all the names in the index, and if a credit event is triggered, the credit event is settled based on that name’s weight in the index. A credit event includes bankruptcy, failure to pay, obligation default, obligation acceleration, repudiation/moratorium, and restructuring. The Fund may enter into credit default swaps as either the seller of protection or the buyer of protection. As the seller of protection, the Fund is subject to investment exposure on the notional amount of the swap and has assumed the risk of default of the underlying security or index. As the buyer of protection, the Fund could be exposed to risks if the seller of the protection defaults on its obligation to perform, or if there are unfavorable changes in the fluctuation of interest rates. The maximum potential amount of future payments (undiscounted) that the Fund as the seller of protection could be required to make under the credit default swap contract would be an amount equal to the notional amount of the swap contract. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.
If the Fund is the seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will pay to the buyer of protection the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index. If the Fund is the buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will receive from the seller of protection the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index.
Any premiums paid or received on the transactions are recorded as an asset or liability on the Statement of Assets and Liabilities and amortized. The value of the swap contract is marked-to-market daily based on quotations from an independent pricing service or market makers and any change in value is recorded as an unrealized gain or loss. Periodic payments made or received are recorded as realized gains or losses. In addition, payments received or made as a result of a credit event or termination of the contract are recognized as realized gains or losses.
Certain credit default swap contracts entered into by the Fund provide for conditions that result in events of default or termination that enable the counterparty to the agreement to cause an early termination of the transactions under those agreements. Any election by the counterparty to terminate early may impact the amounts reported on the financial statements.
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectibility of interest is reasonably assured, the debt obligation is removed from non-accrual status. Dividend income is recorded on the ex-dividend date. Foreign income and capital gains realized on some securities may be subject to foreign taxes, which are accrued as applicable.
m. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
n. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee of 0.55% of the Fund’s average daily total assets. Total assets consist of the net assets of the Fund plus borrowings or other leverage for investment purposes. For the six months ended April 30, 2010, the advisory fee was equivalent to an annual rate of 0.74% of the Fund’s average daily net assets applicable to common shareholders.
First International Advisors, LLC, an affiliate of EIMC and a majority-owned subsidiary of Wells Fargo, is the investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund.
Tattersall Advisory Group, Inc., an affiliate of EIMC and an indirect, wholly-owned subsidiary of Wells Fargo, is also an investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended April 30, 2010, EIMC contractually waived its advisory fee in the amount of $1,530,991. These contractual waivers were put in place to ensure the costs incurred by the Fund under the Facility (see Note 4), as a percentage of the average outstanding borrowings, would not exceed the costs that would have been incurred if the Preferred Shares had not been redeemed less 0.05%.
38
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual administrative fee of 0.05% of the Fund’s average daily total assets. For the six months ended April 30, 2010, the administrative fee was equivalent to an annual rate of 0.07% of the Fund’s average daily net assets applicable to common shareholders.
4. CAPITAL SHARE TRANSACTIONS
The Fund has authorized capital of 100,000,000 common shares with no par value. For the six months ended April 30, 2010 and the year ended October 31, 2009, the Fund did not issue any common shares.
As of April 30, 2010, the Fund had 3,200 shares of Auction Market Preferred Shares (“Preferred Shares”) issued and outstanding consisting of five series, each with a liquidation value of $25,000 plus accumulated but unpaid dividends (whether or not earned or declared).
Dividends on each series of Preferred Shares are cumulative at a rate, which is reset based on the result of an auction. During the six months ended April 30, 2010, the Preferred Shares experienced failed auctions and the Fund paid dividends to the holders of Preferred Shares based on the maximum rate allowed under the governing documents for the Preferred Shares. The annualized dividend rate of 1.75% during the six months ended April 30, 2010, includes the maximum rate for the dates on which auctions failed. The Fund will not declare, pay or set apart for payment any dividend to its common shareholders unless the Fund has declared and paid or contemporaneously declares and pays full cumulative dividends on each series of Preferred Shares through its most recent dividend payment date.
