[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
[[Page 56825]]
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
