[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