In re Evergreen Investment Management

 
 
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UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  56462 / September 19, 2007 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No.  2648 / September 19, 2007 
 
INVESTMENT COMPANY ACT OF 1940 
Release No.  27973 / September 19, 2007 
 
ADMINISTRATIVE PROCEEDING 
File            No.            3-12805                                                                                                
 
 
 
 
 
 
 
In the Matter of 
 
Evergreen Investment Management 
Company, LLC, Evergreen Investment 
Services, Inc., Evergreen Service Company, 
LLC and Wachovia Securities, LLC 
 
Respondents. 
 
 
 
 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTIONS 15(b)(4), 17A(c)(3) and 21C OF 
THE SECURITIES EXCHANGE ACT OF 
1934, SECTIONS 203(e) and 203(k) OF 
THE INVESTMENT ADVISERS ACT OF 
1940, AND SECTIONS 9(b) and 9(f) OF 
THE INVESTMENT COMPANY ACT OF 
1940, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS 
AND A CEASE-AND-DESIST ORDER 
 
 
I. 
 
The United States Securities and Exchange Commission (the ACommission@) deems it 
appropriate and in the public interest that administrative and cease-and-desist proceedings 
be, and hereby are, instituted pursuant to Sections 15(b)(4), 17A(c)(3) and 21C of the 
Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(e) and 203(k) of the 
Investment Advisers Act of 1940 (AAdvisers Act@), and Sections 9(b) and 9(f) of the 
Investment Company Act of 1940 (AInvestment Company Act@) against Evergreen 
Investment Management Company, LLC, Evergreen Investment Services, Inc., Evergreen 
Service Company, LLC, and Wachovia Securities, LLC (AEIMCO,@ AEIS,@ "ESC" and 
AWachovia Securities,@ respectively, or individually, ARespondent@; collectively, 
ARespondents@). 
 
II. 

 
 
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In anticipation of the institution of these proceedings, the Respondents have submitted 
an Offer of Settlement (the AOffer@) that the Commission has determined to accept.  Solely 
for the purpose of these proceedings and any other proceedings brought by or on behalf of 
the Commission or in which the Commission is a party, and without admitting or denying 
the findings, except those findings pertaining to the jurisdiction of the Commission over 
Respondents and the subject matter of these proceedings, which are admitted, the 
Respondents consent to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings pursuant to Sections 15(b)(4), 17A(c)(3) and 21C of the Exchange Act, 
Sections 203(e) and 203(k) of the Advisers Act, and Sections 9(b) and 9(f) of the Investment 
Company Act, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist 
Order (AOrder@) as set forth below.  The Order is instituted as to EIMCO pursuant to 
Sections 203(e) and 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the Investment 
Company Act.  The Order is instituted as to EIS pursuant to Section 15(b)(4) and 21C of the 
Exchange Act, Section 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the 
Investment Company Act.  The Order is instituted as to ESC pursuant to Section 17A(c)(3) 
of the Exchange Act, Section 203(k) of the Advisers Act and Section 9(b) of the Investment 
Company Act. The Order is instituted as to Wachovia Securities pursuant to Section 
15(b)(4) of the Exchange Act and Sections 9(b) and 9(f) of the Investment Company Act. 
 
III. 
 
On the basis of this Order and Respondents= Offer, the Commission finds
1
 that: 
 
Summary 
 
1. This proceeding concerns (a) various violations of the federal securities laws  
committed by EIMCO, EIS and ESC in connection with their roles in creating and/or 
implementing two market timing agreements (and the role of Wachovia Securities in 
creating and/or implementing one of those two agreements) that permitted, in each 
case, a registered representative to make, on behalf of certain of his customers, 
frequent trades in certain Evergreen funds in excess of the exchange limits set forth in 
the funds’ prospectuses and (b) EIMCO=s misleading disclosure in fund documents 
concerning exchange limits.  Market timing includes (a) frequent buying and selling of 
shares of the same mutual fund or (b) buying or selling mutual fund shares in order to 
exploit inefficiencies in mutual fund pricing.  Market timing, while not illegal 
per se, 
can harm other mutual fund shareholders because it can dilute the value of their shares, 
if the market timer is exploiting pricing inefficiencies, or disrupt the management of 
the mutual fund=s investment portfolio and can cause the targeted mutual fund to incur 
costs borne by other shareholders to accommodate frequent buying and selling of 
shares by the market timer. 
 
                                                 
1
  The findings herein are made pursuant to the Respondents= Offer and are not binding on any 
other person or entity in this or any other proceeding. 
2. In January 2000, William M. Ennis (AEnnis@), then the senior vice president of 

 
 
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Evergreen Investment Company (AEIC@) but who is no longer an officer, employee or affiliate of 
any Respondent, agreed to permit a registered representative of Wachovia Securities to market 
time one or more Evergreen funds on behalf of certain of his customers even though the 
prospectus for each Evergreen fund limited exchanges to three per calendar quarter and five per 
calendar year.  The registered representative subsequently made approximately 386 exchanges 
into and out of the Evergreen Small Company Growth Fund (now known as the Mid Cap Growth 
Fund) from approximately January 2001 through March 2003.  This timing activity harmed the 
fund.  From January 2001 through March 2003, Ennis signed several Small Company Growth 
Fund registration statements, each of which incorporated the fund=s prospectus and the exchange 
limits contained therein.  At no point during the period in which the registered representative was 
making these exchanges did Ennis or anyone else at Evergreen disclose the market timing 
arrangement to the fund=s board of trustees.  Moreover, in January 1999, EIMCO personnel 
entered into a short-lived agreement with a registered representative of Prudential Securities, Inc. 
(“Prudential Securities”) that permitted the registered representative to exceed the exchange limit 
in the Evergreen Municipal Bond Fund.  
 
3. During the relevant period, EIMCO was responsible for operating each  
Evergreen fund in conformity with the terms of its prospectus.  Beginning at least in September 
1998, EIMCO=s failure to adequately enforce the exchange restrictions set forth in each 
Evergreen fund prospectus resulted in a substantial amount of exchange activity occurring 
beyond those limits in several Evergreen funds.  This excessive exchange activity imposed costs 
and management disruptions on the funds, impaired their performance, rendered their 
prospectuses materially misleading and diluted their value.  At no point during this period did 
EIMCO disclose to any fund board that the prospectus-based exchange restrictions were not 
being enforced.  In addition, during this period, EIMCO either filed or directed EIS to file with 
the Commission registration statements on behalf of each affected fund, all of which 
incorporated the materially misleading exchange limit provision set forth in the fund prospectus. 
  
 
Respondents
 
4.  Evergreen Investment Management Company, LLC is the Boston- 
based registered investment adviser for the Evergreen fund family, one of the 20 largest fund 
groups in the nation.  As of March 31, 2007, EIMCO had more than $312 billion in assets 
under management.   
 
5.  Evergreen Investment Services, Inc. is EIMCO=s affiliated registered broker-
dealer.   
 
6. Evergreen Service Co., LLC is EIMCO=s affiliated registered transfer 
agent.   
 
7. Wachovia Securities, LLC is a Richmond-based 
registered broker-dealer that is a majority-owned subsidiary of Wachovia Corporation. 
 
 
 

 
 
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Related Parties 
 
8.         Evergreen         Investment         Company,         Inc. is a wholly-owned holding 
company subsidiary of Wachovia Corporation, a Charlotte, North Carolina-based company 
whose common stock is registered with the Commission and principally trades on the New 
York Stock Exchange.  EIC owns EIMCO, EIS and ESC (collectively, AEvergreen@).   
 
9. William M. Ennis was employed at Evergreen from 1994 to June 2003, when 
he resigned.  In December 1996, Ennis was named a senior vice president of EIC and, in 
April 2000, Ennis became EIC=s president.  During the relevant period, Ennis served as a 
director of and control person for EIMCO, he supervised the president of EIS, he was the 
president of the Evergreen Equity Trust, a registered investment company of which the 
Small Company Growth Fund was a series, and he functioned as the chief executive officer 
of the Evergreen mutual fund complex.  Ennis is no longer affiliated with any of the 
Respondents.                                    
 
Facts 
 
The Market Timing Agreements
 
10. In January 2000, Evergreen had in place an Aanti-market timing@ policy 
through which it sought to eliminate market timing in the Evergreen funds.  Consistent with 
this policy, each Evergreen fund prospectus contained a provision stating that: AExchanges 
are limited to three per calendar quarter, but in no event more than five per calendar year.@  
In January 2000, Ennis was familiar with the exchange limit provision set forth in the 
Evergreen Small Company Growth Fund prospectus, he understood that a market timer 
might make more than three exchanges per quarter and five per year, and he was aware that 
market timing could impose trading costs on a fund, disrupt fund management and harm 
fund performance.   
 
11. In January 2000, the retail division of Wachovia Securities, then operating 
under the name First Union Securities, Inc. (which was under common control with 
Evergreen at the time), was the number one distributor of Evergreen funds, accounting for 
about $2 billion of the funds= approximately $3 billion in total annual sales.  In early January 
2000, Wachovia Securities= Private Client Group (APCG@), the firm=s non-bank branch based 
division, notified an EIS vice president that it was attempting to recruit a top-producing 
registered representative who was seeking permission to market time one or more Evergreen 
funds on behalf of one or two of his customers.  Convinced that it would otherwise be 
unable to hire the recruit, the PCG asked the EIS vice president if Evergreen would be 
willing to accommodate the recruit=s market timing activity.  The EIS vice president 
presented the PCG=s timing inquiry to EIS= president and to EIMCO=s chief investment 
officer for Equities, both of whom rejected the request.  In an e-mail to several PCG 
officials, the EIS vice president stated that Evergreen would not permit the recruit to time 
any Evergreen fund because Amarket timing . . . detrimentally affect[s] the long-term 
performance of mutual funds.@  Subsequently, at the request of the PCG=s president, the EIS 
vice president presented the timing inquiry to Ennis, who was trying at that time to improve 
Evergreen=s sales and distribution through the PCG channel.  Despite being told by the EIS 

 
 
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vice president that both the EIS president and EIMCO=s chief investment officer for Equities 
had rejected it, Ennis granted the PCG=s timing request.  Noting that the PCG might not land 
the recruit, Ennis ordered that this arrangement be kept confidential, specifically instructing 
that the EIS president not be informed of it.  
 
