment Adviser or such person shall promptly
notify such Underwriter in writing of the institution of such
Proceeding and such Underwriter shall assume the defense of such
Proceeding, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and
expenses; provided, however, that the omission to so notify such
Underwriter shall not relieve such Underwriter from any liability
which such Underwriter may have to the Fund, the Investment Adviser
or any such person or otherwise. The Fund, the Investment Adviser or
such person shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the
expense of the Fund, the Investment Adviser or such person, as the
case may be, unless the employment of such counsel shall have been
authorized in writing by such Underwriter in connection with the
defense of such Proceeding or such Underwriter shall not have,
within a reasonable period of time in light of the circumstances,
employed counsel to have charge of the defense of such Proceeding or
such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are
different from or additional to or in conflict with those available
to such Underwriter (in which case such Underwriter shall not have
the right to direct the defense of such Proceeding on behalf of the
indemnified party or parties, but such Underwriter may employ
counsel and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such
Underwriter), in any of which events such fees and expenses shall be
borne by such Underwriter and paid as incurred (it being understood,
however, that such Underwriter shall not be liable for the expenses
of more than one separate counsel (in addition to any local counsel)
in any one Proceeding or series of related Proceedings in the same
jurisdiction representing the indemnified parties who are parties to
such Proceeding). No Underwriter shall be liable for any settlement
of any such Proceeding effected without the written consent of such
Underwriter but if settled with the written consent of such
Underwriter, such Underwriter agrees to indemnify and hold harmless
the Fund, the Investment Adviser and any such person from and
against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement
of any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt
by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement
and (iii) such indemnified
22
party shall have given the indemnifying party at least 30 days'
prior notice of its intention to settle. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened Proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the
subject matter of such Proceeding and does not include an admission
of fault, culpability or a failure to act, by or on behalf of such
indemnified party.
(c) If the indemnification provided for in this Section 9 is unavailable
to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, damages, expenses, liabilities
or claims referred to therein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party
as a result of such losses, damages, expenses, liabilities or claims
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Fund and the Investment Adviser on the one
hand and the Underwriters on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Investment
Adviser on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such
losses, damages, expenses, liabilities or claims, as well as any
other relevant equitable considerations. The relative benefits
received by the Fund and the Investment Adviser on the one hand and
the Underwriters on the other shall be deemed to be in the same
respective proportions as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting
expenses) received by the Fund and the total underwriting discounts
and commissions received by the Underwriters, bear to the aggregate
public offering price of the Shares. The relative fault of the Fund
and the Investment Adviser on the one hand and of the Underwriters
on the other shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of
a material fact or omission or alleged omission relates to
information supplied by the Fund or the Investment Adviser or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the
losses, damages, expenses, liabilities and claims referred to in
this subsection shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with
investigating, preparing to defend or defending any Proceeding.
23
(d) The Fund, the Investment Adviser and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the
equitable considerations referred to in subsection (c) above.
Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the fees and
commissions received by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 9
are several in proportion to their respective underwriting
commitments and not joint.
(e) The indemnity and contribution agreements contained in this Section
9 and the covenants, warranties and representations of the Fund
contained in this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any
Underwriter, its partners, directors or officers or any person
(including each partner, officer or director of such person) who
controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, or by or on behalf
of the Fund or the Investment Adviser, its shareholders, partners,
Advisers, members, trustees, directors or officers or any person who
controls the Fund or the Investment Adviser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
and shall survive any termination of this Agreement or the issuance
and delivery of the Shares. The Fund and the Investment Adviser and
each Underwriter agree promptly to notify each other of the
commencement of any Proceeding against it and, in the case of the
Fund or the Investment Adviser, against any of the Fund's or the
Investment Adviser's shareholders, partners, managers, members,
trustees, directors or officers in connection with the issuance and
sale of the Shares, or in connection with the Registration Statement
or Prospectus.
(f) The Fund and the Investment Adviser each acknowledge that the
statements with respect to (1) the public offering of the Shares as
set forth on the cover page of and (2) stabilization and selling
concessions and reallowances of selling concessions and payment of
fees to Underwriters that meet certain minimum sales thresholds
under the caption "Underwriting" in the Prospectus constitute the
only information furnished in writing to the Fund by the
Underwriters expressly for use in such document. The Underwriters
severally confirm that these statements are correct in all material
respects and were so furnished by or on behalf of the Underwriters
severally for use in the Prospectus.
24
(g) Notwithstanding any other provisions in this Section 9, no party
shall be entitled to indemnification or contribution under this
Underwriting Agreement against any loss, claim, liability, expense
or damage arising by reason of such person's willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties in
the performance of its duties hereunder. The parties hereto
acknowledge that the foregoing provision shall be applicable solely
as to matters arising under Section 17(i) of the Investment Company
Act, and shall not be construed to impose any duties or obligations
upon any such parties under this Agreement other than as
specifically set forth herein.
10. NOTICES. Except as otherwise herein provided, all statements, requests,
notices and agreements shall be in writing or by telegram and, if to the
Underwriters, shall be sufficient in all respects if delivered or sent to
UBS Securities LLC, 299 Park Avenue, New York, NY 10171-0026, Attention:
Syndicate Department and, if to the Fund or the Investment Adviser, shall
be sufficient in all respects if delivered or sent to the Fund or the
Investment Adviser, as the case may be, at the offices of the Fund or the
Investment Adviser at Eaton Vance Management, 255 State Street, Boston, MA
02109.
11. GOVERNING LAW; CONSTRUCTION. This Agreement and any claim, counterclaim or
dispute of any kind or nature whatsoever arising out of or in any way
relating to this Agreement ("Claim"), directly or indirectly, shall be
governed by, and construed in accordance with, the laws of the State of
New York. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
12. SUBMISSION TO JURISDICTION. Except as set forth below, no Claim may be
commenced, prosecuted or continued in any court other than the courts of
the State of New York located in the City and County of New York or in the
United States District Court for the Southern District of New York, which
courts shall have jurisdiction over the adjudication of such matters, and
the Fund and UBS Securities each consent to the jurisdiction of such
courts and personal service with respect thereto. The Fund and UBS
Securities hereby consent to personal jurisdiction, service and venue in
any court in which any Claim arising out of or in any way relating to this
Agreement is brought by any third party against UBS Securities or any
indemnified party. Each of UBS Securities, the Fund (on its behalf and, to
the extent permitted by applicable law, on behalf of its stockholders and
affiliates) and the Investment Adviser (on its behalf and, to the extent
permitted by applicable law, on behalf of its unitholders and affiliates)
waives all right to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise) in any way
arising out of or relating to this Agreement. Each of the Fund and the
Investment Adviser agrees that a final judgment in any such action,
proceeding or counterclaim brought in any such court shall be conclusive
and binding upon the Fund and the Investment Adviser, as the case may be,
and may be enforced in any other courts in the jurisdiction of
25
which the Fund or the Investment Adviser, as the case may be, is or may be
subject, by suit upon such judgment.
13. PARTIES AT INTEREST. The Agreement herein set forth has been and is made
solely for the benefit of the Underwriters, the Fund and the Investment
Adviser and to the extent provided in Section 9 hereof the controlling
persons, shareholders, partners, members, trustees, managers, directors
and officers referred to in such section, and their respective successors,
assigns, heirs, personal representatives and executors and administrators.
No other person, partnership, association or corporation (including a
purchaser, as such purchaser, from any of the Underwriters) shall acquire
or have any right under or by virtue of this Agreement.
14. COUNTERPARTS. This Agreement may be signed by the parties in one or more
counterparts which together shall constitute one and the same agreement
among the parties.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Underwriters, the Fund and the Investment Adviser, and any successor or
assign of any substantial portion of the Fund's, the Investment Adviser's,
or any of the Underwriters' respective businesses and/or assets.
16. DISCLAIMER OF LIABILITY OF TRUSTEES AND BENEFICIARIES. A copy of the
Agreement and Declaration of Trust of the Fund and Eaton Vance is on file
with the Secretary of State of The Commonwealth of Massachusetts, and
notice hereby is given that this Underwriting Agreement is executed on
behalf of the Fund and Eaton Vance, respectively, by an officer or Trustee
of the Fund or Eaton Vance, as the case may be, in his or her capacity as
an officer or Trustee of the Fund and not individually and that the
obligations under or arising out of this Underwriting Agreement are not
binding upon any of the Trustees, officers or shareholders individually
but are binding only upon the assets and properties of the Fund or Eaton
Vance, as the case may be.
26
If the foregoing correctly sets forth the understanding among the
Fund, the Investment Adviser and the Underwriters, please so indicate in the
space provided below, whereupon this letter and your acceptance shall constitute
a binding agreement among the Fund, the Investment Adviser and the Underwriters,
severally.
Very truly yours,
EATON VANCE FLOATING-RATE
INCOME TRUST
____________________________
By:
Title:
EATON VANCE MANAGEMENT
____________________________
By:
Title:
27
Accepted and agreed to as of the
date first above written, on behalf of
themselves and the other several
Underwriters named in Schedule A
UBS SECURITIES LLC
[ ]
By: UBS SECURITIES LLC
________________________
By:
Title:
________________________
By:
Title:
28
SCHEDULE A
NAME SERIES A SERIES B SERIES C SERIES D SERIES E
------------------- -------- -------- -------- -------- --------
UBS Securities LLC
[ ]
[ ]
TOTAL 3,480 3,480 3,480 3,480 3,480
A-1
SCHEDULE B
FORM OF OPINION OF
KIRKPATRICK & LOCKHART LLP REGARDING THE FUND
1. The Registration Statement and all post-effective amendments, if
any, are effective under the Securities Act and no stop order with respect
thereto has been issued and no proceeding for that purpose has been instituted
or, to the best of our knowledge, is threatened by the Commission. Any filing of
the Prospectus or any supplements thereto required under Rule 497 of the
Securities Act Rules prior to the date hereof have been made in the manner and
within the time required by such rule.
2. The Fund has been duly formed and is validly existing as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts, with full power and authority to conduct all the activities
conducted by it, to own or lease all assets owned (or to be owned) or leased (or
to be leased) by it and to conduct its business as described in the Registration
Statement and Prospectus, and the Fund is duly licensed and qualified to do
business and in good standing in each jurisdiction in which its ownership or
leasing of property or its conducting of business requires such qualification,
and the Fund owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary to carry on its business
as contemplated in the Prospectus. The Fund has no subsidiaries.
3. The capitalization of the Fund is as set forth in the
Registration Statement and the Prospectus. The Shares of Beneficial Interest of
the Fund conform in all respects to the description of them in the Prospectus.
All the outstanding Shares of Beneficial Interest have been duly authorized and
are validly issued, fully paid and nonassessable. The Shares to be issued and
delivered to and paid for by the Underwriters in accordance with the
Underwriting Agreement against payment therefor as provided by the Underwriting
Agreement have been duly authorized and when issued and delivered to the
Underwriters will have been validly issued and will be fully paid and
nonassessable (except as described in the Registration Statement). No person is
entitled to any preemptive or other similar rights with respect to the Shares.
4. The Fund is duly registered with the Commission under the
Investment Company Act as a diversified, closed-end management investment
company and all action under the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may be,
necessary to make the public offering and consummate the sale of the Shares as
provided in the Underwriting Agreement has or will have been taken by the Fund.
5. The Fund has full power and authority to enter into each of the
Underwriting Agreement, the Investment Advisory Agreement, the Custodian
Agreement, the Transfer Agency Agreement, the Auction Agency Agreement and the
B-1
DTC Agreement (collectively, the "Fund Agreements") and to perform all of the
terms and provisions thereof to be carried out by it and (A) each Fund Agreement
has been duly and validly authorized, executed and delivered by the Fund, (B)
each Fund Agreement complies in all material respects with all applicable
provisions of the Investment Company Act, the Advisers Act , the Investment
Company Act Rules and the Advisers Act Rules, as the case may be, and (C)
assuming due authorization, execution and delivery by the other parties thereto,
each Fund Agreement constitutes the legal, valid and binding obligation of the
Fund enforceable in accordance with its terms, (1) subject, as to enforcement,
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (2) as rights to
indemnity thereunder may be limited by federal or state securities laws.
