[Federal Register Volume 66, Number 208 (Friday, October 26, 2001)]
[Notices]
[Pages 54305-54310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26961]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25217; 812-11592]


Evergreen Select Fixed Income Trust, et al.; Notice of 
Application

October 22, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'') under (i) section 6(c) of the Act granting an 
exemption from sections 18(f) and 21(b) of the Act; (ii) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act; (iii) sections 6(c) and 17(b) of the Act granting an exemption 
from sections 17(a)(1) and 17(a)(3) of the Act; and (iv) section 17(d) 
of the Act and rule 17d-1 under the Act to permit certain joint 
transactions.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain registered open-end management investment companies to 
participate in a joint lending and borrowing facility.
    Applicants: Evergreen Selected 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 ``Evergreen Trusts''); Evergreen 
Investment Management Company, LLC (``Evergreen''); any person 
controlling, controlled by or under common control with Evergreen 
(together with Evergreen, an ``Evergreen Adviser''); any other open-end 
management investment company and its series registered under the Act 
for which an Evergreen Adviser serves as investment adviser (``Future 
Trusts'' and together with the Evergreen Trusts, the ``Trusts'').\1\
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    \1\ All Trusts that currently intend to rely on the order are 
named as applicants, and any other Trust that subsequently relies on 
the order will comply with the terms and conditions of the 
application.

FILING DATES: The application was filed on April 22, 1999, and amended 
on August 1, 2001. Applicants have agreed to file another amendment 
during the notice period, the substance of which is reflected in this 
notice.
    Notice or Notification 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 16, 2001 and should be accompanied by proof of service 
on the 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, NW., Washington, DC 
20549-0609; Applicants: Catherine Foley, Esq., Wachovia Corporation, c/
o Evergreen Funds, 200 Berkeley Street, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Karen L. Goldstein, Senior Counsel, at 
(202) 942-0646, or Nadya B. Roytblat, Assistant Director, at (202) 945-
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 Evergreen Trust is registered under the Act as an open-end 
management investment company and is organized as a Delaware business 
trust. Currently, there are nine Evergreen Trusts comprised of one 
hundred and five series (together with the series of the FutureTrusts, 
the ``Funds''). Evergreen, a subsidiary of Wachovia Corporation 
(``Wachovia''),

[[Page 54306]]

