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. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [X]
EVERGREEN SELECT FIXED INCOME 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)
[ ] on February 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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 SELECT FIXED INCOME TRUST
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 6 TO
REGISTRATION STATEMENT ON FORM N-1A
This Post-Effective Amendment No. 6 to Registrant's Registration Statement
No.333-36019/811-08365 consists of the following pages, items of information and
documents, together with the exhibits indicated in Part C as being filed
herewith:
Facing Sheet
Contents Page
PART A
Prospectus for the Institutional shares and Institutional Service shares
of Evergreen Select High Yield Bond Fund is contained herein.
Prospectuses for the Institutional shares and Institutional Service shares of
Evergreen Select Adjustable Rate Fund, Evergreen Select Core Bond Fund,
Evergreen Select Fixed Income Fund, Evergreen Select Income Plus Fund, Evergreen
Select Intermediate Term Municipal Bond Fund, Evergreen Select International
Bond Fund, Evergreen Select Limited Duration Fund, Evergreen Select Total Return
Bond Fund were contained in Post-Effective Amendment No. 5
to Registration Statement No. No.333-36019/811-08365
filed on February 1, 1999 and are incorporated by reference herein.
Prospectus for the Charitable shares of Evergreen Select Core Bond Fund
was contained in Post-Effective Amendment No. 5 to Registration Statement
No. 333-36019/811-08365 filed on February 1, 1999
and is incorporated by reference herein.
PART B
Statement of Additional Information for the Institutional Shares and
Institutional Service Shares of Select Adjustable Rate Fund, Evergreen Select
Core Bond Fund, Evergreen Select Fixed Income Fund, Evergreen Select Income
Plus Fund, Evergreen Select Intermediate Term Municipal Bond Fund, Evergreen
Select International Bond Fund, Evergreen Select Limited Duration Fund,
Evergreen Select Total Return Bond Fund; and, for the Charitable shares of
Evergreen Select Core Bond Fund was contained in Post-Effective
Amendment No. 5 to Registration Statement No.333-36019/811-08365
filed on February 1, 1999 are incorporated by reference herein.
PART C
Exhibits
Idemnification
Business and Other Connections of Investment Advisors
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
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EVERGREEN SELECT FIXED INCOME TRUST
PART A
PROSPECTUS
<PAGE>
Evergreen Select Fixed Income Trust
Evergreen Select High Yield Bond Fund
Institutional shares
Institutional Service shares
Prospectus, July 30, 1999
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>
FUND SUMMARY 2
GENERAL INFORMATION:
The Fund's Investment Advisor 4
The Fund's Portfolio Manager 4
Calculating the Share Price 4
How to Choose an Evergreen Fund 4
How to Choose the Share Class 4
That Best Suits You
How to Buy Shares 5
How to Redeem Shares 6
Other Services 7
The Tax Consequences of 7
Investing in the Fund
Fees and Expenses of the Fund 8
Other Fund Practices 8
In general, the Fund seeks to provide investors with a high level of
total return while controlling risk. The Fund invests primarily in
high-yield, high-risk bonds, but will be managed with less emphasis on
yield and a greater emphasis on total return.
FUND SUMMARY KEY
The 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?
EXPENSES
How much does it cost to invest in the Fund? What is the difference
between sales charges and expenses?
<PAGE>
Select High Yield Bond Fund
Typically relies on the following strategies:
- - investing primarily in high-yield, high-risk bonds and similar
securities in the higher end of the non-investment grade rating
categories of the recognized rating agencies or in securities of
comparable quality that are unrated; and
- - selling a portfolio investment when the value of the investment
reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment
no longer appears to meet the Fund's investment objective, when the
Fund must meet redemptions, or for other reasons which the
portfolio manager deems necessary.
may be appropriate for investors who:
- - seek high total return while controlling risk;
- - seek to enhance their fixed income returns; and
- - can tolerate the risks associated with the volatility of below
investment grade investing.
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
not guaranteed to achieve their investment goal
not insured, endorsed or guaranteed by the FDIC, a bank or any
government agency
subject to investment risks, including possible loss of your
original investment
Like most investments, your investment in the 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:
Interest Rate Risk
When interest rates go up, the value of debt securities tends to fall.
Since the Fund invests a significant portion of its portfolio in debt
securities and 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 investments 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 and total return earned on
your investment may decline if an issuer fails to pay an obligation on
a timely basis.
Below Investment Grade Bond 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.
1
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SELECT HIGH YIELD BOND FUND
FUND FACTS:
Goal:
High Total Return
Principal Investment:
High-Yield, High-Risk Bonds
Classes of Shares Offered in this Prospectus:
Institutional
Institutional Service
Investment Advisor:
Evergreen Investment Management Company
Portfolio Manager:
Richard Cryan
NASDAQ Symbol:
None
Dividend Payment Schedule:
Monthly
INVESTMENT GOAL
The Fund seeks a high level of total return.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the
"Overview" on page 1.
The Fund intends to invest at least 65% of its total assets in bonds,
debentures, and other income obligations, a substantial number of
which are rated by Standard & Poor's Ratings Services or Moody's
Investors Service, Inc. as below investment grade, i.e., S&P rating
below BBB- and Moody's rating below Baa3. The Fund intends to emphasize
securities rated B-/B3 or higher. The Fund seeks to purchase
securities that offer the possibility of capital appreciation in
addition to income. The Fund considers the creditworthiness of the
company, the quality of management and the prospects for the company's
cash flow when considering the purchase of securities. The Fund
currently expects to maintain a dollar-average weighted maturity of
five to ten years.
The Fund may invest 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 FOLLOWING RISKS
DISCUSSED ON THE OVERVIEW PAGE:
- - Interest Rate Risk
- - Credit Risk
- - Below Investment Grade Bond Risk
2
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EXPENSES
This section describes the fees and expenses you would pay if you
bought and held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)*
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses**
Institutional 0.50% 0.00% 0.15% 0.65%
Institutional
Service 0.50% 0.25% 0.15% 0.90%
*From time to time, the Fund's investment advisor may, at its
discretion, reduce or waive its fees or reimburse the Fund for certain
of its expenses in order to reduce expense ratios. The Fund's
investment advisor may cease these reimbursements at any time. The
annual operating expenses do not reflect fee waivers and expense
reimbursements. Including fee waivers and expense reimbursements
total operating expenses for the Institutional shares would be ____%
and Institutional Service shares would be ____%.
** Estimated for the fiscal period ending 9/30/99.
The table below shows the total expenses you would pay on a $10,000
investment over one- and three-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 that you reinvest all of your dividends.
Your actual costs may be higher or lower.
Example of Fund Expenses
Institutional Institutional Service
After 1 year $___ $___
After 3 years $___ $___
3
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THE FUND'S INVESTMENT ADVISOR
The investment advisor manages the Fund's investments and supervises
its daily business affairs. All investment advisors for the Evergreen
Funds are subsidiaries of First Union Corporation, the sixth largest
bank holding company in the U. S., with over $_____ billion in
consolidated assets as of ___________, 1999. First Union Corporation is located
at 301 South College Street, Charlotte, North Carolina 28288-0013.
Evergreen Investment Management Company (EIMC) is the investment
advisor to the Fund. EIMC has been managing mutual funds and private
accounts since 1932 and currently manages $ _____ billion in assets for
_______ of the Evergreen Funds. EIMC is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Year 2000 Compliance
The investment advisors and other service providers for the Evergreen
Funds are taking steps to address any potential Year 2000-related
computer problems. However, there is some risk that these problems
could disrupt the Fund's operations or financial markets generally.