6. None of (A) the execution and delivery by the Fund of the Fund
Agreements, (B) the issue and sale by the Fund of the Shares as contemplated by
the Underwriting Agreement and (C) the performance by the Fund of its
obligations under the Fund Agreements or consummation by the Fund of the other
transactions contemplated by the Fund Agreements conflicts with or will conflict
with, or results or will result in a breach of, the Declaration of Trust or the
Amended By-Laws of the Fund or any agreement or instrument to which the Fund is
a party or by which the Fund is bound, or any law, rule or regulation, or order
of any court, governmental instrumentality, securities exchange or association
or arbitrator, whether foreign or domestic, applicable to the Fund, except that
we express no opinion as to the securities or "blue sky" laws applicable in
connection with the purchase and distribution of the Shares by the Underwriters
pursuant to the Underwriting Agreement.
7. The Fund is not currently in breach of, or in default under, any
written agreement or instrument to which it is a party or by which it or its
property is bound or affected.
8. No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required by the Fund for the consummation by the Fund of
the transactions to be performed by the Fund or the performance by the Fund of
all the terms and provisions to be performed by or on behalf of it in each case
as contemplated in the Fund Agreements, except such as (A) have been obtained
under the Securities Act, the Investment Company Act, the Advisers Act, the
Securities Act Rules, the Investment Company Act Rules and the Advisers Act
Rules and (B) may be required by the New York Stock Exchange or under state
securities or "blue sky" laws in connection with the purchase and distribution
of the Shares by the Underwriters pursuant to the Underwriting Agreement.
9. The Common Shares are listed on the New York Stock Exchange.
10. There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other governmental agency
or
B-2
body, foreign or domestic, now pending or, to our knowledge, threatened against
or affecting the Fund, which is required to be disclosed in the Prospectus that
is not disclosed in the Prospectus, and there are no contracts, franchises or
other documents that are of a character required to be described in, or that are
required to be filed as exhibits to, the Registration Statement that have not
been described or filed as required.
11. The Fund does not require any tax or other rulings to enable it
to qualify as a regulated investment company under Subchapter M of the Code.
12. Each of the sections in the Prospectus entitled "Distributions
and Taxes" and the section in the Statement of Additional Information entitled
"Taxes" is a fair summary of the principal United States federal income tax
rules currently in effect applicable to the Fund and to the purchase, ownership
and disposition of the Shares.
13. The Registration Statement (except the financial statements and
schedules and other financial data included therein as to which we express no
view), at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, complied as to form in all material respects
to the requirements of the Securities Act, the Investment Company Act and the
rules and regulations of the Commission thereunder.
In rendering our opinion, we have relied, as to factual matters,
upon the attached written certificates and statements of officers of the Fund.
In connection with the registration of the Shares, we have advised
the Fund as to the requirements of the Securities Act, the Investment Company
Act and the applicable rules and regulations of the Commission thereunder and
have rendered other legal advice and assistance to the Fund in the course of its
preparation of the Registration Statement and the Prospectus. Rendering such
assistance involved, among other things, discussions and inquiries concerning
various legal and related subjects and reviews of certain corporate records,
documents and proceedings. We also participated in conferences with
representatives of the Fund and its accountants at which the contents of the
Registration Statement and Prospectus and related matters were discussed. With
your permission, we have not undertaken, except as otherwise indicated herein,
to determine independently, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectus. On the basis of the information which was developed in
the course of the performance of the services referred to above, no information
has come to our attention that would lead us to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the date
hereof, contained any untrue statement of a material fact or omitted or omits to
B-3
state a material fact necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they were made, not
misleading (except the financial statements, schedules and other financial data
included therein, as to which we express no view).
B-4
SCHEDULE C
FORM OF OPINION OF INTERNAL COUNSEL
REGARDING EATON VANCE MANAGEMENT
1. Eaton Vance has been duly formed and is validly existing as a
Massachusetts business trust under the laws of its jurisdiction of incorporation
with full power and authority to conduct all of the activities conducted by it,
to own or lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and Prospectus, and Eaton
Vance is duly licensed and qualified and in good standing in each other
jurisdiction in which it is required to be so qualified and Eaton Vance owns,
possesses or has obtained and currently maintains all governmental licenses,
permits, consents, orders, approvals and other authorizations, whether foreign
or domestic, necessary for Eaton Vance to carry on its business as contemplated
in the Registration Statement and the Prospectus.
2. Eaton Vance is duly registered as an investment adviser under the
Advisers Act and is not prohibited by the Advisers Act, the Investment Company
Act, the Advisers Act Rules or the Investment Company Act Rules from acting as
investment adviser for the Fund as contemplated by the Investment Advisory
Agreement, the Registration Statement and the Prospectus.
3. Eaton Vance has full power and authority to enter into each of
the Underwriting Agreement, the Investment Advisory Agreement, the
Administration Agreement and the Shareholder Servicing Agreement (collectively,
the "Eaton Vance Agreements") and to carry out all the terms and provisions
thereof to be carried out by it, and each such agreement has been duly and
validly authorized, executed and delivered by Eaton Vance; each Eaton Vance
Agreement complies in all material respects with all provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act Rules and
the Advisers Act Rules; and assuming due authorization, execution and delivery
by the other parties thereto, each Eaton Vance Agreement constitutes a legal,
valid and binding obligation of Eaton Vance, enforceable in accordance with its
terms, (1) subject, as to enforcement, to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law) and (2) as rights to indemnity thereunder may be limited by
federal or state securities laws.
4. Neither (A) the execution and delivery by Eaton Vance of any
Eaton Vance Agreement nor (B) the consummation by Eaton Vance of the
transactions contemplated by, or the performance of its obligations under any
Eaton Vance Agreement conflicts or will conflict with, or results or will result
in a breach of, the Agreement and Declaration of Trust or By-Laws of Eaton Vance
or any agreement or instrument to which Eaton Vance is a party or by which Eaton
Vance is bound, or any law, rule or regulation, or order of any court,
governmental instrumentality, securities
C-1
exchange or association or arbitrator, whether foreign or domestic, applicable
to Eaton Vance.
5. No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required for the consummation of the transactions
contemplated in, or the performance by Eaton Vance of its obligations under, any
Eaton Vance Agreement, except such as have been obtained under the Investment
Company Act, the Advisers Act, the Securities Act, the Investment Company Act
Rules, the Advisers Act Rules and the Securities Act Rules.
6. The description of Eaton Vance and its business, and the
statements attributable to Eaton Vance, in the Registration Statement and the
Prospectus complies with the requirements of the Securities Act, the Investment
Company Act, the Securities Act Rules and the Investment Company Act Rules and
do not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
7. There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other governmental agency
or body, foreign or domestic, now pending or, to our knowledge, threatened
against or affecting Eaton Vance of a nature required to be disclosed in the
Registration Statement or Prospectus or that might reasonably result in any
material adverse change in the condition, financial or otherwise, business
affairs or business prospects of Eaton Vance or the ability of Eaton Vance to
fulfill its respective obligations under any Eaton Vance Agreement.
8. The Registration Statement (except the financial statements and
schedules and other financial data included therein as to which we express no
view), at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act,
the Investment Company Act and the rules and regulations of the Commission
thereunder.
In rendering our opinion, we have relied, as to factual matters,
upon the attached written certificates and statements of officers of Eaton
Vance.
In connection with the registration of the Shares, we have advised
Eaton Vance as to the requirements of the Securities Act, the Investment Company
Act and the applicable rules and regulations of the Commission thereunder and
have rendered other legal advice and assistance to Eaton Vance in the course of
the preparation of the registration Statement and the Prospectus. Rendering such
assistance involved, among other things, discussions and inquiries concerning
various legal and related subjects and reviews of certain corporate records,
documents and proceedings. We also participated in conferences with
representatives of the Fund and its accountants and Eaton Vance at which the
contents of the registration and Prospectus and related matters were discussed.
C-2
With your permission, we have not undertaken, except as otherwise indicated
herein, to determine independently, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectus. On the basis of the information which was developed in
the course of the performance of the services referred to above, no information
has come to our attention that would lead us to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the date
hereof, contained any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they were made, not
misleading (except the financial statements, schedules and other financial data
included therein, as to which we express no view).
C-3
SCHEDULE D
FORM OF ACCOUNTANT'S LETTER
, 2004
The Board of Trustees of
Eaton Vance Floating-Rate Income Trust
24 Federal Street
Boston, Massachusetts 02110
UBS Securities LLC
299 Park Avenue
New York, New York 10171
as Managing Representative of the Underwriters
Ladies and Gentlemen:
We have audited the statement of assets and liabilities of Eaton Vance
Floating-Rate Income Trust (the "Fund") as of [ ], 2004 included in the
Registration Statement on Form N-2 filed by the Fund under the Securities Act of
1933 (the "Securities Act") (File No. 333-117357) and under the Investment
Company Act of 1940 (the "Investment Company Act") (File No. 811-21574); such
statement and our report with respect to such statement are included in the
Registration Statement.
In connection with the Registration Statement:
1. We are independent public accountants with respect to the Fund
within the meaning of the Securities Act and the applicable rules and
regulations thereunder.
2. In our opinion, the statement of assets and liabilities included
in the Registration Statement and audited by us complies as to form in all
respects with the applicable accounting requirements of the Securities Act, the
Investment Company Act and the respective rules and regulations thereunder.
3. For purposes of this letter we have read the minutes of all
meetings of the Shareholders, the Board of Trustees and all Committees of the
Board of Trustees of the Fund as set forth in the minute books at the offices of
the Fund, officials of the Fund having advised us that the minutes of all such
meetings through [ ], 2004, were set forth therein.
4. Fund officials have advised us that no financial statements as of
any date subsequent to [ ], 2004, are available. We have made inquiries of
certain officials of the Fund who have responsibility for financial and
accounting matters regarding whether there was any change at [ ], 2004, in
the capital shares or net assets of the Fund as compared with amounts shown in
the [ ], 2004, statement of
D-1
assets and liabilities included in the Registration Statement, except for
changes that the Registration Statement discloses have occurred or may occur. On
the basis of our inquiries and our reading of the minutes as described in
Paragraph 3, nothing came to our attention that caused us to believe that there
were any such changes.
The foregoing procedures do not constitute an audit made in
accordance with generally accepted auditing standards. Accordingly, we make no
representations as to the sufficiency of the foregoing procedures for your
purposes.
This letter is solely for the information of the addressees and to
assist the underwriters in conducting and documenting their investigation of the
affairs of the Fund in connection with the offering of the securities covered by
the Registration Statement, and is not to be used, circulated, quoted or
otherwise referred to within or without the underwriting group for any other
purpose, including but not limited to the registration, purchase or sale of
securities, nor is it to be filed with or referred to in whole or in part in the
Registration Statement or any other document, except that reference may be made
to it in the underwriting agreement or in any list of closing documents
pertaining to the offering of the securities covered by the Registration
Statement.
