- ----------------------------------------------------------------------------
PROSPECTUS June 1, 1998
(Logo of Evergreen Funds(SM) appears here)
EVERGREEN SELECT MONEY MARKET FUNDS
- ----------------------------------------------------------------------------
Evergreen Select Money Market Fund
Evergreen Select Municipal Money Market Fund
Evergreen Select Treasury Money Market Fund
Evergreen Select 100% Treasury Money Market Fund
(Each a "Fund," together the "Funds")
INSTITUTIONAL SERVICE SHARES
This prospectus contains important information about the Institutional
Service Shares of Evergreen Select Money Market Fund, Evergreen Select
Municipal Money Market Fund, Evergreen Select Treasury Money Market Fund and
Evergreen Select 100% Treasury Money Market Fund, including how the Funds
invest and services available to shareholders. Please read this prospectus
before investing, and keep it for future reference.
When you consider investing in a Fund, remember that the higher the risk
of losing money, the higher the potential reward. The reverse is also generally
true: the lower the risk, the lower the potential reward.
By itself, no Fund is a complete investment plan. When considering an
investment in a Fund, remember to consider your overall investment objectives
and any other investments you own. You should also carefully evaluate your
ability to handle the risks posed by your investment in the Funds. You can find
information on the risks associated with investing in the Funds in the section
entitled "Fund Descriptions."
To learn more about the Funds, call 1-800-343-2898 for a free copy of the
Funds' Statement of Additional Information ("SAI") dated June 1, 1998, as
supplemented from time to time. The Funds have filed the SAI with the
Securities and Exchange Commission. The SAI is incorporated by reference herein
(i.e., legally, the SAI is part of this prospectus).
Please remember that shares of the Funds are:
o Not deposits or obligations of any bank.
o Not endorsed or guaranteed by any bank.
o Not insured or otherwise protected by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
o Subject to investment risks, including possible loss of the principal amount.
An investment in a Fund is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that a Fund will be able to maintain
a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
EXPENSES 3
FINANCIAL HIGHLIGHTS 4
FUND DESCRIPTIONS 6
Each Fund's Objective and Principal
Investments 6
Securities and Investment Practices 7
BUYING AND SELLING SHARES 9
How To Buy Shares 9
How To Redeem Shares 9
Additional Transaction Policies 10
Exchanges 11
Dividends 11
Taxes 11
Shareholder Services 12
FUND DETAILS 12
Fund Organization and Service
Providers 12
Other Information and Policies 13
Fund Performance 14
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Below are the shareholder transaction costs associated with an investment
in Institutional Service Shares of the Funds.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
</TABLE>
The table below shows the expenses attributable to the Institutional
Service Shares of each Fund for the fiscal year ended February 28, 1998 or, in
the case Evergreen Select 100% Treasury Money Market Fund, the fiscal period
from December 8, 1997 (commencement of operations) to February 28, 1998. The
actual annual operating expenses shown on the left are expressed as a
percentage of each Fund's average net assets. The examples on the right show
what you would pay if you invested $1000 over the periods indicated. The
examples assume a 5% average annual return, reinvestment of all dividends and
redemption at the end of each period.
Evergreen Select Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .12%
12b-1 Fees .25%
Other Expenses .08%
---
Total .45%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 5
After 3 Years $14
After 5 Years $25
After 10 Years $57
</TABLE>
Evergreen Select Municipal Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .00%
12b-1 Fees .25%
Other Expenses .10%
---
Total .35%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 4
After 3 Years $11
After 5 Years $20
After 10 Years $44
</TABLE>
Evergreen Select Treasury Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .15%
12b-1 Fees .25%
Other Expenses .03%
---
Total .43%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 4
After 3 Years $14
After 5 Years $24
After 10 Years $54
</TABLE>
Evergreen Select 100% Treasury Money Market Fund (2)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .00%
12b-1 Fees .22%
Other Expenses .20%
---
Total .42%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 4
After 3 Years $13
After 5 Years $24
After 10 Years $53
</TABLE>
3
<PAGE>
(1) The Funds' investment adviser has voluntarily agreed to reimburse the
Funds to the extent that the Funds' aggregate annual operating expenses
(including the investment adviser's fee, but excluding taxes, interest,
brokerage commissions, 12b-1 fees, shareholder service fees and extraordinary
expenses) exceed .20% of the average net assets for any fiscal year. From time
to time, the investment adviser may, at its discretion, waive additional fees or
reimburse expenses in order to reduce the Funds' expense ratios. Without such
waivers and reimbursements, the Funds' total annual operating expenses would
have been .48%, .51% and .48%, for Evergreen Select Money Market Fund, Evergreen
Select Municipal Money Market Fund, and Evergreen Select Treasury Money Market
Fund, respectively. The investment adviser may cease any voluntary waiver or
reimbursement at any time.
(2) The Fund's investment adviser has voluntarily agreed to limit the
investment advisory fee for Evergreen Select 100% Treasury Money Market Fund to
0.15%.Without such waiver, the Management Fee would be .25%. The investment
adviser currently intends to continue this expense waiver through November 30,
1998; however, it may modify or cancel its expense waiver at any time. See "Fund
Details" for more information. In addition, the investment adviser has
voluntarily limited the Other Expenses of the Fund to .20%. Without this
limitation, Other Expenses would be .40% higher. Absent expense waivers and/or
reimbursements, the Total Operating Expenses of the Fund would be .82%. The
investment adviser may cease any voluntary waiver or reimbursement at any time.
The above table shows the costs and expenses you would pay directly or
indirectly if you invested in Institutional Shares of a Fund. THE EXAMPLES DO
NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables present financial highlights for a share outstanding
throughout each period indicated for the life of each Fund. The information has
been audited by Price Waterhouse LLP, each Fund's independent accountant. A
report of Price Waterhouse on the audited information is incorporated by
reference in the Funds' SAI. These tables should be read in conjunction with
the financial statements and related notes which are also incorporated by
reference in the Funds' SAI.
Further information about each Fund's performance is contained in the
Funds' Annual Report, which may be obtained without charge.
Evergreen Select Money Market Fund -- Institutional Service Shares
<TABLE>
<CAPTION>
Institutional Service Shares
--------------------------------------
November 26, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of period ..................... $ 1.000 $ 1.000
--------- ----------
Income from investment operations
Net investment income .................................. 0.053 0.014
Less distributions from net investment income .......... (0.053) (0.014)
--------- ----------
Net asset value end of period ........................... $ 1.000 $ 1.000
========= ==========
TOTAL RETURN ............................................ 5.45% 1.40%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ......................................... 0.45% 0.32%(a)
Total expenses excluding indirectly paid expenses ...... 0.45% --
Total expenses excluding waivers and/or reimbursements . 0.48% 0.68%(a)
Net investment income .................................. 5.33% 5.24%(a)
Net assets end of period (thousands) .................... $1,215,348 $ 867,294
========== ==========
</TABLE>
- --------
(a) Annualized.
4
<PAGE>
Evergreen Select Municipal Money Market Fund -- Institutional Service Shares
<TABLE>
<CAPTION>
Institutional Service Shares
--------------------------------------
November 25, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of period ..................... $ 1.000 $ 1.000
-------- ----------
Income from investment operations
Net investment income .................................. 0.034 0.008
Less distributions from net investment income .......... (0.034) (0.008)
-------- ----------
Net asset value end of period ........................... $ 1.000 $ 1.000
======== ==========
TOTAL RETURN ............................................ 3.41% 0.85%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ......................................... 0.35% 0.30%(a)
Total expenses excluding indirectly paid expenses ...... 0.35% --
Total expenses excluding waivers and/or reimbursements . 0.51% 0.70%(a)
Net investment income .................................. 3.34% 3.19%(a)
Net assets end of period (thousands) .................... $ 61,778 $ 14,295
======== ==========
</TABLE>
- --------
(a) Annualized.
Evergreen Select Treasury Money Market Fund -- Institutional Service Shares
<TABLE>
<CAPTION>
Institutional Service Shares
--------------------------------------
November 27, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of period ..................... $ 1.000 $ 1.000
--------- ----------
Income from investment operations
Net investment income .................................. 0.052 0.013
Less distributions from net investment income .......... (0.052) (0.013)
--------- ----------
Net asset value end of period ........................... $ 1.000 $ 1.000
========= ==========
TOTAL RETURN ............................................ 5.25% 1.33%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ......................................... 0.43% 0.31%(a)
Total expenses excluding indirectly paid expenses ...... 0.43% --
Total expenses excluding waivers and/or reimbursements . 0.48% 0.70%(a)
Net investment income .................................. 5.17% 4.98%(a)
Net assets end of period (thousands) .................... $1,005,059 $ 509,369
========== ==========
</TABLE>
- --------
(a) Annualized
5
<PAGE>
Evergreen Select 100% Treasury Money Market Fund -- Institutional Service
Shares
<TABLE>
<CAPTION>
Institutional Service Shares
-----------------------------
December 23, 1997
(Commencement of
Class Operations)
through
February 28, 1998
-----------------------------
<S> <C>
PER SHARE DATA:
Net asset value beginning of period ......................... $ 1.000
----------
Income from investment operations
Net investment income ...................................... 0.009
Less distributions from net investment income .............. (0.009)
----------
Net asset value end of period ............................... $ 1.000
==========
TOTAL RETURN ................................................ 0.93%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ............................................. 0.42%(a)
Total expenses excluding indirectly paid expenses .......... 0.42%(a)
Total expenses excluding waivers and/or reimbursements ..... 0.82%(a)
Net investment income ...................................... 4.74%(a)
Net assets end of period (thousands) ........................ $ 5,497
==========
</TABLE>
- --------
(a) Annualized
- --------------------------------------------------------------------------------
FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
EACH FUND'S OBJECTIVE AND PRINCIPAL INVESTMENTS
Each Fund's Investment objective is nonfundamental, which means the
objective can be changed without a shareholder vote. There can be no assurance
that a Fund's investment objective will be achieved.
Each Fund has also adopted fundamental investment policies designed to
limit a Fund's exposure to risk. Fundamental policies can be changed only with
a shareholder vote. For more information about investment policies, see
"Securities and Investment Practices" below and the SAI.
Evergreen Select Money Market Fund seeks as high a level of current income
as is consistent with preserving capital and providing liquidity. The Fund will
invest principally in short-term corporate debt securities.
Evergreen Select Municipal Money Market Fund seeks as high a level of
current income exempt from federal income tax as is consistent with preserving
capital and providing liquidity. The Fund will invest principally in municipal
obligations. Under normal circumstances, at least 80% of the Fund's annual
interest income will be exempt from federal income tax other than the federal
alternative minimum tax.
Evergreen Select Treasury Money Market Fund seeks to maintain stability of
principal while earning current income. The Fund will invest in short-term U.S.
Treasury obligations and repurchase agreements backed by such obligations.