THE FUND'S PORTFOLIO MANAGER
The day-to-day management of the Fund is handled by Richard Cryan.
Mr. Cryan is a Vice President and senior portfolio manager, and has
managed Evergreen Select Total Return Bond Fund since April 1998. Mr.
Cryan has been employed at EIMC as an analyst from April 1992 to June
1994, and as a portfolio manager since June 1994.
CALCULATING THE SHARE PRICE
The value of one share of the Fund, also known as the net asset value,
or NAV, is calculated on each day the New York Stock Exchange is open
as of the time the Exchange closes (normally 4:00 p.m. Eastern time).
We calculate the share price for each share by adding up the total
assets of the Fund, 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 the Fund is
valued using the most recent market quote for that security. If no
market quotation is available for a given security, we 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.
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, by calling 1-800-343-2898.
4
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HOW TO CHOOSE THE SHARE CLASS THAT
BEST SUITS YOU
After choosing a Fund, you select a share class. The Fund offers two
different institutional classes. Each institutional class of shares
has its own expenses. Pay particularly close attention to this fee
structure so you know how much you will be paying before you invest.
Institutional shares are only offered to investment advisory clients
of an investment advisor of an Evergreen Fund (or the advisor's
affiliate).
Each 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 either class
of shares is $1 million, which may be waived in certain situations.
There is no minimum amount required for subsequent purchases.
The Institutional Service shares have adopted a distribution plan
which provides for the payment of an annual service fee of up to 0.25%
of the average daily net assets of the class for personal service
rendered to shareholders and/or the maintenance of accounts. As a
result, income distributions paid by the Fund with respect to
Institutional Service shares will generally be less than those paid
with respect to Institutional shares.
HOW TO BUY SHARES
Institutional investors may buy shares through broker-dealers, banks
and certain other financial intermediaries, or directly through the
Fund's distributor, Evergreen Distributor, Inc. (EDI).
Method Opening an Account Adding to an Account
By Phone - Call 1-800-343-2898 to set - Call the Evergreen
up an account number and get Express Line* at
wiring instructions (call before 1-800-346-3858 24 hours
12 noon if you want wired funds a day or 1-800-343-2898
to be credited that day). between 8 a.m. and 6
- Instruct your bank to wire p.m. Eastern time, on
or transfer your purchase (they any business day.
may charge a wiring fee). - If your bank
- Complete the account account is set up on
application and mail to: file, you can request
Evergreen Service Company either:
Overnight Address: - Federal Funds Wire
P.O. Box 2121 Evergreen (offers immediate
Service Company access to funds) or
Boston, MA 02106-2121 200 - Electronic
Berkeley St. transfer through the
Boston, MA Automated Clearing
02116 House which avoids
- Wires received after 4:00 wiring fees.
p.m. Eastern time on market
trading days will receive the
next market day's closing price.
5
<PAGE>
By Exchange - You can make an additional investment by exchange
from an existing Evergreen Fund's 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 Fund's 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,
and five per calendar year.
- Exchanges between accounts that do not have
identical ownership must be in writing with a signature
guarantee (see below).
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of
the Evergreen Funds:
Methods Requirements
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 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 to your bank
account via the Automated Clearing House service
- mail you a check.
- All telephone calls are recorded for your
protection. We are not responsible for acting on
telephone orders we believe are genuine.
- See exceptions list below for requests that must be
made in writing.
Write Us - You can mail a redemption request to:
Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116
- 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 list below for requests that must be
signature guaranteed.
Redeem Your - You may also redeem your shares through
Shares in participating broker-dealers by delivering a letter as
Person described above to your broker-dealer.
- A fee may be charged for this service.
*The Evergreen Express Line is only available to Institutional Service
shares.
** 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 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.
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, and to
redeem the remaining amount in the account if your redemption brings
the account balance below the initial minimum of $1,000,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain
redemption requests must be 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 want the proceeds Who Can Provide A Signature
transmitted to a bank account not Guarantee:
listed on the account - Commercial Bank
- - You want the proceeds payable - Trust Company
to anyone other than the - Savings Association
registered owner(s) of the account
- - Either your address or the - Credit Union
address of your bank account has - Member of a U.S. stock
been changed within 30 days exchange
6
<PAGE>
OTHER SERVICES
Evergreen Express Line
(Institutional Service shares only)
Use our automated, 24-hour service to check the value of your
investment in the Fund; purchase, redeem or exchange Fund shares; find
the 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.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund
account. Telephone requests received by 4:00 p.m. Eastern time will
be invested the day the request is received.
Reinvestment Privileges
Under certain circumstances, shareholders may, within one year of
redemption, reinstate their accounts at the current price (NAV).
THE TAX CONSEQUENCES OF INVESTING IN THE FUND
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 Fund will distribute
two types of taxable income to you:
- - Dividends. To the extent the regular dividends are derived from
interest that is not tax exempt, or from short-term capital gains, you
will have to include them in your federal taxable income. The Fund
pays a monthly 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 Fund generally distributes
capital gains 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, on sales made after January 1, 1998).
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.
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 or occurred in a money market
fund. 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 gains
or losses 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 Fund.
7
<PAGE>
FEES AND EXPENSES OF THE FUND
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 Fee
The Trustees of the Evergreen Funds have approved a policy to assess
12b-1 fees for Institutional Service shares. These fees will increase
the cost of your investment. The Fund may use this fee as a "service
fee" to pay broker-dealers for additional shareholder services and/or
the maintenance of accounts.
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 the
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) the Fund's investment advisor may waive a
portion of the Fund's expenses for a time, reducing its expense ratio.
OTHER FUND PRACTICES
The Fund may invest in a variety of derivative instruments.
Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic
factor, such as an index or an interest rate. Small price movements
in the underlying asset can result in immediate and substantial gains
or losses in the value of derivatives.
The Fund may invest in futures and options which are forms of derivatives.
Such practices are used to hedge a Fund's portfolio to protect against
changes in interest rate and to adjust the portfolio's duration. Although
this is intended to increase returns, these practices may actually reduce
returns or increase volatility.
In addition, the Fund may borrow money and lend its securities.
Borrowing is a form of leverage that may magnify the Fund's gain or
loss. Lending securities may cause the Fund to lose the opportunity to
sell these securities at the most desirable price and, therefore,
lose money.
The Fund generally does not take portfolio turnover into account in
making investment decisions. This means the Fund could experience a
high rate of portfolio turnover (100% or more) in any given fiscal
year, resulting in greater brokerage and other transactions costs
which are borne by the Fund and its shareholders. It may also result
in the Fund realizing greater net short-term capital gains,
distributions from which are taxable to shareholders as ordinary
income.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Fund, including risks.