Very truly yours,
DELOITTE & TOUCHE LLP
D-2
EX-99.(K)(6)
9
b51660efexv99wxkyx6y.txt
FORM OF AUCTION AGREEMENT
EXHIBIT (k)(6)
FORM
OF
AUCTION AGENT AGREEMENT
between
EATON VANCE FLOATING-RATE INCOME TRUST
and
DEUTSCHE BANK TRUST COMPANY AMERICAS
Dated as of [ ], 2004
Relating to
AUCTION PREFERRED SHARES
SERIES A, SERIES B, SERIES C, SERIES D & SERIES E
of
EATON VANCE FLOATING-RATE INCOME TRUST
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND RULES OF CONSTRUCTION.......................................................... 2
1.1 Terms Defined by Reference to the Amended By-laws..................................... 2
1.2 Terms Defined Herein.................................................................. 2
1.3 Rules of Construction................................................................. 3
2. THE AUCTION.................................................................................... 3
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures... 3
2.2 Preparation for Each Auction; Maintenance of Registry of Existing Holders............. 4
2.3 Auction Schedule...................................................................... 7
2.4 Notice of Auction Results............................................................. 7
2.5 Broker-Dealers........................................................................ 8
2.6 Ownership of Shares of APS and Submission of Bids by the Trust and its Affiliates..... 8
2.7 Access to and Maintenance of Auction Records.......................................... 9
3. THE AUCTION AGENT AS PAYING AGENT.............................................................. 9
3.1 The Paying Agent...................................................................... 9
3.2 The Trust's Notices to the Paying Agent............................................... 10
3.3 The Trust to Provide Funds for Dividends and Redemptions.............................. 10
3.4 Disbursing Dividends and Redemption Price............................................. 10
4. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR............................................... 11
4.1 Original Issue of Stock Certificates.................................................. 11
4.2 Registration of Transfer or Exchange of Shares........................................ 11
4.3 Removal of Legend..................................................................... 11
4.4 Lost, Stolen or Destroyed Stock Certificates.......................................... 11
4.5 Disposition of Canceled Certificates; Record Retention................................ 11
4.6 Stock Register........................................................................ 12
4.7 Return of Funds....................................................................... 12
5. REPRESENTATIONS AND WARRANTIES................................................................. 13
5.1 Representations and Warranties of the Trust........................................... 13
5.2 Representations and Warranties of the Auction Agent................................... 14
6. THE AUCTION AGENT.............................................................................. 14
6.1 Duties and Responsibilities........................................................... 14
6.2 Rights of the Auction Agent........................................................... 14
6.3 Auction Agent's Disclaimer............................................................ 15
6.4 Compensation, Expenses and Indemnification............................................ 15
7. MISCELLANEOUS.................................................................................. 16
7.1 Term of Agreement..................................................................... 16
7.2 Communications........................................................................ 16
7.3 Entire Agreement...................................................................... 17
i
7.4 Benefits............................................................................. 17
7.5 Amendment; Waiver.................................................................... 17
7.6 Successors and Assigns............................................................... 18
7.7 Severability......................................................................... 18
7.8 Execution in Counterparts............................................................ 18
7.9 Governing Law........................................................................ 18
7.10 Limitation of Liability.............................................................. 18
ii
THIS AUCTION AGENT AGREEMENT, dated as of ____________, 2004, is between
EATON VANCE FLOATING-RATE INCOME TRUST, a Massachusetts business trust (the
"Trust"), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking
corporation.
The Trust proposes to issue [ ] preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $25,000 per share,
designated Series A Auction Preferred Shares, [ ] preferred shares of
beneficial interest, par value $.01 per share, designated Series B Auction
Preferred Shares, [ ] preferred shares of beneficial interest, par value
$.01 per share, liquidation preference $25,000 per share, designated Series C
Auction Preferred Shares, [ ] preferred shares of beneficial interest, par
value $.01 per share, designated Series D Auction Preferred Shares, and [ ]
preferred shares of beneficial interest, par value $.01 per share, liquidation
preference $25,000 per share, designated Series E Auction Preferred Shares
(collectively, the "APS"), pursuant to the Trust's Amended By-laws (as
defined below). The Trust desires that Deutsche Bank Trust Company Americas
perform certain duties as agent in connection with each Auction of shares of APS
(in such capacity, the "Auction Agent"), and as the transfer agent, registrar,
dividend disbursing agent and redemption agent with respect to the shares of APS
(in such capacity, the "Paying Agent"), upon the terms and conditions of this
Agreement, and the Trust hereby appoints Deutsche Bank Trust Company Americas as
said Auction Agent and Paying Agent in accordance with those terms and
conditions (hereinafter generally referred to as the "Auction Agent," except in
Sections 3 and 4 below).
A separate Auction (as defined below) will be conducted for each series of
APS. The Trust desires that Deutsche Bank Trust Company Americas perform certain
duties as agent in connection with each Auction of shares of APS (in such
capacity, the "Auction Agent"), and as the transfer agent, registrar, dividend
disbursing agent and redemption agent with respect to the shares of APS (in such
capacity, the "Paying Agent"), upon the terms and conditions of this Agreement,
and the Trust hereby appoints Deutsche Bank Trust Company Americas as said
Auction Agent and Paying Agent in accordance with those terms and conditions
(hereinafter generally referred to as the "Auction Agent," except in Sections 3
and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Trust and the Auction Agent agree as follows:
1
1. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Amended By-laws.
Capitalized terms not defined herein shall have the respective meanings
specified in the Amended By-laws.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures (as defined below), the
following terms shall have the following meanings, unless the context otherwise
requires:
(1) "Affiliate" shall mean any Person made known to the Auction Agent to
be controlled by, in control of, or under common control with, the Trust or its
successors.
(2) "Agent Member" of any Person shall mean such Person's agent member of
the Securities Depository that will act on behalf of a Bidder.
(3) "Amended By-laws" shall mean the Amended By-laws of the Trust,
establishing the powers, preferences and rights of the APS, as amended to the
date hereof.
(4) "Auction" shall have the meaning specified in Section 2.1 hereof.
(5) "Auction Procedures" shall mean the Auction Procedures that are set
forth in Section 9 of Article VII of the Amended By-laws.
(6) "Authorized Officer" shall mean each Director, Vice President,
Assistant Vice President and Associate of the Auction Agent and every other
officer or employee of the Auction Agent designated as an "Authorized Officer"
for purposes hereof in a communication to the Trust.
(7) "Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(8) "Holder" shall be a holder of record of one or more shares of APS,
listed as such in the stock register maintained by the Paying Agent pursuant to
Section 4.6 hereof.
(9) "Settlement Procedures" shall mean the Settlement Procedures attached
as Exhibit A to the Broker-Dealer Agreement.
2
(10) "Trust Officer" shall mean the Chairman and Chief Executive Officer,
the President, each Vice President (whether or not designated by a number or
word or words added before or after the title "Vice President"), the Secretary,
the Treasurer, each Assistant Secretary and each Assistant Treasurer of the
Trust and every other officer or employee of the Trust designated as a "Trust
Officer" for purposes hereof in a notice from the Trust to the Auction Agent.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(1) Words importing the singular number shall include the plural number
and vice versa.
(2) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(3) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Agreement as a whole.
(4) All references herein to a particular time of day shall be to New York
City time.
2. THE AUCTION.
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement
Procedures.
(1) The Amended By-laws provide that the Applicable Rate on shares of each
series of APS, as the case may be, for each Dividend Period therefor after the
Initial Dividend Period shall be the rate per annum that a commercial bank,
trust company or other financial institution appointed by the Trust advises
results from implementation of the Auction Procedures. The Board of Trustees of
the Trust has adopted a resolution appointing Deutsche Bank Trust Company
Americas as Auction Agent for purposes of the Auction Procedures. The Auction
Agent hereby accepts such appointment and agrees that, on each Auction Date, it
shall follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for the APS for
the next Dividend Period therefor. Each periodic operation of such procedures is
hereinafter referred to as an "Auction."
(2) All of the provisions contained in the Auction Procedures and in the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part hereof to the same extent as if such provisions
were set forth fully herein.
3
2.2 Preparation for Each Auction; Maintenance of Registry of Existing Holders.
(1) Pursuant to Section 2.5 hereof, the Trust shall not designate any
Person to act as a Broker-Dealer without the prior written approval of the
Auction Agent (which approval shall not be withheld unreasonably). As of the
date hereof, the Trust shall provide the Auction Agent with a list of the
Broker-Dealers previously approved by the Auction Agent and shall cause to be
delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent
shall keep such list current and accurate and shall indicate thereon, or on a
separate list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchasing shares of APS. Not later than
five Business Days prior to any Auction Date for which any change in such list
of Broker-Dealers is to be effective, the Trust shall notify the Auction Agent
in writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Trust shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by
such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(2) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent shall have given the notice referred to in clause (vii)
of Paragraph (a) of the Settlement Procedures, the Auction Agent, by such means
as the Auction Agent deems practicable, shall give notice of such change to the
Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date
or 9:15 A.M. on the old Auction Date.
(3) The provisions contained in Section 2 of Article VII of the Amended
By-laws concerning Special Dividend Periods and the notification of a Special
Dividend Period will be followed by the Trust and, to the extent applicable, the
Auction Agent, and the provisions contained therein are incorporated herein by
reference in their entirety and shall be deemed to be a part of this Agreement
to the same extent as if such provisions were set forth fully herein.
(4)(i) Except as otherwise provided in Sections 2(e) and 2(f) of Article
VII of the Amended By-laws, whenever the Trust intends to include any net
capital gains or other income subject to regular Federal income tax in any
dividend on shares of APS, the Trust will notify the Auction Agent of the amount
to be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Trust, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date.
4
(ii) On each Auction Date, the Auction Agent shall determine the Reference
Rate and the Maximum Applicable Rate. If the Reference Rate is not quoted on an
interest basis but is quoted on a discount basis, the Auction Agent shall
convert the quoted rate to an Interest Equivalent, as set forth in Section 1 of
the Amended By-laws; or, if the rate obtained by the Auction Agent is not quoted
on an interest or discount basis, the Auction Agent shall convert the quoted
rate to an interest rate after consultation with the Trust as to the method of
such conversion. Not later than 9:30 A.M. on each Auction Date, the Auction
Agent shall notify the Trust and the Broker-Dealers of the Reference Rate so
determined and of the Maximum Applicable Rate.
(5)(i) If the Reference Rate is the applicable "AA" Financial Composite
Commercial Paper Rate and such rate is to be based on rates supplied by
Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall
not provide a quotation for the determination of the applicable "AA" Financial
Composite Commercial Paper Rate, the Auction Agent immediately shall notify the
Trust so that the Trust can determine whether to select a Substitute Commercial
Paper Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Trust promptly shall advise the Auction Agent of any such
selection. If the Trust does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, then the rates shall be supplied
by the remaining Commercial Paper Dealer or Commercial Paper Dealers.
(ii) If, after the date of this Agreement, there is any change in the
prevailing rating of APS by Fitch Ratings and Moody's Investors Service, Inc.
(or substitute or successor rating agencies), thereby resulting in any change in
the corresponding applicable percentage for the APS, as set forth in the
definition of Maximum Application Rate (the "Percentage"), the Trust shall
notify the Auction Agent in writing of such change in the Percentage prior to
9:00 A.M. on the Auction Date for APS next succeeding such change. The
Percentage for the APS on the date of this Agreement is 125%. The Auction Agent
shall be entitled to rely on the last Percentage of which it has received notice
from the Trust (or, in the absence of such notice, the Percentage set forth in
the preceding sentence) in determining the Maximum Applicable Rate as set forth
in Section 2.2(e)(i) hereof.
(iii) The Auction Agent shall maintain a current registry of the Existing
Holders of the shares of each series of APS for purposes of each Auction. The
Trust shall use its best efforts to provide or cause to be provided to the
Auction Agent on the date of the Closing a list of the initial Existing Holders
of each series of APS, and the Broker-Dealer of each such Existing Holder
through which such Existing Holder purchased such shares. The Auction Agent may
rely upon, as evidence of the identities of the Existing Holders, such list, the
results of each Auction and notices from any Existing Holder, the Agent Member
of any Existing Holder or the Broker-
5
Dealer of any Existing Holder with respect to such Existing Holder's transfer of
any shares of APS to another Person.
