[Federal Register Volume 64, Number 203 (Thursday, October 21, 1999)]
[Notices]
[Pages 56823-56825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27444]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24084; 812-11808]


Evergreen Equity Trust et al.; Notice of Application

October 14, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under rule 17d-1 under the Investment 
Company Act of 1940 (the ``Act'') for an order to permit certain 
transactions in accordance with section 17(d) of the Act and rule 17d-1 
under the Act.

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SUMMARY OF THE APPLICATION: Applicants request an order to permit 
certain registered investment companies to pay to an affiliated lending 
agent, and the affiliated lending agent to accept, fees based on a 
share of the revenue generated from securities lending transactions.

APPLICANTS: Evergreen Equity Trust, Evergreen Select Equity Trust, 
Evergreen International Trust, Evergreen Fixed Income Trust, Evergreen 
Select Fixed Income Trust, Evergreen Municipal Trust, Evergreen Money 
Trust, Evergreen Select Money Market Trust (collectively, the 
``Funds''), First Union National Bank (``First Union''), and Evergreen 
Investment Management Company (``EIM'').

FILING DATE: The application was filed on October 8, 1999.

HEARING AND 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 November 8, 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 request should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Person 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, NW, Washington, DC 20549-0609. Applicants, 200 Berkeley Street, 
Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT:
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, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. Each Fund is registered under the Act as an open-end management 
investment company. The Funds currently consist of 92 portfolios 
(``Portfolios''). EIM, a subsidiary of First Union Corporation, is 
registered under the Investment Advisers Act of 1940. EIM or an entity 
controlling, controlled by, or under common control with EIM serves as 
investment adviser to each Portfolio of the Funds (each, an 
``Adviser''). First Union, a wholly-owned subsidiary of First Union 
Corporation, is a national banking association.\1\
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    \1\ Applicants also request that the relief apply to any other 
registered investment company that in the future is advised by EIM 
or an entity controlling, controlled by, or under common control (as 
defined in section 2(a)(9) of the Act) with EIM (``Future Funds''). 
Applicants state that all registered investment companies that 
currently intend to rely on the relief are named as applicants and 
that any Future Funds that rely on the relief will so do so only in 
accordance with the terms and conditions of the application.
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    2. Each Portfolio is permitted by its investment objectives, 
policies, and restrictions to lend its portfolio securities. Applicants 
may propose that the Funds engage First Union as custodian and that 
First Union act as lending agent for the Funds in transactions where 
the Funds loan portfolio securities to unaffiliated borrowers 
(``Borrowers''). First Union, as lending agent, would be responsible 
for, among other things, soliciting Borrowers from a pre-approved list 
of eligible Borrowers, entering into loans of pre-approved securities 
on pre-approved terms, negotiating loans, requesting Borrowers to add 
collateral when required, and performing other administrative 
functions.\2\ In addition, First Union would, under guidelines 
established by the Adviser, invest cash collateral in instruments pre-
approved by the Adviser.
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    \2\ Applicants state that the duties to be performed by First 
Union will be consistent with and not exceed the parameters set 
forth in Norwest Bank (pub. avail. May 25, 1995).
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    3. A Fund's board of trustees (``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 establish 
procedures to govern the securities leading program. These procedures 
will comply with the policies and procedures set forth by the

[[Page 56824]]