8
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Notes
<PAGE>
Evergreen Select Funds
Select Money Market
Select Money Market Fund
Select Municipal Money Market Fund
Select Treasury Money Market Fund
Select 100% Treasury Money Market Fund
Select Fixed Income
Select Adjustable Rate Fund
Select Core Bond Fund
Select Fixed Income Fund
Select High Yield Bond Fund
Select Income Plus Fund
Select Intermediate Term Municipal Bond Fund
Select International Bond Fund
Select Limited Duration Fund
Select Total Return Bond Fund
Select Equity
Select Balanced Fund
Select Core Equity Fund
Select Diversified Value Fund
Select Equity Income Fund
Select Equity Index Fund
Select Large Cap Blend Fund
Select Secular Growth Fund
Select Small Cap Growth Fund
Select Small Company Value Fund
Select Social Principles Fund
Select Special Equity Fund
Select Strategic Growth Fund
Select Strategic Value Fund
Express Line
(Institutional Service shares only)
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
<PAGE>
Evergreen Express Line
(Institutional Service shares only)
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
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
Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Each business day, 8 a.m. to 6 p.m. Eastern time
Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
to buy, redeem or exchange shares
to change the registration on your account
for general correspondence
For express, registered, or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
Contact us on-line:
www.evergreen-funds.com
Regular communications you will receive:
Account Statements - You will receive quarterly statements for each
Fund you own.
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 your Fund(s) twice a year.
Tax Forms - Each January you will receive any tax forms you need to
file your taxes as well as the Evergreen Tax Information Guide.
<PAGE>
For More Information About the Evergreen Select High Yield Bond
Fund, Ask for:
The Statement of Additional Information (SAI), which contains more
detailed information about the policies and procedures of the Fund.
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.
Information about the Fund (including the SAI) is also available on
the SEC's Internet web site at http://www.sec.gov, or, for a
duplication fee, by writing the SEC Public Reference Section,
Washington DC 20549-6009. This material can be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. For more
information, call the SEC at 1-800-SEC-0330.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
Sec File No.: 811-08365
<PAGE>
EVERGREEN SELECT FIXED INCOME TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN SELECT FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999, as amended July 30, 1999
Evergreen Select Adjustable Rate ("Adjustable Rate")
Evergreen Select Core Bond Fund ("Core Bond")
Evergreen Select Fixed Income Fund ("Fixed Income")
Evergreen Select High Yield Bond Fund ("High Yield")
Evergreen Select Income Plus Fund ("Income Plus")
Evergreen Select Intermediate Term Municipal Bond Fund
("Intermediate Term")
Evergreen Select International Bond Fund ("International Bond")
Evergreen Select Limited Duration Fund ("Limited Duration")
Evergreen Select Total Return Fund ("Total Return")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of Evergreen Select Fixed Income
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 prospectuses dated February 1, 1999, and July 23, 1999 for
the Fund in which you are interested. The Funds are offered through three
separate prospectuses: one offering Institutional and Institutional Service
shares of each Fund except Evergreen Select High Yield Bond Fund, one offering
Institutional and Institutional Service shares of Evergreen Select High Yield
Bond Fund and one offering Charitable shares of Evergreen Select Core Bond Fund.
You may obtain any of these prospectuses without charge by calling (800)
343-2898.
Certain information may be incorporated by reference to the Funds' Annual
Report dated September 30, 1998. You may obtain a copy of the Annual Report
without charge by calling (800) 343- 2898.
TABLE OF CONTENTS
PART 1
TRUST HISTORY 1-1
INVESTMENT POLICIES 1-1
OTHER SECURITIES AND PRACTICES 1-3
PRINCIPAL HOLDERS OF FUND SHARES 1-3
EXPENSES 1-7
PERFORMANCE 1-11
SERVICE PROVIDERS 1-12
FINANCIAL STATEMENTS 1-13
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES 2-1
PURCHASE, REDEMPTION AND PRICING OF SHARES 2-11
SALES CHARGE WAIVERS AND REDUCTIONS 2-13
PERFORMANCE CALCULATIONS 2-16
PRINCIPAL UNDERWRITER 2-17
DISTRIBUTION EXPENSES UNDER RULE 12b-1 2-18
TAX INFORMATION 2-20
BROKERAGE 2-23
ORGANIZATION 2-24
INVESTMENT ADVISORY AGREEMENT 2-25
MANAGEMENT OF THE TRUST 2-26
CORPORATE AND MUNICIPAL BOND RATINGS 2-28
ADDITIONAL INFORMATION 2-37
PART 1
TRUST HISTORY
The Evergreen Select Fixed Income Trust is an open-end management
investment company, which was organized as a Delaware business trust on
September 18, 1997. 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. The
foregoing is qualified in its entirety by reference to the Declaration of Trust.
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).
Further Explanation of Concentration Policy:
Each Fund 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.
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.
9. Investment in Federally Tax Exempt Securities
Each Fund will, during periods of normal market conditions, invest in
assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning investment in tax-exempt securities
for funds with the words tax exempt, tax free or municipal in their names.
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 under
Additional Information on Securities and Investment Practices in Part 2 of this
SAI:
U.S. Government Securities Investment in Other Investment Companies
When-Issued, Delayed-Delivery Municipal Bonds (only Intermediate Term)
and Forward Commitment Virgin Islands, Guam and Puerto Rico (only
Transactions Intermediate Term)
Repurchase Agreements Master Demand Notes
Reverse Repurchase Agreements Obligations of Foreign Branches of U.S. Banks
Options (excluding International Bond)
Futures Transactions Obligations of U.S. Branches of Foreign Banks
Foreign Securities (only (excluding International Bond)
International Bond) Payment-In-Kind Securities (PIKs)
Foreign Currency (only Zero Coupons Bonds
International Bond) Mortgage-Backed and Asset-Backed Securities
High Yield, High Risk Bonds Variable or Floating Rate Instruments
(excluding International
Bond)
Illiquid and Restricted
Securities
PRINCIPAL HOLDERS OF FUND SHARES
As of April 30, 1999 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 April 30, 1999.
Adjustable Rate
Institutional Class
AMPEX Retirement Master Trust 92.914%
P.O. Box 1992
Boston, Ma 02105-1992
First Union National BK BK/EB/INT 5.832%
Reinvest Acct/Attn Trust Oper GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Adjustable Rate
Institutional Service Class
MLPF&S 11.184%
For The Sole Benefit Of Its Customers
ATTN: Fund Administration #97P31
4800 Deer Lake Dr E 2nd FL
Jacksonville, FL 32246-6484
Union Pacific RR-UTU Crew Consist 17.252%
G0569-Pool 090 1999
Michael Errico, manager-payroll Acc
1416 Dodge St, MC7080
Omaha, NE 68179-0001
Skyline Telephone Membership Corp. 8.571%
Attn: Hobart G. Davis
P.O. Box 759
West Jefferson, NC 28694
Star Telephone Membership Corp 7.543%
Milton R. TEW EXEC
P.O. Box 348
3900 N US 421 HWY
Clinton, NC 28329-0348
Union Pacific RR-UTU Crew Consist 9.610%
G0577-Pool 088 1999
Michael Errico, manager-payroll Acct.
1416 Dodge St, MC7080
Omaha, NE 68179-0001
UPRR (Eastern District) UTU 8.666%
Fund 101 1998
Michael Errico, Manager-Payroll ACC
1416 Dodge St, Mc7080
Omaha, NE 68179-0001
UPRR (Western District) OUR&D and UTU 5.768%
Fund 505 1999
Michael Errico, Manager-Payroll Acct.
