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Investors Bank & Trust Company


RE: Investors Bank & Trust Company Boston, Massachusetts

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Engage as Principal, Through a Wholly-Owned Subsidiary, in an Activity That May Not Be Permissible for a Subsidiary of a National Bank


Pursuant to the provisions of section 24 of the Federal Deposit Insurance Act (the "FDI Act"), an application has been filed with the Federal Deposit Insurance Corporation ("FDIC") by Investors Bank & Trust Company (the "Bank"). The Bank requests the FDIC's consent to establish a wholly-owned subsidiary to engage in the activity of purchasing equity securities from designated escrow accounts of mutual fund shareholders, held at the Bank, and subsequently selling the equity securities (the "Activity"). The Activity is designed to facilitate the liquidation of in kind disbursements for the shareholders of three mutual funds managed by Eaton Vance Management ("EVM"). The purchase of the equity securities will be at a price determined by the market upon the date of the disbursement to the escrow account. The equity securities will be sold through an affiliate of the mutual fund manager within one business day. The Subsidiary will not negotiate the purchase or sell prices.

The Activity may not be a permissible activity for a national bank or a subsidiary of a national bank. National banks may invest in equity securities only in limited instances that do not appear to include the proposed Activity. The Bank may engage in the Activity, provided the FDIC determines such an investment does not pose a significant risk to the appropriate insurance fund. Consent may not be granted unless the bank is in compliance with applicable capital standards. The Activity is permitted under the Massachusetts General Law.

Purchasing and holding equity securities for subsequent sale carries risks specific to the nature of this business, including risk of price volatility and substantial loss of principal. Due to these risks, equity securities trading activities appear suitable to a financial institution only on a very limited scale and under restrictive conditions designed to control the various risks posed to the financial institution and the insurance fund. The agreement governing the proposed Activity effectively eliminates the market risk as it provides that EVM will absorb all losses associated with the equity security sales. The primary risk, therefore, is limited to credit risk associated with EVM and its parent, Eaton Vance Corporation ("EVC"). The overall financial condition of EVM and EVC are regarded as sound.

To encourage sufficient capital to be retained at the Bank level to support traditional banking operations, a condition of this approval is that the Bank remain "well capitalized" pursuant to section 325.103 of the FDIC's Rules and Regulations. As such, the Bank must have not less than a Tier 1 leverage capital ratio of 5.0 percent, Tier 1 risk-based capital ratioof 6.0 percent, and Total risk-based capital ratio of 10.0 percent. Calculation of capital ratios will exclude the Bank's equity investment in the Company. As of December 31, 1996, the Bank had total assets of $276 million and a Tier One Leverage Capital Ratio of 7.33 percent. The amount of investment in the Subsidiary may present a risk to the Bank if a significantly large volume of related assets are affected by negative market events. Therefore, a limit of 25 percent on the aggregate amount of the investment is imposed.

The risk to the Fund can be further reduced by a segregation between operations of the Bank and the Subsidiary. Consequently, the Subsidiary will be required to operate as a separate entity and will maintain accounting and corporate records separate from those of the Bank.

For these reasons, the Board has concluded that Activity does not pose a significant risk to the Bank Insurance Fund, and therefore approval of the application, subject to the following conditions:

(1) The actual agreement between the Bank, EVC, EVM, the funds, and the Subsidiary should be materially the same as the May 12, 1997, agreement drafted between the parties.

(2) The Bank's aggregate investment in the Subsidiary shall be deducted from the Bank's capital for regulatory reporting purposes and that the Bank shall remain "well capitalized" as defined in section 325.103 of the FDIC Rules and Regulations after such deduction.

(3) The Subsidiary's aggregate investment in the equity securities shall be limited to 25 percent of the Bank's tier one capital.

(4) The Subsidiary must be operated in a manner to ensure a separate corporate existence as a wholly-owned subsidiary that maintains separate accounting and other corporate records.

(5) The consent granted herein is based on the facts and circumstances presented or otherwise known to the FDIC in connection with this application. The Bank shall notify the FDIC of any significant change in fact or circumstance. If the facts or circumstances change significantly, the FDIC shall have the right to alter, suspend, or withdraw its approval.