[Federal Register Volume 62, Number 101 (Tuesday, May 27, 1997)]
[Notices]
[Pages 28742-28745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13694]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 22670; 812-10056]


Eaton Vance Management, et al.; Notice of Application

May 19, 1997.
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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APLLICANTS: Eaton Vance Management, Eaton Vance Distributors, Inc. 
(collectively, ``Eaton Vance''), Boston Management and Research 
(``BMR''), Eaton Vance Prime Rate Reserves (``Prime Rate''), EV Classic 
Senior Floating-Rate Fund (``Classic Senior''), and Senior Debt 
Portfolio (the ``Portfolio''). Prime Rate and Classic Senior 
collectively are referred to as the ``Funds.''

RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 23(c) of 
the Act for an exemption from certain provisions of rule 23c-3.

SUMMARY OF APPLICATION: Applicants seek an order to permit certain 
closed-end investment companies to make rotating, monthly tender offers 
and impose early withdrawal charges (``EWCs'').

FILING DATES: The application was filed on March 25, 1996, and amended 
on October 21, 1996. 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 June 13, 1997, 
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 of a hearing by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants: (except the Portfolio) 24 Federal Street, Boston, MA 
02110; the Portfolio, c/o IBT Trust Company (Cayman), Ltd., The Bank of 
Nova Scotia Building, P.O. Box 501, Georgetown, Grand Cayman, Cayman 
Islands, BWI.

FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Branch Chief, at (202) 942-0564, or Elizabeth 
G. Osterman, Assistant Director, 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 is available for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Funds and the Portfolio are registered closed-end management 
investment companies. Eaton Vance serves as principal underwriter, 
investment adviser, and/or administrator for the Funds. BMR, a wholly-
owned subsidiary of Eaton Vance Management, serves as investment 
adviser to the Portfolio. Applicants request that the order apply to 
any registered closed-end investment company for which Eaton Vance, 
BMR, or any entity controlling, controlled by, or under common control 
with Eaton Vance acts as principal underwriter, investment adviser, or 
administrator. Each investment company that presently intends to rely 
on the requested relief is named as an applicant.
    2. The Funds invest all of their investable assets in ``interests'' 
of the Portfolio pursuant to a master-feeder investment structure.\1\ 
Through their investment in the Portfolio, all three feeder funds 
invest in senior secured floating rate loans. The Portfolio invests at 
least 80 percent of its total assets in senior secured floating rate 
loans under normal circumstances. Up to 20 percent of the Portfolio's 
assets may be held in cash, and invested in investment grade short-term 
debt obligations and interests in unsecured loans.
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    \1\ A third feeder fund, EV Medallion Senior-Floating Rate Fund, 
offers shares to foreign investors outside the United States.
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    3. Investment management and custodial activities are performed, 
and associated expenses are incurred, at the master fund level. The 
feeder funds share in these expenses in proportion to their respective 
interests in the master fund. Administration, distribution, and 
shareholder servicing activities are performed, and related expenses 
are incurred, at the feeder fund level. Such expenses vary among the 
feeder funds.
    4. The Funds continuously offer their shares to the public at net 
asset value. There is no secondary market for shares of the Funds. The 
Funds' trustees consider, with the expectation of adopting, quarterly 
repurchase offers to shareholders under section 23(c)(2) of the Act. 
The Funds obtain cash to consummate repurchase offers through quarterly 
offers by the Portfolio to repurchase interests held by the Funds in 
the Portfolio. Those repurchases are made at net asset value of the 
interests on the expiration date of the Portfolio's repurchase offer. 
Each Fund uses the proceeds from the interests that it tenders to the 
Portfolio to purchase shares tendered by its shareholders at net asset 
value on the Portfolio's