1416 Dodge St, Mc7080
Omaha, NE 68179-0001
Core Bond
Institutional Class
First Union National Bank 66.274%
Trust Accounts
Attn Ginny Batten
301 S. Tryon St., 11th FL CMG-1151
Charlotte, NC 28202-1910
First Union National BK/EB/INT 33.726%
Cash Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Core Bond
Institutional Service Class
Wilmington Trust Co 30.126%
FBO Roman Cath Alum Assoc
A/C 467160
ATTN Mutual Funds
1100 N. Market St
Wilmington, DE 19890
First Union National Bank 24.224%
Trust Accounts
Attn Ginny Batten CMG-1151-2
401 S. Tryon St., 3rd FL
Charlotte, NC 28202-1911
First Union National Bank 16.657%
Trust Accounts
Attn Ginny Batten CMG-1151-2
401 S. Tryon St., 3rd FL
Charlotte, NC 28202-1911
Raymond James Cust 15.926%
Charles A Yost IRA
A/C 72053597
PO Box 12749
St Petersburg, FL 33733-2749
Thomas Hackett 8.046%
C/O Warren S. Beebe Jr. CPA
PO Box 849
Oakhurst, NJ 07755-0849
First Union Brokerage Services 5.021%
Essex Cnty Comm Amer Legion
A/C 5142-1648
29 Newell Drive
Bloomfield, NJ 07003
Core Bond
Charitable Class
First Union National BK BK/EB/INT 98.924%
Cash Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Fixed Income
Institutional Class
First Union National BK BK/EB/INT 77.924%
Cash Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
First Union National BK BK/EB/INT 21.220%
Reinvest Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Fixed Income
Institutional Service Class
FUBS & Co 5.306%
FBO Marvin Reingold IRA
A/C 7028-7691
201 S. College Street
Charlotte, NC 28288
High Yield
Institutional and Institutional Service
None
Income Plus
Institutional Class
First Union National BK BK/EB/INT 89.724%
Cash Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
First Union National BK BK/EB/INT 9.998%
Reinvest Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Income Plus
Institutional Service Class
Bt Alex Brown 5.612%
FBO Gail C Middletown &
Conrad Cowart
A/C #299-09384
PO Box 1346-MS #19
Baltimore, MD 21203
Intermediate Municipal
Institutional Class
First Union National BK BK/EB/INT 99.588%
Cash Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Intermediate Municipal
Institutional Service Class
FUBS & CO FBO 9.092%
Harry F. West
A/C 867487351
201 S. College Street
Charlotte, NC 28288-167
Susanne P. Glass 5.673%
3263 Primera PL
Los Angeles, CA 90068
Fubs & Co FBO 5.616%
Theodore Halus Children's Trust
A/C #83118128
201 S. College St
Charlotte, NC 28288-1167
Merrill Lynch 5.349%
FBO Francis B Lentz Trust
A/C #885-74C53
300 Davison Ave 2nd Fl West
Sommerset, NJ 08873
International Bond
Institutional Class
First Union National BK BK/EB/INT 84.064%
Reinvest Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Post & Co 13.278%
350302
The Bank Of New York
Mutual Fund/Reorg Dept.
P.O. Box 1066 Wall Street Station
New York, NY 10258
International Bond
Institutional Service Class
State Street Bank & Trust Co 50.732%
Allen Luke
17 Bennett Court
East Brunswick, NJ 08816-3686
State Street Bank & Trust Co. 9.656%
Cust For The IRA Of
Janet M. Grove
217 W. High St
Red Lion, PA 17356-1527
Lowell J. Croshaw 6.742%
Debra H. Croshaw Jtten
2137 Riverbend R
Allentown, PA 18103-9682
First Union Brokerage Services 5.463%
Marquerite D. McKenna IRA-
A/C 5728-2173
1460 Stockton RD
Meadowbrook, PA 19046-1131
Limited Duration
Institutional Class
First Union National BK BK/EB/INT 5.038%
Cash Acct
Attn Trust Oper GRP
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Limited Duration
Institutional Service Class
State Street Bank & Trust Co 59.70%
Cust For The Rollover IRA Of
Frank L. Caiola
321 Evergreen Drive
North Wales, PA 19454-2701
Fubs & Co FEBO 15.97%
John M Ennis IRA-
A/C 29887835
201 S. College St.
Charlotte, NC 28288-1167
Merrill Lynch Cust, Theona M. Carson IRA 10.74
A/C 32371088
9601 S. Meridian Blvd.
Englewood, CO 80112-5905
First Union Brokerage Services 7.51%
Milton G. Hyde IRA-A/C 4445-2273
1695 Grandview Rd.
Pasadena, MD 21122
Total Return
Institutional Class
First Union National Bank BK/EB/INT 78.866%
Reinvest Acct
Attn Trust Oper Fd GRP
401 S Tryon St 3rd FL CMG 1151
Charlotte, NC 28202-1911
First Union National Bank BK/EB/INT 21.134%
Cash Acct
Attn Trust Oper Fd GRP
401 S. Tryon St 3rd FL CMG 1151
Charlotte, NC 28202-1911
Total Return
Institutional Service Class
First Union National Bank 100%
Trust Acct
Attn Ginny Batten
301 S. Tryon St., CMG 1151 11th Fl.
Charlotte, NC 28202-1910
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. (For more information, see
Investment Advisory Agreements in Part 2 of this SAI.)
Evergreen Investment Management ("EIM"), also known as First Capital Group,
a division of First Union National Bank, is the investment advisor to Limited
Duration, Core Bond, Fixed Income, Income Plus, Total Return and Intermediate
Term. EIM is entitled to receive from each of these Funds an annual fee based on
a percent of the Fund's average net assets, as follows:
Limited Duration 0.30%
Core Bond 0.40%
Fixed Income 0.50%
Income Plus 0.50%
Total Return 0.40%
Intermediate 0.60%
Term
EIM has voluntarily agreed to reduce the investment advisory fee on each
Fund by 0.10%.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Adjustable Rate.
EIMC is entitled to receive from Adjustable Rate an annual fee equal to 0.30% of
the average net assets of the Fund.
EIMC is also the investment advisor to High Yield. EIMC is entitled to
receive from High Yield an annual fee equal to 0.40% of the average net assets
of the Fund.
First International Advisers, Ltd. ("FIA"), formerly AnalyticTSA
International, Inc., is the investment advisor to International Bond. FIA is
entitled to receive from International Bond an annual fee equal to 0.60% of the
Fund's average net assets. Advisory Fees Paid
Below are the advisory fees paid by each Fund for the fiscal period ended
September 30, 1998 and when applicable for fiscal periods ended in 1997 and
1996.
Fiscal Period/Fund Advisory Fee Waiver
Period Ended 1998
Adjustable Rate (1) $61,312 $0
Adjustable Rate (2) $137,489 $0
Core Bond (3) $1,862,392 $526,182
Fixed Income (3) $2,219,526 $504,930
Income Plus (3) $5,151,727 $1,033,751
Intermediate Term (3) $3,831,537 $639,284
International Bond (4) $60,189 $45,948
International Bond (5) $221,000 $36,000
Limited Duration (3) $154,868 $152,769
Total Return (6) $209,962 $135,770
1. Seven months ended September 30, 1998. The Fund changed its fiscal year
end from the last day of February to September 30, effective September 30,
1998.
2. Fiscal year ended February 28, 1998.
3. Period from November 24, 1997 to September 30, 1998.
4. Three months ended September 30, 1998. The Fund changed its fiscal year
end from June 30 to September 30, effective September 30, 1998.
5. Fiscal year ended June 30, 1998.
6. The Fund commenced investment operations on April 20, 1998.
Fiscal Period/Fund Advisory Fee Waiver
Period Ended 1997
Adjustable Rate (1) $101,412 $0
International Bond (2) $207,000 $32,160
Period Ended 1996
Adjustable Rate (3) $121,105 $0
International Bond (2) $145,856 $45,157
1. Five months ended February 28, 1997. The Fund changed its fiscal year end
from September 30 to the last day of February, effective February 28, 1997.