Commission and its staff. The duties of First Union, as the lending 
agent, as well as procedures governing the securities lending, will be 
included in the Portfolio's agreement with First Union or otherwise 
detailed in writing. The ultimate responsibility for determining which 
securities are available to be loaned and to whom the securities may be 
loaned will reside with the Portfolio's Adviser, subject to the 
procedures approved by the Fund's Board.
    4. Each Borrower of a Portfolio's securities will be required to 
tender collateral to be held by the Portfolio's custodian. In 
transactions where the collateral is other than cash, First Union 
typically will negotiate on behalf of a Portfolio a lending fee to be 
paid by the Borrower. The Borrower will deliver to the Portfolio's 
custodian U.S. Government securities or bank letters of credit equal to 
at least 100% of the value of the securities loaned, with the 
collateral to be increased, as necessary, to cover differences between 
the market value of the collateral and the market value of the loaned 
securities. At the termination of the loan, the Borrower will pay to 
the Portfolio the lending fee, or which First Union will receive a pre-
negotiated percentage.
    5. In transactions where the collateral consists of cash, the 
Portfolio typically will receive a portion of the return earned on the 
investment of the cash collateral by or under the direction of the 
Portfolio's Adviser. Depending on the agreement negotiated with the 
Borrower by First Union, a percentage of the return on the investment 
of the cash collateral may be remitted by the Portfolio to the 
Borrower. Cash collateral delivered by the Borrower to the Portfolio's 
custodian will equal at least 100% of the portfolio securities loaned, 
and will be supplemented to cover increases in the market value of the 
loaned securities, as necessary. Out of amounts earned on the 
investment of cash collateral, the Borrower would be paid the amount 
agreed upon, if any, and, out of any remaining earnings, First Union 
would receive its pre-negotiated percentage and the Portfolio would 
receive the remainder.
    6. Applicants request relief to permit the Funds to pay First 
Union, and First Union to accept, fees based on a share of the proceeds 
derived by the Funds from their securities lending activities.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and Rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company or any 
affiliated person of such person, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement or profit sharing plan in which 
the investment company participates. Section 2(a)(3) of the Act 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 if the other person is an 
investment company, any investment adviser of that company.
    2. EIM, as investment adviser to the Funds, is an affiliated person 
of each Fund. Because EIM and First Union are under common control, 
First Union and EIM are affiliated persons and First Union is an 
affiliated person of an affiliated person of the Funds. Accordingly, 
applicants request an order under section 17(d) of the Act and rule 
17d-1 under the Act to the extent necessary to permit each Fund to pay, 
and First Union as lending agent to receive, fees based on a percentage 
of the revenue generated by the Funds' securities lending program.
    3. Rule 17d-1 authorizes the Commission to permit a proposed joint 
transaction. In determining whether to permit 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 of the investment company is on a 
basis different from or less advantageous than that of the other 
participants. For the reasons discussed below, applicants believe that 
the requested relief satisfies that standards for relief set forth in 
rule 17d-1.
    4. Applicants propose that the Funds adopt the following procedures 
to ensure that the fee arrangement and other terms of the relationship 
between the Funds and First Union are fair:
    a. In connection with the initial approval of First Union as 
lending agent to a Fund, a majority of the Board of the Fund (including 
a majority of the Disinterested Trustees) will determine that: (1) The 
contract with First Union is in the best interests of the Fund and its 
shareholders; (ii) the services to be performed by First Union are 
required by the Fund; (iii) the nature and quality of the services to 
be performed by First Union are at least equal to those provided by 
others offering the same or similar services; and (iv) the fees for 
First Union's services are fair and reasonable in light of the usual 
and customary charges imposed by others for services of the same nature 
quality.
    b. In connection with the initial approval of First Union as 
lending agent to a Fund, the Board will obtain competing quotes of the 
lending agent fees from at least three independent lending agents to 
assist the Board in making the findings referred to in paragraph (a) 
above.
    c. Each Fund's contract with First Union for lending agent services 
will be reviewed annually and will be approved for continuation only if 
a majority of the Board (including a majority of Disinterested 
Trustees) makes the findings referred to in paragraph (a) above.
    d. The Board of each Fund, including a majority of Disinterested 
Trustees will (i) determine at each quarterly meeting that the loan 
transactions during the prior quarter were effected in compliance with 
the conditions and procedures set forth in the application; and (ii) 
review no less frequently than annually the conditions and procedures 
for continuing appropriateness.
    e. Each Fund will (i) maintain and preserve permanently in an 
easily accessible place a written copy of the procedures and conditions 
(and any modification thereto) described in the application or 
otherwise followed in connection with lending securities and (ii) 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any loan transaction occurred, the 
first two years in an easily accessible place, a written record of each 
loan transaction setting forth a description of the security loaned, 
the identity of the Borrower, the terms of the loan transaction, and 
the information or materials upon which the determination was made that 
each loan was made in accordance with the procedures set forth above 
and the conditions set forth in the application.

Applicants' Condition

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The securities lending program of each Portfolio will comply 
with all present and future applicable Commission and Commission staff 
positions regarding securities lending arrangements.
    2. The approval of the Board, including a majority of Disinterested 
Trustees, shall be required for the initial and subsequent approvals of 
First Union's service as lending agent for the Fund, for the 
institution of all procedures relating to the securities lending 
program of the Fund, and for any periodic review of loan transactions 
for which First Union acted as lending agent.
    3. No Portfolio may lend its portfolio securities to a borrower 
that is an

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affiliated person of the Fund, EIM, First Union, or an affiliated 
person of any such person.

    For the Commission by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-27444 Filed 10-20-99; 8:45 am]
BILLING CODE 8010-01-M