[Federal Register Volume 63, Number 245 (Tuesday, December 22, 1998)]
[Notices]
[Pages 70811-70813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33812]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23605; 812-11284]


Evergreen Equity Trust et al.; Notice of Application

December 16, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 15(a) 
of the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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SUMMARY OF APPLICATION: Evergreen Equity Trust and Evergreen Variable 
Annuity Trust (each a ``Trust'' and collectively the ``Trusts''), on 
behalf of their various series, and First Union National Bank (the 
``Adviser'') request an order that would (a) permit applicants to enter 
into and materially amend sub-advisory agreements without shareholder 
approval and (b) grant relief from certain disclosure requirements.

Applicants: The Trusts and the Adviser.

Filing Dates: The application was filed on August 28, 1998. Applicants 
have agreed to file an amendment to the application during the notice 
period, the substance of which is reflected in this notice.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on January 7, 1999, 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 Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, DC 20549. Applicants, 200 Berkeley Street, 
Boston, Massachusetts 02106.

FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or George J. Zornada, Branch Chief, at (202) 942-0564, 
Office of Investment Company Regulation, Division of Investment 
Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Each trust is organized as a Delaware business trust and 
registered under the Act as an open-end management investment company. 
The Evergreen Equity Trust (``Equity Trust'') is currently comprised of 
eighteen separate series (the ``Equity Trust Existing Portfolios'') and 
the Evergreen Variable Annuity Trust (``Annuity Trust'') is currently 
composed of eight separate series (the ``Annuity Trust Existing 
Portfolios'' together with the Equity Trust Existing Portfolios, the 
``Existing Portfolios''), each of which has its own investment 
objectives and policies. The Annuity Trust Existing Portfolios are 
offered for sale through separate accounts of various insurance 
companies as a funding medium for variable annuity contracts and/or 
variable life insurance policies issued by such insurance companies. 
Each trust is in the process of establishing a new portfolio (``New 
Portfolios'' and together with the Existing Portfolios, the 
``Portfolios'').\1\
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    \1\ Applicants also request relief with respect to any future 
series of the Trusts and all future registered open-end management 
investment companies that are (a) advised by the Adviser or the 
Advisory Affiliates and (b) use the multi-manager structure as 
described in the application and comply with the terms and 
conditions in the application. All existing investment companies 
that currently intend to rely on the order have been named as 
applicants.
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    2. The Adviser or an entity controlling, controlled by, or under 
common control with the Adviser (``Advisory Affiliates''), serves as 
investment adviser to the Existing Portfolios and will serve as 
investment adviser to the New Portfolios. The Adviser, a North Carolina 
corporation and a banking subsidiary of First Union Corporation, a 
publicly-held bank holding company, is exempt from registration under 
the Investment Advisers Act of 1940 (the ``Advisers Act''). The 
Advisory Affiliates, Evergreen Investment Management Company, Evergreen 
Asset Management Corp. (``EAMC'') and Meridian Investment Company, are 
registered under the Advisers Act.
    3. The Adviser and Advisory Affiliates serve as advisers to the 
Existing Portfolios pursuant to investment advisory agreements (each an 
``Advisory Agreement'' and together, the ``Advisory Agreements''). 
Under the