Each series of Preferred Shares is redeemable, in whole or in part, at the option of the Fund on any dividend payment date at $25,000 per share plus any accumulated or unpaid dividends (whether or not earned or declared). Each series of Preferred Shares is also subject to mandatory redemption at $25,000 per share plus any accumulated or unpaid dividends (whether or not earned or declared) if the asset coverage with respect to the outstanding Preferred Shares fell below 200%.
The holders of Preferred Shares have voting rights equal to the holders of the Fund’s common shares and vote together with holders of common shares as a single class. Holders of Preferred Shares, voting separately as a single class, have the right to elect at least two Trustees at all times. The remaining Trustees are elected by holders of common shares and Preferred Shares, voting together as a single class.
39
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The Fund secured debt financing in April 2008 from a multi-seller commercial paper conduit administered by a major financial institution (the “Facility”) in order to redeem a pro rata portion of each of its series of Preferred Shares. The Facility was refinanced on April 26, 2010 with a new commercial paper conduit, administered by a different major financial institution, with a commitment amount of $130 million and a 364 day term (“Refinancing Facility”). As of April 30, 2010, the Fund had borrowed $50 million under the Refinancing Facility. The Fund’s borrowings under the Refinancing Facility are generally charged interest at a rate based on the rates of the commercial paper notes issued to fund the Fund’s borrowings plus 1.0% or at the London Interbank Offered Rate (LIBOR) plus 2.0%. Under the Facility, the Fund had been generally charged interest at a rate based on the rates of the commercial paper notes issued or at LIBOR plus 9.5%. During the six months ended April 30, 2010, an effective interest rate of 0.40% was incurred on the borrowings, which was based on the rates of the commercial paper notes. Interest expense of $99,264, representing 0.03% of the Fund’s average daily net assets applicable to common shareholders, was incurred during the six months ended April 30, 2010.
The Fund has pledged its assets to secure the borrowings and currently pays, on a monthly basis, a liquidity fee at an annual rate of 0.60% of the daily average outstanding principal amount of borrowings and a program fee at an annual rate of 0.60% of the product of (i) the daily average outstanding principal amount of borrowings and (ii) 1.02. Under the Facility, the Fund paid, on a monthly basis, a liquidity fee at an annual rate of 2.75% of the total commitment amount and a program fee at an annual rate of 2.75% on the daily average outstanding principal amount of borrowings. The secured borrowing fees on the Statement of Operations of $3,017,611 represents amortization of structuring fees, liquidity fees and program fees. Of this amount $1,145,574 represents prepaid structuring fees relating to the Facility which were reimbursed to the Fund by the investment advisor.
On April 27, 2010, the Fund provided notice of its intention to redeem all of its outstanding Preferred Shares.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows for the six months ended April 30, 2010.
Cost of Purchases | Proceeds from Sales |
|
|
U.S.
Government | Non-U.S.
Government | U.S.
Government | Non-U.S.
Government |
|
|
|
|
$52,730,913 | $328,280,682 | $1,372,985 | $331,597,053 |
|
|
|
|
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
40
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
(Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of April 30, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities | | Quoted Prices
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total | |
|
|
|
|
|
|
|
|
| |
Equity securities | | | | | | | | | | | | | |
Common stocks | | $ | 1,002,920 | | $ | 0 | | $ | 0 | | $ | 1,002,920 | |
Preferred stocks | | | 0 | | | 475,598 | | | 0 | | | 475,598 | |
Mutual fund shares | | | 2,683,271 | | | 0 | | | 0 | | | 2,683,271 | |
Commercial mortgage-backed securities | | | 0 | | | 1,438,668 | | | 0 | | | 1,438,668 | |
Convertible debentures | | | 0 | | | 1,009,031 | | | 0 | | | 1,009,031 | |
Corporate bonds | | | 0 | | | 358,007,660 | | | 458,778 | | | 358,466,438 | |
Foreign bonds – corporate | | | 0 | | | 80,294,507 | | | 0 | | | 80,294,507 | |
Foreign bonds – government | | | 0 | | | 119,869,856 | | | 0 | | | 119,869,856 | |
Loans | | | 0 | | | 18,669,213 | | | 7,595,283 | | | 26,264,496 | |
Mortgage-backed collateralized mortgage obligations | | | 0 | | | 15,529,140 | | | 0 | | | 15,529,140 | |
Mortgage-backed pass through securities | | | 0 | | | 212,623,321 | | | 0 | | | 212,623,321 | |
Yankee obligations – corporate | | | 0 | | | 69,422,236 | | | 0 | | | 69,422,236 | |
Short-term investments | | | 12,734,074 | | | 0 | | | 0 | | | 12,734,074 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | $ | 16,420,265 | | $ | 877,339,230 | | $ | 8,054,061 | | $ | 901,813,556 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Further details on the major security types listed above can be found in the Schedule of Investments.