12. The EIS vice president memorialized the timing agreement in an e-mail to the 
relevant PCG officials, stating AI talked with Bill Ennis about your recruiting situation . . . 
this morning and we are going to make an exception for [the recruit=s] timing business.@   
The EIS vice president then observed that AI know that you understand that to make this type 
of agreement is contrary to [Evergreen=s] philosophy.  However, we also understand that 
[First Union Securities, Inc.] is our captive broker/dealer and we want to be an asset to your 
business as much as possible. . . . I hope that this will be a deciding factor in successfully 
recruiting this broker . . .@  Pointing to the Athe sensitive nature of market-timing @ 
Evergreen,@ the EIS vice president emphasized that this arrangement had to be kept in 
confidence.  
 
13. About a year later, in approximately January 2001, Wachovia Securities 
notified the EIS vice president that the recruit had joined the PCG and that he wished to 
begin market timing the Small Company Growth Fund on behalf of certain of his customers. 
 The EIS vice president then informed a vice president in the ESC, where Evergreen=s 
market timing monitoring operation was located, of the Aspecial arrangement@ Evergreen had 
made to permit the registered representative to exceed the three per quarter and five per year 
exchange limits and instructed her not to interfere with the registered representative=s 
trading.  The ESC vice president complied with this order.  The portfolio manager of the 
Small Company Growth Fund was not made aware of the arrangement. 
 
14. In approximately January 2001, the registered representative began trading in 
the Small Company Growth Fund on behalf of certain of his customers.  From that time 
through March 2003, the registered representative made approximately 386 exchanges into 
and out of the fund, thus greatly exceeding the three per quarter and five per year exchange 
limits set forth in the fund=s prospectus.  The dollar amounts of the registered 
representative=s trades, which ranged from approximately $50,000 to more than $2.2 million, 
averaged about $500,000.  During the period in which the arrangement was in place, the 
registered representative made a cumulative total of approximately $282.4 million worth of 
exchanges into and out of the fund.  In approximately March 2003, after the EIS vice 
president had left Evergreen, the ESC vice president, who had become increasingly 
frustrated over the difficulty of processing the commissions on the registered 
representative=s trades, told him that Evergreen would no longer permit him to exceed its 
exchange limits.  The registered representative then ceased his market timing in the Small 
Company Growth Fund and closed out the account through which the activity had occurred. 
  During the period in which the registered representative timed the Small Company Growth 
Fund, Ennis signed several registration statements on the fund=s behalf, each of which 
incorporated the fund=s prospectus and the exchange limits contained therein.  At no point 
during the period in which the registered representative was making these exchanges did 
Ennis or anyone else at Evergreen disclose the market timing arrangement to the fund=s 
board of trustees.  
 

 
 
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15. On October 31, 2003, EIMCO repaid approximately $379,000 to the Small 
Company Growth Fund, representing EIMCO=s calculation of the registered representative=s 
customers= net gain from the trading under the timing arrangement.  In November 2003, 
EIMCO reimbursed the fund for approximately $25,000 in advisory fees EIMCO received 
and expenses the fund incurred in connection with the trading at issue. 
 
16. In addition to the timing agreement described above, in January 1999, EIMCO  
authorized a registered representative of Prudential Securities to make, on behalf of certain of 
his customers, exchanges into and out of the Evergreen Municipal Bond Fund in excess of the 
prospectus-set limitations.  Pursuant to that authorization, the registered representative made 
exchanges into and out of that fund in excess of the exchange limits before being told to cease 
the activity in approximately March/April 1999.  The registered representative=s trading 
activity during this period harmed the fund. 
 
Evergreen=s Misrepresentation of Its Exchange Limits
 
17. Consistent with its anti-market timing policy, during the relevant period, each 
Evergreen fund prospectus stated that: AExchanges are limited to three per calendar quarter, 
but in no event more than five per calendar year.@  Under the terms of the Investment 
Advisory and Management Agreement between itself and the Evergreen Funds, EIMCO 
assumed responsibility for managing the operation of each Evergreen fund in conformity 
with this prospectus restriction.  During the period in question, EIMCO effectively delegated 
to ESC the responsibility for detecting problematic trading in the Evergreen funds.  Until 
late 1999, ESC=s sole undertaking in this area was to perform a daily review of trading 
activity in the Evergreen funds for the purpose of notifying portfolio managers of 
transactions in their funds over a certain dollar amount.  The amount trigger varied 
depending upon the size of the fund.  For example, as of September 1998, the trading 
activity reviewers would inform the portfolio manager of the Evergreen Fund of any 
transaction in that fund over $3 million.  ESC=s daily trading activity review did nothing to 
stop exchange activity beyond the posted limits in dollar amounts below the trigger and 
would not necessarily impede excessive exchange activity occurring in dollar amounts 
above that level. 
 
18. Beginning in late 1999, ESC=s Field Support Group attempted to combat 
market timing by generating a ALarge Transaction Report@ (ALTR@) each day that set forth all 
purchase and exchange transactions over $100,000 in any Evergreen fund (Aexchange 
transactions@ involve the movement of money between two Evergreen funds and Apurchase 
transactions@ involve the movement of money from outside the Evergreen complex into an 
Evergreen fund).  An ESC employee would review the LTR on a daily basis in an effort to 
identify market timing trading activity.  However, there was an 11 a.m. deadline for 
completing this review and, until ESC streamlined it in early 2002, the LTR contained so 
much data that the monitor was usually unable to examine all of the transactions by that 
hour.  Consequently, the responsible ESC manager instructed the monitor to focus the 
review on purchase activity in Evergreen international funds.  The monitor was often unable 
to examine anything other than this activity by 11 a.m., thus leaving unmonitored all 
exchange activity as well as non-international purchase activity.   
 

 
 
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19. In early 2002, ESC streamlined the LTR and was thus able to typically include 
all purchase and exchange activity in its daily market timing monitoring sweep.  However, 
shortly thereafter, in the middle of 2002, even though it had cancelled several exchanges 
beyond the posted limits in dollar amounts below $250,000 prior to that time, ESC increased 
its monitoring threshold to $250,000.  In early 2003, after some of its employees began to 
suspect that traders were exceeding the exchange limits in dollar amounts below $250,000, 
ESC lowered its review threshold to $50,000.  In addition, in late October 2003, ESC 
adopted policies to enforce the posted limits without regard to the dollar amount of the 
exchange.  In January 2004, EIMCO amended the prospectus of each Evergreen 
international fund to require the imposition of a one percent redemption fee on short-term 
transactions (less than 90 days) in those funds. 
 
20. From at least September 1998 to at least October 2003, EIMCO=s failure to 
adequately enforce the exchange restrictions set forth in each Evergreen fund prospectus 
resulted in a substantial amount of exchange activity occurring beyond those limits in 
several Evergreen funds.  This excessive exchange activity imposed costs and management 
disruptions on the funds, impaired their performance, rendered their prospectuses materially 
misleading and diluted their value.  During this period, EIMCO either filed or directed EIS 
to file with the Commission registration statements on behalf of each of the affected funds, 
all of which incorporated the exchange limit set forth in each fund prospectus.  At no point 
during this period did EIMCO disclose to any fund board that the prospectus-based 
exchange restrictions were not being enforced.  Moreover, during the period in question and 
as recently as July 2003, the portfolio managers of several Evergreen international funds 
repeatedly complained internally (both orally and in writing) to compliance personnel and 
senior ESC and EIMCO officials that fund management was being disrupted and fund 
performance was suffering as a result of what they perceived to be Evergreen=s apparent lack 
of ability or aggressiveness in preventing timing.  
 
21. While a significant number of exchanges beyond the posted limits took place 
in various Evergreen funds from 2000 on, most of the harm resulting from excessive 
exchange activity at issue occurred from September 1, 1998 through December 31, 1999. 
Approximately 90% of the disgorgement amount recited in paragraph IV.G.1 of the Order is 
related to excessive exchange activity from September 1, 1998 through December 31, 1999. 
The portion of the disgorgement amount related to the arrangement permitting exchanges by 
a registered representative in the Small Company Growth Fund, described above, is 
approximately 4%.  After Evergreen began instituting procedures to identify and limit 
excessive trading starting in approximately January 2000, both the number and average size 
of trades in excess of prospectus limits was substantially reduced. 
 
EIS= Failure to Preserve Communications Related to its Business as a Broker-Dealer 
 
22. From at least January 2001 to September 2003, EIS did not preserve certain  
communications relating to its business as a broker-dealer.  Throughout this period, EIS also 
had a policy of instructing employees whose e-mail “in-boxes” had reached their storage 
capacity to create space by either deleting or archiving e-mails.  On a daily basis, the EIS 
computer server made a backup tape of all in-box e-mails.  These backup tapes, however, 
were taped over every 30 days.  As a result, EIS did not preserve certain e-mails related to its 

 
 
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business as such.   
 
Violations 
 
23. As a result of the conduct described above, EIMCO willfully violated Sections  
206(1) and 206(2) of the Advisers Act.  Specifically, through Ennis, EIMCO entered into a 
market timing agreement that created a conflict of interest between itself, which benefited from 
the advisory fees generated by the timing activity as well as from the prospects the timing 
arrangement created for improving its relationship with the PCG, and the Small Company 
Growth Fund, which suffered the dilutive effect of the timing trades and the transaction costs 
related thereto.  Because neither Ennis nor anyone else associated with EIMCO disclosed either 
the PCG timing arrangement or the fact that EIMCO was permitting exchange activity above the 
limits set forth in the Small Company Growth Fund’s prospectus to the fund=s board of trustees, 
EIMCO willfully violated Sections 206(1) and 206(2) of the Advisers Act.  EIMCO also 
willfully violated Section 206(2) of the Advisers Act with respect to its failure to adopt 
procedures to block exchanges beyond the three per quarter and five per year limits set forth in 
each fund prospectus because it negligently failed to disclose to any fund board that it was not 
enforcing the prospectus-based exchange limits. 
 