Evergreen Select 100% Treasury Money Market Fund seeks to maintain
stability of principal while earning current income. The Fund will invest only
in U.S. Treasury securities.
In addition, each Fund seeks to maintain a stable net asset value of $1.00
per share. There is no assurance that a Fund will maintain a stable net asset
value of $1.00 per share.
Each Fund will invest in short-term securities that are determined to
present minimal credit risk and are, at the time of acquisition, eligible
securities pursuant to Rule 2a-7 under the Investment Company Act of 1940, as
amended ("Rule 2a-7"). Short-term securities are those having remaining
maturities of 397 days or less. Each Fund will also comply with the
diversification requirements and other applicable requirements prescribed by
Rule 2a-7.
6
<PAGE>
SECURITIES AND INVESTMENT PRACTICES
You can find more information about the types of securities in which each
Fund may invest, the types of investment techniques each Fund may employ in
pursuit of its objective and a summary of related risks set forth below. The
Funds' SAI contains additional information about these investments and
investment techniques.
U.S. Government Securities. Securities issued or guaranteed by the United
- --------------------------
States ("U.S.") Government or its agencies or instrumentalities may be
supported by the full faith and credit of the U.S. Government, by the right of
the issuer to borrow from the Treasury, or only by the credit of the agency or
instrumentality itself. Evergreen Select Treasury Money Market Fund and
Evergreen Select 100% Treasury Money Market Fund will invest only in U.S.
Treasury securities, which are high quality debt securities issued by the U.S.
Treasury, guaranteed as to principal and interest, and supported by the full
faith and credit of the U.S. Government. Evergreen Select Money Market Fund and
Evergreen Select Municipal Money Market Fund may invest in any security issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
While U.S. Government securities are guaranteed as to principal and
interest, their market value is not guaranteed. Generally, U.S. Government
securities are subject to the same interest rate and credit risks as other
fixed-income securities. However, since U.S. Government securities are of the
highest credit quality, the credit risk is minimal. The U.S. Government does
not guarantee the net asset value of the Funds' shares.
Included among the U.S. Government agencies and instrumentalities in whose
securities Evergreen Select Money Market Fund may invest are the Interamerican
Development Bank and the International Bank for Reconstruction and Development.
Obligations of these banks are supported only by the appropriated but unpaid
commitments of its member countries. There are no assurances that the
commitments will be undertaken in the future.
Municipal Obligations. Evergreen Select Municipal Money Market Fund may invest
- ---------------------
in municipal bonds, notes and commercial paper issued by or for any state,
territory or possession of the U.S. (including the District of Columbia) and
their political subdivisions, agencies and instrumentalities. Municipal
obligations are issued by or for state or local governments to support general
financial needs or to pay for public projects or facilities.
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.
Revenue bonds are supported only by the revenues generated by the project or
facility.
Municipal notes and commercial paper are short-term debt instruments
issued in anticipation of taxes and other revenues.
Taxable Investments. Evergreen Select Municipal Money Market Fund may
- ---------------------
temporarily invest up to 20% of its net assets in taxable securities under any
one or more of the following circumstances: (a) pending investment of proceeds
of sale of Fund shares or of portfolio securities, (b) pending settlement of
purchases of portfolio securities, and (c) to maintain liquidity for the
purpose of meeting anticipated redemptions. The Fund may temporarily invest
more than 20% of its total assets in taxable securities for defensive purposes.
The Fund may invest for defensive purposes during periods when its assets
available for investment exceed the available Municipal Securities that meet
the Fund's quality and other investment criteria. Taxable securities in which
the Fund may invest on a short-term basis include obligations of the U.S.
government, its agencies or instrumentalities, including repurchase agreements
with banks or securities dealers involving such securities; time deposits
maturing in not more than seven days; other debt securities rated within the
two highest ratings categories by any nationally recognized statistical rating
organization; commercial paper rated in the highest grade by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group; and certificates of deposit
issued by U.S. branches of U.S. banks with assets of $1 billion or more.
Other Eligible Securities. Evergreen Select Money Market Fund may also invest
- -------------------------
in corporate debt securities, commercial paper and bank obligations.
7
<PAGE>
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
- ---------
total assets, taken at market value. Each Fund may also borrow an additional 5%
of its total assets from banks or others. A Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. A Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights.
Securities Lending. To generate income and offset expenses, each Fund,
except Evergreen Select 100% Treasury Money Market Fund, may lend securities to
broker-dealers and other financial institutions. Loans of securities by a Fund
may not exceed 25% of the value of the Fund's total assets. While securities are
on loan, the borrower will pay the Fund any income accruing on the security.
Also, the Fund may invest any collateral it receives in additional securities.
Gains or losses in the market value of a lent security will affect a Fund
and its shareholders. When a Fund lends its securities, it may not be able to
retrieve the securities on a timely basis, possibly losing the opportunity to
sell the securities at a desirable price. Also, if the borrower files for
bankruptcy or becomes insolvent, the Fund's ability to dispose of the
securities may be delayed.
Investing in Securities of Other Investment Companies. Each Fund may invest in
- -----------------------------------------------------
securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that
the Fund currently pays for its own operations and may result in some
duplication of fees.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund
- -----------------------------------------------------------------
may enter into transactions whereby it commits to buying a security, but does
not pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to a Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged. Each Fund will purchase when-issued securities only to meet
its investment objective, not for speculative purposes.
Repurchase Agreements. Each Fund may enter into repurchase agreements. A
- ---------------------
repurchase agreement is an agreement by a Fund to purchase a security and sell
it back at a specified price and at a specified future date. The repurchase
price reflects an agreed-upon interest rate for the time period of the
agreement. The Fund's risk is the possible inability of the seller to pay the
agreed-upon price on the delivery date. However, such risk is tempered by the
ability of the Fund to sell the security in the open market in case of default.
In such a case, the Fund may incur costs in disposing of the security which
would possibly increase Fund expenses.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
- -----------------------------
agreements. A reverse repurchase agreement is an agreement by a Fund to sell a
security and repurchase it at a specified time and price. A Fund could lose
money if the market value of the securities it sold declines below their
repurchase price.
Other Investment Restrictions. Each Fund has adopted additional investment
- -----------------------------
restrictions and guidelines that are set forth in the SAI.
Risks of Debt Securities. When a Fund buys a debt security, it generally
- ------------------------
expects a variable or fixed rate of interest and repayment of the principal at
maturity. The main risks of investing in debt securities are:
o Interest Rate Risk: The risk that a bond's prices will fall when
interest rates rise, and vice versa. Debt securities have varying levels
of sensitivity to interest rates. Longer-term bonds are generally more
sensitive to changes in interest rates than short term bonds.
o Credit Risk: The chance that the issuer of a bond will have its credit
rating downgraded or will default (fail to make scheduled interest and
principal payments), potentially reducing a Fund's income and/or share
price.
8
<PAGE>
- --------------------------------------------------------------------------------
BUYING AND SELLING SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
Institutional investors may buy Institutional Service Shares of the Funds
through broker-dealers, banks and certain other financial intermediaries, or
directly through the Funds' distributor, Evergreen Distributor, Inc. ("EDI").
Investors may purchase Institutional Shares at the public offering price, which
equals the class's net asset value per share ("NAV"). See "Offering Price and
Other Purchase Information" below.
Minimum Investment. The minimum initial investment in Institutional Service
- ------------------
Shares is $1 million, which may be waived in certain situations. There is no
minimum amount required for subsequent purchases.
Opening an Account. You may open an account by mailing a signed account
- ------------------
application to the particular Fund c/o Evergreen Service Company, P.O. Box
2121, Boston, Massachusetts 02106-2121. You may obtain an account application
by calling 1-800-633-2700.
Except as provided below, you can purchase shares only by wiring federal
funds to Evergreen Service Company (the "Service Company"). You may obtain
wiring instructions by calling 1-800-633-2700. When you call, the Service
Company representative will ask you for the following information: name of
authorized person; shareholder name; shareholder account number; name of the
Fund and share class; amount being wired; and wiring bank name.
Offering Price and Other Purchase Information. When you buy a Fund's shares,
- ---------------------------------------------
you pay its NAV next determined after the Fund receives and accepts your order.
Each Fund computes its NAV twice daily, at 12 noon (eastern time) and as of the
close of regular trading on the New York Stock Exchange ("NYSE") (currently
4:00 p.m. eastern time). Therefore, depending on when the Fund accepts your
order, you will receive its NAV calculated at 12 noon or 4:00 p.m.
You may, at a Fund's discretion, pay for shares of a Fund with securities
instead of cash. Additionally, if you want to buy a Fund's shares equal in
amount to $5 million or more the Fund may require you to pay for those shares
with securities instead of cash. A Fund will only accept securities that are
consistent with its investment objective, policies and restrictions. Also, a
Fund will value the securities in the manner described under "How the Funds
Calculate Their NAV." Investors who receive a Fund's shares for securities
instead of cash may pay such transaction costs as broker's commissions, taxes
or governmental fees.
HOW TO REDEEM SHARES
You may redeem shares of a Fund by mail, telephone or other types of
telecommunication. Once a redemption request has been telephoned, mailed or
otherwise transmitted, it may not be changed or canceled.
Mail Redemptions. You may redeem shares on each day that the New York Stock
- ----------------
Exchange ("NYSE") is open by mailing a written request to the Service Company
at the following address:
Evergreen Service Company
P.O. Box 2121
Boston, Massachusetts 02106-2121
The signatures on the written request must be properly guaranteed, as
described below.
How To Redeem By Telephone. You may redeem your shares by calling
- --------------------------
1-800-633-2700 between the hours of 9:00 a.m. and 5:00 p.m. (eastern time) on
each business day. You may also redeem shares by sending a facsimile to (617)
210-2708 or by other means of wire communication. You must state the Fund and
class from which you want to redeem, the number or dollar amount of shares you
want to redeem and your account number. The telephone redemption service is not
available to you automatically. You must elect it on your account application.
If you are unable to reach the Funds or the Service Company by telephone,
you should redeem by mail.
9
<PAGE>
The Service Company will wire your redemption proceeds to the commercial
bank account designated on the account application. If the Service Company
deems it appropriate, it may require additional documentation. Although at
present the Service Company pays the wire costs involved, it reserves the right
at any time to require the shareholder to pay such costs.
Redemption Value and Other Redemption Policies. When you sell shares, you
- ----------------------------------------------
receive the NAV next computed after a Fund receives your request. Since each
Fund computes its NAV twice daily, depending on when the Fund receives your
request, you will receive its NAV calculated at 12 noon or 4:00 p.m. (eastern
time). Generally, the Fund pays redemption proceeds within seven days.
Redemption requests received after 4:00 p.m. (eastern time) will be processed
using the NAV determined on the next business day.
