1933 Act No. 333-37453
1940 Act No. 811-08413
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
EVERGREEN EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 27, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
EVERGREEN EQUITY TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 26
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 26 to Registrant's Registration Statement
No. 333-37453/811-08413 consists of the following pages, items of information
and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for Classes A, B, C and Y of Evergreen Balanced Fund, Evergreen
Foundation Fund and Evergreen Tax Strategic Foundation Fund is contained herein.
Prospectus for Institutional Service shares of Evergreen
Small Cap Value Fund is contained in Post-Effective Amendment
No. 25 to Registration Statement No. 333-37453/811-08413 filed on May 15, 2000
is incorporated by reference.
Prospectus for Institutional Service shares of Evergreen Stock
Selector Fund is contained in Post-Effective Amendment No.
25 to Registration Statement No. 333-37453/811-08413 filed on May 15, 2000 is
incorporated by reference.
Prospectus for Classes A, B, C and Y shares of Evergreen Aggressive
Growth Fund, Evergreen Capital Growth Fund (formerly Mentor Capital Growth
Portfolio), Evergreen Fund, Evergreen Growth Fund (formerly Mentor Growth
Portfolio), Evergreen Masters Fund, Evergreen Omega Fund, Evergreen Small
Company Growth Fund, Evergreen Strategic Growth Fund, Evergreen Stock Selector
Fund and Evergreen Tax Strategic Equity Fund is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference.
Prospectus for Classes A, C and Y shares of Evergreen Capital Income and
Growth Fund (formerly Mentor Income and Growth Portfolio) is contained in Post-
Effective Amendment No. 24 to Registration Statement No. 333-37453/811-08413
filed on January 28, 2000 is incorporated by reference.
Prospectus for Classes A, B, C and Y of Evergreen Health Care Fund
and Evergreen Technology Fund
contained in Post-Effective Amendment No. 23 to
Registration Statement No 333-37453/811-08413 filed on
December 22, 1999 is incorporated by reference.
Prospectus for Classes A, B, C and Y of Evergreen Equity Income Fund, Evergreen
Growth and Income Fund, Evergreen Income and Growth Fund, Evergreen Small Cap
Value Fund, Evergreen Value Fund, Evergreen Utility Fund and Evergreen Blue Chip
Fund contained in Post-Effective Amendment No. 21 to Registration Statement No.
333-37453/811-08413 filed on November 29, 1999 is incorporated
by reference.
PART B
------
Statement of Additional Information for Evergreen Balanced Fund, Evergreen
Foundation Fund and Evergreen Tax Strategic Foundation Fund is
contained herein.
Statement of Additional Information for Evergreen Aggressive Growth Fund,
Evergreen Capital Growth Fund (formerly Mentor Capital Growth Portfolio),
Evergreen Fund, Evergreen Growth Fund (formerly Mentor Growth Portfolio),
Evergreen Masters Fund, Evergreen Omega Fund, Evergreen Small Company
Growth Fund, Evergreen Strategic Growth Fund, Evergreen Stock Selector Fund and
Evergreen Tax Strategic Equity Fund is contained in Post-Effective Amendment No.
24 to Registration Statement No. 333-37453/811-08413 filed on January 28, 2000
is incorporated by reference.
Statement of Additional Information for Evergreen Capital Income and
Growth Fund (formerly Mentor Income and Growth Portfolio) is contained in Post-
Effective Amendment No. 24 to Registration Statement No. 333-37453/811-08413
filed on January 28, 2000 is incorporated by reference.
Statement of Additional Information for Evergreen Health Care Fund and
Evergreen Technology Fund contained in Post-Effective
Amendment No. 23 to Registration Statement No 333-37453/811-08413 filed on
December 22, 1999 is incorporated by reference.
Statement of Additional Information for Evergreen Equity Income Fund,
Evergreen Growth and Income Fund, Evergreen Income and Growth Fund,
Evergreen Small Cap Value Fund, Evergreen Value Fund,
Evergreen Utility Fund and Evergreen Blue Chip Fund contained in
Post-Effective Amendment No. 21 to Registration Statement
No. 333-37453/811-08413 filed on November 29, 1999
is incorporated by reference.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN EQUITY TRUST
PART A
PROSPECTUS
<PAGE>
EVERGREEN BALANCED FUNDS
Evergreen Balanced Fund
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Class A
Class B
Class C
Class Y
Prospectus, August 1, 2000 [LOGO OF EVERGREEN FUNDS]
The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor has it
approved or disapproved these securities. Anyone who tells you otherwise
is committing a crime.
<PAGE>
TABLE OF CONTENTS
FUND RISK/RETURN SUMMARIES:
<TABLE>
<S> <C>
Overview of Fund Risks...................................................... 2
Evergreen Balanced Fund..................................................... 4
Evergreen Foundation Fund................................................... 6
Evergreen Tax Strategic Foundation Fund..................................... 8
GENERAL INFORMATION:
The Funds' Investment Advisors.............................................. 10
The Funds' Portfolio Managers............................................... 10
Calculating the Share Price................................................. 11
How to Choose an Evergreen Fund............................................. 11
How to Choose the Share Class That Best Suits You........................... 12
How to Buy Shares........................................................... 14
How to Redeem Shares........................................................ 15
Other Services.............................................................. 16
The Tax Consequences of Investing in the Funds.............................. 16
Fees and Expenses of the Funds.............................................. 17
Financial Highlights........................................................ 18
Other Fund Practices........................................................ 24
</TABLE>
In general, Funds included in this prospectus provide investors with a selection
of investment alternatives which seek to provide both current income and capital
growth.
Fund Summaries Key
Each Fund's summary is organized around the following basic topics and
questions:
INVESTMENT GOAL
What is the Fund's financial objective? You can find clarification on how
the Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about trying to meet its goals? What types of
investments does it contain? What style of investing and investment
philosophy does it follow? Does it have limits on the amount invested in any
particular type of security?
RISK FACTORS
What are the specific risks for an investor in the Fund?
PERFORMANCE
How well has the Fund performed in the past year? The past five years? The
past ten years?
EXPENSES
How much does it cost to invest in the Fund? What is the difference
between sales charges and expenses?
<PAGE>
OVERVIEW OF FUND RISKS
Balanced
Funds
typically rely on a combination of the following strategies:
. investing a portion of their assets in investment grade debt securities,
which are bonds rated within the four highest ratings categories;
. investing in common stocks, preferred stocks, securities convertible into
or exchangeable for common stocks; and
. selling a portfolio investment: i) when the issuer's investment
fundamentals begin to deteriorate, ii) when the investment reaches or
exceeds its estimated fair value, iii) to take advantage of more attractive
yield opportunities; iv) when the investment no longer appears to meet the
Fund's investment objective; v) when the Fund must meet redemptions; or vi)
for other investment reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
. are seeking a long-term investment offering both current income and the
potential for capital growth.
Following this overview, you will find information on each Fund's specific
investment strategies and risks.
................................................................................
Risk Factors For All Mutual Funds
Please remember that mutual fund
shares are:
. not guaranteed to achieve their
investment goal
. not a deposit with a bank
. not insured, endorsed or guaranteed
by the FDIC or any government agency
. subject to investment risks,
including possible loss of your
original investment
Like most investments, your investment
in a Fund could fluctuate
significantly in value over time and
could result in a loss of money.
Here are the most important factors that may affect the value of your
investment. Other factors may be described in the discussion following this
overview:
Stock Market Risk
Your investment in a Fund will be affected by general economic conditions such
as prevailing economic growth, inflation and interest rates. When economic
growth slows, or interest or inflation rates increase, equity securities tend
to decline in value. Such events could also cause companies to decrease the
dividends they pay. If these events were to occur, the value of and dividend
yield and total return earned on your investment would likely decline. Even if
general economic conditions do not change, your investment may decline in value
if the particular industries, issuers or sectors your Fund invests in do not
perform well.
Interest Rate Risk
When interest rates go up, the value of debt securities and certain dividend
paying stocks tend to fall. Since your Fund invests a significant portion of
its portfolio in debt securities or stocks purchased primarily for dividend
income, if interest rates rise, then the value of and total return earned on
your investment may decline. When interest rates go down, interest earned by
the Fund on its debt securities may also decline, which could cause the Fund to
reduce the dividends it pays.
Credit Risk
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. Since your Fund invests in debt
securities, the value of your investment may decline if an issuer fails to pay
an obligation on a timely basis.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
Fund that invests in these companies to increase in value more rapidly than a
Fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to
BALANCED FUNDS
2
<PAGE>
OVERVIEW OF FUND RISKS
special risks associated with narrower product lines, more limited financial
resources, smaller management groups, and a more limited trading market for
their stocks as compared with larger companies. As a result, stocks of small
and medium capitalization companies may decline significantly in market
downturns.
Investment Style Risk
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform other funds that employ a different style. A Fund may also
employ a combination of styles that impact its risk characteristics. Examples
of different styles include growth and value investing. Growth stocks may be
more volatile than other stocks because they are more sensitive to investor
perceptions of the issuing company's growth of earnings potential. Growth
oriented funds will typically underperform when value investing is in favor.
Value stocks are those which are undervalued in comparison to their peers due
to adverse business developments or other factors. Value oriented funds will
typically underperform when growth investing is in favor.
BALANCED FUNDS
3
<PAGE>
EVERGREEN
Balanced Fund
FUND FACTS:
Goal:
. Current Income
Principal Investments:
. Common and Preferred Stocks
. Investment Grade Debt Securities
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
. Class Y
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Managers:
. Patricia Bannan, CFA
. Gary E. Pzegeo, CFA
NASDAQ Symbols:
. EKBAX (Class A)
. EKBBX (Class B)
. EKBYX (Class Y)
Dividend Payment Schedule:
. Quarterly
INVESTMENT GOAL
The Fund seeks current income.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests in a combination of equity and debt securities chosen
primarily for the potential for current income and secondarily, to the extent
consistent with the Fund's investment objective, for their potential for
capital growth.
The Fund invests at least 50% of its assets in equity securities including both
common and preferred stocks. The Fund's stock selection is based on quality,
"blue chip" large capitalization companies with strong fundamentals and growth
prospects with valuations that leave ample room for appreciation. The portfolio
manager attempts to identify companies that will at the very least meet
expectations, but will hopefully exceed expectation. The Fund's portfolio
manager employs a growth style of equity management. "Growth" stocks are stocks
of companies which the Fund's portfolio manager believes have anticipated
earnings ranging from steady to accelerated growth.
The Fund invests at least 25% of its assets in debt securities, including both
secured and unsecured bonds and debentures. Bonds are selected based on the
portfolio manager's estimate of risk adjusted return for individual securities
and their projections for trends in interest rates, credit quality, yield curve
shape, market volatility and liquidity. The Fund typically buys investment
grade debt securities which are those rated within the top four categories of
nationally recognized statistical ratings organizations, or if unrated, then
determined to be of a comparable quality. In addition, the Fund may purchase
below-investment grade debt securities rated in the next three categories or
determined to be of comparable quality. The average maturity and duration of
the fixed income portion of the Fund are 9.5 years and 5.2 years, respectively.
The Fund may invest in certain types of derivative instruments, including
mortgage-related securities, such as collateralized mortgage obligations.
The Fund may invest up to 25% of its assets in foreign securities.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Interest Rate Risk
. Credit Risk
. Market Capitalization Risk
. Investment Style Risk
Below investment grade bonds are commonly referred to as "junk bonds" because
they are usually backed by issuers of less proven or questionable financial
strength. Such issuers are more vulnerable to financial setbacks and less
certain to pay interest and principal than issuers of bonds offering lower
yields and risk. Markets may react to unfavorable news about issuers of below
investment grade bonds causing sudden and steep declines in value.
Like other debt securities, changes in interest rates generally affect the
value of mortgage-backed securities. Additionally, some mortgage backed
securities may be structured so that they may be particularly sensitive to
interest rates. Early repayment of mortgages underlying these securities may
expose the Fund to a lower rate of return when it reinvests the principal.
The Fund's investment in non-U.S. securities could expose it to certain unique
risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. In addition, if the value of any foreign currency
in which the Fund's investments are denominated declines relative to the U.S.
dollar, the value of your investment in the Fund may decline as well. Certain
foreign countries have less developed and less regulated securities markets and
accounting systems than the U.S. This may make it harder to get accurate
information about a security or company, and increase the likelihood that an
investment will not perform as well as expected.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
BALANCED FUNDS
4
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class B shares of the
Fund in each of the last ten calendar years. It should give you a general idea
of the risks of investing in the Fund by showing how the Fund's return has
varied from year-to-year. This table includes the effects of Fund expenses, but
not sales charges. Returns would be lower if sales charges were included.
Year-by-Year Total Return for Class B Shares (%)
[GRAPH]
1990 -1.78%
1991 24.00%
1992 3.50%
1993 10.33%
1994 -4.68%
1995 27.13%
1996 15.81%
1997 19.01%
1998 12.74%
1999 11.08%
Best Quarter: 2nd Quarter 1997 +10.35%
Worst Quarter: 3rd Quarter 1990 -7.03%
Year-to-date total return through 6/30/2000 was 1.25%.
The next table lists the Fund's average annual total return by class over the
past one, five and ten year periods and since inception (through 12/31/1999),
including applicable sales charges. This table is intended to provide you with
some indication of the risks of investing in the Fund by comparing its
performance with the S&P 500 Index and Lehman Brothers Government/Corporate
Bond Index (LBGCB). The S&P 500 Index is an unmanaged market value-weighted
index measuring the performance of 500 U.S. stocks chosen for market size,
liquidity, and industry group representation. LBGCB is an unmanaged fixed
income index that includes investment grade fixed-rate U.S. government, U.S.
government agency and corporate securities. An index does not include
transactions costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of 10 Since
Class 1 year 5 year year 9/11/1935
<S> <C> <C> <C> <C> <C>
Class A 1/20/1998 6.58% 16.71% 11.59% 8.70%
Class B 9/11/1935 6.28% 16.80% 11.27% 8.58%
Class C 1/22/1998 9.08% 16.99% 11.24% 8.54%
Class Y 1/26/1998 12.22% 18.15% 12.40% 8.85%
S&P 500 21.04% 28.56% 18.21% 12.44%
LBGCB -2.15% 7.61% 7.65% N/A
</TABLE>
* Historical performance shown for Classes A, C, and Y prior to their inception
is based on the performance of Class B, the original class offered. These
historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fees for
Class A are 0.25% and 1.00% for Classes B and C. Class Y does not pay a 12b-1
fee. If these fees had not been adjusted, returns would have been lower for
Classes A and Y.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum sales 4.75% None None None
charge imposed
on purchases (as
a % of offering
price)
Maximum deferred None* 5.00% 2.00% None
sales charge (as
a % of either
the redemption
amount or
initial
investment,
whichever is
lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses
<S> <C> <C> <C> <C>
Class A 0.34% 0.25% 0.32% 0.91%
Class B 0.34% 1.00% 0.32% 1.66%
Class C 0.34% 1.00% 0.32% 1.66%
Class Y 0.34% 0.00% 0.32% 0.66%
</TABLE>
+Restated for the fiscal year ended 3/31/2000 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three- five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption Assuming No
At End of Period Redemption
--------------------------------------------- ---------------------
After: Class A Class B Class C Class Y Class B Class C
<S> <C> <C> <C> <C> <C> <C>
1 year $563 $669 $369 $67 $169 $169
3 years $751 $823 $523 $211 $523 $523
5 years $955 $1,102 $902 $368 $902 $902
10 years $1,541 $1,672 $1,965 $822 $1,672 $1,965
</TABLE>
BALANCED FUNDS
5
<PAGE>
EVERGREEN
Foundation Fund
FUND FACTS:
Goals:
. Capital Growth
. Conservation of Capital
. Reasonable Income
Principal Investments:
. Common and Preferred Stocks
. U.S. Treasury and Agency Obligations
. Investment Grade Debt Securities
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
. Class Y
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Managers:
. Jean C. Ledford, CFA
. Richard S. Welsh
NASDAQ Symbols:
. EFOAX (Class A)
. EFOBX (Class B)
. EFOCX (Class C)
. EFONX (Class Y)
Dividend Payment Schedule:
. Quarterly
................................................................................