and each of the Evergreen Advisers, is registered as an investment 
adviser under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). Each Evergreen Trust has entered into an investment advisory 
agreement with an Evergreen Adviser. Evergreen Investment Services, 
Inc. serves as administrator for the Funds.
    2. The Funds and the Evergreen Advisers have obtained an order 
under section 17(d) and rule 17d-1 permitting the Funds to deposit 
uninvested cash balances that remain at the end of a trading day in one 
or more joint trading accounts (each a ``Joint Account'') to be used to 
enter into short-term investments.\2\ The Funds and their advisers have 
also obtained an order permitting the Funds to invest their cash 
balance in one or more of the Funds that are money market funds that 
comply with rule 2a-7 of the Act (the ``Money Market Funds'').\3\
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    \2\ Investment Company Act Release Nos. 19827 (Nov. 1, 1993) 
(notice) and 19908 (Nov. 29, 1993) (order).
    \3\ Investment Company Act Release Nos. 24213 (Dec. 21, 1999) 
(notice) and 24260 (Jan. 24, 2000) (order).
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    3. Some Funds may lend money to banks or other entities by entering 
into repurchase agreements or purchasing other short-term instruments, 
either directly or through the Joint Account. Other Funds may borrow 
money from the same or similar banks for temporary purposes to satisfy 
redemption requests or to cover unanticipated cash shortfalls such as a 
trade ``fail'' in which cash payment for a security sold by a Fund has 
been delayed. Currently, the Funds have credit arrangements with their 
custodians (i.e., overdraft protection) under which the custodians may, 
but are not obligated to, lend money to the Funds to meet the Funds' 
temporary cash needs.
    4. If the Funds were to borrow money from their custodians under 
their current arrangements or under other credit facility arrangements 
with a bank, the Funds would pay interested on the borrowed cash at a 
rate which would be significantly higher than the rate that would be 
earned by other (non-borrowing) Funds on investments in repurchase 
agreements and other short-term instruments of the same maturity as the 
bank loan. Applicants believe this differential represents the bank's 
profit for serving as a middleman between a borrower and lender. Other 
bank loan arrangements, such as committed lines of credit, would 
require the Funds to pay substantial commitment fees in addition to the 
interest rate to be paid by the borrowing Fund.
    5. Applicants request an order that would permit the Trusts, on 
behalf of the Funds, to enter into lending agreements (``Interfund 
Lending Agreements'') under which the Funds would lend money and borrow 
money for temporary purposes directly to and from each other through a 
credit facility (``Interfund Loan''). Applicants believe that the 
proposed credit facility would substantially reduce the Funds' 
potential borrowing costs and enhance their ability to earn higher 
rates of interest on short-term lendings. Although the proposed credit 
facility would substantially reduce the Funds' need to borrow from 
banks, the Funds would be free to establish committed lines of credit 
or other borrowing arrangements with banks. The Funds also would 
continue to maintain overdraft protection currently provided by their 
customers.
    6. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
the Funds have insufficient cash on hand to satisfy such redemptions. 
When the Funds liquidate portfolio securities to meet redemption 
requests, which normally are affected immediately, they often do not 
receive payment in settlement for up to three days (or longer for 