41
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of April 30, 2010, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:
Other financial instruments | Quoted Prices
(Level 1) | Significant
Other
Observable
Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) | Total |
|
|
|
|
|
Forward foreign currency contracts | $0 | $(2,254,930) | $0 | $(2,254,930) |
|
|
|
|
|
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
| | Corporate
Bonds | | Common
Stocks | | Loans | | Total | |
|
|
|
|
|
|
|
|
| |
Balance as of October 31, 2009 | | $ | 376,052 | | $ | 3,014,385 | | $ | 11,927,339 | | $ | 15,317,776 | |
Realized gains or losses | | | 0 | | | (671,839 | ) | | 499,845 | | | (171,994 | ) |
Change in unrealized gains or losses | | | 81,298 | | | 1,346,974 | | | 105,629 | | | 1,533,901 | |
Amortization | | | 1,428 | | | 0 | | | 406,522 | | | 407,950 | |
Net purchases (sales) | | | 0 | | | (3,689,520 | ) | | (3,063,694 | ) | | (6,753,214 | ) |
Transfers in and/or out of Level 3 | | | 0 | | | 0 | | | (2,280,358 | ) | | (2,280,358 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance as of April 30, 2010 | | $ | 458,778 | | $ | 0 | | $ | 7,595,283 | | $ | 8,054,061 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized gains or losses included in earnings relating to securities still held at April 30, 2010 | | $ | 81,298 | | $ | 0 | | $ | 202,063 | | $ | 283,361 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
As of April 30, 2010, the Fund had unfunded loan commitments of $2,667,036.
During the six months ended April 30, 2010, the Fund entered into reverse repurchase agreements that had an average daily balance outstanding of $100,937,857 (on an annualized basis) with a weighted average interest rate of 0.14% and paid interest of $141,313, representing 0.04% of the Fund’s average daily net assets applicable to common shareholders (on an annualized basis). The maximum amount outstanding under reverse repurchase agreements during the six months ended April 30, 2010 was $100,348,492 (including accrued interest). At April 30, 2010, reverse repurchase agreements outstanding were as follows:
Repurchase
Amount | Counterparty | Interest Rate | Maturity Date |
|
|
|
|
$32,455,149 | Credit Suisse | 0.24% | 05/19/2010 |
31,503,851 | Goldman Sachs | 0.35% | 05/19/2010 |
36,304,780 | Morgan Stanley | 0.25% | 05/19/2010 |
|
|
|
|
On April 30, 2010, the aggregate cost of securities for federal income tax purposes was $870,248,778. The gross unrealized appreciation and depreciation on securities based on tax cost was $47,053,363 and $15,488,585, respectively, with a net unrealized appreciation of $31,564,778.
42
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of October 31, 2009, the Fund had $145,619,630 in capital loss carryovers for federal income tax purposes expiring as follows:
Expiration |
|
2014 | 2015 | 2016 | 2017 |
|
|
|
|
$10,962,010 | $7,365,369 | $37,840,778 | $89,451,473 |
|
|
|
|
6. DERIVATIVE TRANSACTIONS
During the six months ended April 30, 2010, the Fund entered into forward foreign currency exchange contracts for hedging purposes.
