[Federal Register Volume 61, Number 74 (Tuesday, April 16, 1996)]
[Notices]
[Pages 16656-16658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9300]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21879; 812-9894]
Evergreen Trust, et al.; Notice of Application
April 9, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Evergreen Trust, Evergreen Equity Trust, Evergreen
Investment Trust, Evergreen Total Return Fund, Evergreen Growth and
Income Fund, The Evergreen American Retirement Trust, Evergreen
Foundation Trust, Evergreen Municipal Trust, Evergreen Money Market
Fund, Evergreen Limited Market Fund, Inc., The Evergreen Lexicon Fund,
Evergreen Tax-Free Trust, Evergreen Variable Trust (collectively, the
``Investment Companies''); and First Union National Bank of North
Carolina, N.A. and Evergreen Asset Management Corp. (collectively, the
``Advisers'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and
22(g) and rule 2a-7 thereunder, under sections 6(c) and 17(b) of the
Act for an exemption from section 17(a)(1), and pursuant to rule 17d-1
under the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Investment Companies to enter into deferred compensation
arrangements with their trustees.
FILING DATE: The application was filed on December 12, 1995 and amended
on February 27, 1996 and April 9, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 6, 1996, and
should be accompanied by proof of service on applicants, in the form of
an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, c/o Sullivan & Worcester, 1025 Connecticut Avenue NW.,
Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. Each Investment Company is a registered open-end management
investment company comprised of several investment portfolios. Each
Investment Company, is organized as a Massachusetts business trust
except Evergreen Limited Market Fund, Inc., which is organized as a
Maryland corporation. One of the Advisers serves as the investment
adviser for each investment portfolio of each Investment Company.
Applicants request that the proposed relief apply to the Investment
Companies and all subsequent registered open-end investment companies
advised by either Adviser (such registered open-end investment
companies, together with the Investment Companies, are referred to
collectively as the ``Funds'').
2. The board of trustees of each Investment Company, other than
Evergreen Investment Trust and Evergreen Variable Trust, currently
consists of eight persons, seven of whom are not ``interested persons''
of that Investment Company. The board of trustees of Evergreen
Investment Trust currently consists of six persons, five of whom are
not ``interested'' persons. The board of trustees of Evergreen Variable
Trust currently consists of three persons, all of whom are not
``interested'' persons.
3. Each trustee \1\ is entitled to receive annual fees plus meeting
attendance fees from each Investment Company. The chairman of the board
is entitled to receive an additional retainer of $5,000 in the
aggregate. A deferred fee arrangement for the trustees that has been
adopted by the existing Funds is implemented through a deferred
compensation plan (the ``Plan''). The purpose of the Plan is to permit
individual trustees to elect to defer receipt of all or a portion of
the fees otherwise payable for their services, to enable them to defer
payment of income taxes on such fees.\2\
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\1\ ``Trustee'' refers to a trustee or director of a Fund, as
the case may be.
\2\ One person who previously served as a trustee of each
Investment Company other than Evergreen Investment Trust and
Evergreen Variable Trust, now serves as a trustee emeritus of each
Investment Company other than Evergreen Investment Trust and
Evergreen Variable Trust. Trustee emeritii are not eligible to
participate in the Plan.
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4. The Plan became effective with respect to each Investment
Company upon adoption by its board of trustees. The Plan was adopted
prior to the receipt of any exemptive relief requested. An exemptive
order is required for the Plan because the Funds wish to use returns on
portfolios of the Fund to determine the amount of earnings and gains or
losses allocated to a trustee's deferred compensation account
(``Deferral Account''); this feature will not be implemented without
the issuance of an order. The Plan provides that the compensation
deferred by a participant (``Compensation Deferrals'') will be credited
to the participant's Deferral Account. Pending receipt of an order,
cash and earnings in an amount equal to the yield on 90-day U.S.
Treasury Bills will be credited to the participant's Deferral Account.
5. Under the Plan, Compensation Deferrals will be credited, as of
the date
[[Page 16657]]
such fees would have been paid, to a separate book reserve account
established with respect to each participating Fund. The trustee may
select one or more investment portfolios from a list of available
portfolios of the Funds that will be used to measure the hypothetical
investment performance of the trustee's Deferral Account. The value of
a Deferral Account will be equal to the value such account would have
had if the amount credited to it had been invested and reinvested in
shares of the investment portfolios designated by the trustee (the
``Designated Shares''). Each Deferral Account will be credited or
charged with book adjustments representing all interest, dividends and
other earnings and all gains and losses that would have been realized
had the amounts credited to such account actually been invested in the
Designated Shares.
6. A participating Fund's obligation to make payments with respect
to a Deferral Account is and will remain a general obligation of the
Fund to be made from the general assets and property of each portfolio.
