Closed-End Funds
- Product Update - August 28, 2008
- Webinar on Evergreen’s Closed End Funds – May 1, 2008
- Conference Call on Auction Rate Securities - March 24, 2008
- Product Update - February 26, 2008
- Policy for the Consideration of Trustee Nominees
- Policy Concerning Trustee Attendance at Annual Meetings of Shareholders
- Process for Delivering Shareholder Communications to the Board of Trustees
Product Update - February 26, 2008
Read Dennis Ferro’s perspective on recent market events and the ways Evergreen Investments is seeking to identify solutions that help to meet the needs of its closed-end fund shareholders. Mr. Ferro is President and Chief Executive Officer of Evergreen Investments.
Purpose of this update
During the week of February 11, 2008, there was a highly unusual event in the fixed income markets as certain auction rate securities ("ARS") were unable to attract sufficient buyers. As a result, some of these auctions “failed.” There have been questions regarding the impact of these events on certain investment vehicles, including closed-end funds. The purpose of this update is to provide an overview of current market conditions, to comment on the impact of the failed auctions on Evergreen closed-end funds, and to discuss steps Evergreen is taking to continually monitor and assess the situation.
Background and summary of current market conditions
Auction rate securities are typically issued by municipalities, museums, student-loan providers, closed-end funds and other entities as a source of long-term funding at short-term rates. Holders who desire to sell these securities generally must do so through an auction process. When there aren't enough buyers, as recently has been the case, the auction fails and ARS holders must retain the securities. In the event of a failed auction, the interest rate paid by the fund to ARS holders increases to a maximum rate.
It is important to note that a failed auction is not due to a credit event. Unlike other segments of the auction rate markets, securities regulations require that closed-end funds must have at least $2 of assets for every $1 of auction-rates securities issued. As noted in the chart below, Evergreen auction-rate securities have maintained a triple-A rating by Fitch, Moody’s and/or S&P.
Evergreen closed-end funds' issuance of auction rate securities
Evergreen’s closed-end funds are among many funds that have the ability to create leverage by issuing a type of auction rate security known as Auction Market Preferred Shares ("AMPS"). These shares are auctioned on either a 7- or 28-day cycle, providing AMPS investors the opportunity to reduce or increase their positions at the next successful auction. Until recently, triple A-rated AMPS have historically paid a rate of interest similar to benchmark short-term interest rates such as LIBOR or a commercial paper index.
Impact on Evergreen closed-end funds
Evergreen has three funds that currently employ leverage through AMPS: Evergreen Income Advantage Fund (EAD), Evergreen Multi-Sector Income Fund (ERC), and Evergreen Utilities & High Income Fund (ERH). As of February 26, 2008, all three funds experienced failed auctions. As a result, Evergreen will pay AMPS holders interest at the maximum rates as posted on Current AMPS Rates until a successful auction reduces that rate.
Evergreen’s management team continues to closely monitor and assess the overall ARS market while exploring alternative financing sources in order to preserve the income profiles of the portfolios. Read Dennis Ferro’s letter to Evergreen’s closed-end fund shareholders. Mr. Ferro is President and Chief Executive Officer of Evergreen Investments.
We appreciate your business and will continue to provide further updates as market conditions warrant.
These closed-end funds are no longer offered as an initial public offering and are only offered through broker/dealers on the secondary market. Unlike an open-end mutual fund, a closed-end fund (CEF) offers a fixed number of shares for sale. After the initial public offering, shares are bought and sold in the secondary marketplace and the market price of the shares is determined by supply and demand, not by net asset value, often at a lower price than the NAV. A closed-end fund is not required to buy its shares back from investors upon request.