[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