With respect to the obligations created under the Plan, each trustee
will remain a general unsecured creditor. The Plan does not create an
obligation of any Fund to any trustee to purchase, hold or dispose of
any investments, and if a Fund or portfolio should choose to purchase
investments in order to exactly ``match'' its obligations, all such
investments will continue to be part of the general assets and property
of such Fund or portfolio.
7. Each Fund may, and with respect to any money market fund that
values its assets by the amortized cost method will, purchase and
maintain Designated Shares in an amount equal to the deemed investments
of the Deferral Accounts. Except in the case of money market funds,
applicants expect to effect matching transactions only if circumstances
warrant, based upon a consideration of a Fund's total assets and the
amount of deferred compensation subject to the Plan.
Applicants' Legal Analysis
1. Applicants request an order that would exempt the Funds under
section 6(c) of the Act from sections 13(a)(2), 13(a)(3), 18(f)(1),
22(f), and 22(g) of the Act, and rule 2a-7 thereunder to the extent
necessary to permit the Funds to enter into deferred fee arrangements
with their trustees; under sections 6(c) and 17(b) of the Act from
section 17(a)(1) of the Act to the extent necessary to permit the Funds
to sell securities issued by them to participating Funds; and pursuant
to rule 17d-1 under the Act to permit the Funds to engage in certain
joint transactions incident to such deferred fee arrangements.
2. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. Section 13(a)(2)
requires that a registered investment company obtain shareholder
authorization before issuing any senior security not contemplated by
the recitals of policy in its registration statement. Applicants state
that the Plan does not give rise to any of the ``evils'' that led to
Congress' concerns. No participating Fund will be ``borrowing'' from
the trustees. The Plan will not induce speculative investments or
provide opportunities for manipulative allocation of any Fund's
expenses or profits, affect control of any Fund, confuse investors or
convey a false impression as to the safety of their investments, or be
inconsistent with the theory of mutuality of risk.
3. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. The relief requested
from section 13(a)(3) would extend only to those existing Funds with a
fundamental investment restriction limiting investments in securities
of investment companies (the ``Restricted Funds''). Applicants believe
that relief from section 13(a)(3) is appropriate to enable the
Restricted Funds to invest in Designated Shares without a shareholder
vote. Applicants will provide notice to shareholders in the prospectus
of each affected Fund of the Deferred Compensation under the Plan. The
value of the Designated Shares will be de minimis in relation to the
total net assets of the respective Fund, and will at all times equal
the value of the Fund's obligations to pay deferred fees.
4. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan sets forth any restrictions on
transferability or negotiability, and such restrictions are primarily
to benefit the participating trustees and would not adversely affect
the interests of the trustee or of any shareholder of any Fund.
5. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. The legislative history of the Act suggests
Congress was concerned with the dilutive effect on the equity and
voting power that may result when securities are issued for
consideration that is not readily valued. The Plan would not have this
effect. Applicants believe that the Plan merely would provide for
deferral of payment of fees and thus should be viewed as being issued
not in return for services but in return for a Fund not being required
to pay such fees on a current basis.
6. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule, that would prohibit
a Fund that is a money market fund from investing in the shares of any
other Fund. Applicants request relief from the rule to permit the Funds
to invest in Designated Shares to implement the Plan. Applicants
believe that the requested exemption would permit the Funds to achieve
an exact matching of Designated Shares with the deemed investments of
the Deferred Fee Accounts, thereby ensuring that the deferred fee
arrangements would not affect new asset value.
7. Section 6(c) of the Act provides that the SEC may exempt persons
or transactions from any provision of the Act if such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. For the reasons discussed above, applicants
believe the requested relief satisfies the section 6(c) standards.
8. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' under
section 2(a)(3)(C) of the Act. Applicants believe that an exemption
from this provision would not implicate Congress' concerns in enacting
section 17(a)(1) but would facilitate the matching of each Fund's
liability for Compensation Deferrals with Designated Shares that would
determine the amount of such Fund's liability.
9. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company involved; and (c) the
proposed transaction is consistent with the general provisions of the
Act. Applicants believe that the proposed transaction satisfies the
criteria of sections 6(c) and 17(b).
[[Page 16658]]
10. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement without SEC approval. Under the
Plan, participating trustees will not receive a benefit that otherwise
would inure to a Fund or its shareholders. Deferral of a trustee's fees
in accordance with the Plan would essentially maintain the parties,
viewed both separately and in their relationship to one another, in the
same position (apart from tax effects) as would occur if the fees were
paid on a current basis and then invested by the trustee directly in
Designated Shares.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the requested relief from rule 2a-7, any money
market Fund that values its assets by the amortized cost method will
buy and hold Designated Shares that determine the performance of
Deferral Accounts to achieve an exact match between the liability of
any such Fund to pay Compensation Deferrals and the assets that offset
that liability.
2. If a Fund purchases Designated Shares issued by an affiliated
Fund, the Fund will vote such shares in proportion to the votes of all
other holders of shares of such affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9300 Filed 4-15-96; 8:45 am]
BILLING CODE 8010-01-M