certain foreign transactions). The credit facility would provide a 
source of immediate, short-term liquidity pending settlement of the 
sale of portfolio securities.
    7. Applications also propose using the credit facility when a sale 
of securities fails due to circumstances such as a delay in the 
delivery of cash to the Fund's custodian or improper delivery 
instructions by the broker effecting the transaction. Sales fails may 
present a cash shortfall if the Fund has undertaken to purchase a 
security with the proceeds from securities sold. When the Fund 
experience a cash shortfall due to a sales fail, the custodian 
typically extends temporary credit to cover the shortfall and the Fund 
incurs overdraft changes. Alternatively, the Fund could fail on its 
intended purchase due to lack of funds from the previous sale, 
resulting in additional cost to the Fund, or sell a security on a same 
day settlement basis, earning a lower return on investment. Use of the 
credit facility under these circumstances would enable the Fund to have 
access to immediate short-term liquidity without incurring custodian 
overdraft or other charges.
    8. While borrowing arrangements with banks will continue to be 
available to cover unanticipated redemptions and sales fails, under the 
proposed credit facility, a borrowing Fund would pay lower interest 
rates than those offered by banks on short-term loans. In addition, 
Funds making short-term cash loans directly to other Funds would earn 
interest at a rate higher than they otherwise could obtain from 
investing their cash through the Joint Account in repurchase 
agreements. Thus, applicants believe that the proposed credit facility 
would benefit both borrowing and lending Funds.
    9. The interest rate charged to the Funds on any Interfund Loan 
(the ``Interfund Loan Rate'') would be the average of the ``Repo Rate'' 
and the ``Bank Loan Rate,'' both as defined below. The Repo Rate for 
any day would be the highest rate available from investments in 
overnight repurchase agreements through the Joint Account. The Bank 
Loan Rate for any day would be calculated by an Evergreen Adviser each 
day an Interfund Loan is made according to a formula established by the 
Board of Trustees for each Trust (the ``Trustees'') designed to 
approximate the lowest interest rate at which bank short-term loans 
would be available to the Funds. The formula would be based upon a 
publicly available rate (e.g., Federal Funds plus 25 basic points) and 
would vary with this rate so as to reflect changing bank loan rates. 
Each Fund's Trustees periodically would review the continuing 
appropriateness of using the publicly available rate, as well as the 
relationship between the Bank Loan Rate and current bank loan rates 
that would be available to the Funds. The initial formula and any 
subsequent modifications to the formula would be subject to the 
approval of each Fund's Trustees.
    10. The credit facility would be administered by an Evergreen 
Adviser's money market investment professionals (including the 
portfolio manager for the Money Market Funds) and fund accounting 
department (collectively, the ``Cash Management Team''). Under the 
proposed credit facility, the portfolio managers for each participating 
Fund may provide standing instructions to participate daily as a 
borrower or lender. The Evergreen Adviser on each business day would 
collect data on the uninvested cash and borrowing requirements of all 
participating Funds from the Funds' custodian. Once it had determined 
the aggregate amount of cash available for loans and borrowing demand, 
the Cash Management Team would allocate loans among borrowing Funds 
without any further

