SEC Division of Investment Management staff letter: The Eaton Vance Group of Investment Companies

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PULIO JUL 2 5 1997
A VAIL.U~n. ..- Our Ref. No. 97-346-CC
'!1;';.Mt:r.iJ~l:!.;I:-,: --t!;:¡¡;:;.Kt,i'')~ ' The Eaton Vance Group REPONSE OF THE OFFICE OF CIDEF COUNSEL of Investment Companes DIVISION OF INVESTMENT MANAGEMENT File No. 132-3 Your letter dated July 16, 1997 requests our assurance that we would not recommend enforcement action to the Commission under Section 17(a) of the Investment Company Act of 1940 (the "Act") if The Eaton Vance Group of Investment Companes (the "Funds") paricipate in the proposed reorganation trasactions described in your letter in reliance on Rule 17a-8 under the Act. Background The Funds are structured as "master-feeder" funds in which two or three feeder funds invest al of their assets in a master fund. Each master fund is registered as an open-end investment company under the Act. The feeder funds are series of open-end investment companies registered under the Act. Each group of feeder funds investing in a master fund has identical investment objectives, policies and restrictions, and each feeer fund difers from the other feeder funds in the group only as to distribution arangements. Eaton Vance Management (the "Adviser") serves as the investment adviser and adminstrator to each master fund, and as the adminstrator and distributor to each feeder fund. The Funds propose to enter into a series of reorganation transactions through which the shareholders of the feeder funds in each master-feeder group wil become shareholders of new classes of a single feeder fund investing in the same master fund. Specifcaly, each reorganation wil involve the acquisition by one feeder fund in a group (each an "acquirg fund") of al of the assets and liabilties of the other feeder fund(s) in the group (each an "acquired fund") in exchange for shares of newly created classes of the acquirg fund. The distribution arrangements for each new class of an acquirg fund wil correspond to the distribution arangements of each feeder fund prior to the reorganation. You state that the declarations of trust of the Funds provide that the reorganations may be effected without a vote of the shareholders of the acquirg or acquired funds. You represent that the shareholders of the feeder funds wil have the same proportionate interest in the same underlying portfolio of securities afer the trasaction as they wil have prior to the transaction, and that the reorganations wil be non-taable events for shareholders of the feeder funds. You represent that shareholders wil experience no change in the value or cost 1 or in the net asset value of their shares, as a result of the basis of their investments,

1 You note that some shareholders could receive different distributions of realed capital gais following the reorganiations than would be the case if the reorganations did not occur. Ths result is due to different alocation methods for unrealed capita gais under the multiple class acèounting rules to be followed afer the reorganations, versus the partnership accounting rules currently followed under the master-feeder structure.

reorganations. You also represent that the reorganations wil not materially affect shareholders' voting rights. 2 You represent that the board of trustees of each feeder fund, including al of the trustees who are not interested persons of the funds, have determined that it would be in the best interests of the funds and their shareholders to paricipate in the reorganations. You state that the trustees' determination was based upon a number of factors, includig that the shareholders would continue to paricipate in the same portfolio of investment securities with the same investment objectives, policies and restrictions. You represent that the reorganiations are expected to eliinate or reduce cert costs associated with operating master-feeder structures and increase the potential marketabilty of the Funds. You state that the costs of effecting the reorganations are not signicant because a proxy solicitation and shareholder vote are not required.
Section 17(a) of the Act generaly prohibits an affilated person, or an affilated
person of an affilated person, of a registered investment company from knowingly purchasing securities or other property from, or sellg securities or other property to, the investment company or a company controlled by it. Rule 17a-8 under the Act exempts from the prohibitions of Section 17(a) mergers or consolidations of registered investment companes that are affilated persons solely by reason of having a common investment adviser, common directors and/or common officers, provided that the conditions of the rule 3 are satisfied.