The Funds may, at any time, change, suspend or terminate any of the
redemption methods described in this prospectus, except redemptions by mail.
For more information, see "How the Funds Calculate Their NAV."
The Funds may, at their discretion, pay your redemption proceeds with
securities instead of cash. However, each Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of a Fund's total net assets
during any ninety day period for any one shareholder. See the SAI for further
details.
Except as otherwise noted, neither the Funds, the Service Company nor the
Funds' distributor assumes responsibility for the authenticity of any
instructions received by any of them from a shareholder by telephone. The
Service Company will employ reasonable procedures to confirm that instructions
received over the telephone or otherwise are genuine. Neither the Funds, the
Service Company nor the Funds' distributor will be liable when following
instructions received by telephone or otherwise that the Service Company
reasonably believes to be genuine.
Shareholders may only change information contained in their account
registration (such as the bank account designated to receive wire redemption
proceeds) by writing to the Service Company. Signatures on such written
instructions must be guaranteed.
The Funds may temporarily suspend the right to redeem shares when:
(1) the NYSE is closed, other than customary weekend and holiday closings;
(2) trading on the NYSE is restricted;
(3) an emergency exists and the Funds cannot dispose of their investments
or fairly determine their value; or
(4) the SEC so orders.
ADDITIONAL TRANSACTION POLICIES
- -------------------------------
How the Funds Calculate Their NAV. A Fund's NAV equals the value of its shares
- ---------------------------------
without sales charges. A Fund calculates its NAV by adding up the total value
of its investments and other assets, subtracting its liabilities and then
dividing the result by the number of shares outstanding. All expenses,
including fees paid to the Fund's investment adviser, are accrued daily. Each
Fund computes its NAV twice daily, at 12 noon (eastern time) and as of the
close of regular trading (generally 4:00 p.m. eastern time) on each day that
the NYSE is open.
The securities in each Fund's portfolio are valued on an amortized cost
basis according to Rule 2a-7 under the 1940 Act. Under this method of
valuation, a security is initially valued at its acquisition cost, and
thereafter a constant straightline amortization of any discount or premium is
assumed each day regardless of the impact of fluctuating interest rates on the
market value of the security. The market value of the obligations in the Fund's
portfolio can be expected to vary inversely to changes in prevailing interest
rates. As a result, the market value of the obligations in the Fund's portfolio
may vary from the value determined using the amortized cost method.
Signature Guarantee. For your protection, signatures on stock powers, and
- -------------------
written orders or authorizations must have a signature guarantee. A signature
guarantee can be provided by a U.S. stock exchange member, a bank, or other
persons eligible to guarantee signatures under the Securities Exchange Act of
1934 and the Service Company's policies. The Service Company may waive this
requirement or may require additional documentation in certain cases.
10
<PAGE>
EXCHANGES
- ---------
You may exchange Institutional Service Shares of a Fund for Institutional
Service Shares of any other Evergreen "Select" fund. You may exchange your
shares through your broker-dealer, by mail or by telephone. All exchange orders
must comply with the applicable requirements for purchases and redemptions and
must include your account number, the number or value of shares to be
exchanged, the class of shares, and the Funds to and from which you wish to
exchange. Exchanges will be based on the relative NAV of the shares exchanged
next determined after the exchange request is received. Once an exchange
request has been telephoned or mailed, it may not be changed or canceled.
Signatures on exchange orders must be guaranteed, as described above.
The Funds reserve the right to change or revoke the exchange privilege of
any shareholder or to limit or revoke any exchange. Currently, you may not make
more than five exchanges in a calendar year or three exchanges in a calendar
quarter.
Please read the prospectus of the fund that you want to exchange into
before requesting your exchange.
For federal income tax purposes, an exchange is treated as a sale for
taxable investors.
DIVIDENDS
- ---------
As a shareholder, you are entitled to your share of earnings on a Fund's
investments. You receive such earnings as either an income dividend or a
capital gains distribution. Income dividends come from the dividends that a
Fund earns from its stocks plus any interest it receives from its bonds. A Fund
realizes a capital gain whenever it sells a security for a higher price than
its tax basis.
Dividend Schedule. Each Fund declares dividends from its net investment income
- -----------------
daily and pays such dividends monthly. Each Fund pays shareholders its net
capital gains at least once a year.
Payment Options. Unless you select another option on your account application,
- ---------------
your dividends and capital gains will be reinvested in additional shares of the
same class of the same Fund. Shareholders will receive dividends on investments
made by federal funds bank wire the same day the wire is received provided that
wire purchases are received by State Street Bank and Trust Company, custodian
for the Funds, by 12 noon (eastern time). Shares purchased by qualified
institutions via telephone will receive the dividend declared on that day if
the telephone order is placed by 12 noon (eastern time), and federal funds are
received by 4:00 p.m. (eastern time). All other wire purchases received after
12 noon (eastern time) will earn dividends beginning the following business
day. Dividends accruing on the day of redemption will be paid to redeeming
shareholders except for redemptions where proceeds are wired the same day.
You may elect to receive some or all of your dividends and capital gains
in cash. Should you select this option, a check will be mailed to you or your
agent or trustee no later than seven days after the payment date.
TAXES
- -----
Evergreen Select 100% Treasury Money Market Fund intends to qualify, and
each of the other Funds have qualified and intend to continue to qualify, as a
regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended. As long as a Fund qualifies as a RIC and
distributes substantially all of its net investment income and capital gains,
it will not pay federal income taxes on the earnings it distributes to
shareholders.
Distributions to shareholders, whether taken in cash or reinvested in
shares, are generally considered taxable for federal income tax purposes as
follows:
o Income distributions and net short-term capital gains are taxable as
ordinary income.
o Long-term capital gains distributions are taxable as capital gains,
regardless of how long you have held your shares.
11
<PAGE>
After each calendar year, the Service Company will mail you a statement
indicating which of that year's distributions you should treat as ordinary
income and which you should treat as capital gains. Distributions of income or
capital gains may also be subject to state and local taxes.You should always
consult your tax adviser for specific guidance as to the tax consequences of
your investment in a Fund.
Evergreen Select Municipal Money Market Fund will designate and pay
exempt-interest dividends derived from interest earned on qualifying tax exempt
obligations. Such exempt-interest dividends may be excluded by shareholders of
the Fund from their gross income for federal income tax purposes. However, (1)
all or a portion of such exempt-interest dividends may be a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes to the extent that they are derived from certain types of private
activity bonds issued after August 7, 1986, and (2) all exempt-interest
dividends will be a component of "adjusted current earnings" for purposes of
the federal corporate alternative minimum tax. Dividends paid from taxable
income, if any, and distributions of any net realized short-term capital gains
(whether from tax exempt or taxable) are taxable as ordinary income, even
though received in additional Fund shares. Market discount recognized on
taxable and tax-free bonds is taxable as ordinary income, not as excludable
income.
SHAREHOLDER SERVICES
- --------------------
Details on all shareholder services may be obtained from the Service
Company by calling toll free 1-800-633-2700 or by writing to the Service
Company.
Subaccount. Special processing has been arranged with the Service Company for
- ----------
banks and other institutions that wish to open multiple accounts (a master
account and subaccounts). An investor wishing to use the Service Company's
subaccounting facilities will be required to enter into a separate agreement,
with the charges to be determined on the basis of the level of services to be
rendered. Subaccounts may be opened with the initial investment or at a later
date and may be established by an investor with registration either by name or
by number.
- --------------------------------------------------------------------------------
FUND DETAILS
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND SERVICE PROVIDERS
- ---------------------------------------
Fund Structure. Each Fund is an investment pool, which invests shareholders'
- --------------
money towards a specified goal. Each Fund is a diversified series of an
open-end, investment management company, called Evergreen Select Money Market
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
- -----------------
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee each Fund's activities, reviewing,
among other things, its performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate equally in distributions from
- ------------------
a Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, your shares will be fully paid and nonassessable. Fund shares are
redeemable, transferable and freely assignable as collateral. The Trust may
establish additional classes or series of shares.
The Funds do not hold annual shareholder meetings; a Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, the Funds are prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
Trustees. If any matters are to be voted on by shareholders, each share owned
as of the record date for the meeting would be entitled to one vote for each
dollar of NAV applicable to such share.
Adviser. The investment adviser to each Fund is First Union National Bank
- -------
("FUNB"), a subsidiary of First Union Corporation ("First Union"). First Union
is located at 301 South College Street, and FUNB at 201 South College Street,
Charlotte, North Carolina 28288-0630. First Union and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout
the U.S.
12
<PAGE>
FUNB is entitled to receive from each Fund an advisory fee based on a
percentage of each Fund's average daily net assets. Computed daily and paid
monthly, the fee is 0.15% for Evergreen Select Money Market Fund, Evergreen
Select Municipal Money Market Fund and Evergreen Select Treasury Money Market
Fund. The fee is 0.25% for Evergreen Select 100% Treasury Fund, but FUNB
currently limits the fee for Evergreen Select 100% Treasury Fund to 0.15%. FUNB
may, however, modify or cancel this limit at any time.
Distributor. Evergreen Distributor, Inc., 125 West 55th Street, New York, New
- -----------
York 10019, markets the Funds and distributes their shares through
broker-dealers, financial planners and other financial representatives.
Evergreen Distributor, Inc. is a subsidiary of The BISYS Group, Inc. and is not
affiliated with First Union.
Transfer Agent. Evergreen Service Company, 200 Berkeley Street, Boston, MA
- --------------
02116-5034, handles shareholder services, including record keeping and account
statements, distribution of dividends and capital gains and processing of
transactions.
Administrator. Evergreen Investment Services, Inc. ("EIS"), subject to the
- -------------
supervision and control of the Trust's Board of Trustees, provides the Funds
with facilities, equipment and personnel. For its services as administrator,
EIS is entitled to receive a fee based on the aggregate average daily net
assets of the Funds at a rate based on the total assets of all mutual funds
advised by First Union subsidiaries. The administration fee is calculated in
accordance with the following schedule:
<TABLE>
<S> <C>
Aggregate Average Daily Net Assets Of Mutual Funds
For Which Any Subsidiary Of First Union
Administrative Fee Serves As Investment Adviser
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>
Custodian. State Street Bank and Trust Company, 225 Franklin Street, Boston,
- ---------
Massachusetts 02110, keeps custody of each Fund's securities and cash and
performs other related duties.
OTHER INFORMATION AND POLICIES
- ------------------------------
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment adviser and the
Funds' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Funds' investment adviser is
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use to obtain assurances that comparable steps are being
taken by the Fund's other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
Distribution Plan. The Trust has adopted a distribution plan for the
- -----------------
Institutional Service Shares of each Fund (the "Plan") as allowed under the
Investment Company Act of 1940. The Plan permits the Fund to pay an annual
service fee of up to .25% of average daily net assets for personal services
rendered to shareholders and/or the maintenance of accounts. The Plan may be
terminated at any time by vote of the Independent Trustees or by vote of a
majority of the outstanding Institutional Service Shares. For more information
about the Plan, see the SAI.