[[Page 54307]]

communication from portfolio managers (other than the Money Market Fund 
portfolio managers on the Cash Management Team). Applicants expect far 
more available uninvested cash each day than borrowing demand. All 
allocations will require the approval of at least one member of the 
Cash Management Team who is not a Money Market Fund portfolio manager. 
After allocating cash for Interfund Loans, the Evergreen Adviser will 
invest any remaining cash in accordance with the standing instructions 
from portfolio managers or return remaining amounts for investment 
directly by the portfolio managers of the Money Market Funds. The Money 
Market Funds typically would not participate as borrowers because they 
rarely need to borrow cash to meet redemptions.
    11. The Cash Management Team will allocate borrowing demand and 
cash available for lending among the Funds on what the Cash Management 
Team believes to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes, and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each loan normally would be 
allocated in a manner intended to minimize the number of participants 
necessary to complete the loan transaction. The method of allocation 
and related administrative procedures would be approved by the Trustees 
on behalf of each Fund, including a majority of Trustees who are not 
``interested persons'' of the Funds, as defined in section 2(a)(19) of 
the Act (``Independent Trustees''), to ensure that both borrowing and 
lending Funds participate on an equitable basis.
    12. The Evergreen Adviser would (a) monitor the Interfund Loan Rate 
and the other terms and conditions of the loans, (b) ensure compliance 
with each Fund's investment policies and limitations, (c) ensure 
equitable treatment of each Fund, and (d) make quarterly reports to the 
Trustees concerning any transactions by the Funds under the credit 
facility and the Interfund Loan Rate charged in the transactions.
    13. The Evergreen Adviser would administer the credit facility as 
part of its duties under its existing investment advisory agreement 
with each Fund and would receive no additional fee as compensation for 
its services. Wachovia or companies affiliated with it may collect 
standard pricing and bookkeeping fees applicable to repurchase and 
lending transactions generally, including transactions effected through 
the credit facility. Fees would be no higher than those applicable for 
comparable loan transactions.
    14. Each Fund's participation in the proposed credit facility will 
be consistent with its organizational documents and its investment 
policies and limitations. The prospectus of each Fund discloses that 
the Fund may borrow money and lend portfolio securities. The Statement 
of Additional Information (``SAI'') of each Fund discloses that the 
Fund may borrow money in the amount of 33\1/3\% of its total assets, 
and that the Fund may also borrow up to an additional 5% of its assets 
from banks or others. Each Fund, including the Money Market Funds, may 
also mortgage or pledge their securities with the same restrictions as 
the borrowing policy. As a fundamental policy, each Fund may lend 
securities or other assets if, as a result, no more than 33\1/3\% of 
its total assets would be lent to other parties.
    15. Prior to establishing the credit facility, the Trustees will 
solicit a shareholder vote allowing certain approved Funds to lend 
money, within the lending limitations set forth in the application. The 
SAI of each Fund participating in the interfund lending arrangements 
will disclose all material facts about the Fund's intended 
participation in the credit facility.
    16. In connection with the credit facility, applicants request an 
order under (a) section 6(c) of the Act granting relief from sections 
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting 
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of 
the Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act; 
and (d) section 17(d) of the Act and rule 17d-1 under the Act to permit 
certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) generally prohibits any affiliated person, or 
affiliated person of an affiliated person, from borrowing money or 
other property from a registered investment company. Section 21(b) 
generally prohibits any registered management investment company from 
lending money or other property to any person if that person controls 
or is under common control with the company. Section 2(a)(3)(C) of the 
Act defines ``affiliated person'' of another person, in part, to be any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Applicants state that the Funds 
may be under common control by virtue of having an Evergreen Adviser as 
their common investment adviser.
    2. Section 6(c) provides that an exemptive order may be granted 
where an 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. Section 17(b) 
authorizes the Commission to exempt a proposed transaction from section 
17(a) provided that the terms of the transaction, including the 
consideration to be paid or received, are fair and reasonable and do 
not involve overreaching on the part of any person concerned, and the 
transaction is consistent with the policy of the investment company as 
recited in its registration statement and with the general purposes of 
the Act. Applicants believe that the proposed arrangements satisfy 
these standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a person with strong potential adverse 
interests to, and some influence over the investment decisions of, a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of that person and that are detrimental to the best interests 
of the investment company and its shareholders. Applicants assert that 
the proposed credit facility transactions do not raise these concerns 
because (a) an Evergreen Adviser would administer the program as a 
disinterested fiduciary; (b) all Interfund Loans would consist only of 
uninvested cash reserves that the Fund otherwise would invest in short-
term repurchase agreements or other short-term instruments either 
directly or through the Joint Account or in the Money Market Funds; (c) 
the Interfund Loans would not involve a greater risk than other similar 
investments; (d) the lending Fund would receive interest at a rate 
higher than it could obtain through other similar investments; and (e) 
the borrowing Fund would pay interest at a rate lower than otherwise 
available to it under its bank loan agreements and avoid the up-front 
commitment fees associated with committed lines of credit. Moreover, 
applicants believe that the other conditions in the application would 
effectively preclude the possibility of any fund obtaining an undue 
advantage over any other Fund.
    4. Section 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property