You state that the Funds may be precluded from relying on Rule 17a-8 because more than one feeder fund in each group may own more than five percent of the outstading voting securities of its correspondig master fund. Each such feeder fund therefore may be affilated with the master fund, and thus each such feeder fund may be affilated with each other. In addition, the Adviser manages private accounts through which it holds

discretionary voting authority over more than five percent of the outstading shares of five of

the feeder funds involved in the proposed transactions. Because of these potential 2 You note that because the reorganations wil increase the size of the acquirg funds, the voting power of individual shareholders wil be diluted with respect to matters on which votes are taen on a fund-:wide rather than individual class basis. You represent that the only liely matter on which a vote would be taen on a fund-wide basis is the approval of auditors. 3 Generaly, to satisfy the conditions of the rule, the board of directors of each affilated registered investment company, including a majority of directors who are not interested persons of a registered investment company paricipating in the transaction, must determine that paricipation in the transaction is in the best interests 0:( that investment company, and that the interests of existing shareholders of the company wil not be diluted as a result of effecting the transaction.

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affilations, you state that the feeder funds may be deemed affilated persons of each other by reason other than by sharig a common investment adviser, directors and/or officers. You believe, however, that the Funds nevertheless should be permitted to rely on the Rule in effecting the reorganation transactions. Discussion You note that in proposing Rule 17a-8, the Commission stated that when a merger involves investment companes which are affilated persons solely because they share a common investment adviser, directors and/or officers, no person responsible for evaluating the merger on behal of the investment companes would have a signicant personal fmancial interest in improperly inuencing the terms of the transaction. The Commission stated the Rule should not apply when a person owns five percent or more of the outstadig voting securities of the paricipating investment companes because the owner is presumed to have the potential abilty to inuence the terms of the transaction.4 You believe that, in the instant case, no affilated persons of the paricipating investment companes have a signicant personal fmancial interest in the reorganations or the abilty to inuence the terms of the transactions, and that the Funds therefore should be able to rely on Rule 17a-8. With regard to a feeder fund's ownership of five percent or more of the shares of its master fund, you state that this affilation exists solely as a result of the inerent nature of the master-feeder fund structure. You state that although a feeder fund may own more than five percent of the outstading voting securities of its master fund, the concerns to which
Section 17(a) and Rule 17a-8 are addressed are not implicated because: (1) the
reorganations do not involve any shareholder vote; (2) the reorganations do not involve the master funds; (3) the feeder funds have no abilty to inuence the terms of the reorganations; and (4) the feeer funds have no paricular fmancial interest in the reorganations, except that their shareholders may reale a possible reduction in expenses. You assert that the Adviser's discretionar voting authority over five percent or more of the shares of certn feeder funds is irelevant because the transactions wil be effected

without a shareholder vote, and that the Adviser wil be unable to inuence the terms of the reorganations on this basis.5 You further note that in Pricipal Preservation Portfolios, Inc. (pub. avai. Jan. 11, 1996), the staf stated that it would not recommend enforcement action to the Commission under Section 17(a) if a feeer fund undergoing a reorganation 4 See Investment Company Act Release No. 10886 (Oct. 2, 1979). 5 Of course, the Adviser may be able to inuence the terms of the reorganations

based upon its position as investment adviser to the Funds. You state that this inuence,

however, is no greater than the inuence that the Adviser would have as a "common adviser" in transactions expressly withi the scope of Rule 1 7a-8. Telephone conversation between Phip J. Fina and Brendan C. Fox, July 23, 1997. 3

relied on Rule 17a-S where the fund's investment adviser, which held discretionar voting authority over more than five percent of the voting securities of the fund, passed this voting power through to the shares' beneficial owners. Similarly, in Thomson McKion Global Trust (pub. avail. Dec. is, 19S6), the staf stated that it would not recommend enforcement action to the Commission under Section 17(a) if cert funds relied on Rule 17a-S where the

funds' distributor, which nominaly held more than five percent of the outstading voting

securities of the funds, could not vote the shares except at the direction of their beneficial

owners. You argue that the Funds simarly should be permitted to rely on Rule 17a-S because the Adviser wil exercise no voting authority to approve the proposed

reorganiations.