[[Page 28743]]

repurchase offer's expiration date (less any EWC).\2\
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    \2\ To make tender offers while engaging in a continuous 
offering of its shares under rule 415 under the Securities Act of 
1933 (``Securities Act''), each Fund received an exemption from rule 
10b-6 under the Securities Exchange Act of 1934 (``Exchange Act'') 
that prohibited participants in a distribution of securities from 
contemporaneously buying securities of the same class being 
distributed. See Eaton Vance Prime Rate Reserves (pub. avail. July 
20, 1989); EV Classic Senior Floating-Rate Fund (pub. avail. Apr. 
13, 1995). On March 4, 1997, the SEC adopted Regulation M, which, 
among other things, replaces rule 10b-6. If the requested relief is 
granted, applicants will rely on the exception for interval funds 
provided by rule 102 of Regulation M.
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    5. The Funds impose EWCs on shares accepted for repurchase that 
have been held for less than a certain period of time. The EWCs are 
paid to Eaton Vance Distributions, Inc. to allow it to recover a 
portion of its distribution expenses. Applicants state that are EWCs 
also are intended to discourage investors from purchasing Fund shares 
and quickly redeeming them in tender offers. Prime Rate's EWC varies 
from three percent of the value of the shares accepted for repurchase 
(for shares held less than one year) to zero (for shares held more than 
five years). Classic Senior imposes an EWC of one percent of the value 
of shares accepted for repurchase held less than one year.
    6. Classic Senior also pays service fees pursuant to a plan (the 
``Service Plan'') that is designed to meet the requirements of the 
National Association of Securities Dealers (``NASD'') Conduct Rule 
2830(d) as if Classic Senior were an open-end investment company.\3\ 
Under the Service Plan, Classic Senior may make service fee payments in 
amounts not to exceed .25% of its average daily net assets for any 
fiscal year. Classic Senior's trustees have implemented the Service 
Plan by authorizing Classic Senior to make quarterly payments to Eaton 
Vance Distributors, Inc. and other authorized firms in amounts not 
expected to exceed .15% of Classic Senior's average daily net assets 
for any fiscal year.
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    \3\ Neither the Portfolio nor either of the Funds imposes 
distribution fees similar to those charged by open-end investment 
companies under rule 12b-1 under the Act.
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    7. The Funds offer their shareholders an exchange option whereby 
shareholders tendering shares may use proceeds from their shares to 
invest in certain Eaton Vance open-end investment companies without 
incurring the EWC they would have paid had they received cash for their 
tendered shares.\4\ Any exchange option will comply with rule 11a-3 
under the Act as if the Funds were open-end investment companies 
subject to such rule. Applicants believe that the exchange option is 
consistent with rule 23c-3 under the Act.
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    \4\ The Funds offer the exchange option pursuant to exemptions 
from the best price provisions of rule 13e-4(f)(8)(ii) under the 
Exchange Act. See Eaton Vance Prime Rate Reserves (pub. avail. Jan. 
15, 1993); EV Classic Senior Floating-Rate Fund (pub. avail. Apr. 
13, 1995). The Funds expect to continue offering an exchange option 
if the requested relief is granted, although they will no longer 
rely on these exemptions. Rather, they intend to rely on the 
exemption from rule 13e-4 provided for interval funds.
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    8. Applicants propose to convert the Funds and the Portfolio to 
``interval funds'' as provided in rule 23c-3 under the Act and to 
organize additional interval funds in the future. The Funds and the 
Portfolio expect to continue operating in a master-feeder structure 
after conversion to interval fund status. The Funds would continue to 
make quarterly repurchase offers to their shareholders at net asset 
value, using the cash proceeds of interests they tender to the 
Portfolio. Applicants propose, however, that the Portfolio would make 
separate, quarterly tender offers to each feeder fund on a rotating 
basis, with each of the feeder funds receiving a tender offer once a 
quarter.
    9. The Portfolio would offer to purchase an identical percentage of 
the interests held by each feeder fund during each quarter. The 
Portfolio's board would determine the applicable percentage in advance 
of the upcoming quarter such that the first feeder fund making a tender 
offer in that quarter would be able to notify its shareholders of the 
repurchase offer amount no less than twenty-one days before the 
repurchase request deadline for that tender offer.
    10. If Eaton Vance creates additional feeder funds, such funds 
would be assigned a tender offer schedule corresponding with the tender 
offer schedule for one of the three existing feeder funds. Each new 
feeder fund would be assigned a tender offer schedule so as to most 
effectively balance the size of the Portfolio's monthly tender offers. 
In all events, there would remain three dates in each quarter (one in 
each month of the quarter) on which the Portfolio would make tender 
offers.
    11. Each feeder fund would make a tender offer to all of its 
shareholders during the month in which the Portfolio makes a tender 
offer to it, using the cash obtained from interests purchased by the 
Portfolio to purchase shares tendered by its shareholders. All 
shareholders in a particular feeder fund would receive a tender offer 
at the same time, and under the same terms, as all of the other 
shareholders in that feeder fund.
    12. Consistent with rule 23c-3(b)(5), if shareholders in a feeder 
fund tendered more than the repurchase offer amount, the feeder fund 
could repurchase shares beyond the repurchase offer amount. To obtain 
the cash necessary for the increased repurchase, the feeder fund could 
request that the Portfolio agree to repurchase up to an additional two 
percent of the outstanding interests in the Portfolio. To ensure equal 
treatment of the feeder funds, if the Portfolio agreed to purchase a 
certain percentage of additional interests from one feeder fund, it 
would agree to maintain sufficient liquid assets to purchase an equal 
percentage of additional interests from any other feeder fund making 
such a request during the succeeding two tender offers. If a repurchase 
offer were oversubscribed, the Portfolio and/or feeder funds would 
repurchase the tendered interests or shares on a pro rata basis.
    13. Under applicants' master-feeder structure, responsibility for 
each requirement of rule 23c-3 would be allocated to the Portfolio, the 
feeder funds, or both, as appropriate. Liquidity and portfolio 
monitoring functions would be performed at the master fund level. The 
Portfolio's board of trustees would, pursuant to rule 23c-
3(b)(10)(iii), adopt procedures reasonably designed to ensure that the 
Portfolio has liquid assets sufficient to comply with its fundamental 
policy to make repurchase offers to the feeder funds and satisfy the 
liquidity requirements of the rule. The boards of the feeder funds 
would oversee the Portfolio's board's administration of rule 23c-3's 
liquidity requirements.
    14. Notification and filing requirements would be performed at the 
feeder fund level. The feeder funds would provide notice to their 
shareholders about upcoming repurchase offers and suspensions or 
postponements of repurchase offers in accordance with rule 23c-3(b)(4), 
and would file such notices with the SEC as required by the rule.\5\ 
The feeder funds would comply with the requirements of rule 23c-
3(b)(11) related to advertisements and sales literature. Because the 
Portfolio does not issue