INVESTMENT GOAL
The Fund seeks to achieve in order of priority: capital growth, conservation of
capital and reasonable income.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests in a combination of equity and debt securities. Under normal
conditions, the Fund will invest at least 25% of its assets in debt securities
and the remainder in equity securities.
The equity securities that the Fund invests in will primarily consist of the
common stocks, preferred stocks and securities convertible or exchangeable for
common stocks of large U.S. companies. The Fund's portfolio managers select
stocks using a "growth-at-a-reasonable-price" method. This style of diversified
equity management is best defined as a blend between growth and value stocks.
"Growth" stocks are stocks of companies which the Fund's portfolio managers
believe have anticipated earnings ranging from steady to accelerated growth.
"Value" stocks are stocks of companies which the Fund's portfolio managers
believe are undervalued. The Fund's investment in equity securities will be on
the basis of the potential for capital growth. Common stocks are selected based
on a combination of financial strength and estimated growth potential.
The Fund's fixed income portion will include corporate debt securities,
securities issued by the U.S. treasury or by an agency or instrumentality of
the U.S. government, bank obligations, and high quality commercial paper. The
corporate debt securities that the Fund may invest in will be of investment
grade quality rated in the top three categories of a nationally recognized
statistical ratings organization, or if unrated, then determined to be of a
comparable quality. Bonds are selected based on the portfolio manager's
projections of interest rates, varying amounts and maturities in order to
achieve capital protection and, when possible, capital growth. The Fund is not
managed with a targeted maturity.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Interest Rate Risk
.Credit Risk
.Market Capitalization Risk
.Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
BALANCED FUNDS
6
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class Y shares of the
Fund in each calendar year since the Class Y shares' inception on 1/2/1990. It
should give you a general idea of the risks of investing in the Fund by showing
how the Fund's return has varied from year-to-year. This table includes the
effects of Fund expenses.
Year-by-Year Total Return for Class Y Shares (%)
[GRAPH]
1991 36.36%
1992 19.99%
1993 15.71%
1994 -1.10%
1995 29.70%
1996 11.50%
1997 25.56%
1998 -12.21%
1999 13.69%
Best Quarter: 4th Quarter 1999 +11.74%
Worst Quarter: 3rd Quarter 1998 -6.16%
Year-to-date total return through 6/30/2000 was -0.79%.
The next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund by comparing its performance
with the S&P 500 Index and Lehman Brothers Government/Corporate Bond Index
(LBGCB). The S&P 500 Index is an unmanaged market value-weighted index
measuring the performance of 500 U.S. stocks chosen for market size, liquidity,
and industry group representation. LBGCB is an unmanaged fixed income index
that includes investment grade fixed-rate U.S. government, U.S. government
agency and corporate securities. An index does not include transactions costs
associated with buying and selling securities or any mutual fund expenses. It
is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 1/2/1990
<S> <C> <C> <C> <C> <C>
Class A 1/3/1995 7.94% 16.89% N/A 15.86%
Class B 1/3/1995 7.54% 16.92% N/A 15.98%
Class C 1/3/1995 10.49% 17.10% N/A 15.96%
Class Y 1/2/1990 13.69% 18.32% N/A 16.57%
S&P 500 21.04% 28.56% N/A 19.21%
LBGCB -2.15% 7.61% N/A 7.87%
</TABLE>
* Historical performance shown for Classes A, B and C prior to their inception
is based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B, and C have not been adjusted to reflect
the effect of each class' 12b-1 fees. These fees for Class A are 0.25% and
1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If these fees
had been reflected, returns would have been lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum sales 4.75% None None None
charge imposed
on purchases (as
a % of offering
price)
Maximum deferred None* 5.00% 2.00% None
sales charge (as
a % of either
the redemption
amount or
initial
investment,
whichever is
lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses
<S> <C> <C> <C> <C>
Class A 0.64% 0.25% 0.32% 1.21%
Class B 0.64% 1.00% 0.32% 1.96%
Class C 0.64% 1.00% 0.32% 1.96%
Class Y 0.64% 0.00% 0.32% 0.96%
</TABLE>
+Restated for the fiscal year ended 3/31/2000 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption Assuming No
At End of Period Redemption
--------------------------------------------- ---------------------
After: Class A Class B Class C Class Y Class B Class C
<S> <C> <C> <C> <C> <C> <C>
1 year $592 $699 $399 $98 $199 $199
3 years $841 $915 $615 $306 $615 $615
5 years $1,108 $1,257 $1,057 $531 $1,057 $1,057
10 years $1,871 $2,000 $2,285 $1,178 $2,000 $2,285
</TABLE>
BALANCED FUNDS
7
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
FUND FACTS:
Goal:
. Maximize After-Tax Total Return
Principal Investments:
. Common and Preferred Stocks
. Municipal securities
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
. Class Y
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Managers:
. James T. Colby, III
. Jean C. Ledford, CFA
. Richard S. Welsh
NASDAQ Symbols:
. ETSAX (Class A)
. ETSBX (Class B)
. ETSCX (Class C)
. ETSYX (Class Y)
Dividend Payment Schedule:
. Quarterly
................................................................................
INVESTMENT GOAL
The Fund seeks to achieve maximum after-tax return from a combination of
current income and capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests in a combination of equity and debt securities. Under normal
conditions, the Fund anticipates that at the close of each quarter of its
taxable year, at least 50% of its assets will be in municipal securities and
the remainder in equity securities.
The equity securities that the Fund invests in will primarily consist of the
common stocks, preferred stocks and securities convertible or exchangeable for
common stocks of large U.S. companies. The Fund's portfolio managers select
stocks using a "growth-at-a-reasonable-price" method. This style of diversified
equity management is best defined as a blend between growth and value stocks.
"Growth" stocks are stocks of companies which the Fund's portfolio managers
believe have anticipated earnings ranging from steady to accelerated growth.
"Value" stocks are stocks of companies which the Fund's portfolio managers
believe are undervalued. The Fund's investment in equity securities will be on
the basis of the potential for capital growth. Common stocks are selected based
on a combination of financial strength and estimated growth potential.
The Fund invests in debt obligations issued by states and possessions of the
United States and by the District of Columbia, and their political
subdivisions, the interest from which is exempt from federal income tax. The
Fund's fixed income portion will consist of investment grade municipal
securities.
These municipal securities will be rated in the top four categories of a
nationally recognized statistical ratings organization, or if unrated, then
determined to be of a comparable quality. As a matter of fundamental policy,
80% of the Fund's investments in municipal securities will be invested in such
securities, the interest from which is not subject to the federal alternative
minimum tax.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Interest Rate Risk
.Credit Risk
.Market Capitalization Risk
.Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
BALANCED FUNDS
8
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class Y shares of the
Fund in each calendar year since the Class Y shares' inception on 11/2/1993. It
should give you a general idea of the risks of investing in the Fund by showing
how the Fund's return has varied from year-to-year. This table includes the
effects of Fund expenses.
Year-by-Year Total Return for Class Y Shares (%)
[GRAPH]
1994 3.40%
1995 27.30%
1996 15.80%
1997 20.52%
1998 6.10%
1999 4.27%
Best Quarter: 4th Quarter 1998 +8.52%
Worst Quarter: 3rd Quarter 1998 -6.18%
Year-to-date total return through 6/30/2000 was 2.25%.
The next table lists the Fund's average annual total return by class over the
past one- and five-years and since inception (through 12/31/1999), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund by comparing its performance
with the S&P 500 Index and Lehman Brothers Municipal Bond Index (LBMBI). The
S&P 500 Index is an unmanaged market value-weighted index measuring the
performance of 500 U.S. stocks chosen for market size, liquidity, and industry
group representation. LBMBI is an unmanaged broad market performance benchmark
for the investment grade tax-exempt bond market. An index does not include
transactions costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 11/02/1993
<S> <C> <C> <C> <C> <C>
Class A 1/17/1995 -0.92% 13.03% N/A 11.68%
Class B 1/06/1995 -1.76% 13.10% N/A 11.94%
Class C 3/03/1995 -1.24% 13.34% N/A 11.94%
Class Y 11/02/1993 4.27% 14.46% N/A 12.84%
S&P 500 21.04% 28.56% N/A 23.43%
LBMBI 3.25% 5.88% N/A 5.19%
</TABLE>
* Historical performance shown for Classes A, B and C prior to their inception
is based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B, and C have not been adjusted to reflect
the effect of each class' 12b-1 fees. These fees for Class A are 0.25% and
1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If these fees
had been reflected, returns would have been lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum sales 4.75% None None None
charge imposed
on purchases (as
a % of offering
price)
Maximum deferred None* 5.00% 2.00% None
sales charge (as
a % of either
the redemption
amount or
initial
investment,
whichever is
lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses
<S> <C> <C> <C> <C>
Class A 0.78% 0.25% 0.27% 1.30%
Class B 0.78% 1.00% 0.27% 2.05%
Class C 0.78% 1.00% 0.27% 2.05%
Class Y 0.78% 0.00% 0.26% 1.04%
</TABLE>
+Restated for the fiscal year ended 3/31/2000 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption Assuming No
At End of Period Redemption
--------------------------------------------- ---------------------
After: Class A Class B Class C Class Y Class B Class C
<S> <C> <C> <C> <C> <C> <C>
1 year $601 $708 $408 $106 $208 $208
3 years $868 $943 $643 $331 $643 $643
5 years $1,154 $1,303 $1,103 $574 $1,103 $1,103
10 years $1,968 $2,097 $2,379 $1,271 $2,097 $2,379
</TABLE>
BALANCED FUNDS
9
<PAGE>
EVERGREEN
THE FUNDS' INVESTMENT ADVISORS
An investment advisor manages a Fund's investments and supervises its daily
business affairs. There are two investment advisors for the Funds. All
investment advisors for the Evergreen Funds are subsidiaries of First Union
Corporation, the sixth largest bank holding company in the United States, with
over $257.7 billion in consolidated assets as of 6/30/2000. First Union
Corporation is located at 301 South College Street, Charlotte, North Carolina
28288-0013.
Evergreen Asset Management Corp. (EAMC)
is the investment advisor to:
.Foundation Fund
.Tax Strategic Foundation Fund
EAMC, with its predecessors, has served as investment advisor to the Evergreen
Funds since 1971, and currently manages over $23.3 billion in assets for 20 of
the Evergreen Funds. EAMC is located at 1311 Mamaroneck Avenue, White Plains,
New York 10605.
Evergreen Investment Management Company (EIMC)
is the investment advisor to:
.Balanced Fund
EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $12.4 billion in assets for 30 of the Evergreen Funds.
EIMC is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Lieber & Company
is the investment sub-advisor to:
.Foundation Fund
.Tax Strategic Foundation Fund
EAMC has entered into sub-advisory agreements with Lieber & Company (Lieber), an
indirect wholly-owned subsidiary of First Union National Bank (FUNB), which
provide that Lieber's research department and staff will furnish EAMC with
information, investment recommendations, advice and assistance, and will
generally be available for consultation. Lieber will be reimbursed by EAMC in
connection with the rendering of services on the basis of the direct and
indirect costs of performing such services. There is no additional charge to
the Funds for the services provided by Lieber. Lieber is located at 1311
Mamaroneck Avenue, White Plains, New York 10605.
For the fiscal year ended 3/31/2000, the aggregate advisory fee paid to the
investment advisor by each Fund was as follows:
<TABLE>
<CAPTION>
% of the Fund's
Fund average net assets*
<S> <C>
Balanced Fund 0.41%
Foundation Fund 0.72%
Tax Strategic
Foundation Fund 0.85%
</TABLE>
* As of January 3, 2000, the Funds' contractual advisory fees were reduced in
order to offset an increase in each Fund's administrative services fees to
0.10%.
THE FUNDS' PORTFOLIO MANAGERS
Balanced Fund
Gary E. Pzegeo, CFA, and Patricia Bannan, CFA, are co-managers of the Fund.
Gary E. Pzegeo has managed the fixed income portion of the Fund since January
1999. Mr. Pzegeo has been a Vice President and portfolio manager in the fixed
income group with EIMC since 1990. He became a senior cash manager in 1993, a
senior research associate in 1994, an analyst in 1996 and a portfolio manager
in 1997.
Patricia Bannan has been co-managing the equity portion of the Fund since
November 1999. Ms. Bannan joined EIMC as a Senior Vice President and senior
portfolio manager in November 1999. From August 1998 until joining EIMC, Ms.
Bannan was the Director of North America Equities at Commercial Union
Investment Management Corporation. She was managing director and portfolio
manager of Prudential Investment from January 1996 to May 1998. From May 1982
to November 1995, Ms. Bannan was at Phoenix Investment Partners where she was
President and the head of the Equity Department.
Foundation Fund
Jean C. Ledford, CFA, and Richard S. Welsh have co-managed the Fund since
August 1999. Ms. Ledford became President and Chief Executive Officer of EAMC
in August 1999. From February 1997 until she joined EAMC, Ms. Ledford was a
portfolio manager at American Century Investments (American Century). From 1980
until she joined American Century, Ms. Ledford was the investment director at
the State of Wisconsin Investment Board.
Mr. Welsh joined EAMC as Senior Vice President and portfolio manager in August
1999. Prior to joining EAMC, he was a portfolio manager and analyst at American
Century since August 1994.