24. As a result of the conduct described above, EIMCO also willfully violated 
Section 34(b) of the Investment Company Act.  Specifically, the registration statements 
EIMCO either filed or directed EIS to file on behalf of the Small Company Growth Fund 
and the other Evergreen funds in which excessive exchange activity occurred were 
materially misleading because they incorporated the unenforced exchange limits set forth in 
the fund prospectuses. 
 
25. As a result of the conduct described above, EIS and ESC willfully aided and 
abetted and caused EIMCO=s violations of Sections 206(1) and 206(2) of the Advisers Act. 
 
26. As a result of the conduct described above, Wachovia Securities (then 
operating under the name of First Union Securities, Inc.), which, by virtue of its common 
control with EIMCO, was affiliated with the Small Company Growth Fund, willfully 
violated Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.  
Specifically, by seeking and ultimately entering into an understanding with EIMCO to allow 
the Small Company Growth Fund to be market timed, Wachovia Securities formed a joint 
arrangement with an affiliated fund.  As a result, Wachovia Securities willfully violated 
Section 17(d) and Rule 17d-1 thereunder. 
 
27. By granting Wachovia Securities= request to permit the registered 
representative to market time the Small Company Growth Fund, Ennis and, through him, 
EIMCO and EIS willfully aided and abetted and caused Wachovia Securities= violation of 
Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.  
 
28. EIS willfully violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder by failing to preserve certain communications related to its business as such, 
including e-mails, for a period of three years. 
 

 
 
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Undertakings
 
29. Compliance and Ethics Oversight Structure.  Through 2012, EIMCO shall 
maintain a compliance and ethics oversight infrastructure having the following 
characteristics: 
 
a. EIMCO shall maintain a Code of Ethics Oversight Committee having 
responsibility for all matters relating to issues arising under EIMCO=s 
Code of Ethics.  The Code of Ethics Oversight Committee shall be 
comprised of senior executives of EIMCO=s operating businesses.  
EIMCO shall hold at least quarterly meetings of the Code of Ethics 
Oversight Committee to review violations of the Code of Ethics, as 
well as to consider policy matters relating to the Code of Ethics.  
EIMCO shall report on issues arising under the Code of Ethics, 
including all violations thereof, to the board of Trustees of each 
Evergreen fund with such frequency as such board may instruct, and, in 
any event, at least quarterly, provided, however, that any material 
violation shall be reported promptly. 
 
b. EIMCO shall maintain an Internal Compliance Controls Committee to 
be chaired by EIMCO=s Chief Compliance Officer, which Committee 
shall have as its members senior executives of EIMCO=s operating 
businesses.  The Internal Compliance Controls Committee shall review 
compliance issues throughout the business of EIMCO, endeavor to 
develop solutions to those issues as they may arise from time to time, 
and oversee the implementation of those solutions.  The Internal 
Compliance Controls Committee shall provide reports on internal 
compliance matters to the board of Trustees of each Evergreen fund 
with such frequency as the independent Trustees of each such fund may 
instruct and, in any event, at least quarterly.  The Internal Controls 
Committee may also serve as EIMCO=s Code of Ethics Oversight 
Committee. 
 
c. EIMCO shall require its Chief Compliance Officer to report to the 
independent Trustees of each Evergreen fund any breach of a fiduciary 
duty or of a federal securities law of which he or she becomes aware in 
the course of carrying out his or her duties, with such frequency as the 
independent Trustees may instruct, and, in any event, at least quarterly, 
provided, however, that any material breach (i.e., any breach that would 
be important, qualitatively or quantitatively, to a reasonable Trustee) 
shall be reported promptly.   
 
30. Independent Compliance Consultant.   
 
a. EIMCO, EIS and ESC shall retain, within 30 days of the date of entry of the 
Order, the services of an Independent Compliance Consultant not unacceptable 
to the staff of the Commission or to a majority of the independent Trustees of 

 
 
10 
any Evergreen fund.  The Independent Compliance Consultant's compensation 
and expenses shall be borne exclusively by EIMCO or its affiliates.  EIMCO, 
EIS and ESC shall require the Independent Compliance Consultant to conduct 
a comprehensive review of EIMCO, EIS and ESC=s supervisory, compliance, 
and other policies and procedures designed to prevent and detect breaches of 
fiduciary duty, breaches of the Code of Ethics and federal securities law 
violations by EIMCO, ESC, EIS and their employees.  This review shall 
include, but shall not be limited to, a review of EIMCO, EIS and ESC=s market 
timing controls across all areas of its business, a review of EIMCO, EIS and 
ESC=s policies and procedures for enforcing any limit on trading activity set 
forth in any Evergreen fund prospectus, a review of any EIMCO=s funds' 
pricing practices that may make those funds vulnerable to market timing, a 
review of each Evergreen fund=s utilization of short-term trading fees and other 
controls for deterring excessive short-term trading, and a review of EIMCO, 
EIS and ESC=s policies and procedures concerning conflicts of interest.  
EIMCO, EIS and ESC shall cooperate fully with the Independent Compliance 
Consultant and shall provide the Independent Compliance Consultant with 
access to files, books, records, and personnel as reasonably requested for the 
review.  
 
b. EIMCO, EIS and ESC shall require that, at the conclusion of the review, which 
in no event shall be more than 180 days after the date of entry of the Order, the 
Independent Compliance Consultant shall submit a Report to it, the Trustees of 
each Evergreen fund, and the staff of the Commission.  The Report shall 
address the issues described in the subparagraph set forth above, and shall 
include a description of the review performed, the conclusions reached, the 
Independent Compliance Consultant's recommendations for changes in or 
improvements to policies and procedures of EIMCO, EIS, ESC and each 
Evergreen fund, and a procedure for implementing the recommended changes 
in or improvements to those policies and procedures.  
 
c. EIMCO, EIS and ESC shall adopt all recommendations contained in the Report 
of the Independent Compliance Consultant; provided, however, that, within 
210 days after the date of entry of the Order, EIMCO, EIS and ESC shall, in 
writing, advise the Independent Compliance Consultant, the Trustees of each 
Evergreen fund and the staff of the Commission of any recommendations that 
one or more of them considers to be unnecessary or inappropriate.  With 
respect to any such recommendation, EIMCO, EIS or ESC need not adopt that 
recommendation at that time but shall propose, in writing, an alternative 
policy, procedure or system designed to achieve the same objective or purpose.  
 
d. As to any recommendation with respect to EIMCO, EIS or ESC=s policies and 
procedures on which EIMCO, EIS or ESC and the Independent Compliance 
Consultant do not agree, such parties shall attempt in good faith to reach an 
agreement within 240 days of the date of entry of the Order.  In the event 
EIMCO, EIS or ESC and the Independent Compliance Consultant are unable to 

 
 
11 
agree on an alternative proposal, EIMCO, EIS or ESC will abide by the 
determinations of the Independent Compliance Consultant.  
 
e. Neither EIMCO, EIS nor ESC, either acting alone or in concert, (i) shall have 
the authority to terminate the Independent Compliance Consultant, without the 
prior written approval of the majority of the independent Trustees of each 
Evergreen fund and the staff of the Commission.  EIMCO shall compensate the 
Independent Compliance Consultant, and persons engaged to assist the 
Independent Compliance Consultant, for services rendered pursuant to the 
Order at their reasonable and customary rates.  Neither EIMCO, EIS nor ESC 
shall be in or have an attorney-client relationship with the Independent 
Compliance Consultant and neither EIMCO, EIS nor ESC shall seek to invoke 
the attorney-client or any other doctrine or privilege to prevent the Independent 
Compliance Consultant from transmitting any information, reports, or 
documents to the Trustees or to the Commission.  
 
f. EIMCO, EIS and ESC shall require that the Independent Compliance 
Consultant, for the period of the engagement and for a period of two years 
from completion of the engagement, shall not enter into any employment, 
consultant, attorney-client, auditing or other professional relationship with 
EIMCO, EIS, ESC or any of their present or former affiliates, directors, 
officers, employees, or agents acting in their capacity as such.  EIMCO, EIS 
and ESC shall require that any firm with which the Independent Compliance 
Consultant is affiliated in the performance of his or her duties under the Order 
shall not, without prior written consent of the independent Trustees and the 
staff of the Commission, enter into any employment, consultant, attorney-
client, auditing or other professional relationship with EIMCO, EIS or ESC or 
any of their present or former affiliates, directors, officers, employees, or 
agents acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement.  
 
31. Periodic Compliance Review.  In 2010 and again in 2012, EIMCO, EIS and 
ESC shall undergo a compliance review by a third party, who is not an interested person, as 
defined in the Investment Company Act, of EIMCO.  At the conclusion of the review, the 
third party shall issue a report of its findings and recommendations concerning EIMCO, EIS 
and ESC=s supervisory, compliance, and other policies and procedures designed to prevent 
and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities 
law violations by EIMCO, EIS, ESC and their employees in connection with their duties and 
activities on behalf of and related to any Evergreen fund.  Each such report shall be 
promptly delivered to EIMCO=s Code of Ethics Oversight Committee, its Internal 
Compliance Controls Committee and to the Audit Committee of the board of Trustees of 
each Evergreen fund.  
 