(iv) In the event of any partial redemption of any series of APS, upon
notice by the Trust to the Auction Agent of such partial redemption, the Auction
Agent promptly shall request the Securities Depository to notify the Auction
Agent of the identities of the Agent Members (and the respective numbers of
shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction preceding the
date of redemption with respect to shares of the series being partially
redeemed, the Auction Agent shall request each Agent Member so identified to
disclose to the Auction Agent (upon selection by such Agent Member of the
Existing Holders whose shares are to be redeemed) the number of shares of such
series of APS of each such Existing Holder, if any, to be redeemed by the Trust,
provided that the Auction Agent has been furnished with the name and telephone
number of a person or department at such Agent Member from which it is to
request such information. In the absence of receiving any such information with
respect to an Existing Holder, from such Existing Holder's Agent Member or
otherwise, the Auction Agent may continue to treat such Existing Holder as
having ownership of the number of shares of the series of APS shown in the
Auction Agent's registry of Existing Holders.
(v) The Auction Agent shall register a transfer of the ownership of shares
of a series of APS from an Existing Holder to another Existing Holder, or to
another Person if permitted by the Trust, only if (A) such transfer is made
pursuant to an Auction or (B) if such transfer is made other than pursuant to an
Auction, the Auction Agent has been notified of such transfer in writing in a
notice substantially in the form of Exhibit C to the Broker-Dealer Agreements,
by such Existing Holder or by the Agent Member of such Existing Holder. The
Auction Agent is not required to accept any notice of transfer delivered for an
Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business
Day next preceding the applicable Auction Date. The Auction Agent shall rescind
a transfer made on the registry of the Existing Holders of any shares of APS if
the Auction Agent has been notified in writing, in a notice substantially in the
form of Exhibit D to the Broker-Dealer Agreement, by the Agent Member or the
Broker-Dealer of any Person that (i) purchased any shares of APS and the seller
failed to deliver such shares or (ii) sold any shares of APS and the purchaser
failed to make payment to such Person upon delivery to the purchaser of such
shares.
(vi) The Auction Agent may request that the Broker Dealers, as set forth
in Section 3.2(c) of the Broker-Dealer Agreements, provide the Auction Agent
with a list of their respective customers that such Broker-Dealers believe are
Beneficial Owners of shares of APS. The Auction Agent shall keep confidential
any such information and shall not disclose any such information so provided to
any Person other than the relevant Broker-Dealer and the Trust,
6
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would be
unlawful.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the schedule set
forth below. Such schedule may be changed by the Auction Agent with the consent
of the Trust, which consent shall not be withheld unreasonably. The Auction
Agent shall give notice of any such change to each Broker-Dealer. Such notice
shall be received prior to the first Auction Date on which any such change shall
be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the Trust and the
Broker-Dealers of the Reference Rate and the
Maximum Applicable Rate as set forth in Section
2.2(e)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section
10(d)(i) of Article VII of the Amended By-laws.
Submission deadline is 1:30 P.M.
Not earlier than Auction Agent makes determinations pursuant to
1:30 P.M. Section 10(d)(i) of Article VII of the Amended
By-laws.
By approximately Auction Agent advises the Trust of the results of
3:00 P.M. the Auction as provided in Section 10(d)(ii) of
Article VII of the Amended By-laws.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of APS allocated as provided in Section
10(e) of Article VII of the Amended By-laws.
Auction Agent gives notice of the Auction results
as set forth in Section 2.4 hereof.
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of the
results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
7
2.5 Broker-Dealers.
(1) Not later than 12:00 noon on each Auction Date, the Trust shall pay to
the Auction Agent in Federal Funds or similar Same-Day Funds an amount in cash
equal to (i) in the case of any Auction Date immediately preceding a 7-Day
Dividend Period or 28-Day Dividend Period, the product of (A) a fraction the
numerator of which is the number of days in such Dividend Period and the
denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000 times (D)
the sum of the aggregate number of outstanding shares of APS for which the
Auction is conducted and (ii) in the case of any Special Dividend Period, the
amount determined by mutual consent of the Trust and the Broker-Dealers pursuant
to Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply
such moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and
shall thereafter remit to the Trust any remaining funds paid to the Auction
Agent pursuant to this Section 2.5(a).
(2) The Trust shall not designate any Person to act as a Broker- Dealer,
or permit a Existing Holder or a Potential Beneficial Owner to participate in
Auctions through any Person other than a Broker-Dealer, without the prior
written approval of the Auction Agent, which approval shall not be withheld
unreasonably.
(3) The Auction Agent shall terminate any Broker-Dealer Agreement as set
forth therein if so directed by the Trust.
(4) Subject to Section 2.5(b) hereof, the Auction Agent from time to time
shall enter into such Broker-Dealer Agreements as the Trust shall request.
(5) The Auction Agent shall maintain a list of Broker-Dealers.
2.6 Ownership of Shares of APS and Submission of Bids by the Trust and its
Affiliates.
Neither the Trust nor any Affiliate of the Trust may submit any Sell Order
or Bid, directly or indirectly, in any Auction, except that an Affiliate of the
Trust that is a Broker-Dealer may submit a Sell Order or Bid on behalf of a
Beneficial Owner or a Potential Beneficial Owner. The Trust shall notify the
Auction Agent if the Trust or, to the best of the Trust's knowledge, any
Affiliate of the Trust becomes a Beneficial Owner of any shares of APS. Any
shares of APS redeemed, purchased or otherwise acquired (i) by the Trust shall
not be reissued, except in accordance with the requirements of the Securities
Act of 1933, as amended, or (ii) by its Affiliates shall not be transferred
(other than to the Trust). The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.6.
8
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Trust, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Trust's sole cost
and expense) of all books, records, documents and other information concerning
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Trust requesting
that the Auction Agent afford such person access. The Auction Agent shall
maintain records relating to any Auction for a period of two years after such
Auction (unless requested by the Trust to maintain such records for such longer
period not in excess of four years, then for such longer period), and such
records, in reasonable detail, shall accurately and fairly reflect the actions
taken by the Auction Agent hereunder. The Trust agrees to keep confidential any
information regarding the customers of any Broker-Dealer received from the
Auction Agent in connection with this Agreement or any Auction, and shall not
disclose such information or permit the disclosure of such information without
the prior written consent of the applicable Broker-Dealer to anyone except such
agent, accountant or counsel engaged to audit or review the results of Auctions
as permitted by this Section 2.7, provided that the Trust reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Trust. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
3. THE AUCTION AGENT AS PAYING AGENT.
3.1 The Paying Agent.
The Board of Trustees of the Trust has adopted a resolution appointing
Deutsche Bank Trust Company Americas as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Trust in connection with any
shares of APS (in such capacity, the "Paying Agent"). The Paying Agent hereby
accepts such appointment and agrees to act in accordance with its standard
procedures and the provisions of the Amended By-laws which are specified herein
with respect to the shares of APS and as set forth in this Section 3.
9
3.2 The Trust's Notices to the Paying Agent.
Whenever any shares of APS are to be redeemed, the Trust promptly shall
deliver to the Paying Agent a Notice of Redemption, which will be mailed by the
Trust to each Holder at least five Business Days prior to the date such Notice
of Redemption is required to be mailed pursuant to the Amended By-laws. The
Paying Agent shall have no responsibility to confirm or verify the accuracy of
any such Notice.
3.3 The Trust to Provide Funds for Dividends and Redemptions.
(1) Not later than noon on each Dividend Payment Date, the Trust shall
deposit with the Paying Agent an aggregate amount of Federal Funds or similar
Same-Day Funds equal to the declared dividends to be paid to Holders on such
Dividend Payment Date, and shall give the Paying Agent irrevocable instructions
to apply such funds to the payment of such dividends on such Dividend Payment
Date.
(2) If the Trust shall give a Notice of Redemption, then by noon of the
date fixed for redemption, the Trust shall deposit in trust with the Paying
Agent an aggregate amount of Federal Funds or similar Same-Day Funds sufficient
to redeem such shares of APS called for redemption and shall give the Paying
Agent irrevocable instructions and authority to pay the redemption price to the
Holders of shares of APS called for redemption upon surrender of the certificate
or certificates therefor.
3.4 Disbursing Dividends and Redemption Price.
After receipt of the Federal Funds or similar Same-Day Funds and
instructions from the Trust described in Sections 3.3(1) and (2) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends on the shares of APS and
(ii) on any date fixed for redemption, the redemption price of any shares of APS
called for redemption. The amount of dividends for any Dividend Period to be
paid by the Paying Agent to Holders will be determined by the Trust as set forth
in Section 2 of the Amended By-laws. The redemption price to be paid by the
Paying Agent to the Holders of any shares of APS called for redemption will be
determined as set forth in Section 4 of the Amended By-laws. The Trust shall
notify the Paying Agent in writing of a decision to redeem any shares of APS on
or prior to the date specified in Section 3.2 above, and such notice by the
Trust to the Paying Agent shall contain the information required to be stated in
a Notice of Redemption required to be mailed by the Trust to such Holders. The
Paying Agent shall have no duty to determine the redemption price and may rely
on the amount thereof set forth in a Notice of Redemption.
10
4. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1 Original Issue of Stock Certificates.
On the Date of Original Issue for any share of APS, one certificate for
each series, if any, of APS shall be issued by the Trust and registered in the
name of Cede & Co., as nominee of the Securities Depository, and countersigned
by the Paying Agent. The Trust will give the Auction Agent prior written notice
and instruction as to the issuance and redemption of APS.
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of each series of APS
shall be registered solely in the name of the Securities Depository or its
nominee.
4.3 Removal of Legend.
Any request for removal of a legend indicating a restriction on transfer
from a certificate evidencing shares of APS shall be accompanied by an opinion
of counsel stating that such legend may be removed and such shares may be
transferred free of the restriction described in such legend, said opinion to be
delivered under cover of a letter from a Company Officer authorizing the Paying
Agent to remove the legend on the basis of said opinion.
4.4 Lost, Stolen or Destroyed Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Trust and
by the Paying Agent, subject at all times to provisions of law, the Amended
By-Laws of the Trust governing such matters and resolutions adopted by the Trust
with respect to lost, stolen or destroyed securities. The Paying Agent may issue
new certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Trust to the Paying Agent to issue a
replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Trust to the Paying Agent that such
issuance will comply with provisions of applicable law and the By-Laws and
resolutions of the Trust.
4.5 Disposition of Canceled Certificates; Record Retention.
The Paying Agent shall retain stock certificates which have been canceled
in transfer or in exchange and accompanying documentation in accordance with
applicable rules and regulations of the Securities and Exchange Commission for
two calendar years from the date of
11
such cancellation. The Paying Agent, upon written request by the Trust, shall
afford to the Trust, its agents and counsel access at reasonable times during
normal business hours to review and make extracts or copies (at the Trust's sole
cost and expense) of such certificates and accompanying documentation. Upon
request by the Trust at any time after the expiration of this two-year period,
the Paying Agent shall deliver to the Trust the canceled certificates and
accompanying documentation. The Trust, at its expense, shall retain such records
for a minimum additional period of four calendar years from the date of delivery
of the records to the Trust and shall make such records available during this
period at any time, or from time to time, for reasonable periodic, special, or
other examinations by representatives of the Securities and Exchange Commission.
The Trust also shall undertake to furnish to the Securities and Exchange
Commission, upon demand, either at their principal office or at any regional
office, complete, correct and current hard copies of any and all such records.
Thereafter, such records shall not be destroyed by the Trust without the
approval of the Paying Agent, which approval shall not be withheld unreasonably,
but will be safely stored for possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the stock register, which shall contain a
list of the Holders, the number of shares held by each Holder and the address of
each Holder. The Paying Agent shall record in the stock register any change of
address of a Holder upon notice by such Holder. In case of any written request
or demand for the inspection of the stock register or any other books of the
Trust in the possession of the Paying Agent, the Paying Agent will notify the
Trust and secure instructions as to permitting or refusing such inspection. The
Paying Agent reserves the right, however, to exhibit the stock register or other
records to any person in case it is advised by its counsel that its failure to
do so would (i) be unlawful or (ii) expose it to liability, unless the Trust
shall have offered indemnification satisfactory to the Paying Agent.