[[Page 28744]]

shares to the public, rule 23c-3(b)(11) does not apply to the 
Portfolio.
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    \5\ Applicants submit that no purpose would be served by 
requiring the Portfolio to duplicate the feeder funds' notice to 
public shareholders regarding upcoming repurchase offers. Applicants 
state that the Portfolio would, however, provide notice to the 
feeder funds regarding the repurchase offer amount sufficiently in 
advance of tender offers by the feeder funds to allow the feeder 
funds to comply with rule 23c-3(b)(4)'s shareholder notice 
requirements.
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    15. Both the Portfolio and the feeder funds would comply with the 
majority of the requirements of rule 23c-3, including the rule's 
requirements related to pricing, adoption of fundamental policy to make 
periodic repurchase offers, suspension of purchase offers, repurchase 
of more than repurchase amount, withdrawal of repurchase requests, 
composition of board of trustees, senior securities, and debt 
obligations.

Applicants' Legal Analysis

    1. Applicants request an order pursuant to sections 6(c) and 23(c) 
of the Act exempting them from certain provisions of rule 23c-3 under 
the Act to the extent necessary to: (a) Permit the Portfolio to make 
rotating, monthly tender offers to one feeder fund at a time; and (b) 
permit the Funds to impose EWCs.
    2. Section 23(c) provides in relevant part that no registered 
closed-end investment company shall purchase any securities of any 
class of which it is the issue except: (a) On a securities exchange or 
other open market; (b) purchase to tenders, after reasonable 
opportunity to submit tenders given to all holders of securities of the 
class to be purchased; or (c) under other circumstances as the SEC may 
permit by rules and regulations or orders for the protection of 
investors. The Funds currently repurchase their shares pursuant to 
section 23(c)(2).
    3. Rule 23c-3 permits a registered closed-end investment company 
(an ``interval fund'') to make repurchase offers of between five and 
twenty-five percent of its outstanding shares at net asset value to 
shareholders at periodic intervals pursuant to a fundamental policy of 
the investment company. An interval fund may not suspend or postpone a 
repurchase offer except by vote of the fund's directors/trustees, and 
then only under limited circumstances.
    4. Applicants believe that conversion to interval fund status would 
benefit shareholders for several reasons. First, each interval fund 
would be required to adopt as a fundamental policy a commitment to its 
shareholders to make periodic repurchase offers. Currently, neither the 
Funds nor the Portfolio have adopted such policies. Second, applicants 
believe that shareholders would benefit from cost savings to the Funds 
created by exemptions from tender offer rules under the Exchange Act 
for periodic tender offers made pursuant to rule 23c-3. Applicants also 
believe that the Funds would benefit from rule 486 under the Securities 
Act, which permits certain post-effective registration statements filed 
by interval funds to become effective immediately.
    5. Under rule 23c-3(b), interval funds are required to make 
repurchases from their shareholders ``at periodic intervals, pursuant 
to repurchase offers made to all holders of the stock.'' ``Periodic 
interval'' is defined in rule 23c-3(a)(1) as an interval of three, six, 
or twelve months. Applicants request relief from the requirements of 
rule 23c-3(b) to permit the Portfolio to make quarterly tender offers 
on a rotating basis to one of the three feeder funds during each month 
within a quarter, with each of the feeder funds receiving a tender 
offer once each quarter. Applicants request relief to the extent that 
such rotating tender offers may be deemed inconsistent with rule 23c-
3(b)'s requirements that: (a) Repurchase offers made by interval funds 
be made to all holders of the fund's shares; and (b) repurchase offers 
be made at intervals of three, six, or twelve months.
    6. Applicants believe that the use of staggered tender offers would 