32. 
Independent Distribution Consultant.  EIMCO shall retain, within 30 days of 
the date of entry of the Order, the services of an Independent Distribution Consultant not 
unacceptable to the staff of the Commission or to the majority of the independent Trustees 
of any Evergreen fund.  The Independent Distribution Consultant's compensation and 

 
 
12 
expenses shall be borne exclusively by EIMCO.  EIMCO, EIS and ESC shall cooperate fully 
with the Independent Distribution Consultant and shall comply with all of the Independent 
Distribution Consultant=s reasonable requests for access to their files, books, records, and 
personnel.  EIMCO shall require that the Independent Distribution Consultant develop a 
Distribution Plan for the distribution of all of the disgorgement and penalties ordered in 
paragraph IV.G.1. of this Order, and any interest or earnings thereon, as well as for the 
distribution of all of the disgorgement and penalties ordered in paragraph IV.G. of the Order 
Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and 
Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b)(6) 
and 17A(c)(4)(C) of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of the 
Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act 
of 1940 in the Matter of William M. Ennis (Athe Ennis Order@), and any interest or earnings 
thereon, according to a methodology developed in consultation with EIMCO and not 
unacceptable to the staff of the Commission and to a majority of the independent Trustees of 
each Evergreen fund.   
 
a. EIMCO shall require that the Independent Distribution Consultant 
submit a Distribution Plan to it and to the staff of the Commission no 
more than 100 days after the date of entry of the Order.  
 
b. The Distribution Plan developed by the Independent Distribution 
Consultant shall be binding unless, within 130 days after the date of 
entry of the Order, EIMCO or the staff of the Commission advises, in 
writing, the Independent Distribution Consultant of any determination 
or calculation from the Distribution Plan that it considers to be 
inappropriate and states in writing the reasons for considering such 
determination or calculation inappropriate. 
 
c. With respect to any determination or calculation with which EIMCO or 
the staff of the Commission do not agree, such parties shall attempt in 
good faith to reach an agreement within 160 days of the date of entry of 
the Order. In the event that EIMCO and the staff of the Commission are 
unable to agree on an alternative determination or calculation, the 
determinations and calculations of the Independent Distribution 
Consultant shall be binding.  
 
d. Within 175 days of the date of entry of the Order, EIMCO shall require 
that the Independent Distribution Consultant submit to the Commission 
the Distribution Plan for the administration and distribution of 
disgorgement and penalty funds pursuant to Rule 1101 [17 C.F.R. ' 
201.1101] of the Commission's Rules Regarding Fair Fund and 
Disgorgement Plans.  Following a Commission order approving a final 
plan of distribution, as provided in Rule 1104 [17 C.F.R. ' 201.1104] of 
the Commission's Rules Regarding Fair Fund and Disgorgement Plans, 
EIMCO shall require that the Independent Distribution Consultant, with 
EIMCO, take all necessary and appropriate steps to assist in the 
administration of the final Distribution Plan.  The costs of 

 
 
13 
administering this distribution, including the payment of any applicable 
taxes as well as the payment of the fees of any Tax Administrator, shall 
be borne exclusively by EIMCO. 
 
e. EIMCO shall require that the Independent Distribution Consultant, for 
the period of the engagement and for a period of two years from 
completion of the engagement, not enter into any employment, 
consultant, attorney-client, auditing or other professional relationship 
with EIMCO, or any of its present or former affiliates, directors, 
officers, employees, or agents acting in their capacity as such.  EIMCO 
shall require that any firm with which the Independent Distribution 
Consultant is affiliated in the performance of his or her duties under the 
Order not, without prior written consent of a majority of the 
independent Trustees of each Evergreen fund and the staff of the 
Commission, enter into any employment, consultant, attorney-client, 
auditing or other professional relationship with EIMCO, or any of its 
present or former affiliates, directors, officers, employees, or agents 
acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement. 
 
33. 
Certification.  No later than twenty-four months after the date of entry of the 
Order, the chief executive officer of Respondents EIMCO, EIS, and ESC shall each certify 
to the Commission, in writing, that Respondent has fully adopted and complied in all 
material respects with the undertakings set forth in this section and with the 
recommendations of the Independent Compliance Consultant or, in the event of material 
non-adoption or non-compliance, shall describe such material non-adoption and non-
compliance.  
 
34. Recordkeeping.  Respondents EIMCO, EIS, and ESC shall each preserve for a 
period not less than six years from the end of the fiscal year last used, the first two years in 
an easily accessible place, any record of Respondent=s compliance with the undertakings set 
forth above.  
 
35. Deadlines.  For good cause shown, the Commission's staff may extend any of 
the procedural dates set forth above.  
 
 
IV. 
 
In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in the Respondents= Offer.  In determining to accept the 
Offer, the Commission considered the cooperation the Respondents have demonstrated 
throughout the investigation.  It is hereby ORDERED that:  
 
A.  Pursuant to Section 203(e) of the Advisers Act, EIMCO is hereby censured.  
Pursuant to Section 15(b)(4) of the Exchange Act, EIS is hereby censured.  
Pursuant to Section 17A(c)(3) of the Exchange Act, ESC is hereby censured.  

 
 
14 
Pursuant to Section 15(b)(4) of the Exchange Act, Wachovia Securities is 
hereby censured.  
 
B. Pursuant to Section 203(k) of the Advisers Act, EIMCO shall cease and desist 
from committing or causing any violations and any future violations of 
Sections 206(1) and 206(2) of the Advisers Act.  Pursuant to Section 9(f) of the 
Investment Company Act, EIMCO shall cease and desist from committing or 
causing any violations and any future violations of Sections 17(d) and 34(b) of 
the Investment Company Act and Rule 17d-1 thereunder.  
 
C. Pursuant to Section 21C of the Exchange Act, EIS shall cease and desist from 
committing or causing any violations and any future violations of Section 17(a) 
of the Exchange Act and Rule 17a-4 thereunder.  Pursuant to Section 203(k) of 
the Advisers Act, EIS shall cease and desist from causing any violations and 
any future violations of Sections 206(1) and 206(2) of the Advisers Act.  
Pursuant to Section 9(f) of the Investment Company Act, EIS shall cease and 
desist from committing or causing any violations and any future violations of 
Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.   
 
D. Pursuant to Section 203(k) of the Advisers Act, ESC shall cease and desist 
from causing any violations and any future violations of Sections 206(1) and 
206(2) of the Advisers Act. 
 
E. Pursuant to Section 9(f) of the Investment Company Act, Wachovia Securities 
shall cease and desist from committing or causing any violations and any 
future violations of Section 17(d) of the Investment Company Act and Rule 
17d-1 thereunder. 
 
F. EIMCO, EIS and ESC shall comply with the undertakings set forth above. 
 
G. Disgorgement and Civil Money Penalties
 
1. Within ten days of the entry of this Order, Respondent EIMCO shall 
pay disgorgement in the total amount of $28,503,276 and, pursuant to 
Sections 203(e) and 203(i) of the Advisers Act and Sections 9(b) and 
9(d) of the Investment Company Act, a civil penalty in the amount of 
$1,500,000, Respondent EIS shall pay disgorgement in the amount of 
$1 and, pursuant to Section 21B(a) of the Exchange Act and Sections 
9(b) and 9(d) of the Investment Company Act, a civil penalty in the 
amount of $1,500,000, Respondent ESC shall pay disgorgement in the 
amount of $1 and, pursuant to Sections 9(b) and 9(d) of the Investment 
Company Act, a civil penalty in the amount of $500,000, and 
Respondent Wachovia Securities shall pay disgorgement in the amount 
of $1 and, pursuant to Sections 9(b) and 9(d) of the Investment 
Company Act, a civil penalty in the amount of $500,000.  All of the 
payments referred to above shall be:  (A) made by United States postal 
money order, certified check, bank cashier=s check or bank money 

 
 
15 
order; (B) made payable to the Securities and Exchange Commission; 
(C) hand-delivered or mailed to the Office of Financial Management, 
Securities and Exchange Commission, Operations Center, 6432 General 
Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under 
cover letter that identifies the Respondent making the payment, the file 
number of these proceedings, a copy of which cover letter and money 
order or check shall be sent to David P. Bergers, Regional Director, 
Securities and Exchange Commission, 33 Arch Street, 23
rd
 Floor, 
Boston, Massachusetts, 02110.   
 
 2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 
2002, a Fair Fund established for the funds described in paragraph 
IV.G.1.  Regardless of whether any distribution is made from such Fair 
Fund, amounts ordered to be paid as civil money penalties pursuant to 
this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of 
the civil penalties, Respondents EIMCO, EIS, ESC and Wachovia 
Securities agree that they shall not, after offset or reduction in any 
Related Investor Action based on either EIMCO, EIS, ESC or 
Wachovia Securities= payment of disgorgement in this action, further 
benefit by offset or reduction of any part of EIMCO, EIS, ESC or 
Wachovia Securities= payment of civil penalties in this action (APenalty 
Offset@).  If the court in any Related Investor Action grants such a 
Penalty Offset, EIMCO, EIS, ESC and Wachovia Securities agree that 
they shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission's counsel in this action and pay 
the amount of the Penalty Offset to the United States Treasury or to a 
Fair Fund, as the Commission directs.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change 
the amount of the civil penalties imposed in this proceeding.  For 
purposes of this paragraph, a ARelated Investor Action@ means a private 
damages action brought against EIMCO, EIS, ESC, Wachovia  

 
 
16 
Securities or their affiliates, or all of them, by or on behalf of one or 
more investors based on substantially the same facts as alleged in the 
Order instituted by the Commission in this proceeding.   
 
By the Commission. 
Nancy M. Morris  
        Secretary 
 

1 

UNITED STATES OF AMERICA 
Before the 

SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  56462 / September 19, 2007 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No.  2648 / September 19, 2007 

 
INVESTMENT COMPANY ACT OF 1940 
Release No.  27973 / September 19, 2007 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-12805        

 
  

 
 
 
 
In the Matter of 
 
Evergreen Investment Management 
Company, LLC, Evergreen Investment 
Services, Inc., Evergreen Service Company, 
LLC and Wachovia Securities, LLC 
 
Respondents. 
 
 
 

 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTIONS 15(b)(4), 17A(c)(3) and 21C OF 
THE SECURITIES EXCHANGE ACT OF 
1934, SECTIONS 203(e) and 203(k) OF 
THE INVESTMENT ADVISERS ACT OF 
1940, AND SECTIONS 9(b) and 9(f) OF 
THE INVESTMENT COMPANY ACT OF 
1940, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS 
AND A CEASE-AND-DESIST ORDER 
 

 
I. 
 