Banking Laws. The Glass-Steagall Act and other banking laws and regulations
- ------------
presently prohibit a bank holding company or its affiliates (a "Bank") from
sponsoring, organizing, controlling, or distributing the shares of a registered
open-end investment company such as each Fund. However, a Bank may act as
investment adviser, transfer agent or custodian to a registered open-end
investment company. A Bank may also purchase shares of such company and pay
third parties for performing these functions.
13
<PAGE>
Securities Transactions. Under policies established by the Trust's Board of
- -----------------------
Trustees, FUNB selects broker-dealers to execute portfolio transactions subject
to the receipt of best execution. In so doing, FUNB may select broker-dealers
who are affiliated with FUNB. Moreover, a Fund may pay higher commissions to
broker-dealers that provide research services, which FUNB may use in advising a
Fund or its other clients.
Code of Ethics. The Funds and FUNB have each adopted a code of ethics
- --------------
incorporating policies on personal securities trading. In general, these codes
of ethics require that certain personnel of the Funds and FUNB (1) abstain from
engaging in certain personal trading practices and (2) report certain personal
trading activities.
Other Classes of Shares. Each Fund offers two classes of shares, Institutional
- -----------------------
and Institutional Service. Only Institutional Service Shares are offered
through this prospectus. Call the Service Company for further information or a
prospectus offering Institutional Shares of the Funds.
FUND PERFORMANCE
- ----------------
From time to time, a Fund may quote its yield in advertisements or in
reports to shareholders. Yield information may be useful in reviewing the
performance of a Fund and for providing a basis for comparison with other
investment alternatives. However, since net investment income of a Fund changes
in response to fluctuations in interest rates and Fund expenses, any given
yield quotation should not be considered representative of a Fund's yields for
any future period.
The method of calculating each Fund's yield is set forth in the SAI.
Before investing, the investor may want to determine which investment --
tax-free or taxable -- will result in a higher after-tax return. To do this,
the yield on the tax-free investment should be divided by the decimal
determined by subtracting from 1 the highest Federal tax rate to which the
investor currently is subject. For example, if the tax-free yield is 6% and the
investor's maximum tax bracket is 36%, the computation is:
6% Tax-Free Yield/(1-.36 Tax Rate) = 6/.64 = 9.38% Taxable Yield
In this example, the investor's after-tax return will be higher from the
6% tax-free investment if available taxable yields are below 9.38%. Conversely,
the taxable investment will provide a higher return when taxable yields exceed
9.38%. This is only an example and is not necessarily reflective of a Fund's
yield. The tax equivalent yield will be lower for investors in the lower income
brackets.
Comparative performance information may also be used from time to time in
advertising or marketing the Funds' shares, including data from Lipper
Analytical Services, Inc., IBC/Donoghue's Money Fund Report, Bank Rate Monitor
and other industry publications.
For more information on Fund performance, see the SAI.
14
<PAGE>
Investment Adviser
First Union National Bank, 201 South College Street, Charlotte, North Carolina
28288-0630
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts,
02116-5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
Distributor
Evergreen Distributor, Inc., 125 West 55th Street, New York, New York 10019
69268
<PAGE>
- ----------------------------------------------------------------------------
PROSPECTUS June 1, 1998
- ----------------------------------------------------------------------------
(Evergreen Funds (sm) Logo appears here)
EVERGREEN SELECT MONEY MARKET FUNDS
- ----------------------------------------------------------------------------
Evergreen Select Money Market Fund
Evergreen Select Municipal Money Market Fund
Evergreen Select Treasury Money Market Fund
Evergreen Select 100% Treasury Money Market Fund
(Each a "Fund," together the "Funds")
INSTITUTIONAL SHARES
This prospectus contains important information about the Institutional
Shares of Evergreen Select Money Market Fund, Evergreen Select Municipal Money
Market Fund, Evergreen Select Treasury Money Market Fund and Evergreen Select
100% Treasury Money Market Fund, including how the Funds invest and services
available to shareholders. Please read this prospectus before investing, and
keep it for future reference.
When you consider investing in a Fund, remember that the higher the risk
of losing money, the higher the potential reward. The reverse is also generally
true: the lower the risk, the lower the potential reward.
By itself, no Fund is a complete investment plan. When considering an
investment in a Fund, remember to consider your overall investment objectives
and any other investments you own. You should also carefully evaluate your
ability to handle the risks posed by your investment in the Funds. You can find
information on the risks associated with investing in the Funds in the section
entitled "Fund Descriptions."
To learn more about the Funds, call 1-800-343-2898 for a free copy of the
Funds' Statement of Additional Information ("SAI") dated June 1, 1998, as
supplemented from time to time. The Funds have filed the SAI with the
Securities and Exchange Commission. The SAI is incorporated by reference herein
(i.e., legally, the SAI is part of this prospectus).
Please remember that shares of the Funds are:
o Not deposits or obligations of any bank.
o Not endorsed or guaranteed by any bank.
o Not insured or otherwise protected by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
o Subject to investment risks, including possible loss of the principal amount.
An investment in a Fund is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that a Fund will be able to maintain
a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
EXPENSES 3
FINANCIAL HIGHLIGHTS 4
FUND DESCRIPTIONS 7
Each Fund's Objective and Principal
Investments 7
Securities and Investment Practices 7
BUYING AND SELLING SHARES 9
How To Buy Shares 9
How To Redeem Shares 10
Additional Transaction Policies 11
Exchanges 11
Dividends 11
Taxes 12
Shareholder Services 12
</TABLE>
<TABLE>
<S> <C>
FUND DETAILS 12
Fund Organization and Service
Providers 12
Other Information and Policies 14
Fund Performance 14
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Below are the shareholder transaction costs associated with an investment
in Institutional Shares of the Funds.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
</TABLE>
The table below shows the expenses attributable to the Institutional
Shares of each Fund for the fiscal year ended February 28, 1998 or, in the case
Evergreen Select 100% Treasury Money Market Fund, the fiscal period from
December 8, 1997 (commencement of operations) to February 28, 1998. The actual
annual operating expenses shown on the left are expressed as a percentage of
each Fund's average net assets. The examples on the right show what you would
pay if you invested $1000 over the periods indicated. The examples assume a 5%
average annual return, reinvestment of all dividends and redemption at the end
of each period.
Evergreen Select Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .12%
Other Expenses .08%
---
Total .20%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 2
After 3 Years $ 6
After 5 Years $11
After 10 Years $26
</TABLE>
Evergreen Select Municipal Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .00%
Other Expenses .10%
---
Total .10%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 1
After 3 Years $ 3
After 5 Years $ 6
After 10 Years $13
</TABLE>
Evergreen Select Treasury Money Market Fund (1)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .15%
Other Expenses .03%
---
Total .18%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 2
After 3 Years $ 6
After 5 Years $10
After 10 Years $23
</TABLE>
Evergreen Select 100% Treasury Money Market Fund (2)
<TABLE>
<CAPTION>
Annual Operating
Expenses
(After Reimbursements)
-----------------------
<S> <C>
Management Fee .00%
Other Expenses .20%
---
Total .20%
===
</TABLE>
<TABLE>
<CAPTION>
Example
--------
<S> <C>
After 1 Year $ 2
After 3 Years $ 6
After 5 Years $11
After 10 Years $26
</TABLE>
3
<PAGE>
(1) The Funds' investment adviser has voluntarily agreed to reimburse the
Funds to the extent that the Funds' aggregate annual operating expenses
(including the investment adviser's fee, but excluding taxes, interest,
brokerage commissions, and extraordinary expenses) exceed .20% of the average
net assets for any fiscal year. From time to time, the investment adviser may,
at its discretion, waive additional fees or reimburse expenses in order to
reduce the Funds' expense ratios. Without such waivers and reimbursements, the
Funds' total annual operating expenses would have been .23%, .26% and .23%, for
Evergreen Select Money Market Fund, Evergreen Select Municipal Money Market
Fund, and Evergreen Select Treasury Money Market Fund, respectively. The
investment adviser may cease any voluntary waiver or reimbursement at any time.
(2) The Fund's investment adviser has voluntarily agreed to limit the
investment advisory fee for Evergreen Select 100% Treasury Money Market Fund to
.15%.Without such waiver, the Management Fee would be .25%. The investment
adviser currently intends to continue this expense waiver through November 30,
1998; however, it may modify or cancel its expense waiver at any time. See "Fund
Details" for more information. In addition, the investment adviser has
voluntarily limited the Other Expenses of the Fund to .20%. Without this
limitation, Other Expenses would be .40% higher. Absent expense waivers and/or
reimbursements, the Total Operating Expenses of the Fund would be .60%. The
investment adviser may cease any voluntary waiver or reimbursement at any time.
The above table shows the costs and expenses you would pay directly or
indirectly if you invested in Institutional Shares of a Fund. THE EXAMPLES DO
NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables present financial highlights for a share outstanding
throughout each period indicated for the life of each Fund. The information has
been audited by Price Waterhouse LLP, each Fund's independent accountant. A
report of Price Waterhouse on the audited information is incorporated by
reference in the Funds' SAI. These tables should be read in conjunction with
the financial statements and related notes which are also incorporated by
reference in the Funds' SAI.
Further information about each Fund's performance is contained in the
Fund's Annual Report, which may be obtained without charge.