2. Predecessor fund information for the periods ended June 30, 1997 and 1996.
3. Year ended September 30, 1996.
12b-1 Fees
Below are the 12b-1 service fees paid by the Institutional Service shares
of each Fund for the fiscal period ended September 30, 1998. The Institutional
and Charitable shares do not pay 12b-1 fees. For more information, see
"Distribution Expenses Under Rule 12b-1" in Part 2 of this SAI.
Fund/Period Institutional
Service Fees
Period Ended 1998
Adjustable Rate $14,710
Core Bond $285
Fixed Income $8,535
Income Plus $6,981
Intermediate Term $3,458
International Bond $92
Limited Duration $268
Total Return $13
For the periods ended February 28, 1998, 1997 and September 30, 1996 the
Institutional Service shares of Adjustable Rate paid $17,676, $9,161 and
$23,210, respectively in 12b-1 service fees.
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually and
by the Trust and the eight other trusts in the Evergreen Fund complex for the
fiscal period ended September 30, 1998. 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.
Total
Compensation
Aggregate from Trust and
Trustee Compensation Fund Complex
from Trust Paid to
Trustees**
Laurence B. $3,996 $73,450
Ashkin
Charles A. $3,996 $65,450
Austin, III
K. Dun Gifford $3,865 $63,575
James S. Howell $5,093 $99,425
Leroy Keith Jr. $3,865 $63,575
Gerald M. $3,996 $79,200
McDonnell
Thomas L. $4,571 $88,275
McVerry
William Walt $3,498 $72,325
Pettit
David M. $3,822 $62,950
Richardson
Russell A. $4,021 $81,625
Salton, III
Michael S. $4,047 $81,924
Scofield
Richard J. $3,865 $70,150
Shima
Robert J. $1,848 $28,437
Jeffries*
Foster Bam* $1,848 $42,950
* Former Trustee; retired as of December 31, 1997.
** Certain Trustees have elected to defer all or part of their total
compensation for the fiscal period ended September 30, 1998. The
amounts listed below will be payable in later years to the respective
Trustees:
Austin $8,512
Howell $76,119
McDonnell $79,200
McVerry $88,275
Petit $72,325
Salton $81,625
Scofield $11,740
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the Funds as
of September 30, 1998. The returns for Total Return are cumulative. For more
information, see "Total Return" under Performance Calculations in Part 2 of this
SAI.
Ten Years or Class
Fund/Class One Year Five Years Since Inception Inception Date
Adjustable Rate(1)
Institutional 5.54% 5.63% 5.58% 10/1/91
Institutional
Service 5.17% 5.33% 5.37% 5/23/94
Core Bond(2)
Institutional 10.75% 5.96% 8.78% 12/19/97
Institutional
Service 10.55% 5.71% 8.52% 3/9/98
Charitable 10.75% 5.96% 8.78% 2/28/86
Fixed Income(3)
Institutional 9.23% 5.78% 7.89% 3/31/71
Institutional
Service 9.04% 5.53% 7.64% 3/2/98
Income Plus(3)
Institutional 11.14% 6.40% 8.37% 8/31/88
Institutional
Service 10.96% 6.15% 8.10% 3/2/98
Intermediate
Term(3)
Institutional 8.62% 5.53% 6.75% 1/31/84
Institutional
Service 8.43% 5.28% 6.49% 3/2/98
International Bond
Institutional 6.31% N/A 4.58% 12/15/93
Institutional
Service 6.05% N/A 4.33% 12/15/93
Limited
Duration(3)
Institutional 7.27% N/A 6.32% 4/30/94
Institutional
Service 7.15% N/A 6.09% 7/28/98
Total Return
Institutioinal N/A N/A 2.83% 4/20/98
Institutional
Service N/A N/A 2.79% 8/03/98
1. On Adjustable Rate Institutional Service shares, historical performance
prior to the class' inception reflects that of the Institutional shares,
the original shares offered, and does not include 12b-1 fees. Performance
for the Institutional Service shares for this period would have been lower
had the 12b-1 fees been included.
2. On Core Bond, performance information includes the performance of the
Fund's predecessor common trust fund for the periods before the Fund's
registration statement became effective on 11/21/97. Performance for the
common trust fund has been adjusted to include the effect of estimated
mutual fund gross expense ratios at the time the Fund was converted to a
mutual fund. Institutional share performance for the period between
11/24/97 and the class' inception, is based on the historical performance
of the Charitable shares, the original shares offered. Since Institutional
Service share performance for the period between 11/24/97 and its inception
is based on the historical performance of the Charitable shares, 12b-1 fees
are not reflected. Performance for the Institutional Service shares for
this period would be lower had the 12b-1 fees been included.
3. On Fixed Income, Income Plus, Intermediate Term and Limited Duration,
performance information includes the performance of the Fund's predecessor
common trust fund for the periods before the Fund's registration
statement became effective on 11/21/97. Performance for the common trust
fund has been adjusted to include the effect of the estimated mutual fund
gross expense ratio at the time the Fund was converted to a mutual fund.
Institutional Service shares performance for the period between 11/24/97
and the class' inception is based on the historical performance of the
Institutional shares, the original shares offered, and therefore do not
reflect 12b-1 fees. Performance for the Institutional Service shares for
this period would have been lower had the 12b-1 fees been included.
Current Yield
Below are the current yields for each class of shares of the Funds as of
September 30, 1998. For more information, see "30- day Yield under Performance
Calculation in Part 2 of this SAI.
30-Day SEC Yield
Fund Institutional Institutional Charitable
Service
Adjustable Rate 5.75% 5.46% N/A
Core Bond 5.66% 5.42% 5.67%
Fixed Income 5.37% 5.12% N/A
Income Plus 5.45% 5.23% N/A
Intermediate Term 4.37% 4.12% N/A
International Bond 4.76% 4.50% N/A
Limited Duration 5.25% 4.99% N/A
Total Return 6.55% 6.32% N/A
Below are the tax equivalent yields for each class of shares of the
Intermediate Term for the seven-day period ended September 30, 1998. The maximum
federal tax rate of 39.6% is assumed. For more information, see "Tax Equivalent
Yield" under Performance Calculations in Part 2 of this SAI.
30 day SEC Tax Equivalent Yield
Institutional Institutional
Service
Intermediate Term 7.24% 6.82%
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to each
of the Funds other than Adjustable Rate, 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 the Fund based on
the total assets of all mutual funds for which EIS serves as administrator and a
First Union Corporation subsidiary serves as advisor. The fee paid to EIS is
calculated in accordance with the following schedule:
Assets Fee
first $7 billion 0.050%
next $3 billion 0.035%
next $5 billion 0.030%
next $10 billion 0.020%
next $5 billion 0.015%
over $30 billion 0.010%
Transfer Agent
Evergreen Service Company ("ESC"), 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. The transfer agent's address is P.O. Box 2121, Boston, Massachusetts
02106-2121. The Fund pays ESC annual fees as follows:
Annual Fee Per Annual Fee Per
Fund Type Per Open Account Closed Account
Monthly Dividen Funds $25.50 $9.00
Quarterly Dividends Funds $24.50 $9.00
Semiannual Dividend Funds $23.50 $9.00
Annual Dividend Fund $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 account are maintained on the system in order to facilitate
historical and tax information.