[[Page 54308]]

to the company. Section 12(d)(1) of the Act generally makes it unlawful 
for a registered investment company to purchase or otherwise acquire 
any security issued by any other investment company except in 
accordance with the limitations set forth in that section. Applicants 
believe that the obligation of a borrowing Fund to repay an Interfund 
Loan may constitute a security under sections 17(a)(1) and 12(d)(1). 
Section 12(d)(1)(J) provides that the Commission may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent such exception is consistent with the public interest and the 
protection of investors. Applicants contend that the standards under 
sections 6(c), 17(b) and 12(d)(1)(J) are satisfied for all the reasons 
set forth above in support of their request for relief from sections 
17(a)(3) and 21(b) and for the reasons discussed below.
    5. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid duplicative 
costs and fees attendant upon multiple layers of investment companies. 
Applicants submit that the proposed credit facility does not involve 
these abuses. Applicants note that there would be no duplicative costs 
or fees to the Funds or shareholders, and that the Evergreen Adviser 
would receive no additional compensation for its services in 
administering the credit facility. Applicants also note that the 
purpose of proposed credit facility is to provide economic benefits for 
all the participating Funds.
    6. Section 18(f)(1) prohibits open-end investment companies from 
issuing any senior security except that a company is permitted to 
borrow from any bank; provided that, immediately after the borrowing, 
there is an asset coverage of at least 300 per centum for all 
borrowings of the company. Under section 18(g) of the Act, the term 
``senior security'' includes any bond, debenture, note, or similar 
obligation or instrument constituting a security and evidencing 
indebtedness. Applicants request exemptive relief from section 18(f)(1) 
to the limited extent necessary to implement the credit facility 
(because the lending Funds are not banks).
    7. Applicants believe that granting the relief under section 6(c) 
is appropriate because the Funds would remain subject to the 
requirement of section 18(f)(1) that all borrowings of the Fund, 
including combined credit facility and bank borrowings, have at least 
300% asset coverage. Based on the conditions and safeguards described 
in the application, applicants also submit that to allow the Funds to 
borrow from other Funds pursuant to the proposed credit facility is 
consistent with the purposes and policies of section 18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated persons of an 
affiliated person, when acting as principal, from effecting any joint 
transaction in which the company participates unless the transaction is 
approved by the Commission. Rule 17d-1 provides that in passing upon 
applications for exemptive relief, the Commission will consider whether 
the participation of a registered investment company in a joint 
enterprise on the basis proposed is consistent with the provisions, 
policies, and purposes of the Act and the extent to which the company's 
participation is on a basis different from or less advantageous than 
that of other participants.
    9. Applicants submit that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to investment company insiders. 
Applicants believe that the credit facility is consistent with the 
provisions, policies, and purposes of the Act in that if offers both 
reduced borrowing costs and enhanced returns on loaned funds to all 
participating Funds and their shareholders. Applicants note that each 
Fund would have an equal opportunity to borrow and lend on equal terms 
consistent with its investment policies and fundamental investment 
limitations. Applicants therefore believe that each Fund's 
participation in the credit facility will be on terms which are no 
different from or less advantageous than that of other participating 
Funds.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The Interfund Loan Rate to be charged to the Funds under the 
credit facility will be the average of the Repo Rate and the Bank Loan 
Rate.
    2. On each business day, the Evergreen Adviser will compare the 
Bank Loan Rate with the Repo Rate and will make cash available for 
Interfund Loans only if the Interfund Loan Rate is (a) more favorable 
to the lending Fund than the Repo Rate; (b) more favorable to the 
lending Fund than the yield on the Money Market Funds (``MMF Yield'') 
(for those Funds that invest in the Money Market Funds); and (c) more 
favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund (a) will be at an interest rate equal to or lower than any 
outstanding bank loan; (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan that requires collateral; (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days); and (d) will provide that, if an event 
of default occurs under any agreement evidencing an outstanding bank 
loan to the Fund, the event of that default will automatically (without 
need for action or notice by the lending Fund) constitute an immediate 
event of default under the Interfund Lending Agreement entitling the 
lending Fund to call the Interfund Loan (and exercise all rights with 
respect to any collateral) and that such a call will be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the credit 
facility if its outstanding borrowings from all sources immediately 
after the interfund borrowing total 10% or less of its total assets, 
provided that if the Fund has a secured loan outstanding from any other 
lender, including, but not limited to another Fund, the Fund's 
interfund borrowing will be secured on at least an equal priority basis 
with at least an equivalent percentage of collateral to loan value as 
any outstanding loan that requires collateral. If a Fund's total 
outstanding borrowings immediately after an interfund borrowing would 
be greater than 10% of its total assets, the Fund may borrow through 
the credit facility on a secured basis only. A Fund may not borrow 
through the credit facility or from any other source if its total 
outstanding borrowings immediately after the interfund borrowing would 
exceed the limits imposed by section 18 of the Act.
    5. Before any Fund that has outstanding interfund borrowing may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its 
total assets for any other reason (such as a decline in net asset value 
or because of shareholder redemptions), the Fund will within one 
business day thereafter (a) repay all of its outstanding Interfund 
Loans, (b) reduce its outstanding indebtedness to 10% or less of its 
total assets, or (c) secure each outstanding Interfund Loan by the 
pledge of segregated collateral

