[Federal Register Volume 59, Number 197 (Thursday, October 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25280]
[[Page Unknown]]
[Federal Register: October 13, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20603; 812-9020]
Capital Exchange Fund, Inc., et al.; Notice of Application
October 6, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Capital Exchange Fund, Inc., Depositors Fund of Boston,
Inc., Diversification Fund, Inc., Eaton Vance Equity-Income Trust,
Eaton Vance Government Obligations Trust, Eaton Vance Growth Trust,
Eaton Vance High Income Trust, Eaton Vance Investment Fund, Inc., Eaton
Vance Investment Trust, Eaton Vance Investors Trust, Eaton Vance
Municipal Bond Fund L.P., Eaton Vance Municipals Trust, Eaton Vance
Municipals Trust II, EV Marathon Gold & Natural Resources Fund, Eaton
Vance Special Investment Trust, Eaton Vance Securities Trust, Eaton
Vance Total Return Trust, Fiduciary Exchange Fund, Inc., Second
Fiduciary Exchange Fund, Inc., The Exchange Fund of Boston, Inc.,
Vance, Sanders Exchange Fund, Alabama Tax Free Portfolio, Arizona
Limited Maturity Tax Free Portfolio, Arizona Tax Free Portfolio,
Arkansas Tax Free Portfolio, California Limited Maturity Tax Free
Portfolio, California Tax Free Portfolio, Colorado Tax Free Portfolio,
Connecticut Limited Maturity Tax Free Portfolio, Connecticut Tax Free
Portfolio, Florida Limited Maturity Tax Free Portfolio, Florida Tax
Free Portfolio, Georgia Tax Free Portfolio, Government Obligations
Portfolio, Growth Portfolio, Hawaii Tax Free Portfolio, High Income
Portfolio, Investors Portfolio, Kentucky Tax Free Portfolio, Louisiana
Tax Free Portfolio, Maryland Tax Free Portfolio, Massachusetts Limited
Maturity Tax Free Portfolio, Massachusetts Tax Free Portfolio, Michigan
Limited Maturity Tax Free Portfolio, Michigan Tax Free Portfolio,
Minnesota Tax Free Portfolio, Missouri Tax Free Portfolio, Mississippi
Tax Free Portfolio, National Limited Maturity Tax Free Portfolio, North
Carolina Limited Maturity Tax Free Portfolio, National Municipals
Portfolio, New Jersey Limited Maturity Tax Free Portfolio, New Jersey
Tax Free Portfolio, New York Limited Maturity Tax Free Portfolio, New
York Tax Free Portfolio, North Carolina Tax Free Portfolio, Ohio
Limited Maturity Tax Free Portfolio, Ohio Tax Free Portfolio, Oregon
Tax Free Portfolio, Pennsylvania Limited Maturity Tax Free Portfolio,
Pennsylvania Tax Free Portfolio, Rhode Island Tax Free Portfolio,
Short-Term Income Portfolio, South Carolina Tax Free Portfolio, Special
Investment Portfolio, Stock Portfolio, Tennessee Tax Free Portfolio,
Texas Tax Free Portfolio, Total Return Portfolio, Virginia Limited
Maturity Tax Free Portfolio, Virginia Tax Free Portfolio, and West
Virginia Tax Free Portfolio, each an open-end management investment
company registered under the Act, and Eaton Vance Prime Rate Reserves,
a closed-end management investment company registered under the Act
(collectively, the ``Funds'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 17(b) of
the Act for an exemption from sections 13(a)(2), 13(a)(3), 17(a)(1),
18(a), 18(c), 18(f)(1), 22(f), 22(g) and 23(a) of the Act and pursuant
to section 17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Funds to enter into deferred compensation arrangements with their
independent trustees.
FILING DATE: The application was filed on May 27, 1994, and amended on
August 24, 1994. Applicants have agreed to file an additional
amendment, the substance of which is incorporated herein, during the
notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 31,
1994, and should be accompanied by proof of service on applicants, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 24 Federal Street, Boston, Massachusetts 02110.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Funds are registered management investment companies. Some
of the Funds (the ``Portfolios'') issue shares to other Funds that
invest all or substantially all of their assets in the Portfolios.