Distributor
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
Independent Accountants
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036 audits the financial statements of each Fund other than Adjustable Rate.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, audits
the financial statements of Adjustable Rate.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank keeps
custody of each Fund's securities and cash and performs other related duties.
The custodian's address is 225 Franklin Street, Boston, Massachusetts 02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C.
20036.
FINANCIAL STATEMENTS
The financial statements for International Bond Fund for the periods from
June 30, 1994 through June 30, 1998 have been audited by Ernst & Young, LLP,
independent auditors. The financial statements of International Bond Fund for
the three-month period ended September 30, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants. Reports of Ernst & Young
LLP for the period ended June 30, 1998 and PricewaterhouseCoopers LLP for the
period ended September 30, 1998 on the financial statements for International
Bond Fund appear in the Fund's Annual Reports which are incorporated by
reference. The financial statements for Adjustable Rate Fund have been audited
by KPMG Peat Marwick LLP, independent auditors. The report of KPMG Peat Marwick
LLP on the financial statements for Adjustable Rate Fund appears in the Fund's
Annual Report which is incorporated by reference. The financial statements for
Core Bond Fund, Fixed Income Fund, Income Plus Fund, Intermediate Term Municipal
Bond Fund, Limited Duration Fund and Total Return Fund have been audited by
PricewaterhouseCoopers LLP, independent accountants. A report of
PricewaterhouseCoopers LLP on the financial statements for those Funds appears
in the Funds' Annual Report which is incorporated by reference. Annual Reports
may be obtained without charge by writing to ESC, P.O. Box 2121, Boston,
Massachusetts 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 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.
Defensive Investments
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 advisor, market conditions warrant a temporary defensive investment
strategy. Evergreen Equity Income Fund (formerly Evergreen Fund for Total
Return) 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) Farm Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation; (v) Federal National Mortgage
Association; and
(vi) 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.
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 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.
Options
An option is a right to buy or sell a security for a specified price within
a limited time period. The option buyer pays the option seller (known as the
"writer") for the right to buy, which is a "call" option, or the right to sell,
which is a "put" option. Unless the option is terminated, the option seller must
then buy or sell the security at the agreed-upon price when asked to do so by
the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
The Fund may write only covered options. With regard to a call option, this
means that the Fund will own, for the life of the option, the securities subject
to the call option. The Fund will cover put options by holding, in a segregated
account, liquid assets having a value equal to or greater than the price of
securities subject to the put option. If the Fund is unable to effect a closing
purchase transaction with respect to the covered options it has sold, it will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised.
Futures Transactions
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.
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.
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.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Inc. ("Fitch") or below Baa by Moody's Investors Service, Inc. ("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 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% 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
determine 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.
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.
Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the 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 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 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.
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.
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. 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 coupon 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 coupon zero
coupon bonds representing 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
services 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
rated 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 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.
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
You may buy shares of the Fund through the Distributor, broker-dealers that
have entered into special agreements with the Distributor or certain other
financial institutions. 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.
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; (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; and (g) upon the initial purchase of an
Evergreen fund by investors reinvesting the proceeds from a redemption within
the preceding 30 days of shares of other mutual funds, provided such shares were
initially purchased with a front-end sales charge or subject to a CDSC.
Class B Shares
The Fund offers Class B shares at net asset value 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 the Distributor. The Fund offers Class
C shares at net asset value without an initial sales charge. With certain
exceptions, however, the Fund will charge a CDSC of 1.00% on shares you redeem
within 12-months after the month of your purchase. See "Contingent Deferred
Sales Charge" below.
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 EIM,
EAMC, EIMC, Meridian Investment Company, First International Advisors, Ltd., or
their affiliates. Class Y shares are offered at net asset value without a
front-end or back-end sales charge and do not bear any Rule 12b-1 distribution
expenses.
Institutional Shares, Institutional Service Shares and Charitable 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, Institutional Service and Charitable 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 the Distributor or its
predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional, Institutional
Service and Charitable shares.
If you 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, the Distributor, any
broker-dealer with whom the Distributor, 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, the Distributor or their affiliates and to the
immediate families of such persons; or
9. a bank or trust company in a single account in the name of such
bank or trust company as Trustee if the initial investment in or any
Evergreen fund 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 a
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 an 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. 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.
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily 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 Fund's opinion, the last sales price does not reflect
a 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.
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:
P(1+T) = ERV
P = initial payment of $1,000
T = average 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:
Yield = 2[(a-b/cd+1) -1]
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:
Tax Equivalent Yield
Tax Equivalent Yield = Yield/1-Income Tax Rate
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:
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
The Distributor 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 the Distributor with
respect to each class of the Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor 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 the Distributor 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 the Distributor 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.
The Distributor has agreed that it will, in all respects, duly conform with
all state and federal laws applicable to the sale of the shares. The Distributor
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 the Distributor or any other person for whose acts
the Distributor 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 the Distributor's judgment, it could benefit the
sales of shares, the Distributor 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, and, when
applicable, Class C shares, or Institutional Service shares, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These "12b-1 fees" or "distribution 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, and, when applicable, Class C
shares, or Institutional Service shares, the Fund may incur expenses for
distribution costs 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%
Institutional Service 0.25%*
*Currently limited to 0.25% or less. See the expense table in the prospectus
of the Fund in which you are interested.
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 above.
Amounts paid under the Plans are used to compensate the Distributor
pursuant to Distribution Agreements (each an "Agreement," together, the
"Agreements") that the Fund has entered into with respect to its Class A, Class
B and, if applicable, Class C shares, or Institutional Service shares. The
compensation is based on a maximum annual percentage of the average daily net
assets attributable to a class, as follows:
Class A 0.25%*
Class B 1.00%
Class C 1.00%
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 the Distributor 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 the Distributor 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.
The Distributor may assign its rights to receive compensation under the Plans to
secure such financings. FUNB or its affiliates may finance payments made by the
Distributor 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 the Distributor under the Agreements may be paid by the
Fund's Distributor to the acquired fund's distributor or its predecessor.
Since the Distributor's compensation under the Agreements is not directly
tied to the expenses incurred by the Distributor, 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 the Distributor. Distribution
expenses incurred by the Distributor in one fiscal year that exceed the
compensation paid to the Distributor 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 monthly on Class A,
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 the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
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 Securities and Exchange
Commission ("SEC") make payments for distribution services to the Distributor;
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 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 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 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 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 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 the Distributor with respect to that class or classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor 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 the
Distributor. 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 the Distributor. 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 Internal
Revenue Code of 1986, as amended (the "Code"). If the (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 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 fund or U.S. Treasury 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 fund or U.S. Treasury 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 Municipal Bond Fund Shareholders
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) 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.
Selection of Brokers
When buying and selling portfolio securities, the investment 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 EAMC, Lieber & Company, an affiliate of EAMC and
a member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions effected 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
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.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
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
Masters ) 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 Masters, 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 (Masters only)
Masters' 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 Evergreen Asset Management Corp., MFS Institutional
Advisors, Inc. ("MFS"), OppenheimerFunds, Inc. ("Oppenheimer") and Putnam
Investment Management, Inc. ("Putnam").
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, James Howell, Vice Chairman of the Board, Michael Scofield 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.
Name Position with Trust Principal Occupations for Last
Five Years
Laurence B. Ashkin Trustee Real estate developer and
(DOB: 2/2/28) construction consultant; and
President of Centrum Equities
and Centrum Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton
(DOB: 10/23/34) Partners, Inc.; 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.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman
of the Finance Committee, Cam-
bridge 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; former Managing Partner,
Roscommon Capital Corp.; former
Chief Executive Officer, Gifford
Gifts of Fine Foods; former
Chairan, Gifford, Drescher &
Associates (environmental
consulting).