The United States Securities and Exchange Commission (the ACommission@) deems it 
appropriate and in the public interest that administrative and cease-and-desist proceedings 
be, and hereby are, instituted pursuant to Sections 15(b)(4), 17A(c)(3) and 21C of the 
Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(e) and 203(k) of the 
Investment Advisers Act of 1940 (AAdvisers Act@), and Sections 9(b) and 9(f) of the 
Investment Company Act of 1940 (AInvestment Company Act@) against Evergreen 
Investment Management Company, LLC, Evergreen Investment Services, Inc., Evergreen 
Service Company, LLC, and Wachovia Securities, LLC (AEIMCO,@ AEIS,@ "ESC" and 
AWachovia Securities,@ respectively, or individually, ARespondent@; collectively, 
ARespondents@). 

 
II. 



 
 2 

 
In anticipation of the institution of these proceedings, the Respondents have submitted 

an Offer of Settlement (the AOffer@) that the Commission has determined to accept.  Solely 
for the purpose of these proceedings and any other proceedings brought by or on behalf of 
the Commission or in which the Commission is a party, and without admitting or denying 
the findings, except those findings pertaining to the jurisdiction of the Commission over 
Respondents and the subject matter of these proceedings, which are admitted, the 
Respondents consent to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings pursuant to Sections 15(b)(4), 17A(c)(3) and 21C of the Exchange Act, 
Sections 203(e) and 203(k) of the Advisers Act, and Sections 9(b) and 9(f) of the Investment 
Company Act, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist 
Order (AOrder@) as set forth below.  The Order is instituted as to EIMCO pursuant to 
Sections 203(e) and 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the Investment 
Company Act.  The Order is instituted as to EIS pursuant to Section 15(b)(4) and 21C of the 
Exchange Act, Section 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the 
Investment Company Act.  The Order is instituted as to ESC pursuant to Section 17A(c)(3) 
of the Exchange Act, Section 203(k) of the Advisers Act and Section 9(b) of the Investment 
Company Act. The Order is instituted as to Wachovia Securities pursuant to Section 
15(b)(4) of the Exchange Act and Sections 9(b) and 9(f) of the Investment Company Act. 
 

III. 
 

On the basis of this Order and Respondents= Offer, the Commission finds1 that: 

 
Summary 

 
1. This proceeding concerns (a) various violations of the federal securities laws  
committed by EIMCO, EIS and ESC in connection with their roles in creating and/or 
implementing two market timing agreements (and the role of Wachovia Securities in 
creating and/or implementing one of those two agreements) that permitted, in each 
case, a registered representative to make, on behalf of certain of his customers, 
frequent trades in certain Evergreen funds in excess of the exchange limits set forth in 
the funds’ prospectuses and (b) EIMCO=s misleading disclosure in fund documents 
concerning exchange limits.  Market timing includes (a) frequent buying and selling of 
shares of the same mutual fund or (b) buying or selling mutual fund shares in order to 
exploit inefficiencies in mutual fund pricing.  Market timing, while not illegal per se, 
can harm other mutual fund shareholders because it can dilute the value of their shares, 
if the market timer is exploiting pricing inefficiencies, or disrupt the management of 
the mutual fund=s investment portfolio and can cause the targeted mutual fund to incur 
costs borne by other shareholders to accommodate frequent buying and selling of 
shares by the market timer. 

 

                                                 
1  The findings herein are made pursuant to the Respondents= Offer and are not binding on any 
other person or entity in this or any other proceeding. 

2. In January 2000, William M. Ennis (AEnnis@), then the senior vice president of 



 
 3 

Evergreen Investment Company (AEIC@) but who is no longer an officer, employee or affiliate of 
any Respondent, agreed to permit a registered representative of Wachovia Securities to market 
time one or more Evergreen funds on behalf of certain of his customers even though the 
prospectus for each Evergreen fund limited exchanges to three per calendar quarter and five per 
calendar year.  The registered representative subsequently made approximately 386 exchanges 
into and out of the Evergreen Small Company Growth Fund (now known as the Mid Cap Growth 
Fund) from approximately January 2001 through March 2003.  This timing activity harmed the 
fund.  From January 2001 through March 2003, Ennis signed several Small Company Growth 
Fund registration statements, each of which incorporated the fund=s prospectus and the exchange 
limits contained therein.  At no point during the period in which the registered representative was 
making these exchanges did Ennis or anyone else at Evergreen disclose the market timing 
arrangement to the fund=s board of trustees.  Moreover, in January 1999, EIMCO personnel 
entered into a short-lived agreement with a registered representative of Prudential Securities, Inc. 
(“Prudential Securities”) that permitted the registered representative to exceed the exchange limit 
in the Evergreen Municipal Bond Fund.  

 
3. During the relevant period, EIMCO was responsible for operating each  

Evergreen fund in conformity with the terms of its prospectus.  Beginning at least in September 
1998, EIMCO=s failure to adequately enforce the exchange restrictions set forth in each 
Evergreen fund prospectus resulted in a substantial amount of exchange activity occurring 
beyond those limits in several Evergreen funds.  This excessive exchange activity imposed costs 
and management disruptions on the funds, impaired their performance, rendered their 
prospectuses materially misleading and diluted their value.  At no point during this period did 
EIMCO disclose to any fund board that the prospectus-based exchange restrictions were not 
being enforced.  In addition, during this period, EIMCO either filed or directed EIS to file with 
the Commission registration statements on behalf of each affected fund, all of which 
incorporated the materially misleading exchange limit provision set forth in the fund prospectus. 
  

 
Respondents

 
4.  Evergreen Investment Management Company, LLC is the Boston- 

based registered investment adviser for the Evergreen fund family, one of the 20 largest fund 
groups in the nation.  As of March 31, 2007, EIMCO had more than $312 billion in assets 
under management.   
 

5.  Evergreen Investment Services, Inc. is EIMCO=s affiliated registered broker-
dealer.   
 

6. Evergreen Service Co., LLC is EIMCO=s affiliated registered transfer 
agent.   
 

7. Wachovia Securities, LLC is a Richmond-based 
registered broker-dealer that is a majority-owned subsidiary of Wachovia Corporation. 

 
 
 



 
 4 

Related Parties 
 

8. Evergreen Investment Company, Inc. is a wholly-owned holding 
company subsidiary of Wachovia Corporation, a Charlotte, North Carolina-based company 
whose common stock is registered with the Commission and principally trades on the New 
York Stock Exchange.  EIC owns EIMCO, EIS and ESC (collectively, AEvergreen@).   
 

9. William M. Ennis was employed at Evergreen from 1994 to June 2003, when 
he resigned.  In December 1996, Ennis was named a senior vice president of EIC and, in 
April 2000, Ennis became EIC=s president.  During the relevant period, Ennis served as a 
director of and control person for EIMCO, he supervised the president of EIS, he was the 
president of the Evergreen Equity Trust, a registered investment company of which the 
Small Company Growth Fund was a series, and he functioned as the chief executive officer 
of the Evergreen mutual fund complex.  Ennis is no longer affiliated with any of the 
Respondents.   
 

Facts 
 

The Market Timing Agreements
 

10. In January 2000, Evergreen had in place an Aanti-market timing@ policy 
through which it sought to eliminate market timing in the Evergreen funds.  Consistent with 
this policy, each Evergreen fund prospectus contained a provision stating that: AExchanges 
are limited to three per calendar quarter, but in no event more than five per calendar year.@  
In January 2000, Ennis was familiar with the exchange limit provision set forth in the 
Evergreen Small Company Growth Fund prospectus, he understood that a market timer 
might make more than three exchanges per quarter and five per year, and he was aware that 
market timing could impose trading costs on a fund, disrupt fund management and harm 
fund performance.   
 

11. In January 2000, the retail division of Wachovia Securities, then operating 
under the name First Union Securities, Inc. (which was under common control with 
Evergreen at the time), was the number one distributor of Evergreen funds, accounting for 
about $2 billion of the funds= approximately $3 billion in total annual sales.  In early January 
2000, Wachovia Securities= Private Client Group (APCG@), the firm=s non-bank branch based 
division, notified an EIS vice president that it was attempting to recruit a top-producing 
registered representative who was seeking permission to market time one or more Evergreen 
funds on behalf of one or two of his customers.  Convinced that it would otherwise be 
unable to hire the recruit, the PCG asked the EIS vice president if Evergreen would be 
willing to accommodate the recruit=s market timing activity.  The EIS vice president 
presented the PCG=s timing inquiry to EIS= president and to EIMCO=s chief investment 
officer for Equities, both of whom rejected the request.  In an e-mail to several PCG 
officials, the EIS vice president stated that Evergreen would not permit the recruit to time 
any Evergreen fund because Amarket timing . . . detrimentally affect[s] the long-term 
performance of mutual funds.@  Subsequently, at the request of the PCG=s president, the EIS 
vice president presented the timing inquiry to Ennis, who was trying at that time to improve 
Evergreen=s sales and distribution through the PCG channel.  Despite being told by the EIS 



 
 5 

vice president that both the EIS president and EIMCO=s chief investment officer for Equities 
had rejected it, Ennis granted the PCG=s timing request.  Noting that the PCG might not land 
the recruit, Ennis ordered that this arrangement be kept confidential, specifically instructing 
that the EIS president not be informed of it.  
 

12. The EIS vice president memorialized the timing agreement in an e-mail to the 
relevant PCG officials, stating AI talked with Bill Ennis about your recruiting situation . . . 
this morning and we are going to make an exception for [the recruit=s] timing business.@   
The EIS vice president then observed that AI know that you understand that to make this type 
of agreement is contrary to [Evergreen=s] philosophy.  However, we also understand that 
[First Union Securities, Inc.] is our captive broker/dealer and we want to be an asset to your 
business as much as possible. . . . I hope that this will be a deciding factor in successfully 
recruiting this broker . . .@  Pointing to the Athe sensitive nature of market-timing @ 
Evergreen,@ the EIS vice president emphasized that this arrangement had to be kept in 
confidence.  
 