Eaton Vance Management (``Eaton Vance'') currently serves as the
administrator or investment adviser for each of the Funds, except the
Portfolios. Boston Management and Research, a wholly-owned subsidiary
of Eaton Vance, serves as investment adviser to each of the Portfolios.
Eaton Vance and Boston Management are each registered under the
Investment Advisers Act. Eaton Vance Distributors, Inc., a wholly-owned
subsidiary of Eaton Vance, serves as the Funds' principal underwriter.
Applicants request that the proposed relief apply to the funds and any
requested investment companies that in the future are advised by Eaton
Vance or any entity under common control with or controlled by Eaton
Vance. The proposed relief would not, however, apply to any investment
company that is a money market fund that relies on rule 2a-7 under the
Act. Any relief granted from section 13(a)(3) of the Act would extend
only to named Funds.
2. A majority of the board of trustees of each Fund currently
consists of trustees who are not ``interested persons'' of that Fund
within the meaning of section 2(a)(19) of the Act. The non-interested
trustees receive annual fees from the Funds. Applicants propose to
offer a deferred fee arrangement to the trustees (the ``Eligible
Trustees'') who receive fees from one or more of (i) the Portfolios and
(ii) Funds that do not invest all or substantially all of their assets
in a Portfolio (the ``Participating Funds''). Under this arrangement,
the Eligible Trustees will be entitled to defer to a later date the
receipt of all or part of their trustees' fees in order to defer
payment of income taxes or for other reasons.
3. The proposed deferred fee arrangements would be implemented by
means of a deferred fee agreement (the ``Agreement'') entered into
between an Eligible Trustee and the appropriate Participating Fund.
Under each Agreement, the deferred fees will be credited to a book
reserve account (the ``Deferred Fee Account'') established by a
Participating Fund with respect to each of its series. The deferred
fees will be accrued in an amount equal to that which would have been
earned had such fees (and all income earned thereon) been invested and
reinvested in shares of any of a selection of the Participating Funds
(the ``Investment Funds'') that may be designated from time to time by
the management of the appropriate Participating Fund and the
participating Eligible Trustee. Such shares of the Investment Fund that
are purchased by a Participating Fund are referred to as the
``Underlying Securities.'' The return on the Deferred Fee Accounts will
be based upon the return of the Investment Fund(s) selected by the
particular Eligible Trustee or, to the extent one or more of the
Investment Funds selected for investment are no longer in existence,
upon a recognized measure of prevailing market interest rates (e.g.,
the Treasury Bill rate).
4. The obligations to make payments from the Deferred Fee Accounts
will be general unsecured obligations of each series of a Participating
Fund, and payments from the Deferred Fee Accounts will be made from the
general assets and property of such Participating Fund. The Agreement
will provide that the Participating Fund is under no obligation to
purchase, hold or dispose of any investments, but, if the Participating
Fund chooses to purchase investments to cover its obligations under
such Agreement, then all such investments will continue to be a part of
the general assets and property of the Participating Fund.
5. As a matter of prudent risk management, the Participating Funds
will purchase and hold shares of the Underlying Securities in amounts
equal to the deemed investment of the deferred fee accounts of its
Eligible Trustees. Thus, in cases where the Participating Funds
purchase shares of the Underlying Securities, liabilities created by
the credits to the Deferred Fee Accounts under the Agreement are
expected to be matched by an equal amount of assets (i.e., a direct
investment in the Underlying Securities). The Agreement will not
obligate any Participating Fund to retain the services of any trustee,
nor will they obligate any Participating Fund to pay any particular
level of compensation to the trustee.
6. Under the Agreement, deferred trustee's fees (including interest
accrued thereon) will become payable in cash upon the Eligible
Trustee's retirement or disability. Payments shall be made in a lump
sum or in up to ten annual installments. In addition, in the event of
the liquidation, dissolution or winding up of the appropriate
Participating Fund or the distribution of all or substantially all of
the Participating Fund's assets and property to its shareholders, all
unpaid amounts in the Deferred Fee Account shall be paid in a lump sum
on the effective date thereof. In the event of the Eligible Trustee's
death, the deferred compensation will be paid to his or her designated
beneficiary. In all other situations, the Eligible Trustee's right to
receive payments will be non-transferable.
