[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51150-51152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24548]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24015; No. 812-11624]
Evergreen Variable Annuity Trust, et al.; Notice of Application
September 15, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for an amended order pursuant to Section
6(c) of the Investment Company Act of 1940 (``Act'') granting relief
from Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder.
-----------------------------------------------------------------------
Summary of Application
Applicants seek an amended order to permit shares of any current or
future series of the Evergreen Variable Annuity Trust (``Trust'') and
shares of any other investment company that is designed to fund
insurance products or to serve as an investment vehicle for qualified
pension and retirement plans and for which Evergreen Asset Management
Corp. (``Evergreen Asset'') or any of its affiliates may now or in the
future serve as investment adviser, administrator, manager, principal
underwriter or sponsor (the Trust and such other investment company are
hereinafter referred to collectively as the ``Funds'') to be sold and
held by the investment adviser of any Fund (the ``Adviser'' and,
collectively, the ``Advisers'') or any of the Adviser's affiliates.
Applicants
Evergreen Variable Annuity Trust and Evergreen Asset Management
Corp.
Filing Date
The application was originally filed on May 21, 1999, and amended
and restated on July 30, 1999.
Hearing and 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
the Secretary of the SEC and serving Applicants with a copy of the
request, in person or by mail. Hearing requests should be received by
the SEC by 5:30 p.m. on October 12, 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 of a hearing by writing to the Secretary of the
SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609. Applicants, c/o Sullivan & Worcester, LLP, 1025 Connecticut
Avenue, NW, Washington, DC 20036, Attention: Robert N. Hickey, Esq.
FOR FURTHER INFORMATION CONTACT: Michael D. Pappas, Senior Counsel, or
Susan M. Olson, Branch Chief, Office of Insurance Products, Division of
Investment Management at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC
20549-0102, (202-942-8090).
Applicant's Representations
1. The Trust was organized in June 1994 as a Massachusetts business
trust and is registered as an open-end management investment company
under the Act. The Trust was reorganized as a Delaware business trust
on April 30, 1998. The Trust consists of separately managed series and
additional series of the Trust may be created in the future.
2. Evergreen Asset serves as Adviser for certain of the Trust's
series. Evergreen Asset is a wholly-owned subsidiary of First Union
National Bank of North Carolina (``FUNB''). FUNB and certain of its
other investment advisory affiliates serve as Advisers to certain funds
or series of the Trust. FUNB is a national bank, which is a wholly-
owned subsidiary (except for director's qualifying shares) of First
Union Corporation, the sixth largest bank holding company in the nation
(based on June 30, 1999 total assets). Evergreen Asset is registered
under the Investment Advisers Act of 1940.
3. Shares of the Funds are currently offered to separate accounts
of various unaffiliated insurance companies to serve as the investment
medium for variable annuity contracts and variable life insurance
policies issued by such companies (``Participating Insurance
Companies''). Shares of the Funds also may be offered to qualified
pension and retirement plans outside the separate account context
(``Qualified Plans''). In addition, shares of a Fund may also be
offered to an Adviser or an affiliate of the Adviser for the purposes
of providing necessary capital required by Section 14(a) of the Act or
for other investment purposes, in compliance with Treasury Regulation
1.817-5(f)(3).
4. On March 5, 1996, the Commission issued an order granting relief
with respect to shares of the Funds to be sold to and held by (a)
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and (b)
Qualified Plans (Investment Company Act Release No. 21806, File No.
812-9856) (the ``Original Order''). The Applicants incorporated by
reference into their application the Application for the Original Order
and any amendments thereto, the Notice of Application for the Original
Order and the Original Order.\1\
---------------------------------------------------------------------------
\1\ Applicants represent that all of the facts asserted in the
Application for the Original Order and any amendments thereto remain
true and accurate in all material respects to the extent that such
facts are relevant to any relief on which Applicants continue to
rely.
---------------------------------------------------------------------------
5. The Original Order did not address the sale of shares of the
Funds to the Advisers or their affiliates in compliance with Treasury
Regulation 1.817-5(f)(3) representing seed money or other investments
in a Fund. Applicants propose that the Funds be permitted to offer and
sell their shares to Advisers and their affiliates in compliance with
Treasury Regulation 1.817-5(f)(3).
Applicants' Legal Analysis
1. Section 6(c) of the Act provides, in part, that the Commission,
by order upon application, may conditionally or unconditionally exempt
any person, security or transaction, or any class or classes of
persons, securities or transactions from any provision of the Act or
the rules or regulations thereunder, if and to the extent that 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.
2. Applicants request that the Commission issue an amended order
pursuant to Section 6(c) of the Act for exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) (and any comparable rule) thereunder,
respectively, to the extent necessary to permit shares of the Funds to
be sold to and held by the Funds' Advisers or any of its affiliates in
compliance with Treasury Regulation
[[Page 51151]]
1.817-5(f)(3) (representing seed money or other investments in the
Funds).