permit the Portfolio to satisfy the liquidity requirements of rule 23c-
3 while holding liquid assets that constitute a lower percentage of the 
Portfolio's total assets than would be required for a tender offer to 
all feeder funds at once. Applicants argue that, by tendering to the 
feeder funds on a cyclical basis, rather than all at once, the 
Portfolio would realize substantial cost savings. Applicants also 
believe that the staggered tender offers may enable the Portfolio to 
make larger tender offers to the Funds, thereby enabling the Funds to 
make larger tender offers to their shareholders.
    7. Rule 23c-3(b) requires that periodic repurchase offers be made 
``to all holders of the stock.'' Separate, monthly tender offers by the 
Portfolio to each feeder fund could be construed to be inconsistent 
with this requirement because, in any given month, the Portfolio would 
make a tender offer to one, rather than all, feeder funds. Applicants 
believe, however, that staggered tender offers would not implicate the 
abusive practices to which the ``all holders'' requirement is 
addressed. Applicants cite the adopting release for rule 23c-3, which 
provides that the all holders requirement ``is intended to protect 
against unfair discrimination.'' \6\ According to applicants, rule 23c-
3's all holders requirement is substantially similar to the all holder 
requirement in section 23(c)(2). Applicants argue that the legislative 
purpose of that provision was to ``insure fair treatment of all 
security holders'' in connection with tender offers by investment 
companies.\7\ Applicants submit that all feeder funds (and all 
shareholders of the feeder funds) would be treated alike in that they 
would receive a quarterly tender offer on the same terms, i.e., at net 
asset value. Applicants believe that the fact that one feeder fund 
would receive a tender in a month different from another feeder fund 
within the same quarter is not the unfair discrimination at which the 
all holders requirement is directed.
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    \6\ Investment Company Act Release No. 19399, Section II.A.1.b.2 
(Apr. 7, 1993).
    \7\ S. Rep. No. 1775, 76th Cong., 3d Sess. (1940) at 16; H.R. 
Rep. No. 2639, 76th Cong., 3d Sess. (1940) at 21.
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    8. If the Funds and the Portfolio became interval funds, they could 
postpone or suspend a tender offer only under one of the extraordinary 
circumstances set forth in rule 23c-3(b)(3), and then only pursuant to 
a majority vote of the board of trustees. Applicants state that this 
requirement would preclude the Portfolio's board from unfairly 
discriminating among the feeder funds by making a tender offer to less 
than all of the funds in a given quarter.
    9. Because rule 23c-3(b)(1) would require the Portfolio to purchase 
interests tendered at the Portfolio's net asset value as of the 
repurchase pricing date, applicants believe that there would not be any 
discrimination in the method by which the Portfolio calculates the 
price paid to the feeder funds for the interests tendered. In addition, 
applicants argue that, because the Portfolio invests in senior secured 
loan interests that are unlikely to materially fluctuate in value, the 
net asset value paid to one feeder fund would not vary substantially 
from that paid to another feeder.
    10. The Portfolio's monthly tenders may be construed to be 
prohibited by rule 23c-3(b)'s requirement that repurchase offers be 
made at periodic intervals, as defined in rule 23c-3(a)(1). Applicants 
state that, according to the adopting release for rule 23c-3, shorter 
intervals were not considered compatible with the notification 
requirements of the rule.\8\ Applicants believe that the concern was 
that a fund could be forced to notify shareholders of the repurchase 
offer amount for an upcoming tender offer before knowing the amount of 
shares tendered in the prior tender offer. This would cause a fund to 
commit to a repurchase amount for the next tender offer and possibly 
incur an obligation to maintain a high