You further state that the Adviser has no paricular fmancial interest in the

reorganiation of the five feeder funds over which it holds more than five percent of the

outstading voting securities. Although the Adviser may benefit from increased advisory fee

revenues in the event that reduced fund expenses' and improved marketabilty lead to future asset growth, you state that the Adviser's interest in these reorganations is, as apractical matter, identical to its interest as a "common adviser," which is expressly permitted by Rule 1 7a-S. Based upon the forgoing, you believe that the concerns to which Section 17(a) of the Act are addressed are not raised in the instat case and that there is no policy reason to require the Funds to obta exemptive relief under Section 17 (b) of the Act before permitting the proposed transactions to proceed. On the basis of the facts and circumstaces described in your letter, and without necessary agreeing with your legal analysis, we would not recommend enforcement action to the Commission under Section 17(a) of the Act if the Funds proceed with the reorganation transactions in reliance on Rule 17a-S under the Act. Ths response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Because this position is based on the facts and representations made in your letter, you should note that any different facts or representations might require a different conclusion. 7~~ Brendan C. Fox

Attorney

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ONE INERNATIONAL PLACE

BOSTON, MASSACHUSETTS 021 10-2637
TELEPHONE (617) 261-3100

FACSlMILE (617) 261-3175

PHIUP J. FINA
(617) 261.3156
1940 Act/Section 17(a) and Rule 17a-8
July 16, 1997
Securties and Exchange Commission
Offce of Chief Counsel
Division of Investment Management
Judiciar Plaz
450 Fifth Street, N. W.
Washington, D.C. 20549
Attn: Brendan Fox

Re: The Eaton Vance Group of Investment Companies

Ladies and Gentlemen:
On behalf of our clients, The Eaton Vance Group of Investment Companies ("Funds"), we hereby request the staffs confirmation that it would not "recommend enforcement action

against the Funds under Section 17(a) of the Investment Company Act of 1940 ("1940 Act") or Rule 17a-8 thereunder if the Funds paricipate in the non-taable reorganizations described

herein ("Reorganizations"). If the Reorganzations are consumated, the curent shareholders of two or more "feeder" fuds investing in a common "master" fud wil become shareholders of two or more corresponding classes of a single feeder investing in the same master fud. BO-63856.01 BOSTON. HARRISBURG. MIAI. NEW YORK. PITTSBURGH. WASHINGTON

July 16, 1997
Background
The Funds are organzed in a "master/feeder" structure consisting of 59 master fuds and 131 feeder fuds. Each master fud is registered as an open-end management investment

company under the 1940 Act. The beneficial interests of each master fud are not registered under the Securties Act of 1933 ("1933 Act"). Each master fud offers and sells its beneficial interests only in private placement transactions to feeder fuds, or to Eaton Vance Management or its affiliates ("Eaton Vance"). The feeder fuds are series of open-end management investment companies organized, for the most par, as Massachusetts business trusts and

registered under the 1940 Act; their shares are registered under the 1933 Act. 1 Eaton Vance serves as the administrator and investment adviser to the master fuds, and as the administrator and distnbutor to the feeder fuds. Under the Funds' current structue, at least two, and sometimes thee, 1940 Act registered feeder fuds invest in each master fud. Each group of two (or three) feeder fuds investing in a paricular master fud has identical investment objectives, policies and restrictions, and are series of a single registered open-end investment company. The sole distinction among the feeder fuds in each group is in their distribution structue. Typically, there is one feeder fud (i.e., the "Traditional" fund) with a front-end sales load and a service fee up to 25 basis points; a second feeder fud (i.e., the "Classic" fund) with a one-year contingent deferred sales charge and a 75 basis points 12b-1 fee and a service fee of up to 25 basis points; and, in certain cases, a third feeder fud (i.e., the "Marathon" fud) with a six year declining contingent deferred sales charge, a 75 basis point Rule 12b-1 fee and a service fee of up to 25 basis points. Each Reorganization wil be a tax-free transaction, involving (1) the acquisition by one feeder fud in a group with common investment objectives and policies ("acquiring fud") of all of the assets of the remaining feeder fud( s) in the group ("acquired fud( s )"), with such assets consisting of its (or their) interest(s) in the corresponding master fud; and (2) the assumption by the acquinng fud of all of the liabilities of the acquired fuds. In exchange, each acquired fud will receive shares of a newly-designated class of the acquiring fud. Shareholders of each acquired fud would become shareholders of the class of shares of the acquinng fud corresponding to the acquired fud's curent distribution strctue, and shareholders of the acquiring fud would become shareholders of the class of shares of the acquiring fud corresponding to the acquiring fud's distribution structue. For example, shareholders of an acquired Traditional fud wil become holders of Class A shares of the acquiring fud. Existing

i Certn feeder funds are organized and operated exclusively offshore, and accordingly ar not registered under the 1940 Act, nor are their

shars registered under the 1933 Act. The Reorganizatio~s described herein do not involve any of these offshore feeder funds and no-action relief is not being requested with respect to these offshore feeder funds.

