[Federal Register Volume 64, Number 248 (Tuesday, December 28, 1999)]
[Notices]
[Pages 72705-72707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33634]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24213; 812-11580]
Evergreen Select Fixed Income Trust, et al.; Notice of
Application
December 21, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under sections 6(c),
12(d)(1)(J), and 17(b) of the Investment Company Act of 1940 (the
``Act'') for exemptions from sections 12(d)(1)(A) and (B) and 17(a) of
the Act, and under section 17(d) of the Act and rule 17d-1 under the
Act to permit certain joint transactions.
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Summary of the Application: The requested order would permit
certain registered management investment companies to invest uninvested
cash and cash collateral in affiliated money market funds in excess of
the limits in sections 12(d)(1)(A) and (B) of the Act.
Applicants: Evergreen Select Fixed Income Trust, Evergreen Select
Equity Trust, Evergreen Select Money Market Trust, Evergreen Municipal
Trust, Evergreen Equity Trust, Evergreen Fixed Income Trust, Evergreen
International Trust, Evergreen Money Market Trust, Evergreen Variable
Annuity Trust (collectively the ``Trusts''), on behalf of their
respective series, and First Union National Bank (``FUNB'') and any
investment adviser controlling, controlled by or under common control
with FUNB (together with FUNB, the ``Advisers'').
Filing Dates: The application was filed on April 14, 1999.
Applicants have agreed to file an amendment 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 applicant 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 21, 2000, 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, Commission, 450 Fifth Street, N.W., Washington,
D.C.
[[Page 72706]]
20549-0609. Applicants, c/o Maureen E. Towle, Esq., Evergreen
Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 942-0714, or George J. Zornada, 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
Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102 (tel. 202-942-8090).
Applicants' Representations
1. The Trusts, organized as Delaware business trusts, are
registered under the Act as open-end management investment companies.
The Trusts currently consist of 92 series (each a ``Fund'' and
collectively ``Funds''), some of which hold themselves out as money
market Funds and are subject to the requirements of rule 2a-7 under the
Act (``Central Funds'').\1\ The Advisers are wholly-owned subsidiaries
of First Union Corporation, a publicly-held holding company. FUNB,
which is exempt from registration under the Investment Advisers Act of
1940 (``Advisers Act'') and the Advisers, each of which is registered
under the Advisers Act, currently serve as investment advisers to the
Funds.\2\
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\1\ Applicants also request relief for all registered open-end
management investment companies or series thereof that are or become
advised by the Advisers (``Future Funds'' and together with Funds,
the ``Funds''). All investment companies that currently intend to
rely on the requested relief are named as applicants. Any other
Funds that may rely on the order in the future will do so only in
accordance with the terms and conditions of the application.
\2\ In addition to FUNB, the Advisers are Evergreen Investment
Management Company, Evergreen Asset Management Corp., First
International Advisers, Ltd. and Meridian Investment Company.
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2. Applicants state that each Fund has, or may be expected to have,
uninvested cash (``Uninvested Cash'') held by a custodian. Such
Uninvested Cash may result from a variety of sources, including
dividends or interest received on portfolio securities, unsettled
securities transactions, strategic reserves, matured investments,
proceeds from liquidation of investment securities, dividend payments,
or money received from investors. Certain Funds also may participate in
a securities lending program under which a Fund may lend its portfolio
securities to registered broker-dealers or other institutional
investors. The loans are continuously secured by collateral equal at
all times to at least the market value of the securities loaned.
Collateral for these loans may include cash (``Cash Collateral,'' and
together with Uninvested Cash, ``Cash Balances'').
3. Applicants request an order to permit each of the Funds
(``Participating Funds'') to invest their cash Balances in one or more
of the Central Funds, and the Central Funds to sell their shares to,
and redeem their shares from, the Participating Funds. Investment of
Cash Balances in shares of the Central Funds will be made only to the
extent that such investments are consistent with each Participating
Fund's investment restrictions and policies as set forth in its
prospectus and statement of additional information. Applicants believe
that the proposed transactions may reduce transaction costs, create
more liquidity, increase returns, and diversify holdings.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides, in pertinent part, that
no registered investment company may acquire securities of another
investment company if such securities represent more than 3% of the
acquired company's outstanding voting stock, more than 5% of the
acquiring company's total assets, or if such securities, together with
the securities of other acquired investment companies, represent more
than 10% of the acquiring company's total assets. Section 12(d)(1)(B)
of the Act, in pertinent part, provides that no registered open-end
investment company may sell its securities to another investment
company if the sale will cause the acquiring company to own more than
3% of the acquired company's voting stock, or if the sale will cause
more than 10% of the acquired company's voting stock to be owned by
investment companies.
2. Section 12(D)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction from any provision of
section 12(d)(1) if, and to the extent that, such exemption is
consistent with the public interest and the protection of investors.
Applicants request relief under section 12(d)(1)(J) from the
limitations of section 12(d)(1) (A) and (B) to permit the Participating
Funds to invest Cash Balances in Central Funds.
3. Applicants state that the proposed arrangement would not result
in the abuses that sections 12(d)(1) (A) and (B) were intended to
prevent. Applicants state that because each Central Fund will maintain
a highly liquid portfolio, a Participating Fund will not be in a
position to gain undue influence over a Central fund. Applicants
represent that the proposed arrangement will not result in an
inappropriate layering of fees because shares of the Central Funds sold
to the Participating Funds will not be subject to a sales load,
redemption fee, distribution fee under a plan adopted in accordance
with rule 12b-1 or service fee (as defined in rule 2830(b)(9) of the
National Association of Securities Dealer's (``NASD'') Conduct Rules).