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level of liquid assets due to the rule's liquidity requirements, while 
unaware of the number of shares tendered in the current repurchase 
offer and the resulting decrease in liquid assets.
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    \8\ Investment Company Act Release No. 19399, Section II.A.4.
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    11. Applicants state that, because the Portfolio would determine 
the repurchase offer amount at the beginning of each quarter, 
information about the number of shares tendered in the previous offer 
is not material. In addition, because staggered tender offers would 
permit the Portfolio to maintain fewer liquid assets than it would 
otherwise be required to maintain, applicants believe that maintaining 
liquid assets sufficient for two tender offers in a quarter would not 
unduly burden the Portfolio.
    12. Rule 23c-3(b)(1) provides that an interval fund may deduct from 
repurchase proceeds only a repurchase fee, not to exceed two percent of 
the proceeds, that is reasonably intended to compensate the fund for 
expenses directly related to the repurchase. Applicants request relief 
from this provision to the extent that it would prohibit the imposition 
of an EWC on tendered shares that have been held for less than a 
specified period.
    13. Applicants note that, in the release adopting rule 23c-3, the 
SEC stated that ``consideration [regarding the use of contingent 
deferred sales loads by closed-end interval funds] may be appropriate 
after the [SEC] considers whether to adopt proposed rule 6c-10.'' Rule 
6c-10 was adopted on February 23, 1995,\9\ and applicants have agreed 
as a condition to any relief granted that they will comply with rule 
6c-10 under the Act as if such rule were applicable to them. The Funds 
also will comply with the NASD Conduct Rule's limits on service fees.
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    \9\ Investment Company Act Release No. 20916 (Feb. 23, 1995). 
Rule 6c-10 permits open-end funds to charge contingent deferred 
sales loads, subject to certain requirements for calculating those 
changes and a uniform treatment requirement.
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    14. Applicants believe that EWCs may be necessary for its 
distributor to recover distribution costs from shareholders who redeem 
early. In addition, EWCs may create a disincentive for shareholders to 
engage in frequent trading, which applicants believe imposes costs on 
shareholders.
    15. Section 6(c) provides that the SEC may exempt any person, 
security, or transaction from my provision of the Act, if and to the 
extent that such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants believe that the requested relief meets this standard.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The Portfolio will offer to repurchase an identical percentage 
of the interests held by each feeder fund during each quarter.
    2. The determination of the percentage in condition 1 will be made 
by the Portfolio's board in time for the first feeder fund to make a 
tender offer in the upcoming quarter to notify its shareholders of the 
repurchase offer amount no less than 21 days before the repurchase 
request deadline for that tender offer.
    3. If the Portfolio agrees to purchase from a feeder fund a 
percentage of shares in addition to the repurchase offer amount 
pursuant to rule 23c-3(b)(5), it will agree to maintain liquid assets 
sufficient to repurchase the same percentage of additional shares from 
all feeder funds requesting the purchase of additional shares during 
the succeeding two tender offers.
    4. Any feeder fund imposing an EWC will comply with rule 6c-10 
under the Act as if such rule were applicable. Any feeder fund imposing 
a service fee will comply with the National Association of Securities 
Dealers Conduct Rule 2830(d) as if such rule were applicable.
    5. Any fund operating under relief granted through the application 
will maintain an investment policy that requires, under normal 
conditions, that at least 65 percent of the value of its total assets 
will be invested in senior secured floating-rate loan interests.
    6. The boards of the feeder funds and the Portfolio will review 
annually the repurchase offer procedures set forth in the application 
to ensure that no feeder fund is being disadvantaged as a result of 
such procedures.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13694 Filed 5-23-97; 8:45 am]
BILLING CODE 8010-01-M