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Advisory Agreements, the Adviser or one of the Advisory Affiliates 
manages and administers the operation of each Trust's Existing 
Portfolios. The Adviser or the Advisory Affiliate has overall 
supervisory and administrative responsibility for the Trusts and, 
subject to the general supervision of the board of trustees of each 
Trust (each a ``Board'' and collectively the ``Boards''), has the 
authority to select and contract with one or more sub-advisers (each a 
``Manager'' and collectively the ``Managers'') to provide each 
Portfolio with portfolio management services.\2\ The Adviser or 
Advisory Affiliate will continue to provide specific portfolio 
management to the Existing Portfolios and the Adviser, Advisory 
Affiliates, or one or more Managers will provide portfolio management 
for the New Portfolios. Each Manager performs services pursuant to a 
written agreement (the ``Portfolio Management Agreement''). Each 
Manager will be an investment adviser registered under the Advisers Act 
or exempt from registration. Managers' fees are paid by the Adviser or 
Advisory Affiliate out of its fees from the Portfolios at rates 
negotiated with the Managers by the Adviser or Advisory Affiliate.
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    \2\ Existing Portfolios managed by EAMC are subadvised by Lieber 
& Company, an indirect wholly-owned subsidiary of First Union 
Corporation and an affiliated person of the Trust. The Adviser has 
selected three unaffiliated subadvisers for the New Portfolios.
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    4. The Adviser or Advisory Affiliate will employ its expertise to 
select Managers that have shown the ability, over a period of time, to 
select specific investments to achieve well-defined objectives. The 
Adviser or Advisory Affiliates seek to select Managers that have shown 
a consistent ability to achieve targeted results within select asset 
classes and investment style and that have demonstrated expertise in 
particular areas. The Adviser or Advisory Affiliate has responsibility 
for communicating performance expectations and evaluations to Managers, 
supervising and monitoring compliance with the Portfolio's investment 
objectives and policies, authorizing a Manager to engage in certain 
investment techniques for a Portfolio and recommending to the Board of 
each Trust whether Portfolio Management Agreements should be renewed, 
modified, or terminated.
    5. Applicants request relief to permit the Adviser and Advisory 
Affiliates to enter into and amend Portfolio Management Agreements 
without shareholder approval. The requested relief will not extend to a 
Manager that is an affiliated person, as defined in section 2(a)(3) of 
the Act, of a Trust, the Adviser or an Advisory Affiliate, other than 
by reason of serving as a Manager to one or more of the Portfolios (an 
``Affiliated Manager'').
    6. Applicants also request an exemption from the various disclosure 
provisions described below that may require each Trust to disclose the 
fees paid by the Adviser or Advisory Affiliates to the Managers. Each 
Trust will disclose for each Portfolio (both as a dollar amount and as 
a percentage of a Portfolio's net assets): (i) aggregate fees paid to 
the Adviser or Advisory Affiliate and Affiliated Managers; and (ii) 
aggregate fees paid to Managers other than Affiliated Managers 
(``Limited Fee Disclosure''). For any Portfolio that employs an 
Affiliated Manager, the Portfolio will provide separate disclosure of 
any fees paid to the Affiliated Manager.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Items 2, 5(b)(iii), and 16(a)(iii) of Form N-1A 
(and after the effective date of the amendments to Form N-1A, items 3, 
6(a)(1)(ii), and 15(a)(3), respectively) require disclosure of the 
method and amount of the investment adviser's compensation.
    3. Form N-14 is the registration form for business combinations 
involving open-end investment companies. Item 3 of Form N-14 requires 
the inclusion of a ``table showing the current fees for the registrant 
and the company being acquired and pro forma fees, if different, for 
the registrant after giving effect to the transaction.''
    4. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (the ``Exchange Act''). Item 
22(a)(3)(iv) of Schedule 14A requires a proxy statement for a 
shareholder meeting at which a new fee will be established or an 
existing fee increased to include a table of the current and pro forma 
fees. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8), and 22(c)(9), taken 
together, require a proxy statement for a shareholder meeting at which 
the advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of ``the terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    5. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Mangers.
    6. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulatio S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    7. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction from any provision of the Act if, 
and to the extent that, an exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policies and provisions of the Act. 
Applicants believe that their requested relief meets this standard for 
the reasons discussed below.
    8. Applicants assert that the Trusts' investors will rely on the 
Adviser or Advisory Affiliate to select one or more Managers best 
suited to achieve a Portfolio's investment objectives. Therefore, 
applicants assert that, from the perspective of the investor, the role 
of the Managers is comparable to that of individual portfolio managers 
employed by other investment advisory firms. Applicants note that the 
Advisory Agreement will remain subject to section 15(a) of the Act and 
rule 18f-2 under the Act.
    9. Applicants further assert that some Managers use a ``posted'' 
rate schedule to set their fees, particularly at lower asset levels. 
Applicants believe that some organizations may be unwilling to serve as 
Managers at any fee rate other than their ``posted'' fee rates, unless 
the rates negotiated for the Portfolios are not publicly disclosed. 
Applicants believe that requiring disclosure of Managers' fees may 
deprive the Adviser of its bargaining power while producing no benefit 
to shareholders, since the total

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advisory fee they pay would not be affected.

