As filed with the Securities and Exchange Commission on July 10, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
/x/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-
/ / PRE-EFFECTIVE AMENDMENT NO.
/ / POST-EFFECTIVE AMENDMENT NO.
AND/OR
/x/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-21148
/ / AMENDMENT NO.
EATON VANCE INSURED
NEW YORK
MUNICIPAL BOND FUND
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (NUMBER, STREET, CITY, STATE, ZIP CODE)
(617) 482-8260
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
ALAN R. DYNNER
THE EATON VANCE BUILDING
255 STATE STREET, BOSTON, MASSACHUSETTS 02109
NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE) OF AGENT FOR SERVICE
COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ. SARAH E. COGAN, ESQ.
KIRKPATRICK & LOCKHART LLP SIMPSON THACHER & BARTLETT
75 STATE STREET 425 LEXINGTON AVENUE
BOSTON, MASSACHUSETTS 02109 NEW YORK , NEW YORK 10017
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):
/x/ when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Amount Being Offering Aggregate Amount of
Securities Registered Price Per Unit Offering Price Registration Fees
Being Registered (1) (1) (1) (1)(2)(3)
-----------------------------------------------------------------------------------------------------------------
Common Shares of Beneficial 6,666,667 $15.00 $100,000,000 $9,200
Interest, $.01 par value
================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee, pursuant to Rule 457(o) under the
Securities Act of 1933.
(2) Includes shares that may be offered by the Underwriters pursuant to an option to cover over-allotments.
(3) Transmitted prior to filing.
____________________________________
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.
SUBJECT TO COMPLETION - DATED JULY [__], 2002
PROSPECTUS
[EATON VANCE LOGO]
[__________] SHARES
EATON VANCE INSURED NEW YORK MUNICIPAL BOND FUND
Common Shares
$15.00 Per Share
------------------
Eaton Vance Insured New York Municipal Bond Fund (the "Fund") is a newly
organized, non-diversified, closed-end management investment company. The Fund's
investment objective is to provide current income exempt from regular federal
income tax, including alternative minimum tax ("AMT"), and New York State and
New York City personal income taxes. This income will be earned by investing
primarily in high grade New York municipal obligations that are insured as to
the timely payment of principal and interest and are not subject to AMT. The
Fund's net asset value and distribution rate will vary, and may be affected by
several factors, including changes in interest rates and the credit quality of
municipal issuers. Fluctuations in net asset value may be magnified as a result
of the Fund's use of leverage, which may be a speculative investment technique.
An investment in the Fund may not be appropriate for all investors, particularly
those that are not subject to federal and New York income taxes. There is no
assurance that the Fund will achieve its investment objective. See "Investment
Objective, Policies and Risks" beginning at page 12.
The Fund's investment adviser is Eaton Vance Management ("Eaton Vance" or
the "Adviser"). Eaton Vance manages 51 different municipal bond funds with
combined assets of about $7 billion, including 3 New York municipal bond funds
with combined asset of about $[ ].
No Prior History. Because the Fund is newly organized, its common shares
have no history of public trading. The shares of closed-end management
investment companies frequently trade at a discount from their net asset value.
This risk may be greater for investors expecting to sell their shares in a
relatively short period after completion of the public offering. The Fund has
applied to list its common shares on the American Stock Exchange under the
symbol "____".
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
(CONTINUED ON THE FOLLOWING PAGE)
PER TOTAL(1)
SHARE
Public Offering Price [$15.00] $[___________]
Sales Load(2) [$0.675] $[___________]
Estimated Offering Expenses(3) [$0.030] $[___________]
Proceeds to the Fund [$14.295] $[___________]
(FOOTNOTES ON FOLLOWING PAGE)
The underwriters are offering the shares subject to various conditions
and expect to deliver the shares to purchasers on or about ___________, 2002.
----------------
SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS IS [______], 2002
(CONTINUED FROM PREVIOUS PAGE)
(1)The underwriters named in this Prospectus may purchase up to ________
additional shares at the public offering price, less sales load, solely to
cover over-allotments, if any. If this option is exercised in full, the total
public offering price, sales load, solely to cover over-allotments, if any.
If this option is exercised in full, the total public offering price, sales
load, estimated offering expenses and proceeds to the Fund will be $______,
$_______ and $_______, respectively.
(2)For a description of all commissions and other compensation paid to the
underwriters by the Fund, see "Underwriting."
(3)Total expenses of issuance and distribution (other than underwriting
discounts and commissions) are estimated to be $_____. Eaton Vance or an
affiliate has agreed to pay offering costs in excess of [$0.03] per Share.
---------------
The Fund expects to use financial leverage through the issuance of preferred
shares, initially equal to approximately [38%] of its total assets (including
the amount obtained through leverage). The Fund intends to use leverage if it is
expected to result in higher income to Shareholders over time. Use of financial
leverage creates an opportunity for increased income but, at the same time,
creates special risks. There can be no assurance that a leveraging strategy will
be successful. SEE "INVESTMENT OBJECTIVE, POLICIES AND RISKS -- USE OF LEVERAGE
AND RELATED RISKS" AT PAGE 17 AND "DESCRIPTION OF CAPITAL STRUCTURE" AT PAGE 25.
This Prospectus sets forth concisely information you should know before
investing in the common shares of the Fund. Please read and retain this
Prospectus for future reference. A Statement of Additional Information dated
August [__], 2002, has been filed with the Securities and Exchange Commission
("SEC") and can be obtained without charge by calling 1-800-225-6265 or by
writing to the Fund. A table of contents to the Statement of Additional
Information is located at page 31 of this Prospectus. This Prospectus
incorporates by reference the entire Statement of Additional Information. The
Statement of Additional Information is available along with other Fund-related
materials: at the SEC's public reference room in Washington, DC (call
1-202-942-8090 for information on the operation of the reference room); the
EDGAR database on the SEC's internet site (HTTP://WWW.SEC.GOV); upon payment of
copying fees by writing to the SEC's public reference section, Washington, DC
20549-0102; or by electronic mail at PUBLICINFO@SEC.GOV. The Fund's address is
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 and its
telephone number is 1-800-225-6265.
The underwriters named in the Prospectus may purchase up to _____ additional
Shares from the Fund under certain circumstances.
THE FUND'S SHARES DO NOT REPRESENT A DEPOSIT OR OBLIGATION OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE FUND HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES
IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................................................... 4
Fund Expenses........................................................... 10
The Fund................................................................ 12
Use of Proceeds......................................................... 12
Investment Objective, Policies and Risks................................ 12
Management of the Fund.................................................. 21
Distributions and Taxes................................................. 22
Dividend Reinvestment Plan.............................................. 24
Description of Capital Structure........................................ 25
Underwriting............................................................ 28
Custodian and Transfer Agent............................................ 30
Legal Opinions.......................................................... 30
Reports to Stockholders................................................. 30
Independent Auditors.................................................... 30
Additional Information.................................................. 30
Table of Contents for the Statement of Additional Information........... 31
Trustees of the Fund.................................................... 31
---------------
UNTIL [_____], 2002 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
PROSPECTUS SUMMARY`
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL INFORMATION.
THE FUND............................ Eaton Vance Insured New York Municipal
Bond Fund (the "Fund") is a newly
organized, non-diversified, closed-end
management investment company. The Fund
offers investors the opportunity to
receive current income exempt from
regular federal income tax, including
alternative minimum tax, and New York
State and New York City personal income
taxes through a professionally managed
portfolio of municipal obligations.
Investments are based on Eaton Vance
Management's ("Eaton Vance" or the
"Adviser") research and ongoing credit
analysis, the underlying materials for
which are generally not available to
individual investors. An investment in
the Fund may not be appropriate for all
investors, particularly those that are
not subject to the federal and New York
income taxes. There is no assurance that
the Fund will achieve its investment
objective.
THE OFFERING........................ The Fund is offering [__________] common
shares of beneficial interest, par value
$0.01 per share (the "Shares"), through a
group of underwriters (the
"Underwriters") led by Salomon Smith
Barney Inc., [_________] and
[____________]. The Underwriters have
been granted an option to purchase up to
[___________] additional Shares solely to
cover over-allotments, if any. The
initial public offering price is [$15.00]
per share. The minimum purchase in this
offering is [___] Shares ($______). See
"Underwriting." Eaton Vance, or an
affiliate, has agreed to pay [(i) all
organizational expenses and (ii) offering
costs (other than sales loads) that
exceed $0.03 per Share.]
INVESTMENT OBJECTIVE AND
POLICIES.......................... The Fund's investment objective is to
provide current income exempt from
federal income tax, including alternative
minimum tax, and New York State and New
York City personal income taxes.
Securities will be purchased and sold in
an effort to maintain a competitive yield
and to enhance return based upon the
relative value of the securities
available in the marketplace.
During normal market conditions, at least
80% of the Fund's net assets will be
invested in municipal obligations, the
interest on which is exempt from federal
income tax, including alternative minimum
tax, and New York State and New York City
personal income taxes ("municipal
obligations") and that are insured as to
principal and interest payments by
insurers having a claims-paying ability
rated Aaa by Moody's Investors Service,
Inc. ("Moody's") or AAA by Standard &
Poor's Ratings Group ("S&P") or Fitch
Ratings ("Fitch"). This insurance does
not protect the market value of such
obligations or the net asset value of the
Fund. The value of an obligation will be
affected by the credit standing of its
insurer. Under normal market conditions,
the Fund expects to be fully invested (at
least 95% of its assets) in such
municipal obligations. The Fund primarily
invests in high grade municipal
obligations. At least 80% of the Fund's
net assets will normally be invested in
obligations rated in the highest category
at the time of investment (which is Aaa
by Moody's or AAA by S&P or Fitch or, if
unrated, determined to be of comparable
quality by the Adviser). Up to 20% of the
Fund's net assets may be invested in
obligations rated below Aaa or AAA (but
not lower than BBB or Baa) and comparable
unrated obligations. From time to time,
the Fund may hold a significant number of
municipal obligations that are unrated
but judged to be of comparable quality by
4
the Adviser.
THE FUND WILL NOT INVEST IN AN OBLIGATION
IF THE INTEREST ON THAT OBLIGATION IS
SUBJECT TO THE FEDERAL ALTERNATIVE
MINIMUM TAX.
The Fund may purchase and sell various
kinds of financial futures contracts and
related options, including futures
contracts and related options based on
various debt securities and securities
indices, to seek to hedge against changes
in interest rates or for other risk
management purposes.
LISTING............................. The Fund has applied for listing on the
American Stock Exchange under the symbol
["___"].
LEVERAGE............................ The Fund expects to use financial
leverage through the issuance of
preferred shares. The Fund intends
initially to use financial leverage of
approximately [38%] of its total assets
(including the amount obtained through
leverage). The Fund generally will not
use leverage if it anticipates that it
would result in a lower return to
Shareholders over time. Use of financial
leverage creates an opportunity for
increased income for Shareholders but, at
the same time, creates special risks
(including the likelihood of greater
volatility of net asset value and market
price of the Shares), and there can be no
assurance that a leveraging strategy will
be successful during any period in which
it is employed. See "Investment
Objective, Policies and Risks-- Use of
Leverage and Related Risks."
INVESTMENT ADVISER AND
ADMINISTRATOR..................... Eaton Vance, a wholly-owned subsidiary of
Eaton Vance Corp., is the Fund's
investment adviser and administrator. The
Adviser manages 4 national municipal
funds, 38 single state municipal funds, 8
limited maturity municipal funds and 1
money market municipal fund with combined
assets of about $7 billion as of May 31,
2002. Ten of the funds are closed-end.
See "Management of the Fund."
DISTRIBUTIONS....................... Commencing with the Fund's first
dividend, the Fund intends to make
regular monthly cash distributions to
Shareholders at a level rate based on the
projected performance of the Fund. The
Fund's ability to maintain a level Share
dividend rate will depend on a number of
factors, including dividends payable on
the preferred shares. As portfolio and
market conditions change, the rate of
dividends on the Shares and the Fund's
dividend policy could change. Over time,
the Fund will distribute all of its net
investment income (after it pays accrued
dividends on any outstanding preferred
shares). In addition, at least annually,
the Fund intends to distribute net
capital gain and taxable ordinary income,
if any, to you so long as the net capital
gain and taxable ordinary income are not
necessary to pay accrued dividends on, or
redeem or liquidate, any preferred
shares. Your initial distribution is
expected to be declared approximately 45
days, and paid approximately 60, from the
completion of this offering, depending on
market conditions. You may elect to
automatically reinvest some or all of
your distributions in additional Shares
under the Fund's Dividend Reinvestment
Plan. See "Distributions and Taxes" and
"Dividend Reinvestment Plan."
DIVIDEND REINVESTMENT
PLAN................................ The Fund has established a Dividend
Reinvestment Plan (the "Plan"). Under the
Plan, a Shareholder may elect to have all
dividend and capital gain distributions
5
automatically reinvested in additional
Shares either purchased in the open
market, or newly issued by the Fund if
the Shares are trading at or above their
net asset value. Shareholders may elect
to participate in the Plan by completing
the Dividend Reinvestment Plan
Application Form. If Shareholders do not
participate, such Shareholders will
receive all distributions in cash paid by
check mailed directly to them by
[__________________], as dividend paying
agent. Shareholders who intend to hold
their Shares through a broker or nominee
should contact such broker or nominee to
determine whether or how they may
participate in the Plan. See "Dividend
Reinvestment Plan."
CLOSED-END STRUCTURE................ Closed-end funds differ from open-end
management investment companies (commonly
referred to as mutual funds) in that
closed- end funds generally list their
shares for trading on a securities
exchange and do not redeem their shares
at the option of the shareholder. By
comparison, mutual funds issue securities
redeemable at net asset value at the
option of the shareholder and typically
engage in a continuous offering of their
shares. Mutual funds are subject to
continuous asset in-flows and out-flows
that can complicate portfolio management,
whereas closed-end funds generally can
stay more fully invested in securities
consistent with the closed-end fund's
investment objective and policies. In
addition, in comparison to open-end
funds, closed-end funds have greater
flexibility in the employment of
financial leverage and in the ability to
make certain types of investments,
including investments in illiquid
securities. However, shares of closed-end
funds frequently trade at a discount from
their net asset value. In recognition of
the possibility that the Shares might
trade at a discount to net asset value
and that any such discount may not be in
the interest of Shareholders, the Fund's
Board of Trustees (the "Board"), in
consultation with Eaton Vance, from time
to time may review possible actions to
reduce any such discount. The Board might
consider open market repurchases or
tender offers for Shares at net asset
value. There can be no assurance that the
Board will decide to undertake any of
these actions or that, if undertaken,
such actions would result in the Shares
trading at a price equal to or close to
net asset value per Share. The Board
might also consider the conversion of the
Fund to an open-end mutual fund. The
Board believes, however, that the
closed-end structure is desirable, given
the Fund's investment objective and
policies. Investors should assume,
therefore, that it is highly unlikely
that the Board would vote to convert the
Fund to an open-end investment company.
See "Description of Capital Structure."
SPECIAL RISK
CONSIDERATIONS...................... NO OPERATING HISTORY. The Fund is a
closed-end investment company with no
history of operations and is designed for
long-term investors and not as a trading
vehicle.
INTEREST RATE AND MARKET RISK. The prices
of municipal obligations tend to fall as
interest rates rise. Securities that have
longer maturities tend to fluctuate more
in price in response to changes in market
interest rates. A decline in the prices
of the municipal obligations owned by the
Fund would cause a decline in the net
asset value of the Fund, which could
adversely affect the trading price of the
Fund's Shares. This risk is usually
greater among municipal obligations with
longer maturities or durations are held
by the Fund. Although the Fund has no
policy governing the maturities or
durations of its investments, the Fund
expects that it will invest in a
portfolio of longer-term securities. This
means that the Fund will be subject to
greater market risk (other things being
equal) than a fund investing solely in
shorter-term securities. Market risk is
often greater among certain types of debt
securities, such as zero-coupon bonds,
which do not make regular interest
payments. As interest rates change, these
bonds often fluctuate in price more than
6
higher quality bonds that make regular
interest payments. Because the Fund may
invest in these types of debt securities,
it may be subject to greater market risk
than a fund that invests only in current
interest paying securities.
INCOME RISK. The income investors receive
from the Fund is based primarily on the
interest it earns from its investments,
which can vary widely over the short and
long-term. If interest rates drop,
investors' income from the Fund over time
could drop as well if the Fund purchases
securities with lower interest coupons.
CALL AND OTHER REINVESTMENT RISKS. If
interest rates fall, it is possible that
issuers of callable bonds with high
interest coupons will "call" (or prepay)
their bonds before their maturity date.
If a call were exercised by the issuer
during a period of declining interest
rates, the Fund is likely to replace such
called security with a lower yielding
security. If that were to happen, it
would decrease the Fund's dividends and
could affect the market price of Shares.
Similar risks exist when the Fund invests
the proceeds from matured or traded
municipal obligations at market interest
rates that are below the Fund's current
earnings rate.
CREDIT RISK. Credit risk is the risk that
one or more municipal bonds in the Fund's
portfolio will decline in price, or fail
to pay interest or principal when due,
because the issuer of the bond
experiences a decline in its financial
status.
LIQUIDITY RISK. The Fund may invest in
securities for which there is no readily
available trading market or which are
otherwise illiquid. The Fund may not be
able to readily dispose of such
securities at prices that approximate
those at which the Fund could sell such
securities if they were more widely
traded and, as a result of such
illiquidity, the Fund may have to sell
other investments or engage in borrowing
transactions if necessary to raise cash
to meet its obligations. In addition, the
limited liquidity could affect the market
price of the securities, thereby
adversely affecting the Fund's net asset
value and ability to make dividend
distributions.
MUNICIPAL BOND MARKET. Many obligations
in which the Fund 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. Therefore, the amount of public
information available about portfolio
securities will be limited, and the
performance of the Fund is more dependent
on the analytical abilities of Eaton
Vance than would be the case for an
investment company that invests primarily
in more widely rated, registered or
exchange-listed securities.
MUNICIPAL BOND INSURANCE. In the event
Moody's, S&P or Fitch (or all of them)
should downgrade its assessment of the
claims-paying ability of a particular
insurer, it (or they) could also be
expected to downgrade the ratings
assigned to municipal bonds insured by
such insurer, and municipal bonds insured
under Portfolio Insurance (as defined
below) issued by such insurer also would
be of reduced quality in the portfolio of
the Fund. Any such downgrade could have
an adverse impact on the net asset value
and market price of the Shares.
In addition, the Fund may be subject to
certain restrictions on investments
7
imposed by guidelines of the insurance
companies issuing Portfolio Insurance.
The Fund does not expect these guidelines
to prevent Eaton Vance from managing the
Fund's portfolio in accordance with the
Fund's investment objective and policies.
NEW YORK CONCENTRATION. The Fund's policy
of investing primarily in municipal
obligations of issuers located in New
York makes the Fund more susceptible to
adverse economic, political or regulatory
occurrences affecting such issuers.
SECTOR AND TERRITORY CONCENTRATION. The
Fund may invest 25% or more of its total
assets in municipal obligations of
issuers located in the same U.S.
territory or in the same economic sector,
such as revenue obligations of health
care facilities or hospitals, airport
revenue obligations or industrial
development bonds. This may make the Fund
more susceptible to adverse economic,
political or regulatory occurrences
affecting a particular territory or
economic sector.
EFFECTS OF LEVERAGE. The use of leverage
through issuance of preferred shares by
the Fund creates an opportunity for
increased net income, but, at the same
time, creates special risks. There can be
no assurance that a leveraging strategy
will be successful during any period in
which it is employed. The Fund intends to
use leverage to provide the holders of
Shares with a potentially higher return.
Leverage creates risks for holders of
Shares, including the likelihood of
greater volatility of net asset value and
market price of the Shares and the risk
that fluctuations in dividend rates on
any preferred shares may affect the
return to Shareholders. It is anticipated
that preferred share dividends will be
based on the yields of short-term
municipal obligations, while the proceeds
of any preferred share offering will be
invested in longer-term municipal
obligations, which typically have higher
yields. To the extent the income derived
from securities purchased with funds
received from leverage exceeds the cost
of leverage, the Fund's return will be
greater than if leverage had not been
used. Conversely, if the income from the
securities purchased with such funds is
not sufficient to cover the cost of
leverage, the return to the Fund will be
less than if leverage had not been used,
and therefore the amount available for
distribution to Shareholders as dividends
and other distributions will be reduced.