James S. Howell Chairman of The Former Chairman of the
(DOB: 8/13/24) Board of Trustees Distribution Foundation for the
Carolinas; and former Vice
President of Lance Inc. (food
manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief
(DOB: 2/14/39) Executive Officer, Carson
Products Company; Director of
Phoenix Total Return Fund and
Equifax, Inc.; 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 Representative with Nucor-
(DOB: 7/14/39) Yamoto, Inc. (steel producer).
Thomas L. McVerry Trustee Former Vice President and
(DOB: 8/2/39) Director of Rexham Corporation
(manufacturing); and former
Director of Carolina Cooperative
Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of
(DOB: 8/26/55) William Walt Pettit, P.A.
David M. Richardson Trustee Vice Chair and former Executive
(DOB: 9/14/41) Vice President, 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., and J&M
Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health
(DOB: 6/2/47) Care/Aetna Health Services;
former Managed Health Care
Consultant; and former President,
Primary Physician Care.
Michael S. Scofield Vice Chairman Attorney, Law Offices of Michael
(DOB: 2/20/43) of the Board of S. Scofield.
Trustees
Richard J. Shima Trustee Former Chairman, Environmental
(DOB: 8/11/39 Warranty, Inc. (insurance
agency); Executive Consultant,
Drake Beam Morin, Inc. (executive
outplacement); Director of
Connecticut Natural Gas Corpora-
tion, Hartford Hospital, Old
State House Association,
Middlesex Mutual Assurance
Company, and Enhance Financial
Services, Inc.; Chairman, Board
of Trustees, Hartford Graduate
Center; Trustee, Greater Hartford
YMCA; former Director, Vice
Chairman and Chief Investment
Officer, The Travelers Corpora-
tion; former Trustee, Kingswood-
Oxford School; and former
Managing Director and Consultant,
Russell Miller, Inc.
William J. Tomko* President and Executive Vice President/
(DOB: 8/30/58) Treasurer Operations, BISYS Fund Services.
Nimish S. Bhatt* Vice President Vice President, Tax, BISYS Fund
(DOB: 6/6/63) and Assistant Services; former Assistant Vice
Treasurer President, EAMC/First Union Bank;
former Senior Tax Consulting/
Acting Manager, Ivestment
Companies Group,
PricewaterhouseCoopers LLP, New
York.
Bryan Haft* Vice President Team Leader, Fund Administration,
(DOB: 1/23/65) BISYS Fund Services.
Michael H. Koonce Secretary Senior Vice President and
(DOB: 4/20/60) Assistant General Counsel, First
Union Corporation; former Senior
Vice President and General
Counsel, Colonial Management
Associates, Inc.
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
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.
COMPARISON OF LONG-TERM BOND RATINGS
MOODY'S S&P FITCH Credit Quality
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
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 of 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 the Distributor, 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 SELECT FIXED INCOME TRUST
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23 Exhibits
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 17, 1997
(b) By-laws Incorporated by reference to
Registrant's Pre-Effective Amendment
No. 1 filed on November 17, 1997
(c) Provisions of instruments defining the rights Included as part of Exhibits 1 and 2
of holders of the securities being registered of Registrant's Pre-Effective Amendment
are contained in the Declaration of Trust No. 1 Filed on November 17, 1997
Articles II, V, VI, VIII, IX and By-laws
Articles II and VI
(d)(1) Investment Advisory Agreement between Incorporated by reference to Registrant's
the Registrant and Evergreen Investment Post-Effective Amendment No. 3 filed on June
Management (formerly known as the First 30, 1998
Capital Group of First Union National
Bank.)
(d)(2) Investment Advisory Agreement between the Contained herein
Registrant and Evergreen Investment Management
Company (formerly known as Keystone Investment
Management Company)
(d)(3) Form of Investment Advisory Agreement between First Incorporated by reference to
Union National Bank and First International Registrant's Post-Effective Amendment
Advisers, Ltd. (formerly known as Analytic.TSA No. 2 filed on June 8, 1998
International,Inc.)
(d)(4) Sub-Advisory Agreement between First Union National Incorporated by reference to Registrant's
Bank and First International Advisers, Ltd. Post-Effective Amendment No. 4 filed on December
2, 1998
(e) Principal Underwriting Agreement between the Incorporated by reference to Registrant's
Registrant and Evergreen Distributor, Inc. Post-Effective Amendment No. 3 filed on June 30, 1998
(f) Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment
No. 1 filed on November 17, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to Registrant's
and State Street Bank and Trust Company Post-Effective Amendment No. 3 filed on June 30, 1998
(h)(1) Administration Agreement between Evergreen Incorporated by reference to Registrant's
Investment Services, Inc. and the Registrant Post-Effective Amendment No. 3 filed on June 30, 1998
(h)(2) Transfer Agent Agreement between the Incorporated by reference to Registrant's
Registrant and Evergreen Service Company Post-Effective Amendment No. 3 filed on June 30, 1998
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed on December 12, 1997
(j)(1) Not applicable
(j)(2) Not applicable
(j)(3) Not applicable
(k) Not applicable
(l) Not applicable
(m) 12b-1 Distribution Plan for the Incorporated by reference to Registrant's
Institutional Service Shares Post-Effective No. 3 filed on June 30, 1998
(n) Not applicable
(o) Multiple Class Plan Contained herein
</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 Advisor.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
Anthony Terracciano President, First Union Corporation;
President, First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, First Union National Bank
Marion A. Cowell, Jr. 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 Investment
Management Company is incorporated by reference to the Form ADV (File No.
801-5436) of Evergreen Investment Management Company
The information required by this item with respect to First International
Advisers, Ltd. is incorporated by reference to the Form ADV (File No. 801-42427)
of First International Advisers, Ltd.
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
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address: Evergreen
Distributor, Inc., 90 Park Avenue, New York, New York 10016.
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the principal underwriter in the last fiscal year.
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 (Formaly known as Keystone
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
First International Advisers, Ltd., 25/28 Old Burlington Street, London
W1X 1LB, England
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
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 Columbus, and State of Ohio, on the 4th day of May,
1999.