Applicant's Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Trust will disclose in its registration statement the 
Limited Fee Disclosure.
    2. The Adviser or Advisory Affiliate will not enter into a 
Portfolio Management Agreement with any Affiliated Manager without that 
agreement, including the compensation to be paid thereunder, being 
approved by the shareholders of the applicable Portfolio (or, if the 
Portfolio serves as a funding medium for any sub-account of a 
registered separate account, pursuant to voting instructions provided 
by the unitholders of the sub-account).
    3. At all times, a majority of each Trust's Board will be persons 
each of whom is not an ``interested person'' of the Trust as defined in 
Section 2(a)(19) of the Act (``Independent Trustees''), and the 
nomination of new or additional Independent Trustees to be at the 
discretion of the then existing Independent Trustees.
    4. Independent counsel knowledgeable about the Act and the duties 
of Independent Trustees will be engaged to represent the Independent 
Trustees of the Trust. The selection of such counsel will remain within 
the discretion of the Independent Trustees.
    5. The Adviser or Advisory Affiliate will provide the Board of each 
Trust, no less than quarterly, information about the Adviser's or 
Advisory Affiliate's profitability for each Portfolio relying on the 
relief requested in this application. Such information will reflect the 
impact on profitability of the hiring or termination of any Manager 
during the applicable quarter.
    6. Whenever a Manager is hired or terminated, the Adviser or 
Advisory Affiliate will provide the Board information showing the 
expected impact on the Adviser's or Advisory Affiliate profitability.
    7. When a Manager change is proposed for a Portfolio with an 
Affiliated Manager, each Trust's Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
Trust's Board minutes, that the change is in the best interests of the 
Portfolio and its shareholders (or, if the Portfolio serves as a 
funding medium for any sub-account of a registered separate account, in 
the best interests of the Portfolio and the unitholders of any sub-
account) and does not involve a conflict of interest from which the 
Adviser or Advisory Affiliate, or the Affiliated Manager derives an 
inappropriate advantage.
    8. Before an Existing Portfolio may rely on the order requested in 
the application, the operation of the Portfolio in the manner described 
in the application will be approved by a majority of its outstanding 
voting securities (or, if the Portfolio serves as a funding medium for 
any sub-account of a registered separate account, pursuant to voting 
instructions provided by the unitholders of the sub-account), as 
defined in the Act, or, in the case of a New Portfolio whose public 
shareholders purchased shares on the basis of a prospectus containing 
the disclosure contemplated by condition 11 below, by the sole initial 
shareholder(s) before offering shares of that New Portfolio to the 
public.
    9. For each Trust's Portfolio relying on the requested order, the 
Adviser's or Advisory Affiliate will provide general management 
services, including overall supervisory responsibility for the general 
management and investment of the Portfolio's securities portfolio, and, 
subject to review and approval by the Trust's Board will (i) set the 
Portfolio's overall investment strategies; (ii) select Managers; (iii) 
when appropriate, allocate and reallocate the Portfolio's assets among 
multiple Managers; (v) monitor and evaluate the performance of 
Managers; and (v) ensure that the Managers comply with the Portfolio's 
investment objectives, policies and restrictions.
    10. Within 60 days of the hiring of any new Manager, shareholders 
(or, if the Portfolio serves as a funding medium for any sub-account of 
a registered separate account, the unitholders of the sub-account) will 
be furnished all information about the new Manager or Portfolio 
Management Agreement that would be included in a proxy statement, 
except as modified by the order to permit Limited Fee Disclosure. Such 
information will include Limited Fee Disclosure and any change in such 
disclosure caused by the addition of a new Manager. The Adviser or 
Advisory Affiliate will meet this condition by providing shareholders 
(or, if the Portfolio serves as a funding medium for any sub-account of 
a registered separate account, unitholders of the sub-account) with an 
information statement meeting the requirements of Regulation 14C and 
Schedule 14C under the Exchange Act. The information statement also 
will meet the requirements of Schedule 14A under the Exchange Act, 
except as modified by the order to permit Limited Fee Disclosure.
    11. Each Trust will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, each Portfolio relying on the requested order will hold 
itself out to the public as employing the Manager of Managers Strategy 
described in this application. The prospectus will prominently disclose 
that the Adviser or Advisory Affiliate has ultimate responsibility 
(subject to oversight by the Board) to oversee the Managers and 
recommend their hiring, termination, and replacement.
    12. No trustee or officer of the Trusts or director or officer of 
the Adviser or Advisory Affiliate will own directly or indirectly 
(other than through a pooled investment vehicle over which such person 
does not have control) any interest in a Manager except for (i) 
ownership of interests in the Adviser or Advisory Affiliates or any 
entity that controls, is controlled by, or is under common control with 
the Adviser or Advisory Affiliates; or (ii) ownership of less than 1% 
of the outstanding securities of any class of equity or debt of a 
publicly-traded company that is either a Manager or an entity that 
controls, is controlled by, or is under common control with a Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33812 Filed 12-21-98; 8:45 am]
BILLING CODE 8010-01-M