In the latter case, Eaton Vance in its
best judgment may nevertheless determine
to maintain the Fund's leveraged position
if it deems such action to be
appropriate.
In addition, under current federal income
tax law, the Fund is required to allocate
a portion of any net realized capital
gains or other taxable income to holders
of preferred shares. The terms of any
preferred shares are expected to require
the Fund to pay to any preferred
shareholders additional dividends
intended to compensate the preferred
shareholders for taxes payable on any
capital gains or other taxable income
allocated to the preferred shares. Any
such additional dividends will reduce the
amount available for distribution to the
Shareholders. As discussed under
"Management of the Fund," the fee paid to
Eaton Vance will be calculated on the
basis of the Fund's gross assets,
including proceeds from the issuance of
preferred shares, so the fees will be
higher when leverage is utilized. See
"Investment Objective, Policies and Risks
-- Use of Leverage and Related Risks."
The Fund currently intends to seek an
investment grade rating on any preferred
8
shares from a Rating Agency. The Fund may
be subject to investment restrictions of
the Rating Agency as a result. These
restrictions may impose asset coverage or
portfolio composition requirements that
are more stringent than those imposed on
the Fund by the Investment Company Act of
1940, as amended (the "Investment Company
Act" or "1940 Act"). It is not
anticipated that these covenants or
guidelines will impede Eaton Vance in
managing the Fund's portfolio in
accordance with its investment objective
and policies. See "Description of Capital
Structure -- Preferred Shares."
MARKET PRICE OF SHARES. The shares of
closed-end investment companies often
trade at a discount from their net asset
value, and the Fund's Shares may likewise
trade at a discount from net asset value.
The trading price of the Fund's Shares
may be less than the public offering
price. This risk may be greater for
investors who sell their Shares in a
relatively short period after completion
of the public offering.
NON-DIVERSIFICATION. The Fund has
registered as a "non-diversified"
investment company under the 1940 Act.
For federal income tax purposes the Fund,
with respect to up to 50% of its total
assets, will be able to invest more than
5% (but not more than 25%) of the value
of its total assets in the obligations of
any single issuer. To the extent the Fund
invests a relatively high percentage of
its assets in obligations of a limited
number of issuers, the Fund may be more
susceptible than a more widely
diversified investment company to any
single economic, political or regulatory
occurrence.
CERTAIN TAX CONSIDERATIONS. Distributions
of any taxable net investment income and
net short-term capital gain are taxable
as ordinary income. See "Distributions
and Taxes."
ANTI-TAKEOVER PROVISIONS. The Fund's
Agreement and Declaration of Trust
includes provisions that could have the
effect of limiting the ability of other
persons or entities to acquire control of
the Fund or to change the composition of
its Board. See "Description of Capital
Structure -- Anti-Takeover Provisions in
the Declaration of Fund."
9
FUND EXPENSES
The purpose of the tables below is to help you understand all fees and
expenses that you, as a Shareholder, would bear directly or indirectly. The
following table assumes the issuance of Fund preferred shares in an amount equal
to [38%] of the Fund's capital (after their issuance), and shows Fund expenses
as a percentage of net assets attributable to Shares.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Paid by You (as a percentage of offering price)... 4.50%
Offering expenses Borne by the Fund.................. 0.20%(1)
Dividend Reinvestment Plan Fees...................... None(2)
ANNUAL EXPENSES
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE TO
SHARES(3)
---------
Investment Advisory Fee(4)............................ [___]%
Other Expenses(4)..................................... [___]%
Interest Payments on Borrowed Funds(4)................ NONE
Total Annual Expenses(4).............................. [___]%
Fees and Expense Reimbursement (Years 1-5)............ ([___])%(5)
Total Net Annual Expenses (Years 1-5)(4).............. [ ]%(5)
=====
------------
(1)Eaton Vance or an affiliate has agreed to pay offering costs (other than
sales load) that exceed [$0.03 per Share.]
(2)You will be charged a [$___] service charge and pay brokerage charges if you
direct the Plan Agent to sell your Shares held in a dividend reinvestment
account.
(3)Stated as percentages of net assets attributable to Shares and assuming no
issuance of Fund preferred shares or Borrowings, the Fund's expenses would be
estimated to be as follows:
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE
TO SHARES(4)
---------
ANNUAL EXPENSES
Investment Advisory Fee................... [___]%
Other Expenses............................ [___]%
Interest Payments on Borrowed Funds....... NONE
Total Annual Expenses..................... [___]%
Fees and Expense Reimbursement (Years 1-5) ([ ])%(5)
Total Net Annual Expenses (Years 1-5)..... [ ] %(5)
======
(4)In the event the Fund, as an alternative to issuing Fund preferred shares,
utilizes leverage through commercial paper, notes or borrowings
("Borrowings") in an amount equal to [38%] of the Fund's total assets
(including the amount obtained from leverage), it is estimated that, as a
percentage of net assets attributable to Shares, the Investment Advisory Fee
would be [___]%, Other Expenses would be [__]%, Interest Payments on Borrowed
Funds (assuming an interest rate of [___]%, which interest rate is subject to
change based on prevailing market conditions) would be [___]%, Total Annual
Expenses would be [___]% and Total Net Annual Expenses would be [___]%. Based
on the total net annual expenses and in accordance with the example below,
the expenses for years 1, 3, 5 and 10 would be [$__], [$__], [$__] and [$__],
respectively.
(5)Eaton Vance has contractually agreed to reimburse the Fund for fees and
expenses in the amount of 0.32% of average daily net asset value of the Fund
for the first 5 full years of the Fund's operations, 0.24% of average daily
net asset value of the Fund in year 6, 0.16% in year 7 and 0.08% in year 8.
Assuming the issuance of Fund preferred shares or Borrowings in an amount
equal to [38%] of the Fund's total assets (including the amount obtained from
leverage) and calculated as a percentage of net assets attributable to
Shares, those amounts would be [__%] for the first 5 full years, [__%] in
10
year 6, [__%] in year 7 and [__%] in year 8. Without the reimbursement,
"Total Net Annual Expenses" would be estimated to be [___]% of average daily
net assets (or, assuming no issuance of Fund preferred shares or Borrowings,
[___]% of average daily net assets) attributable to Shares.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations and assume that the Fund issues approximately
[_________] Shares. See "Management of the Fund" and "Dividend Reinvestment
Plan."
The following example illustrates the expenses (including the sales load of
$45) that you would pay on a $1,000 investment in Shares, assuming (1) total net
annual expenses of 1.10% of net assets attributable to Shares in years 1 through
5, increasing to [___]% in years 9 and 10 and (2) a 5% annual return:(1)
1 YEAR 3 YEARS 5 YEARS 10 YEARS(2)
------ ------- ------- -----------
[$___] [$__] [$___] [$___]
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE HIGHER OR LOWER.
------------
(1)The example assumes that the estimated Other Expenses set forth in the
Annual Expenses table are accurate, that fees and expenses increase as
described in note 2 below and that all dividends and distributions are
reinvested at net asset value. Actual expenses may be greater or less than
those assumed. Moreover, the Fund's actual rate of return may be greater or
less than the hypothetical 5% return shown in the example.
(2)Assumes reimbursement of fees and expenses of 0.24% of average daily net
asset value of the Fund in year 6, 0.16% in year 7 and 0.08% in year 8. Eaton
Vance has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond [June 30, 2010]. See footnote 5 above and "Management of the
Fund--The Adviser."
11
THE FUND
The Fund is a newly organized, non-diversified, closed-end management
investment company that was organized as a Massachusetts business trust on July
2, 2002 and has no operating history. The Fund's principal office is located at
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 and its
telephone number is 1-800-225-6265.
This Prospectus relates to the initial public offering of the Fund's
common shares of beneficial interest, $0.01 par value (the "Shares"). See
"Underwriting."
USE OF PROCEEDS
The proceeds of this offering of Shares, before deduction of offering
expenses, estimated to be [$__________] (or [$__________] assuming exercise of
the Underwriters' over-allotment option in full), will be invested in accordance
with the Fund's investment objective and policies as soon as practicable, but in
no event, under normal market conditions, later than three months after the
receipt thereof. Pending such investment, the proceeds may be invested in
high-quality, short-term municipal debt securities. Eaton Vance or an affiliate
has agreed to pay all offering expenses of the Fund that exceed [$0.03] per
Share.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income exempt from regular
federal income tax, including alternative minimum tax, and New York State and
New York City personal income taxes. This income will be earned by investing
primarily in high grade New York municipal obligations that are insured as to
the timely payment of principal and interest. Securities will be purchased and
sold in an effort to maintain a competitive yield and to enhance return based
upon the relative value of the securities available in the marketplace.
Investments are based on Eaton Vance's research and ongoing credit analysis, the
underlying materials for which are generally not available to individual
investors.
Eaton Vance seeks to find municipal obligations of high quality that have
been undervalued in the marketplace. Eaton Vance's research specialists examine
credit histories, revenue sources, total debt histories, capital structures and
other data. This research capability is important because many obligations in
which the Fund will invest will not be rated or listed on a national securities
exchange, and the amount of public information available about such securities
will be limited. The Fund intends to emphasize the research that is critical to
discovering value while avoiding undue credit risk. The Fund will attempt to
enhance performance opportunities by seeking to remain fully invested.
PRIMARY INVESTMENT POLICIES
GENERAL COMPOSITION OF THE FUND. During normal market conditions, at least 80%
of the Fund's net assets will be invested in municipal obligations, the interest
on which is exempt from federal income tax, including alternative minimum tax,
and New York State and New York City personal income taxes ("municipal
obligations") and that are insured as to principal and interest payments by
insurers having a claims-paying ability rated Aaa by Moody's Investors Service,
Inc. ("Moody's") or AAA by Standard & Poor's Ratings Group ("S&P") or Fitch
Ratings ("Fitch"). This insurance does not protect the market value of such
obligations or the net asset value of the Fund. The value of an obligation will
be affected by the credit standing of its insurer. Under normal market
conditions, the Fund expects to be fully invested (at least 95% of its assets)
in such municipal obligations. The Fund primarily invests in high grade
municipal obligations. At least 80% of the Fund's net assets will normally be
invested in obligations rated in the highest category at the time of investment
(which is Aaa by Moody's or AAA by S&P or Fitch or, if unrated, determined to be
of comparable quality by the Adviser). Up to 20% of the Fund's net assets may be
invested in obligations rated below Aaa or AAA (but not lower than BBB or Baa)
and comparable unrated obligations. From time to time, the Fund may hold a
significant number of municipal obligations that are unrated but judged to be of
comparable quality by the Adviser.
The foregoing credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security in the event
that a Rating Agency downgrades its assessment of the credit characteristics of
a particular issue or withdraws its assessment. 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 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.
12
The Fund has adopted certain fundamental investment restrictions set forth in
the Statement of Additional Information which may not be changed without a
Shareholder vote. Except for such restrictions and the 80% requirements set
forth above, the investment objective and policies of the Fund may be changed by
the Board without Shareholder action.
THE FUND WILL NOT INVEST IN AN OBLIGATION IF THE INTEREST ON THAT OBLIGATION
IS SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes, the interest on which is, in the opinion of issuer's counsel
(or on the basis of other reliable authority), exempt from federal income tax.
The municipal obligations in which the Fund will invest are generally issued by
New York municipal issuers and pay interest which is, in the opinion of issuer's
counsel (or on the basis of other reliable authority), exempt from New York
State and New York City personal income taxes, in addition to federal income
tax, including alternative minimum tax. The Fund may also invest in municipal
obligations issued by United States territories (such as Puerto Rico or Guam)
the interest on which is exempt from federal income tax and New York State and
New York City personal income taxes.
Public purpose municipal bonds include general obligation and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility,
or from the proceeds of a specific revenue source. Some revenue bonds are
payable solely or partly from funds which are subject to annual appropriations
by a state's legislature. Municipal notes include bond anticipation, tax
anticipation and revenue anticipation notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Some of the securities in which the Fund invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds that pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Fund is required to take into account income from zero-coupon
bonds on a current basis, even though it does not receive that income currently
in cash, and the Fund is required to distribute substantially all of its income
for each taxable year. Thus, the Fund may have to sell other investments to
obtain cash needed to make income distributions.
MUNICIPAL OBLIGATION INSURANCE GENERALLY. Insured municipal obligations held
by the Fund will be insured as to their scheduled payment of principal and
interest under (i) an insurance policy obtained by the issuer or underwriter of
the Fund obligation at the time of its original issuance ("Original Issue
Insurance"), (ii) an insurance policy obtained by the Fund or a third party
subsequent to the Fund obligation's original issuance ("Secondary Market
Insurance") or (iii) another municipal insurance policy purchased by the Fund
("Portfolio Insurance"). This insurance does not protect the market value of
such obligations or the net asset value of the Fund. The Fund expects initially
to emphasize investments in municipal bonds insured under bond-specific
insurance policies (I.E., Original Issue or Secondary Market Insurance). The
Fund may obtain Portfolio Insurance from the insurers described in Appendix C to
the Statement of Additional Information. The Fund, as a non-fundamental policy
that can be changed by the Fund's Board of Trustees (the "Board"), will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated "Aaa" by Moody's or "AAA" by S&P or Fitch. There is no limit on
the percentage of the Fund's assets that may be invested in municipal bonds
insured by any one insurer.
Municipal bonds covered by Original Issue Insurance or Secondary Market
Insurance are themselves typically assigned a rating of "Aaa" or "AAA", as the
case may be, by virtue of the rating of the "Aaa" or "AAA" claims-paying ability
of the insurer and would generally be assigned a lower rating if the ratings
were based primarily upon the credit characteristics of the issuer without
regard to the insurance feature. By way of contrast, the ratings, if any,
assigned to municipal bonds insured under Portfolio Insurance will be based
primarily upon the credit characteristics of the issuer, without regard to the
insurance feature, and generally will carry a rating that is below "Aaa" or
"AAA." While in the portfolio of the Fund, however, a municipal bond backed by
Portfolio Insurance will effectively be of the same credit quality as a
municipal bond issued by an issuer of comparable credit characteristics that is
backed by Original Issue Insurance or Secondary Market Insurance.
The Fund's policy of investing in municipal bonds insured by insurers whose
claims-paying ability is rated "Aaa" or "AAA" applies only at the time of
purchase of a security, and the Fund will not be required to dispose of the
securities in the event Moody's, S&P or Fitch, as the case may be, downgrades
its assessment of the claims-paying ability of a particular insurer or the
credit characteristics of a particular issuer. In this connection, it should be
noted that in the event Moody's, S&P or Fitch (or all of them) should downgrade
its assessment of the claims-paying ability of a particular insurer or withdraws
its assessment, it (or they) could also be expected to downgrade the ratings
assigned to municipal bonds insured by such insurer, and municipal bonds insured
under Portfolio Insurance issued by such insurer also would be of reduced
quality in the
13
portfolio of the Fund. Moody's, S&P and Fitch continually assess the
claims-paying ability of insurers and the credit characteristics of issuers, and
there can be no assurance that they will not downgrade their assessments
subsequent to the time the Fund purchases securities.
The value of municipal bonds covered by Portfolio Insurance that are in
default or in significant risk of default will be determined by separately
establishing a value for the municipal bond and a value for the Portfolio
Insurance.
ORIGINAL ISSUE INSURANCE. Original Issue Insurance is purchased with respect
to a particular issue of municipal bonds by the issuer thereof or a third party
in conjunction with the original issuance of such municipal bonds. Under this
insurance, the insurer unconditionally guarantees to the holder of the municipal
bond the timely payment of principal and interest on such obligations when and
as these payments become due but not paid by the issuer, except that in the
event of the acceleration of the due date of the principal by reason of
mandatory or optional redemption (other than acceleration by reason of a
mandatory sinking fund payment), default or otherwise, the payments guaranteed
may be made in the amounts and at the times as payment of principal would have
been due had there not been any acceleration. The insurer is responsible for
these payments less any amounts received by the holder from any trustee for the
municipal bond issuer or from any other source. Original Issue Insurance does
not guarantee payment on an accelerated basis, the payment of any redemption
premium (except with respect to certain premium payments in the case of certain
small issue industrial development and pollution control municipal bonds), the
value of the Fund's shares, the market value of municipal bonds, or payments of
any tender purchase price upon the tender of the municipal bonds. Original Issue
Insurance also does not insure against nonpayment of principal or interest on
municipal bonds resulting from the insolvency, negligence or any other act or
omission of the trustee or other paying agent for these bonds.
Original Issue Insurance remains in effect as long as the municipal bonds it
covers remain outstanding and the insurer remains in business, regardless of
whether the Fund ultimately disposes of these municipal bonds. Consequently,
Original Issue Insurance may be considered to represent an element of market
value with respect to the municipal bonds so insured, but the exact effect, if
any, of this insurance on the market value cannot be estimated.
SECONDARY MARKET INSURANCE. Subsequent to the time of original issuance of a
municipal bond, the Fund or a third party may, upon the payment of a single
premium, purchase insurance on that security. Secondary Market Insurance
generally provides the same type of coverage as Original Issue Insurance and, as
with Original Issue Insurance, Secondary Market Insurance remains in effect as
long as the municipal bonds it covers remain outstanding and the insurer remains
in business, regardless of whether the Fund ultimately disposes of these
municipal bonds.
One of the purposes of acquiring Secondary Market Insurance with respect to a
particular municipal bond would be to enable the Fund to enhance the value of
the security. The Fund, for example, might seek to purchase a particular
municipal bond and obtain Secondary Market Insurance for it if, in the Adviser's
opinion, the market value of the security, as insured, less the cost of the
Secondary Market Insurance, would exceed the current value of the security
without insurance. Similarly, if the Fund owns but wishes to sell a municipal
bond that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance for it if, in the Adviser's opinion, the net proceeds
of the Fund's sale of the security, as insured, less the cost of the Secondary
Market Insurance, would exceed the current value of the security. In determining
whether to insure municipal bonds the Fund owns, an insurer will apply its own
standards, which correspond generally to the standards the insurer has
established for determining the insurability of new issues of municipal bonds.
See "--Original Issue Insurance" above.
PORTFOLIO INSURANCE. Portfolio Insurance guarantees the payment of principal
and interest on specified eligible municipal bonds purchased by the Fund and
presently held by the Fund. Except as described below, Portfolio Insurance
generally provides the same type of coverage as is provided by Original Issue
Insurance or Secondary Market Insurance. Municipal bonds insured under a
Portfolio Insurance policy would generally not be insured under any other
policy. A municipal bond is eligible for coverage under a policy if it meets
certain requirements of the insurer. Portfolio Insurance is intended to reduce
financial risk, but the cost thereof and compliance with investment restrictions
imposed under the policy will reduce the yield to shareholders of the Fund.
If a municipal obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then the security is not required to be additionally
insured under any Portfolio Insurance that the Fund may purchase. All premiums
respecting municipal bonds covered by Original Issue Insurance or Secondary
Market Insurance are paid in advance by the issuer or other party obtaining the
insurance.
14
Portfolio Insurance policies are effective only as to municipal bonds owned
by and held by the Fund, and do not cover municipal bonds for which the contract
for purchase fails. A "when-issued" municipal obligation will be covered under a
Portfolio Insurance policy upon the settlement date of the issue of such
"when-issued" municipal bond.
In determining whether to insure municipal bonds held by the Fund, an insurer
will apply its own standards, which correspond generally to the standards it has
established for determining the insurability of new issues of municipal bonds.
See "--Original Issue Insurance" above.
Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as the Fund is in existence, the municipal bonds covered by the
policy continue to be held by the Fund, and the Fund pays the premiums for the
policy. Each insurer will generally reserve the right at any time upon 90 days'
written notice to the Fund to refuse to insure any additional bonds purchased by
the Fund after the effective date of such notice. The Fund's Board generally
will reserve the right to terminate each policy upon seven days' written notice
to an insurer if it determines that the cost of such policy is not reasonable in
relation to the value of the insurance to the Fund.
Each Portfolio Insurance policy will terminate as to any municipal bond that
has been redeemed from or sold by the Fund on the date of redemption or the
settlement date of sale, and an insurer will not have any liability thereafter
under a policy for any municipal bond, except that if the redemption date or
settlement date occurs after a record date and before the related payment date
for any municipal bond, the policy will terminate for that municipal bond on the
business day immediately following the payment date. Each policy will terminate
as to all municipal bonds covered thereby on the date on which the last of the
covered municipal bonds mature, are redeemed or are sold by the Fund.