BALANCED FUNDS
10
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
James T. Colby, III, Jean C. Ledford, CFA and Richard S. Welsh co-manage the
Fund.
James T. Colby, III, has managed the fixed income portion of the Fund since its
inception in November 1993. He has been a Vice President and senior portfolio
manager since joining FUNB and EAMC's predecessor in December 1992.
Mr. Welsh has co-managed the Fund with Jean Ledford since August 1999. Mr. Welsh
joined EAMC as Senior Vice President and portfolio manager in August 1999. Prior
to joining EAMC, he was a portfolio manager and analyst at American
Century since August 1994.
Ms. Ledford has co-managed the Fund with Mr. Welsh since August 1999. Ms.
Ledford became President and Chief Executive Officer of EAMC in August 1999.
From February 1997 until she joined EAMC, Ms. Ledford was a portfolio manager
at American Century. From 1980 until she joined American Century, Ms. Ledford
was the investment director at the State of Wisconsin Investment Board.
CALCULATING THE SHARE PRICE
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated on each day the New York Stock Exchange is open at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares
outstanding. Each class of shares is calculated separately. Each security held
by a Fund is valued using the most recent market data for that security. If no
market data is available for a given security, the Fund will price that
security at fair value according to policies established by the Fund's Board of
Trustees. Short-term securities with maturities of 60 days or less will be
valued on the basis of amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your account at
any given time is the latest share price multiplied by the number of shares you
own. Your account balance may change daily because the share price may change
daily.
Balanced Fund may invest in foreign securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Fund does not
price its shares. As a result, the NAV of the Fund may change on days when
investors will not be able to purchase or redeem the Fund's shares.
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
. Most importantly, read the prospectus to see if the Fund is suitable for you.
. Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading the
Fund's prospectus. He or she can also assist you through all phases of
opening your account.
. Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website at www.evergreen-
funds.com.
BALANCED FUNDS
11
<PAGE>
EVERGREEN
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a Fund, you select a share class. Each Fund offered in this
prospectus offers up to four different share classes: Class A, Class B, Class C
and Class Y. The classes offered by each Fund are listed under the Fund Facts
section to each Fund's Risk/Return Summary previously presented. Each class
except Class Y has its own sales charge. Pay particularly close attention to the
fee structure so you know how much you will be paying before you invest.
Class A
If you select Class A shares, you may pay a front-end sales charge of up to
4.75%, but you do not pay a deferred sales charge. In addition, Class A shares
are subject to 12b-1 fees. The front-end sales charge is deducted from your
investment before it is invested. The actual charge depends on the amount
invested, as shown below:
<TABLE>
<CAPTION>
As a % of As a % Dealer
NAV excluding of your commission
Your Investment sales charge investment as a % of NAV
<S> <C> <C> <C>
Up to $49,999 4.75% 4.99% 4.25%
$50,000-$99,999 4.50% 4.71% 4.25%
$100,000-
$249,999 3.75% 3.90% 3.25%
$250,000-
$499,999 2.50% 2.56% 2.00%
$500,000-
$999,999 2.00% 2.04% 1.75%
$1,000,000 and
over 0.00% 0.00% 1.00% to 0.25%
</TABLE>
Although no front-end sales charge applies to purchases of $1,000,000 and over,
you will pay a 1% deferred sales charge if you redeem any such shares within 13
months of purchase.
Three ways you can reduce your Class A sales charges:
1. Rights of Accumulation. You may add the value of all of your existing
Evergreen Fund investments in all share classes, excluding Evergreen money
market funds, to determine the initial sales charge to be applied to your
current Class A purchase.
2. Letter of Intent. You may reduce the sales charge on a current purchase if
you agree to invest at least $50,000 in Class A shares of an Evergreen Fund
over a 13-month period. You will pay the same sales charge as if you had
invested the full amount all at one time. The Fund will hold a certain
portion of your investment in escrow until your commitment is met.
3. Combined Purchases. You may reduce your initial sales charge if you
purchase Class A shares in multiple Evergreen Funds at the same time. The
combined dollar amount invested will determine the initial sales charge
applied to all your current purchases. For example, if you invested
$75,000 in each of two different Evergreen Funds, you would pay a sales
charge based on a $150,000 purchase (i.e., 3.75% of the offering price,
rather than 4.75%).
Contact your broker or the Evergreen Service Company at 1-800-343-2898 if you
think you may qualify for any of these services. For more information on these
services see "Sales Charge Waivers and Reductions" in the SAI.
Each Fund may also sell Class A shares at net asset value without a front-end
or deferred sales charge to the Directors, Trustees, officers and employees of
the Fund, and the advisory affiliates of First Union Corporation, and to
members of their immediate families, to registered representatives of firms
with dealer agreements with Evergreen Distributor, Inc. (EDI), and to a bank or
trust company acting as trustee for a single account.
Class B
If you select Class B shares, you do not pay a front-end sales charge, so the
entire amount of your purchase is invested in the Fund. However, your shares
are subject to an additional expense, known as a 12b-1 fee. In addition, you
may pay a deferred sales charge if you redeem your shares within six years
after the month of purchase. The amount of the deferred sales charge depends on
the length of time the shares were held, as shown below:
<TABLE>
<CAPTION>
Maximum Deferred
Time Held Sales Charge
<S> <C>
Month of Purchase +
First 12 Month Period 5.00%
Month of Purchase +
Second 12 Month
Period 4.00%
Month of Purchase +
Third 12 Month Period 3.00%
Month of Purchase +
Fourth 12 Month
Period 3.00%
Month of Purchase +
Fifth 12 Month Period 2.00%
Month of Purchase +
Sixth 12 Month Period 1.00%
Thereafter 0.00%
After 7 Years Converts to Class A
Dealer Allowance 4.00%
</TABLE>
The maximum deferred sales charge may be reduced for certain investors. For
further information on how the deferred sales charge is calculated at the time
of redemption see "Calculating the Deferred Sales Charge" below.
Class C
Like Class B shares, you do not pay a front-end sales charge on Class C shares.
However, you may pay a deferred sales charge if you redeem your shares within
two years after the month of purchase. Also, these shares do not convert to
Class A shares and so the higher 12b-1 fees paid by the Class C shares continue
for the life of the account.
BALANCED FUNDS
12
<PAGE>
EVERGREEN
The amount of the maximum amount of the deferred sales charge depends on the
length of time the shares were held, as shown below:
<TABLE>
<CAPTION>
Maximum
Deferred
Time Held Sales Charge
<S> <C>
Month of Purchase + Less
Than 1 Year 2.00%
Month of Purchase + Less
Than 2 Years 1.00%
Thereafter 0.00%
Dealer Allowance 2.00%
</TABLE>
The maximum deferred sales charge may be reduced for certain investors. For
further information on how the deferred sales charge is calculated at the time
of redemption see "Calculating the Deferred Sales Charge" below.
Waiver of Class B or Class C
Sales Charges
You will not be assessed a deferred sales charge for Class B or Class C shares
if you redeem shares in the following situations:
. When the shares were purchased through reinvestment of dividends/capital
gains
. Death or disability
. Lump-sum distribution from a 401(k) plan or other benefit plan qualified
under ERISA
. Automatic IRA withdrawals if your age is at least 59 1/2
. Automatic withdrawals of up to 1.00% of the account balance per month
. Loan proceeds and financial hardship distributions from a retirement plan
. Returns of excess contributions or excess deferral amounts made to a
retirement plan participant
Class Y
Each Fund offers Class Y shares at net asset value without an initial sales
charge, deferred sales charge or 12b-1 fees. Class Y shares are only offered to
persons who owned shares in an Evergreen Fund advised by EAMC on or before
12/31/1994; certain institutional investors; and investment advisory clients of
an investment advisor of an Evergreen Fund (or the investment advisor's
affiliates).
Calculating the Deferred Sales Charge
If imposed, the Fund deducts the deferred sales charge from the redemption
proceeds you would otherwise receive. The deferred sales charge is a percentage
of the lesser of (1) the net asset value of the shares at the time of
redemption or (2) the shareholder's original net cost for such shares. Upon
request for redemption, to keep the deferred sales charge a shareholder must
pay as low as possible, the Fund will first seek to redeem shares not subject
to the deferred sales charge and/or shares held the longest, in that order. The
deferred sales charge on any redemption is, to the extent permitted by the
National Association of Securities Dealers, Inc. paid to Evergreen Distributor
Inc. or its predecessor.
BALANCED FUNDS
13
<PAGE>
EVERGREEN
HOW TO BUY SHARES
Evergreen Funds' low investment minimums make investing easy. Once you decide
on an amount and a share class, simply fill out an application and send in your
payment, or talk to your investment professional.
Minimum Investments
<TABLE>
<CAPTION>
Initial Additional
<S> <C> <C>
Regular Accounts $1,000 None
IRAs $250 None
Systematic Investment
Plan $50 $25
</TABLE>
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<S> <C> <C> <C>
By Mail or . Complete and sign the account application. . Make your check payable to Evergreen Funds.
through an . Make the check payable to Evergreen Funds. . Write a note specifying:
Investment . Mail the application and your check to the - the Fund name
Professional address below: - share class
- your account number
Evergreen Service Company Overnight Address: - the name(s) in which the account is
P.O. Box 2121 Evergreen Service Company registered
Boston, MA 02106-9970 200 Berkeley St. . Mail to the address below or deliver to your
Boston, MA 02106-5034 investment representative.
. Or deliver them to your investment representative
(provided he or she has a broker-dealer
arrangement with EDI).
By Phone . Call 1-800-343-2898 to set up an account number and . Call the Evergreen Express Line at 1-800-346-3858
get Wiring instructions (call before 12 noon if you 24 hours a day or 1-800-343-2898 between 8 a.m.
want wired funds to be credited that day). and 6 p.m. Eastern time, on any business day.
. Instruct your bank to wire or transfer your . If your bank account is set up on file, you can
purchase (they may charge a wiring fee). request either:
. Complete the account application and mail to: - Federal Funds Wire (offers immediate
Evergreen Service Company Overnight Address: access to funds) or
P.O. Box 2121 Evergreen Service Company - Electronic transfer through the Automated
Boston, MA 02106-9970 200 Berkeley St. Clearing House which avoids wiring fees.
Boston, MA 02106-5034
. Wires received after 4 p.m. Eastern time on
market trading days will receive the next
market day's closing price.*
By Exchange . You can make an additional investment by exchange from an existing Evergreen Funds account by contacting your
investment representative or calling the Evergreen Express Line at 1-800-346-3858.**
. You can only exchange shares within the same class.
. There is no sales charge or redemption fee when exchanging funds within the Evergreen Funds family.***
. Orders placed before 4 p.m. Eastern time on market trading days will receive that day's closing share price (if not,
you will receive the next market day's closing price).*
. Exchanges are limited to three per calendar quarter, but in no event more than five per calendar year.
. Exchanges between accounts which do not have identical ownership must be made in writing with a signature guarantee
(see "Exceptions: Redemption Requests That Require A Signature Guarantee" on the next page).
Systematic . You can transfer money automatically from . To establish automatic investing for an existing
Investment your bank account into your Fund account on a account, call 1-800-343-2898 for an application.
Plan (SIP) monthly basis. . The minimum is $25 per month or $75 per quarter.
. Initial investment minimum is $50 if you . You can also establish an investing program
invest at least $25 per month with this through direct deposit from your paycheck.
service. Call 1-800-343-2898 for details.
. To enroll, check off the box on the account
application and provide:
- your bank account information
- the amount and date of your monthly investment.
</TABLE>
* The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with EDI.
The Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the required
account information (including your broker) can request a telephone transaction
in your account. All calls are recorded and/or monitored for verification,
recordkeeping and quality-assurance purposes. The Evergreen Funds reserve the
right to terminate the exchange privilege of any shareholder who exceeds the
listed maximum number of exchanges, as well as to reject any large dollar
exchange if placing it would, in the judgment of the portfolio manager,
adversely affect the price of the Fund.
*** This does not apply to exchanges from Class A shares of an Evergreen
money market fund.
BALANCED FUNDS
14
<PAGE>
EVERGREEN
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
<CAPTION>
Methods Requirements
<C> <S> <C> <C>
Call Us . Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-2898
between 8 a.m. and 6 p.m. Eastern time, on any business day.
. This service must be authorized ahead of time, and is only available for regular
accounts.*
. All authorized requests made before 4 p.m. Eastern time on market trading days
will be processed at that day's closing price. Requests made after 4 p.m. will be
processed the following business day.**
. We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds into your bank account via the Automated
Clearing House service
- mail you a check.
. All telephone calls are recorded and/or monitored for your protection. We are not
responsible for acting on telephone orders we believe are genuine.
. See "Exceptions: Redemption Requests That Require A Signature Guarantee" list
below for requests that must be made in writing with your signature guarantee.
Write Us . You can mail a
redemption request
to: Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-9970 200 Berkeley St.
Boston, MA 02106-5034
. Your letter of instructions must:
- list the Fund name and the account number
- indicate the number of shares or dollar value you wish to redeem
- be signed by the registered owner(s).
. See "Exceptions: Redemption Requests That Require A Signature Guarantee" below for
requests that must be signature guaranteed.
. To redeem from an IRA or other retirement account, call 1-800-343-2898 for a
special application.
Redeem Your . You may also redeem your shares through participating broker-dealers by delivering
Shares in a letter as described above to your broker-dealer.
Person . A fee may be charged for this service.
Systematic . You can transfer money automatically from your Fund account on a monthly or
Withdrawal quarterly basis--without redemption fees.
Plan (SWP) . The withdrawal can be mailed to you, or deposited directly to your bank account.
. The minimum is $75 per month.
. The maximum is 1.00% of your account per month or 3.00% per quarter.
. To enroll, call 1-800-343-2898 for an application.
</TABLE>
* Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded and/or monitored for verification, recordkeeping
and quality-assurance purposes. The Evergreen Funds reserve the right to
terminate the exchange privilege of any shareholder who exceeds the listed
maximum number of exchanges, as well as to reject any large dollar exchange if
placing it would, in the judgment of the portfolio manager, adversely affect the
price of the Fund.
** The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with EDI. The
Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days
for investments made by Automated Clearing House transfer. We also reserve the
right to redeem in kind under certain circumstances by paying you the proceeds
of a redemption in securities rather than in cash, and to redeem the remaining
amount in the account if your redemption brings the account balance below the
initial minimum of $1,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
. You are redeeming more than $50,000. Who Can Provide A
. You want the proceeds transmitted into a bank Signature Guarantee:
account not listed on the account . Commercial Bank
. You want the proceeds payable to anyone other than . Trust Company
the registered owner(s) of the account . Savings Association
. Either your address or the address of your bank . Credit Union
account has been changed within 30 days . Member of a U.S. stock
. The account is registered in the name of a exchange
fiduciary corporation or any other organization.