13. About a year later, in approximately January 2001, Wachovia Securities 
notified the EIS vice president that the recruit had joined the PCG and that he wished to 
begin market timing the Small Company Growth Fund on behalf of certain of his customers. 
 The EIS vice president then informed a vice president in the ESC, where Evergreen=s 
market timing monitoring operation was located, of the Aspecial arrangement@ Evergreen had 
made to permit the registered representative to exceed the three per quarter and five per year 
exchange limits and instructed her not to interfere with the registered representative=s 
trading.  The ESC vice president complied with this order.  The portfolio manager of the 
Small Company Growth Fund was not made aware of the arrangement. 
 

14. In approximately January 2001, the registered representative began trading in 
the Small Company Growth Fund on behalf of certain of his customers.  From that time 
through March 2003, the registered representative made approximately 386 exchanges into 
and out of the fund, thus greatly exceeding the three per quarter and five per year exchange 
limits set forth in the fund=s prospectus.  The dollar amounts of the registered 
representative=s trades, which ranged from approximately $50,000 to more than $2.2 million, 
averaged about $500,000.  During the period in which the arrangement was in place, the 
registered representative made a cumulative total of approximately $282.4 million worth of 
exchanges into and out of the fund.  In approximately March 2003, after the EIS vice 
president had left Evergreen, the ESC vice president, who had become increasingly 
frustrated over the difficulty of processing the commissions on the registered 
representative=s trades, told him that Evergreen would no longer permit him to exceed its 
exchange limits.  The registered representative then ceased his market timing in the Small 
Company Growth Fund and closed out the account through which the activity had occurred. 
  During the period in which the registered representative timed the Small Company Growth 
Fund, Ennis signed several registration statements on the fund=s behalf, each of which 
incorporated the fund=s prospectus and the exchange limits contained therein.  At no point 
during the period in which the registered representative was making these exchanges did 
Ennis or anyone else at Evergreen disclose the market timing arrangement to the fund=s 
board of trustees.  
 



 
 6 

15. On October 31, 2003, EIMCO repaid approximately $379,000 to the Small 
Company Growth Fund, representing EIMCO=s calculation of the registered representative=s 
customers= net gain from the trading under the timing arrangement.  In November 2003, 
EIMCO reimbursed the fund for approximately $25,000 in advisory fees EIMCO received 
and expenses the fund incurred in connection with the trading at issue. 
 

16. In addition to the timing agreement described above, in January 1999, EIMCO  
authorized a registered representative of Prudential Securities to make, on behalf of certain of 
his customers, exchanges into and out of the Evergreen Municipal Bond Fund in excess of the 
prospectus-set limitations.  Pursuant to that authorization, the registered representative made 
exchanges into and out of that fund in excess of the exchange limits before being told to cease 
the activity in approximately March/April 1999.  The registered representative=s trading 
activity during this period harmed the fund. 

 
Evergreen=s Misrepresentation of Its Exchange Limits

 
17. Consistent with its anti-market timing policy, during the relevant period, each 

Evergreen fund prospectus stated that: AExchanges are limited to three per calendar quarter, 
but in no event more than five per calendar year.@  Under the terms of the Investment 
Advisory and Management Agreement between itself and the Evergreen Funds, EIMCO 
assumed responsibility for managing the operation of each Evergreen fund in conformity 
with this prospectus restriction.  During the period in question, EIMCO effectively delegated 
to ESC the responsibility for detecting problematic trading in the Evergreen funds.  Until 
late 1999, ESC=s sole undertaking in this area was to perform a daily review of trading 
activity in the Evergreen funds for the purpose of notifying portfolio managers of 
transactions in their funds over a certain dollar amount.  The amount trigger varied 
depending upon the size of the fund.  For example, as of September 1998, the trading 
activity reviewers would inform the portfolio manager of the Evergreen Fund of any 
transaction in that fund over $3 million.  ESC=s daily trading activity review did nothing to 
stop exchange activity beyond the posted limits in dollar amounts below the trigger and 
would not necessarily impede excessive exchange activity occurring in dollar amounts 
above that level. 
 

18. Beginning in late 1999, ESC=s Field Support Group attempted to combat 
market timing by generating a ALarge Transaction Report@ (ALTR@) each day that set forth all 
purchase and exchange transactions over $100,000 in any Evergreen fund (Aexchange 
transactions@ involve the movement of money between two Evergreen funds and Apurchase 
transactions@ involve the movement of money from outside the Evergreen complex into an 
Evergreen fund).  An ESC employee would review the LTR on a daily basis in an effort to 
identify market timing trading activity.  However, there was an 11 a.m. deadline for 
completing this review and, until ESC streamlined it in early 2002, the LTR contained so 
much data that the monitor was usually unable to examine all of the transactions by that 
hour.  Consequently, the responsible ESC manager instructed the monitor to focus the 
review on purchase activity in Evergreen international funds.  The monitor was often unable 
to examine anything other than this activity by 11 a.m., thus leaving unmonitored all 
exchange activity as well as non-international purchase activity.   
 



 
 7 

19. In early 2002, ESC streamlined the LTR and was thus able to typically include 
all purchase and exchange activity in its daily market timing monitoring sweep.  However, 
shortly thereafter, in the middle of 2002, even though it had cancelled several exchanges 
beyond the posted limits in dollar amounts below $250,000 prior to that time, ESC increased 
its monitoring threshold to $250,000.  In early 2003, after some of its employees began to 
suspect that traders were exceeding the exchange limits in dollar amounts below $250,000, 
ESC lowered its review threshold to $50,000.  In addition, in late October 2003, ESC 
adopted policies to enforce the posted limits without regard to the dollar amount of the 
exchange.  In January 2004, EIMCO amended the prospectus of each Evergreen 
international fund to require the imposition of a one percent redemption fee on short-term 
transactions (less than 90 days) in those funds. 
 

20. From at least September 1998 to at least October 2003, EIMCO=s failure to 
adequately enforce the exchange restrictions set forth in each Evergreen fund prospectus 
resulted in a substantial amount of exchange activity occurring beyond those limits in 
several Evergreen funds.  This excessive exchange activity imposed costs and management 
disruptions on the funds, impaired their performance, rendered their prospectuses materially 
misleading and diluted their value.  During this period, EIMCO either filed or directed EIS 
to file with the Commission registration statements on behalf of each of the affected funds, 
all of which incorporated the exchange limit set forth in each fund prospectus.  At no point 
during this period did EIMCO disclose to any fund board that the prospectus-based 
exchange restrictions were not being enforced.  Moreover, during the period in question and 
as recently as July 2003, the portfolio managers of several Evergreen international funds 
repeatedly complained internally (both orally and in writing) to compliance personnel and 
senior ESC and EIMCO officials that fund management was being disrupted and fund 
performance was suffering as a result of what they perceived to be Evergreen=s apparent lack 
of ability or aggressiveness in preventing timing.  
 

21. While a significant number of exchanges beyond the posted limits took place 
in various Evergreen funds from 2000 on, most of the harm resulting from excessive 
exchange activity at issue occurred from September 1, 1998 through December 31, 1999. 
Approximately 90% of the disgorgement amount recited in paragraph IV.G.1 of the Order is 
related to excessive exchange activity from September 1, 1998 through December 31, 1999. 
The portion of the disgorgement amount related to the arrangement permitting exchanges by 
a registered representative in the Small Company Growth Fund, described above, is 
approximately 4%.  After Evergreen began instituting procedures to identify and limit 
excessive trading starting in approximately January 2000, both the number and average size 
of trades in excess of prospectus limits was substantially reduced. 
 

EIS= Failure to Preserve Communications Related to its Business as a Broker-Dealer 
 

22. From at least January 2001 to September 2003, EIS did not preserve certain  
communications relating to its business as a broker-dealer.  Throughout this period, EIS also 
had a policy of instructing employees whose e-mail “in-boxes” had reached their storage 
capacity to create space by either deleting or archiving e-mails.  On a daily basis, the EIS 
computer server made a backup tape of all in-box e-mails.  These backup tapes, however, 
were taped over every 30 days.  As a result, EIS did not preserve certain e-mails related to its 



 
 8 

business as such.   
 

Violations 
 

23. As a result of the conduct described above, EIMCO willfully violated Sections  
206(1) and 206(2) of the Advisers Act.  Specifically, through Ennis, EIMCO entered into a 
market timing agreement that created a conflict of interest between itself, which benefited from 
the advisory fees generated by the timing activity as well as from the prospects the timing 
arrangement created for improving its relationship with the PCG, and the Small Company 
Growth Fund, which suffered the dilutive effect of the timing trades and the transaction costs 
related thereto.  Because neither Ennis nor anyone else associated with EIMCO disclosed either 
the PCG timing arrangement or the fact that EIMCO was permitting exchange activity above the 
limits set forth in the Small Company Growth Fund’s prospectus to the fund=s board of trustees, 
EIMCO willfully violated Sections 206(1) and 206(2) of the Advisers Act.  EIMCO also 
willfully violated Section 206(2) of the Advisers Act with respect to its failure to adopt 
procedures to block exchanges beyond the three per quarter and five per year limits set forth in 
each fund prospectus because it negligently failed to disclose to any fund board that it was not 
enforcing the prospectus-based exchange limits. 

 
24. As a result of the conduct described above, EIMCO also willfully violated 

Section 34(b) of the Investment Company Act.  Specifically, the registration statements 
EIMCO either filed or directed EIS to file on behalf of the Small Company Growth Fund 
and the other Evergreen funds in which excessive exchange activity occurred were 
materially misleading because they incorporated the unenforced exchange limits set forth in 
the fund prospectuses. 
 

25. As a result of the conduct described above, EIS and ESC willfully aided and 
abetted and caused EIMCO=s violations of Sections 206(1) and 206(2) of the Advisers Act. 
 

26. As a result of the conduct described above, Wachovia Securities (then 
operating under the name of First Union Securities, Inc.), which, by virtue of its common 
control with EIMCO, was affiliated with the Small Company Growth Fund, willfully 
violated Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.  
Specifically, by seeking and ultimately entering into an understanding with EIMCO to allow 
the Small Company Growth Fund to be market timed, Wachovia Securities formed a joint 
arrangement with an affiliated fund.  As a result, Wachovia Securities willfully violated 
Section 17(d) and Rule 17d-1 thereunder. 