One or more Portfolio Insurance policies may provide the Fund, pursuant to an
irrevocable commitment of the insurer, with the option to exercise the right to
obtain permanent insurance ("Permanent Insurance") for a municipal bond that is
sold by the Fund. The Fund would exercise the right to obtain Permanent
Insurance upon payment of a single, predetermined insurance premium payable from
the sale proceeds of the municipal bond. The Fund expects to exercise the right
to obtain Permanent Insurance for a municipal bond only if, in the Adviser's
opinion, upon the exercise the net proceeds from the sale of the municipal bond,
as insured, would exceed the proceeds from the sale of the security without
insurance.
The Permanent Insurance premium for each municipal bond is determined based
upon the insurability of each security as of the date of purchase and will not
be increased or decreased for any change in the security's creditworthiness
unless the security is in default as to payment of principal or interest, or
both. If such event occurs, the Permanent Insurance premium will be subject to
an increase predetermined at the date of the Fund's purchase.
The Fund generally intends to retain any insured obligations covered by
Portfolio Insurance that are in default or in significant risk of default and to
place a value on the insurance, which ordinarily will be the difference between
the market value of the defaulted bond and the market value of similar bonds of
minimum investment grade (that is, rated "Baa" or "BBB") that are not in
default. In certain circumstances, however, the Adviser may determine that an
alternative value for the insurance, such as the difference between the market
value of the defaulted bond and either its par value or the market value of
similar bonds that are not in default or in significant risk of default, is more
appropriate. Except as described above for bonds covered by Portfolio Insurance
that are in default or subject to significant risk of default, the Fund will not
place any value on the Portfolio Insurance in valuing the municipal bonds it
holds.
Because each Portfolio Insurance policy will terminate for municipal bonds
sold by the Fund on the date of sale, in which event the insurer will be liable
only for those payments of principal and interest that are then due and owing
(unless Permanent Insurance is obtained by the Fund), the provision for this
insurance will not enhance the marketability of the Fund's bonds, whether or not
the bonds are in default or in significant risk of default. On the other hand,
because Original Issue Insurance and Secondary Market Insurance generally will
remain in effect as long as the municipal bonds they cover are outstanding,
these insurance policies may enhance the marketability of these bonds even when
they are in default or in significant risk of default, but the exact effect, if
any, on marketability, cannot be estimated. Accordingly, the Fund may determine
to retain or, alternatively, to sell municipal bonds covered by Original Issue
Insurance or Secondary Market Insurance that are in default or in significant
risk of default.
Premiums for a Portfolio Insurance policy are paid monthly, and are adjusted
for purchases and sales of municipal bonds covered by the policy during the
month. The yield on the Fund is reduced to the extent of the insurance premiums
it pays. Depending upon the characteristics of the municipal bonds held by the
Fund, the annual premium rate for policies of Portfolio Insurance is estimated
to range from 12 to 18 basis points of the value of the municipal bonds covered
under the policy.
15
OTHER TYPES OF CREDIT SUPPORT. The Fund may also invest in municipal
obligations that are secured by an escrow or trust account which contains
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, that are backed by the full faith and credit of the United
States, and sufficient, in combination with available trustee-held funds, in
amount to ensure the payment of interest on and principal of the secured
obligation ("collateralized obligations"). Collateralized obligations generally
are regarded as having the credit characteristics of the underlying U.S.
Government, agency or instrumentality securities. These obligations will not be
subject to Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
Accordingly, despite the existence of these credit support characteristics,
these obligations will not be considered to be insured obligations for purposes
of the Fund's policy of investing at least 80% of its net assets in insured
obligations.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligation or the net asset value of the Fund's Shares.
ADDITIONAL INVESTMENT PRACTICES
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a "when-issued"
basis, which means that payment and delivery occur on a future settlement date.
The price and yield of such securities are generally fixed on the date of
commitment to purchase. However, the market value of the securities may
fluctuate prior to delivery and upon delivery the securities may be worth more
or less than the Fund agreed to pay for them. The Fund may be required to
maintain a segregated account of liquid assets equal to outstanding purchase
commitments. The Fund may also purchase instruments that give the Fund the
option to purchase a municipal obligation when and if issued.
FUTURES TRANSACTIONS. The Fund 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 Fund's initial investment in these
contracts. The Fund will only purchase or sell futures contracts or related
options in compliance with the rules of the Commodity Futures Trading
Commission. These transactions involve transaction costs. There can be no
assurance that Eaton Vance's use of futures will be advantageous to the Fund.
Distributions by the Fund of any gains realized on the Fund's transactions in
futures and options on futures will be taxable. Rating agency guidelines on any
preferred shares issued by the Fund may limit use of these transactions.
INTEREST RATE SWAPS AND FORWARD RATE CONTRACTS. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, E.G., an exchange of fixed rate payments for floating
rate payments. The Fund will only enter into interest rate swaps on a net basis,
I.E., the two payment streams are netted out with the Fund receiving or paying,
as the case may be, only the net amount of the two payments. The Fund may also
enter forward rate contracts. Under these contracts, the buyer locks in an
interest rate at a future settlement date. If the interest rate on the
settlement date exceeds the lock rate, the buyer pays the seller the difference
between the two rates. If the lock rate exceeds the interest rate on the
settlement date, the seller pays the buyer the difference between the two rates.
Any such gain received by the Fund would be taxable.
If the other party to an interest rate swap or forward rate contract
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The net amount of the excess, if
any, of the Fund's obligations over its entitlements will be maintained in a
segregated account by the Fund's custodian. The Fund will not enter into any
interest rate swap or forward rate contract unless the claims-paying ability of
the other party thereto is considered to be investment grade by the investment
adviser. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction. These instruments are traded in the over-the-counter market.
INVESTMENT COMPANY SECURITIES. The Fund may purchase common shares of
closed-end investment companies that have a similar investment objective and
policies to the Fund. In addition to providing tax-exempt income, such
securities may provide capital appreciation. Such investments, which may also be
leveraged and subject to the same risks as the Fund, will not exceed 10% of
total assets, and no such company will be affiliated with Eaton Vance. These
companies bear fees and expenses that the Fund will incur indirectly.
16
USE OF LEVERAGE AND RELATED RISKS
The Fund expects to use leverage through the issuance of preferred shares.
The Fund initially intends to use leverage of approximately [38%] of its total
assets (including the amount obtained from leverage). The Fund generally will
not use leverage if the Adviser anticipates that it would result in a lower
return to Shareholders for any significant amount of time. The Fund also may
borrow money as a temporary measure for extraordinary or emergency purposes,
including the payment of dividends and the settlement of securities transactions
which otherwise might require untimely dispositions of Fund securities.
Leverage creates risks for holders of the Shares, including the likelihood of
greater volatility of net asset value and market price of the Shares. There is a
risk that fluctuations in the dividend rates on any preferred shares may
adversely affect the return to the holders of the Shares. If the income from the
securities purchased with such funds is not sufficient to cover the cost of
leverage, the return on the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to Shareholders as
dividends and other distributions will be reduced. The Adviser in its best
judgment nevertheless may determine to maintain the Fund's leveraged position if
it deems such action to be appropriate in the circumstances. As discussed under
"Management of the Fund," during periods in which the Fund is using leverage the
fees paid to Eaton Vance for investment advisory and administrative services
will be higher than if the Fund did not use leverage because the fees paid will
be calculated on the basis of the Fund's gross assets, including proceeds from
the issuance of preferred shares.
Capital raised through leverage will be subject to dividend payments which
may exceed the income and appreciation on the assets purchased. The issuance of
preferred shares involves offering expenses and other costs and may limit the
Fund's freedom to pay dividends on Shares or to engage in other activities. The
issuance of a class of preferred shares having priority over the Fund's Shares
creates an opportunity for greater return per Share, but at the same time such
leveraging is a speculative technique in that it will increase the Fund's
exposure to capital risk. Unless the income and appreciation, if any, on assets
acquired with offering proceeds exceed the cost of issuing additional classes of
securities (and other Fund expenses), the use of leverage will diminish the
investment performance of the Fund's Shares compared with what it would have
been without leverage.
The Fund may be subject to certain restrictions on investments imposed by
guidelines of one or more Rating Agencies which may issue ratings for any
preferred shares issued by the Fund. These guidelines may impose asset coverage
or Fund composition requirements that are more stringent than those imposed on
the Fund by the Investment Company Act of 1940 (the "Investment Company Act" or
"1940 Act"). It is not anticipated that these covenants or guidelines will
impede the Adviser from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies.
Under the Investment Company Act, the Fund is not permitted to issue
preferred shares unless immediately after such issuance the net asset value of
the Fund's portfolio is at least 200% of the liquidation value of the
outstanding preferred shares (I.E., such liquidation value may not exceed 50% of
the Fund's total assets). In addition, the Fund is not permitted to declare any
cash dividend or other distribution on its Shares unless, at the time of such
declaration, the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
such liquidation value. If preferred shares are issued, the Fund intends, to the
extent possible, to purchase or redeem preferred shares from time to time to
maintain coverage of any preferred shares of at least 200%. In addition, under
current federal income tax law, the Fund is required to allocate a portion of
any net realized capital gains or other taxable income to holders of preferred
shares. The terms of any preferred shares are expected to require the Fund to
pay to any preferred shareholders additional dividends intended to compensate
the preferred shareholders for taxes payable on any capital gains or other
taxable income allocated to the preferred shares. Any such additional dividends
will reduce the amount available for distribution to the Shareholders. Normally,
holders of the Shares will elect five of the Trustees of the Fund and holders of
any preferred shares will elect two. In the event the Fund failed to pay
dividends on its preferred shares for two years, preferred shareholders would be
entitled to elect a majority of the Trustees until the dividends are paid.
To qualify for federal income taxation as a "regulated investment company,"
the Fund must distribute in each taxable year at least 90% of its net investment
income (including tax-exempt interest and net short-term gain). The Fund also
will be required to distribute annually substantially all of its taxable income
and capital gain net income, if any, to avoid imposition of a nondeductible 4%
federal excise tax. If the Fund is precluded from making distributions on the
Shares because of any applicable asset coverage requirements, the terms of the
preferred shares may provide that any amounts so precluded from being
distributed, but required to be distributed for the Fund to meet the
distribution requirements for qualification as a regulated investment company,
will be paid to the holders of the preferred shares as a special dividend. This
dividend can be expected to decrease the amount that holders of preferred shares
would be entitled to receive upon redemption or liquidation of the shares.
The Fund's willingness to issue new securities for investment purposes, and
17
the amount the Fund will issue, will depend on many factors, the most important
of which are market conditions and interest rates. Successful use of a
leveraging strategy may depend on the Adviser's ability to predict correctly
interest rates and market movements, and there is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
Assuming the utilization of leverage in the amount of [38%] of the Fund's
total assets and an annual dividend rate on preferred shares of [____%] payable
on such leverage based on market rates as of the date of this Prospectus, the
additional income that the Fund must earn (net of expenses) in order to cover
such dividend payments would be [___%]. The Fund's actual cost of leverage will
be based on market rates at the time the Fund undertakes a leveraging strategy,
and such actual cost of leverage may be higher or lower than that assumed in the
previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Shares of leverage in the amount of approximately [38%] of
the Fund's total assets, assuming hypothetical annual returns of the Fund's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to Shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.
Assuming Portfolio Return (10)% (5)% 0% 5% 10%
(net of expenses)..........
Corresponding Share Return
Assuming [38%] (____)%(___)%(___)%[__%][___%]
Leverage.................
Until the Fund issues preferred shares, the Shares will not be leveraged, and
the risks and special considerations related to leverage described in this
Prospectus will not apply. Such leveraging of the Shares cannot be achieved
until the proceeds resulting from the use of leverage have been invested in
accordance with the Fund's investment objective and policies.
ADDITIONAL RISK CONSIDERATIONS
NO OPERATING HISTORY. The Fund is a closed-end investment company with
no history of operations and is designed for long-term investors and not as a
trading vehicle.
INTEREST RATE AND MARKET RISK. The prices of municipal obligations tend to
fall as interest rates rise. Securities that have longer maturities tend to
fluctuate more in price in response to changes in market interest rates. A
decline in the prices of the municipal obligations owned by the Fund would cause
a decline in the net asset value of the Fund, which could adversely affect the
trading price of the Fund's Shares. This risk is usually greater among municipal
obligations with longer maturities or durations are held by the Fund. Although
the Fund has no policy governing the maturities or durations of its investments,
the Fund expects that it will invest in a portfolio of longer-term securities.
This means that the Fund will be subject to greater market risk (other things
being equal) than a fund investing solely in shorter-term securities. Market
risk is often greater among certain types of income securities, such as
zero-coupon bonds, which do not make regular interest payments. As interest
rates change, these bonds often fluctuate in price more than higher quality
bonds that make regular interest payments. Because the Fund may invest in these
types of income securities, it may be subject to greater market risk than a fund
that invests only in current interest paying securities.
INCOME RISK. The income investors receive from the Fund is based primarily on
the interest it earns from its investments, which can vary widely over the
short- and long-term. If interest rates drop, investors' income from the Fund
over time could drop as well if the Fund purchases securities with lower
interest coupons.
CALL AND OTHER REINVESTMENT RISKS. If interest rates fall, it is possible
that issuers of callable bonds with high interest coupons will "call" (or
prepay) their bonds before their maturity date. If a call were exercised by the
issuer during a period of declining interest rates, the Fund is likely to
replace such called security with a lower yielding security. If that were to
happen, it would decrease the Fund's dividends and possibly could affect the
market price of Shares. Similar risks exist when the Fund invests the proceeds
from matured or traded municipal obligations at market interest rates that are
below the Fund's current earnings rate.
CREDIT RISK. Credit risk is the risk that one or more municipal bonds in the
Fund's portfolio will decline in price, or fail to pay interest or principal
when due, because the issuer of the bond experiences a decline in its financial
status. In general, lower rated municipal bonds carry a greater degree of risk
that the issuer will lose its ability to make interest and principal payments,
which could have a negative impact on the Fund's net asset value or dividends.
Securities rated in the fourth highest category are considered investment grade
but they also may have some speculative characteristics.
Changes in the credit quality of the issuers of municipal obligations held by
18
the Fund will affect the principal value of (and possibly the income earned on)
such obligations. In addition, the value of such securities are affected by
changes in general economic conditions and business conditions affecting the
relevant economic sectors. Changes by Rating Agencies in their ratings of a
security and in the ability of the issuer to make payments of principal and
interest may also affect the value of the Fund's investments. The amount of
information about the financial condition of an issuer of municipal obligations
may not be as extensive as that made available by corporations whose securities
are publicly traded.
The Fund may invest in municipal leases and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
NEW YORK CONCENTRATION. As described above, the Fund will invest
substantially all of its net assets in municipal obligations that are exempt
from New York State ("State") and New York City ("City") income taxes. The Fund
is therefore susceptible to political, economic or regulatory factors affecting
issuers of State and City municipal obligations. The information set forth below
and the related information in the Statement of Additional Information is
derived from sources that are generally available to investors. The information
is intended to give a recent historical description and is not intended to
indicate future or continuing trends in the financial or other positions of the
State and the City. It should be noted that the creditworthiness of obligations
issued by local New York issuers may be unrelated to the creditworthiness of
obligations issued by the State and the City, and that there is no obligation on
the part of the State to make payment on such local obligations in the event of
default.
The events of September 11, 2001 had a significant impact upon the State
economy generally and more directly on that of the City. The City and State
expect, based on actions of the U.S. Congress and the President, that they will
be fully reimbursed for the cost to recover from clean up and repair the
consequences of the World Trade Center attack. However, prior to September 11,
the nation's and the State's economies had been weakening and the loss of
approximately one hundred thousand jobs in the City as a direct result of
September 11 will produce material budgetary pressures including increases to
later year budget gaps for the City and reductions to State surpluses. The State
has not quantified the impact of expected reductions in receipts and increased
expenditures for unemployment and economic revitalization resulting from
September 11. The City's Financial Plan for Fiscal Years 2002-2006 released by
the Mayor of the City on February 13, 2002 (the "City Financial Plan"), projects
total revenue lost to the City as a result of September 11 during those fiscal
years will be $4.5 billion and that expenses over the same period have increased
by $4.4 billion over prior projections.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State's economy grew more slowly than that of the
nation as a whole, gradually eroding the State's relative economic affluence, as
urban centers lost the more affluent to suburbs and people and business migrated
to the South and West. However, since 1999, prior to the impact of September 11,
the growth of the State's economy has equaled or exceeded national trends. The
State has for many years had a very high state and local tax burden relative to
other states. The burden of state and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or to not
locate within, the State and remains an impediment to growth and job creation.
The State's and the City's economies remain more reliant on the securities
industry than is the national economy. As a result, the downturn in that
industry prior to September 11 resulted in adverse changes in wage and
employment levels.
The State ended its 2000-2001 fiscal year with a cash surplus of
approximately $1.1. billion. In its January 22, 2002 quarterly update, in part
as a result of September 11, the State has projected a decline in economic
growth and lower employment levels in 2002. As a result of declines in State
employment, Wall Street bonuses, and non-wage income levels, personal income is
expected to decline in 2001-2002 and increase minimally in 2002-2003. In the
quarterly update, the State Division of the Budget projects a closing balance in
the General Fund of $2.1 billion in 2001-2002. The State has noted that there
are significant risk factors that could result in a reduction in economic
activity statewide such a greater job losses, weaker financial markets and
smaller bonus payments by Wall Street firms.
The Governor presented his 2002-2003 Executive Budget to the Legislature on
January 22, 2002. The Executive Budget contains financial projections for the
States 2001-2002 through 2004-2005 fiscal years. The Executive Budget projects
total General Fund receipts, including transfers of available General Fund
balances at $40.2 billion, and disbursements at $40.2 billion for fiscal year
2002-2003, a balanced budget for that fiscal year. The Executive Budget
identifies potential budget gaps at $2.8 billion and $3.3 billion in fiscal
years 2003-2004 and 2004-2005, respectively.
On February 13, 2002, the Mayor of the City outlined his proposed $41.4
19
billion City budget for fiscal year 2003 (July 1, 2002 to June 30, 2003), which
is contained in the City Financial Plan. The proposed fiscal year 2003 budget
incorporates a number of steps to close a projected $4.8 billion budget gap,
including city agency cuts ranging up to 26%, staffing changes requiring union
consent, stretching out some elements of the City's four year construction plan
to five years, debt restructuring and asset sales and proposed State and federal
initiatives to generate up to $2.1 billion of gap closing actions in fiscal year
2003 and another $1.5 billion of its general obligation bonds in fiscal years
2004 through 2006. The Mayor has also proposed that the City issue $1.5 billion
of its general obligations bonds in fiscal year 2003 to help close the budget
gap. As the result of extraordinary actions to address the impact of September
11, the City's Financial Plan projects a balanced budget in the 2002 fiscal year
and budget gaps of $5.0 billion, $5.4 billion and $5.6 billion, respectively,
for the 2004, 2005 and 2006 fiscal years prior to any gap closing actions. Some
of the gap closing measures proposed by the Mayor for fiscal year 2003 have
recurring effects are projected to reduce the fiscal year 2004, 2005 and 2006
budget gaps to $2.6 billion, $2.9 billion and $3.1 billion, respectively. The
Mayor proposes to close these outyear gaps through unspecified additional City
agency cuts, federal and State initiatives and other actions. It should be noted
that the City Council must approve the 2003 City budget and that it may not
agree to certain of the Mayor's gap closing proposals.
The City depends on aid from the State and federal governments to both enable
the City to balance its budget and to meet its cash requirements. The City
Financial Plan provides for an additional $800 million in State and federal aid
in fiscal year 2003 alone. If State or federal aid for fiscal year 2003 or
thereafter is less than the level projected in the Mayor's proposal, projected
savings may be negatively impacted and the Mayor may be required to proposes
significant additional spending reductions or tax increases to balance the
City's budget. If the State, the State agencies, the City, other municipalities
or school districts were to suffer serious financial difficulties jeopardizing
their respective access to the public credit markets, or increasing the risk of
default, the market price of municipal bonds issued by such entities could be
adversely affected.
As of March 13, 2002, Moody's rated the City's outstanding general obligation
bonds A2, Standard and Poor's rate such bonds A and Fitch rate such bonds A+.