4.7 Return of Funds.
Any funds deposited with the Paying Agent by the Trust for any reason
under this Agreement, including for the payment of dividends or the redemption
of shares of any series of APS, that remain with the Paying Agent after 12
months shall be repaid to the Trust upon written request by the Trust.
12
5. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of the Trust.
The Trust represents and warrants to the Auction Agent that:
(1) the Trust is duly organized and is validly existing as a business
trust in good standing under the laws of The Commonwealth of Massachusetts, and
has full power to execute and deliver this Agreement and to authorize, create
and issue the shares of APS;
(2) the Trust is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended, as a closed-end,
diversified, management investment company;
(3) this Agreement has been duly and validly authorized, executed and
delivered by the Trust and constitutes the legal, valid and binding obligation
of the Trust, enforceable against the Trust in accordance with its terms,
subject as to such enforceability to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equitable principles;
(4) the forms of the certificates evidencing the shares of each series of
APS comply with all applicable laws of The Commonwealth of Massachusetts;
(5) the shares of each series of APS have been duly and validly authorized
by the Trust and, upon completion of the initial sale of the shares of such
series of APS and receipt of payment therefor, will be validly issued, fully
paid and nonassessable;
(6) at the time of the offering of the shares of each series of APS, the
shares offered will be registered under the Securities Act of 1933, as amended,
and no further action by or before any governmental body or authority of the
United States or of any state thereof is required in connection with the
execution and delivery of this Agreement or will be required in connection with
the issuance of the shares of APS, except such action as required by applicable
state securities laws, all of which action will have been taken;
(7) the execution and delivery of this Agreement and the issuance and
delivery of the shares of each series of APS do not and will not conflict with,
violate, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, the Declaration of Trust or the Amended By-Laws of
the Trust, any law or regulation applicable to the Trust, any order or decree of
any court or public authority having jurisdiction over the Trust, or any
mortgage,
13
indenture, contract, agreement or undertaking to which the Trust is a party or
by which it is bound; and
(8) no taxes are payable upon or in respect of the execution of this
Agreement or will be payable upon or in respect of the issuance of the shares of
each series of APS.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Trust that the Auction
Agent is duly organized and is validly existing as a banking corporation in good
standing under the laws of the State of New York, and has the corporate power to
enter into and perform its obligations under this Agreement.
6. THE AUCTION AGENT.
6.1 Duties and Responsibilities.
(1) The Auction Agent is acting solely as agent for the Trust hereunder
and owes no fiduciary duties to any Person except as provided by this Agreement.
(2) The Auction Agent undertakes to perform such duties and only such
duties as are set forth specifically in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Auction Agent.
(3) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered or omitted by it or for
any error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
(or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(1) The Auction Agent may rely upon, and shall be protected in acting or
refraining from acting upon, any communication authorized hereby and any written
instruction, notice, request, direction, consent, report, certificate, share
certificate or other instrument, paper or document reasonably believed by it to
be genuine. The Auction Agent shall not be liable for acting upon any telephone
communication authorized hereby which the Auction Agent believes in good faith
to have been given by the Trust or by a Broker-Dealer. The Auction Agent may
record telephone communications with the Trust or with the Broker-Dealers or
with both.
14
(2) The Auction Agent may consult with counsel of its choice, and the
written advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(3) The Auction Agent shall not be required to advance, expend or risk its
own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Trust.
(4) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or the
adequacy of this Agreement, the Broker-Dealer Agreements or the APS.
6.4 Compensation, Expenses and Indemnification.
(1) The Trust shall pay to the Auction Agent from time to time reasonable
compensation for all services rendered by it under this Agreement and under the
Broker-Dealer Agreements as shall be set forth in a separate writing signed by
the Trust and the Auction Agent, subject to adjustments if the APS no longer are
held of record by the Securities Depository or its nominee or if there shall be
such other change as shall increase materially the Auction Agent's obligations
hereunder or under the Broker-Dealer Agreements.
(2) The Trust shall reimburse the Auction Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Auction
Agent in accordance with any provision of this Agreement and of the
Broker-Dealer Agreements (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any expense, disbursement or
advance attributable to its negligence or bad faith.
(3) The Trust shall indemnify the Auction Agent for, and hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on its part arising out of or in connection with its agency under this Agreement
and under the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any claim of liability in connection with its exercise
or performance of any of its duties hereunder and thereunder, except such as may
result from its negligence or bad faith.
15
7. MISCELLANEOUS.
7.1 Term of Agreement.
(1) The term of this Agreement is unlimited unless it shall be terminated
as provided in this Section 7.1. The Trust may terminate this Agreement at any
time by so notifying the Auction Agent, provided that if any APS remain
outstanding the Trust shall have entered into an agreement in substantially the
form of this Agreement with a successor auction agent. The Auction Agent may
terminate this Agreement upon prior notice to the Trust on the date specified in
such notice, which date shall be no earlier than 60 days after delivery of such
notice. If the Auction Agent resigns while any shares of APS remain outstanding,
the Trust shall use its best efforts to enter into an agreement with a successor
auction agent containing substantially the same terms and conditions as this
Agreement.
(2) Except as otherwise provided in this Section 7.1(b), the respective
rights and duties of the Trust and the Auction Agent under this Agreement shall
cease upon termination of this Agreement. The Trust's representations,
warranties, covenants and obligations to the Auction Agent under Sections 5 and
6.4 hereof shall survive the termination hereof. Upon termination of this
Agreement, the Auction Agent shall (i) resign as Auction Agent under the
Broker-Dealer Agreements, (ii) at the Trust's request, deliver promptly to the
Trust copies of all books and records maintained by it in connection with its
duties hereunder, and (iii) at the request of the Trust, transfer promptly to
the Trust or to any successor auction agent any funds deposited by the Trust
with the Auction Agent (whether in its capacity as Auction Agent or as Paying
Agent) pursuant to this Agreement which have not been distributed previously by
the Auction Agent in accordance with this Agreement.
7.2 Communications.
Except for (i) communications authorized to be made by telephone pursuant
to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:
If to the Trust, Eaton Vance Floating-Rate Income Trust
addressed to: 255 State Street Boston, MA 02109 Attention:
Treasurer Telephone No.: (617) 482-8260
16
If to the Auction Agent, Deutsche Bank Trust Company Americas
addressed to: Corporate Trust and Agency Services
60 Wall Street
27th Floor
New York, NY 10005
Attention: Auction Rate Securities
Telecopier No.: (212) 797-8600
Telephone No.: (212) 250-6645
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by a Trust Officer and on
behalf of the Auction Agent by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties relating to the
subject matter hereof, and there are no other representations, endorsements,
promises, agreements or understandings, oral, written or inferred, between the
parties relating to the subject matter hereof, except for agreements relating to
the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than the
Trust, the Auction Agent and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(1) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. The Trust shall notify the Auction Agent of any change in the Amended
By-laws prior to the effective date of any such change. If any such change in
the Amended By-laws materially increases the Auction Agent's obligations
hereunder, the Trust shall obtain the written consent to the Auction Agent prior
to the effective date of such change.
(2) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
17
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Trust and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in said state.
7.10 Limitation of Liability.
The names "Eaton Vance Floating-Rate Income Trust" and "Trustees of the
Eaton Vance Floating-Rate Income Trust" refer, respectively, to the Trust and
the Trustees of the Trust, as trustees but not individually or personally,
acting from time to time under the Trust's Agreement and Declaration of Trust
dated and filed on April 28, 2004 which is hereby referred to and a copy of
which is on file at the office of the Secretary of The Commonwealth of
Massachusetts and the principal office of the Trust. The obligations of "Eaton
Vance Floating-Rate Income Trust" entered into in the name or on behalf thereof
by any of the Trustees, representatives or agents of the Trust are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, holders of shares of beneficial interest of the Trust or
representatives of the Trustees personally, but bind only the Trust assets, and
all persons dealing with the Trust must look solely to the Trust property for
the enforcement of any claims against the Trust.
18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
date first above written.
EATON VANCE FLOATING-RATE INCOME TRUST
_________________________________________
By:
Title:
DEUTSCHE BANK TRUST COMPANY AMERICAS
_________________________________________
By: Linda Reale
Title: Vice President
19
EX-99.(K)(7)
10
b51660efexv99wxkyx7y.txt
FORM OF BROKER-DEALER AGREEMENT
EXHIBIT (k)(7)
FORM
OF
BROKER-DEALER AGREEMENT
between
DEUTSCHE BANK TRUST COMPANY AMERICAS
and
[BROKER-DEALER NAME]
Dated as of [ ], 2004
Relating to
AUCTION PREFERRED SHARES
SERIES A, SERIES B, SERIES C, SERIES D & SERIES E
of
EATON VANCE FLOATING-RATE INCOME TRUST
BROKER-DEALER AGREEMENT dated as of [ ], 2004, between DEUTSCHE
BANK TRUST COMPANY AMERICAS, a New York banking corporation (the "Auction
Agent") (not in its individual capacity, but solely as agent of Eaton Vance
Floating-Rate Income Trust, a Massachusetts business trust (the "Trust"),
pursuant to authority granted to it in the Auction Agency Agreement dated as of
[ ], 2004, between the Trust and the Auction Agent (the "Auction Agency
Agreement")) and [BROKER-DEALER NAME] (together with its successors and assigns,
"BD").
The Trust proposes to issue [ ] preferred shares of beneficial
interest, par value $0.01 per share, liquidation preference $25,000 per share,
designated Series A Auction Preferred Shares, [ ] preferred shares of
beneficial interest, par value $0.01 per share, liquidation preference $25,000
per share, designated Series B Auction Preferred Shares, [ ] preferred
shares of beneficial interest, par value $0.01 per share, liquidation preference
$25,000 per share, designated Series C Auction Preferred Shares, [ ]
preferred shares of beneficial interest, par value $0.01 per share, liquidation
preference $25,000 per share, designated Series D Auction Preferred Shares, and
[ ] preferred shares of beneficial interest, par value $0.01 per share,
liquidation preference $25,000 per share, designated Series E Auction Preferred
Shares (collectively, the "APS"), pursuant to the Trust's Amended By-laws (as
defined below).
The Trust's Amended By-laws provide that the dividend rate on the APS for
each Dividend Period therefor after the Initial Dividend Period shall be the
Applicable Rate therefor, which in each case, in general shall be the rate per
annum that a commercial bank, trust company or other financial institution
appointed by the Trust advises resulting from implementation of the Auction
Procedures (as defined below). The Board of Trustees of the Trust has adopted a
resolution appointing Deutsche Bank Trust Company Americas as Auction Agent for
purposes of the Auction Procedures, and pursuant to Section 2.5 of the Auction
Agency Agreement, the Trust has requested and directed the Auction Agent to
execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Terms Defined by Reference to the Amended By-laws. Capitalized terms
not defined herein shall have the respective meanings specified in the Amended
By-laws of the Trust.
1.2. Terms Defined Herein. As used herein and in the Settlement Procedures
(as defined below), the following terms shall have the following meanings,
unless the context otherwise requires:
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(a) "Amended By-laws" shall mean the By-laws of the Trust, as
amended through the date hereof, establishing the powers, preferences and
rights of the APS.
(b) "Auction" shall have the meaning specified in Section 3.1
hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Section 9 of Article VII of the Amended By-laws.
(d) "Authorized Officer" shall mean each Director, Vice President,
Assistant Vice President, and Associate of the Auction Agent, and every
other officer or employee of the Auction Agent designated as an
"Authorized Officer" for purposes of this Agreement in a communication to
BD.
(e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a
communication to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a
Broker-Dealer.
(g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
1.3. Rules of Construction. Unless the context or use indicates another or
different meaning or intent, the following rules shall apply to the construction
of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall
they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. NOTIFICATION OF DIVIDEND PERIOD
2.1. The provisions contained in paragraph 2 of Article VII of the Amended
By-laws concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
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III. THE AUCTION.