3. In connection with scheduled premium variable life insurance
contracts issued through a separate account registered under the Act as
a unit investment trust, Rule 6e-2(b)(15) provides partial exemptions
from Section 9(a) and from Sections 13(a), 15(a) and 15(b) of the Act
to the extent that those Sections have been deemed by the Commission to
require ``pass-through'' voting with respect to an underlying
investment company's shares. The exemptions granted to a separate
account by Rule 6e-2(b)(15) are available only where all of the assets
of the separate account consist of the shares of one or more registered
managed investment companies which offer their shares exclusively to
variable insurance separate accounts of the life insurer or any
affiliated life insurance company. Therefore, the relief provided by
Rule 6e-2(b)(15) is not available with respect to a scheduled premium
variable life insurance separate account that owns shares of an
investment company that also offers its shares to a variable annuity
separate account or a flexible premium variable life insurance separate
account of the insurer or of any affiliated insurance company (mixed
funding). In addition, the relief granted by Rule 6e-2(b)(15) is not
available if the shares of the underlying investment company are
offered to variable life insurance separate accounts of unaffiliated
insurance companies (shared funding).
4. Moreover, because the relief under Rule 6e-2(b)(15) is available
only where shares of the investment company are offered exclusively to
separate accounts, exemptive relief is necessary if the shares of the
Funds are also to be sold to the Advisers or their affiliates.
5. In connection with flexible premium variable life insurance
contracts issued through a separate account registered under the Act as
a unit investment trust, Rule 6e-3(T)(b)(15) provides partial
exemptions from Section 9(a) and from Sections 13(a), 15(a) and 15(b)
of the Act to the extent those Sections have been deemed by the
Commission to require ``pass-through'' voting with respect to an
underlying investment company's shares. The exemptions granted to a
separate account by Rule 6e-3(T)(b)(15) are available only where all of
the assets of the separate account consist of the shares of one or more
registered management investment companies which offer their shares
exclusively to separate accounts of the life insurer, or any affiliated
life insurance company, offering either scheduled premium variable life
insurance contracts or flexible premium variable life insurance
contracts, or both; or which also offer their shares to variable
annuity separate accounts of the life insurer or an affiliated life
insurance company. Therefore, Rule 6e-3(T)(b)(15) permits mixed funding
for a flexible premium variable life insurance separate account under
certain circumstances. The rule does not, however, permit shared
funding, because relief granted by Rule 6e-3(T)(b)(15) is not available
with respect to a flexible premium variable life insurance separate
account that owns shares of an investment company that also offers its
shares to separate accounts (including flexible premium variable life
insurance separate accounts) of unaffiliated insurance companies.
6. Because the relief under rule 6e-3(T)(b)(15) is available only
where shares of the investment company are offered exclusively to
separate accounts, exemptive relief is necessary if the shares of the
Funds are also to be sold to the Advisers or their affiliates.
7. Applicants assert that the relief granted by Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) is in no way affected by the purchase of the Funds'
shares by Advisers or their affiliates. However, in that relief under
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) is available only where shares are
offered exclusively to separate accounts, it is Applicants' concern
that additional exemptive relief may be necessary if the shares of the
Funds are also to be sold to Advisers or their affiliates. Applicants
therefore request relief in order to have the Participating Insurance
Companies enjoy the benefits of the relief granted in Rules 6e-2(b)(15)
and 6e-3(T)(b)(15). Applicants assert that if the Funds were to sell
shares only to Advisers or their affiliates and/or separate accounts
funding variable annuity contracts, no exemptive relief would be
necessary. None of the relief provided for in Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) relates to Advisers or their affiliates, or to a registered
investment company's ability to sell its shares to such purchasers. It
is only because some of the separate accounts that may invest in the
Funds may themselves be investment companies that rely upon Rules 6e-2
and 6e-3(T) and that desire to have relief continue in place, that the
Applicants are applying for the requested relief.
8. In addition to permitting sales of a Fund's shares to
Participating Insurance Companies and Qualified plans, Treasury
Regulation 1.817-5(f)(3) permits, subject to certain conditions, a Fund
to sell shares to the Adviser and its affiliates.
9. The promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under
the Act preceded the issuance of the Treasury Regulation. Thus, the
sale of shares of the same investment company to separate accounts,
through which variable life insurance contracts are issued, and to the
Adviser or its affiliates was not contemplated at the time of the
adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
10. Applicants believe that there is no regulatory purpose in
extending the monitoring requirements of Section 9(a) of the Act
because the Funds may sell their shares to an Adviser or its affiliate.
Rules 6e-3 and 6e-3(T) provide relief from the eligibility restrictions
of Section 9(a) only for officers, directors or employees of
Participating Insurance Companies or their affiliates. The eligibility
restrictions of Section 9(a) will still apply to any officers,
directors or employees of the Adviser or an affiliate who participate
directly in the management or administration of a Fund. Furthermore,
there is no reason why the monitoring requirements should extend to all
officers, directors and employees of Participating Insurance Companies
and their affiliates simply because the Funds sell certain shares to an
Adviser or its affiliate. This monitoring would not benefit contract
owners and Qualified Plan participants and would only increase costs,
thus reducing net rates of return.