Such ratings reflect only the view of Moody's, Standard and Poor's and Fitch,
from which an explanation of the significance of such ratings may be obtained.
There is no assurance that such ratings will continue for any given periods of
time or that that they will not be revised downward or withdrawn entirely. Any
such downward revision or withdrawal could have an adverse effect on the market
prices of City bonds and could increase the City's borrowing costs. See "Factors
Pertaining to New York" in the Statement of Additional Information for more
information about New York.
The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of municipal obligations and
does not purport to be a complete or exhaustive description of all adverse
conditions to which issuers of New York municipal obligations held by the Fund
are subject. Additionally, many factors including national economic, social and
environmental policies and conditions, which are not with the control of the
issuers of New York municipal obligations, could affect or could have an adverse
impact on the financial condition of the issuers. The Fund is unable to predict
whether or to what extent such factors or other factors may affect the issuers
of New York municipal obligations, the market value or marketability of New York
municipal obligations or the ability of the respective issuers of the New York
municipal obligations acquired by the Fund to pay interest on or principal of
the municipal obligations. This information has not been independently verified.
See the Statement of Additional Information for a further discussion of factors
affecting municipal obligations in New York.
SECTOR AND TERRITORY CONCENTRATION. The Fund may invest 25% or more of its
total assets in municipal obligations of issuers located in the same U.S.
territory or in municipal obligations in the same economic sector, including
without limitation the following: lease rental obligations of state and local
authorities; obligations dependent on annual appropriations by a territory's
legislature for payment; obligations of state and local housing finance
authorities, municipal utilities systems or public housing authorities;
obligations of hospitals or life care facilities; or industrial development or
pollution control bonds issued for electric utility systems, steel companies,
paper companies or other purposes. This may make the Fund more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
state or economic sector. For example, health care related issuers are
susceptible to Medicaid reimbursement policies, and national and state health
care legislation. As concentration increases, so does the potential for
fluctuation in the net asset value of Fund Shares.
LIQUIDITY RISK. At times, a portion of the Fund's assets may be invested in
securities as to which the Fund, by itself or together with other accounts
managed by Eaton Vance and its affiliates, holds a major portion of all of such
securities. The secondary market for some municipal obligations is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No established resale market exists for certain of the municipal
obligations in which the Fund may invest. The Fund 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. In certain situations, the
Fund could find it more difficult to sell such securities at desirable times
and/or prices.
MUNICIPAL BOND MARKET RISK. Investing in the municipal bond market involves
20
certain risks. The amount of public information available about the municipal
obligations in the Fund's portfolio is generally less than for corporate
equities or bonds, and the investment performance of the Fund may therefore be
more dependent on the analytical abilities of Eaton Vance than if the Fund were
a stock fund or taxable bond fund.
The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations, or on
the ability of municipalities to levy taxes. Issuers of municipal securities
might seek protection under the bankruptcy laws. In the event of bankruptcy of
such an issuer, the Fund could experience delays in collecting principal and
interest to which it is entitled. To enforce its rights in the event of default
in the payment of interest or repayment of principal , or both, the Fund may
take possession of and manage the assets securing the issuer's obligations on
such securities which may increase the Fund's operating expenses. Any income
derived from the Fund's ownership or operation of such assets may not be
tax-exempt.
MUNICIPAL BOND INSURANCE. In the event Moody's, S&P or Fitch (or all of them)
should downgrade its assessment of the claims-paying ability of a particular
insurer, it (or they) could also be expected to downgrade the ratings assigned
to municipal obligations insured by such insurer, and municipal obligations
insured under Portfolio Insurance issued by such insurer also would be of
reduced quality in the portfolio of the Fund. Any such downgrade could have an
adverse impact on the net asset value and market price of the Shares. See
"Primary Investment Policies - Municipal Obligation Insurance Generally" above.
In addition, the Fund may be subject to certain restrictions on investments
imposed by guidelines of the insurance companies issuing Portfolio Insurance.
The Fund does not expect these guidelines to prevent Eaton Vance form managing
the Fund's portfolio in accordance with the Fund's investment objective and
policies.
MARKET PRICE OF SHARES. The Fund is a closed-end investment company with no
history of operations and is designed primarily for long-term investors and not
as a trading vehicle. The shares of closed-end investment companies often trade
at a discount from their net asset value, and the Shares may likewise trade at a
discount from net asset value. The trading price of the Fund's Shares may be
less than the initial public offering price, creating a risk of loss for
investors purchasing in the initial public offering of the Shares. This market
price risk may be greater for investors who sell their Shares within a
relatively short period after completion of this offering.
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 Shares and
distributions thereon can decline. In addition, during any periods of rising
inflation, preferred shares dividend rates would likely increase, which would
tend to further reduce returns to Shareholders.
NON-DIVERSIFICATION. The Fund has registered as a "non-diversified"
investment company under the 1940 Act so that, subject to its investment
restrictions and applicable federal income tax diversification requirements,
with respect to 50% of its total assets, it will be able to invest more than 5%
(but not more than 25%) of the value of its total assets in the obligations of
any single issuer. To the extent the Fund invests a relatively high percentage
of its assets in obligations of a limited number of issuers, the Fund will be
more susceptible than a more widely diversified investment company to any single
corporate, economic, political or regulatory occurrence.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the
responsibility of the Fund's Board under the laws of The Commonwealth of
Massachusetts and the Investment Company Act.
THE ADVISER
Eaton Vance acts as the Fund's investment adviser under an Investment
Advisory Agreement (the "Advisory Agreement"). The Adviser's principal office is
located at The Eaton Vance Building, 255 State Street, Boston, Massachusetts
02109. Eaton Vance, its affiliates and predecessor companies have been managing
21
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 over $60 billion, of which
approximately [$__] billion is in investment companies. 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.
Eaton Vance employs 25 personnel in its municipal bond department, including
five portfolio managers, three traders and nine credit analysts. Eaton Vance was
one of the first advisory firms to manage a registered municipal bond investment
company, and has done so continuously since 1978. Eaton Vance currently manages
4 national municipal investment companies, 38 single state municipal investment
companies, 8 limited maturity municipal investment companies and 1 money market
municipal investment company, with assets of about $7 billion. Ten of those
funds are closed-end and 3 are New York funds with about $[ ] in assets. [Among
such funds, Eaton Vance currently offers Eaton Vance New York Municipals Fund -
Class A ("New York Fund"), a series of Eaton Vance Municipals Trust. The New
York Fund is an open-end fund with similar investment objective and policies to
the Fund. Morningstar, Inc. awarded New York Fund [___] stars for the [__]-year
period ended [_____], 200_. Morningstar is an independent evaluator of public
investment companies and publishes proprietary ratings reflecting historical
risk-adjusted performance. Morningstar ratings are calculated from a fund's
annual returns in excess of the 90-day U.S. Treasury bill returns, with
appropriate fee adjustments a risk factor that reflects fund performance is in
the top [___]% of its rating category. Ratings are subject to change every
month. Although New York Fund has similar investment objectives and policies to
the Fund, certain investment policies and restrictions of New York Fund differ
from those of the Fund. For example, New York Fund is not required to invest in
insured municipal obligations, has not employed financial leverage for
investment purposes, may invest some of its assets in municipal obligations
rated below investment grade and can hold no more than 15% of its net assets in
illiquid securities. Moreover, New York Fund, as an open-end fund, is
continuously offered and makes daily redemptions so it has not been fully
invested at all times. Past performance of New York Fund is not indicative of
the Fund's performance.]
Under the general supervision of the Fund's Board, the Adviser will carry out
the investment and reinvestment of the assets of the Fund, will furnish
continuously an investment program with respect to the Fund, will determine
which securities should be purchased, sold or exchanged, and will implement such
determinations. The Adviser will furnish to the Fund investment advice and
office facilities, equipment and personnel for servicing the investments of the
Fund. The Adviser will compensate all Trustees and officers of the Fund who are
members of the Adviser's organization and who render investment services to the
Fund, and will also compensate all other Adviser personnel who provide research
and investment services to the Fund. In return for these services, facilities
and payments, the Fund has agreed to pay the Adviser as compensation under the
Advisory Agreement a fee in the amount of [__]% of the average weekly gross
assets of the Fund. Gross assets of the Fund shall be calculated by deducting
accrued liabilities of the Fund not including the amount of any preferred shares
outstanding.
Thomas J. Fetter is the portfolio manager of the Fund and is responsible for
day-to-day management of the Fund's investments. Mr. Fetter also manages other
Eaton Vance portfolios, has been an Eaton Vance portfolio manager for more than
5 years, and is a Vice President of Eaton Vance.
The Fund and the Adviser have adopted Codes of Ethics relating to personal
securities transactions. The Codes permit Adviser personnel to invest in
securities (including securities that may be purchased or held by the Fund) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Fund has engaged Eaton Vance to act as its administrator under an
Administration Agreement (the "Administration Agreement"). Under the
Administration Agreement, Eaton Vance is responsible for managing the business
affairs of the Fund, subject to the supervision of the Fund's Board. Eaton Vance
will furnish to the Fund all office facilities, equipment and personnel for
administering the affairs of the Fund. Eaton Vance's administrative services
include recordkeeping, preparation and filing of documents required to comply
with federal and state securities laws, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Trustees' and shareholders' meetings, providing service in connection with any
repurchase offers and other administrative services necessary to conduct the
Fund's business. In return for these services, facilities and payments, the Fund
is authorized to pay Eaton Vance as compensation under the Administration
Agreement a fee in the amount of [__]% of the average weekly gross assets of the
Fund.
DISTRIBUTIONS AND TAXES
The Fund intends to make monthly distributions of net investment income,
after payment of any dividends on any outstanding preferred shares. The Fund
will distribute annually any net short-term capital gain and any net capital
22
gain (which is the excess of net long-term capital gain over net short-term
capital loss). Distributions to Shareholders cannot be assured, and the amount
of each monthly distribution is likely to vary. Initial distributions to
Shareholders are expected to be declared approximately 45 days and are expected
to be paid approximately 60 days after the completion of this offering. While
there are any preferred shares outstanding, the Fund might not be permitted to
declare any cash dividend or other distribution on its Shares in certain
circumstances. See "Description of Capital Structure."
FEDERAL INCOME TAX. The Fund intends to invest a sufficient portion of its
assets in tax-exempt municipal securities so that it will be permitted to pay
"exempt-interest dividends" (as defined under applicable federal income tax
law). Each distribution of exempt-interest dividends, whether paid in cash or
reinvested in additional Shares, ordinarily will constitute income exempt from
regular federal income tax. Furthermore, exempt-interest dividends are included
in determining what portion, if any, of a person's social security and railroad
retirement benefits will be includible in gross income subject to regular
federal income tax. Distributions of any taxable net investment income and net
short-term capital gain are taxable as ordinary income. Distributions of the
Fund's net capital gain ("capital gain dividends"), if any, are taxable to
Shareholders as long-term capital gains, regardless of the length of time Shares
have been held by Shareholders. Distributions, if any, in excess of the Fund'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). See
below for a summary of the maximum tax rates applicable to capital gains
(including capital gain dividends). Interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares is not deductible for
federal income tax purposes if the Fund distributes exempt-interest dividends
during the Shareholder's taxable year.
The Fund will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Selling Shareholders will generally recognize gain or loss in an amount equal
to the difference between the Shareholder's adjusted tax basis in the Shares 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 for gains recognized on the sale of
capital assets held for one year or less, (ii) 20% for gains recognized on the
sale of capital assets held for more than one year (as well as capital gain
dividends) (10% for individuals in the 10% or 15% tax bracket) or (iii) 18% for
gains on the sale of certain capital assets held more than five (5) years. 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, and will be disallowed to the extent of any
exempt-interest 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 (which could occur, for example, if the Shareholder is a participant in
the Plan (as defined below)). In that event, the basis of the replacement Shares
will be adjusted to reflect the disallowed loss.
Distributions by the Fund of net tax-exempt interest income that are properly
designated as "exempt-interest dividends" may be treated by shareholders as
interest excludable from gross income under Section 103(a) of the Code. In order
for the Fund to be entitled to pay the tax-exempt interest income as
exempt-interest dividends to its shareholders, the Fund must and intends to
satisfy certain requirements, including the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from regular federal
income tax under Code Section 103(a). Interest on certain municipal obligations
is treated as a tax preference item for purposes of the alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
federal income tax returns.
An investor should be aware that if Shares are purchased shortly before the
record date for any taxable dividend (including a capital gain dividend), the
purchase price likely will reflect the value of the dividend and the investor
then would receive a taxable distribution likely to reduce the trading value of
such Shares, in effect resulting in a taxable return of some of the purchase
price. Taxable distributions to individuals and certain other non-corporate
Shareholders, including those who have not provided their correct taxpayer
identification number and other required certifications, may be subject to
"backup" federal income tax withholding at the rate of 30%.
NEW YORK TAXES. In the opinion of special New York tax counsel, under New
York law, dividends paid by the Fund are exempt from New York State and New York
City personal income tax applicable to individuals who reside in New York State
and New York City to the extent such dividends are excluded from gross income
for federal income tax purposes and are derived from interest payment on
tax-exempt obligations issued by or on behalf of New York State and its
political subdivisions and agencies, and the governments of Puerto Rico, the
U.S. Virgin Islands and Guam or other U.S. territories. Other distributions from
the Fund, including distributions derived from taxable ordinary income and net
short-term and long-term capital gains, are generally not exempt from New York
State and New York City personal income taxes. Distributions to a corporate
shareholder will
23
be subject to New York State Corporation franchise tax and New York City general
corporation tax.
The foregoing briefly summarizes some of the important federal and New York
State and New York City personal income tax consequences to Shareholders of
investing in Shares, reflects the federal and New York State and New York City
income tax laws as of the date of this Prospectus, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors. Investors should consult their tax advisors regarding other
federal, state or local tax considerations that may be applicable in their
particular circumstances, including state alternative minimum tax as well as any
proposed tax law changes.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), a Shareholder
may elect to have all distributions of dividends (including all capital gain
dividends) automatically reinvested in Shares. Shareholders may elect to
participate in the Plan by completing the Dividend Reinvestment Plan Application
Form. If Shareholders do not participate, such Shareholders will receive all
distributions in cash paid by check mailed directly to them by
[_______________], as dividend paying agent.
[_____________] (the "Plan Agent") serves as agent for the Shareholders in
administering the Plan. Shareholders who elect not to participate in the Plan
will receive all distributions of dividends in cash paid by check mailed
directly to the Shareholder of record (or if the Shares are held in Street or
other nominee name, then to the nominee) by [_____________] as disbursing agent.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date.
Shares will be acquired by the Plan Agent or an independent broker-dealer for
the participants' accounts, depending upon the circumstances described below,
either (i) through receipt of additional previously authorized but unissued
Shares from the Fund ("newly issued Shares") or (ii) by purchase of outstanding
Shares on the open market ("open-market purchases") on the American Stock
Exchange or elsewhere. If on the payment date for the dividend, the net asset
value per Share is equal to or less than the market price per Share plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued Shares on behalf of the participants. The number of newly issued Shares
to be credited to each participant's account will be determined by dividing the
dollar amount of the dividend by the net asset value per Share on the date the
Shares are issued, provided that the maximum discount from the then current
market price per Share on the date of issuance may not exceed 5%. If on the
dividend payment date the net asset value per Share is greater than the market
value plus estimated brokerage commissions (such condition being referred to
herein as "market discount"), the Plan Agent will invest the dividend amount in
Shares acquired on behalf of the participants in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan
Agent will have up to 30 days after the dividend payment date to invest the
dividend amount in Shares acquired in open-market purchases. If, before the Plan
Agent has completed its open-market purchases, the market price of a Share
exceeds the net asset value per Share, the average per Share purchase price paid
by the Plan Agent may exceed the net asset value of the Fund's Shares, resulting
in the acquisition of fewer Shares than if the dividend had been paid in newly
issued Shares on the dividend payment date. Therefore, the Plan provides that if
the Plan Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period or if the market discount shifts to a
market premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the dividend
amount in newly issued Shares.
The Plan Agent maintains all Shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by Shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each Shareholder proxy will include those Shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for Shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of Shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of Shares certified from time to time by the
record Shareholder's name and held for the account of beneficial owners who
participate in the Plan.
There will be no brokerage charges with respect to Shares issued directly by
the Fund as a result of dividends payable either in Shares or in cash. However,
each participant will pay a pro rata share of brokerage commissions incurred
24
with respect to the Plan Agent's open-market purchases in connection with the
reinvestment of dividends.
Shareholders participating in the Plan may receive benefits not available to
Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Shares is above their net asset value, participants
in the Plan will receive Shares of the Fund at less than they could otherwise
purchase them and will have Shares with a cash value greater than the value of
any cash distribution they would have received on their Shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in Shares with a net asset value greater than the per Share value
of any cash distribution they would have received on their Shares. However,
there may be insufficient Shares available in the market to make distributions
in Shares at prices below the net asset value. Also, since the Fund does not
redeem its Shares, the price on resale may be more or less than the net asset
value.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at [_________, __________ __________]. Please call 1-800-[___-______] between
the hours of 9:00 a.m. and 5:00 p.m. Eastern Standard Time if you have questions
regarding the Plan.
DESCRIPTION OF CAPITAL STRUCTURE
The Fund is an unincorporated business trust established under the laws of
The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
July 2, 2002 (the "Declaration of Trust"). The Declaration of Trust provides
that the Trustees of the Fund may authorize separate classes of shares of
beneficial interest. The Trustees have authorized an unlimited number of Shares.
The Fund intends to hold annual meetings of Shareholders in compliance with the
requirements of the American Stock Exchange.
SHARES. The Declaration of Trust permits the Fund to issue an unlimited
number of full and fractional Shares of beneficial interest, $0.01 par value per
Share. Each Share represents an equal proportionate interest in the assets of
the Fund with each other Share in the Fund. Holders of Shares will be entitled
to the payment of dividends when, as and if declared by the Board. The 1940 Act
or the terms of any borrowings or preferred shares may limit the payment of
dividends to the holders of Shares. Each whole Share shall be entitled to one
vote as to matters on which it is entitled to vote pursuant to the terms of the
Declaration of Trust on file with the SEC. Upon liquidation of the Fund, after
paying or adequately providing for the payment of all liabilities of the Fund
and the liquidation preference with respect to any outstanding preferred shares,
and upon receipt of such releases, indemnities and refunding agreements as they
deem necessary for their protection, the Trustees may distribute the remaining
assets of the Fund among the holders of the Shares. The Declaration of Trust
provides that Shareholders are not liable for any liabilities of the Fund,
requires inclusion of a clause to that effect in every agreement entered into by
the Fund and indemnifies shareholders against any such liability. Although
shareholders of an unincorporated business trust established under Massachusetts
law, in certain limited circumstances, may be held personally liable for the
obligations of the Fund as though they were general partners, the provisions of
the Declaration of Trust described in the foregoing sentence make the likelihood
of such personal liability remote.
While there are any borrowings or preferred shares outstanding, the Fund may
not be permitted to declare any cash dividend or other distribution on its
Shares, unless at the time of such declaration, (i) all accrued dividends on
preferred shares or accrued interest on borrowings have been paid and (2) the
value of the Fund's total assets (determined after deducting the amount of such
dividend or other distribution), less all liabilities and indebtedness of the
Fund not represented by senior securities, is at least 300% of the aggregate
amount of such securities representing indebtedness and at least 200% of the
aggregate amount of securities representing indebtedness plus the aggregate
liquidation value of the outstanding preferred shares (expected to equal the
aggregate original purchase price of the outstanding preferred shares plus
redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Fund may be required to comply
with other asset coverage requirements as a condition of the Fund obtaining a
rating of the preferred shares from a Rating Agency. These requirements may
include an asset coverage test more stringent than under the 1940 Act. This
limitation on the Fund's ability to make distributions on its Shares could in
certain circumstances impair the ability of the Fund to maintain its
qualification for taxation as a regulated investment company. The Fund intends,
however, to the extent possible to purchase or redeem preferred shares from time
to time to maintain compliance with such asset coverage requirements and may pay
special dividends to the holders of the preferred shares in certain
circumstances in connection with any such impairment of the Fund's status as a
regulated investment company. See "Investment Objective, Policies and Risks" and
"Distributions and Taxes." Depending on the timing of any such redemption or
repayment, the Fund may be required to pay a premium in addition to the
liquidation preference of the preferred shares to the holders thereof.