3.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures will be
followed by the Auction Agent for the purpose of determining the Applicable Rate
for the of APS, for the next Dividend Period therefor. Each periodic operation
of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and limitations
and restrictions placed upon, a Broker-Dealer under this Agreement. BD
understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Paragraph 9 of Article VII of the
Amended By-laws may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for their own
accounts. However, the Trust, by notice to BD and all other Broker Dealers, may
prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders and
Sell Orders.
3.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the APS, the Auction
Agent shall advise BD by telephone of the Reference Rate and the Maximum
Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent has given the notice referred to in paragraph (a) of the
Settlement Procedures, the Auction Agent, by such means as the Auction Agent
deems practicable, shall give notice of such change to BD not later than the
earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction
Date. Thereafter, BD promptly shall notify customers of BD that BD believes are
Beneficial Owners of shares of APS of such change in the Auction Date.
(c) The Auction Agent from time to time may request BD to provide it with
a list of the respective customers BD believes are Beneficial Owners of shares
of APS. BD shall comply with any such request, and the Auction Agent shall keep
confidential any such information, including information received as to the
identity of Bidders in any Auction, and shall not disclose any such information
so provided to any Person other than the Trust; and such information shall not
be used by the Auction Agent or its officers, employees, agents or
representatives for any purpose other than such purposes as are described
herein. The Auction Agent shall transmit any
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list of customers BD believes are Beneficial Owners of shares of APS and
information related thereto only to its officers, employees, agents or
representatives who need to know such information for the purposes of acting in
accordance with this Agreement, and the Auction Agent shall prevent the
transmission of such information to others and shall cause its officers,
employees, agents and representatives to abide by the foregoing confidentiality
restrictions; provided, however, that the Auction Agent shall have no
responsibility or liability for the actions of any of its officers, employees,
agents or representatives after they have left the employ of the Auction Agent.
3.3. Auction Schedule; Method of Submission of Orders.
(a) The Trust and the Auction Agent shall conduct Auctions for APS in
accordance with the schedule set forth below. Such schedule may be changed at
any time by the Auction Agent with the consent of the Trust, which consent shall
not be withheld unreasonably. The Auction Agent shall give notice of any such
change to BD. Such notice shall be received prior to the first Auction Date on
which any such change shall be effective.
Time Event
---- -----
By: 9:30 A.M. Auction Agent advises the Trust and
Broker-Dealers of the Reference Rate
and the Maximum Applicable Rate
9:30 A.M. - 1:30 P.M. Applicable Rate as set forth in
Section 3.2(a) hereof
Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in Section 9(d)(i) of
Article VII of the Amended By-laws.
Submission Deadline is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes
determinations pursuant to
Section 9(d)(i) of Article VII of the
Amended By-laws.
By approximately 3:00 P.M. Auction Agent advises the Trust of the
results of the Auction as provided in
Section 9(d)(ii) of Article VII of the
Amended By-laws. Submitted Bids and
Submitted Sell Orders are accepted
and rejected in whole or in part and
shares of APS are allocated as
provided in Section
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9(e) of Article VII of the Amended
By-laws. Auction Agent gives notice
of the Auction results as set forth
in Section 3.4(a) hereof.
(b) BD agrees to maintain a list of Potential Beneficial Owners and to
contact the Potential Beneficial Owners on such list on or prior to each Auction
Date for the purposes set forth in Section 9 of Article VII of the Amended
By-laws.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of APS, made through BD by an Existing Holder to another Person other than
pursuant to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit D, of the failure of shares of APS to be transferred
to or by any Person that purchased or sold shares of APS through BD pursuant to
an Auction. The Auction Agent is not required to accept any notice delivered
pursuant to the terms of the foregoing sentence with respect to an Auction
unless it is received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date.
3.4. Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by telephone
as set forth in paragraph (a) of the Settlement Procedures. On the Business Day
next succeeding such Auction Date, the Auction Agent shall notify BD in writing
of the disposition of all Orders submitted by BD in the Auction held on such
Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial Owner,
Existing Holder or Potential Holder on whose behalf BD has submitted an Order as
set forth in paragraph (b) of the Settlement Procedures, and take such other
action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of APS in an
Auction fails to deliver such shares, the BD of any Person that was to have
purchased shares of APS in such Auction may deliver to such Person a number of
whole shares of APS that is less than the number of shares that otherwise was to
be purchased by such Person. In such event, the number of shares of APS to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of
this Section 3.4(b), any delivery or non-delivery of shares of APS which
represents any departure from the results of an Auction, as
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determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the terms of Section 3.3(d) hereof. The Auction Agent shall have
no duty or liability with respect to enforcement of this Section 3.4(b).
3.5. Service Charge to Be Paid to BD.
On the Business Day next succeeding each Auction Date, the Auction Agent
shall pay to BD from moneys received from the Trust an amount equal to: (a) in
the case of any Auction Date immediately preceding a Dividend Period of 7 days
or less, the product of (i) a fraction the numerator of which is the number of
days in such Dividend Period and the denominator of which is 360, times (ii) 1/4
of 1%, times (iii) $25,000, times (iv) the sum of (A) the aggregate number of
APS placed by BD in the applicable Auction that were (x) the subject of a
Submitted Bid of a Beneficial Owner submitted by BD and continued to be held as
a result of such submission and (y) the subject of a Submitted Bid of a
Potential Beneficial Owner submitted by BD and were purchased as a result of
such submission plus (B) the aggregate number of APS subject to valid Hold
Orders (determined in accordance with Section 9 of Article VII of the Amended
By-laws) submitted to the Auction Agent by BD plus (C) the number of APS deemed
to be subject to Hold Orders by Beneficial Owners pursuant to Section 9 of
Article VII of the Amended By-laws that were acquired by such Beneficial Owners
through BD; and (b) in the case of any Auction Date immediately preceding a
Special Dividend Period, that amount as mutually agreed upon by the Trust and
BD, based on the selling concession that would be applicable to an underwriting
of fixed or variable rate preferred shares with a similar final maturity or
variable rate dividend period, at the commencement of such Special Dividend
Period.
For purposes of sub-clause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of APS through BD transfers those shares to
another Person other than pursuant to an Auction, then the Broker-Dealer for the
shares so transferred shall continue to be BD, provided, however, that if the
transfer was effected by, or if the transferee is, a Broker-Dealer other than
BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.
IV. THE AUCTION AGENT.
4.1. Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust hereunder
and owes no fiduciary duties to any other Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are set forth specifically in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered or omitted by it, or
for any error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for
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any error of judgment made in good faith unless the Auction Agent shall have
been negligent in ascertaining (or failing to ascertain) the pertinent facts.
4.2. Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in acting or
refraining from acting upon, any communication authorized by this Agreement and
any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized by this Agreement which the Auction Agent
believes in good faith to have been given by the Trust or by BD. The Auction
Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice, and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its
own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
4.3. Auction Agent's Disclaimer. The Auction Agent makes no representation
as to the validity or adequacy of this Agreement or the APS.
V. MISCELLANEOUS.
5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is [ ], [ ], [ ], and [ ], neither BD nor the Auction
Agent may terminate this Agreement without first obtaining the prior written
consent of the Trust to such termination, which consent shall not be withheld
unreasonably.
5.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a member of,
or a participant in, the Securities Depository (or an affiliate of such a member
or participant).
(b) BD represents that it (or if BD does not act as Agent Member, one of
its affiliates) shall make all dividend payments on the APS available in
Same-Day Funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.
5.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
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5.4. Communications. Except for (i) communications authorized to be made
by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:
If to BD, [BROKER-DEALER NAME]
addressed to: [ADDRESS]
Attention: [ ]
Telecopier No.: ( ) [ - ]
Telephone No.: ( ) [ - ]
If to the Auction: Deutsche Bank Trust Company Americas
addressed to: Trust and Securities Services
60 Wall Street
27th Floor
New York, NY 10005
Attention: Auction Rate Securities
Telecopier No.: (212) 797-8600
Telephone No.: (212) 250-6645
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
5.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
5.6. Benefits. Nothing in this Agreement, express or implied, shall give
to any person, other than the Trust, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.
5.7. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
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(b) Failure of either party to this Agreement to exercise any right or
remedy hereunder in the event of a breach of this Agreement by the other party
shall not constitute a waiver of any such right or remedy with respect to any
subsequent breach.
5.8. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Trust without the consent of
BD.
5.9. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
the invalidity or unenforceability of such clause, provision or section shall
not affect any remaining clause, provision or section hereof.
5.10. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
5.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said state.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
DEUTSCHE BANK TRUST COMPANY AMERICAS
___________________________
By:
Title:
[BROKER-DEALER]
___________________________
By:
Title:
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EXHIBIT A
SETTLEMENT PROCEDURES
9.(a) Certain definitions. As used in this paragraph 9, the following
terms shall have the following meanings, unless the context otherwise requires:
(i) "APS" means the shares of APS being auctioned pursuant to this
paragraph 9.
(ii) "Auction Date" means the first Business Day preceding the first day
of a Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 9(d)(i)
below.
(iv) "Bid" has the meaning specified in paragraph 9(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 9(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 9(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the higher
of the Applicable Percentage of the Reference Rate or the Applicable Spread Over
the Reference Rate which term shall mean the rate equaling the sum of the
Applicable Spread (as more particularly set forth below) plus the Reference
Rate. The Applicable Percentage will be determined based on the credit rating
assigned on such date to such shares by Fitch and Moody's (or if Fitch or
Moody's shall not make such rating available, the equivalent of such rating by a
Substitute Rating Agency) as follows:
APPLICABLE PERCENTAGE APPLICABLE SPREAD
MOODY'S CREDIT RATINGS S&P/FITCH OF REFERENCE RATE OVER REFERENCE RATE
------- -------------- --------- ----------------- -------------------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Ba1 and lower BB+ and lower 300% 300 bps
Assuming the Fund maintains an AAA/Aaa rating on the APS, the practical effect
of the different methods used to calculate the Maximum Applicable Rate is shown
in the table below:
Maximum Applicable Maximum Applicable
Rate Using the Rate Using the Method Used to Determine
Applicable Percentage of Applicable Spread over the Maximum Applicable
Reference Rate the Reference Rate the Reference Rate Rate
-------------- ------------------ ------------------ ----
1% 1.25% 2.25% Spread
2% 2.50% 3.25% Spread
3% 3.75% 4.25% Spread
4% 5.00% 5.25% Spread
5% 6.25% 6.25% Either
6% 7.50% 7.25% Percentage
The Fund shall take all reasonable action necessary to enable Fitch and Moody's
to provide a rating for each series of APS. If Fitch or Moody's shall not make
such a rating available, Eaton Vance Management or its affiliates and
successors, after consultation with the Trust, shall select a nationally
recognized statistical rating organization to act as a Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 9(b)(i) below.
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(ix) "Sell Order" has the meaning specified in paragraph 9(b)(i) below.