EVERGREEN SELECT FIXED INCOME TRUST
By: /s/ William J. Tomko
-----------------------------
Name: William J. Tomko
Title: President
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 4th day of May, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Trustee Trustee
/s/ Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Chairman of the Board and Trustee
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
- ------------------------------
Richard J. Shima*
</TABLE>
*By: /s/ Catherine E. Foley
- -------------------------------
Catherine E. Foley
Attorney-in-Fact
*Catherine E. Foley, 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 and incorporated by reference to Exhibit
19 to the Registrant's Post-Effective Amendment No. 2 filed on June 8, 1998.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
(d)(2) Investment Advisory and Management Agreement
(o) Multiple Class Plan
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 18th day of September 1997, by and between EVERGREEN
SELECT FIXED INCOME TRUST, a Delaware business trust (the "Trust") and KEYSTONE
INVESTMENT MANAGEMENT COMPANY, a Delaware corporation (the "Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this Agreement and
each series of shares subsequently issued by the Trust (each singly a "Fund" or
collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and administer
the operation of the Trust and each of its Funds, to supervise the provision of
the services to the Trust and each of its Funds by others, and to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund's investment objectives and restrictions as may be set
forth from time to time in the Fund's then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities
<PAGE>
Exchange Act of 1934 (the "1934 Act")) provided to a Fund and/or other accounts
over which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for a Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Trust office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser's organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such; and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation:
(a) all charges and expenses of any custodian or depository appointed
by the Trust for the safekeeping of the cash, securities and other property of
any of its Funds;
(b) all charges and expenses for bookkeeping and auditors;
(c) all charges and expenses of any transfer agents and registrars
appointed by the Trust;
(d) all fees of all Trustees of the Trust who are not affiliated with
the Adviser or any of its affiliates, or with any adviser retained by the
Adviser;
(e) all brokers' fees, expenses, and commissions and issue and transfer
taxes chargeable to a Fund in connection with transactions involving securities
and other property to which the Fund is a party;
(f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act");
(g) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies;
(h) all costs of certificates representing shares of the Trust or its
Funds;
(i) all fees and expenses involved in registering and maintaining
registrations of the
<PAGE>
Trust, its Funds and of their shares with the Securities and Exchange Commission
(the "Commission") and registering or qualifying the Funds' shares under state
or other securities laws, including, without limitation, the preparation and
printing of registration statements, prospectuses, and statements of additional
information for filing with the Commission and other authorities;
(j) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(k) all expenses of shareholders' and Trustees' meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(l) all charges and expenses of legal counsel for the Trust and its
Funds and for Trustees of the Trust in connection with legal matters relating to
the Trust and its Funds, including, without limitation, legal services rendered
in connection with the Trust and its Funds' existence, trust, and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state, and other laws, issues of securities,
expenses which the Trust and its Funds have herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Trust and its Funds, its Trustees, officers, employees, or agents;
(m) all charges and expenses of filing annual and other reports with
the Commission and other authorities; and
(n) all extraordinary expenses and charges of the Trust and its Funds.
In the event that the Adviser provides any of these services or pays
any of these expenses, the Trust and any affected Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser's services to the Trust with respect
to each Fund during the period of this Agreement, the Trust will pay to the
Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser's fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust's fee with respect to a Fund shall be
payable in arrears at the end of each day or calendar month as the Adviser may
from time to time specify to the Trust. If and when this Agreement terminates,
any compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination.
Amounts payable hereunder shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms ("SubAdviser") to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser's rights, obligations, and
<PAGE>
duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust or any of its Funds in connection
with the performance of this Agreement, except a loss resulting from the
Adviser's willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its Funds to
be audited at least once each year by a reputable independent public accountant
or organization of public accountant or organization of public accountants who
shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of the
Trust, the governing documents of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the date
set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of any Fund with respect to that Fund; and on sixty days'
written notice to the Trust, this Agreement may be terminated at any time
without the payment of any penalty by the Adviser with respect to a Fund. This
Agreement shall automatically terminate upon its assignment (as that term is
defined in the
<PAGE>
1940 Act). Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postage prepaid, to the other party at the main office
of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A "majority of the outstanding voting securities" of the Trust or
the affected Funds shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed, and
enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EVERGREEN SELECT FIXED INCOME
TRUST
By: /s/ John J. Pileggi
---------------------------
Name: John J. Pileggi
Title: President
KEYSTONE INVESTMENT MANAGEMENT
COMPANY
By: /s/ Albert H. Elfner
----------------------------
Name: Albert H. Elfner
Title: Chief Executive Officer
<PAGE>
Schedule 1
Date: March 12, 1999
Evergreen Select Adjustable Rate Fund
Evergreen Select High Yield Bond Fund
<PAGE>
Schedule 2
As compensation for the Adviser's services to each Fund during the
period of this Agreement, each Fund wil pay to the Adviser a fee at the annual
rate of:
I. Evergreen Select Adjustable Rate Fund
-------------------------------------------------
0.30% of the Average Daily Net Assets of the Fund
II. Evergreen Select High Yield Bond Fund
-------------------------------------------------
0.40% of the Average Daily Net Assets of the Fund
MULTIPLE CLASS PLAN
FOR THE
EVERGREEN FUNDS
As of March 12, 1998
Each Fund in the Evergreen group of mutual funds currently offers one or more of
the following nine classes of shares with the following class provisions and
current offering and exchange characteristics. Additional classes of shares
(such classes being shares having characteristics referred to in Rule 18f-3
under the Investment Company Act of 1940, as amended (the "1940 Act")), when
created, may have characteristics that differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act (a "12b-1 Distribution Plan") and/or a shareholder
services plan. The plans provide for annual payments of distribution and/or
shareholder service fees that are based on a percentage of average daily net
assets of Class A shares, as described in a Fund's current prospectus.
2. Class A Shares are offered with a front-end sales load,
except that purchases of Class A Shares made under certain circumstances are not
subject to the front-end load or may be subject to a contingent deferred sales
charge ("CDSC"), as described in a Fund's current prospectus.
3. Shareholders may exchange Class A Shares of a Fund for Class
A Shares of any other fund named in a Fund's prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class B shares, as described in a Fund's current
prospectus.
2. Class B Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Class B Shares automatically convert to Class A Shares
without a sales load or exchange fee after designated periods.
4. Shareholders may exchange Class B Shares of a Fund for Class
B Shares of any other fund described in a Fund's prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class C shares, as described in a Fund's current
prospectus.
2. Class C Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Shareholders may exchange Class C Shares of a Fund for Class
C Shares of any other fund named in a Fund's prospectus.
D. Class J Shares
1. Class J Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder service fees that are based on a percentage of
average daily net assets of Class J shares, as described in a Fund's current
prospectus.
2. Class J Shares are offered with a front-end sales load,
except that purchases of Class J Shares made under certain circumstances are not
subject to the front-end load or may be subject to a CDSC, as described in a
Fund's current prospectus.
3. Shareholders may exchange Class J Shares of a Fund for Class
J Shares of any other fund named in a Fund's prospectus.
E. Class Y Shares
1. Class Y Shares have no distribution or shareholder services
plans.
2. Class Y Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Class Y Shares of a Fund for Class
Y Shares of any other fund described in a Fund's prospectus.
F. Institutional Service Shares
1. Institutional Service Shares have adopted a 12b-1
Distribution Plan and/or shareholder services plan. .The plans provide for
annual payments of distribution and/or shareholder services fees that are based
on a percentage of average daily net assets of Institutional Service Shares, as
described in a Fund's current prospectus.
2. Institutional Service Shares are offered at net asset value
without a front-end sales load or CDSC.
3. Shareholders may exchange Institutional Service Shares
of a Fund for Institutional Service Shares of any other fund named in a Fund's
prospectus, to the extent they are offered by a Fund.
G. Institutional Shares
1. Institutional Shares have no distribution or shareholder
services plans.
2. Institutional Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a Fund for
Institutional Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
H. Charitable Shares
1. Charitable Shares have no distribution or shareholder
services plans.
2. Charitable Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Charitable Shares of a Fund for
Charitable Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or shareholder
services plan. Class J Shares shall also bear that portion of the Transfer
Agency fees and other expenses allowed by Rule 18f-3 that are attributable to
them due to distribution outside of the United States. There currently are no
other class specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses not
assigned to a class will be allocated to each class based on the relative net
asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter
submitted to its shareholders that relates solely to its class
arrangement.
B. Each class will have separate voting rights on any matter
submitted to shareholders where the interests of one class
differ from the interests of any other class.
C. In all other respects, each class has the same rights and
obligations as each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
