DEFC14A: Eaton Vance Funds Face Proxy Battle as Saba Capital Seeks Board Seats

Eaton Vance California and New York Municipal Bond Funds are urging shareholders to vote for their nominees amidst a proxy contest initiated by Saba Capital, a known activist investor.

Summary

• Eaton Vance California Municipal Bond Fund (EVM) and Eaton Vance New York Municipal Bond Fund (ENX) are facing a proxy contest from Saba Capital Master Fund, Ltd.
• Saba has nominated two individuals to serve as trustees on each Fund's Board, while the Board recommends shareholders vote for its own nominees: Mark R. Fetting, Valerie A. Mosley, and Keith Quinton.
• The Board argues that Saba opportunistically targets closed-end funds for short-term profits at the expense of long-term shareholders, citing instances where Saba's nominees approved replacing a fund's investment manager with Saba Capital Management, L.P.
• The Board emphasizes the qualifications and experience of its nominees, highlighting their familiarity with the Funds and closed-end fund operations.
• Shareholders are urged to vote using the WHITE proxy card and to disregard any GOLD proxy cards received from Saba.
• The Annual Meeting of Shareholders is scheduled for September 9, 2024.
• The Board fixed June 28, 2024, as the record date for determining shareholders eligible to vote.
• The Funds have retained EQ Fund Solutions, LLC as the proxy solicitor.
• The Board increased Eaton Vance California Municipal Bond Funds monthly distribution rate by 31.2% and Eaton Vance New York Municipal Bond Funds distribution rate by 32.7% in January 2024.
• The Board reauthorized each Funds share repurchase program in 2019 pursuant to which the Fund is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to NAV.

Sentiment

Score: 6

Explanation: The document is primarily defensive, aiming to persuade shareholders to vote against an activist investor's nominees. While highlighting the Board's actions to enhance shareholder value, the overall tone is cautious due to the ongoing proxy battle.

Positives

• The Board emphasizes the extensive experience and qualifications of its nominees in the asset management industry and their familiarity with closed-end fund operations.
• The Board is actively taking steps to enhance investor value, including managing distribution rates and share repurchase programs.
• The Board is proactively communicating with shareholders and providing clear instructions on how to vote.
• The Board increased Eaton Vance California Municipal Bond Funds monthly distribution rate by 31.2% and Eaton Vance New York Municipal Bond Funds distribution rate by 32.7% in January 2024.
• The Board reauthorized each Funds share repurchase program in 2019 pursuant to which the Fund is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to NAV.

Negatives

• The proxy contest initiated by Saba Capital introduces uncertainty and potential disruption to the Funds' governance.
• The Board characterizes Saba as an activist investor focused on short-term profits, which could be detrimental to long-term shareholders.
• Saba's nominees appear to lack experience with the Funds and their service providers, comparable municipal bond funds from other sponsors, closed-end funds and the issues unique to U.S. registered closed-end funds, and investment company governance under applicable U.S. federal and state laws.

Risks

• The election of Saba's nominees could significantly alter the composition and governance of the Boards.
• Saba's activist campaign history suggests a focus on short-term gains, potentially at the expense of long-term shareholder value.
• The Funds' shares may trade at a discount to their net asset value (NAV), which is a characteristic of listed closed-end funds that is outside of a funds control.
• A lawsuit was filed on July 15, 2020 in Suffolk County Superior Court in Massachusetts against the Saba Hedge Fund, seeking declaratory judgment as to the validity of the by-law amendments. The Saba Hedge Fund filed counterclaims against that fund, certain other funds, Eaton Vance, and the Board on August 27, 2020 in connection with the funds implementation of the by-law amendments, which also have been adopted by the Funds and other funds in the Eaton Vance fund complex. The remaining claims and defenses will be addressed at trial, which is currently scheduled to begin in the Fall of 2024.

Future Outlook

The document focuses on the upcoming Annual Meeting and the proxy contest, with no specific forward-looking financial guidance provided.

Management Comments

• The Board takes corporate governance very seriously and is committed to ensuring that members of the Board are well-qualified and knowledgeable about the operations of closed-end funds.
• Given Sabas activist campaign history, the Board believes Saba opportunistically targets closed-end funds to seek short-term profits for itself and its clients at the expense of the funds long-term shareholders.
• Each Board believes Sabas actions are harmful to long-term shareholders and strongly encourages you to continue to show your support for your Fund(s) by voting FOR the Board Nominees.

Industry Context

The document highlights the increasing prevalence of activist investors targeting closed-end funds, particularly those trading at a discount to NAV. This is a common strategy employed by firms like Saba Capital, who seek to influence fund management and governance to unlock shareholder value.

Comparison to Industry Standards

• The document references Saba Capital Management, L.P.s activist investment strategy, noting that they frequently target registered closed-end funds.
• The document mentions that as of July 8, 2024, both closed-end funds managed by Saba were trading at a discount to their NAV, including one fund trading at a 9.79% discount to NAV.
• The document notes that Saba selectively pursues an activist approach where corporate actions may be an effective tool to unlock shareholder value and monetize the discount to NAV.
• The document notes that Saba received an Institutional Investor Hedge Fund Industry Award for 2024 Activist Hedge Fund Manager of the Year.

Legal Proceedings

• A lawsuit was filed on July 15, 2020 in Suffolk County Superior Court in Massachusetts against the Saba Hedge Fund, seeking declaratory judgment as to the validity of the by-law amendments.
• The Saba Hedge Fund filed counterclaims against that fund, certain other funds, Eaton Vance, and the Board on August 27, 2020 in connection with the funds implementation of the by-law amendments, which also have been adopted by the Funds and other funds in the Eaton Vance fund complex.
• The remaining claims and defenses will be addressed at trial, which is currently scheduled to begin in the Fall of 2024.

Stakeholder Impact

• The outcome of the proxy contest will directly impact shareholders through the composition of the Board and the Funds' governance.
• Employees of Eaton Vance could be affected depending on the outcome of the proxy contest and any subsequent changes in fund management.
• The Funds' investment adviser and other service providers could be impacted by changes in the Board's composition and strategic direction.

Next Steps

• Shareholders need to vote on the proxy proposals before the Annual Meeting on September 9, 2024.
• The Board will continue to solicit proxies and communicate with shareholders.
• The outcome of the vote will determine the composition of the Funds' Boards.

Key Dates

Keywords

proxy contest, Saba Capital, Eaton Vance, Board of Trustees, shareholder vote, closed-end funds, municipal bonds, activist investor, corporate governance, proxy solicitation