Evergreen Select Money Market Fund -- Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares
--------------------------------------
November 19, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
PER SHARE DATA:
<S> <C> <C>
Net asset value beginning of period .................... $ 1.000 $ 1.000
--------- ----------
Income from investment operations
Net investment income ................................. 0.056 0.015
Less distributions from net investment income ......... (0.056) (0.015)
--------- ----------
Net asset value end of period .......................... $ 1.000 $ 1.000
========= ==========
TOTAL RETURN ........................................... 5.71% 1.57%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ........................................ 0.20% 0.07%(a)
Total expenses excluding indirectly paid expenses ..... 0.20% --
Total expenses excluding waivers and/or reimbursements 0.23% 0.43%(a)
Net investment income ................................. 5.60% 5.48%(a)
Net assets end of period (thousands) ................... $1,051,741 $ 575,331
========== ==========
</TABLE>
4
<PAGE>
Evergreen Select Municipal Money Market Fund -- Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares
--------------------------------------
November 20, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of period .................... $ 1.000 $ 1.000
-------- ----------
Income from investment operations
Net investment income ................................. 0.036 0.010
Less distributions from net investment income ......... (0.036) (0.010)
-------- ----------
Net asset value end of period .......................... $ 1.000 $ 1.000
======== ==========
TOTAL RETURN ........................................... 3.67% 0.96%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ........................................ 0.10% 0.05%(a)
Total expenses excluding indirectly paid expenses ..... 0.10% --
Total expenses excluding waivers and/or reimbursements 0.26% 0.45%(a)
Net investment income ................................. 3.63% 3.50%(a)
Net assets end of period (thousands) ................... $441,988 $ 206,124
======== ==========
</TABLE>
Evergreen Select Treasury Money Market Fund -- Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares
--------------------------------------
November 20, 1996
(Commencement of
Class Operations)
Year Ended through
February 28, 1998 February 28, 1997
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of period .................... $ 1.000 $ 1.000
--------- ----------
Income from investment operations
Net investment income ................................. 0.055 0.015
Less distributions from net investment income ......... (0.055) (0.015)
--------- ----------
Net asset value end of period .......................... $ 1.000 $ 1.000
========= ==========
TOTAL RETURN ........................................... 5.51% 1.49%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ........................................ 0.18% 0.06%(a)
Total expenses excluding indirectly paid expenses ..... 0.18% --
Total expenses excluding waivers and/or reimbursements 0.23% 0.45%(a)
Net investment income ................................. 5.42% 5.24%(a)
Net assets end of period (thousands) ................... $1,256,701 $ 367,771
========== ==========
</TABLE>
5
<PAGE>
Evergreen Select 100% Treasury Money Market Fund -- Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares
---------------------
December 8, 1997
(Commencement of
Class Operations)
through
February 28, 1998
---------------------
<S> <C>
PER SHARE DATA:
Net asset value beginning of period ......................... $ 1.000
----------
Income from investment operations
Net investment income ...................................... 0.012
Less distributions from net investment income .............. (0.012)
----------
Net asset value end of period ............................... $ 1.000
==========
TOTAL RETURN ................................................ 1.18%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses ............................................. 0.20%(a)
Total expenses excluding indirectly paid expenses .......... 0.20%(a)
Total expenses excluding waivers and/or reimbursements ..... 0.60%(a)
Net investment income ...................................... 5.18%(a)
Net assets end of period (thousands) ........................ $ 245,004
==========
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
FUND DESCRIPTIONS
- --------------------------------------------------------------------------------
EACH FUND'S OBJECTIVE AND PRINCIPAL INVESTMENTS
- -----------------------------------------------
Each Fund's Investment objective is nonfundamental, which means the
objective can be changed without a shareholder vote. There can be no assurance
that a Fund's investment objective will be achieved.
Each Fund has also adopted fundamental investment policies designed to
limit a Fund's exposure to risk. Fundamental policies can be changed only with
a shareholder vote. For more information about investment policies, see
"Securities and Investment Practices" below and the SAI.
Evergreen Select Money Market Fund seeks as high a level of current income
as is consistent with preserving capital and providing liquidity. The Fund will
invest principally in short-term corporate debt securities.
Evergreen Select Municipal Money Market Fund seeks as high a level of
current income exempt from federal income tax as is consistent with preserving
capital and providing liquidity. The Fund will invest principally in municipal
obligations. Under normal circumstances, at least 80% of the Fund's annual
interest income will be exempt from federal income tax other than the federal
alternative minimum tax.
Evergreen Select Treasury Money Market Fund seeks to maintain stability of
principal while earning current income. The Fund will invest in short-term U.S.
Treasury obligations and repurchase agreements backed by such obligations.
Evergreen Select 100% Treasury Money Market Fund seeks to maintain
stability of principal while earning current income. The Fund will invest only
in U.S. Treasury securities.
In addition, each Fund seeks to maintain a stable net asset value of $1.00
per share. There is no assurance that a Fund will maintain a stable net asset
value of $1.00 per share.
Each Fund will invest in short-term securities that are determined to
present minimal credit risk and are, at the time of acquisition, eligible
securities pursuant to Rule 2a-7 under the Investment Company Act of 1940, as
amended ("Rule 2a-7"). Short-term securities are those having remaining
maturities of 397 days or less. Each Fund will also comply with the
diversification requirements and other applicable requirements prescribed by
Rule 2a-7.
SECURITIES AND INVESTMENT PRACTICES
- -----------------------------------
You can find more information about the types of securities in which each
Fund may invest, the types of investment techniques each Fund may employ in
pursuit of its objective and a summary of related risks set forth below. The
Funds' SAI contains additional information about these investments and
investment techniques.
U.S. Government Securities. Securities issued or guaranteed by the United
States ("U.S.") Government or its agencies or instrumentalities may be
supported by the full faith and credit of the U.S. Government, by the right of
the issuer to borrow from the Treasury, or only by the credit of the agency or
instrumentality itself. Evergreen Select Treasury Money Market Fund and
Evergreen Select 100% Treasury Money Market Fund will invest only in U.S.
Treasury securities, which are high quality debt securities issued by the U.S.
Treasury, guaranteed as to principal and interest, and supported by the full
faith and credit of the U.S. Government. Evergreen Select Money Market Fund and
Evergreen Select Municipal Money Market Fund may invest in any security issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
While U.S. Government securities are guaranteed as to principal and
interest, their market value is not guaranteed. Generally, U.S. Government
securities are subject to the same interest rate and credit risks as other
fixed-income securities. However, since U.S. Government securities are of the
highest credit quality, the credit risk is minimal. The U.S. Government does
not guarantee the net asset value of the Funds' shares.
Included among the U.S. Government agencies and instrumentalities in whose
securities Evergreen Select Money Market Fund may invest are the Interamerican
Development Bank and the International Bank for Reconstruction and Development.
Obligations of these banks are supported only by the appropriated but unpaid
commitments of its member countries. There are no assurances that the
commitments will be undertaken in the future.
7
<PAGE>
Municipal Obligations. Evergreen Select Municipal Money Market Fund may invest
in municipal bonds, notes and commercial paper issued by or for any state,
territory or possession of the U.S. (including the District of Columbia) and
their political subdivisions, agencies and instrumentalities. Municipal
obligations are issued by or for state or local governments to support general
financial needs or to pay for public projects or facilities.
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.
Revenue bonds are supported only by the revenues generated by the project or
facility.
Municipal notes and commercial paper are short-term debt instruments
issued in anticipation of taxes and other revenues.
Taxable Investments. Evergreen Select Municipal Money Market Fund may
temporarily invest up to 20% of its net assets in taxable securities under any
one or more of the following circumstances: (a) pending investment of proceeds
of sale of Fund shares or of portfolio securities, (b) pending settlement of
purchases of portfolio securities, and (c) to maintain liquidity for the
purpose of meeting anticipated redemptions. The Fund may temporarily invest
more than 20% of its total assets in taxable securities for defensive purposes.
The Fund may invest for defensive purposes during periods when its assets
available for investment exceed the available Municipal Securities that meet
the Fund's quality and other investment criteria. Taxable securities in which
the Fund may invest on a short-term basis include obligations of the U.S.
government, its agencies or instrumentalities, including repurchase agreements
with banks or securities dealers involving such securities; time deposits
maturing in not more than seven days; other debt securities rated within the
two highest ratings categories by any nationally recognized statistical rating
organization; commercial paper rated in the highest grade by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group; and certificates of deposit
issued by U.S. branches of U.S. banks with assets of $1 billion or more.
Other Eligible Securities. Evergreen Select Money Market Fund may also invest
in corporate debt securities, commercial paper and bank obligations.
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. Each Fund may also borrow an additional 5%
of its total assets from banks or others. A Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. A Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights.
Securities Lending. To generate income and offset expenses, each Fund,
except Evergreen Select 100% Treasury Money Market Fund, may lend securities to
broker-dealers and other financial institutions. Loans of securities by a Fund
may not exceed 25% of the value of the Fund's total assets. While securities are
on loan, the borrower will pay the Fund any income accruing on the security.
Also, the Fund may invest any collateral it receives in additional securities.
Gains or losses in the market value of a lent security will affect a Fund
and its shareholders. When a Fund lends its securities, it may not be able to
retrieve the securities on a timely basis, possibly losing the opportunity to
sell the securities at a desirable price. Also, if the borrower files for
bankruptcy or becomes insolvent, the Fund's ability to dispose of the
securities may be delayed.
Investing in Securities of Other Investment Companies. Each Fund may invest in
securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that
the Fund currently pays for its own operations and may result in some
duplication of fees.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund
may enter into transactions whereby it commits to buying a security, but does
not pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to a Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
8
<PAGE>
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged. Each Fund will purchase when-issued securities only to meet
its investment objective, not for speculative purposes.
Repurchase Agreements. Each Fund may enter into repurchase agreements. A
repurchase agreement is an agreement by a Fund to purchase a security and sell
it back at a specified price and at a specified future date. The repurchase
price reflects an agreed-upon interest rate for the time period of the
agreement. The Fund's risk is the possible inability of the seller to pay the
agreed-upon price on the delivery date. However, such risk is tempered by the
ability of the Fund to sell the security in the open market in case of default.
In such a case, the Fund may incur costs in disposing of the security which
would possibly increase Fund expenses.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by a Fund to sell a
security and repurchase it at a specified time and price. A Fund could lose
money if the market value of the securities it sold declines below their
repurchase price.
Other Investment Restrictions. Each Fund has adopted additional investment
restrictions and guidelines that are set forth in the SAI.
Risks of Debt Securities. When a Fund buys a debt security, it generally
expects a variable or fixed rate of interest and repayment of the principal at
maturity. The main risks of investing in debt securities are:
o Interest Rate Risk: The risk that a bond's prices will fall when
interest rates rise, and vice versa. Debt securities have varying levels
of sensitivity to interest rates. Longer-term bonds are generally more
sensitive to changes in interest rates than short term bonds.
o Credit Risk: The chance that the issuer of a bond will have its credit
rating downgraded or will default (fail to make scheduled interest and
principal payments), potentially reducing a Fund's income and/or share
price.
- --------------------------------------------------------------------------------
BUYING AND SELLING SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- -----------------
Institutional investors may buy Institutional Shares of the Funds through
broker-dealers, banks and certain other financial intermediaries, or directly
through the Funds' distributor, Evergreen Distributor, Inc. ("EDI"). Investors
may purchase Institutional Shares at the public offering price, which equals
the class's net asset value per share ("NAV"). See "Offering Price and Other
Purchase Information" below.
Minimum Investment. The minimum initial investment in Institutional Shares is
$1 million, which may be waived in certain situations. There is no minimum
amount required for subsequent purchases.
Opening an Account. You may open an account by mailing a signed account
application to the particular Fund c/o Evergreen Service Company, P.O. Box
2121, Boston, Massachusetts 02106-2121. You may obtain an account application
by calling 1-800-633-2700.
Except as provided below, you can purchase shares only by wiring federal
funds to Evergreen Service Company (the "Service Company"). You may obtain
wiring instructions by calling 1-800-633-2700. When you call, the Service
Company representative will ask you for the following information: name of
authorized person; shareholder name; shareholder account number; name of the
Fund and share class; amount being wired; and wiring bank name.