In these cases, additional documentation is required:
corporate accounts: certified copy of corporate resolution
fiduciary accounts: copy of the power of attorney or other governing document
BALANCED FUNDS
15
<PAGE>
EVERGREEN
OTHER SERVICES
Evergreen Express Line
1-800-346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find a Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market
commentary from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can
be made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will
be included on your statement.
Payroll Deduction (Class A, Class B, and Class C only)
If you want to invest automatically through your paycheck, call us to find out
how you can set up direct payroll deductions. The amounts deducted will be
invested in your Fund account using the Electronic Funds Transfer System. We
will provide the Fund account number. Your payroll department will let you know
the date of the pay period when your investment begins.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
at amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request
is received.
Dividend Exchange
You may elect on the application to reinvest capital gains and/or dividends
earned in one Evergreen Fund into an existing account in another Evergreen Fund
in the same share class -- automatically. Please indicate on the application
the Evergreen Fund(s) into which you want to invest the distributions.
Reinstatement Privileges
Within 90 days of redemption a shareholder may reestablish their investment at
NAV by reinvesting some, or all, of their redemption proceeds into the same
share class of any Evergreen Fund. If a deferred sales charge was deducted from
your redemption proceeds, the full amount of the deferred sales charge will be
credited to your account and your deferred sales charge schedule will resume
from the time of the original redemption.
THE TAX CONSEQUENCES OF INVESTING IN THE FUNDS
You may be taxed in two ways:
. On Fund distributions (dividends and capital gains)
. On any profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the Fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Funds will distribute two types of taxable income to you:
. Dividends. To the extent that regular dividends are derived from investment
income that is not tax-exempt, or from short-term capital gains, you will have
to include them in your federal taxable income. Each Fund pays a quarterly
dividend from the dividends, interest and other income on the securities in
which it invests.
. Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. The Funds generally distribute capital gains, if
any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and are
considered ordinary income just like dividends. Profits on securities held
longer than 12 months are considered long-term capital gains and are taxed at
a special tax rate (20% for most taxpayers).
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and
capital gain payments will be reinvested to buy additional shares. Distribution
checks that are returned and distribution checks that are uncashed when the
shareholder has failed to respond to mailings from the shareholder servicing
agent will automatically be reinvested to buy additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by the Fund during the previous calendar year.
BALANCED FUNDS
16
<PAGE>
EVERGREEN
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital
gains. It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gain or loss you incur when you sell
shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend
and capital gains distributions for each calendar year on Form 1099 DIV.
Proceeds from a sale are reported on Form 1099B. You must report these on your
tax return. Since the IRS receives a copy as well, you could pay a penalty if
you neglect to report them.
Evergreen Service Company will send you a tax information guide each year
during tax season, which may include a cost basis statement detailing the gain
or loss on taxable transactions you had during the year. Please consult your
own tax advisor for further information regarding the federal, state and local
tax consequences of an investment in the Funds.
Retirement Plans
You may invest in each Fund through various retirement plans, including IRAs,
401(k) plans, Simplified Employee Plans (SEPs), IRAs, 403(b) plans, 457 plans
and others. For special rules concerning these plans, including applications,
restrictions, tax advantages, and potential sales charge waivers, contact your
broker-dealer. To determine if a retirement plan may be appropriate for you,
consult your tax advisor.
FEES AND EXPENSES OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Class A, Class B and Class C shares. Up to 0.75% of the average daily net
assets of Class A shares and up to 1.00% of the average daily net assets of
Class B and Class C shares may be payable as 12b-1 fees. However, currently the
12b-1 fees for Class A shares are limited to 0.25% of the average daily net
assets of the class. These fees increase the cost of your investment. The
higher 12b-1 fees imposed on Class B and Class C shares may, over time, cost
more than the initial sales charge of Class A shares. The purpose of the 12b-1
fees is to promote the sale of more shares of the Funds to the public. The
Funds may use 12b-1 fees for advertising and marketing and as a "service fee"
to the broker-dealer for additional shareholder services.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken
out before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your
total return in the Fund is reduced in direct proportion to the fees; 2)
expense ratios can vary greatly between funds and fund families, from under
0.25% to over 3.00%; and 3) a Fund's advisor may waive a portion of the Fund's
expenses for a period of time, reducing its expense ratio.
BALANCED FUNDS
17
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at the results for one share in each share class
of the Funds -- how much income it earned, how much of this income was passed
along as a distribution and how much the return was reduced by expenses. The
following tables have been derived from financial information audited by KPMG
LLP, the Funds' independent auditors. For a more complete picture of the Funds'
financial statements, please see the Funds' Annual Report as well as the SAI.
EVERGREEN
Balanced Fund
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------- Period Ended
2000 1999 March 31, 1998 # (a)
<S> <C> <C> <C>
CLASS A SHARES
Net asset value, beginning of
period $ 11.28 $ 12.87 $12.36
---------- ---------- ------
Income from investment
operations
Net investment income 0.28 0.37 0.08
Net realized and unrealized gain
or loss on securities and
foreign currency related
transactions 1.18 0.48 0.81
---------- ---------- ------
Total from investment operations 1.46 0.85 0.89
---------- ---------- ------
Distributions to shareholders
from
Net investment income (0.28) (0.41) (0.12)
Net realized gains on securities (1.45) (2.03) (0.26)
---------- ---------- ------
Total distributions (1.73) (2.44) (0.38)
---------- ---------- ------
Net asset value, end of period $ 11.01 $ 11.28 $12.87
---------- ---------- ------
Total return* 13.89% 7.52% 7.38%
Ratios and supplemental data
Net assets, end of period
(millions) $ 1,264 $ 1,241 $1,277
Ratios to average net assets
Expenses ++ 0.91% 0.96% 0.99%+
Net investment income 2.48% 2.97% 3.25%+
Portfolio turnover rate 109% 102% 76%
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended June 30,
---------------------- Period Ended ----------------------
2000 1999 March 31, 1998 # (b) 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 11.29 $ 12.88 $12.95 $11.33 $10.09 $ 9.26
---------- ---------- ------ ------ ------ ------
Income from investment
operations
Net investment income 0.20 0.28 0.26 0.30 0.29 0.31
Net realized and
unrealized gain or loss
on securities and
foreign currency
related transactions 1.18 0.48 1.53 2.07 1.42 0.96
---------- ---------- ------ ------ ------ ------
Total from investment
operations 1.38 0.76 1.79 2.37 1.71 1.27
---------- ---------- ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.20) (0.32) (0.27) (0.30) (0.27) (0.33)
Net realized gains on
securities (1.45) (2.03) (1.59) (0.45) (0.20) (0.11)
---------- ---------- ------ ------ ------ ------
Total distributions (1.65) (2.35) (1.86) (0.75) (0.47) (0.44)
---------- ---------- ------ ------ ------ ------
Net asset value, end of
period $ 11.02 $ 11.29 $12.88 $12.95 $11.33 $10.09
---------- ---------- ------ ------ ------ ------
Total return* 13.06% 6.71% 14.89% 21.95% 17.35% 14.20%
Ratios and supplemental
data
Net assets, end of
period (millions) $ 279 $ 434 $ 580 $1,625 $1,481 $1,345
Ratios to average net
assets
Expenses ++ 1.66% 1.71% 1.35%+ 1.70% 1.72% 1.77%
Net investment income 1.73% 2.23% 2.66%+ 2.50% 2.71% 3.33%
Portfolio turnover rate 109% 102% 76% 89% 96% 88%
</TABLE>
(a) For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the nine months ended March 31, 1998. The Fund changed its fiscal year
end from June 30 to March 31, effective March 31, 1998.
* Excluding applicable sales charges.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
# Net investment income is based on average shares outstanding during the pe-
riod.
BALANCED FUNDS
18
<PAGE>
EVERGREEN
Balanced Fund
<TABLE>
<CAPTION>
Year Ended
March 31, Period Ended
-------------- March 31,
2000 1999 1998 # (a)
<S> <C> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $11.30 $12.88 $12.43
------ ------ ------
Income from investment operations
Net investment income 0.19 0.26 0.05
Net realized and unrealized gain or loss on
securities and foreign currency related
transactions 1.19 0.51 0.75
------ ------ ------
Total from investment operations 1.38 0.77 0.80
------ ------ ------
Distributions to shareholders from
Net investment income (0.20) (0.32) (0.09)
Net realized gains on securities (1.45) (2.03) (0.26)
------ ------ ------
Total distributions (1.65) (2.35) (0.35)
------ ------ ------
Net asset value, end of period $11.03 $11.30 $12.88
------ ------ ------
Total return* 13.06% 6.79% 6.58%
Ratios and supplemental data
Net assets, end of period (millions) $ 3 $ 2 $ 1
Ratios to average net assets
Expenses++ 1.66% 1.71% 1.76%+
Net investment income 1.73% 2.21% 2.41%+
Portfolio turnover rate 109% 102% 76%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
March 31, Period Ended
-------------- March 31,
2000 1999 1998 # (b)
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning of period $11.27 $12.86 $12.01
------ ------ ------
Income from investment operations
Net investment income 0.32 0.39 0.08
Net realized and unrealized gain or loss on
securities and foreign currency related
transactions 1.17 0.49 0.86
------ ------ ------
Total from investment operations 1.49 0.88 0.94
------ ------ ------
Distributions to shareholders from
Net investment income (0.31) (0.44) (0.09)
Net realized gains on securities (1.45) (2.03) 0
------ ------ ------
Total distributions (1.76) (2.47) (0.09)
------ ------ ------
Net asset value, end of period $11.00 $11.27 $12.86
------ ------ ------
Total return 14.21% 7.79% 7.79%
Ratios and supplemental data
Net assets, end of period (millions) $ 20 $ 34 $ 39
Ratios to average net assets
Expenses++ 0.66% 0.71% 0.75%+
Net investment income 2.73% 3.22% 3.47%+
Portfolio turnover rate 109% 102% 76%
</TABLE>
(a) For the period from January 22, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
* Excluding applicable sales charges.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
# Net investment income is based on average shares outstanding during the pe-
riod.
BALANCED FUNDS
19
<PAGE>
EVERGREEN
Foundation Fund
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- ----------------
2000 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $20.98 $20.44 $16.00 $16.13 $15.12 $12.24
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.36 0.44 0.44 0.12 0.50 0.44
Net realized and
unrealized gain or loss
on securities and
foreign currency related
transactions 3.01 0.68 4.87 (0.13) 1.16 3.14
------ ------ ------ ------ ------ ------
Total from investment
operations 3.37 1.12 5.31 (0.01) 1.66 3.58
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.35) (0.43) (0.44) (0.12) (0.50) (0.47)
Net realized gains on
securities (0.59) (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions (0.94) (0.58) (0.87) (0.12) (0.65) (0.70)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $23.41 $20.98 $20.44 $16.00 $16.13 $15.12
------ ------ ------ ------ ------ ------
Total return* 16.38% 5.58% 33.88% (0.20%) 11.30% 29.70%
Ratios and supplemental
data
Net assets, end of period
(millions) $ 486 $ 380 $ 350 $ 220 $ 206 $ 107
Ratios to average net
assets
Expenses++ 1.21% 1.26% 1.28% 1.25%+ 1.24% 1.33%+
Net investment income 1.62% 2.18% 2.39% 2.83%+ 3.39% 3.73%+
Portfolio turnover rate 83% 10% 9% 2% 10% 28%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- ----------------
2000 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $20.88 $20.34 $15.94 $16.07 $15.07 $12.24
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.19 0.29 0.30 0.09 0.40 0.36
Net realized and
unrealized gain or loss
on securities and
foreign currency related
transactions 3.00 0.67 4.84 (0.13) 1.15 3.09
------ ------ ------ ------ ------ ------
Total from investment
operations 3.19 0.96 5.14 (0.04) 1.55 3.45
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.19) (0.27) (0.31) (0.09) (0.40) (0.39)
Net realized gains on
securities (0.59) (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions (0.78) (0.42) (0.74) (0.09) (0.55) (0.62)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $23.29 $20.88 $20.34 $15.94 $16.07 $15.07
------ ------ ------ ------ ------ ------
Total return* 15.48% 4.81% 32.81% (0.30%) 10.50% 28.70%
Ratios and supplemental
data
Net assets, end of period
(millions) $1,612 $1,432 $1,124 $ 606 $ 570 $ 296
Ratios to average net
assets
Expenses++ 1.96% 2.01% 2.04% 2.00%+ 1.99% 2.07%+
Net investment income 0.88% 1.43% 1.63% 2.07%+ 2.64% 2.99%+
Portfolio turnover rate 83% 10% 9% 2% 10% 28%
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
# Net investment income is based on average shares outstanding during the pe-
riod.
BALANCED FUNDS
20
<PAGE>
EVERGREEN
Foundation Fund
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- ----------------
2000 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $20.87 $20.34 $15.94 $16.06 $15.07 $12.24
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.19 0.29 0.30 0.09 0.40 0.34
Net realized and
unrealized gain or loss
on securities
and foreign currency
related transactions 3.00 0.66 4.84 (0.13) 1.14 3.09
------ ------ ------ ------ ------ ------
Total from investment
operations 3.19 0.95 5.14 (0.04) 1.54 3.43
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.19) (0.27) (0.31) (0.08) (0.40) (0.37)
Net realized gains on
securities (0.59) (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions (0.78) (0.42) (0.74) (0.08) (0.55) (0.60)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $23.28 $20.87 $20.34 $15.94 $16.06 $15.07
------ ------ ------ ------ ------ ------
Total return* 15.49% 4.76% 32.81% (0.30%) 10.40% 28.50%
Ratios and supplemental
data
Net assets, end of period
(millions) $ 76 $ 68 $ 50 $ 28 $ 27 $ 11
Ratios to average net
assets
Expenses++ 1.96% 2.01% 2.04% 2.00%+ 1.99% 2.23%+
Net investment income 0.88% 1.43% 1.63% 2.07%+ 2.64% 2.83%+
Portfolio turnover rate 83% 10% 9% 2% 10% 28%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- --------------
2000 1999 1998 # 1997 (b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning
of period $20.99 $20.45 $16.02 $16.14 $15.13 $12.27
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.43 0.49 0.49 0.13 0.54 0.51
Net realized and unrealized
gain or loss on securities
and foreign currency
related transactions 3.00 0.68 4.86 (0.13) 1.16 3.07
------ ------ ------ ------ ------ ------
Total from investment
operations 3.43 1.17 5.35 0.00 1.70 3.58
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.41) (0.48) (0.49) (0.12) (0.54) (0.49)
Net realized gains on
securities (0.59) (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions (1.00) (0.63) (0.92) (0.12) (0.69) (0.72)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $23.42 $20.99 $20.45 $16.02 $16.14 $15.13
------ ------ ------ ------ ------ ------
Total return 16.68% 5.84% 34.12% 0.00% 11.50% 29.70%
Ratios and supplemental
data
Net assets, end of period
(millions) $1,176 $1,238 $1,117 $ 802 $ 809 $ 623
Ratios to average net
assets
Expenses++ 0.96% 1.01% 1.03% 1.00%+ 0.99% 1.07%
Net investment income 1.89% 2.43% 2.65% 3.07%+ 3.64% 3.89%
Portfolio turnover rate 83% 10% 9% 2% 10% 28%
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
# Net investment income is based on average shares outstanding during the pe-
riod.