July 16, 1997

shareholders of both the acquiring and acquired fuds will experience no change in the value or cost basis of their investments,2 nor in the net asset value of their shares, as a result of the

Reorganzations. The Reorganzations wil not materially affect shareholder voting rights.

Moreover, unike reorganzations involving fuds that are not in a master/feeder strctue, there will be no change in the underlying portfolio securties implicated in each Reorganzation.

Shareholders of both the acquiring fund and the acquired fund(s) wil thus effectively have the same proportionate interests in the same underlying portfolio of securities afer the Reorganzations as they will have had before the Reorganzations. Each Reorganization wil be effected in accordance with a plan of reorganization adopted by the board of trustees of the investment company of which the acquiring fud and the acquired fud(s) are series. Pursuant to the terms of the declarations of trst of each súch investment company, each Reorganization wil be effected without a vote of the shareholders of the acquiring fud or the acquired fud(s).4 As a practical matter, a Reorganization can only be effected on the last day of each fud's fiscal year. Subject to the receipt of this no-action relief, the trustees, including all of the non-interested trustees, of each fund have authorized the Reorganizations, which would commence with those fuds having July 31 fiscal year ends. 2 It is pOssible that some shareholders could, following the Reorganizations, receive different distributions of realized capita gains than would be the case if the restrcturing did not occur. This result could occur because allocation of a master fund's current unrealized capital

gains wil be different under mu1tip1e-class accounting rules than has been the case under the parership accounting followed by the master/feeder strcture. The actual realization of capita gains in the future remains uncertin and depends not only on the investment adviser's decisions but also on the fluctuating market valuation of specific securities. J Because the Reorganizations wil increase the size of the acquiring funds, the voting power of individual shareholders wil be diluted with respect to mattrs on which votes ar taken on a fund-wide, rather than on an individual class, basis. The only likely matter on which a vote would be taen on a fund wide basis is the approval of auditors, which currently are the same for each group of funds. 4 One feeder fund, EV Traditional Worldwide Health Services Fund, Inc., requires a shareholder vote to reorganize from a Marland corporation to a series of Eaton Vance Growt Trust prior to the above described Reorganization. 3

July 16, 1997
The trustees of the feeder fuds, including all of the non-interested trstees, have determined that it would be in the best interests of the fuds and their respective shareholders to reorganze each such group of two or more feeder fuds into a single feeder fud with multiple classes corresponding to the distrbution strctues curently in effect for the separate feeder fuds. The trustees' determination was based on a number of factors including: Shareholders of the feeder fuds would continue to paricipate in the same investment securities portfolio, with the same investment objective(s), policies and restrictions. The Reorganizations are expected to eliminate or reduce costs associated with maintaining multiple separate feeder fuds, including costs of separate audits, fud accounting expenses, legal expenses, printing costs, and blue sky fees.5 The Reorganizations wil be non-taxable transactions for shareholders of the feeder fud. The costs of effecting the Reorganzations (which wil be borne by the feeder fuds) are not significant, paricularly relative to the anticipated future expense reductions, because a proxy solicitation and shareholder vote is not required. The Reorganizations are also expected to increase the potential marketability of the feeder fuds' shares by simplifying and clarfying the organizational structure of the fuds. Applicable Statute and Regulation
Section 17(a) ofthe 1940 Act generally prohibits an affiliated person, or an affiliated person
of an affiiated person, of a registered investment company from knowingly purchasing securities from, or sellng securities or other property to, the investment company. The Reorganizations may be deemed to involve purchases and/or sales of securities or propert between two or more fuds and therefore subj ect to the prohibition of Section 17 ( a) if one fud is deemed to be an affiliated person, or affiliated person of an affiliated person, of the other.