Offering Price and Other Purchase Information. When you buy a Fund's shares,
you pay its NAV next determined after the Fund receives and accepts your order.
Each Fund computes its NAV twice daily, at 12 noon (eastern time) and as of the
close of regular trading on the New York Stock Exchange ("NYSE") (currently
4:00 p.m. eastern time). Therefore, depending on when the Fund accepts your
order, you will receive its NAV calculated at 12 noon or 4:00 p.m.
You may, at a Fund's discretion, pay for shares of a Fund with securities
instead of cash. Additionally, if you want to buy a Fund's shares equal in
amount to $5 million or more the Fund may require you to pay for those shares
9
<PAGE>
with securities instead of cash. A Fund will only accept securities that are
consistent with its investment objective, policies and restrictions. Also, a
Fund will value the securities in the manner described under "How the Funds
Calculate Their NAV." Investors who receive a Fund's shares for securities
instead of cash may pay such transaction costs as broker's commissions, taxes
or governmental fees.
HOW TO REDEEM SHARES
- --------------------
You may redeem shares of a Fund by mail, telephone or other types of
telecommunication. Once a redemption request has been telephoned, mailed or
otherwise transmitted, it may not be changed or canceled.
Mail Redemptions. You may redeem shares on each day that the New York Stock
Exchange ("NYSE") is open by mailing a written request to the Service Company
at the following address:
Evergreen Service Company
P.O. Box 2121
Boston, Massachusetts 02106-2121
The signatures on the written request must be properly guaranteed, as
described below.
How To Redeem By Telephone. You may redeem your shares by calling
1-800-633-2700 between the hours of 9:00 a.m. and 5:00 p.m. (eastern time) on
each business day. You may also redeem shares by sending a facsimile to (617)
210-2708 or by other means of wire communication. You must state the Fund and
class from which you want to redeem, the number or dollar amount of shares you
want to redeem and your account number. The telephone redemption service is not
available to you automatically. You must elect it on your account application.
If you are unable to reach the Funds or the Service Company by telephone,
you should redeem by mail.
The Service Company will wire your redemption proceeds to the commercial
bank account designated on the account application. If the Service Company
deems it appropriate, it may require additional documentation. Although at
present the Service Company pays the wire costs involved, it reserves the right
at any time to require the shareholder to pay such costs.
Redemption Value and Other Redemption Policies. When you sell shares, you
receive the NAV next computed after a Fund receives your request. Since each
Fund computes its NAV twice daily, depending on when the Fund receives your
request, you will receive its NAV calculated at 12 noon or 4:00 p.m. (eastern
time). Generally, the Fund pays redemption proceeds within seven days.
Redemption requests received after 4:00 p.m. (eastern time) will be processed
using the NAV determined on the next business day.
The Funds may, at any time, change, suspend or terminate any of the
redemption methods described in this prospectus, except redemptions by mail.
For more information, see "How the Funds Calculate Their NAV."
The Funds may, at their discretion, pay your redemption proceeds with
securities instead of cash. However, each Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of a Fund's total net assets
during any ninety day period for any one shareholder. See the SAI for further
details.
Except as otherwise noted, neither the Funds, the Service Company nor the
Funds' distributor assumes responsibility for the authenticity of any
instructions received by any of them from a shareholder by telephone. The
Service Company will employ reasonable procedures to confirm that instructions
received over the telephone or otherwise are genuine. Neither the Funds, the
Service Company nor the Funds' distributor will be liable when following
instructions received by telephone or otherwise that the Service Company
reasonably believes to be genuine.
Shareholders may only change information contained in their account
registration (such as the bank account designated to receive wire redemption
proceeds) by writing to the Service Company. Signatures on such written
instructions must be guaranteed.
The Funds may temporarily suspend the right to redeem shares when:
10
<PAGE>
(1) the NYSE is closed, other than customary weekend and holiday closings;
(2) trading on the NYSE is restricted;
(3) an emergency exists and the Funds cannot dispose of their investments
or fairly determine their value; or
(4) the SEC so orders.
ADDITIONAL TRANSACTION POLICIES
- -------------------------------
How the Funds Calculate Their NAV. A Fund's NAV equals the value of its shares
without sales charges. A Fund calculates its NAV by adding up the total value
of its investments and other assets, subtracting its liabilities and then
dividing the result by the number of shares outstanding. All expenses,
including fees paid to the Fund's investment adviser, are accrued daily. Each
Fund computes its NAV twice daily, at 12 noon (eastern time) and as of the
close of regular trading (generally 4:00 p.m. eastern time) on each day that
the NYSE is open.
The securities in each Fund's portfolio are valued on an amortized cost
basis according to Rule 2a-7 under the 1940 Act. Under this method of
valuation, a security is initially valued at its acquisition cost, and
thereafter a constant straightline amortization of any discount or premium is
assumed each day regardless of the impact of fluctuating interest rates on the
market value of the security. The market value of the obligations in the Fund's
portfolio can be expected to vary inversely to changes in prevailing interest
rates. As a result, the market value of the obligations in the Fund's portfolio
may vary from the value determined using the amortized cost method.
Signature Guarantee. For your protection, signatures on stock powers, and
written orders or authorizations must have a signature guarantee. A signature
guarantee can be provided by a U.S. stock exchange member, a bank, or other
persons eligible to guarantee signatures under the Securities Exchange Act of
1934 and the Service Company's policies. The Service Company may waive this
requirement or may require additional documentation in certain cases.
EXCHANGES
- ---------
You may exchange Institutional Shares of a Fund for Institutional Shares
of any other Evergreen "Select" fund. You may exchange your shares through your
broker-dealer, by mail or by telephone. All exchange orders must comply with
the applicable requirements for purchases and redemptions and must include your
account number, the number or value of shares to be exchanged, the class of
shares, and the Funds to and from which you wish to exchange. Exchanges will be
based on the relative NAV of the shares exchanged next determined after the
exchange request is received. Once an exchange request has been telephoned or
mailed, it may not be changed or canceled.
Signatures on exchange orders must be guaranteed, as described above.
The Funds reserve the right to change or revoke the exchange privilege of
any shareholder or to limit or revoke any exchange. Currently, you may not make
more than five exchanges in a calendar year or three exchanges in a calendar
quarter.
Please read the prospectus of the fund that you want to exchange into
before requesting your exchange.
For federal income tax purposes, an exchange is treated as a sale for
taxable investors.
DIVIDENDS
- ---------
As a shareholder, you are entitled to your share of earnings on a Fund's
investments. You receive such earnings as either an income dividend or a
capital gains distribution. Income dividends come from the dividends that a
Fund earns from its stocks plus any interest it receives from its bonds. A Fund
realizes a capital gain whenever it sells a security for a higher price than
its tax basis.
Dividend Schedule. Each Fund declares dividends from its net investment income
daily and pays such dividends monthly. Each Fund pays shareholders its net
capital gains at least once a year.
Payment Options. Unless you select another option on your account application,
your dividends and capital gains will be reinvested in additional shares of the
same class of the same Fund. Shareholders will receive dividends on investments
made by federal funds bank wire the same day the wire is received provided that
wire purchases are received by State Street Bank and Trust Company, custodian
for the Funds, by 12 noon (eastern time). Shares purchased by qualified
institutions via telephone will receive the dividend declared on that day if
the telephone order is
11
<PAGE>
placed by 12 noon (eastern time), and federal funds are received by 4:00 p.m.
(eastern time). All other wire purchases received after 12 noon (eastern time)
will earn dividends beginning the following business day. Dividends accruing on
the day of redemption will be paid to redeeming shareholders except for
redemptions where proceeds are wired the same day.
You may elect to receive some or all of your dividends and capital gains
in cash. Should you select this option, a check will be mailed to you or your
agent or trustee no later than seven days after the payment date.
TAXES
- -----
Evergreen Select 100% Treasury Money Market Fund intends to qualify, and
each of the other Funds have qualified and intend to continue to qualify, as a
regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended. As long as a Fund qualifies as a RIC and
distributes substantially all of its net investment income and capital gains,
it will not pay federal income taxes on the earnings it distributes to
shareholders.
Distributions to shareholders, whether taken in cash or reinvested in
shares, are generally considered taxable for federal income tax purposes as
follows:
o Income distributions and net short-term capital gains are taxable as
ordinary income.
o Long-term capital gains distributions are taxable as capital gains,
regardless of how long you have held your shares.
After each calendar year, the Service Company will mail you a statement
indicating which of that year's distributions you should treat as ordinary
income and which you should treat as capital gains. Distributions of income or
capital gains may also be subject to state and local taxes.You should always
consult your tax adviser for specific guidance as to the tax consequences of
your investment in a Fund.
Evergreen Select Municipal Money Market Fund will designate and pay
exempt-interest dividends derived from interest earned on qualifying tax exempt
obligations. Such exempt-interest dividends may be excluded by shareholders of
the Fund from their gross income for federal income tax purposes. However, (1)
all or a portion of such exempt-interest dividends may be a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes to the extent that they are derived from certain types of private
activity bonds issued after August 7, 1986, and (2) all exempt-interest
dividends will be a component of "adjusted current earnings" for purposes of
the federal corporate alternative minimum tax. Dividends paid from taxable
income, if any, and distributions of any net realized short-term capital gains
(whether from tax exempt or taxable) are taxable as ordinary income, even
though received in additional Fund shares. Market discount recognized on
taxable and tax-free bonds is taxable as ordinary income, not as excludable
income.
SHAREHOLDER SERVICES
- --------------------
Details on all shareholder services may be obtained from the Service
Company by calling toll free 1-800-633-2700 or by writing to the Service
Company.
Subaccount. Special processing has been arranged with the Service Company for
banks and other institutions that wish to open multiple accounts (a master
account and subaccounts). An investor wishing to use the Service Company's
subaccounting facilities will be required to enter into a separate agreement,
with the charges to be determined on the basis of the level of services to be
rendered. Subaccounts may be opened with the initial investment or at a later
date and may be established by an investor with registration either by name or
by number.
- --------------------------------------------------------------------------------
FUND DETAILS
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND SERVICE PROVIDERS
- ---------------------------------------
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money towards a specified goal. Each Fund is a diversified series of an
open-end, investment management company, called Evergreen Select Money Market
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 18, 1997.
12
<PAGE>
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee each Fund's activities, reviewing,
among other things, its performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate equally in distributions from
a Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, your shares will be fully paid and nonassessable. Fund shares are
redeemable, transferable and freely assignable as collateral. The Trust may
establish additional classes or series of shares.
The Funds do not hold annual shareholder meetings; a Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, the Funds are prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
Trustees. If any matters are to be voted on by shareholders, each share owned
as of the record date for the meeting would be entitled to one vote for each
dollar of NAV applicable to such share.