[[Page 54309]]

with a market value at least equal to 102% of the outstanding principal 
value of the loan until the Fund's total outstanding borrowings cease 
to exceed 10% of its total assets, at which time the collateral called 
for by this condition 5 will no longer be required. Until each 
Interfund Loan that is outstanding at any time that a Fund's total 
outstanding borrowings exceeds 10% is repaid or the Fund's total 
outstanding borrowings cease to exceed 10% of its total assets, the 
Fund will mark the value of collateral to market each day and will 
pledge such additional collateral as is necessary to maintain market 
value of the collateral that secures each outstanding Interfund Loan at 
least equal to 102% of the outstanding principal value of the loan.
    6. No equity, taxable bond or Money Market Fund may lend to another 
Fund through the credit facility if the loan would cause its aggregate 
outstanding loans through the credit facility to exceed 5%, 7.5% or 10% 
respectively, of its net assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund will not exceed 5% of 
the lending Fund's net assets.
    8. The duration of Interfund Loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other will be 
treated as separate loan transactions for purposes of this condition.
    9. A Fund's borrowings through the credit facility, as measured on 
the day when the most recent loan was made, will not exceed the greater 
of 125% of the Fund's total net cash redemptions and 102% of sales 
fails for the preceding seven calendar days.
    10. Each Interfund Loan may be called on one business day's notice 
by a lending Fund and may be repaid on any day by a borrowing Fund.
    11. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    12. The Cash Management Team will calculate total Fund borrowing 
and lending demand through the credit facility, and allocate loans on 
an equitable basis among the Funds, without the intervention of any 
portfolio manager of the Funds (except any portfolio manager of the 
Money Market Funds acting in her or his capacity as a member of the 
Cash Management Team). All allocations will require the approval of at 
least one member of the Cash Management Team who is not a Money Market 
Fund portfolio manager. The Cash Management Team will not solicit cash 
for the credit facility from any Fund or prospectively publish or 
disseminate loan demand data to portfolio managers (except to the 
extent that the portfolio manager of the Money Market Funds has access 
to loan demand data). The Evergreen Adviser will invest any amounts 
remaining after satisfaction of borrowing demand in accordance with the 
standing instructions from portfolio managers or return remaining 
amounts for investment directly by the portfolio manager of the Money 
Market Funds.
    13. An Evergreen Adviser will monitor the Interfund Loan Rates 
charged and the other terms and conditions of the Interfund Loans and 
will make quarterly reports to the Trustees concerning the 
participation of the Funds in the credit facility and the terms and 
other conditions of any extensions of credit thereunder.
    14. The Trustees, on behalf of each Fund, including a majority of 
the Independent Trustees will: (a) Review no less frequently than 
quarterly the Fund's participation in the credit facility during the 
preceding quarter for compliance with the conditions of any order 
permitting such transactions; (b) establish the Bank Loan Rate formula 
used to determine the Interfund Loan Rate and review no less frequently 
than annually the continuing appropriateness of the Bank Loan Rate 
formula; and (c) review no less frequently than annually the continuing 
appropriateness of the Fund's participation in the credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and such default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, the Evergreen 
Adviser will promptly refer such a loan for arbitration to an 
independent arbitrator selected by the Trustees on behalf of any Fund 
involved in the loan who will also serve as arbitrator of disputes 
concerning Interfund Loans. The arbitrator will resolve any problem 
promptly, and the arbitrator's decision will be binding on both Funds. 
The arbitrator will submit at least annually a written report to the 
Trustees setting forth a description of the nature of any dispute and 
the actions taken by the Funds to resolve the dispute.
    16. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions setting 
forth a description of the terms of the transaction, including the 
amount and maturity of the loan, the Interfund Loan Rate, the rate of 
interest available at the time on short-term repurchase agreements, 
commercial bank borrowings, the MMF Yield and such other information 
presented to the Trustees in connection with the review required by 
conditions 13 and 14.
    17. The Evergreen Adviser will prepare and submit to the Trustees 
for review an initial report describing the operations of the credit 
facility and the procedures to be implemented to ensure that all the 
Funds are treated fairly. After the commencement of the operations of 
the credit facility, Evergreen will report on the operations of the 
credit facility at the Trustees' quarterly meetings.
    In addition, for two years following the commencement of the use of 
the credit facility, the independent public accountant for each Fund 
will prepare an annual report that evaluates Evergreen's assertion that 
it has established procedures reasonably designed to achieve compliance 
with the conditions of the order. The report will be prepared in 
accordance with the Statements on Standards for Attestation Engagements 
No. 3 and it will be filed pursuant to item 77Q3 of Form N-SAR. In 
particular, the report will address procedures designed to achieve the 
following objectives: (a) That the Interfund Loan Rate will be higher 
than the Repo Rate, and the MMF Yield, but lower than the Bank Loan 
Rate; (b) compliance with the collateral requirements as set forth in 
the application; (c) compliance with the percentage limitations on 
interfund borrowing and lending; (d) allocation of interfund borrowing 
and lending demand in an equitable manner and in accordance with the 
procedures established by the Trustees; and (e) that the Interfund Loan 
Rate does not exceed the interest rate on any third party borrowings of 
a borrowing Fund at the time of the Interfund Loan.
    After the final report is filed, the Fund's external auditors, in 
connection with their Fund audit examinations, will continue to review 
the operation of the credit facility for compliance with the conditions 
of the application and their review will form the basis, in part, of 
the auditor's report on internal accounting controls in Form N-SAR.
    18. No Fund will participate in the credit facility unless it has 
fully disclosed in its SAJ all material facts about its intended 
participation.


[[Page 54310]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26961 Filed 10-25-01; 8:45 am]
BILLING CODE 8010-01-M