At April 30, 2010, the Fund had forward foreign currency exchange contracts outstanding as follows:
Forward Foreign Currency Exchange Contracts to Buy:
Exchange
Date | Contracts to
Receive | U.S. Value at
April 30, 2010 | In Exchange
for U.S. $ | Unrealized
Gain (Loss) |
|
|
|
|
|
05/28/2010 | 1,015,000,000 JPY | $10,807,409 | $11,269,889 | $(462,480) |
|
|
|
|
|
Exchange
Date | Contracts
to Receive | U.S. Value at
April 30, 2010 | In Exchange for | U.S. Value at
April 30, 2010 | Unrealized
Gain (Loss) |
|
|
|
|
|
|
05/06/2010 | 555,000,000 | JPY | $ | 5,908,341 | | 4,140,370 | GBP | $ | 6,334,952 | | $ | (426,611) | |
05/06/2010 | 3,843,996 | GBP | | 5,881,487 | | 555,000,000 | JPY | | 5,908,341 | | | (26,854) | |
05/28/2010 | 650,000,000 | JPY | | 6,921,001 | | 5,330,141 | EUR | | 7,097,433 | | | (176,432) | |
05/28/2010 | 410,000,000 | JPY | | 4,365,555 | | 3,303,654 | EUR | | 4,399,034 | | | (33,479) | |
05/28/2010 | 5,457,722 | EUR | | 7,267,317 | | 695,000,000 | JPY | | 7,400,147 | | | (132,830) | |
06/25/2010 | 1,000,000,000 | JPY | | 10,650,708 | | 12,230,920 | AUD | | 11,250,071 | | | (599,363) | |
07/01/2010 | 4,191,030 | EUR | | 5,581,199 | | 6,200,000 | AUD | | 5,698,816 | | | (117,617) | |
07/01/2010 | 1,590,000,000 | JPY | | 16,935,710 | | 12,761,347 | EUR | | 16,994,298 | | | (58,588) | |
07/13/2010 | 968,145,250 | JPY | | 10,313,431 | | 14,650,000 | NZD | | 10,598,608 | | | (285,177) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Foreign Currency Exchange Contracts to Sell:
Exchange
Date | Contracts to
Deliver | U.S. Value at
April 30, 2010 | In Exchange
for U.S. $ | Unrealized
Gain (Loss) |
|
|
|
|
|
07/15/2010 | 1,902,428 EUR | $2,533,530 | $2,598,031 | $64,501 |
|
|
|
|
|
The Fund had average contract amounts of $6,094,317 and $2,228,151 in forward foreign currency exchange contracts to buy and forward foreign currency exchange contracts to sell, respectively, during the six months ended April 30, 2010.
During the six months ended April 30, 2010, the Fund entered into credit default swap contracts for speculative purposes.
The Fund entered into credit default swap contracts as a substitute for taking a position in the underlying security or basket of securities or to potentially enhance the Fund’s total return.
43
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of April 30, 2010, the Fund did not have any open credit default swaps but had an average notional balance of $2,633,118 during the six months ended April 30, 2010.
A summary of derivative instruments by primary risk exposure is outlined in the following tables, unless the only primary risk exposure category is already reflected in the appropriate financial statements.
The effect of derivative instruments on the Statement of Operations for the six months ended April 30, 2010 was as follows:
| | Amount of Realized Gains or
Losses on Derivatives | |
| |
| |
| | Forward
Currency
Contracts | | Credit
Default
Swaps | | Total | |
|
|
|
|
|
|
| |
Forward foreign currency contracts | | $ | 2,693,502 | | $ | 0 | | $ | 2,693,502 | |
Credit contracts | | | 0 | | | 73,079 | | | 73,079 | |
|
|
|
|
|
|
|
|
|
| |
| | $ | 2,693,502 | | $ | 73,079 | | $ | 2,766,581 | |
|
|
|
|
|
|
|
|
|
| |
| | Change in Unrealized Gains or
Losses on Derivatives | |
| |
| |
| | Forward
Currency
Contracts | | Credit
Default
Swaps | | Total | |
|
|
|
|
|
|
| |
Forward foreign currency contracts | | $ | (3,557,673 | ) | $ | 0 | | $ | (3,557,673 | ) |
Credit contracts | | | 0 | | | 37,432 | | | 37,432 | |
|
|
|
|
|
|
|
|
|
| |
| | $ | (3,557,673 | ) | $ | 37,432 | | $ | (3,520,241 | ) |
|
|
|
|
|
|
|
|
|
| |
7. EXPENSE REDUCTIONS
Through expense offset arrangements with the Fund’s custodian, a portion of fund expenses has been reduced.
8. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
9. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
44
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
EIMC and Evergreen Investment Services, Inc. (“EIS”) have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
In addition, the U.S. District Court for the District of Massachusetts has consolidated three purported class actions into In re Evergreen Ultra Short Opportunities Fund Securities Litigation. The plaintiffs filed a consolidated amended complaint on April 30, 2009 against various Evergreen entities, including EIMC and EIS, the Evergreen funds’ former distributor, and Evergreen Fixed Income Trust and its Trustees. The complaint generally alleges that investors in Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in Ultra Short Fund at different points in time and (iii) the failure of Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund. The complaint seeks damages in an amount to be determined at trial.
EIMC does not expect that any of the legal actions, inquiries or settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds, including the Fund.
45
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
10. SUBSEQUENT DISTRIBUTIONS
The Fund declared the following distributions to common shareholders:
Declaration
Date | Record
Date | Payable
Date | Net Investment
Income |
|
|
|
|
April 16, 2010 | May 14, 2010 | June 1, 2010 | $0.1083 |
May 21, 2010 | June 15, 2010 | July 1, 2010 | $0.1083 |
June 10, 2010 | July 15, 2010 | August 2, 2010 | $0.1083 |
|
|
|
|
These distributions are not reflected in the accompanying financial statements.
11. SUBSEQUENT EVENT
As of June 4, 2010, all outstanding Preferred Shares had been redeemed and were financed with borrowings from the Refinancing Facility.
In June 2010, a proxy statement for a Special Meeting of Shareholders was mailed to shareholders of record on May 18, 2010. The Special Meeting of Shareholders is scheduled to be held on July 9, 2010. Among the proposals for consideration is the approval of a new advisory agreement with Wells Fargo Funds Management, LLC to replace EIMC as well as a new sub-advisory agreement with First International Advisors, LLC and a new sub-advisory agreement with Wells Capital Management Incorporated. The new advisory and sub-advisory agreements contain terms similar to the current advisory and sub-advisory agreements. Following shareholder approval of the new advisory and sub-advisory agreements, the Fund will also be renamed Wells Fargo Multi-Sector Income Fund.
46
ADDITIONAL INFORMATION (unaudited)
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of shareholders of the Fund was held on February 12, 2010 to consider the following proposal. The results of the proposal are indicated below.
Proposal 1 — Election of Trustees:
| Net Assets Voted
“For” | Net Assets Voted
“Withheld” |
|
|
|
Dr. Leroy Keith, Jr. | $600,776,005 | $16,431,430 |
Patricia B. Norris | 601,958,034 | 15,249,401 |
Michael S. Scofield | 601,960,100 | 15,247,335 |
|
|
|
47
AUTOMATIC DIVIDEND REINVESTMENT PLAN (unaudited)
All common shareholders are eligible to participate in the Automatic Dividend Reinvestment Plan (“the Plan”). Pursuant to the Plan, unless a common shareholder is ineligible or elects otherwise, all cash dividends and capital gains distributions are automatically reinvested by Computershare Trust Company, N.A., as agent for shareholders in administering the Plan (“Plan Agent”), in additional common shares of the Fund. Whenever the Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as “dividends”) payable either in shares or in cash, nonparticipating the Plan will receive cash, and participants in the Plan will receive the equivalent in shares of common shares. The shares are acquired by the Plan Agent for the participant’s account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund (“newly issued common shares”) or (ii) by purchase of outstanding common shares on the open-market (open-market purchases) on the NYSE Amex or elsewhere. If, on the payment date for any dividend or distribution, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (“market premium”), the Plan Agent will invest the amount of such dividend or distribution in newly issued shares on behalf of the participant. The number of newly issued common shares to be credited to the participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value or market premium (“market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 43010, Providence, Rhode Island 02940-3010 or by calling 1-800-730-6001.
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51
TRUSTEES AND OFFICERS
TRUSTEES1 | |
Dr. Leroy Keith, Jr.