Adviser. The investment adviser to each Fund is First Union National Bank
("FUNB"), a subsidiary of First Union Corporation ("First Union"). First Union
is located at 301 South College Street, and FUNB at 201 South College Street,
Charlotte, North Carolina 28288-0630. First Union and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout
the U.S.
FUNB is entitled to receive from each Fund an advisory fee based on a
percentage of each Fund's average daily net assets. Computed daily and paid
monthly, the fee is 0.15% for Evergreen Select Money Market Fund, Evergreen
Select Municipal Money Market Fund and Evergreen Select Treasury Money Market
Fund. The fee is 0.25% for Evergreen Select 100% Treasury Fund, but FUNB
currently limits the fee for Evergreen Select 100% Treasury Fund to 0.15%. FUNB
may, however, modify or cancel this limit at any time.
Distributor. Evergreen Distributor, Inc., 125 West 55th Street, New York, New
York 10019, markets the Funds and distributes their shares through
broker-dealers, financial planners and other financial representatives.
Evergreen Distributor, Inc. is a subsidiary of The BISYS Group, Inc. and is not
affiliated with First Union.
Transfer Agent. Evergreen Service Company, 200 Berkeley Street, Boston, MA
02116-5034, handles shareholder services, including record keeping and account
statements, distribution of dividends and capital gains and processing of
transactions.
Administrator. Evergreen Investment Services, Inc. ("EIS"), subject to the
supervision and control of the Trust's Board of Trustees, provides the Funds
with facilities, equipment and personnel. For its services as administrator,
EIS is entitled to receive a fee based on the aggregate average daily net
assets of the Funds at a rate based on the total assets of all mutual funds
advised by First Union subsidiaries. The administration fee is calculated in
accordance with the following schedule:
<TABLE>
<S> <C>
Aggregate Average Daily Net Assets Of Mutual Funds
For Which Any Subsidiary Of First Union
Administrative Fee Serves As Investment Adviser
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>
Custodian. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, keeps custody of each Fund's securities and cash and
performs other related duties.
13
<PAGE>
OTHER INFORMATION AND POLICIES
- ------------------------------
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment adviser and the
Funds' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Funds' investment adviser is
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use and to obtain assurances that comparable steps are being
taken by the Funds' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
Banking Laws. The Glass-Steagall Act and other banking laws and regulations
presently prohibit a bank holding company or its affiliates (a "Bank") from
sponsoring, organizing, controlling, or distributing the shares of a registered
open-end investment company such as each Fund. However, a Bank may act as
investment adviser, transfer agent or custodian to a registered open-end
investment company. A Bank may also purchase shares of such company and pay
third parties for performing these functions.
Securities Transactions. Under policies established by the Trust's Board of
Trustees, FUNB selects broker-dealers to execute portfolio transactions subject
to the receipt of best execution. In so doing, FUNB may select broker-dealers
who are affiliated with FUNB. Moreover, a Fund may pay higher commissions to
broker-dealers that provide research services, which FUNB may use in advising a
Fund or its other clients.
Code of Ethics. The Funds and FUNB have each adopted a code of ethics
incorporating policies on personal securities trading. In general, these codes
of ethics require that certain personnel of the Funds and FUNB (1) abstain from
engaging in certain personal trading practices and (2) report certain personal
trading activities.
Other Classes of Shares. Each Fund offers two classes of shares, Institutional
and Institutional Service. Only Institutional Shares are offered through this
prospectus. Call the Service Company for further information or a prospectus
offering Institutional Service Shares of the Funds.
FUND PERFORMANCE
- ----------------
From time to time, a Fund may quote its yield in advertisements or in
reports to shareholders. Yield information may be useful in reviewing the
performance of a Fund and for providing a basis for comparison with other
investment alternatives. However, since net investment income of a Fund changes
in response to fluctuations in interest rates and Fund expenses, any given
yield quotation should not be considered representative of a Fund's yields for
any future period.
The method of calculating each Fund's yield is set forth in the SAI.
Before investing, the investor may want to determine which investment --
tax-free or taxable -- will result in a higher after-tax return. To do this,
the yield on the tax-free investment should be divided by the decimal
determined by subtracting from 1 the highest Federal tax rate to which the
investor currently is subject. For example, if the tax-free yield is 6% and the
investor's maximum tax bracket is 36%, the computation is:
6% Tax-Free Yield/(1-.36 Tax Rate) = 6/.64 = 9.38% Taxable Yield
In this example, the investor's after-tax return will be higher from the
6% tax-free investment if available taxable yields are below 9.38%. Conversely,
the taxable investment will provide a higher return when taxable yields exceed
9.38%. This is only an example and is not necessarily reflective of a Fund's
yield. The tax equivalent yield will be lower for investors in the lower income
brackets.
Comparative performance information may also be used from time to time in
advertising or marketing the Funds' shares, including data from Lipper
Analytical Services, Inc., IBC/Donoghue's Money Fund Report, Bank Rate Monitor
and other industry publications.
For more information on Fund performance, see the SAI.
14
<PAGE>
Investment Adviser
First Union National Bank, 201 South College Street, Charlotte, North Carolina
28288-0630
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts,
02116-5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
Distributor
Evergreen Distributor, Inc., 125 West 55th Street, New York, New York 10019
<PAGE>
EVERGREEN SELECT MONEY MARKET TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700
SELECT MONEY MARKET FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1998
EVERGREEN SELECT MONEY MARKET FUND ("MONEY FUND")
EVERGREEN SELECT MUNICIPAL MONEY MARKET FUND ("MUNICIPAL FUND")
EVERGREEN SELECT TREASURY MONEY MARKET FUND ("TREASURY FUND")
VERGREEN SELECT 100% TREASURY MONEY MARKET FUND ("100% TREASURY FUND")
(EACH A "FUND"; TOGETHER, THE "FUNDS")
EACH FUND IS A SERIES OF AN OPEN-END MANAGEMENT
INVESTMENT COMPANY KNOWN AS EVERGREEN SELECT
MONEY MARKET TRUST (THE "TRUST").
The Funds offer two classes of shares: Institutional Shares and
Institutional Service Shares. Each class is offered through a separate
prospectus. This Statement of Additional Information ("SAI") is not a prospectus
but should be read in conjunction with a prospectus of the Funds dated June 1,
1998, as supplemented from time to time. You may obtain prospectuses from
Evergreen Distributor, Inc.
23992
<PAGE>
TABLE OF CONTENTS
FUND INVESTMENTS .. ........................................................ 3
General Information...................................................... 3
Fundamental Policies..................................................... 7
Investment Guidelines.................................................... 8
MANAGEMENT OF THE TRUST..................................................... 9
PRINCIPAL HOLDERS OF FUND SHARES............................................ 11
SERVICE PROVIDERS........................................................... 15
Investment Adviser................................................. 15
Distributor........................................................ 15
Administrator...................................................... 15
Transfer Agent .................................................... 15
Independent Auditors............................................... 15
Custodian.......................................................... 15
Legal Counsel...................................................... 15
INVESTMENT ADVISORY AGREEMENTS.............................................. 16
DISTRIBUTION PLAN FOR INSTITUTIONAL SERVICE SHARES.......................... 16
BROKERAGE................................................................... 17
Selection of Brokers............................................... 17
Brokerage Commissions.............................................. 17
Simultaneous Transactions.......................................... 18
TRUST ORGANIZATION.......................................................... 18
Form of Organization............................................... 18
Description of Shares.............................................. 18
Voting Rights...................................................... 18
Limitation of Trustees' Liability.................................. 19
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................. 19
Exchanges.......................................................... 19
Calculation of Net Asset Value Per Share........................... 19
Valuation of Portfolio Securities.................................. 19
Shareholder Services............................................... 19
PRINCIPAL UNDERWRITER....................................................... 20
ADDITIONAL TAX INFORMATION.................................................. 21
Requirements for Qualification as a Regulated Investment Company... 21
Taxes on the Sale or Exchange of Fund Shares....................... 21
Taxes on Distributions............................................. 22
Special Tax Considerations for Municipal Fund Shareholders......... 22
Other Tax Considerations........................................... 23
EXPENSES ................................................................... 23
Trustee Compensation............................................... 23
Advisory Fees...................................................... 24
Distribution Fees for Institutional Service Shares................. 25
Brokerage Commissions Paid......................................... 25
PERFORMANCE................................................................. 25
Current, Effective and Tax-Equivalent Yields..... ................. 25
FINANCIAL STATEMENTS........................................................ 27
ADDITIONAL INFORMATION...................................................... 27
APPENDIX A.................................................................. A-1
23992
2
<PAGE>
FUND INVESTMENTS
GENERAL INFORMATION
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in each Fund's
prospectus. The following expands upon the discussion in the prospectuses
regarding certain investments of the Funds.
Each Fund will invest in short-term securities that are determined to
present minimal credit risk and are, at the time of acquisition, eligible
securities pursuant to Rule 2a-7 under the Investment Company Act of 1940, as
amended ("Rule 2a-7"). Short-term securities are those having remaining
maturities of 397 days or less. Each Fund will also comply with the
diversification requirements and other applicable requirements prescribed by
Rule 2a-7.
Municipal Bonds (Municipal Fund)
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 Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Investor
Services, L.P. ("Fitch"). Such ratings, however, are opinions, not absolute
standards of quality. Municipal bonds with the same maturity, interest rate 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 adviser 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
23992
3
<PAGE>
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 adviser 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.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities may be supported by the full faith and credit of the U.S.
Government, by the right of the issuer to borrow from the Treasury, or only by
the credit of the agency or instrumentality itself. TREASURY FUND and 100%
TREASURY FUND will invest only in U.S. Treasury securities, which are high
quality debt securities issued by the U.S. Treasury, guaranteed as to principal
and interest, and supported by the full faith and credit of the U.S. Government.
MONEY FUND and MUNICIPAL FUND may invest in any security issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
Some government agencies and instrumentalities may not receive financial
support from the U.S. Government. Examples of such agencies are:
(I) Farm Credit System,including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")(Money
Fund, Municipal Fund)
The Funds 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.
23992
4
<PAGE>
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.
Virgin Islands, Guam and Puerto Rico (Municipal Fund)
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
federal income taxes. The Fund does not presently intend to invest more than (a)
5% 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.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds 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 Funds 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, a 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, a 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 are a form of leveraging and 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 a 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.
Loans of Securities (Excluding 100% Treasury Fund)
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and other financial institutions. A Fund will
require borrowers to provide collateral in cash or government securities at
least equal to the value of the securities loaned. A Fund may invest such
collateral in additional portfolio securities, such as U.S. Treasury notes,
certificates of deposit, other high-grade, short-term obligations or
interest-bearing cash equivalents. While securities are on loan, the borrower
will pay a Fund any income accuring on the security.