BALANCED FUNDS
21
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- ----------------
2000 1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $16.17 $16.36 $13.57 $13.50 $12.20 $10.44
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.36 0.34 0.31 0.07 0.27 0.29
Net realized and
unrealized gain or loss
on securities 1.00 (0.16) 2.96 0.06** 1.59 2.24
------ ------ ------ ------ ------ ------
Total from investment
operations 1.36 0.18 3.27 0.13 1.86 2.53
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.35) (0.34) (0.30) (0.06) (0.28) (0.31)
Net realized gains on
securities 0 (0.03) (0.18) 0 (0.28) (0.46)
------ ------ ------ ------ ------ ------
Total distributions (0.35) (0.37) (0.48) (0.06) (0.56) (0.77)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $17.18 $16.17 $16.36 $13.57 $13.50 $12.20
------ ------ ------ ------ ------ ------
Total return* 8.54% 1.19% 24.40% 1.00% 15.40% 24.80%
Ratios and supplemental
data
Net assets, end of period
(millions) $ 78 $ 82 $ 70 $ 15 $ 11 $ 3
Ratios to average net
assets
Expenses++ 1.30% 1.33% 1.42% 1.38%+ 1.52% 1.75%+
Net investment income 2.15% 2.18% 2.21% 2.30%+ 2.39% 2.79%+
Portfolio turnover rate 120% 64% 50% 29% 88% 110%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------------- ----------------
2000 1999 1998 1997 (b) 1996 1995 (c)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $16.14 $16.33 $13.56 $13.49 $12.19 $10.31
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.23 0.22 0.21 0.05 0.19 0.22
Net realized and
unrealized gain or loss
on securities 1.00 (0.15) 2.94 0.06** 1.59 2.37
------ ------ ------ ------ ------ ------
Total from investment
operations 1.23 0.07 3.15 0.11 1.78 2.59
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.23) (0.23) (0.20) (0.04) (0.20) (0.25)
Net realized gains on
securities 0 (0.03) (0.18) 0 (0.28) (0.46)
------ ------ ------ ------ ------ ------
Total distributions (0.23) (0.26) (0.38) (0.04) (0.48) (0.71)
------ ------ ------ ------ ------ ------
Net asset value, end of
period $17.14 $16.14 $16.33 $13.56 $13.49 $12.19
------ ------ ------ ------ ------ ------
Total return* 7.69% 0.41% 23.44% 0.08% 14.70% 25.60%
Ratios and supplemental
data
Net assets, end of period
(millions) $ 209 $ 244 $ 185 $ 39 $ 28 $ 7
Ratios to average net
assets
Expenses++ 2.05% 2.08% 2.18% 2.14%+ 2.27% 2.50%+
Net investment income 1.39% 1.42% 1.46% 1.55%+ 1.64% 2.03%+
Portfolio turnover rate 120% 64% 50% 29% 2% 110%
</TABLE>
(a) For the period from January 17, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
(c) For the period from January 6, 1995 (commencement of class operations) to
December 31, 1995.
* Excluding applicable sales charges.
** The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains or losses
at such time.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
BALANCED FUNDS
22
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------------- --------------------------
2000 1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $16.11 $16.30 $13.53 $13.47 $12.19 $ 10.69
------ ------ ------ ------ ----------- -----------
Income from investment
operations
Net investment income 0.23 0.22 0.21 0.06 0.18 0.22
Net realized and
unrealized gain or loss
on securities 1.01 (0.15) 2.94 0.05** 1.58 1.99
------ ------ ------ ------ ----------- -----------
Total from investment
operations 1.24 0.07 3.15 0.11 1.76 2.21
------ ------ ------ ------ ----------- -----------
Distributions to
shareholders from
Net investment income (0.23) (0.23) (0.20) (0.05) (0.20) (0.25)
Net realized gains on
securities 0 (0.03) (0.18) 0 (0.28) (0.46)
------ ------ ------ ------ ----------- -----------
Total distributions (0.23) (0.26) (0.38) (0.05) (0.48) (0.71)
------ ------ ------ ------ ----------- -----------
Net asset value, end of
period $17.12 $16.11 $16.30 $13.53 $13.47 $ 12.19
------ ------ ------ ------ ----------- -----------
Total return* 7.77% 0.41% 23.49% 0.08% 14.50% 21.20%
Ratios and supplemental
data
Net assets, end of
period (millions) $ 37 $ 45 $ 28 $ 5 $ 4 $ 1
Ratios to average net
assets
Expenses++ 2.05% 2.08% 2.18% 2.13%+ 2.25% 2.50%+
Net investment income 1.39% 1.42% 1.46% 1.55%+ 1.64% 2.07%+
Portfolio turnover rate 120% 64% 50% 29% 88% 110%
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------------- ------------------------
2000 # 1999 1998 1997 (b) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $16.20 $16.39 $13.61 $13.54 $12.22 $ 10.27
------ ------ ------ ------ ----------- -----------
Income from investment
operations
Net investment income 0.40 0.37 0.37 0.09 0.34 0.35
Net realized and
unrealized gain or loss
on securities 1.02 (0.15) 2.95 0.05** 1.56 2.39
------ ------ ------ ------ ----------- -----------
Total from investment
operations 1.42 0.22 3.32 0.14 1.90 2.74
------ ------ ------ ------ ----------- -----------
Distributions to
shareholders from
Net investment income (0.40) (0.38) (0.36) (0.07) (0.30) (0.33)
Net realized gains on
securities 0 (0.03) (0.18) 0 (0.28) (0.46)
------ ------ ------ ------ ----------- -----------
Total distributions (0.40) (0.41) (0.54) (0.07) (0.58) (0.79)
------ ------ ------ ------ ----------- -----------
Net asset value, end of
period $17.22 $16.20 $16.39 $13.61 $13.54 $ 12.22
------ ------ ------ ------ ----------- -----------
Total return 8.86% 1.38% 24.73% 1.00% 15.80% 27.30%
Ratios and supplemental
data
Net assets, end of
period (millions) $ 8 $ 24 $ 20 $ 15 $ 15 $ 13
Ratios to average net
assets
Expenses++ 1.04% 1.08% 1.15% 1.13%+ 1.30% 1.50%
Net investment income 2.42% 2.42% 2.48% 2.54%+ 2.63% 3.06%
Portfolio turnover rate 120% 64% 50% 29% 88% 110%
</TABLE>
(a) For the period from March 3, 1995 (commencement of class operations) to De-
cember 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
** The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains or losses
at such time.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
# Net investment income is based on average shares outstanding during the pe-
riod.
BALANCED FUNDS
23
<PAGE>
EVERGREEN
OTHER FUND PRACTICES
The Funds may invest in futures and options. Such practices are used to hedge a
Fund's portfolio to protect against changes in interest rates, to adjust the
portfolio's duration, to maintain a Fund's exposure to its market, to manage
cash or to attempt to increase income. Although this is intended to increase
returns, these practices may actually reduce returns or increase volatility.
Balanced Fund invests in foreign securities, which may include foreign
currencies transactions. As a result, the value of the Fund's shares will be
affected by changes in exchange rates. To manage this risk, the Fund may enter
into foreign currency futures contracts and forward
currency exchange contracts. Although, the Fund uses these contracts to hedge
the U.S. dollar value of a security they already own, the Fund could lose money
if they fail to predict accurately the future exchange rates. The Fund may
engage in hedging and cross hedging with respect to foreign currencies to
protect themselves against a possible decline in the value of another foreign
currency in which certain of the Fund's investments are denominated. A cross
hedge cannot protect against exchange rate risks perfectly, and if the Fund is
incorrect in its judgement of future exchange rate relationships, the Fund
could be in a less advantageous position than if such a hedge had not been
established.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Funds, including risks.
BALANCED FUNDS
24
<PAGE>
EVERGREEN
Notes
BALANCED FUNDS
25
<PAGE>
EVERGREEN
Notes
BALANCED FUNDS
26
<PAGE>
EVERGREEN
Notes
BALANCED FUNDS
27
<PAGE>
Evergreen Funds
Money Market
Florida Municipal Money Market Fund
Money Market Fund
Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Treasury Municipal Money Market Fund
U.S. Government Money Market Fund
Tax Advantaged
Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
High Grade Municipal Bond Fund
Maryland Municipal Bond Fund
Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
Short-Intermediate Municipal Fund
South Carolina Municipal Bond Fund
Tax-Free High Income Fund
Virginia Municipal Bond Fund
Income
Diversified Bond Fund
High Yield Bond Fund
Intermediate Term Bond Fund
Quality Income Fund
Select Adjustable Rate Fund
Short-Duration Income Fund
Strategic Income Fund
U.S. Government Fund
Balanced
Balanced Fund
Foundation Fund
Tax Strategic Foundation Fund
Growth & Income
Blue Chip Fund
Equity Income Fund
Growth and Income Fund
Equity Index Fund
Small Cap Value Fund
Utility Fund
Value Fund
Domestic Growth
Aggressive Growth Fund
Capital Growth Fund
Evergreen Fund
Growth Fund
Masters Fund
Omega Fund
Special Equity Fund
Small Company Growth Fund
Stock Selector Fund
Large Company Growth Fund
Tax Strategic Equity Fund
Global International
Emerging Markets Growth Fund
Global Leaders Fund
Global Opportunities Fund
International Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Precious Metals Fund
Sector Funds
Health Care Fund
Technology Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
BALANCED FUNDS
28
<PAGE>
QUICK REFERENCE GUIDE
1 Evergreen Express Line
Call 1-800-346-3858
24 hours a day to
. check your account
. order a statement
. get a Fund's current price, yield and total return
. buy, redeem or exchange Fund shares
2 Investor Services
Call 1-800-343-2898
Each business day, 8 a.m. to 6 p.m. Eastern time to
. buy, redeem or exchange shares
. order applications
. get assistance with your account
3 Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m. Eastern time
4 Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-9970
. to buy, redeem or exchange shares
. to change the registration on your account
. for general correspondence
5 For express, registered or certified mail:
Evergreen Service Company
200 Berkeley St.
Boston, MA 02116-5034
6 Visit us on-line:
www.evergreen-funds.com
7 Regular communications you will receive:
Account Statements -- You will receive quarterly statements for each Fund in
which you invest.
Confirmation Notices -- We send a confirmation of any transaction you make
within five days of the transaction.
Annual and Semi-annual reports -- You will receive a detailed financial
report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax information you need
to include in your tax returns as well as the Evergreen Tax Information
Guide.
<PAGE>
For More Information About the Evergreen Balanced Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a complete
financial accounting for each Fund and a complete list of the Fund's portfolio
holdings as of a specific date, as well as commentary from the Fund's portfolio
manager. This Report discusses the market conditions and investment strategies
that significantly affected the Fund's performance during the most recent fiscal
year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of any
of the documents, call 1-800-343-2898 or ask your investment representative. We
will mail material within three business days. In addition, any of these
documents, with the exception of the SAI, may be downloaded off our website at
www.evergreen-funds.com.
Information about these Funds (including the SAI) is also available on the SEC's
Internet website at http://www.sec.gov. Copies of this material may be obtained,
for a duplication fee, by writing the SEC Public Reference Section, Washington
D.C. 20549-6009, or by electronic request at the following e-mail address:
[email protected]. This material can also be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. For information about the operation of
the Public Reference Room, call the SEC at 1-800-SEC-0330.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.: 811-08413
[LOGO OF EVERGREEN FUNDS]
401 South Tryon Street
Charlotte, NC 28288
------------------
PRSRT STD
U.S. POSTAGE
PAID
HUDSON, MA
PERMIT NO. 19
------------------
<PAGE>
EVERGREEN EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
BALANCED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 1, 2000
Evergreen Balanced Fund ("Balanced Fund")
Evergreen Foundation Fund ("Foundation Fund")
Evergreen Tax Strategic Foundation Fund ("Tax Strategic Foundation Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end management investment company known as
Evergreen Equity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but
should be read in conjunction with the prospectus dated August 1, 2000 for
the Fund in which you are making or contemplating an investment. The Funds
are offered through one prospectus offering Class A, Class B, Class C, and
Class Y shares of each Fund. You may obtain a copy of the prospectus
without charge by calling (800) 343-2898 or downloading it off our website
at www.evergreen-funds.com. The information in Part 1 of this SAI is
specific information about the Funds described in the prospectus. The
information in Part 2 of this SAI contains more general information that
may or may not apply to the Fund or Class of shares in which you are
interested.
Certain information may be incorporated by reference to the Funds'
Annual Reports dated March 31, 2000. You may obtain a copy of an Annual
Report without charge by calling (800) 343-2898 or downloading it off our
website at www.evergreen-funds.com.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY............................................................1-1
INVESTMENT POLICIES......................................................1-1
OTHER SECURITIES AND PRACTICES...........................................1-3
PRINCIPAL HOLDERS OF FUND SHARES.........................................1-4
EXPENSES.................................................................1-6
PERFORMANCE.............................................................1-11
COMPUTATION OF CLASS A OFFERING PRICE ................................. 1-12
SERVICE PROVIDERS.......................................................1-12
FINANCIAL STATEMENTS....................................................1-14
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES............2-1
PURCHASE AND REDEMPTION OF SHARES.......................................2-20
SALES CHARGE WAIVERS AND REDUCTIONS.....................................2-22
PRICING OF SHARES.......................................................2-25
PERFORMANCE CALCULATIONS................................................2-26
PRINCIPAL UNDERWRITER...................................................2-28
DISTRIBUTION EXPENSES UNDER RULE 12b-1..................................2-28
TAX INFORMATION.........................................................2-31
BROKERAGE...............................................................2-34
ORGANIZATION............................................................2-35
INVESTMENT ADVISORY AGREEMENT...........................................2-36
MANAGEMENT OF THE TRUST.................................................2-38
CORPORATE AND MUNICIPAL BOND RATINGS....................................2-41
ADDITIONAL INFORMATION..................................................2-52
<PAGE>
1-8
PART 1
TRUST HISTORY
The Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. Each Fund is a
diversified series of the Trust. A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
<PAGE>
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
<PAGE>
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections in
Part 2 of this SAI under "Additional Information on Securities and Investment
Practices." Information provided in the sections listed below expands upon and
supplements information provided in the Funds' prospectus. The list below
applies to all Funds unless noted otherwise:
Money Market Instruments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Dollar Roll Transactions (applicable to Balanced Fund only)
Securities Lending
Convertible Securities
Options and Futures Transactions (applicable to Balanced Fund only)
Foreign Securities (applicable to Balanced Fund only)
Foreign Currency Transactions (applicable to Balanced Fund only)
High Yield, High Risk Bonds
Illiquid and Restricted Securities
Investment in Other Investment Companies
Municipal Bonds (applicable to Tax Strategic Foundation Fund)
Stand-By Commitments (applicable to Tax Strategic Foundation Fund)
Obligations of Foreign Branches of United States Banks
Obligations of United States Branches of Foreign Banks
Mortgage-Backed or Asset-Backed Securities (applicable to Balanced Fund only)
Variable or Floating Rate Instruments (not applicable to Balanced Fund)
Real Estate Investment Trusts
PRINCIPAL HOLDERS OF FUND SHARES
As of June 30, 2000, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of June 30, 2000.