Rule 17a-8 under the 1940 Act exempts from the prohibitions of Section 17(a) mergers, consolidations, or purchases or sales of substatially all of the assets involving registered investment companes that are afliated persons, or affiliated persons of an affliated person, solely by reason of having a common investment advisor, common directors, and/or common offcers, provided that the conditions set fort in the rule are met. These conditions requie, as here relevant, that the board of directors of each of the affliated registered investment companes paricipating in the transaction, including a majority of the directors of each investment company who are not interested persons of either of the paricipating registered investment companies, determine (1) that paricipation in the transaction is in the best interest of that registered investment company; and (2) that the interest of existing shareholders ofthat registered investment company wil not be diluted as a result of effecting the transaction. s Many of these expenses have been borne by Eaton Vance in the past on a voluntar basis for certain feeder funds.

July 16, 1997

Two aspects of the proposed Reorganzations would arguably preclude the Funds from relying upon Rule 17a-8. First, in all cases, at least one feeder fud owns more than 5% of the master fud. Where two or more feeder fuds in each group investing in the same master fud each own more than 5% of the interests in the corresponding master fud, the feeder fuds may be deemed to be affliated persons of affiliated persons each other, other than solely by reason of having a common investment adviser, common board of directors or common officers. Second, with respect to five feeder fuds, Eaton Vance, by virte of its position as an investment advisor to private accounts, has discretionar voting authority over the shares held in those accounts,

which accounts hold more than 5% of the outstading shares of these feeder funds. As a result, each of these feeder fuds could be deemed to be an affiiated person, or an affiiated person of an affiliated person, of other feeder fuds in its group, other than solely by reason of having a common investment adviser, common board of directors or common offcers. For the reasons set forth below, we believe that under the circumstances here involved, the Reorganizations should nevertheless be governed by Rule 17a-8. Providing the relief requested herein would, in our view, be consistent with past no-action relief granted by the Staff in this area, as discussed below. Discussion Congress adopted Section 17(a) to protect shareholders by prohibiting a purchase or sale transaction when a pary to the transaction is an affliated person, or an affiiated person of an afliated person, and has both the ability and the pecuniar incentive to influence the actions of the investment company. See Investment Company Act Release No. 10886 (October 3, 1979) ("Release No. 10886") (citing hearngs on S. 3580 before a Subcomm. of the Semi.te Comm. on Banng and Curency, 76th Cong., 3d. Sess., 17 (1940)). The Commission has frequently taken the position that a merger or other consolidation of two registered investment companes with a "common" board of directors/trstees and/or a common advisor may involve affiliated persons. See Release No, 10886 at p.2. Rule 17a-8 is based on the rationale that when a merger, consolidation, or purchase or sale of substatially all assets involves investment companes that are affliated persons exclusively by virte of sharng common directors, offcers, and/or an investment adviser, no person who is responsible for evaluating and approving the terms of the transaction on behalf of the varous paricipating investment companes would have a significant financial interest in improperly infuencing the terms of the reorganization. See Release No. 10886 at p.2. The rule also reinforces the fudamental policy that shareholders of each investment company involved in the reorganzation are entitled, as a matter of fudamental fiduciar principles, to have their trustees act in the best interests ofthe investment company's shareholders.

July 16, 1997

If paricipating investment companes are affiiated in a maner other than that specified in Rule 17a-8, the investment companes may be prohibited from engaging in the transaction absent receipt of an order pursuant to Section 17(b). Specifically, in footnote 9 to Release No. 10886, the Commission stated that when the affiliation among paricipating investment companies "is based upon a person owning 5% or more of the outstanding securties (of the relevant entities) ..., the owner ... would be presumed to have certain potential abilities to infuence the terms of the transaction, in which ... he may have a paricular financial interest." (Emphasis added)