25
The Fund has no present intention of offering additional Shares, except as
described herein. Other offerings of its Shares, if made, will require approval
of the Board. Any additional offering will not be sold at a price per Share
below the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing Shareholders or
with the consent of a majority of the Fund's outstanding Shares. The Shares have
no preemptive rights.
The Fund generally will not issue Share certificates. However, upon written
request to the Fund's transfer agent, a share certificate will be issued for any
or all of the full Shares credited to an investor's account. Share certificates
which have been issued to an investor may be returned at any time.
REPURCHASE OF SHARES AND OTHER DISCOUNT MEASURES. Because shares of
closed-end management investment companies frequently trade at a discount to
their net asset values, the Board has determined that from time to time it may
be in the interest of Shareholders for the Fund to take corrective actions. The
Board, in consultation with Eaton Vance, will review at least annually the
possibility of open market repurchases and/or tender offers for the Shares and
will consider such factors as the market price of the Shares, the net asset
value of the Shares, the liquidity of the assets of the Fund, effect on the
Fund's expenses, whether such transactions would impair the Fund's status as a
regulated investment company or result in a failure to comply with applicable
asset coverage requirements, general economic conditions and such other events
or conditions which may have a material effect on the Fund's ability to
consummate such transactions. There are no assurances that the Board will, in
fact, decide to undertake either of these actions or if undertaken, that such
actions will result in the Fund's Shares trading at a price which is equal to or
approximates their net asset value. In recognition of the possibility that the
Shares might trade at a discount to net asset value and that any such discount
may not be in the interest of Shareholders, the Board, in consultation with
Eaton Vance, from time to time may review possible actions to reduce any such
discount.
PREFERRED SHARES. The Declaration of Trust authorizes the issuance of an
unlimited number of shares of beneficial interest with preference rights,
including preferred shares (the "Preferred Shares"), having a par value of $0.01
per share, in one or more series, with rights as determined by the Board, by
action of the Board without the approval of the Shareholders.
Under the requirements of the 1940 Act, the Fund must, immediately after the
issuance of any Preferred Shares, have an "asset coverage" of at least 200%.
Asset coverage means the ratio which the value of the total assets of the Fund,
less all liability and indebtedness not represented by senior securities (as
defined in the 1940 Act), bears to the aggregate amount of senior securities
representing indebtedness of the Fund, if any, plus the aggregate liquidation
preference of the Preferred Shares. If the Fund seeks a rating of the Preferred
Shares, asset coverage requirements, in addition to those set forth in the 1940
Act, may be imposed. The liquidation value of the Preferred Shares is expected
to equal their aggregate original purchase price plus redemption premium, if
any, together with any accrued and unpaid dividends thereon (on a cumulative
basis), whether or not earned or declared. The terms of the Preferred Shares,
including their dividend rate, voting rights, liquidation preference and
redemption provisions, will be determined by the Board (subject to applicable
law and the Fund's Declaration of Trust) if and when it authorizes the Preferred
Shares. The Fund may issue Preferred Shares that provide for the periodic
redetermination of the dividend rate at relatively short intervals through an
auction or remarketing procedure, although the terms of the Preferred Shares may
also enable the Fund to lengthen such intervals. At times, the dividend rate as
redetermined on the Fund's Preferred Shares may approach or exceed the Fund's
return after expenses on the investment of proceeds from the Preferred Shares
and the Fund's leverage structure would result in a lower rate of return to
Shareholders than if the Fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Fund, the terms of any Preferred Shares may entitle the
holders of Preferred Shares to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus redemption
premium, if any, together with accrued and unpaid dividends, whether or not
earned or declared and on a cumulative basis) before any distribution of assets
is made to holders of Shares. After payment of the full amount of the
liquidating distribution to which they are entitled, the Preferred Shareholders
would not be entitled to any further participation in any distribution of assets
by the Fund.
Holders of Preferred Shares, voting as a class, shall be entitled to elect
two of the Fund's Trustees. Under the 1940 Act, if at any time dividends on the
Preferred Shares are unpaid in an amount equal to two full years' dividends
thereon, the holders of all outstanding Preferred Shares, voting as a class,
will be allowed to elect a majority of the Fund's Trustees until all dividends
in default have been paid or declared and set apart for payment. In addition, if
required by the Rating Agency rating the Preferred Shares or if the Board
determines it to be in the best interests of the common shareholders, issuance
of the Preferred Shares may result in more restrictive provisions than required
by the 1940 Act being imposed. In this regard, holders of the Preferred Shares
may be entitled to elect a majority of the Fund's Board in other circumstances,
for example, if one payment on the Preferred Shares is in arrears.
26
The Fund currently intends to seek an investment grade rating for the
Preferred Shares from one Rating Agency. The Fund intends that, as long as
Preferred Shares are outstanding, the composition of its portfolio will reflect
guidelines established by such Rating Agency. Although, as of the date hereof,
no such Rating Agency has established guidelines relating to the Preferred
Shares, based on previous guidelines established by such Rating Agencies for the
securities of other issuers, the Fund anticipates that the guidelines with
respect to the Preferred Shares will establish a set of tests for portfolio
composition and asset coverage that supplement (and in some cases are more
restrictive than) the applicable requirements under the 1940 Act. Although, at
this time, no assurance can be given as to the nature or extent of the
guidelines which may be imposed in connection with obtaining a rating of the
Preferred Shares, the Fund currently anticipates that such guidelines will
include asset coverage requirements which are more restrictive than those under
the 1940 Act, restrictions on certain portfolio investments and investment
practices, requirements that the Fund maintain a portion of its assets in
short-term, high-quality, fixed-income securities and certain mandatory
redemption requirements relating to the Preferred Shares. No assurance can be
given that the guidelines actually imposed with respect to the Preferred Shares
by such Rating Agency will be more or less restrictive than as described in this
Prospectus.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST. The Declaration of
Trust includes provisions that could have the effect of limiting the ability of
other entities or persons to acquire control of the Fund or to change the
composition of its Board, and could have the effect of depriving Shareholders 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 Fund. These
provisions may have the effect of discouraging attempts to acquire control of
the Fund, which attempts could have the effect of increasing the expenses of the
Fund and interfering with the normal operation of the Fund. The Board is divided
into three classes, with the term of one class expiring at each annual meeting
of Shareholders. At each annual meeting, one class of Trustees is elected to a
three-year term. This provision could delay for up to two years the replacement
of a majority of the Board. A Trustee may be removed from office only for cause
by a written instrument signed by the remaining Trustees or by a vote of the
holders of at least two-thirds of the class of Shares of the Fund that elected
such Trustee and 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 Fund,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board shall by resolution have approved a memorandum of
understanding with such holders, in which case normal voting requirements would
be in effect. For purposes of these provisions, a 5%-or-greater holder of a
class of shares (a "Principal Shareholder") refers to any person who, whether
directly or indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any class
of beneficial interest of the Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Fund or any
subsidiary of the Fund with or into any Principal Shareholder; (ii) the issuance
of any securities of the Fund to any Principal Shareholder for cash; (iii) the
sale, lease or exchange of all or any substantial part of the assets of the Fund
to any Principal Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purpose of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period); or (iv) the sale, lease or exchange to the Fund
or any subsidiary thereof, in exchange for securities of the Fund, of any assets
of any Principal Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).
The Board has determined that provisions with respect to the Board and the
75% voting requirements described above, which voting requirements are greater
than the minimum requirements under Massachusetts law or the 1940 Act, are in
the best interest of Shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of these provisions.
CONVERSION TO OPEN-END FUND. The Fund may be converted to an open-end
investment company at any time if approved by the lesser of (i) 2/3 or more of
the Fund's then outstanding Shares and Preferred Shares (if any), each voting
separately as a class, or (ii) more than 50% of the then outstanding Shares and
Preferred Shares (if any), voting separately as a class if such conversion is
recommended by at least 75% of the Trustees then in office. If approved in the
foregoing manner, conversion of the Fund could not occur until 90 days after the
Shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all Shareholders. The composition of
the Fund's portfolio likely would prohibit the Fund from complying with
regulations of the SEC applicable to open-end investment companies. Accordingly,
conversion likely would require significant changes in the Fund's investment
policies and liquidation of a substantial portion of its relatively illiquid
portfolio. Conversion of the Fund to an open-end investment company also would
require the redemption of any outstanding Preferred Shares and could require the
repayment of borrowings, which would eliminate the leveraged capital structure
of the Fund with respect to the Shares. In the event of conversion, the Shares
would cease to be listed on the American Stock Exchange or other national
securities exchange or market system. The Board believes, however, that the
closed-end structure is desirable, given the Fund's investment objective and
policies. Investors should assume, therefore, that it is unlikely that the Board
would vote to convert the Fund to an open-end investment company. Shareholders
of an open-end investment company may require the company to redeem their shares
at any time (except in certain circumstances as authorized by or under the 1940
27
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of a redemption. The Fund expects to pay all such
redemption requests in cash, but intends to reserve the right to pay redemption
requests in a combination of cash or securities. If such partial payment in
securities were made, investors may incur brokerage costs in converting such
securities to cash. If the Fund were converted to an open-end fund, it is likely
that new Shares would be sold at net asset value plus a sales load.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof (the "Underwriting Agreement"), each Underwriter named
below has severally agreed to purchase, and the Fund has agreed to sell to such
Underwriter, the number of Shares set forth opposite the name of such
Underwriter.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Salomon Smith Barney Inc. [___________]
[_____________] [___________]
Total [ ]
===========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to purchase all the Shares (other than those
covered by the over-allotment option described below) if they purchase any of
the Shares. The representatives have advised the Fund that the Underwriters do
not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
The Underwriters, for whom Salomon Smith Barney Inc., [__________],
[___________] are acting as representatives, propose to offer some of the Shares
directly to the public at the public offering price set forth on the cover page
of this Prospectus and some of the Shares to certain dealers at the public
offering price less a concession not in excess of [$0.45] per Share. The sales
load the Fund will pay of $0.675 per share is equal to 4.5% of the initial
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of [$0.10] per Share on sales to certain other dealers.
Certain dealers acting in the capacity of sub-underwriters may receive
additional compensation for acting in such a capacity. If all of the Shares are
not sold at the initial offering price, the representatives may change the
public offering price and other selling terms. Investors must pay for any Shares
purchased on or before [_______], 2002. In connection with this offering, Eaton
Vance may perform clearing services without charge for brokers and dealers for
whom it regularly provides clearing services that are participating in the
offering as members of the selling group.
The Fund has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to [_________] additional
Shares at the public offering price less the sales load. The Underwriters may
exercise such option solely for the purpose of covering over allotments, if any,
in connection with this offering. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional Shares approximately proportionate to such Underwriter's
initial purchase commitment.
The Fund and Eaton Vance have agreed that, for a period of 180 days from the
date of this Prospectus, they will not, without the prior written consent of
Salomon Smith Barney Inc., on behalf of the Underwriters, dispose of or hedge
any Shares or any securities convertible into or exchangeable for Shares.
Salomon Smith Barney Inc., in its sole discretion may release any of the
securities subject to these agreements at any time without notice.
Prior to the offering, there has been no public market for the Shares.
Consequently, the initial public offering price for the Shares was determined by
negotiation among the Fund, Eaton Vance and the representatives. There can be no
assurance, however, that the price at which the Shares will sell in the public
market after this offering will not be lower than the price at which they are
sold by the Underwriters or that an active trading market in the Shares will
develop and continue after this offering. The Fund has applied for listing on
the American Stock Exchange under the symbol ["___"].
28
The Fund and Eaton Vance have agreed to indemnify the several Underwriters or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
Eaton Vance or an affiliate has agreed to pay offering costs (other than
sales load) that exceed [$0.03] per share.
In addition, the Fund has agreed to reimburse the Underwriters for certain
expenses incurred by the Underwriters in the offering.
In connection with the requirements for listing the Fund's Shares on the
American Stock Exchange, the Underwriters have undertaken to sell lots of [___]
or more Shares to a minimum of [______] beneficial owners in the United States.
The minimum investment requirement is [___] Shares.
Certain Underwriters may make a market in the Shares after trading in the
Shares has commenced on the American Stock Exchange. No Underwriter is, however,
obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of the
Underwriter. No assurance can be given as to the liquidity of, or the trading
market for, the Shares as a result of any market-making activities undertaken by
any Underwriter. This Prospectus is to be used by any Underwriter in connection
with the offering and, during the period in which a Prospectus must be
delivered, with offers and sales of the Shares in market-making transactions in
the over-the-counter market at negotiated prices related to prevailing market
prices at the time of the sale.
The Underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions, including stabilizing bids, covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Shares on the American Stock
Exchange at a level above that which might otherwise prevail in the open market.
A "stabilizing bid" is a bid for or purchase of the Shares on behalf of an
Underwriter for the purpose of fixing or maintaining the price of the Shares. A
"covering transaction" is a bid for or purchase of the Shares on behalf of an
Underwriter to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is a contractual arrangement
whereby if, during a specified period after the issuance of the Shares, the
Underwriters purchase Shares in the open market for the account of the
underwriting syndicate and the Shares purchased can be traced to a particular
Underwriter or member of the selling group, the underwriting syndicate may
require the Underwriter or selling group member in question to purchase the
Shares in question at the cost price to the syndicate or may recover from (or
decline to pay to) the Underwriter or selling group member in question any or
all compensation (including, with respect to a representative, the applicable
syndicate management fee) applicable to the Shares in question. As a result, an
Underwriter or selling group member and, in turn, brokers may lose the fees that
they otherwise would have earned from a sale of the Shares if their customer
resells the Shares while the penalty bid is in effect. The Underwriters are not
required to engage in any of these activities, and any such activities, if
commenced, may be discontinued at any time.
The underwriting agreement provides that it may be terminated in the absolute
discretion of the representatives without liability on the part of any
Underwriter to the Fund or Eaton Vance if, prior to delivery of and payment for
the Shares, (i) trading in the Shares or securities generally on the New York
Stock Exchange, American Stock Exchange, Nasdaq National Market or the Nasdaq
Stock Market shall have been suspended or materially limited, (ii) additional
material governmental restrictions not in force on the date of the underwriting
agreement have been imposed upon trading in securities generally or a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or state authorities or (iii) any outbreak or material
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, occurs, the effect of
which is such as to make it, in the judgment of the representatives,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters.
The Fund anticipates that from time to time the representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's portfolio transactions after they
have ceased to be Underwriters and, subject to certain restrictions, may act as
brokers while they are Underwriters.
Prior to the public offering of Shares, Eaton Vance purchased Shares from the
Fund in an amount satisfying the net worth requirements of Section 14(a) of the
1940 Act. As of the date of this Prospectus, Eaton Vance owned 100% of the
outstanding Shares. Eaton Vance may be deemed to control the Fund until such
time as it owns less than 25% of the outstanding Shares which is expected to
occur as of the completion of the offering of Shares.
The principal business address of Salomon Smith Barney Inc. is 388 Greenwich
Street, New York, New York 10013.
29
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, MA
02116 is the custodian of the Fund and will maintain custody of the securities
and cash of the Fund. IBT maintains the Fund's general ledger and computes net
asset value per share at least weekly. IBT also attends to details in connection
with the sale, exchange, substitution, transfer and other dealings with the
Fund's investments, and receives and disburses all funds. IBT also assists in
preparation of shareholder reports and the electronic filing of such reports
with the SEC.
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
is the transfer agent and dividend disbursing agent of the Fund.
LEGAL OPINIONS
It is expected that certain legal matters in connection with the Shares
offered hereby will be passed upon for the Fund by Kirkpatrick & Lockhart LLP,
and for the Underwriters by Simpson Thacher & Bartlett.
REPORTS TO STOCKHOLDERS
The Fund will send to Shareholders unaudited semi-annual and audited annual
reports, including a list of investments held.
INDEPENDENT AUDITORS
The Fund will engage an independent auditor to prepare the Fund's financial
statements.
ADDITIONAL INFORMATION
The Prospectus and the Statement of Additional Information do not contain all
of the information set forth in the Registration Statement that the Fund has
filed with the SEC. The complete Registration Statement may be obtained from the
SEC upon payment of the fee prescribed by its rules and regulations. The
Statement of Additional Information can be obtained without charge by calling
1-800-225-6265.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
30
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
Additional Investment Information and Restrictions.... B-1
Trustees and Officers................................. B-8
Investment Advisory and Other Services................ B-10
Determination of Net Asset Value...................... B-11
Portfolio Trading..................................... B-12
Taxes................................................. B-13
Other Information..................................... B-16
Auditors.............................................. B-17
Independent Auditors' Report.......................... B-18
Financial Statements.................................. B-19
Appendix A: Ratings of Municipal Bonds................ B-21
Appendix B: Tax Equivalent Yield Table................ B-27
Appendix C: New York and U.S. Territory Information... B-28
Appendix D: Description of Insurers................... B-31
TRUSTEES OF THE FUND
JAMES B. HAWKES
Chairman, President and Chief Executive Officer of Eaton Vance Corp.
THOMAS J. FETTER
Vice President of Eaton Vance. Officer of various investment companies
managed by Eaton Vance.
31
================================================================================
[___________] SHARES
EATON VANCE
INSURED NEW YORK MUNICIPAL
BOND FUND
[EATON VANCE LOGO]
COMMON SHARES
----------------
PROSPECTUS
[__________], 2002
----------------
SALOMON SMITH BARNEY
================================================================================
32
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.
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION - [_______], 2002
STATEMENT OF
ADDITIONAL
INFORMATION
________________, 2002
EATON VANCE INSURED NEW YORK MUNICIPAL BOND FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265
TABLE OF CONTENTS
PAGE
----
Additional Investment Information and Restrictions...................B-1
Trustees and Officers................................................B-8
Investment Advisory and Other Services...............................B-10
Determination of Net Asset Value.....................................B-11
Portfolio Trading....................................................B-12
Taxes................................................................B-13
Other Information....................................................B-16
Auditors.............................................................B-17
Independent Auditors' Report.........................................B-18
Financial Statements.................................................B-19
Appendix A: Ratings of Municipal Bonds...............................B-21
Appendix B: Tax Equivalent Yield Table..............................B-27
Appendix C: New York and U.S. Territory Information.................B-28
Appendix D: Description of Insurers.................................B-31
--------------------------------------------------------------------------------
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 INSURED NEW YORK MUNICIPAL BOND
FUND (THE "FUND") DATED [_______], 2002, AS SUPPLEMENTED FROM TIME TO TIME,
WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT
1-800-225-6265.
THE INFORMATION IN THIS SAI IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") IS EFFECTIVE. THIS SAI, WHICH IS
NOT A 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.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Fund's Prospectus.
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal obligations include long-term
obligations, which are often called municipal bonds, as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years.
Market rates of interest available with respect to municipal obligations may be
lower than those available with respect to taxable securities, although such
differences may be partially or wholly offset by the effects of federal income
tax on income derived from such taxable securities. While most municipal bonds
pay a fixed rate of interest semi-annually in cash, some bonds pay no periodic
cash interest but instead make a single payment at maturity representing both
principal and interest. Municipal obligations may be issued or subsequently
offered with interest coupons materially greater or less than those then
prevailing, with price adjustments reflecting such deviation.
In general, there are three categories of municipal obligations the interest on
which is exempt from federal income tax and is not a tax preference item for
purposes of the alternative minimum tax ("AMT"): (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential governmental
functions; (ii) certain obligations issued before August 8, 1986 for the benefit
of non-governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986 which include "qualified Section 501(c)(3)
bonds" or refundings of certain obligations included in the second category.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax, but is treated as a tax preference item
that could subject the recipient to or increase the recipient's liability for
the AMT. For corporate shareholders, the Fund's distributions derived from
interest on all municipal obligations (whenever issued) is included in "adjusted
current earnings" for purposes of the AMT as applied to corporations (to the
extent not already included in alternative minimum taxable income as income
attributable to private activity bonds). In assessing the federal income tax
treatment of interest on any such obligation, the Fund will rely on an opinion
of the issuer's counsel (when available) obtained by the issuer or other
reliable authority and will not undertake any independent verification thereof.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Revenue bonds have been
issued to fund a wide variety of capital projects including: electric, gas,
water, sewer and solid waste disposal systems; highways, bridges and tunnels;
port, airport and parking facilities; transportation systems; housing
facilities, colleges and universities and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully insured,
rent subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality. Industrial development and pollution
control bonds, although nominally issued by municipal authorities, are in most
cases revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users. The Fund may on occasion acquire
revenue bonds which carry warrants or similar rights covering equity securities.