(x) "Submission Deadline" means 1:30 p.m., New York City time, on any
Auction Date or such other time on any Auction Date as may be specified by the
Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 9(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph
9(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph 9(d)(i)
below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
9(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph
9(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph 9(d)(i)
below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information as
to:
(1) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner desires to continue to hold
without regard to the Applicable Rate for the next succeeding Dividend
Period;
(2) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner desires to continue to hold,
provided that the Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such Beneficial
Owner; and/or
(3) the number of Outstanding shares, if any, of APS held by such
Beneficial Owner which such Beneficial Owner offers to sell without regard
to the Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners that
shall be maintained in good faith for the purpose of conducting a competitive
Auction, shall contact Potential Beneficial Owners, including Persons that are
not Beneficial Owners, on such list to determine the number of Outstanding
shares, if any, of APS which each such Potential Beneficial Owner offers to
purchase, provided that the Applicable Rate for the next succeeding Dividend
Period shall not be less than the rate per annum specified by such Potential
Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 9(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
9(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 9(b)(i) is
hereinafter referred to as a "Bid"; and an
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Order containing the information referred to in clause (A)(3) of this paragraph
9(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less than the
rate per annum specified in such Bid; or (1) such number or a lesser
number of Outstanding shares of APS to be determined as set forth in
paragraph 9(e)(i)(D) if the Applicable Rate determined on such Auction
Date shall be equal to the rate per annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined as
set forth in paragraph 9(e)(ii)(C) if such specified rate per annum shall
be higher than the Maximum Applicable Rate and Sufficient Clearing Bids do
not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such
Sell Order; or
(2) such number or a lesser number of Outstanding shares of
APS to be determined as set forth in paragraph 9(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of APS specified in such
Bid if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of
APS to be determined as set forth in paragraph 9(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent
(i) Each Broker-Dealer shall submit in writing or through the
Auction Agent's Auction Processing System to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained
by such Broker-Dealer, designating itself (unless otherwise
permitted by the Trust) as an Existing Holder in respect of shares
subject to Orders submitted or deemed submitted to it by Beneficial
Owners and as a Potential Holder in respect of shares subject to
Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding shares of APS that are
the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of APS
subject to any Hold Order placed by such Existing
Holder;
(2) the number of Outstanding shares, if any, of APS
subject to any Bid placed by such Existing Holder
and the rate per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of APS
subject to any Sell Order placed by such Existing
Holder; and
13
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of APS
held by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order (in the case of
an Auction relating to a Dividend Period which is not a Special Dividend Period)
and a Sell Order (in the case of an Auction relating to a Special Dividend
Period) to have been submitted on behalf of such Existing Holder covering the
number of Outstanding shares of APS held by such Existing Holder and not subject
to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding shares
of APS held by such Existing Holder; provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the number of
shares of APS subject to such Hold Orders exceeds the number of
Outstanding shares of APS held by such Existing Holder, the number of
shares of APS subject to each of such Hold Orders shall be reduced pro
rata so that such Hold Orders, in the aggregate, will cover exactly the
number of Outstanding shares of APS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing Holder,
up to and including the excess of the number of Outstanding shares of APS
held by such Existing Holder over the number of shares of APS subject to
any Hold Order referred to in paragraph 9(c)(iv)(A) above (and if more
than one Bid submitted on behalf of such Existing Holder specifies the
same rate per annum and together they cover more than the remaining number
of shares that can be the subject of valid Bids after application of
paragraph 9(c)(iv)(A) above and of the foregoing portion of this paragraph
9(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per annum,
the number of shares subject to each of such Bids shall be reduced pro
rata so that such Bids, in the aggregate, cover exactly such remaining
number of shares); and the number of shares, if any, subject to Bids not
valid under this paragraph 9(c)(iv)(B) shall be treated as the subject of
a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding shares of APS held by such Existing
Holder over the number of shares of APS subject to Hold Orders referred to
in paragraph 9(c)(iv)(A) and Bids referred to in paragraph 9(c)(iv)(B);
provided that if more than one Sell Order is submitted on behalf of any
Existing Holder and the number of shares of APS subject to such Sell
Orders is greater than such excess, the number of shares of APS subject to
each of such Sell Orders shall be reduced pro rata so that such Sell
Orders, in the aggregate, cover exactly the number of shares of APS equal
to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate per annum and number of
shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date shall be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed
14
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as the
case may be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of APS over
the number of Outstanding shares of APS that are the subject of Submitted
Hold Orders (such excess being hereinafter referred to as the "Available
APS");
(B) from the Submitted Orders whether the number of Outstanding
shares of APS that are the subject of Submitted Bids by Potential Holders
specifying one or more rates per annum equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding shares of APS that are the
subject of Submitted Bids by Existing Holders specifying one
or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding shares of APS that are subject
to Submitted Sell Orders (if such excess or such equality
exists (other than because the number of Outstanding shares of
APS in clause (1) above and this clause (2) are each zero
because all of the Outstanding shares of APS are the subject
of Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates per annum were rejected, thus
entitling such Existing Holders to continue to hold the shares
of APS that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates per annum were accepted, thus
entitling the Potential Holders to purchase the shares of APS
that are the subject of such Submitted Bids, would result in
the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum being at least
equal to the Available APS.
(ii) Promptly after the Auction Agent has made the determinations pursuant
to paragraph 9(d)(i), the Auction Agent shall advise the Trust of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding shares of APS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of APS are the subject of
Submitted Hold Orders, that the Dividend Period next succeeding the
Auction shall automatically be the same length as the immediately
preceding Dividend Period and the Applicable Rate for the next succeeding
Dividend Period shall be equal to 90% of the Reference Rate on the date of
the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant
to paragraph 9(d)(i), the Submitted Bids and Submitted Sell Orders shall
be accepted or rejected and the Auction Agent shall take such other action
as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions
of paragraph 9(e)(iii) and paragraph 9(e)(iv), Submitted Bids and Submitted Sell
Orders shall be accepted or rejected in the following order of priority and all
other Submitted Bids shall be rejected:
15
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any rate
per annum that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the Outstanding shares of APS
that are the subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
Outstanding shares of APS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
Outstanding shares of APS that are the subject of such Submitted Bid,
unless the number of Outstanding shares of APS subject to all such
Submitted Bids shall be greater than the number of Outstanding shares of
APS ("Remaining Shares") equal to the excess of the Available APS over the
number of Outstanding shares of APS subject to Submitted Bids described in
paragraph 9(e)(i)(B) and paragraph 9(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and each
such Existing Holder shall be required to sell Outstanding shares of APS,
but only in an amount equal to the difference between (1) the number of
Outstanding shares of APS then held by such Existing Holder subject to
such Submitted Bid and (2) the number of shares of APS obtained by
multiplying (x) the number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of Outstanding shares of APS held
by such Existing Holder subject to such Submitted Bid and the denominator
of which shall be the sum of the number of Outstanding shares of APS
subject to such Submitted Bids made by all such Existing Holders that
specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted but
only in an amount equal to the number of Outstanding shares of APS
obtained by multiplying (x) the difference between the Available APS and
the number of Outstanding shares of APS subject to Submitted Bids
described in paragraph 9(e)(i)(B), paragraph 9(e)(i)(C) and paragraph
9(e)(i)(D) by (y) a fraction the numerator of which shall be the number of
Outstanding shares of APS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of Outstanding shares
of APS subject to such 74 Submitted Bids made by all such Potential
Holders that specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding shares of APS are subject to Submitted Hold Orders),
subject to the provisions of paragraph 9(e)(iii), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall
be rejected, thus entitling such Existing Holder to continue to hold the
Outstanding shares of APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate shall
be accepted, thus requiring such Potential Holder to purchase the
Outstanding shares of APS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference between
(1) the number of Outstanding shares of APS then held by such Existing
Holder subject to such Submitted Bid or Submitted Sell Order and (2) the
number of shares of APS obtained by multiplying (x) the difference between
the Available APS and the aggregate number of Outstanding shares of APS
subject to Submitted Bids described in paragraph 9(e)(ii)(A) and paragraph
9(e)(ii)(B) by (y) a fraction the numerator of which shall be the number
of Outstanding shares of APS held by such Existing Holder subject to such
Submitted Bid or
16
Submitted Sell Order and the denominator of which shall be the number of
Outstanding shares of APS subject to all such Submitted Bids and Submitted
Sell Orders.
(iii) If, as a result of the procedures described in paragraph 9(e)(i) or
paragraph 9(e)(ii), any Existing Holder would be entitled or required to sell,
or any Potential Holder would be entitled or required to purchase, a fraction of
a share of APS on any Auction Date, the Auction Agent shall, in such manner as
in its sole discretion it shall determine, round up or down the number of shares
of APS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that each Outstanding share of APS purchased or sold by
each Existing Holder or Potential Holder on such Auction Date shall be a whole
share of APS.
(iv) If, as a result of the procedures described in paragraph 9(e)(i), any
Potential Holder would be entitled or required to purchase less than a whole
share of APS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of APS for purchase
among Potential Holders so that only whole shares of APS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of APS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of APS to be purchased and the aggregate number of the
Outstanding shares of APS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS
(f) Miscellaneous. The Trust may interpret the provisions of this
paragraph 9 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of APS. A Beneficial Owner or an Existing
Holder (A) may sell, transfer or otherwise dispose of shares of APS only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this paragraph 9 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Beneficial Owner or Existing
Holder, its Broker-Dealer, if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of APS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Trust nor any Affiliate shall submit an Order in any
Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer or
otherwise dispose of shares of APS to any Person other than the Trust. All of
the Outstanding shares of APS of a series shall be represented by a single
certificate registered in the name of the nominee of the Securities Depository
unless otherwise required by law or unless there is no Securities Depository. If
there is no Securities Depository, at the Trust's option and upon its receipt of
such documents as it deems appropriate, any shares of APS may be registered in
the Stock Register in the name of the Beneficial Owner thereof and such
Beneficial Owner thereupon will be entitled to receive certificates therefor and
required to deliver certificates therefor upon transfer or exchange thereof.
17
EXHIBIT B
DEUTSCHE BANK TRUST COMPANY
AUCTION BID FORM
Submit To: Deutsche Bank Trust Company Issue: Eaton Vance Floating-
Corporate Trust and Agency Group Rate Income Trust
100 Plaza One
Jersey City, New Jersey 07311
Attention: Auction Rate Securities
Telecopier No.: (212) 797-8600
Telephone No.: (212) 250-6645
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder:________________________
BENEFICIAL OWNER
Shares now held _______________ HOLD _____________
BID at rate of _____________
SELL_____________
POTENTIAL BENEFICIAL OWNER
# of shares bid _____________
BID at rate of _____________ Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.
[BROKER-DEALER] ______________________
Authorized Signature ________________________
18
EXHIBIT C
(Note: To be used only for transfers made other than pursuant to an
Auction)
TRANSFER FORM
Re: Eaton Vance Floating-Rate Income Trust
Auction Preferred Shares
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred _____ APS
to ____________ .
__________________________
(Name of Existing Holder)
__________________________
[BROKER-DEALER]
__________________________
(Name of Agent Member)
By: _________________________
Printed Name:
Title:
19
EXHIBIT D
(Note: To be used only for failures to deliver APS sold pursuant to an
Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ____________________ (the "Purchaser"),
which purchased _____ shares of APS of Eaton Vance Floating-Rate Income Trust in
the Auction held on ____________________ from the seller of such shares.
II. We are a Broker-Dealer for _____________________ (the "Seller"), which
sold ____ shares of APS of Eaton Vance Floating-Rate Income Trust in the Auction
held on ______________ to the Purchaser of such shares.
We hereby notify you that (check one):
_______ the Seller failed to deliver such shares to the Purchaser
_______ the Purchaser failed to make payment to the Seller upon delivery
of such shares
Name: _________________________
[BROKER-DEALER]
By: _______________________
Printed Name:
Title:
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
DEUTSCHE BANK TRUST COMPANY AMERICAS
________________________________
By:
Title:
[BROKER-DEALER]
________________________________
By:
Title:
21
EX-99.(L)
11
b51660efexv99wxly.txt
OPINION AND CONSENT OF KIRKPATRICK & LOCKHART LLP
EXHIBIT (l)
[KIRKPATRICK & LOCKHART LLP LETTERHEAD]
September 8, 2004
Eaton Vance Floating-Rate Income Trust
255 State Street
Boston, MA 02109
Dear Sirs:
This opinion is furnished in connection with the registration by Eaton
Vance Floating-Rate Income Trust, a business trust organized under the laws of
the Commonwealth of Massachusetts ("Trust"), of 17,400 Auction Preferred Shares,
par value of $.01 per share, having a liquidation preference of $25,000 per
share and divided equally between five series, ("Shares"), under the Securities
Act of 1933, as amended, pursuant to a registration statement on Form N-2 (File
No. 333-117357), as amended ("Registration Statement"), in the amounts set forth
under "Amount Being Registered" on the facing page of the Registration
Statement.