 
27. By granting Wachovia Securities= request to permit the registered 

representative to market time the Small Company Growth Fund, Ennis and, through him, 
EIMCO and EIS willfully aided and abetted and caused Wachovia Securities= violation of 
Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.  
 

28. EIS willfully violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder by failing to preserve certain communications related to its business as such, 
including e-mails, for a period of three years. 
 



 
 9 

Undertakings
 

29. Compliance and Ethics Oversight Structure.  Through 2012, EIMCO shall 
maintain a compliance and ethics oversight infrastructure having the following 
characteristics: 

 
a. EIMCO shall maintain a Code of Ethics Oversight Committee having 

responsibility for all matters relating to issues arising under EIMCO=s 
Code of Ethics.  The Code of Ethics Oversight Committee shall be 
comprised of senior executives of EIMCO=s operating businesses.  
EIMCO shall hold at least quarterly meetings of the Code of Ethics 
Oversight Committee to review violations of the Code of Ethics, as 
well as to consider policy matters relating to the Code of Ethics.  
EIMCO shall report on issues arising under the Code of Ethics, 
including all violations thereof, to the board of Trustees of each 
Evergreen fund with such frequency as such board may instruct, and, in 
any event, at least quarterly, provided, however, that any material 
violation shall be reported promptly. 

 
b. EIMCO shall maintain an Internal Compliance Controls Committee to 

be chaired by EIMCO=s Chief Compliance Officer, which Committee 
shall have as its members senior executives of EIMCO=s operating 
businesses.  The Internal Compliance Controls Committee shall review 
compliance issues throughout the business of EIMCO, endeavor to 
develop solutions to those issues as they may arise from time to time, 
and oversee the implementation of those solutions.  The Internal 
Compliance Controls Committee shall provide reports on internal 
compliance matters to the board of Trustees of each Evergreen fund 
with such frequency as the independent Trustees of each such fund may 
instruct and, in any event, at least quarterly.  The Internal Controls 
Committee may also serve as EIMCO=s Code of Ethics Oversight 
Committee. 

 
c. EIMCO shall require its Chief Compliance Officer to report to the 

independent Trustees of each Evergreen fund any breach of a fiduciary 
duty or of a federal securities law of which he or she becomes aware in 
the course of carrying out his or her duties, with such frequency as the 
independent Trustees may instruct, and, in any event, at least quarterly, 
provided, however, that any material breach (i.e., any breach that would 
be important, qualitatively or quantitatively, to a reasonable Trustee) 
shall be reported promptly.   

 
30. Independent Compliance Consultant.   

 
a. EIMCO, EIS and ESC shall retain, within 30 days of the date of entry of the 

Order, the services of an Independent Compliance Consultant not unacceptable 
to the staff of the Commission or to a majority of the independent Trustees of 



 
 10 

any Evergreen fund.  The Independent Compliance Consultant's compensation 
and expenses shall be borne exclusively by EIMCO or its affiliates.  EIMCO, 
EIS and ESC shall require the Independent Compliance Consultant to conduct 
a comprehensive review of EIMCO, EIS and ESC=s supervisory, compliance, 
and other policies and procedures designed to prevent and detect breaches of 
fiduciary duty, breaches of the Code of Ethics and federal securities law 
violations by EIMCO, ESC, EIS and their employees.  This review shall 
include, but shall not be limited to, a review of EIMCO, EIS and ESC=s market 
timing controls across all areas of its business, a review of EIMCO, EIS and 
ESC=s policies and procedures for enforcing any limit on trading activity set 
forth in any Evergreen fund prospectus, a review of any EIMCO=s funds' 
pricing practices that may make those funds vulnerable to market timing, a 
review of each Evergreen fund=s utilization of short-term trading fees and other 
controls for deterring excessive short-term trading, and a review of EIMCO, 
EIS and ESC=s policies and procedures concerning conflicts of interest.  
EIMCO, EIS and ESC shall cooperate fully with the Independent Compliance 
Consultant and shall provide the Independent Compliance Consultant with 
access to files, books, records, and personnel as reasonably requested for the 
review.  

 
b. EIMCO, EIS and ESC shall require that, at the conclusion of the review, which 

in no event shall be more than 180 days after the date of entry of the Order, the 
Independent Compliance Consultant shall submit a Report to it, the Trustees of 
each Evergreen fund, and the staff of the Commission.  The Report shall 
address the issues described in the subparagraph set forth above, and shall 
include a description of the review performed, the conclusions reached, the 
Independent Compliance Consultant's recommendations for changes in or 
improvements to policies and procedures of EIMCO, EIS, ESC and each 
Evergreen fund, and a procedure for implementing the recommended changes 
in or improvements to those policies and procedures.  

 
c. EIMCO, EIS and ESC shall adopt all recommendations contained in the Report 

of the Independent Compliance Consultant; provided, however, that, within 
210 days after the date of entry of the Order, EIMCO, EIS and ESC shall, in 
writing, advise the Independent Compliance Consultant, the Trustees of each 
Evergreen fund and the staff of the Commission of any recommendations that 
one or more of them considers to be unnecessary or inappropriate.  With 
respect to any such recommendation, EIMCO, EIS or ESC need not adopt that 
recommendation at that time but shall propose, in writing, an alternative 
policy, procedure or system designed to achieve the same objective or purpose.  

 
d. As to any recommendation with respect to EIMCO, EIS or ESC=s policies and 

procedures on which EIMCO, EIS or ESC and the Independent Compliance 
Consultant do not agree, such parties shall attempt in good faith to reach an 
agreement within 240 days of the date of entry of the Order.  In the event 
EIMCO, EIS or ESC and the Independent Compliance Consultant are unable to 



 
 11 

agree on an alternative proposal, EIMCO, EIS or ESC will abide by the 
determinations of the Independent Compliance Consultant.  

 
e. Neither EIMCO, EIS nor ESC, either acting alone or in concert, (i) shall have 

the authority to terminate the Independent Compliance Consultant, without the 
prior written approval of the majority of the independent Trustees of each 
Evergreen fund and the staff of the Commission.  EIMCO shall compensate the 
Independent Compliance Consultant, and persons engaged to assist the 
Independent Compliance Consultant, for services rendered pursuant to the 
Order at their reasonable and customary rates.  Neither EIMCO, EIS nor ESC 
shall be in or have an attorney-client relationship with the Independent 
Compliance Consultant and neither EIMCO, EIS nor ESC shall seek to invoke 
the attorney-client or any other doctrine or privilege to prevent the Independent 
Compliance Consultant from transmitting any information, reports, or 
documents to the Trustees or to the Commission.  

 
f. EIMCO, EIS and ESC shall require that the Independent Compliance 

Consultant, for the period of the engagement and for a period of two years 
from completion of the engagement, shall not enter into any employment, 
consultant, attorney-client, auditing or other professional relationship with 
EIMCO, EIS, ESC or any of their present or former affiliates, directors, 
officers, employees, or agents acting in their capacity as such.  EIMCO, EIS 
and ESC shall require that any firm with which the Independent Compliance 
Consultant is affiliated in the performance of his or her duties under the Order 
shall not, without prior written consent of the independent Trustees and the 
staff of the Commission, enter into any employment, consultant, attorney-
client, auditing or other professional relationship with EIMCO, EIS or ESC or 
any of their present or former affiliates, directors, officers, employees, or 
agents acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement.  

 
31. Periodic Compliance Review.  In 2010 and again in 2012, EIMCO, EIS and 

ESC shall undergo a compliance review by a third party, who is not an interested person, as 
defined in the Investment Company Act, of EIMCO.  At the conclusion of the review, the 
third party shall issue a report of its findings and recommendations concerning EIMCO, EIS 
and ESC=s supervisory, compliance, and other policies and procedures designed to prevent 
and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities 
law violations by EIMCO, EIS, ESC and their employees in connection with their duties and 
activities on behalf of and related to any Evergreen fund.  Each such report shall be 
promptly delivered to EIMCO=s Code of Ethics Oversight Committee, its Internal 
Compliance Controls Committee and to the Audit Committee of the board of Trustees of 
each Evergreen fund.  
 

32. Independent Distribution Consultant.  EIMCO shall retain, within 30 days of 
the date of entry of the Order, the services of an Independent Distribution Consultant not 
unacceptable to the staff of the Commission or to the majority of the independent Trustees 
of any Evergreen fund.  The Independent Distribution Consultant's compensation and 



 
 12 

expenses shall be borne exclusively by EIMCO.  EIMCO, EIS and ESC shall cooperate fully 
with the Independent Distribution Consultant and shall comply with all of the Independent 
Distribution Consultant=s reasonable requests for access to their files, books, records, and 
personnel.  EIMCO shall require that the Independent Distribution Consultant develop a 
Distribution Plan for the distribution of all of the disgorgement and penalties ordered in 
paragraph IV.G.1. of this Order, and any interest or earnings thereon, as well as for the 
distribution of all of the disgorgement and penalties ordered in paragraph IV.G. of the Order 
Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and 
Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b)(6) 
and 17A(c)(4)(C) of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of the 
Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act 
of 1940 in the Matter of William M. Ennis (Athe Ennis Order@), and any interest or earnings 
thereon, according to a methodology developed in consultation with EIMCO and not 
unacceptable to the staff of the Commission and to a majority of the independent Trustees of 
each Evergreen fund.   
 

a. EIMCO shall require that the Independent Distribution Consultant 
submit a Distribution Plan to it and to the staff of the Commission no 
more than 100 days after the date of entry of the Order.  

 
b. The Distribution Plan developed by the Independent Distribution 

Consultant shall be binding unless, within 130 days after the date of 
entry of the Order, EIMCO or the staff of the Commission advises, in 
writing, the Independent Distribution Consultant of any determination 
or calculation from the Distribution Plan that it considers to be 
inappropriate and states in writing the reasons for considering such 
determination or calculation inappropriate. 