======================================================================
Balanced Fund Class A
======================================================================
---------------------------------------------------- =================
None
---------------------------------------------------- =================
======================================================================
Balanced Fund Class B
======================================================================
---------------------------------------------------- =================
None
---------------------------------------------------- =================
======================================================================
Balanced Fund Class C
======================================================================
---------------------------------------------------- =================
Douglas Luther Ellingson Trustee 9.43%
1833 East Carver Street
Tempe, AZ 85284-2509
---------------------------------------------------- =================
---------------------------------------------------- =================
Balanced Fund Class Y
---------------------------------------------------- =================
---------------------------------------------------- =================
First Union National Bank 70.12%
Trust Accounts
Attn: Ginny Batten
301 S. Tryon Street
11th Floor, CMG-1151
Charlotte, NC 28202-1915
---------------------------------------------------- =================
---------------------------------------------------- =================
First Union National Bank 20.74%
Trust Accounts
Attn: Ginny Batten
301 S. Tryon Street
11th Floor, CMG-1151
Charlotte, NC 28202-1915
---------------------------------------------------- =================
======================================================================
Foundation Fund Class A
======================================================================
---------------------------------------------------- =================
None
---------------------------------------------------- =================
======================================================================
Foundation Fund Class B
======================================================================
---------------------------------------------------- =================
None
---------------------------------------------------- =================
======================================================================
Foundation Fund Class C
======================================================================
---------------------------------------------------- =================
MLPF&S For the Sole Benefit of Its Customers 16.71%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- =================
<PAGE>
======================================================================
Foundation Fund Class Y
======================================================================
---------------------------------------------------- =================
First Union National Bank 47.62%
401K Accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288
---------------------------------------------------- =================
---------------------------------------------------- =================
First Union National Bank EB/INT 8.04%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street
3rd Floor, CMG-1151
Charlotte, NC 28202-1911
---------------------------------------------------- =================
---------------------------------------------------- =================
Aetna Life Insurance Life & Annuity 5.12%
Central Valuation Unit
Attn: Jackie Johnson-Conveyor
151 Farmington Avenue
Hartford, CT 06156-0001
---------------------------------------------------- =================
======================================================================
Tax Strategic Foundation Fund Class A
======================================================================
---------------------------------------------------- =================
MLPF&S For the Sole Benefit of Its Customers 5.19%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- =================
======================================================================
Tax Strategic Foundation Fund Class B
======================================================================
---------------------------------------------------- =================
MLPF&S For the Sole Benefit of Its Customers 10.62%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- =================
======================================================================
Tax Strategic Foundation Fund Class C
======================================================================
---------------------------------------------------- =================
MLPF&S For the Sole Benefit of Its Customers 22.55%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- =================
======================================================================
Tax Strategic Foundation Fund Class Y
======================================================================
---------------------------------------------------- =================
Nola Maddox Falcone 19.13%
70 Drake Road
Scarsdale, NY 10583-6447
---------------------------------------------------- =================
---------------------------------------------------- =================
First Union National Bank EB/INT 16.84%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
---------------------------------------------------- =================
---------------------------------------------------- =================
Marilyn Birnbaum 6.38%
620 Guard Hill Road
Bedford, NY 10506-1041
---------------------------------------------------- =================
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC") is the investment advisor to
Foundation Fund and Tax Strategic Foundation Fund. Lieber & Company ("Lieber")
acts as sub-advisor to these Funds. EAMC is entitled to receive from Foundation
Fund and Tax Strategic Foundation Fund an annual fee based on the Fund's average
daily net assets, as follows:
---------------------------------- =================
Fee
Average Daily Net Assets
---------------------------------- =================
---------------------------------- =================
First $750 million 0. 775%
---------------------------------- =================
---------------------------------- =================
Next $250 million 0. 650%
---------------------------------- =================
---------------------------------- =================
Over $1 billion 0.600 %
---------------------------------- =================
Evergreen Investment Management Company ("EIMC") is the investment
advisor to Balanced Fund. EIMC is entitled to receive from Balanced Fund an
annual fee based on 1.5% of gross dividend and interest income plus a percentage
of the Fund's average daily net assets as follows:
Average Daily Net Assets Fee
First $100 million 0.51%
Next $100 million 0.46%
Next $100 billion 0.41%
First $100 million 0.36%
Next $100 million 0.31%
Next $500 million 0.26%
Over $1 billion 0.21%
Advisory Fees Paid
Below are the advisory fees paid or accrued by each Fund for the last
three fiscal years or periods.
<TABLE>
------------------------------------------------------------------------ -----------------------
Advisory
Fund Fee Paid or Accrued
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------
<S> <C>
Year or Period Ended March 31, 2000
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------ -----------------------
$6,617,566
Balanced Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$23,444,313
Foundation Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$3,209,748
Tax Strategic Foundation Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------
Year or Period Ended March 31, 1999
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------ -----------------------
$7,603,850
Balanced Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$21,613,189
Foundation Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$3,269,877
Tax Strategic Foundation Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------------------------------
Year or Period Ended March 31, 1998
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------ -----------------------
$5,534,574
Balanced Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$16,156,433
Foundation Fund
------------------------------------------------------------------------ -----------------------
------------------------------------------------------------------------ -----------------------
$1,451,786
Tax Strategic Foundation Fund
------------------------------------------------------------------------ -----------------------
</TABLE>
Sub-Advisory Fees Paid
EAMC has entered into sub-advisory agreements with Lieber, an indirect
wholly-owned subsidiary of FUNB, which provide that Lieber's research department
and staff will furnish EAMC with information, investment recommendations, advice
and assistance, and will generally be available for consultation on the
portfolios of Foundation Fund and Tax Strategic Foundation Fund. Lieber will be
reimbursed by EAMC in connection with the rendering of services on the basis of
the direct and indirect costs of performing such services. There is no
additional charge to the Funds for the services provided by Lieber.
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber or First Union Securities,
Inc. (formerly known as Wheat First Securities) ("First Union Securities"), for
the last three fiscal years or periods. For more information regarding brokerage
commissions, see "Brokerage" in Part 2 of this SAI.
<TABLE>
---------------------------------------------------- ----------------- -------------- ====================
Total Paid to
Total Paid to Total Paid First Union
Fund/Fiscal Year or Period All Brokers to Lieber Securities
---------------------------------------------------- ----------------- -------------- ====================
Year or Period Ended March 31, 2000
---------------------------------------------------- ----------------- -------------- ====================
<S> <C> <C> <C>
Balanced Fund $1,599,246 $0 $1,500
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
Foundation Fund $3,440,332 $695,894 $0
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
$274,640 $118,860 $0
Tax Strategic Foundation Fund
---------------------------------------------------- ----------------- -------------- ====================
==========================================================================================================
Year or Period Ended March 31, 1999
---------------------------------------------------- ----------------- -------------- ====================
Balanced Fund $533,529 $0 $0
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
Foundation Fund $486,478 $483,014 $0
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
Tax Strategic Foundation Fund $116,583 $113,411 $0
---------------------------------------------------- ----------------- -------------- ====================
==========================================================================================================
Year or Period Ended March 31, 1998
==========================================================================================================
---------------------------------------------------- ----------------- -------------- ====================
Balanced Fund $256,092 $0 $0
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
Foundation Fund $83,153 $81,365 $0
---------------------------------------------------- ----------------- -------------- ====================
---------------------------------------------------- ----------------- -------------- ====================
Tax Strategic Foundation Fund $11,342 $10,758 $0
---------------------------------------------------- ----------------- -------------- ====================
</TABLE>
<TABLE>
Percentage of Brokerage Commissions Paid to Lieber and First Union Securities
---------------------------------- ------------------ --------------------- ------------------
Percentage of
Percentage of Commissionable
Commissions to Transactions Percentage of
First Union through First Union Commissions to
Fund Securities Securities Lieber
---------------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C>
Balanced Fund 0.09% 0.05% %
---------------------------------- ------------------ --------------------- ------------------
</TABLE>
Portfolio Turnover
The Funds generally do not take portfolio turnover into account in
making investment decisions. This means the Funds could experience a high rate
of portfolio turnover (100% or more) in any given fiscal year, resulting in
greater brokerage and other transaction costs which are borne by the Funds and
their shareholders. It may also result in the Funds realizing greater net
short-term capital gains, distributions from which are taxable to shareholders
as ordinary income.
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last three fiscal years or
periods. For more information, see "Principal Underwriter" in Part 2 of this
SAI.
<TABLE>
-------------------------------------------------------------- -------------------- ==================
Total Underwriting Underwriting
Commissions Commissions
Fund/Fiscal Year or Period Retained
======================================================================================================
<S> <C> <C>
Year or Period Ended March 31, 2000
======================================================================================================
-------------------------------------------------------------- -------------------- ==================
$1,555,306 $60,416
Balanced Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$12,245,008 $145,391
Foundation Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$1,334,174 $18,750
Tax Strategic Foundation Fund
-------------------------------------------------------------- -------------------- ==================
======================================================================================================
Year or Period Ended March 31, 1999
======================================================================================================
-------------------------------------------------------------- -------------------- ==================
$2,269,221 $0
Balanced Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$17,682,606 $90,889
Foundation Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$4,610,482 $21,255
Tax Strategic Foundation Fund
-------------------------------------------------------------- -------------------- ==================
======================================================================================================
Year or Period Ended March 31, 1998
======================================================================================================
-------------------------------------------------------------- -------------------- ==================
$4,060,766 $43,078
Balanced Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$10,039,997 $506,565
Foundation Fund
-------------------------------------------------------------- -------------------- ==================
-------------------------------------------------------------- -------------------- ==================
$3,971,612 $62,120
Tax Strategic Foundation Fund
-------------------------------------------------------------- -------------------- ==================
</TABLE>
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year or
period ended March 31, 2000. For more information, see "Distribution Expenses
Under Rule 12b-1" in Part 2 of this SAI.
<TABLE>
---------------------------- ---------------- --------------------------------------- ========================================
Class A Class B Class C
Fund
<S> <C> <C> <C> <C> <C>
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
Service Fees Distribution Fees Service Fees Distribution Fees Service Fees
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
$3,008,164 $2,962,358 $987,452 $20,166 $6,722
Balanced Fund
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
$1,071,883 $11,545,222 $3,848,408 $537,397 $179,133
Foundation Fund
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
$205,744 $1,755,443 $585,124 $311,996 $103,993
Tax Strategic Foundation
Fund
---------------------------- ---------------- --------------------- ----------------- --------------------- ==================
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
for the fiscal year ended March 31, 2000 and by the Trust and the eleven other
trusts in the Evergreen Fund Complex for the calendar year ended December 31,
1999. The Trustees do not receive pension or retirement benefits from the Funds.
For more information, see "Management of the Trust" in Part 2 of this SAI.
<TABLE>
---------------------------------- ------------------------------ ================================
Aggregate Compensation from Total Compensation from the
Trust for the fiscal year Evergreen Fund Complex for the
ended 3/31/2000 calendar
year ended 12/31/1999*
Trustee
<S> <C> <C>
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,637 $75,000
Laurence B. Ashkin
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,693 $75,000
Charles A. Austin, III
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$1,403 $0
Arnold H. Dreyfuss
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,835 $75,000
K. Dun Gifford
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$7,621 $97,000
James S. Howell**
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,790 $75,000
Leroy Keith Jr.
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,686 $75,000
Gerald M. McDonnell
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$7,675 $85,000
Thomas L. McVerry
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$1,403 $0
Louis W. Moelchert, Jr.
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,790 $75,000
William Walt Pettit
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,839 $75,000
David M. Richardson
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$7,209 $77,000
Russell A. Salton, III
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$9,941 $102,000
Michael S. Scofield
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$6,839 $75,000
Richard J. Shima
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
$1,403 $0
Richard K. Wagoner
---------------------------------- ------------------------------ ================================
*Certain Trustees have elected to defer all or part of their total compensation
for the twelve months ended December 31, 1999. The amounts listed below will be
payable in later years to the respective Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,000
McVerry $85,000
Pettit $75,000
Salton $77,000
Scofield $61,200
**As of January 1, 2000, James S. Howell retired and became Trustee Emeritus.
</TABLE>
PERFORMANCE
Total Return
Below are the average annual total returns for each class of shares of
the Funds (including applicable sales charges) as of March 31, 2000. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
----------------------- -------------------- --------------------- -------------------- =====================
Ten Years or Since
Inception Inception Date
Fund/Class One Year Five Years Of Class of Class
----------------------- -------------------- --------------------- -------------------- =====================
<S> <C> <C> <C> <C>
Balanced Fund (a)
----------------------- -------------------- --------------------- -------------------- =====================
8.50% 15.86% 12.23% 1/20/1998
Class A
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
8.18% 15.96% 11.91% 9/11/1935
Class B
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
11.11% 16.15% 11.88% 1/22/1998
Class C
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
14.21% 17.30% 13.06% 1/26/1998
Class Y
----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Foundation Fund (b)
=============================================================================================================
----------------------- -------------------- --------------------- -------------------- =====================
10.83% 16.14% 16.13% 1/3/1995
Class A
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
10.48% 16.17% 16.23% 1/3/1995
Class B
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
Class C 13.49% 16.37% 16.21% 1/3/1995
----------------------- -------------------- --------------------- -------------------- =====================
Class Y 16.68% 17.55% 16.84% 1/2/1990
----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Tax Strategic Foundation Fund (b)
=============================================================================================================
----------------------- -------------------- --------------------- -------------------- =====================
Class A 3.37% 12.77% 11.93% 1/17/1995
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
Class B 2.69% 12.81% 12.14% 1/6/1995
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
Class C 5.77% 13.04% 12.14% 3/3/1995
----------------------- -------------------- --------------------- -------------------- =====================
----------------------- -------------------- --------------------- -------------------- =====================
Class Y 8.86% 14.19% 13.06% 11/2/1993
----------------------- -------------------- --------------------- -------------------- =====================
</TABLE>
(a) Historical performance shown for Classes A, C, and Y prior to their
inception is based on the performance of Class B, the original class offered.
These historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fes are 0.25%
for Class A and 1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If
these fees had not been adjusted, returns would have been lower for Classes A
and Y.
(b) Historical performance shown for Classes A, B, and C prior to their
inception is based on the performance of Class Y, the original class offered.
These historical returns for Classes A, B, and C have not been adjusted to
reflect the effect of each class' 12b-1 fees. These fees are 0.25% for Class A
and 1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If these fees
had been reflected, returns would have been lower.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value ("NAV") plus a sales
charge. Below is an example of the method of computing the offering price of
Class A shares of each Fund. The example assumes a purchase of Class A shares of
each Fund aggregating less than $50,000 based upon the NAV of each Fund's Class
A shares at March 31, 2000. For more information, see "Pricing of Shares" in
Part 2 of this SAI.
<TABLE>
------------------------------------- -------------- ------------- =============
Per Share Offering
Net Asset Sales Charge Price Per
Fund Value Share
<S> <C> <C> <C>
------------------------------------- -------------- ------------- =============
------------------------------------- -------------- ------------- =============
$11.01 4.75% $11.56
Balanced Fund
------------------------------------- -------------- ------------- =============
------------------------------------- -------------- ------------- =============
$23.41 4.75% $24.58
Foundation Fund
------------------------------------- -------------- ------------- =============
------------------------------------- -------------- ------------- =============
Tax Strategic Foundation Fund $17.18 4.75% $18.04
------------------------------------- -------------- ------------- =============
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street,
Boston, MA 02116, a subsidiary of First Union Corporation, serves as
administrator to the Funds, subject to the supervision and control of the
Trust's Board of Trustees. EIS provides the Funds with facilities, equipment and
personnel and is entitled to receive a fee from each Fund at the rate of 0.10%
of each Fund's average daily net assets.
Below are the administrative fees paid by each Fund (under a prior fee
arrangement) for the last three fiscal years or periods.
<TABLE>
============================================================== ============================
Administrative Fee Paid
Fund/Fiscal Year or Period
<S> <C>
===========================================================================================
Year Ended March 31, 2000
===========================================================================================
-------------------------------------------------------------- ============================
$518,361
Balanced Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$810,085
Foundation Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$84,128
Tax Strategic Foundation Fund
-------------------------------------------------------------- ============================
===========================================================================================
Year Ended March 31, 1999
===========================================================================================
-------------------------------------------------------------- ============================
$264,350
Balanced Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$0
Foundation Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$0
Tax Strategic Foundation Fund
-------------------------------------------------------------- ============================
===========================================================================================
Year Ended March 31, 1998
===========================================================================================
-------------------------------------------------------------- ============================
$294,242
Balanced Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$0
Foundation Fund
-------------------------------------------------------------- ============================
-------------------------------------------------------------- ============================
$0
Tax Strategic Foundation Fund
-------------------------------------------------------------- ============================
</TABLE>
Transfer Agent
Evergreen Service Company ("ESC"), P.O. Box 2121, Boston, MA 02106, a
subsidiary of First Union Corporation, is the Funds' transfer agent. ESC issues
and redeems shares, pays dividends and performs other duties in connection with
the maintenance of shareholder accounts. Each Fund pays ESC annual fees as
follows:
----------------------------- --------------- ==============
Annual Fee Annual Fee
Per Open Per Closed
Account* Account**
Fund Type
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Monthly Dividend Funds $25.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Quarterly Dividend Funds $24.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Semiannual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Annual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Money Market Funds $25.50 $9.00
----------------------------- --------------- ==============
* For shareholder accounts only. The Fund pays ESC cost plus 15% for broker
accounts.
** Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Distributor
Evergreen Distributor, Inc. ("EDI"), 90 Park Avenue, New York, NY 10016,
markets the Funds through broker-dealers and other financial representatives.
Independent Auditors
KPMG LLP, 99 High Street, Boston, MA 02110, audits the financial
statements of each Fund.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, is the Funds' custodian. The bank keeps custody of each Fund's securities
and cash and performs other related duties.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Funds.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from Evergreen Service Company, P.O. Box 2121, Boston,
MA 02106-2121, or by calling ESC toll-free at 1-800-343-2898.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund or the Class in which you are
interested. See the list under Other Securities and Practices in Part 1 of this
SAI to determine which of the sections below are applicable.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. Evergreen Equity Income Fund may also invest in
debt securities and high grade preferred stocks for defensive purposes when its
investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii)Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and Student Loan Marketing
Association.
Securities Issued by the Government National Mortgage Association ("GNMA"). The
Fund may invest in securities issued by the GNMA, a corporation wholly-owned by
the U.S. Government. GNMA securities or "certificates" represent ownership in a
pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the
security which is the subject of the agreement. In addition to the general risks
involved in leveraging, dollar rolls are subject to the same risks as repurchase
and reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, bonds
with warrants attached or bonds with a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allow convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Preferred Stocks
The Fund may purchase preferred stock. Preferred stock, unlike common
stock, has a stated dividend rate payable from the corporation's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options and Futures Strategies
The Fund may at times seek to hedge against either a decline in the
value of its portfolio securities or an increase in the price of securities
which the investment advisor plans to purchase through the writing and purchase
of options and the purchase or sale of futures contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
the Fund's current return.
The ability of the Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes stated below.
Writing Covered Options on Securities. The Fund may write covered call options
and covered put options on optionable securities of the types in which it is
permitted to invest from time to time as the investment advisor determines is
appropriate in seeking to attain the Fund's investment objective. Call options
written by the Fund give the holder the right to buy the underlying security
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund at a stated price.
The Fund may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Fund owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all time while the put option is
outstanding. A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the Fund owns or has the right to acquire. In the case of a call written
for cross-hedging purposes or a put option, the Fund will maintain in a
segregated account at the Fund's custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Fund's
obligation under the option. The Fund may also write combinations of covered
puts and covered calls on the same underlying security.
The Fund will receive a premium from writing an option, which increases
the Fund's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, the Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds
market price plus the amount of the premium received.
The Fund may terminate an option which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund will
realize a profit (or loss) from such transaction if the cost of such transaction
is less (or more) than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option may be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. The Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. This protection is provided during the life of the put option
since the Fund, as holder of the put, is able to sell the underlying security at
the exercise price regardless of any decline in the underlying security's market
price. For the purchase of a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
any profit which the Fund might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
The Fund may also purchase a call option to hedge against an increase
in price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund might
have realized had it bought the underlying security at the time it purchased the
call option will be reduced by the premium paid for the call option and by
transaction costs.
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the Fund, the value of the contract will tend to rise when
the value of the underlying securities declines and to fall when the value of
such securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures contract
is purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions. Unlike the purchase or sale of a security, the
Fund does not pay or receive money upon the purchase or sale of a futures
contract. Rather the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Limitations. The Fund will not purchase or sell futures contracts or options on
futures contracts if, as a result, the sum of the initial margin deposits on its
existing futures contracts and related options positions and premiums paid for
options on futures contracts would exceed 5% of the net assets of the Fund
unless the transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on the Fund's ability to
terminate options and futures positions at times when the investment advisor
deems it desirable to do so. Although the Fund will not enter into an option or
futures position unless the investment advisor believes that a liquid market
exists for such option or future, there can be no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price. The investment advisor generally expects that options and
futures transactions for the Fund will be conducted on recognized exchanges. In
certain instances, however, the Fund may purchase and sell options in the
over-the-counter market. The staff of the Securities and Exchange Commission
(SEC) considers over-the-counter options to be illiquid. The Fund's ability to
terminate option positions established in the over-the-counter market may be
more limited than in the case of exchange traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Fund.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of the securities that are the subject of the hedge. The successful use of
these strategies also depends on the ability of the Fund's investment advisor to
forecast correctly interest rate movements and general stock market price
movements. The risk increases as the composition of the securities held by the
Fund diverges from the composition of the relevant option or futures contract.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond, and
(c) the Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
Stand-By Commitments
When the Fund purchases tax-exempt securities, it has the authority to
acquire stand-by commitments from banks and broker-dealers with respect to those
tax-exempt securities. A stand-by commitment may be considered a security
independent of the state tax-exempt security to which it relates. The amount
payable by a bank or dealer during the time a stand-by commitment is
exercisable, absent unusual circumstances, would be substantially the same as
the market value of the underlying tax-exempt security to a third party at any
time. The Fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. No Fund expects to
assign any value to stand-by commitments.
U.S. Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the U.S.
Virgin Islands, Guam and Puerto Rico to the extent such obligations are exempt
from the income or intangibles taxes, as applicable, of the state for which the
Fund is named. The Fund does not presently intend to invest more than (a) 10% of
its net assets in the obligations of each of the U.S. Virgin Islands and Guam or
(b) 25% of its net assets in the obligations of Puerto Rico. Accordingly, the
Fund may be adversely affected by local political and economic conditions and
developments within the U.S. Virgin Islands, Guam and Puerto Rico affecting the
issuers of such obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
-- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Collateralized Mortgage Obligation "Residual" Interests
The Fund may invest in other types of mortgage-related securities,
including any securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans or real property,
including collateralized mortgage obligation "residual" interests. Residual
interests are derivative mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans. The cash flow generated by the mortgage assets
underlying a series of mortgage securities is applied first to make required
payments of principal of and interest on the mortgage securities and second to
pay the related administrative expenses of the issuer. The residual generally
represents the right to any excess cash flow remaining after making the
foregoing payments. Each payment of such excess cash flow to a holder of the
related residual represents income and/or a return of capital. The amount of
residual cash flow resulting from a series of mortgage securities will depend
on, among other things, the characteristics of the mortgage assets, the coupon
rate of each class of the mortgage securities, prevailing interest rates, the
amount of administrative expenses, and the prepayment experience on the mortgage
assets. The values of residuals are extremely sensitive to changes in interest
rates. The yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying mortgage assets in the same manner as an
interest-only class of stripped mortgaged-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may also
be extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. In certain circumstances, there may be little or no
excess cash flow payable to residual holders. The Fund may fail to recoup fully
its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Fund may be unable to dispose of these
interests at prices approximating the values the Fund had previously assigned to
them.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code") and to maintain exemption from the 1940 Act. In the event an issuer of
debt securities collateralized by real estate defaults, it is conceivable that
the REITs could end up holding the underlying real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Code, each
item of income, gain, loss, deduction, and credit is not taxed at the
partnership level but flows through to the holder of the partnership unit. This
allows the partnership to avoid double taxation and to pass through income to
the holder of the partnership unit at lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the SEC and are freely exchanged on a
securities exchange or in the over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; and (f) current and
retired employees of First Union National Bank ("FUNB") and its affiliates, EDI
and any broker-dealer with whom EDI has entered into an agreement to sell shares
of the Fund, and members of the immediate families of such employees. These
provisions are generally intended to provide additional job-related incentives
to persons who serve the Fund or work for companies associated with the Fund and
selected dealers and agents of the Fund. Since these persons are in a position
to have a basic understanding of the nature of an investment company as well as
a general familiarity with the Fund, sales to these persons, as compared to
sales in the normal channels of distribution, require substantially less sales
effort. Similarly, these provisions extend the privilege of purchasing shares at
net asset value (NAV) to certain classes of institutional investors who, because
of their investment sophistication, can be expected to require significantly
less than normal sales effort on the part of the Fund and EDI. In addition, the
provisions allow the Funds to be competitive in the mutual fund industry, where
similar allowances are common.
Class B Shares
The Fund offers Class B shares at NAV without an initial sales charge.
With certain exceptions, however, the Fund will charge a CDSC on shares you
redeem within 72 months after the month of your purchase, in accordance with the
following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase........................... 5.00%
Second 12-month period following the month of purchase........... 4.00%
Third 12-month period following the month of purchase............ 3.00%
Fourth 12-month period following the month of purchase........... 3.00%
Fifth 12-month period following the month of purchase............ 2.00%
Sixth 12-month period following the month of purchase............ 1.00%
Thereafter....................................................... 0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EDI. The Fund offers Class C
shares at NAV without an initial sales charge. With certain exceptions, however,
the Fund will charge a CDSC on shares you redeem within 24 months after the
month of your purchase, in accordance with the following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase 2.00%
Second 12-month period following the month of purchase 1.00%
Thereafter 0.00%
See "Contingent Deferred Sales Charge" below.
Class C shares purchased through an omnibus account with Merrill Lynch
will be charged a 1.00% CDSC if redeemed within 12 months after the month of
purchase. Redemptions made thereafter will not be charged a CDSC.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisor's affiliates. Class Y
shares are offered at NAV without a front-end or back-end sales charge and do
not bear any Rule 12b-1 distribution expenses.
Class S Shares
Class S shares of the Evergreen Money Market Funds are offered at NAV
without an initial or deferred sales charge through certain broker-dealers and
financial institutions who have entered into selling agreements with EDI.
Investors should refer to their broker-dealer or financial institution as
appropriate for instructions and further information.
Institutional Shares, Institutional Service Shares
Each institutional class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. The minimum initial investment in any institutional class
of shares is $1 million, which may be waived in certain circumstances. There is
no minimum amount required for subsequent purchases.
Contingent Deferred Sales Charge
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Expenses Under Rule 12b-1,"
below). Institutional and Institutional Service shares do not charge a CDSC. If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Class S, Institutional
and Institutional Service shares.
If you are making a large purchase, there are several ways you can
combine multiple purchases of Class A shares in Evergreen Funds and take
advantage of lower sales charges. These are described below.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen Funds. For example, if you invested $75,000 in each
of two different Evergreen Funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen Funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen Fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1
tax-sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisors;
4. investment advisors, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisors or financial planners who
place trades for their own accounts if the accounts are linked
to a master account of such investment advisors or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used
to fund these plans, which place trades through an omnibus
account maintained with the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, EDI, any broker-dealer
with whom EDI has entered into an agreement to sell shares of
the Fund, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single
account in the name of such bank or trust company if the
initial investment in any of the Evergreen Funds made pursuant
to this waiver is at least $500,000 and any commission paid at
the time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of
such shares;
2. certain shares for which the Fund did not pay a commission
on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has
died or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a
shareholder who is at least 59 years old;
6. shares in an account that we have closed because the
account has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Income Plan of
up to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement
plan participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions
or excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying
Plan that purchased Class C shares (this waiver is not
available in the event a Qualifying Plan, as a whole, redeems
substantially all of its assets).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen Fund which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen Fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily (or twice
daily, for money market funds) on Monday through Friday, as described in the
prospectus. The Fund will not compute its NAV on the days the New York Stock
Exchange is closed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities
exchange or the over-the-counter National Market System
("NMS") are valued on the basis of the last sales price on the
exchange where primarily traded or on the NMS prior to the
time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or
in the over-the-counter market for which there has been no
sale and other securities traded in the over-the-counter
market are valued at the mean of the bid and asked prices at
the time of valuation.