1. Affliation Because of Master/Feeder Structue

For puroses of this letter, we are assuming that because of the master/feeder strcture, and more specifically because of some feeder fud's ownership of more than 5% of the interests of its corresponding master fud, each Reorganization wil involve feeder fuds that are affiliates, or affiiates of affiiates, of each other. Rule 17a-8, of course, was adopted prior to the development of the master/feeder structure, and Rule 17a-8 therefore does not specifically address the affiliations between feeder investment companies that are inherent in a master/feeder strcture. As the staff has accepted in Principle (sic) Preservation Portfolios, Inc. (pub. avaiL. Jan. 11, 1996), however, affiliations between fuds created by reason of the master/feeder strctue should not necessarily preclude feeder fuds from relying on the exemption afforded by Rule 17a-8. While the Commission has been reluctat to permit use of Rule 17a-8 where an affiliation among paricipating investment companies is based on a person owning 5% or more of the outstading securties of the relevant entities, the Commission's concern has arsen because "the owner ... would be presumed to have certain potential abilties to infuence the terms of the transaction, in which ... he may have a paricular financial interest." (Emphasis added) Here, of course, the feeder fuds - as the "owners" of 5% interests in the master fuds -- will have no abilty, potential or otherwse, to infuence the terms of the Reorganzations (which will, in any event, only nominally involve the master fuds "owned" by them). No business combination is occurng at the master fud level, and no vote of the feeder fuds is required to establish the terms of the Reorganzations or to effect them. Rather, the terms of the Reorganizations wil be determined by the trstees of the registered investment companes comprising the feeder fuds. Moreover, the feeder fuds wil have no paricular financial interest in the Reorganizations. None of the feeder fuds involved in the Reorganizations expects to receive any direct pecunar benefit vis-a-vis any of the other feeder funds as a result of the Reorganzations. Rather, as described above, the Reorganizations are expected to benefit feeder fud shareholders by

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July 16, 1997

eliminating or reducing costs associated with maintaining multiple series, including costs of separate audits, fud accounting expenses, legal expenses, printing costs, and blue sky fees.

As noted above, Rule 17a-8 is based on the rationale that when the only affiliations present are the affliations described in the rule, it is unecessar to require investment companies to incur the delay and expense of obtaining a Section 17(b) order prior to effecting transactions of the types specified, because no person who is responsible for evaluating and approving the terms of the transaction on behalf of the varous paricipating investment

companes would have a significant financial interest in improperly infuencing the terms of the reorganzation. Where an additional level of affliation among the paricipating investment companies is created solely by the inherent nature of the master/feeder strctue, there is no

policy reason that the exemption afforded by Rule 17a-8 should not continue to be 'available, at least where, as here, (1) the shareholders of the paricipating investment companes wil, in effect, have the same proportionate interests in the same underlying portfolio of securities after the transaction as they will have had before the transaction, (2) shareholders of the paricipating investment companies wil experience no change in the value or cost basis of their investments, nor in the net asset value of their shares, as a result of the transaction, and (3) no vote by the paricipating investment companies is requested or required. Under these circumstances, the concerns at which Section 17(a) and Rule 17a-8 are directed are not implicated, and permitting the transaction to proceed without prior Section 17(b) relief is consistent with the policies underlying the section and the rule.
2. Affliation Because of
Voting Authority Through Investment Advisory Accounts As noted above, Eaton Vance, by virtue of its position as an investment advisor to private accounts, has discretionar voting authority over more than 5% of the outstanding shares7 with

respect to only five of the 131 feeder fuds involved in the Reorganzations.s As a result, each of these five feeder fuds could be deemed to be an affliated person, or an afliated person of an affliated person, of other feeder fuds in its group, other than solely by reason of having a 6 In recent year Eaton Vance has assumed a portion of certin feeder funds' expenses. Eaton Vance has provided such subsidies purely on a

volunta basis, and there is no obligation on the par of Eaton Vance to continue any such subsidies in the future, regardless of whether the Reorganizations are effected. 7 Section 2(a)(3) of the 1940 Act provides that an "afliated person" of another person means "(A) any person. . . contrllng or holding with

power to vote, 5 per centum or more of the outstading voting securities of such other person; (8) any person 5 per centum or more of whose outstading voting securities are. . . controlled or held with power to vote, by such other person. . . . ."

8 The five afected feeder funds range in size from approximately 4.7 millon to $120.2 milion assets. The combined assets of these five

funds tota less than approximately $210 millon, out ofa tota of approximately $1 . billon in assets in the 131 feeder funds involved in the

Reorganizations.