B-1
Such warrants or rights may be held indefinitely, but if exercised, the Fund
anticipates that it would, under normal circumstances, dispose of any equity
securities so acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Fund will take whatever action it considers appropriate in the
event of anticipated financial difficulties, default or bankruptcy of either the
issuer of any municipal obligation or of the underlying source of funds for debt
service. Such action may include retaining the services of various persons or
firms (including affiliates of the Adviser) to evaluate or protect any real
estate, facilities or other assets securing any such obligation or acquired by
the Fund as a result of any such event, and the Fund may also manage (or engage
other persons to manage) or otherwise deal with any real estate, facilities or
other assets so acquired. The Fund anticipates that real estate consulting and
management services may be required with respect to properties securing various
municipal obligations in its portfolio or subsequently acquired by the Fund. The
Fund will incur additional expenditures in taking protective action with respect
to portfolio obligations in default and assets securing such obligations. To
enforce its rights in the event of a default in the payment of interest or
repayment of principal, or both, the Fund may take possession of and manage the
assets or have a receiver appointed to collect and disburse pledged revenues
securing the issuer's obligations on such securities, which may increase the
operating expenses and adversely affect the net asset value of the Fund. Any
income derived from the ownership or operation of such assets may not be
tax-exempt. In addition, the Fund's intention to qualify as a "regulated
investment company" ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code") may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company, the
Fund is subject to certain limitations on its investments and on the nature of
its income.
The yields on municipal obligations are dependent on a variety of factors,
including purposes of issue and source of funds for repayment, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, maturity of the obligation and rating of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality of
the municipal obligations which they undertake to rate. It should be emphasized,
however, that ratings are based on judgment and are not absolute standards of
quality. Consequently, municipal obligations with the same maturity, coupon and
rating may have different yields while obligations of the same maturity and
coupon with different ratings may have the same yield. In addition, the market
price of municipal obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Fund will be affected by such
changes. Factors pertaining to New York are set forth in Appendix C.
STATE CONCENTRATION. The Fund may invest 25% or more of its total assets in
municipal obligations of issuers located in the same state. When the Fund does
so, it will be sensitive to factors affecting that state, such as changes in the
economy, decreases in tax collection or the tax base, legislation which limits
taxes and changes in issuer credit ratings.
ECONOMIC SECTOR CONCENTRATION. The Fund may invest 25% or more of its total
assets in municipal obligations of issuers in the same economic sector. There
could be economic, business or political developments which might affect all
municipal obligations in a particular economic sector. In particular,
investments in the industrial revenue bonds listed above might involve (without
limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
B-2
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Bonds to finance life care facilities are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient to
meet debt service payments. Moreover, since a portion of housing, medical care
and other services may be financed by an initial deposit, it is important that
the facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also be
affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector.
CREDIT QUALITY. While municipal obligations rated investment grade or below
and comparable unrated municipal obligations may have some quality and
protective characteristics, these characteristics can be expected to be offset
or outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to the risk
of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). Lower
rated or unrated municipal obligations are also more likely to react to real or
perceived developments affecting market and credit risk than are more highly
rated obligations, which react primarily to movements in the general level of
interest rates.
MUNICIPAL LEASES. The Fund may invest in municipal leases and participations
therein, which arrangements frequently involve special risks. Municipal leases
are obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. The
obligation of the issuer to meet its obligations under such leases is often
subject to the appropriation by the appropriate legislative body, on an annual
or other basis, of funds for the payment of the obligations. Investments in
municipal leases are thus subject to the risk that the legislative body will not
make the necessary appropriation and the issuer will not otherwise be willing or
able to meet its obligation. Certain municipal lease obligations are illiquid.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which 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
Fund 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 Fund is
required to distribute its income for each taxable year. Thus, the Fund may have
to sell other investments to obtain cash needed to make income distributions.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the date
of the Fund's commitment and are subject to certain conditions such as the
B-3
issuance of satisfactory legal opinions. The Fund may also purchase securities
on a when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Fund to buy such securities on a
settlement date that could be several months or several years in the future. The
Fund may also purchase instruments that give the Fund the option to purchase a
municipal obligation when and if issued.
The Fund will make commitments to purchase when-issued securities only with
the intention of actually acquiring the securities, but may sell such securities
before the settlement date if it is deemed advisable as a matter of investment
strategy. The payment obligation and the interest rate that will be received on
the securities are fixed at the time the Fund enters into the purchase
commitment. When the Fund commits to purchase a security on a when-issued basis
it records the transaction and reflects the value of the security in determining
its net asset value. Securities purchased on a when-issued basis and the
securities held by the Fund are subject to changes in value based upon the
perception of the creditworthiness of the issuer and changes in the level of
interest rates (I.E. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Fund's net
asset value than if it set aside cash to pay for when-issued securities.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. Also, some bonds may have "put" or
"demand" features that allow early redemption by the bondholder. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds are
more defensive than conventional long term bonds because they may protect to
some degree against a rise in interest rates.
VARIABLE RATE OBLIGATIONS. The Fund may purchase variable rate obligations.
Variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the holder
can demand payment of the obligation on short notice at par with accrued
interest and which are frequently secured by letters of credit or other support
arrangements provide by banks. To the extent that such letters of credit or
other arrangements constitute an unconditional guarantee of the issuer's
obligations, a bank may be treated as the issuer of a security for the purposes
of complying with the diversification requirements set forth in Section 5(b) of
the 1940 Act and Rule 5b-2 thereunder. The Fund would anticipate using these
bonds as cash equivalents pending longer term investment of its funds.
INVERSE FLOATERS. The Fund currently does not invest in municipal securities
whose interest rates bear an inverse relationship to the interest rate on
another security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value of
an inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a portfolio when short-term
interest rates rise, and increase the interest paid to the Fund when short-term
interest rates fall. Inverse floaters have varying degrees of liquidity, and the
market for these securities is relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in long-term interest rates may, however, alter
this tendency. Although volatile, inverse floaters typically offer the potential
for yields exceeding the yields available on fixed rate bonds with comparable
credit quality and maturity. These securities usually permit the investor to
convert the floating rate to a fixed rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against rising rates if
exercised at an opportune time. Inverse floaters are leveraged because they
provide two or more dollars of bond market exposure for every dollar invested.
Although the Fund does not intent initially to invest in inverse floaters, the
Fund may do so at some point in the future. The Fund will provide 30 days'
written notice prior to any change in its policy in investing in inverse
floaters.
B-4
INTEREST RATE SWAPS AND FORWARD RATE CONTRACTS. Interest rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest, E.G., an exchange of fixed rate payments for floating
rate payments. The Fund will only enter into interest rate swaps on a net basis,
I.E., the two payment streams are netted out with the Fund receiving or paying,
as the case may be, only the net amount of the two payments. The Fund may also
enter forward rate contracts. Under these contracts, the buyer locks in an
interest rate at a future settlement date. If the interest rate on the
settlement date exceeds the lock rate, the buyer pays the seller the difference
between the two rates. If the lock rate exceeds the interest rate on the
settlement date, the seller pays the buyer the difference between the two rates.
Any such gain received by the Fund would be taxable.
If the other party to an interest rate swap or forward rate contract
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The net amount of the excess, if
any, of the Fund's obligations over its entitlements will be maintained in a
segregated account by the Fund's custodian. The Fund will not enter into any
interest rate swap or forward rate contract unless the claims-paying ability of
the other party thereto is considered to be investment grade by the investment
adviser. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction. These instruments are traded in the over-the-counter market.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. The Fund may also enter into a separate
agreement with the seller of a security or some other person granting the Fund
the right to put the security to the seller thereof or the other person at an
agreed upon price. Such agreements are subject to the risk of default by the
other party, although the Fund intends to limit this type of transaction to
institutions (such as banks or securities dealers) which the Adviser believes
present minimal credit risks. The Fund would engage in this type of transaction
to facilitate portfolio liquidity or (if the seller so agrees) to hedge against
rising interest rates. There is no assurance that this kind of put option will
be available to the Fund or that selling institutions will be willing to permit
the Fund to exercise a put to hedge against rising interest rates. The Fund does
not expect to assign any value to any separate put option which may be acquired
to facilitate portfolio liquidity, inasmuch as the value (if any) of the put
will be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Fund after consideration of all
relevant factors, including its expiration date, the price volatility of the
associated security, the difference between the market price of the associated
security and the exercise price of the put, the creditworthiness of the issuer
of the put and the market prices of comparable put options. Interest income
generated by certain bonds having put or demand features may be taxable.
ILLIQUID OBLIGATIONS. At times, a substantial portion of the Fund's assets
may be invested in securities as to which the Fund, by itself or together with
other accounts managed by the Adviser and its affiliates, holds a major portion
or all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Fund
could find it more difficult to sell such securities when the Adviser believes
it advisable to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. Under such circumstances,
it may also be more difficult to determine the fair value of such securities for
purposes of computing the Fund's net asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with the Fund) is less liquid than
that for taxable debt obligations or other more widely traded municipal
obligations. No established resale market exists for certain of the municipal
obligations in which the Fund may invest. The market for obligations rated below
investment grade is also likely to be less liquid than the market for higher
rated obligations. As a result, the Fund may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
SECURITIES LENDING. The Fund may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by the Fund of any income realized by the Fund from securities
B-5
loans will be taxable. If the management of the Fund decides to make securities
loans, it is intended that the value of the securities loaned would not exceed
30% of the Fund's total assets. Securities lending involves risks of delay in
recovery or even loss of rights on the securities loaned if the borrower fails
financially. The Fund has no present intention of engaging in securities
lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by the Fund (or of
securities that the Fund expects to purchase). To hedge against changes in rates
or as a substitute for the purchase of securities, the Fund may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the Fund
are traded on exchanges or boards of trade that are licensed and regulated by
the Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Fund may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade. The Fund will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Fund's custodian for the benefit of the futures commission
merchant through whom the Fund engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
The Fund will engage in futures and related options transactions for BONA
FIDE hedging purposes or non-hedging purposes as defined in or permitted by CFTC
regulations. The Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or which it expects
to purchase. The Fund will engage in transactions in futures and related options
contracts only to the extent such transactions are consistent with the
requirements of the Code for maintaining its qualification as a RIC for federal
income tax purposes.
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities,
futures contracts and options (other than options that the Fund has purchased),
interest rate swaps or forward rate contracts may expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities or
other options or futures contracts, or (2) cash or liquid securities (such as
readily marketable obligations and money market instruments) with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities in a segregated account with its custodian in the prescribed
amount. The securities in the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Fund's assets to segregated accounts or
to cover could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
TEMPORARY INVESTMENTS. Under unusual market conditions, the Fund may invest
temporarily in cash or cash equivalents. Cash equivalents are highly liquid,
short-term securities such as commercial paper, certificates of deposit,
short-term notes and short-term U.S. Government obligations. These securities
may be subject to federal income, state income and/or other taxes.
PORTFOLIO TURNOVER. The Fund may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase (and
later sell) securities in anticipation of a market rise (a decline in interest
B-6
rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what the Fund 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 municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Fund cannot accurately predict its portfolio turnover rate, but it is
anticipated that the annual portfolio turnover rate will generally not exceed
100% (excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate could occur, for example, if all the securities held
by the Fund were replaced once in a period of one year. A high turnover rate
(100% or more) necessarily involves greater expenses to the Fund.
INVESTMENT RESTRICTIONS. The following investment restrictions of the Fund
are designated as fundamental policies and as such cannot be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, which as used in this SAI means the lesser of (a) 67% of the shares
of the Fund present or represented by proxy at a meeting if the holders of more
than 50% of the outstanding shares are present or represented at the meeting or
(b) more than 50% of outstanding shares of the Fund. As a matter of fundamental
policy the Fund may not:
(1) Borrow money, except as permitted by the 1940 Act;
(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;
(3) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The purchase of investment assets with the proceeds
of a permitted borrowing or securities offering will not be deemed to be
the purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as it
may technically be deemed to be an underwriter under the Securities Act of
1933 in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objective and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by interests in real estate and securities of
issuers which invest or deal in real estate. The Fund reserves the freedom
of action to hold and to sell real estate acquired as a result of the
ownership of securities; or
(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.
(8) Invest more than 25% of its total assets of issuers in any one
industry.
For purposes of the Fund's investment restrictions, the determination of the
"issuer" of a municipal obligation which is not a general obligation bond will
be made by the Adviser on the basis of the characteristics of the obligation and
other relevant factors, the most significant of which is the source of funds
committed to meeting interest and principal payments of such obligation.
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
B-7
are also not considered to represent industries. However, municipal obligations
backed only by the assets and revenues of non-governmental users may for this
purpose be deemed to be issued by such non-governmental users. The foregoing 25%
limitation would apply to these issuers. As discussed in the prospectus and this
SAI, the Fund may invest more than 25% of its total assets in certain economic
sectors, such as revenue bonds, housing, hospitals and other health care
facilities, and industrial development bonds. The Fund reserves the right to
invest more than 25% of total assets in each of these sectors.
The Fund has adopted the following nonfundamental investment policy which may
be changed by the Trustees without approval of the Fund's shareholders. As a
matter of nonfundamental policy, the Fund may not make short sales of securities
or maintain a short position, unless at all times when a short position is open
it either owns an equal amount of such securities or owns securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short.
Upon Board of Trustee approval the Fund may invest more than 10% of its total
assets in one or more other management investment companies (or may invest in
affiliated investment companies) to the extent permitted by the 1940 Act and
rules thereunder.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's acquisition of such security or
asset. Accordingly, any later increase or decrease resulting from a change in
values, assets or other circumstances will not compel the Fund to dispose of
such security or other asset. Notwithstanding the foregoing, the Fund must
always be in compliance with the borrowing policies set forth above.
TRUSTEES AND OFFICERS
The Fund's Trustees and officers 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. Unless otherwise noted, the business address of each
Trustee and officer is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Fund as
defined in the 1940 Act by virtue of their affiliation with Eaton Vance and/or
its affiliates Eaton Vance Corporation ("EVC"), Eaton Vance Inc., Boston
Management and Research ("BMR") and Eaton Vance Distributors, are indicated by
an asterisk(*).
JAMES B. HAWKES (60), TRUSTEE*
Chairman, President and Chief Executive Officer of Eaton Vance, BMR and their
corporate parent and trustee (EVC and EV). Director of EVC, EV and EVD. Trustee
and officer of various investment companies managed by Eaton Vance or BMR.
THOMAS J. FETTER (58), TRUSTEE*
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
[INDEPENDENT TRUSTEES TO BE ADDED WILL BE REFLECTED IN A POST-EFFECTIVE
AMENDMENT. INFORMATION WILL BE PRESENTED IN REQUIRED TABULAR FORMAT.]
Messrs. [_________], [__________] and [_________] are members of the Special
Committee of the Board of Trustees of the Fund. The purpose of the Special
Committee is to consider, evaluate and make recommendations to the full Board of
Trustees concerning (i) all contractual arrangements with service providers to
the Fund, including investment advisory, administrative, transfer agency,
custodial and fund accounting and distribution services, and (ii) all other
matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Fund or its shareholders.
In reviewing the renewal of the investment advisory agreement between the
Fund and the investment adviser, the Special Committee considered, among other
things, the following:
B-8
o An independent report comparing the fees and expenses of the Fund to a
peer group of funds;
o Information on the investment performance (in the case of a renewal), the
relevant peer group(s) of funds and appropriate indices;
o Sales and redemption data in respect of the Fund (in the case of a
renewal);
o The economic outlook and the general investment outlook in the relevant
investment markets;
o Eaton Vance's results and financial condition and the overall organization
of the investment adviser;
o Arrangements regarding the distribution of Fund shares; o The procedures
used to determine the fair value of the Fund's assets; o The Allocation of
brokerage, including allocations to soft dollar brokerage and allocations
to firms that sell Eaton Vance fund shares;
o Eaton Vance management of the relationship with the custodian,
subcustodians and fund accountants;
o 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;
o The quality nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;
o Investment management staffing;
o Operating expenses (including transfer agency expenses) paid to third
parties; and o Information provided to investors, including Fund's
shareholders.
In addition to the factors mentioned above, the Special Committee also reviewed
the level of the investment adviser's profits in respect of the management of
the Eaton Vance funds, including the Fund. The Special Committee considered the
profits realized by Eaton Vance and its affiliates in connection with the
operation of the Fund. The Special Committee also considered Eaton Vance's
profit margins in comparison with available industry data.
The Special Committee did not consider any single factor as controlling in
determining whether or not to renew the investment advisory agreement(s). Nor
are the items described herein all encompassing of the matters considered by the
Special Committee. In assessing the information provided by Eaton Vance and its
affiliates, the Special Committee also took into consideration the benefits to
shareholders of investing in a fund that is part of large family of funds which
provides a large variety of shareholder services.
Based on their consideration of all factors that it deemed material and
assisted by the advice of its independent counsel, the Special Committee
concluded that the renewal of the investment advisory agreement(s), including
the fee structure (described herein) is in the interests of shareholders.
The Nominating Committee of the Board of Trustees of the Fund is comprised of
[___] Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). [The Committee has four-year staggered
terms, with one member rotating off the Committee to be replaced by another
noninterested Trustee.] The purpose of the Committee is to recommend to the
Board nominees for the position of noninterested Trustee and to assure that at
least a majority of the Board of Trustees is independent of Eaton Vance and its
affiliates.
Messrs. [_______] (Chairman) and [________] are members of the Audit
Committee of the Board of Trustees of the Fund. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of the
independent certified public accountants, and reviewing matters relative to
trading and brokerage policies and practices, accounting and auditing practices
and procedures, accounting records, internal accounting controls, and the
functions performed by the custodian, transfer agent and dividend disbursing
agent of the Fund.
Trustees of the Fund who are not affiliated with the Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance with the
terms of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
B-9
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Fund in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Fund's assets, liabilities, and net income per share, and will not obligate the
Fund to retain the services of any Trustee or obligate the Fund to pay any
particular level of compensation to the Trustee. The Fund does not have a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Fund are paid by
the Fund. (The Trustees of the Fund who are members of the Eaton Vance
organization receive no compensation from the Fund.) During the year ended
December 31, 2001, the noninterested Trustees of the Fund earned the
compensation set forth below in their capacities as Trustees from the funds in
the Eaton Vance fund complex (1). It is estimated that the noninterested
Trustees will receive from the Fund the amounts set forth below for the fiscal
year ending December 31, 2002.
TOTAL
ESTIMATED COMPENSATION
COMPENSATION FROM
NAME FROM FUND FUND COMPLEX
---- --------- ------------
[------------]................................ $[---] $[---]
[------------]................................ [---] [---]
[------------]................................ [---] [---]
[------------]................................ [---] [---]
[------------]................................ [---] [---]
[------------]................................ [---] [---]
----------
(1)As of June 30, 2002 the Eaton Vance fund complex consists of [___] registered
investment companies or series thereof.
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 and equity
investment professionals to service the needs of their clients. The fixed-income
division 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 equity division 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 Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Fund
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Fund shares; and
investment advisory and administration fees. The Fund will also bear expenses
incurred in connection with any litigation in which the Fund is a party and any
legal obligation to indemnify its officers and Trustees with respect thereto, to
the extent not covered by insurance.
B-10
The Advisory Agreement with the Adviser continues in effect to [_________],
2004 and from year to year so long as such continuance is approved at least
annually (i) by the vote of a majority of the noninterested Trustees of the Fund
or of the Adviser cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the Fund
or by vote of a majority of the outstanding interests of the Fund. The Fund's
Administration Agreement continues in effect from year to year so long as such
continuance is approved at least annually by the vote of a majority of the
Fund's Trustees. Each agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Trustees of the Fund or Eaton Vance, as
applicable, or by vote of the majority of the outstanding shares of the Fund.
Each agreement will terminate automatically in the event of its assignment. Each
agreement provides that, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties to the Fund under
such agreements on the part of Eaton Vance, Eaton Vance shall not be liable to
the Fund for any loss incurred, to the extent not covered by insurance.