(3) Short-term investments maturing in more than 60 days, for
which market quotations are readily available, are valued at
current market value.
(4) Short-term investments maturing in sixty days or less
are valued at amortized cost, which approximates market.
(5) Securities, including restricted securities, for which
market quotations are not readily available; listed securities
or those on NMS if, in the investment advisor's opinion, the
last sales price does not reflect an accurate current market
value; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of
Trustees.
(6) Municipal bonds are valued by an independent pricing
service at fair value using a variety of factors which may
include yield, liquidity, interest rate risk, credit quality,
coupon, maturity and type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that EDI will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it.
All subscriptions and sales of shares by EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust and each person who has been,
is, or may be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim, action, suit, or
proceeding to which any of them may be a party that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of EDI or any other person for whose acts EDI is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C, Class S and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C, Class S and
Institutional Service shares, as applicable, the Fund may incur expenses for
12b-1 fees up to a maximum annual percentage of the average daily net assets
attributable to a class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class S 0.75%**
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
*Currently limited to 0.30% or less on Evergreen Money Market
Funds and 0.25% or less for all other Evergreen Funds. Of this
amount 0.25% is to be used exclusively as a shareholder
service fee. See the expense table in the prospectus of the
Fund in which you are interested.
**Currently limited to 0.60% or less on Evergreen Money Market
Funds. Of this amount 0.25% is to be used exclusively as a
shareholder service fee.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25%, to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts in the chart above.
Amounts paid under the Plans are used to compensate EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C, Class S
and Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- --------------
Class A 0.30%*
----------------------------- --------------
----------------------------- --------------
Class B 1.00%
----------------------------- --------------
----------------------------- --------------
Class C 1.00%
----------------------------- --------------
----------------------------- --------------
Class S 0.60%*
----------------------------- --------------
----------------------------- --------------
Institutional Service 0.25%*
----------------------------- --------------
*May be lower. See the expense table in the prospectus of the
Fund in which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting EDI to
compensate broker-dealers in connection with the sale of such shares.
Service fees are accrued daily and paid at least annually on Class A,
Class B, Class C, Class S and Institutional Service shares and are charged as
class expenses, as accrued.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C,
Class S and Institutional Service shares. The Plans are designed to (i)
stimulate brokers to provide distribution and administrative support services to
the Fund and holders of Class A, Class B, Class C, Class S and Institutional
Service shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B, Class C, Class S
and Institutional Service shares. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer, as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding Class A, Class B, Class C, Class S
and Institutional Service shares; assisting clients in changing dividend
options, account designations, and addresses; and providing such other services
as the Fund reasonably requests for its Class A, Class B, Class C, Class S and
Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond or municipal money market fund,
distributions will be taxable to shareholders whether made in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond or municipal money market
fund or U.S. Treasury or U.S. Government money market fund, it anticipates that
all or a portion of the ordinary dividends which it pays will qualify for the
70% dividends-received deduction for corporations. The Fund will inform
shareholders of the amounts that so qualify. If the Fund is a municipal bond or
municipal money market fund or U.S. Treasury or U.S. Government money market
fund, none of its income will consist of corporate dividends; therefore, none of
its distributions will qualify for the 70% dividends-received deduction for
corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Shareholders of Municipal Bond or Municipal Money
Market Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code, as amended.) of a facility financed with an issue of tax-exempt
obligations or a "related person" to such a user should consult his tax advisor
concerning his qualification to receive exempt interest dividends should the
Fund hold obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisors regarding specific questions relating to federal,
state and local tax consequences of investing in shares of the Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S. and foreign tax consequences of ownership of shares of the
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Masters Fund may incur higher brokerage costs than would be the case if
a single investment advisor or sub-advisor were managing the entire portfolio.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by Evergreen Asset Management Corp. (EAMC),
Lieber & Company, and First Union Securities, Inc., affiliates of EAMC and
members of the New York and American Stock Exchanges, may, effect portfolio
transactions on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The following is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Code of Ethics
The Trust and its various advisors have each adopted a code of ethics
pursuant to the requirements of Rule 17j-1 of the 1940 Act ("Code of Ethics").
Each of these Codes of Ethics permits Fund personnel to invest in securities for
their own accounts and is on file with, and available from, the SEC.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters Fund) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services.
See "Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, K. Dun Gifford and Russell Salton, each of whom
is an Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/2/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corporation (food manufacturer); Trustee,
(DOB: 9/2/28) Mentor Funds, Mentor Variable Investment Portfolios, Mentor
Institutional Trust, and Cash Resource Trust; Director, America's
Utility Fund, Inc.; Formerly, Chairman and Chief
Executive Officer, Hamilton Beach/Proctor-Silex, Inc. (small
appliance manufacturer).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President,
Oldways Preservation and Exchange Trust (education);
former Chairman of the Board, Director, and Executive
Vice President, The London Harness Company (leather
goods purveyor); former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford
Gifts of Fine Foods; former Chairman, Gifford, Drescher
& Associates (environmental consulting).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
Louis W. Moelchert, Jr. Trustee President, Private Advisors, LLC; Vice President for
(DOB: 12/20/41) Investments, University of Richmond; Director, America's
Utility Fund, Inc.; Trustee, The Common Fund, Mentor
Variable Investment Portfolios, Mentor Funds, Mentor
Institutional Trust, and Cash Resource Trust.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Thomas Richardson & Runden & Company (executive search
(DOB: 9/14/41) and advisory services); former Vice Chairman, DHR
International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, First Union
Corporation; former consultant to the Board of Trustees
of the Evergreen Funds; former member, New York Stock
Exchange; member, North Carolina Securities Traders
Association; member, Financial Analysts Society.
William M. Ennis President President and Chief Executive Officer, Evergreen
(DOB: 6/26/60) Investment Company and Chief Operating Officer, Capital
Management Group, First Union Corporation.
Carol Kosel Treasurer Senior Vice President, Evergreen Investment Services, Inc.
(DOB: 12/25/63) and Treasurer, Vestaur Securities, Inc.; former Senior Manager,
KPMG LLP.
W. Douglas Munn Secretary Senior Vice President and Chief Operating Officer,
(DOB: 4/21/63) Evergreen Investment Services, Inc. former Strategic
Planning Director First Union Brokerage Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/FUNB; former Senior Tax Consulting/Acting
Manager, Investment Companies Group
PricewaterhouseCoopers LLP, New York.
Bryan Haft** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
* Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
</TABLE>
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<TABLE>
COMPARISON OF LONG-TERM BOND RATINGS
----------------- ---------------- --------------- ========================================
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
Aaa AAA AAA Excellent Quality (lowest risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
Aa AA AA Almost Excellent Quality (very low risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
A A A Good Quality (low risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
Baa BBB BBB Satisfactory Quality (some risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
Ba BB BB Questionable Quality (definite risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
B B B Low Quality (high risk)
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
----------------- ---------------- --------------- ========================================
----------------- ---------------- --------------- ========================================
D DDD/DD/D In Default
----------------- ---------------- --------------- ========================================
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category. S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and
are extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category. S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN EQUITY TRUST
PART C
Item 23 Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997
(b) By-laws Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997
(c) Provisions of instruments defining the rights Incorporated by reference to Exhibits I and II
of holders of the securities being registered of Registrant's Registration Statement
are contained in the Declaration of Trust Filed on October 8, 1997
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII.
(d)(1) Investment Advisory and Management Contained herein.
Agreement between the Registrant and First
Union National Bank
(d)(2) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Post-Effective Amendment No. 25
Asset Management Corp. Registrant's Registration Statement
Filed on May 15, 2000
(d)(3) Investment Advisory and Management Contained herein.
Agreement between the Registrant and
Evergreen Investment Management Company
(formerly Keystone Investment Management
Company)
(d)(4) Form of Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Post-Effective Amendment No. 25 to
Meridian Investment Company Registrant's Registration Statement
Filed on May 15, 2000.
(d)(5) Sub-advisory Agreement between Evergreen Asset Incorporated by reference to
Management Corp. and Lieber & Company Post-Effective Amendment No.9 to
Registrant's Registrant Statement
Filed on October 1, 1998
(d)(6) Portfolio Management Agreement between Incorporated by reference to
OppenheimerFunds, Inc. and First Union Post-Effective Amendment No. 12 to
National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(7) Portfolio Management Agreement between Incorporated by reference to
MFS Institutional Advisors, Inc. and First Post-Effective Amendment No. 12 to
Union National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(8) Portfolio Management Agreement between Incorporated by reference to
Putnam Investment Management, Inc. and First Post-Effective Amendment No. 12 to
Union National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(9) Investment Advisory and Management Contained herein.
Agreement between the Registrant and Mentor
Investment Advisors, LLC
(e)(1) Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Post-Effective Amendment No. 4 to
Distributor, Inc. Registrant's Registration Statement
Filed on March 12, 1998
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Investment Post-Effective Amendment No. 4 to
Services, Inc. Registrant's Registration Statement
Filed on March 12, 1998
(e)(3) Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to
Inc. Registrant's Registration Statement
Filed on March 12, 1998
(e)(4) Principal Underwriting Agreement between Incorporated by reference to
the Registrant and Kokusai Securities Company Post-Effective Amendment No. 6 to
Limited Registrant's Registration Statement
Filed on July 31, 1998
(e)(5) Specimen Copy of Dealer Agreement used by Incorporated by reference to
Evergreen Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(e)(6) Principal Underwriting Agreement between Incorporated by reference to
the Registrant and Nomura Securities Company Post-Effective Amendment No. 6 to
Registrant's Registration Statement
Filed on July 31, 1998
(f) Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(h)(1) Administration Agreement between the Contained herein.
Registrant and Evergreen Investment
Services, Inc.
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(i)(1) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997
(i)(2) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Post-Effective Amendment No. 19
Registrant's Registration Statement
Filed on October 14, 1999
(j)(1) Consent of KPMG LLP Incorporated by reference to
Domestic Growth Funds Post-Effective Amendment No. 24
Registrant's Registration Statement
Filed on January 28, 2000.
(j)(2) Consent of KPMG LLP Incorporated by reference to
Capital Income and Growth Fund Post-Effective Amendment No. 24
(formerly Mentor Income and Growth Portfolio) Registrant's Registration Statement
Filed on January 28, 2000.
(j)(3) Consent of PricewaterhouseCoopers LLP Incorporated by reference to
Domestic Growth Funds Post-Effective Amendment No. 24
Registrant's Registration Statement
Filed on January 28, 2000.
(j)(4) Consent of KPMG LLP Contained herein.
Balanced Funds
(j)(5) Consent of PricewaterhouseCoopers LLP Incorporated by reference to Registrant's
Growth and Income Funds Post-Effective Amendment No. 21
Filed on November 29, 1999
(j)(6) Consent of KPMG LLP Incorporated by reference to Registrant's
Growth and Income Funds Post-Effective Amendment No. 21
Filed on November 29, 1999
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(3) 12b-1 Distribution Plan for Class C Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(n) Not applicable
(o) Multiple Class Plan Incorporated by reference to
Post-Effective Amendment No. 25
to Registrant's Registration Statement
Filed on May 15, 2000
(p) Code of Ethics Incorporated by reference to.
Post-Effective Amendment No. 25
to Registrant's Registration Statement
Filed on May 15, 2000
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and ommissions.
Provisions for the indemnification of the Registrant's Trustees and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of the Registrant's Investment
Advisors are contained in their respective Investment Advisory and Management
Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in the Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust Co., the
Registrant's custodian, are contained in the Custodian Agreement between State
Street Bank and Trust Co., and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National
Bank are:
Edward E. Crutchfield, Jr. Chairman, First Union Corporation and First
Union National Bank
G. Kennedy Thompson Chief Executive Officer, President and
Director, First Union Corporation and First
Union National Bank
Mark C. Treanor Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First
Union National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
The information required by this item with respect to Meridian Investment
Company is incorporated by reference to the Form ADV (File No. 801-8327) of
Meridian Investment Company.
The information required by this item with respect to Mentor Investment
Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384)
of Mentor Investment Advisors, LLC.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc., acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen
Distributor, Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
Dennis Sheehan Director, Chief Financial Officer
Maryann Bruce President
Kevin J. Dell Vice President, General Counsel and Secretary
Messrs. Mangum, Sheehan and Dell are located at the following address:
Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10019.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company, all located at 200 Berkeley
Street, Boston, Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Mentor Investment Advisors, LLC 901 East Byrd Street, Richmond, Virginia
23219
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Meridian Investment Co., 55 Valley Stream Parkway, Malvern, Pennsylvania
19355
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and State of Massachusetts, on the 27th day
of July, 2000.
EVERGREEN MONEY MARKET TRUST
By: /s/ Carol Kosel
-----------------------------
Name: Carol Kosel
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 27th day of July, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William M. Ennis /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
---------------------- --------------------- -------------------------
William M. Ennis* Laurence B. Ashkin* Charles A. Austin III *
President Trustee Trustee
(Principal Financial and
Accounting Officer)
/s/ K. Dun Gifford /s/ Arnold H. Dreyfuss /s/ William Walt Pettit
------------------ ---------------------- ------------------------
K. Dun Gifford* Arnold H. Dreyfuss* William Walt Pettit*
Trustee Trustee Trustee
/s/ Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
---------------------- --------------------- ----------------------
Gerald M. McDonnell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Chairman of the Board
and Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
---------------------- ---------------------------- ----------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee Trustee
/s/ Richard J. Shima /s/ Louis W. Moelchert, Jr. /s/ Richard K. Wagoner
-------------------- ---------------------------- ----------------------
Richard J. Shima* Louis W. Moelchert, Jr.* Richard K. Wagoner*
Trustee Trustee Trustee
/s/ Carol Kosel /s/ W. Douglas Munn
---------------------- ---------------------------
Carol Kosel* W. Douglas Munn*
Treasurer Secretary
(Principal Financial and (Chief Operating Officer)
Accounting Officer)
</TABLE>
*By: /s/ Maureen E. Towle
-------------------------------
Maureen E. Towle
Attorney-in-Fact
*Maureen E. Towle, by signing her name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
-------------- -------
(d)(1) Investment Advisory and Management Agreement (between)
Registrant and FUNB)
(d)(3) Investment Advisory and Management Agreement (between
Registrant and EIMC)
(d)(9) Investment Advisory and Management Agreement (between
Registrant and MIA)
(h)(1) Administration Agreement (between Registrant and EIS)
(j)(4) Consent of KPMG LLP