11. With respect to ``pass-through'' voting requirements of
Sections 13(a), 15(a) and 15(b) of the Act and the partial exemptions
therefrom provided by Rules 6e-2(b)(15) and 6e-3(T)(b)(15), Applicants
believe that the exercise of voting rights by the Advisers and their
affiliates do not present the type of issues respecting the disregard
of voting rights that are presented by variable contract separate
accounts. Applicants have concluded that the inclusion of Advisers and
their affiliates as eligible shareholders should not increase the risk
of irreconcilable material conflicts among shareholders. Any Adviser or
its affiliate that purchases Fund shares will agree to vote its shares
of the fund in the same proportion as all contract owners having voting
rights with respect to that Fund or in such other manner as may be
required by the Commission or its staff. Therefore, the Applicants
believe that allowing Advisers and their affiliates to purchase shares
of the Funds should not increase the opportunity for conflicts of
interest.
12. Applicants argue that the ability of the funds to sell their
shares directly to Advisers and their affiliates does not
[[Page 51152]]
create a ``senior security'' as such term is defined in Section 18(g)
of the Act, with respect to any contract owner or Qualified Plan
participant as opposed to an Adviser or its affiliate. Each shareholder
has rights only with respect to its respective shares of the Funds.
Shareholders can only redeem such shares at their net asset value. No
shareholder of any of the funds has any preference over any other
shareholder with respect to distribution of assets or payment of
dividends.
13. Applicants assert that permitting a Fund to sell its shares to
an Adviser of a Fund or to an affiliate of an Adviser, in compliance
with Treasury Regulation 1.817-5(f)(3) will enhance Fund management
without raising significant concerns regarding irreconcilable material
conflicts. Section 14(a) of the Act generally requires that an
investment company have a net worth of at least $100,000 upon making a
public offering of its shares. Funds also will require more limited
amounts of initial capital in connection with the creation of new
series and the voting of initial shares of such series on matters
requiring the approval of shareholders. In addition, the funds may wish
to purchase a substantial portfolio of securities upon commencement of
operations and will require capital to do so. A potential source of the
requisite initial capital is an Adviser or an affiliate. These parties
may have an interest in making the requisite capital expenditure, and
in participating with the fund in its organization. However, Applicants
submit that the provision of seed capital or the purchase of shares in
connection with the management of a Fund by its Adviser or an affiliate
of the Adviser may be deemed to violate the exclusivity requirements of
Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(15).
14. Applicants anticipate that such investment by an Adviser or its
affiliate generally will be limited in scope and duration, and will be
made only in connection with the operation of the Funds. Given the
conditions of Treasury Regulation 1.817-5(f)(3) as described herein and
the harmony of interest between a Fund, on the one hand, and its
Adviser, on the other, Applicants assert that little incentive for
overreaching exists. Furthermore, such limited investments should not
implicate the concerns discussed above regarding the creation of
irreconcilable material conflicts. Instead, permitting investment by
Advisers or their affiliates will permit the orderly and efficient
creation and operation of Funds, or series thereof, and reduce the
expense and uncertainty of using outside parties at the early stages of
Fund operations. The return on shares held by an Adviser or its
affiliate will be calculated in the same manner as for shares held by a
separate account. Any shares of a Fund purchased by the Adviser or its
affiliate will be automatically redeemed if and when the Adviser's
investment advisory agreement terminates, to the extent required by
applicable Treasury Regulations. Neither the Adviser nor its affiliate
will sell such shares of the Fund to the public.
Applicants' Conditions
Applicants have consented to the following conditions, in addition
to the conditions set forth in the Original Order:
1. The Adviser or an affiliate, all Participating Insurance
Companies and any Qualified Plan that executes a fund participation
agreement upon becoming the owner of 10% or more of the shares of a
Fund (``Participating Plan'') will be promptly informed in writing of
any determination of the Board of Trustees of the Trust that an
irreconcilable material conflict exists, and its implications.
2. As long as the Commission interprets the Act to require ``pass-
through'' voting privileges for contract owners, whose contracts are
funded through a separate account, an Adviser, or if applicable, any of
its affiliates, will vote its shares of any Fund in the same proportion
as all variable contract owners having voting rights with respect to
the Fund; provided, however, that the Adviser or any such affiliate
shall vote its shares in such other manner as may be required by the
Commission staff.
3. All reports of potential or existing conflicts received by the
Board of Trustees of the Trust, and all Board action with regard to
determining the existence of a conflict, notifying the Adviser or any
of its affiliates, Participating Insurance Companies and Participating
Plans of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the
minutes of the appropriate Board or other appropriate records, and such
minutes or other records shall be made available to the Commission upon
request.
Conclusion
For the reasons set forth above. Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the policy and provisions of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24548 Filed 9-20-99; 8:45 am]
BILLING CODE 8010-01-M