July 16, 1997

common investment adviser, common board of directors or common offcers. The policy "concern" would be that Eaton Vance would use its authority to vote the shares to infuence or direct the effecting of the Reorganzations. Here, pursuant to the terms of the declarations of trust of the investment companes involved in the Reorganzations, no vote of shareholders is required to effect the Reorganzations. Thus, the fact that Eaton Vance may nominally hold with the power to vote 5% or more of the outstanding voting securities of certain of the paricipating feeder fuds will not

place Eaton Vance in a position, in its capacity as "owner," to infuence the terms of the Reorganzations because there is simply no voting authority for it to exercise with respect to the Reorganzations. Because a shareholder vote on the Reorganzations is not required and will not be obtained, Eaton Vance's voting authority over 5% or more of the shares of five of the feeder fuds is completely irrelevant to effecting the Reorganizations. The staff has accepted in Principle Preservation Portfolios, Inc. and Thomson McKinnon Global Trust (pub. avaiL. Dec. 18, 1986) that this type of affiiation between funds need not necessarly preclude them from relying on the exemption afforded by Rule 17a-8. In granting no￾action relief in Principle Preservation Portfolios, Inc. the staff appears to have been infuenced by the fact that notwithstanding that the affiiate at issue (an adviser) held discretionar voting authority over more than 5% of the shares of the affected investment companies involved in the transaction at issue (i.e., a "despoking" and "dehubbing" transaction), that voting power with respect to such shares was being "passed through" to the account owners and would not be exercised by the adviser. There, the adviser could vote such shares only at, and in accordance with, instructions received from the account owners. In the case of the Eaton Vance feeder fuds no voting power will be exercised in the Reorganizations. Similarly, in granting no-action relief in Thomson McKinnon Global Trust, the sta appears to have been infuenced by the fact that the affliate at issue (a distributor) was only the "nominal" owner of more than 5% of the shares of the affected investment companes involved in the transaction at issue (i.e., the reorganzation of a Massachusetts business trust as a new series of an existing business trust), and that the afliate could vote those shares only in accordance with the instrctions of the beneficial owners.

In both Thomson McKinnon Global Trust and Principle Preservation Portfolios, Inc., the staf has taen a no action position where the affliates were unable to influence the terms of the

July 16, 1997

transactions in their capacities as nominal "owners" of 5% positions because they would not be exercising their voting authority. 9

Moreover, under the circumstaces here presented, it can not be said that Eaton Vance has any "paricular financial interest" in the five Reorganizations involving the five feeder fuds at issue distinct from its interest as a "common adviser" which is expressly permitted - indeed, the reason for -- Rule 17a-8. As noted, these five Reorganzations involve total feeder fud assets of $210 milion, comprising less than 2% of the total assets of the 131 feeder fuds involved in the Reorganizations as a whole. Thus, the natue of Eaton Vance's "interest" in effectuating these five Reorganzations is, as a practical matter, identical to the natue of its "interest" in effectuating the remaining Reorganizations - i.e., to reduce feeder fud costs and to develop a more focused marketing message that should, over time, make the feeder fuds more competitive and more attactive to investors. Whle futue asset growt would increase advisory fees eared by Eaton Vance, it would also increase efficiencies and create economies of scale that potentially would enhance yield and shareholder return. As in Principle Preservation Portfolios, Inc., we do not believe that these anticipated mutual benefits create any conficts of interest between Eaton Vance and the feeder fuds that raise concerns that the legislatue sought to address in adopting Section 17(a).

---

In sumar, we believe that the proposed Reorganizations are consistent with the policies underlying Rule 17a-8. We therefore ask that the staff confirm that it will not recommend enforcement action under Section 17 (a) of the 1940 Section or Rule 17 a-8 thereunder if the Reorganizations are implemented as described above. 9 By contrast, the sta has been more reluctat to grant no action relief where an afliate's 5% share ownership included a direct economic

component. ~ £: New England Mutual Life Insurance Co. (pub. avaiL. June 3, 1987) (afliate directly owned approximately 14% of the assets of the liquidating fund, consisting of the afliate's seed money plus market appreciation); Locust Street Fund (pub. avail. May 14, 1991) (although affliate would pass through voting authority to beneficial owners, afliate owned more than 6% of shares at the time the merger was negotited).

July 16, 1997

Than you in advance for your consideration of this request. If you have any questions or would like any additional information or documents, please call ,the undersigned at (617) 261 3156. Sincerely yours, P-/~ 0 ~ Phi¡i;-' J~a cc: Alan R. Dynner, Esq.

Eric G. Woodbur, Esq~

Eaton Vance Management