Eaton Vance is a business trust organized under Massachusetts law. EV serves
as trustee of Eaton Vance. Eaton Vance and EV are 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 of the issued and
outstanding shares of Eaton Vance are owned by EVC. All of the issued and
outstanding shares of BMR are owned by Eaton Vance. All shares of the
outstanding Voting Common Stock of EVC are deposited in a voting trust, the
voting trustees of which are Messrs. Hawkes, Jeffrey P. Beale, Alan R. Dynner,
Thomas E. Faust, Jr., Thomas J. Fetter, Scott H. Page, Duncan W. Richardson,
William M. Steul, Payson F. Swaffield, Michael W. Weilheimer, and Wharton P.
Whitaker (all of whom are officers of Eaton Vance). The voting trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said voting trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Trustees and
Officers", all of the officers of the Fund (as well as Mr. Hawkes who is also a
Trustee) hold positions in the Eaton Vance organization.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund, IBT.
It is Eaton Vance's opinion that the terms and conditions of such transactions
were not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such banks.
DETERMINATION OF NET ASSET VALUE
The net asset value per Share of the Fund is determined no less frequently
than weekly, generally on the last 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 Fund's net asset
value per Share is determined by IBT, in the manner authorized by the Trustees
of the Fund. Net asset value is computed by dividing the value of the Fund's
total assets, less its liabilities by the number of shares outstanding.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the Fund,
and such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees. Other assets are valued at fair value using methods determined in
good faith by the Trustees.
B-11
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by the
Adviser. The Adviser is also responsible for the execution of transactions for
all other accounts managed by it. The Adviser places the portfolio security
transactions of the Fund and of all other accounts managed by it for execution
with many firms. The Adviser uses its best efforts to obtain execution of
portfolio security transactions at prices which are advantageous to the Fund and
at reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such execution,
the Adviser will use its best judgment in evaluating the terms of a transaction,
and will give consideration to various relevant factors, including without
limitation the full range and quality of the executing firm's services, the
value of the brokerage and research services provided, the responsiveness of the
firm to the Adviser, the size and type of the transaction, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any.
Municipal obligations, including state obligations, purchased and sold by the
Fund are generally traded in the over-the-counter market on a net basis (I.E.,
without commission) through broker-dealers and banks acting for their own
account rather than as brokers, or otherwise involve transactions directly with
the issuer of such obligations. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price of
the market for such obligations, and the difference between the bid and asked
price is customarily referred to as the spread. The Fund may also purchase
municipal obligations from underwriters, and dealers in fixed price offerings,
the cost of which may include undisclosed fees and concessions to the
underwriters. On occasion it may be necessary or appropriate to purchase or sell
a security through a broker on an agency basis, in which case the Fund will
incur a brokerage commission. Although spreads or commissions on portfolio
security transactions will, in the judgment of the Adviser, be reasonable in
relation to the value of the services provided, spreads or commissions exceeding
those which another firm might charge may be paid to firms who were selected to
execute transactions on behalf of the Fund and the Adviser's other clients for
providing brokerage and research services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Fund may
receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Adviser determines in good faith that such compensation was reasonable in
relation to the value of the brokerage and research services provided. This
determination may be made on the basis of that particular transaction or on the
basis of overall responsibilities which the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
Advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information and
other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of such
advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, the Adviser receives Research
B-12
Services from many broker-dealer firms with which the Adviser places the Fund's
transactions and from third parties with which these broker-dealers have
arrangements. These Research Services include such matters as general economic,
political, business and market information, industry and company reviews,
evaluations of securities and portfolio strategies and transactions, proxy
voting data and analysis services, technical analysis of various aspects of the
securities market, recommendations as to the purchase and sale of securities and
other portfolio transactions, financial, industry and trade publications, news
and information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, 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 advisory
fee paid by the Fund is not reduced because the Adviser receives such Research
Services. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.
The Fund and the Adviser may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by the Adviser in connection with its investment responsibilities. The
investment companies sponsored by the Adviser or BMR may allocate trades in such
offerings to acquire information relating to the performance, fees and expenses
of such companies and other mutual funds, which information is used by the
Trustees of such companies to fulfill their responsibility to oversee the
quality of the services provided by various entities, including the Adviser, to
such companies. Such companies may also pay cash for such information.
Subject to the requirement that the Adviser shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by the Adviser.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc. ("NASD"), which rule provides that no firm which is a
member of the NASD shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Fund may also be
appropriate for other investment accounts managed by the Adviser or its
affiliates. Whenever decisions are made to buy or sell securities by the Fund
and one or more of such other accounts simultaneously, the Adviser will allocate
the security transactions (including "hot" issues) in a manner which it believes
to be equitable under the circumstances. As a result of such allocations, there
may be instances where the Fund will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
the Adviser reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Trustees of the Fund that the
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
TAXES
The Fund has elected to be treated and intends to qualify each year as a
regulated investment company ("RIC") under the Code. Accordingly, the Fund
intends to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute substantially all of its net
income (including tax-exempt income) and net short-term and long-term capital
gains (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. To the
extent it qualifies for treatment as a RIC and satisfies the above-mentioned
distribution requirements, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends or capital gain
distributions.
In order to avoid incurring a federal excise tax obligation, the Code
requires that the Fund distribute (or be deemed to have distributed) by December
31 of each calendar year (i) at least 98% of its ordinary income (not including
B-13
tax-exempt income) for such year, (ii) at least 98% of its capital gain net
income (which is the excess of its realized capital gains over its realized
capital losses), 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 and (iii) 100% of any income and capital gains from the prior year
(as previously computed) that were not paid out during such year and on which
the Fund paid no federal income tax. Under current law, provided that the Fund
qualifies as a RIC, the Fund will be treated as a partnership for Massachusetts
and federal tax purposes, and the Fund should not be liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
If the Fund does not qualify as a RIC for any taxable year, the Fund's
taxable income will be subject to corporate income taxes, and all distributions
from earnings and profits, including distributions of net capital gain (if any),
will be taxable to the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, the Fund may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.
The Fund'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 Fund and, in order to avoid
a tax payable by the Fund, the Fund may be required to liquidate securities that
it might otherwise have continued to hold in order to generate cash so that the
Fund may make required distributions to its shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Fund to the extent that the issuers of these securities default
on their obligations pertaining thereto. The Code is not entirely clear
regarding the federal income tax consequences of the Fund's taking certain
positions in connection with ownership of such distressed securities.
Distributions by the Fund of net tax-exempt interest income that are properly
designated as "exempt-interest dividends" may be treated by shareholders as
interest excludable from gross income under Section 103(a) of the Code. In order
for the Fund to be entitled to pay exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax under Code Section
103(a). Interest on certain municipal obligations is treated as a tax preference
item for purposes of the AMT. In addition, corporate shareholders must include
the full amount of exempt-interest dividends in computing the preference items
for the purposes of the AMT. Shareholders of the Fund are required to report
tax-exempt interest on their federal income tax returns.
Tax-exempt distributions received from the Fund are taken into account in
determining, and may increase, the portion of social security and certain
railroad retirement benefits that may be subject to federal income tax.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distributions of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in its trade or business a part of a facility
financed from the proceeds of industrial development bonds, and the same
definition should apply in the case of private activity bonds.
B-14
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (I.E., obligations with a term of more than one
year) purchased after April 30, 1993 (except to the extent of a portion of the
discount attributable to original issue discount), 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.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Fund and the value of the securities held by it may be affected.
In the course of managing its investments, the Fund may realize some
short-term and long-term capital gains (and/or losses) as well as other taxable
income. Any distributions by the Fund of such capital gains (after reduction by
any capital loss carryforwards) or other taxable income would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax-exempt interest earned by
the Fund and allocated to the Fund.
The Fund's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of Fund securities, 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
investors. The Fund may have to limit its activities in options and futures
contracts in order to enable it to maintain its RIC status.
Any loss realized upon the sale or exchange of Fund shares with a tax holding
period of 6 months or less will be disallowed to the extent of any distributions
treated as tax-exempt interest with respect to such shares, and if the loss
exceeds the disallowed amount, will be treated as a long-term capital loss to
the extent of any distributions treated as long-term capital gain with respect
to such shares. In addition, all or a portion of a loss realized on a redemption
or other disposition of Fund shares may be disallowed under "wash sale" rules to
the extent the shareholder acquires other shares of the same Fund (whether
through the reinvestment of distributions or otherwise) within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date. Any disallowed loss will result in an adjustment to the
shareholder's tax basis in some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Fund (or of another fund) pursuant to
the reinvestment or exchange privilege. Any disregarded amounts will result in
an adjustment to the shareholder's tax basis in some or all of any other shares
acquired.
Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses. Certain distributions declared in October, November or December and paid
in the following January will be taxed to shareholders as if received on
December 31 of the year in which they were declared.
B-15
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom the Fund has received
certain information from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends and
other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of up to 30% for amounts paid
during 2002 and 2003. An individual's TIN is generally his or her social
security number.
The foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in the Fund.
If the Fund issues preferred shares, the Fund will designate dividends made
to holders of Shares and to holders of those preferred shares in accordance with
each class's proportionate share of each item of Fund income (such as tax-exempt
interest, net capital gains and other taxable income).
The Fund is not appropriate for non-U.S. investors or as a retirement plan
investment.
STATE AND LOCAL TAXES. The exemption of interest income for federal income
tax purposes does not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority. Shareholders of the Fund may be
exempt from state and local taxes on distributions of tax-exempt interest income
derived from obligations of the state and/or municipalities of the state in
which they are resident, but taxable generally on income derived from
obligations of other jurisdictions. The Fund will report annually to
shareholders the percentages representing the proportionate ratio of its net
tax-exempt income earned in each state.
The foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as insurance companies and financial
institutions. Shareholders should consult their own tax advisers with respect to
special tax rules that may apply in their particular situations, as well as the
state or local tax consequences of investing in the Fund.
OTHER INFORMATION
The Fund is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, Shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
Shareholder liability in connection with the Fund property or the acts,
obligations or affairs of the Fund. The Declaration of Trust also provides for
indemnification out of the Fund property of any Shareholder held personally
liable for the claims and liabilities to which a Shareholder may become subject
by reason of being or having been a Shareholder. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Fund itself is unable to meet its obligations. The
Fund believes the risk of any Shareholder incurring any liability for the
obligations of the Fund is remote.
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Fund or its shareholders
to which he 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 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
B-16
that office either by a written declaration filed with the Fund's custodian or
by votes cast at a meeting called for that purpose. The Declaration of Trust
further provides that the Trustees of the Fund shall promptly call a meeting of
the shareholders for the purpose of voting upon a question of removal of any
such Trustee or Trustees when requested in writing so to do by the record
holders of not less than 10 per centum of the outstanding shares.
The Fund's Prospectus and this SAI do not contain all of the information set
forth in the Registration Statement that the Fund has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.
AUDITORS
____________________________, Boston, Massachusetts, are the independent
accountants for the Fund, providing audit services, tax return preparation, and
assistance and consultation with respect to the preparation of filings with the
SEC.
B-17
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholder of
Eaton Vance Insured New York Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Insured New York Municipal Bond Fund (the "Fund") as of , 20__ and the
related statement of operations for the one day period ended , 20_ . These
financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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, such financial statements referred to above presents fairly,
in all material respects, the financial position of Eaton Vance Insured New York
Municipal Bond Fund as of _______________, 20__, and the results of its
operations for the stated period, in conformity with generally accepted
accounting principles.
Boston, Massachusetts
__________________, 20__
B-18
EATON VANCE INSURED NEW YORK MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
_______________________, 20
ASSETS:
Cash.................................................. $
Deferred initial offering expenses....................
Total assets.......................................... $
_______
LIABILITIES:
Initial offering expenses accrued..................... $
_______
Total liabilities..................................... $
_______
Net assets applicable to ___________________ common shares of
beneficial interest $
=======
issued and outstanding.................................
NET ASSET VALUE AND OFFERING PRICE PER SHARE............... $ 15.00
========
NOTE TO FINANCIAL STATEMENT
Eaton Vance Insured New York Municipal Bond Fund was formed under an
Agreement and Declaration of Trust dated December , 1998 and has been inactive
since that date except for matters relating to its organization and registration
as an investment company under the Investment Company Act of 1940 and the sale
of shares of its beneficial interest to Eaton Vance Management, the Fund's
administrator. The initial offering expenses, including federal and state
registration and qualification fees, will be deducted from net proceeds, and
will not exceed $0.03 per share, as Eaton Vance Management or an affiliate will
pay any such expenses in excess of $0.03 per share. The initial offering
expenses reflected above assume the initial sale of ___________________ shares.
B-19
EATON VANCE INSURED NEW YORK MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
FOR THE ONE DAY ______________, 20__
INCOME: $
EXPENSES:
Organization expenses $
Total Expenses $
Preliminary reduction of expenses $
Net expenses $
Net investment loss $
NOTE OF FINANCIAL STATEMENT
Eaton Vance Management, the Fund's administrator, has agreed to bear all
ordinary and organizational expenses of the Fund that exceed 5% of average
weekly net assets (taking into account the deduction of any preferred shares and
related expenses) for the first fiscal year of operations. In return for this
arrangement, the Fund will reimburse Eaton Vance over the first year of
operations for organizational expenses of the Fund borne by the administrator at
the onset of operations.
B-20
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium-grade obligations (I.E.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily
represent ratings which would be given to these securities on the date of
the Fund's fiscal year end.
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:
B-21
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 municipal 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.
MUNICIPAL SHORT-TERM OBLIGATIONS
MIG/VMIG RATINGS U.S. SHORT-TERM RATINGS: In municipal debt issuance, there are
three rating categories for short-term obligations that are considered
investment grade. These ratings are designated as Moody's Investment Grade (MIG)
and are divided into three levels -- MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are
designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component rating
is assigned. The first element represents Moody's evaluation of the degree of
risk associated with scheduled principal and interest payments. The second
element represents Moody's evaluation of the degree of risk associated with the
demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated as
VMIG. When either the long- or short- term aspect of a VRDO is not rated, that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations will
be a function of each issue's specific structural or credit features.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support, or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category in this category may lack sufficient margins of protection.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
B-22
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.
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.
B-23
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.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
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
obligors 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.
B-24
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.
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.
B-25
* * * * * * * *
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 Fund is dependent on the Investment 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.
DESCRIPTION OF THE INSURANCE CLAIMS-PAYING ABILITY RATINGS OF STANDARD & POOR'S
RATINGS GROUP AND MOODY'S INVESTORS SERVICE, INC.
An S& P insurance claims-paying ability rating is an assessment of an operating
insurance company's financial capacity to meet obligations under an insurance
policy in accordance with the terms. An insurer with an insurance claims-paying
ability of AAA has the highest rating assigned by S&P. Capacity to honor
insurance contracts is adjudged by S&P to be extremely strong and highly likely
to remain so over a long period of time. A Moody's insurance claims-paying
ability rating is an opinion of the ability of an insurance company to repay
punctually senior policy holder obligations and claims. An insurer with an
insurance claims-paying ability rating of Aaa is adjudged by Moody's to be of
the best quality. In the opinion of Moody's, the policy obligations of an
insurance company with an insurance claims-paying ability rating of Aaa carry
the smallest degree of credit risk and, while the financial strength of the
these companies is likely to change, such changes as can be visualized are most
unlikely to impair the company's fundamentally strong position.
An insurance claims-paying ability rating by S7P's or Moody's does not
constitute an opinion on an specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take in account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (.I.E., debt
contracts).
The assignment of ratings by S&P and Moody's to debt issues that are fully or
partially supported by insurance policies, contracts, or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination of such debt issues.
B-26
APPENDIX B
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax-exempt bonds yielding from 4% to 6% under the regular federal income tax law
New York State and New York City personal income taxes, and tax rates applicable
to individuals for 2002.
[REVISE BRACKET FOR 2002 AND 2003 FED, NY STATE AND CITY INCOME TAX TABLES.]
A tax exempt yield of:
SINGLE RETURN JOINT RETURN Combined Federal, 4% 4.5% 5% 5.5% 6%
-------------------- ------------------ NY State and City --------------------------------------------
(TAXABLE INCOME*) TAX BRACKET IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
------------------------------------------------ ----------- -------------------------------------------
10.00% [___]% [___]% [___]% [___]% [---]%
[Up to $25,350 Up to $42,350 15.00 [___] [___] [___] [___] [___]
$25,351 - $61,400 $42,351 - $102,300 27.00 [___] [___] [___] [___] [___]
$61,401 - $128,100 $102,301 - $155,950 30.00 [___] [___] [___] [___] [___]
$128,101 - $278,450 $155,951 - $278,450 35.00 [___] [___] [___] [___] [___]
Over $278,450 Over $278,450] 38.60 [___] [___] [___] [___] [___]
*NET AMOUNT SUBJECT TO FEDERAL PERSONAL INCOME TAX AFTER DEDUCTIONS AND
EXEMPTIONS.
[The above indicated federal income tax brackets do not take into account the
effect of a reduction in the deductibility of itemized deductions for individual
taxpayers with adjusted gross income in excess of $124,500. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $124,500 and joint filers with
adjusted gross income in excess of $186,800. The effective tax brackets and
equivalent taxable yields of those taxpayers will be higher than those indicated
above.]
[The combined federal, New York State and New York City tax brackets are
calculated using the highest New York tax rate applicable within each bracket.
Taxpayers with taxable income within such brackets may have lower combined tax
brackets and taxable equivalent yields than indicated above. The combined tax
brackets assume that New York taxes are itemized deductions for federal income
tax purposes. Investors who do not itemize deductions on their federal income
tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within the
brackets are [ ]%, [ ]%, [ ]% and [ ]%. A supplemental New York State tax will
also apply to filers with adjusted gross income between $[ ] and $[ ] which
phases out the benefit of lower marginal brackets. The adjustment is not
reflected above.]
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax-exempt yield. While it is expected that the Fund will
invest principally in obligations the interest from which is exempt from the
regular federal income tax and New York State and New York City personal income
taxes, other income received by the Fund may be taxable. The table does not take
into account state or local taxes, if any, payable on Fund distributions. It
should also be noted that the interest earned on certain "private activity
bonds", while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the AMT. The illustrations
assume that the AMT is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax-equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
B-27
APPENDIX C
NEW YORK AND U.S. TERRITORY INFORMATION
The following is a summary of certain selected information relating to the
economy and finances of New York State, New York City and the U.S. territories
listed below. It is not a discussion of any specific factors that may affect any
particular issuer of municipal securities. The information is not intended to be
comprehensive and does not include all of the economic and financial
information, such as certain information pertaining to budgets, receipts and
disbursements, about New York State and New York City or such U.S. territories
that would ordinarily be included in various public documents issued thereby,
such as an official statement prepared in accordance with issuance of general
obligation bonds of New York or such U.S. territories. Such an official
statement, together with any updates or supplements thereto, generally may be
obtained upon request to the budget or equivalent office of New York State, New
York City or such U.S. territories. The information below is derived from
selected public documents of the type described above and has not been
independently verified by the Fund.
NEW YORK
The State ended its 2000-2001 fiscal year balanced on a cash basis. The reported
General Fund cash balance (unaudited) was $1.10 billion. In addition, the state
had $3.52 billion on deposit in the tax refund reserve account to adjust
personal income taxes across fiscal years to pay for tax refunds and other
purposes. The Governor has proposed setting aside $1.48 billion of this balance
for reserves for economic uncertainties. The state projects a General Fund
balanced on a cash basis for the 2001-2002 fiscal year, with total General Fund
receipts, including transfers from other funds, in excess of $42 billion. As of
its May 2001 Annual Information Statement Supplement the State had not enacted a
budget for the 2001-2002 fiscal year but had enacted appropriations for
State-supported, contingent contractual and certain other debt-service like
obligations for the entire fiscal year and had made interim appropriations for
State personal service costs and various grants to local government.
The state has projected year budget gaps of $2.48 billion and $2.93 billion for
the 2002-2003 and 2003-2004 fiscal years, respectively. In recent years, the
state has closed projected budget gaps which have ranged from $5 billion to less
than $1 billion as estimated by the Division of Budget. The state legislature
has enacted the Debt Reform Act of 2000, which applies to new state-supported
debt (i.e. general obligation debt of the state and lease-purchase and
contractual obligations of public authorities and municipalities where debt
service is paid from state appropriations) issued on or after April 1, 2000. It
imposes caps on new debt outstanding and new debt service costs.