 
c. With respect to any determination or calculation with which EIMCO or 

the staff of the Commission do not agree, such parties shall attempt in 
good faith to reach an agreement within 160 days of the date of entry of 
the Order. In the event that EIMCO and the staff of the Commission are 
unable to agree on an alternative determination or calculation, the 
determinations and calculations of the Independent Distribution 
Consultant shall be binding.  

 
d. Within 175 days of the date of entry of the Order, EIMCO shall require 

that the Independent Distribution Consultant submit to the Commission 
the Distribution Plan for the administration and distribution of 
disgorgement and penalty funds pursuant to Rule 1101 [17 C.F.R. ' 
201.1101] of the Commission's Rules Regarding Fair Fund and 
Disgorgement Plans.  Following a Commission order approving a final 
plan of distribution, as provided in Rule 1104 [17 C.F.R. ' 201.1104] of 
the Commission's Rules Regarding Fair Fund and Disgorgement Plans, 
EIMCO shall require that the Independent Distribution Consultant, with 
EIMCO, take all necessary and appropriate steps to assist in the 
administration of the final Distribution Plan.  The costs of 



 
 13 

administering this distribution, including the payment of any applicable 
taxes as well as the payment of the fees of any Tax Administrator, shall 
be borne exclusively by EIMCO. 

 
e. EIMCO shall require that the Independent Distribution Consultant, for 

the period of the engagement and for a period of two years from 
completion of the engagement, not enter into any employment, 
consultant, attorney-client, auditing or other professional relationship 
with EIMCO, or any of its present or former affiliates, directors, 
officers, employees, or agents acting in their capacity as such.  EIMCO 
shall require that any firm with which the Independent Distribution 
Consultant is affiliated in the performance of his or her duties under the 
Order not, without prior written consent of a majority of the 
independent Trustees of each Evergreen fund and the staff of the 
Commission, enter into any employment, consultant, attorney-client, 
auditing or other professional relationship with EIMCO, or any of its 
present or former affiliates, directors, officers, employees, or agents 
acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement. 

 
33. Certification.  No later than twenty-four months after the date of entry of the 

Order, the chief executive officer of Respondents EIMCO, EIS, and ESC shall each certify 
to the Commission, in writing, that Respondent has fully adopted and complied in all 
material respects with the undertakings set forth in this section and with the 
recommendations of the Independent Compliance Consultant or, in the event of material 
non-adoption or non-compliance, shall describe such material non-adoption and non-
compliance.  
 

34. Recordkeeping.  Respondents EIMCO, EIS, and ESC shall each preserve for a 
period not less than six years from the end of the fiscal year last used, the first two years in 
an easily accessible place, any record of Respondent=s compliance with the undertakings set 
forth above.  
 

35. Deadlines.  For good cause shown, the Commission's staff may extend any of 
the procedural dates set forth above.  

 
 

IV. 
 

In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in the Respondents= Offer.  In determining to accept the 
Offer, the Commission considered the cooperation the Respondents have demonstrated 
throughout the investigation.  It is hereby ORDERED that:  
 

A.  Pursuant to Section 203(e) of the Advisers Act, EIMCO is hereby censured.  
Pursuant to Section 15(b)(4) of the Exchange Act, EIS is hereby censured.  
Pursuant to Section 17A(c)(3) of the Exchange Act, ESC is hereby censured.  



 
 14 

Pursuant to Section 15(b)(4) of the Exchange Act, Wachovia Securities is 
hereby censured.  

 
B. Pursuant to Section 203(k) of the Advisers Act, EIMCO shall cease and desist 

from committing or causing any violations and any future violations of 
Sections 206(1) and 206(2) of the Advisers Act.  Pursuant to Section 9(f) of the 
Investment Company Act, EIMCO shall cease and desist from committing or 
causing any violations and any future violations of Sections 17(d) and 34(b) of 
the Investment Company Act and Rule 17d-1 thereunder.  

 
C. Pursuant to Section 21C of the Exchange Act, EIS shall cease and desist from 

committing or causing any violations and any future violations of Section 17(a) 
of the Exchange Act and Rule 17a-4 thereunder.  Pursuant to Section 203(k) of 
the Advisers Act, EIS shall cease and desist from causing any violations and 
any future violations of Sections 206(1) and 206(2) of the Advisers Act.  
Pursuant to Section 9(f) of the Investment Company Act, EIS shall cease and 
desist from committing or causing any violations and any future violations of 
Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.   

 
D. Pursuant to Section 203(k) of the Advisers Act, ESC shall cease and desist 

from causing any violations and any future violations of Sections 206(1) and 
206(2) of the Advisers Act. 

 
E. Pursuant to Section 9(f) of the Investment Company Act, Wachovia Securities 

shall cease and desist from committing or causing any violations and any 
future violations of Section 17(d) of the Investment Company Act and Rule 
17d-1 thereunder. 

 
F. EIMCO, EIS and ESC shall comply with the undertakings set forth above. 

 
G. Disgorgement and Civil Money Penalties

 
1. Within ten days of the entry of this Order, Respondent EIMCO shall 

pay disgorgement in the total amount of $28,503,276 and, pursuant to 
Sections 203(e) and 203(i) of the Advisers Act and Sections 9(b) and 
9(d) of the Investment Company Act, a civil penalty in the amount of 
$1,500,000, Respondent EIS shall pay disgorgement in the amount of 
$1 and, pursuant to Section 21B(a) of the Exchange Act and Sections 
9(b) and 9(d) of the Investment Company Act, a civil penalty in the 
amount of $1,500,000, Respondent ESC shall pay disgorgement in the 
amount of $1 and, pursuant to Sections 9(b) and 9(d) of the Investment 
Company Act, a civil penalty in the amount of $500,000, and 
Respondent Wachovia Securities shall pay disgorgement in the amount 
of $1 and, pursuant to Sections 9(b) and 9(d) of the Investment 
Company Act, a civil penalty in the amount of $500,000.  All of the 
payments referred to above shall be:  (A) made by United States postal 
money order, certified check, bank cashier=s check or bank money 



 
 15 

order; (B) made payable to the Securities and Exchange Commission; 
(C) hand-delivered or mailed to the Office of Financial Management, 
Securities and Exchange Commission, Operations Center, 6432 General 
Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under 
cover letter that identifies the Respondent making the payment, the file 
number of these proceedings, a copy of which cover letter and money 
order or check shall be sent to David P. Bergers, Regional Director, 
Securities and Exchange Commission, 33 Arch Street, 23rd Floor, 
Boston, Massachusetts, 02110.   

 
 2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 

2002, a Fair Fund established for the funds described in paragraph 
IV.G.1.  Regardless of whether any distribution is made from such Fair 
Fund, amounts ordered to be paid as civil money penalties pursuant to 
this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes.  To preserve the deterrent effect of 
the civil penalties, Respondents EIMCO, EIS, ESC and Wachovia 
Securities agree that they shall not, after offset or reduction in any 
Related Investor Action based on either EIMCO, EIS, ESC or 
Wachovia Securities= payment of disgorgement in this action, further 
benefit by offset or reduction of any part of EIMCO, EIS, ESC or 
Wachovia Securities= payment of civil penalties in this action (APenalty 
Offset@).  If the court in any Related Investor Action grants such a 
Penalty Offset, EIMCO, EIS, ESC and Wachovia Securities agree that 
they shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission's counsel in this action and pay 
the amount of the Penalty Offset to the United States Treasury or to a 
Fair Fund, as the Commission directs.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change 
the amount of the civil penalties imposed in this proceeding.  For 
purposes of this paragraph, a ARelated Investor Action@ means a private 
damages action brought against EIMCO, EIS, ESC, Wachovia  



 
 16 

Securities or their affiliates, or all of them, by or on behalf of one or 
more investors based on substantially the same facts as alleged in the 
Order instituted by the Commission in this proceeding.   

 
By the Commission. 

Nancy M. Morris  
        Secretary 
 



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    /NLD (Gebruik deze instellingen om Adobe PDF-documenten te maken voor kwaliteitsafdrukken op desktopprinters en proofers. De gemaakte PDF-documenten kunnen worden geopend met Acrobat en Adobe Reader 5.0 en hoger.)
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    /ENU (Use these settings to create Adobe PDF documents for quality printing on desktop printers and proofers.  Created PDF documents can be opened with Acrobat and Adobe Reader 5.0 and later.)
  >>
  /Namespace [
    (Adobe)
    (Common)
    (1.0)
  ]
  /OtherNamespaces [
    <<
      /AsReaderSpreads false
      /CropImagesToFrames true
      /ErrorControl /WarnAndContinue
      /FlattenerIgnoreSpreadOverrides false
      /IncludeGuidesGrids false
      /IncludeNonPrinting false
      /IncludeSlug false
      /Namespace [
        (Adobe)
        (InDesign)
        (4.0)
      ]
      /OmitPlacedBitmaps false
      /OmitPlacedEPS false
      /OmitPlacedPDF false
      /SimulateOverprint /Legacy
    >>
    <<
      /AddBleedMarks false
      /AddColorBars false
      /AddCropMarks false
      /AddPageInfo false
      /AddRegMarks false
      /ConvertColors /NoConversion
      /DestinationProfileName ()
      /DestinationProfileSelector /NA
      /Downsample16BitImages true
      /FlattenerPreset <<
        /PresetSelector /MediumResolution
      >>
      /FormElements false
      /GenerateStructure true
      /IncludeBookmarks false
      /IncludeHyperlinks false
      /IncludeInteractive false
      /IncludeLayers false
      /IncludeProfiles true
      /MultimediaHandling /UseObjectSettings
      /Namespace [
        (Adobe)
        (CreativeSuite)
        (2.0)
      ]
      /PDFXOutputIntentProfileSelector /NA
      /PreserveEditing true
      /UntaggedCMYKHandling /LeaveUntagged
      /UntaggedRGBHandling /LeaveUntagged
      /UseDocumentBleed false
    >>
  ]
>> setdistillerparams
<<
  /HWResolution [2400 2400]
  /PageSize [612.000 792.000]
>> setpagedevice