Trustee
DOB: 2/14/1939
Term of office since: 1983
Other directorships: Trustee,
Phoenix Fund Complex
(consisting of 46 portfolios
as of 12/31/2009) | Chairman, Bloc Global Services (development and construction); Former Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co. |
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|
Carol A. Kosel
Trustee
DOB: 12/25/1963
Term of office since: 2008
Other directorships: None | Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
|
|
Gerald M. McDonnell
Trustee
DOB: 7/14/1939
Term of office since: 1988
Other directorships: None | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); Former Manager of Commercial Operations, CMC Steel (steel producer) |
|
|
Patricia B. Norris
Trustee
DOB: 4/9/1948
Term of office since: 2006
Other directorships: None | President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
|
|
William Walt Pettit2
Trustee
DOB: 8/26/1955
Term of office since: 1988
Other directorships: None | Shareholder, Rogers, Townsend & Thomas, PC (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Vice President, Kellam & Pettit, P.A. (law firm); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
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|
David M. Richardson
Trustee
DOB: 9/19/1941
Term of office since: 1982
Other directorships: None | President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
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|
Russell A. Salton III, MD
Trustee
DOB: 6/2/1947
Term of office since: 1984
Other directorships: None | President/CEO, AccessOne MedCard, Inc. |
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|
Michael S. Scofield
Trustee
DOB: 2/20/1943
Term of office since: 1984
Other directorships: None | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
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|
Richard J. Shima
Trustee
DOB: 8/11/1939
Term of office since: 1993
Other directorships: None | Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
|
|
52
TRUSTEES AND OFFICERS continued
Richard K. Wagoner, CFA3
Trustee
DOB: 12/12/1937
Term of office since: 1999
Other directorships: None | Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
|
|
OFFICERS | |
W. Douglas Munn4
President
DOB: 4/21/1963
Term of office since: 2009 | Principal occupations: President and Chief Executive Officer, Evergreen Investment Company, Inc.; Chief Operating Officer, Wells Fargo Funds Management, LLC; Former Chief Operating Officer, Evergreen Investment Company, Inc. |
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|
Kasey Phillips4
Treasurer
DOB: 12/12/1970
Term of office since: 2005 | Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc. |
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|
Michael H. Koonce4
Secretary
DOB: 4/20/1960
Term of office since: 2000 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
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|
Robert Guerin4
Chief Compliance Officer
DOB: 9/20/1965
Term of office since: 2007 | Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Compliance Manager, Wells Fargo Funds Management Group; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
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|
1 | The Board of Trustees is classified into three classes of which one class is elected annually. Each Trustee serves a three-year term concurrent with the class from which the Trustee is elected. Each Trustee oversaw 74 Evergreen funds as of December 31, 2009. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s representation of affiliates of Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
53
123675 570141 rv7 06/2010
Item 2 – Code of Ethics
Not required for this filing.
Item 3 – Audit Committee Financial Expert
Not applicable at this time.
Items 4 – Principal Accountant Fees and Services
Not required for this filing.
Items 5 – Audit Committee of Listed Registrants
Not required for this filing.
Item 6 – Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not required for this filing.
Item 8 – Portfolio Managers of Closed-End Management Investment Companies.
Not required for this filing.
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
If applicable/not applicable at this time.
Item 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees that have been implemented since the Registrant last provided disclosure in response to the requirements of this Item.
Item 11 – Controls and Procedures
(a) | The Registrant’s principal executive officer and principal financial officer have evaluated the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) within 90 days of this filing and have concluded that the Registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. |
(b) | There has been no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to affect, the Registrant’s internal control over financial reporting . |
Item 12 – Exhibits
File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated.
(a) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. |
(b)(1) | Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX99.CERT. |
(b)(2) | Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 1350 of Title 18 of United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached as EX99.906CERT. The certifications furnished pursuant to this paragraph are not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Evergreen Multi-Sector Income Fund | | | |
By: |
/s/ W. Douglas Munn
| | | |
|
| | | |
| W. Douglas Munn
Principal Executive Officer | | | |
Date: June 29, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: |
/s/ W. Douglas Munn
| | | |
|
| | | |
| W. Douglas Munn
Principal Executive Officer | | | |
Date: June 29, 2010
By: |
/s/ Kasey Phillips
| | | |
|
| | | |
| Kasey Phillips
Principal Financial Officer | | | |
Date: June 29, 2010