The fiscal stability of New York state relates, at least in part, to the fiscal
stability of its localities and authorities. Various state agencies, authorities
and localities have issued large amounts of bonds and notes supported by the
state. In some cases, the state has had to provide special assistance in recent
years to enable such agencies, authorities and localities to meet their
financial obligations and, in some cases, to prevent or cure defaults. The
extent to which state agencies and local governments require state assistance to
meet their financial obligations, may adversely affect the ability of the state
to meet its own obligations as they become due or to obtain additional
financing. The state has authorized the Metropolitan Transportation Authority to
undertake a major restructuring initiative involving refunding approximately
$13.7 billion in bonds, consolidating its credit sources, and obviating the need
for debt service reserves.
For the 2000 fiscal year, New York City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 2000
fiscal year is the twentieth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers. The City's financial plan
projects a balance in each of the 2001 and 2002 fiscal year, with total revenues
projected in excess of $39 billion, and budget gaps of $2.8 billion, $2.9
B-28
billion and $2.7 billion for the 2003, 2004 and 2005 fiscal years, respectively.
New York City has shown a pattern of consistently projecting and closing budget
gaps. The City has outlined a gap-closing program which anticipates additional
City agency programs to reduce expenditures or increase revenues and additional
federal and state actions such as intergovernmental aid to the City. There can
be no assurance that additional gap-closing measures, such as tax increases or
reductions in City services, will not be required.
Implementation of the City's four-year annual financial plan is also dependent
upon the City's ability to market its securities successfully in the public
credit markets including its ability to issue short term notes to finance its
seasonal working capital needs. The fiscal health of New York City, which has
been the largest issuer of municipal bonds in the country and is a leading
international commercial center, exerts a significant influence upon the fiscal
health and bond values of issues throughout the state. Bond values of the
Municipal Assistance Corporation, the state of New York, the New York Local
Government Assistance Corporation, the New York State Dormitory Authority, the
New York City Municipal Water Finance Authority, the New York City Transitional
Finance Authority and The Metropolitan Transportation Authority may be
particularly affected by serious financial difficulties encountered by New York
City. The Fund could be expected to hold bonds issued by many, if not all of
these issuers, at any given time.
The financial condition of the state, City and other New York issuers may be
affected by many economic, social, political and international factors which
cannot be predicted with certainty. These factors include, but may not be
limited to, litigation, pension costs and pension fund earnings, collective
bargaining with governmental employees, changes resulting from entitlement
program reforms, the receipt of intergovernmental aid, and the performance of
the securities and financial sector which is more significant to the New York
economy than to the national economy. Factors particularly affecting New York
City also include its ability to meet its extensive infrastructure and other
capital needs in the face of limited funding capacity.
U.S. TERRITORIES
PUERTO RICO. Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. The North American Free Trade Agreement
("NAFTA"), which became effective January 1, 1994, has led to loss of lower wage
jobs such as textiles, but economic growth in other areas, particularly tourism,
pharmaceuticals, construction and the high technology areas have compensated for
that loss
The Commonwealth of Puerto Rico differs from the states in its relationship with
the federal government. Most federal taxes, except those such as social security
taxes that are imposed by mutual consent, are not levied in Puerto Rico. Section
936 of the Code has provided a tax credit for certain qualified U.S.
corporations electing "possessions corporation" status. However, in 1993,
Section 936 was amended to provide for two alternative limitations on the
Section 936 credit attributable to certain active business income. The first
limitation was based on the economic activity of the Section 936 possessions
corporation. The second limited the credit to a specified percentage of the
credit allowed under prior law. In 1996, Section 936 credit was repealed except
that the credit attributable to possessions source business income with respect
to certain existing credit claimants was subjected to a phase out over a ten
year period (subject to additional caps).
Also in 1996, a new Section 30A was added to the Code. Section 30A permits a
"qualifying domestic corporation" that meets certain gross income tests to claim
a credit against the federal income tax in an amount equal to the portion of the
tax which is attributable to the taxable income from sources outside of the
United States, from the active conduct of a trade or business in Puerto Rico or
from the sale of substantially all the assets used in such a trade or business.
Section 30A will be phased out by January 1, 2006. The Governor of Puerto Rico
proposed that Congress permanently extend Section 30A until the Puerto Rican
economy achieves certain economic improvements. To date, however, no action has
been taken.
During the mid and late 1990s the Commonwealth of Puerto Rico benefited from a
robust U.S. economy, more aggressive tax collections and low oil prices. This
created an expanded employment base, job growth, reduction in unemployment,
increase in tourism spending, real GDP growth in the 3.1% to 3.5% range over the
B-29
last 5 fiscal years and significant increases in General Fund cash balances from
fiscal year end 1997 to fiscal year end 1999. These factors, combined with
minimal negative impact to date from the 1996 federal legislation phasing out
Section 936 tax benefits to Puerto Rico subsidiaries of U.S. Corporations,
created a positive outlook for the credit in the late 1990s. Despite the fact
that there have been some high profile U.S. companies that have left the island
partially due to the Section 936 phase out, many corporations have elected to
convert to controlled foreign corporation (CFC) status, which allows them to
delay federal income taxes until the income is distributed to U.S. shareholders.
In fiscal year 2000, the outlook on the credit turned negative due to the
slowdown in the U.S. economy (88% of Puerto Rico's exports go to the U.S.),
uncertainty regarding increasing oil prices, failure of the government to reign
in health care costs, expense overruns in education and a decreasing rate of
employment growth. As a result, the General Fund recorded a $268 million deficit
in fiscal year 2000 due to increased education and health care spending.
A new administration, the Popular Democratic Party that favors Puerto Rico's
commonwealth status over a potential statehood status, took office in January,
2001. It was not long before they realized the presence of continued fiscal
stress and estimated a fiscal year 2001 budget shortfall of $700 million. The
shortfall was stated to be caused by weakened revenue growth due to the slowing
pace of employment and a softening U.S. economy.
The major key to maintaining Puerto Rico's external ratings (Baa1/A- from
Moody's and S&P, respectively) is the ability of the government to balance
fiscal year 2002 performance after lackluster fiscal year 2001 results which
necessitated deficit financing. Complicating matters is the uncertainty
surrounding the negative effects on tourism caused by September 11th terrorist
attacks and the scope and duration of the continued slowdown in the U.S.
economy.
THE U.S. VIRGIN ISLANDS. The United States Virgin Islands ("USVI") is heavily
reliant on the tourism industry, with roughly 43% of non-agricultural employment
in tourist-related trade and services. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe. The attacks of September 11, 2001 will likely have an
adverse affect on tourism, the extent of which is unclear.
An important component of the USVI revenue base is the federal excise tax on rum
exports. Tax revenues rebated by the federal government to the USVI provide the
primary security of many outstanding USVI bonds. Since more than 90% of the rum
distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. The last major hurricane to impact the USVI was Hurricane
Marilyn on September 15, 1995. Consequently, there can be no assurance that rum
exports to the United States and the rebate of tax revenues to the USVI will
continue at their present levels. The preferential tariff treatment the USVI rum
industry currently enjoys could be reduced under NAFTA. Increased competition
from Mexican rum producers could reduce USVI rum imported to the U.S.,
decreasing excise tax revenues generated. The USVI is periodically hit by
hurricanes. Several hurricanes have caused extensive damage, which has had a
negative impact on revenue collections. There is currently no rated, unenhanced
Virgin Islands debt outstanding (although there is unrated debt outstanding). In
addition, eventual elimination of the Section 936 tax credit for those companies
with operations in USVI may lead to slower growth in the future.
GUAM. The U.S. territory of Guam derives a substantial portion of its economic
base from Japanese tourism. With a reduced U.S. military presence on the island,
Guam has relied more heavily on tourism in past years. During 1998, the Japanese
recession combined with the impact of typhoon Paka resulted in a budget deficit
of $21 million. With hotels alone accounting for 8.5% of Guam's employment and
Japanese tourists comprising 86% of total visitor arrivals, the Japanese
recession and depreciation of the yen versus the dollar earlier this year have
had a negative impact on the island's economy in 1998. Based on these factors,
S&P downgraded Guam's rating to BBB- from BBB with a negative outlook on May 26,
1999. Although total visitors improved in 1999 and 2000, they were weakened by
economic slowdowns and the effects of the September 11th terrorist attacks in
2001. These negative trends have had an unfavorable effect on Guam's financial
position with consistent general fund deficits from 1997-1999 and a small
surplus in 2000. Fiscal year 2001 is expected to be worse than fiscal year 2000.
Guam also has a high debt burden. These factors caused S&P to downgrade Guam's
rating to BB (below investment grade) from BBB- on March 25, 2002. Guam is not
rated by Moody's.
B-30
APPENDIX D
DESCRIPTION OF INSURERS
The following information relates to the Fund and supplements the information
contained under "Additional Information about Investment Policies -- Insurance."
IN GENERAL. Insured obligations held by the Fund will be insured as to their
scheduled payment of principal and interest under (i) an insurance policy
obtained by the issuer or underwriter of the obligation at the time of its
original issuance ("Issue Insurance"), (ii) an insurance policy obtained by the
Fund or a third party subsequent to the obligation's original issuance
("Secondary Market Insurance") or (iii) a municipal insurance policy purchased
by the Fund ("Portfolio Insurance"). The Fund anticipates that all or
substantially all of its insured obligations will be subject to Issue Insurance
or Secondary Market Insurance. Although the insurance feature reduces certain
financial risks, the premiums for Portfolio Insurance (which, if purchased by
the Fund, are paid from the Fund's assets) and the higher market price paid for
obligations covered by Issue Insurance or Secondary Market Insurance reduce the
Fund's current yield.
Insurance will cover the timely payment of interest and principal on obligations
and will be obtained from insurers with a claims-paying ability rated Aaa by
Moody's or AAA by S&P or Fitch. Obligations insured by any insurer with such a
claims- paying ability rating will generally carry the same rating or credit
risk as the insurer. See Appendix A for a brief description of Moody's, Fitch's
and S&P's claims-paying ability ratings. Such insurers must guarantee the timely
payment of all principal and interest on obligations as they become due. Such
insurance may, however, provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
obligated to make such payment until a specified time period has lapsed (which
may be 30 days or more after it has been notified by the Fund that such
non-payment has occurred). For these purposes, a payment of principal is due
only at final maturity of the obligation and not at the time any earlier sinking
fund payment is due. While the insurance will guarantee the timely payment of
principal and interest, it does not guarantee the market value of the
obligations or the net asset value of the Fund.
Obligations are generally eligible to be insured under Portfolio Insurance if,
at the time of purchase by the Fund, they are identified separately or by
category in qualitative guidelines furnished by the mutual fund insurer and are
in compliance with the aggregate limitations on amounts set forth in such
guidelines. Premium variations are based, in part, on the rating of the
obligations being insured at the time the Fund purchases the obligations. The
insurer may prospectively withdraw particular obligations from the
classifications of securities eligible for insurance or change the aggregate
amount limitation of each issue or category of eligible obligations. The insurer
must, however, continue to insure the full amount of the obligations previously
acquired which the insurer has indicated are eligible for insurance, so long as
they continue to be held by the Fund. The qualitative guidelines and aggregate
amount limitations established by the insurer from time to time will not
necessarily be the same as those the Fund would use to govern selection of
obligations for the Fund. Therefore, from time to time such guidelines and
limitations may affect investment decisions in the event the Fund's securities
are insured by Portfolio Insurance.
For Portfolio Insurance that terminates upon the sale of the insured security,
the insurance does not have any effect on the resale value of such security.
Therefore, the Fund will generally retain any insured obligations which are in
default or, in the judgment of the Investment Adviser, are in significant risk
of default and place a value on the insurance. This value will be equal to the
difference between the market value of the defaulted insured obligations and the
market value of similar obligations which are not in default. As a result, the
Investment Adviser may be unable to manage the securities held by the Fund to
the extent the Fund holds defaulted insured obligations, which will limit its
ability in certain circumstances to purchase other obligations. While a
defaulted insured obligation is held by the Fund, the Fund will continue to pay
the insurance premium thereon but will also collect interest payments from the
insurer and retain the right to collect the full amount of principal from the
insurer when the insured obligation becomes due. The Fund expects that the
market value of a defaulted insured obligation covered by Issue Insurance or
Secondary Market Insurance will generally be greater than the market value of an
otherwise comparable defaulted obligation covered by Portfolio Insurance.
B-31
The Fund may also invest in obligations that are secured by an escrow or trust
account which contains securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, that are backed by the full faith and credit
of the United States, and sufficient in amount to ensure the payment of interest
on and principal of the secured New York obligation ("collateralized
obligations"). Collateralized obligations generally are regarded as having the
credit characteristics of the underlying U.S. Government, agency or
instrumentality securities. These obligations will not be subject to Issue
Insurance, Secondary Market Insurance or Portfolio Insurance. Accordingly,
despite the existence of these credit support characteristics, these obligations
will not be considered to be insured obligations for purposes of the Fund's
policy of investing at least 80% of its net assets in insured obligations.
PRINCIPAL INSURERS. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ("FGIC"), AMBAC Indemnity
Corporation ("AMBAC"), ACA, Radian Asset Assurance ("Radian"), XL Capital
Assurance ("XL Capital), [CIFG]("CIFG"), and Financial Security Assurance Corp.,
together with its affiliated insurance companies--Financial Security Assurance
International Inc. and Financial Security Assurance of Oklahoma, Inc.
(collectively, "FSA"), are considered to have a high claims-paying ability and,
therefore, are eligible insurers for the Fund's obligations. Additional insurers
may be added without further notification. The following information concerning
these eligible insurers is based upon information provided by such insurers or
information filed with certain state insurance regulators. Neither the Fund has
independently verified such information and make no representations as to the
accuracy and adequacy of such information or as to the absence of material
adverse changes subsequent to the date thereof.
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance Corp.
of Illinois. Through a reinsurance agreement, BIG ceded all of its net insured
risks, as well as its related unearned premium and contingency reserves, to
MBIA. MBIA issues municipal bond insurance policies guarantying the timely
payment of principal and interest on new municipal bond issues and leasing
obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts and
mutual funds. As of December 31, 2001, MBIA had total assets of approximately
$16.12 billion and qualified statutory capital of approximately $4.8 billion.
MBIA has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of FGIC
Corporation, which is a wholly owned subsidiary of General Electric Capital
Corporation, is an insurer of municipal securities, including new issues,
securities held in unit investment trusts and mutual funds, and those traded on
secondary markets. The investors in FGIC Corporation are not obligated to pay
the debts of or claims against FGIC. As of December 31, 2000, FGIC had total
assets of approximately $2.75 billion and qualified statutory capital of
approximately $1.99 billion. FGIC has a claims-paying ability rating of "AAA" by
S&P and Fitch, and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance company
whose policies guaranty the payment of principal and interest on municipal
obligations issues. As of December 31, 2001, AMBAC had assets of approximately
$12.26 billion and qualified statutory capital of approximately $3.26 billion.
AMBAC has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
ACA is a Maryland domiciled financial insurance company. ACA is the primary
subsidiary of American Access Capital Holding Inc. ACA carries a single A
rating. Total claims paying resources were $383 million in 2001, with total
statutory capital of $120.8 million. Soft capital totaled $135 million, though a
loss coverage agreement with ACE American Insurance Co., (rated A). ACA insures
primarily in the municipal and CDO market and acts as the manager / originator
of CDO issues.
Radian is a wholly owned subsidiary of Radian Group Inc. Radian is rated AA by
Standard & Poor's and Fitch Ratings and provides financial guaranty insurance
B-32
and reinsurance for debt and asset backed securities. Radian was formerly known
as Asset Guarantee Company and was purchased by Radian Group for $518 million in
February 2001. As of December 31, 2001 Radian had assets of $381 million and
statutory capital of $169.8 million.
XL Capital is a new AAA rated financial guarantor and a wholly owned subsidiary
of property casualty insurer XL Capital Ltd. XL Capital began transactions in
January of 2001 and is rated AAA / Aaa by Moody's and S&P respectively. It is
currently capitalized with $100 million and cedes 90% of its exposure to XL
Financial Assurance a Bermuda based subsidiary of XL Capital Ltd. XL Financial
Assurance has $274 million in hard capital and $100 million in stop loss
protection. Beyond this XL Financial Assurance further guarantees 100% of XL
Capital exposure with $2.7 billion in shareholders equity. XL Capital has $88
million in assets and through its parent and subsidiary agreements XL Capital
has $1 billion in qualified statutory capital.
FSA purchased Capital Guaranty Insurance Company including its book of business
and reserves effective December 20, 1995. FSA is a monoline insurer whose
policies guaranty the timely payment of principal and interest on new issue and
secondary market issue municipal securities transactions, among other financial
obligations. As of December 31, 2001, FSA had total assets of approximately $4.3
billion and qualified statutory capital of approximately $1.52 billion. FSA has
a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's. On March
14, 2000, Dexia, Europe's largest municipal lender with assets in excess of $230
billion announced that it had signed a definitive agreement providing for the
acquisition of FSA Holdings, holding company for FSA, Inc. Dexia acquired the
company in the second quarter of 2000, for $2.6 billion in cash, or $76 per
share.
B-33
EATON VANCE INSURED NEW YORK MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
____________________, 2002
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
INDEPENDENT ACCOUNTANTS
_____________________________
_____________________________
Boston, MA___________________
B-34
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
Not applicable.
(2) Exhibits:
(a) Agreement and Declaration of Trust, dated July 8, 2002 filed herewith.
(b) By-Laws filed herewith.
(c) Not applicable.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest
filed herewith.
(e) Form of Dividend Reinvestment Plan to be filed by amendment.
(f) Not applicable.
(g) Form of Investment Advisory Agreement dated _____, 2002 to be filed by
amendment.
(h) (i) Form of Underwriting Agreement to be filed by amendment.
(ii) Form of Master Agreement Among Underwriters to be filed by
amendment.
(iii) Form of Master Selected Dealers Agreement to be filed by
amendment.
(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) Custodian Agreement dated _____, 2002 to be filed by amendment.
(k) (i) Form of Transfer Agency and Service Agreement dated ____, 2002
to be filed by amendment.
(ii) Form of Administration Agreement dated ______, 2002 to be filed
by amendment.
(iii) Form of Shareholder Servicing Agreement dated ___, 2002 to be
field by amendment.
(l) Opinion and Consent of Kirkpatrick & Lockhart LLP to be filed by
amendment.
(m) Not applicable.
(n) Consent of Independent Auditors to be filed by amendment.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management to be filed by amendment.
(q) Not applicable.
(r) Form of Code of Ethics to be filed by amendment.
(s) Power of Attorney to be filed by amendment.
Item 25. Marketing Arrangements
See Form of Underwriting Agreement to be filed by amendment.
Item 26. Other Expenses of Issuance and Distribution
The approximate expenses in connection with the offering, some of which
will be borne by the Adviser, are as follows:
Registration and Filing Fees...................................... $
Listing Fees......................................................
National Association of Securities Dealers, Inc. Fees.............
Costs of Printing and Engraving...................................
Accounting Fees and Expenses......................................
Legal Fees and Expenses...........................................
Total............................................................. $ ______
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 July 9, 2002 of
each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial Interest, par value
$0.01 per share......................................... 0
Item 29. Indemnification
The Registrant's By-Laws filed herewith contain and the Underwriting
Agreement to be filed is expected to 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. 1-8100); 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.
2
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 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, First Data Investor
Services Group, 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 its 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 this 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.
3
NOTICE
A copy of the Agreement and Declaration of Trust of Eaton Vance Insured
New York Municipal Bond Fund 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.
4
SIGNATURES
Pursuant to requirements of the Securities Act and the Investment
Company Act of 1940, the Registrant has duly caused this 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 9th day of July
2002.
EATON VANCE INSURED NEW YORK
MUNICIPAL BOND FUND
By: /s/ Thomas J. Fetter
------------------------
Thomas J. Fetter
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter
------------------------ President, (Principal July 9, 2002
Thomas J. Fetter Executive Officer), and
Trustee.
/s/ James L. O'Connor
------------------------- Treasurer (Principal Financial July 9, 2002
James L. O'Connor and Accounting Officer).
/s/ James B. Hawkes
------------------------- Trustee July 9, 2002
James B. Hawkes
5
INDEX TO EXHIBITS
(a) Agreement and Declaration of Trust, dated July 8, 2002.
(b) By-Laws.
(d) Form of Specimen Certificate for Common Shares of Beneficial Interest.
6