In connection with approving any advisory contract for a Participating
Fund, each Participating Fund's board of trustees (the ``Board''),
including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act (``Disinterested
Trustees'') will consider to what extent, if any, the advisory fees
charged to the Participating Fund by the Adviser should be reduced to
account for reduced services provided to the Participating Fund by the
Adviser as a result of the investment of Uninvested Cash in the Central
Funds. Applicants represent that no Central Fund will acquire
securities of any other investment company in excess of the limitations
contained in section 12(d)(1)(A) of the Act.
4. Section 17(a) of the Act makes it unlawful for any affiliated
person of a registered investment company, acting as principal, to sell
or purchase any security to or from the company. Section 2(a)(3) of the
Act, in pertinent part, defines an ``affiliated person'' of an
investment company to include any person directly or indirectly
controlling, controlled by, or under common control with the other
person and any person owning, controlling or holding with power to
vote, 5% or more of the other person. Applicants state that because the
Funds share a common Board, each Fund may be deemed to be under common
control with each of the other Funds, and thus an affiliated person of
each of the other Funds. In addition, applicants state that because a
Participating Fund may acquire 5% or more of a Central Fund, each Fund
may be deemed to be an affiliated person of the other Fund. As a
result, section 17(a) would prohibit the sale of the shares of a
Central Fund to the Participating Funds, and the redemption of the
shares by a Central Fund.
5. Section 17(b) of the Act authorizes the Commission to exempt a
transaction from section 17(a) if the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, the proposed transaction is consistent with the
policy of each
[[Page 72707]]
investment company concerned, and the proposed transaction is
consistent with the general purposes of the Act. Section 6(c) of the
Act permits the Commission to exempt persons or transactions from any
provision of the Act if the 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.
6. Applicants submit that their request for relief to permit the
purchase and redemption of shares of the Central Funds by the
Participating Funds satisfies the standards in section 6(c) and 17(b).
Applicants note that shares of the Central Funds will be purchased and
redeemed by the Participating Funds at their net asset value, the same
consideration paid and received for these shares by any other
shareholder. Applicants state that the Participating Funds will retain
their ability to invest Cash Balances directly in money market
instruments as authorized by their respective investment objectives and
policies if they believe they can obtain a higher rate of return, or
for any other reason. Applicants also state that a Central Fund has the
right to discontinue selling shares to any of the Participating Funds
if the Central Fund's Board determines that such sale would adversely
affect its portfolio management and operations.
7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, acting as
principal, from participating in or effecting any transaction in
connection with any joint enterprise or joint arrangement in which the
investment company participates. Applicants state that each Fund, by
participating in the proposed transactions, and each Adviser, by
managing the assets of the Participating Funds investing in a Central
Fund, and a Central Fund by selling shares to the Participating Fund
could be deemed to be a participant in a joint enterprise or
arrangement within the meaning of section 17(d) of the Act and rule
17d-1 under the Act.
8. Rule 17d-1 Permits the Commission to approve a proposed joint
transaction covered by the terms of section 17(d) of the Act. In
determining whether to approve a transaction, the Commission is to
consider whether the proposed transaction is consistent with the
provisions, policies, and purposes of the Act, and the extent to which
the participation is on a basis different from or less advantageous
than that of other participants. Applicants submit that the investment
by the Participating Funds in shares of the Central funds would be
indistinguishable from any other shareholder account maintained by the
Central Fund and that the transaction will be consistent with the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Shares of the Central Funds sold to and redeemed by the
Participating Funds will not be subject to a sales load, redemption
fee, distribution fee under a plan adopted in accordance with rule 12b-
1 under the Act or service fee (as defined in rule 2830(b)(9) of the
rules of Conduct of the NASD).
2. Before the next meeting of the Board of a Participating Fund is
held for purposes of voting on an advisory contract under section 15 of
the Act, the Adviser to the Participating Fund will provide the Board
with specific information regarding the approximate cost to the Adviser
of, or portion of the advisory fee under the existing advisory contract
attributable to, managing the Uninvested Cash of the Participating Fund
that can be expected to be invested in the Central Funds. Before
approving any advisory contract for a Participating Fund, the Board of
the Participating Fund, including a majority of the Disinterested
Trustees, shall consider to what extent, if any, the advisory fees
charged to the Participating Fund by the Adviser should be reduced to
account for reduced services provided to the Fund by the Adviser as a
result of Uninvested Cash being invested in the Central Fund. The
minute books of the Participating Fund will record fully the Board's
consideration in approving the advisory contract, including the
considerations referred to above.
3. Each of the Participating Funds will invest Uninvested Cash in,
and hold shares of, the Central Funds only to the extent that the
participating Fund's aggregate investment in the Central Funds does not
exceed 25 percent of the Participating Fund's total assets. For
purposes of this limitation, each Participating Fund and series thereof
will be treated as a separate investment company.
4. Investment in shares of the Central Funds will be in accordance
with each Participating Fund's respective investment restrictions, if
any, and will be consistent with each Participating Fund's policies as
set forth in its prospectus and statement of additional information.
5. Each Participating Fund, Central Fund, and any future Fund that
may rely on the requested order shall be advised by the Advisers.
6. No Central Fund shall acquire securities of any other investment
company in excess of the limits contained in section 12(d)(1)(A) of the
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-33634 Filed 12-27-99; 8:45 am]
BILLING CODE 8010-01-M