As counsel for the Trust, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Agreement and Declaration
of Trust of the Trust, the By-Laws of the Trust, and such other documents as we
have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable (except as described in the
Registration Statement) shares of beneficial interest of the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
Kirkpatrick & Lockhart LLP
BOSTON - DALLAS - HARRISBURG - LOS ANGELES - MIAMI - NEWARK - NEW YORK -
PITTSBURGH - SAN FRANCISCO - WASHINGTON
EX-99.(N)
12
b51660efexv99wxny.txt
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit (N)
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to the Registration
Statement of Eaton Vance Floating-Rate Income Trust on Form N-2 filed by the
Fund under the Securities Act of 1933, as amended (the "Act") (Registration No.
333-117357) and under the Investment Company Act of 1940, as amended (the "1940
Act") (Registration No. 811-21574) of our report dated June 15, 2004, relating
to the financial statements of Eaton Vance Floating-Rate Income Trust as of June
14, 2004 in the Statement of Additional Information which is part of such
registration statement.
We also consent to the references to our Firm under the heading "Independent
Registered Public Accounting Firm" in the Prospectus and Statement of Additional
Information.
/s/DELOITTE & TOUCHE LLP
------------------------
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 8, 2004
CORRESP
13
filename13.txt
September 8, 2004
Vincent J. Di Stefano, Esq.
Senior Counsel
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, N.W.
Washington, DC 20949
Re: Eaton Vance Floating-Rate Income Trust
File Nos. 333-117357 and 811-21574
Dear Mr. Di Stefano:
Transmitted electronically with this letter for filing pursuant to the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, on behalf of Eaton Vance Floating-Rate Income Trust (the "Trust") is
Pre-Effective Amendment No. 1 to the Trust's registration Statement on Form N-2
relating to the Registrant's initial issuance of auction preferred shares of
beneficial interest ("Pre-Effective Amendment No. 1").
A total registration fee of $55,114.50 with this Pre-Effective Amendment
No. 1 to the Trust's auction preferred shares Registration Statement ("APS
Registration Statement") is being filed for purposes of registering auction
preferred shares of beneficial interest of the Trust. The registration fee for
purposes of this Pre-Effective Amendment No. 1 in the amount of $55,114.50 has
been wired through the FEDWIRE system to the Securities and Exchange
Commission's ("SEC") account at Mellon Bank. The Pre-Effective Amendment No. 1
to the APS Registration Statement transmitted with this letter contains
conformed signatures pages, the manually executed originals of which are
maintained at the offices of the Trust.
Thank you for your letter transmitting your comments concerning the
auction preferred shares Registration Statement on Form N-2 for the Trust filed
with the Securities and Exchange Commission ("SEC") on July 14, 2004. We are
aware that the SEC staff prefers to establish a formal record of correspondence
with registrants. Accordingly, please find the Trust's formal responses to your
comments below.
Included with this Pre-Effective Amendment No. 1, both the Underwriters
and the Trust's formally request acceleration of effectiveness of the
Registration Statement to 2:00 p.m.. on this Friday, September 10, 2004.
PROSPECTUS
GENERAL
COMMENT: We note that portions of the filing are incomplete. We may have
additional comments on such portions when you complete them in a pre-effective
amendment on disclosures made in response to this letter, on information
supplied supplementally, or on exhibits added in any further pre-effective
amendments.
RESPONSE: The Fund understands this comment. All proposed responses to your
comments are provided herein and detailed in the enclosed marked portions of the
Registration Statement.
COMMENT: Please inform the staff of the information the Fund proposes to omit
from the final pre-effective amendment pursuant to Rule 430A under the
Securities Act.
RESPONSE: The Fund intends only to omit certain pricing information from
Pre-Effective Amendment No. 1. This would include the initial dividend rates and
periods. This information will be omitted, as it will not be known at the time
of filing. Per standard underwriting procedures, definitive "sizing" of the
offering will take place within a day or two of the date the Registration
Statement is declared effective. The Fund intends to file pursuant to Rule
497(h) a definitive prospectus and SAI containing any omitted information in
compliance with the requirements of Rule 430A.
PROSPECTUS SUMMARY
COMMENT: Please advise us supplementally whether the Fund is currently fully
invested. Also advise whether the underwriters of the Fund's common offering
exercised their options to purchase additional shares to cover over-allotments
and, if so, whether the underwriters still hold the shares so purchased.
RESPONSE: As of July 31, 2004, the date of the Trust's unaudited Financials
Statements, the Trust had substantially invested the proceeds received from the
initial closing of the Trust's common shares offering. The underwriters
exercised a portion of their overallotment option which was closed on August 11,
2004, which the Trust is currently investing the proceeds from this closing. It
is our understanding that the underwriters currently do not hold common shares
in a long position.
COMMENT: Please advise us supplementally whether the Fund has a strategy
concerning the duration of the Fund's portfolio relative to the auction dates of
the preferred shares. Does the Fund have a strategy for dealing with rising
interest rates or inverted yield curves?
RESPONSE: As reflect in Post-Effective Amendment No. 1 will issue initially 5
series of APS. Three of these series will have a 7-day dividend reset period and
the other two will have a 28-day dividend reset period. The length of these
dividend periods was determined with reference to current and expected interest
rate and yield curve circumstances as well as other pertinent factors. Eaton
Vance continuously monitors the effectiveness of the Fund's investment leverage
including with reference to changing interest rate and yield curve conditions.
Under the terms of the by-laws creating the APS, the Fund has the ability to
change the reset period of any series if this would be more advantageous to
common shareholders. In addition, the Fund has the ability to redeem some or all
APS if conditions are such that Eaton Vance believes they are not making a
positive contribution to the performance of common shares.
2
FINANCIAL HIGHLIGHTS
COMMENT: Please advise us supplementally why the Fund will use leverage when it
invests substantially in short-term debt.
RESPONSE: As similarly noted in response to an identical staff comment regarding
the recent auction preferred shares offering of Eaton Vance Tax-Advantaged
Global Dividend Income Fund, and Eaton Vance Tax-Advantaged Global Dividend
Opportunities Fund the common shares offering of the Trust raised approximately
$680 million in assets. The "Financial Highlights" in the prospectus will be as
of July 31, 2004 reflecting only a month's time period of operations. Although
the proceeds of the common offering are substantially invested now, it took some
time for Eaton Vance Management to invest the proceeds pursuant to the Fund's
investment objective from the commencement of operations on June 29, 2004. The
Fund expects to offer auction preferred shares in September when it expects to
be in a position to invest leveraged assets consistent with the Fund's
investment objective.
STATEMENT OF ADDITIONAL INFORMATION
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
COMMENT: This disclosure does not contain a reasonably detailed discussion of
the material factors that formed the basis for the board of directors approving
the investment advisory contract. Please revise the disclosure accordingly. See
Instruction to Item 18.13 of Form N-2.
RESPONSE: The disclosure in the Registration Statement mirrors the disclosure in
the Fund's common share registration statement as filed pursuant to Rule 497(h)
on June 25, 2004. The staff there indicated that it was satisfied with the
revised disclosure. The Fund's Board of Trustees has not readdressed the
approval of the investment advisory contract since then. Accordingly, the Fund
believes that this disclosure fully addresses the staff's comment and disagrees
that Item 18.13 of Form N-2 requires additional disclosure.
FINANCIAL STATEMENTS
COMMENT: Please include updated financial statements in the disclosure.
RESPONSE: The requested Statement of Assets and Liabilities will be included in
Pre-Effective No. 1 and has been provided supplementally to the staff prior to
such filing
3
The Trust and the Underwriter have filed herein a formal request for
acceleration for effectiveness and we will be in contact with you regarding this
request. We believe that this submission fully responds to your comments. As
indicated above, I will be calling you shortly to discuss any remaining concerns
so that they may be addressed on a timely basis to enable the Trust's
Registration Statement to be declared effective September 10, 2004 as discussed
above. Please feel free to call me at any time at 617-261-3246. In my absence,
please address any question or concerns to Mark Goshko at 617-261-3163 or Marc
Stahl at 617-261-3187.
As always, your cooperation is most appreciated.
Sincerely,
/s/Clair E. Pagnano
---------------------
Clair E. Pagnano
Enclosures
cc: Richard Pfordte
Securities and Exchange Commission, Division of Investment Management
Fred Marius
Eaton Vance Management
Mark P. Goshko
Kirkpatrick & Lockhart LLP
Marc O. Stahl
Kirkpatrick & Lockhart LLP
Thomas Hale
Skadden, Arps, Slate, Meagher & Flom LLP
Joshua Ratner
Skadden, Arps, Slate, Meagher & Flom LLP
4
CORRESP
14
filename14.txt
EATON VANCE FLOATING-RATE INCOME TRUST
The Eaton Vance Building
255 State Street
Boston, MA 02109
Telephone: (617) 482-8260
Telecopy: (617) 338-8054
September 8, 2004
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Vincent DiStefano
Division of Investment Management
Re: Eaton Vance Floating-Rate Income Trust (the "Trust")
1933 Act Registration Statement (File No. 333-117357)
1940 Act Registration Statement (File No. 811-21574)
Gentlemen:
Pursuant to Rule 461 under the Securities Act of 1933, as amended (the
"1933 Act"), the Trust hereby requests that the staff of the Division of
Investment Management accelerate the effective date of the Trust's 1933 Act
Registration Statement on Form N-2, as amended, to 2 p.m., New York City time,
on Friday, September 10, 2004, or as soon thereafter as possible.
In connection with such request the Trust acknowledges that:
1. Should the Commission or the staff acting pursuant to delegated
authority declare the registration statement effective, such action
does not foreclose any action by the Commission with respect to the
filing;
2. The action of the Commission or the staff acting pursuant to
delegated authority in declaring the filing effective does not relieve
the Trust of responsibility for the adequacy and accuracy of the
filing; and
3. The Trust will not assert the staff's acceleration of effectiveness
of the filing as a defense in any proceeding initiated by the
Commission or any other person under the federal securities laws.
Very truly yours,
Eaton Vance Floating-Rate Income Trust
By: /s/ Frederick S. Marius
_______________________________
Frederick S. Marius
Assistant Secretary
cc: Mr. Richard Pfordte, Branch Chief
Division of Investment Management
CORRESP
15
filename15.txt
[UBS Securities LLC Letterhead]
September 8, 2004
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Attn: Division of Investment Management
Re: Eaton Vance Floating-Rate Income Trust
Form N-2 Registration Statement (File No. 333-117357)
Dear Sir or Madam:
In connection with the above-referenced Registration Statement, and pursuant to
Rule 461 under the Securities Act of 1933, UBS Securities LLC, as representative
of the several Underwriters, hereby joins the above-referenced registrant in
requesting that the effective date of such Registration Statement be accelerated
so that it will be declared effective by 2 p.m. EST on September 10, 2004, or as
soon thereafter as possible.
The following information with respect to the expected approximate distribution
of Preliminary Prospectuses dated September 7, 2004 and distributed between
September 7, 2004 and September 8, 2004 is furnished pursuant to Rule 460 under
the Securities Act of 1933:
EATON VANCE FLOATING-RATE INCOME TRUST
No. of Copies
-------------
To Individuals / Institutions / Prospective Underwriters 975
To Statistical, Public Services, NASD, NYSE 25
-----
TOTAL 1,000
With respect to Rule 15c2-8 under the Securities Exchange Act of 1934 (the
"Rule"), we wish to advise the Commission that the Underwriters will distribute
copies of the Preliminary Prospectus to any person who is expected to receive a
confirmation of sale at least 48 hours prior to the date we expect to mail such
confirmations. Selected dealers, if any, represent that they will comply with
the Rule.
Yours truly,
UBS SECURITIES LLC
By: /s/ Hans van Hell
-----------------
Hans van Hell
Associate Director