Applicants' Legal Analysis
1. Applicants request an order under sections 6(c) and 17(b) of the
Act to exempt applicants from sections 13(a)(2), 13(a)(3), 17(a)(1),
18(a), 18(c), 18(f)(1), 22(f), 22(g) and 23(a) of the Act to the extent
necessary to permit the Funds to offer certain deferred fee
arrangements, and section 17(d) of the Act and rule 17d-1 thereunder to
permit the Funds to effect certain joint transactions incident to such
deferred fee arrangements. The finding required by section 17(b)(2) is
predicated on the assumption that relief is granted from section
13(a)(3).
2. Sections 18(a) and 18(c) restrict the ability of a registered
closed-end investment company to issue senior securities. Section
18(f)(1) generally prohibits a registered open-end investment company
from issuing senior securities. Section 13(a)(2) requires that a
registered investment company obtain shareholder authorization before
issuing any senior security not contemplated by the recitals of policy
in its registration statement. Applicants state that the Agreement
possesses none of the characteristics of senior securities that led
Congress to enact these sections. The Agreement would not: (a) induce
speculative investments or provide opportunities for manipulative
allocation of any Fund's expenses or profits; (b) affect control of any
Fund; (c) confuse investors or convey a false impression as to the
safety of their investments; or (d) be inconsistent with the theory of
mutuality of risk. All liabilities created by credits to Deferred Fee
Accounts are expected to be offset by equal amounts of assets that
would not otherwise exist if the fees were paid on a current basis.
3. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Agreement would set forth all such
restrictions, which would be included primarily to benefit the
participating trustees and would not adversely affect the interests of
such trustees or of any shareholder.
4. Sections 22(g) and 23(a) prohibit registered open-end investment
companies and closed-end investment companies, respectively, from
issuing any of their securities for services or for property other than
cash or securities. These provisions prevent the dilution of equity and
voting power that may result when securities are issued for
consideration that is not readily valued. Applicants believe that the
Agreement would merely provide for deferral of payment of such fees and
thus would be viewed as being issued not in return for services but in
return for a Fund not being required to pay such fees on a current
basis.
5. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. With limited
exceptions, each Fund has adopted an investment policy regarding the
purchase of investment company shares, which policy could prohibit or
restrict the Fund from purchasing shares of other investment companies.
Applicants believe that it is appropriate to exempt applicants as
necessary from section 13(a)(3) so as to enable the Participating Funds
to invest in Underlying Securities without a shareholder vote.
Applicants will provide notice to shareholders in the statement of
additional information of each Participating Fund of the deferred fee
arrangement with the participating trustees. The value of the
Underlying Securities will be de minimis in relation to the total net
assets of the respective Fund, and will at all times equal the value of
the Fund's obligations to pay deferred fees. Because investment
companies that might exist in the future could establish fundamental
policies that would accommodate purchases of shares of investment
companies in connection with the deferred fee arrangement, the relief
requested from section 13(a)(3) would extend to named applicants only.
6. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' under
section 2(a)(3)(C) of the Act. Section 17(a)(1) was designed to prevent
sponsors of investment companies from using investment company assets
as capital for enterprises with which they were associated or to
acquire controlling interest in such enterprises. Applicants believe
that an exemption from this provision would facilitate the matching of
each Fund's liability for deferred fees with the Underlying Securities
that would determine the amount of such liability.
7. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement or profit-sharing plan ``on a
basis different from or less advantageous than that of'' the affiliated
person. Under the Agreement, Eligible Trustees will not receive a
benefit, directly or indirectly, that would otherwise inure to a Fund
or its shareholder. Eligible Trustees will receive tax deferral, but
the Agreement otherwise will maintain the parties, viewed both
separately and in their relationship to one another, in the same
position as if the deferred fees were paid on a current basis. When all
payments have been made to an Eligible Trustee, the trustee will be no
better off (apart from the effect of tax deferral) than if he or she
had received trustee fees on a current basis and invested them in
Underlying Securities.
Applicants' Condition
Applicants agree that the order granting the requested relief shall
be subject to the following condition:
If a Participating Fund purchases Underlying Securities issued by
an affiliated Fund, the Participating Fund will vote such shares in
proportion to the votes of all other holders of shares of such
affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25280 Filed 10-12-94; 8:45 am]
BILLING CODE 8010-01-M