23654
5
<PAGE>
.
Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. Gains or losses in the market value of a lent security will
affect a Fund and its shareholders. When a Fund lends its securities, it may not
be able to retrieve the securities on a timely basis, possibly losing the
opportunity to sell the securities at a desirable price. Also, if the borrower
files for bankruptcy or becomes insolvent, the Fund's ability to dispose of the
securities may be delayed.
Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.
Repurchase Agreements
The Funds 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
Adviser (as defined later) to be creditworthy. In a repurchase agreement, a Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
A Fund, its custodian, or the counterparty's custodian 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 a Fund, a 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. Each Fund's
Adviser 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 Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker-dealers, which are deemed by the investment adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Funds may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, a 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 a 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 a 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.
23654
6
<PAGE>
FUNDAMENTAL POLICIES
The Funds have adopted the fundamental investment restrictions set
forth below which may not be changed without the vote of a majority of each
Fund's outstanding shares, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Unless otherwise stated, all references to the assets of a Fund are
in terms of current market value.
Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in a particular industry except (1) domestic bank
money instruments and (2) securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
Issuing Senior Securities
Except as permitted under in the 1940 Act, each Fund may not issue
senior securities.
Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each 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.
Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities except to the extent that each 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.
Loans to Other Persons
Each Fund may not make loans to other persons, except that the Fund may
lend its portfolio
23654
7
<PAGE>
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.
Investment in Federally Tax-Exempt Securities
MUNICIPAL FUND will, during periods of normal market conditions, invest
its assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission ("SEC") or its staff concerning investment in tax-exempt
securities for Funds with the words "tax-exempt," "tax-free," or "municipal" in
their names.
INVESTMENT GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are in terms of current
market value.
Diversification
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 U.S. Government or its agencies or instrumentalities.
Borrowings
Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total assets from banks or others. Each Fund may
borrow only as a temporary measure for extraordinary or emergency purposes. Each
Fund will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights. 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
to the extent permitted by applicable law.
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
MONEY FUND and MUNICIPAL 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 be traded 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 a Fund's compliance with the limit on illiquid
securities indicated above. In determining the liquidity of Rule 144A
securities, the Trustees will consider: (1) the frequency of trades and quotes
for the security; (2) the number of dealers willing to purchase or sell the
security and the number of other potential buyers; (3) dealer undertakings to
make
23654
8
<PAGE>
a market in the security; and (4) the nature of the security and the nature of
the marketplace trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not: (1) own more
than 3% of the outstanding voting stock 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, each 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 each Fund.
Short Sales
Each Fund 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. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their 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, other than Evergreen
Variable Trust of which Messrs. Howell, Salton and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine;
Chairman and President, Oldways Preservation and
Exchange Trust (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates
(environmental consulting); and former Director,
Keystone Investments, Inc.
22987
12
<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) 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-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit* Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) 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 Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, 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 Corporation;
former Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller,
Inc.
22987
13
<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
William J. Tomko** President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BYSIS Fund Services.
George O. Martinez** Secretary Senior Vice President and Director of
(DOB: 3/11/59) Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995.
</TABLE>
*Address: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-8001
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, 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 a class of a
Fund's outstanding shares as of April 30, 1998.
11
<PAGE>
MONEY FUND INSTITUTIONAL SHARES
First Union National Bank 72.600%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon St, 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank 13.781%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon St, 3rd Floor
Charlotte, NC 28202-1911
Evergreen Money Market 10.105%
Inst'l Fund Reinvest A/C
c/o FUNB for Customers
One First Union Center
301 South College Street
Charlotte, NC 28202-6000
MONEY FUND INSTITUTIONAL SERVICE SHARES
Evergreen Inst'l Money Market 49.120%
"A" Share Fund Reinvest A/C
c/o FUNB for Customers
One First Union Center
301 South College Street
Charlotte, NC 28202-6000
First Union National Bank 32.326%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank 5.015%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
MUNICIPAL FUND INSTITUTIONAL SHARES
First Union National Bank 96.825%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
12
<PAGE>
MUNICIPAL FUND INSTITUTIONAL SERVICE SHARES
First Union National Bank 64.512%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
Evergreen Institutional 5.955%
Tax-Exempt Fund Reinvest A/C
c/o FUNB for Customers
One First Union Center
301 South College Street
Charlotte, NC 28202-6000
TREASURY FUND INSTITUTIONAL SHARES
First Union National Bank 62.571%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank 37.406%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
TREASURY FUND INSTITUTIONAL SERVICE SHARES
First Union National Bank 42.255%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank 37.291%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
Evergreen Institutional 12.706%
Treasury Fund Reinvest A/C
c/o FUNB for Customers
One First Union Center
301 South College Street
Charlotte, NC 28202-6000
13
<PAGE>
100% TREASURY FUND INSTITUTIONAL SHARES
First Union National Bank 6.518%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
First Union National Bank 8.275%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
100% TREASURY FUND INSTITUTIONAL SERVICE SHARES
First Union National Bank 98.886%
Trust Accounts
Attn: Ginny Batten CMG-1151-2
401 S Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
14
<PAGE>
SERVICE PROVIDERS
INVESTMENT ADVISER
The investment adviser to each Fund is First Union National Bank
("FUNB" or the "Adviser"), a subsidiary of First Union Corporation ("First
Union"), a bank holding company. FUNB is located at 201 South College Street,
and First Union at 301 South College Street, Charlotte, North Carolina
28288-0630. First Union and its subsidiaries provide a broad range of financial
services to individuals and businesses throughout the United States. The Adviser
is supervised by the Board of Trustees. For information about advisory fees and
services, see "Investment Advisory Agreements" below.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor"),125 W. 55th Street,
New York, NY 10019 markets the Funds through broker-dealers and other financial
representatives.
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
each Fund, 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 based on the aggregate average daily net assets of the
Funds at a rate based on the total assets of all mutual funds advised by First
Union subsidiaries. The fee paid to EIS is calculated in accordance with the
following schedule: 0.50% on the first $7 billion; 0.035% on the next $3
billion; 0.030% on the next $5 billion; 0.020% on the next $10 billion; 0.015%
on the next $5 billion and 0.010% on assets in excess of $30 billion.
TRANSFER AGENT
Evergreen Service Company ("ESC"), 200 Berkeley Street, Boston,
Massachusetts 02116-5034, is the Funds' transfer agent. ESC, a subsidiary of
First Union, issues and redeems shares, pays dividends and performs other duties
in connection with the maintenance of shareholder accounts.
INDEPENDENT AUDITORS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, audits the annual financial statements of each Fund.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02205-9827, keeps custody of each Fund's securities and cash and
performs other related duties.
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Funds.
15
<PAGE>
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements").
Under the Advisory Agreements, FUNB is entitled to receive from each Fund an
advisory fee based on a percentage of each Fund's average daily net assets.
Computed daily and paid monthly, the fee is 0.15% for MONEY FUND, MUNCIPAL FUND
and TREASURY FUND, and 0.25% for 100% TREASURY FUND. Currently, FUNB voluntarily
limits the fee for 100% TREASURY FUND to 0.15%, but FUNB may modify or cancel
this limit at any time.
Under the Advisory Agreements, and subject to the supervision of the
Trust's Board of Trustees, the Adviser furnishes each Fund with 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 Adviser pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Adviser, 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 (Trustees
who are not interested persons of a Fund, as defined in the 1940 Act) ; (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable); (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
such Fund and its shares with the Securities and Exchange Commission 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 of the
Trust on matters relating to such Fund; (14) charges and expenses of filing
annual and other reports with the Securities and Exchange Commission and other
authorities; and (15) all extraordinary charges and expenses of such Fund.
Each 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
each 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 Agreements 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. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 under the 1940
Act ("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union is an investment adviser. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment adviser. The Funds may engage in such transactions
if they are equitable to each participant and consistent with each participant's
investment objective.
DISTRIBUTION PLAN FOR INSTITUTIONAL SERVICE SHARES
Rule 12b-1 under the 1940 Act permits investment mutual funds to use
their assets to pay for distributing their shares. Each Fund has adopted a
distribution plan for its Institutional Service Shares (the "Plan") that permits
the Fund to deduct up to 0.25% of the Institutional Service Shares' average net
assets to pay for shareholder services. The Board of Trustees, including a
majority of the Independent Trustees, has approved the plan.
16
<PAGE>
The National Association of Securities Dealers, Inc. ("NASD") limits
the amount that a mutual fund may pay annually in distribution costs for sale of
its shares and shareholder service fees. The NASD limits annual expenditures to
1.00% of the aggregate average daily net asset value of its shares, of which
0.75% may be used to pay such distribution costs and 0.25% may be used to pay
shareholder service fees. (The Funds, however, do not deduct distribution costs
from Institutional Service Share assets, only shareholder service fees.) The
NASD also limits the aggregate amount that the Fund may pay for such
distribution costs to 6.25% of gross share sales since the inception of the
distribution plan, plus interest at the prime rate plus 1.00% on such amounts
remaining unpaid from time to time.
The Independent Trustees or a majority of the outstanding voting shares
of a Fund's Institutional Service Shares may terminate the Plan.
The Funds cannot change the Plan in a way that materially increases the
distribution expenses of Institutional Service Shares without obtaining
shareholder approval. Otherwise, the Trustees may amend the Plan.
Management must report the amounts and purposes of expenditures under
the Plan to the Independent Trustees quarterly.
While the Plan is in effect, a Fund will be required to commit the
selection and nomination of candidates for Independent Trustees to the
discretion of the Independent Trustees.
BROKERAGE
Due to the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices, the Board of Trustees may modify
or eliminate any of the following policies.
SELECTION OF BROKERS
In effecting transactions in portfolio securities for each Fund, the
Adviser seeks the best execution of orders at the most favorable prices. The
Adviser determines whether a broker has provided each Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things, the broker's ability to execute large or potentially difficult
transactions, and the financial strength and stability of the broker.
BROKERAGE COMMISSIONS
Each Fund expects to buy and sell its fixed-income securities through
principal transactions, that is, directly from the issuer or from an underwriter
or market maker for the securities. Generally, a Fund will not pay brokerage
commissions for such purchases. Usually, when a Fund buys a security from an
underwriter, the purchase price will 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 a Fund executes transactions in the over-the-counter market, it
will deal with primary market makers unless more favorable prices are otherwise
obtainable.
17
<PAGE>
SIMULTANEOUS TRANSACTIONS
The Adviser makes investment decisions for each 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 Adviser
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. The Adviser 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 Funds, but the
ideal price or trading volume may not always be achieved for an individual Fund.
The Funds may occasionally participate in group bidding to purchase securities
directly from issuers at lower prices.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment company,
known as Evergreen Select Money Market Trust (the "Trust"). The Trust was formed
as a Delaware business trust on September 18, 1997 (the "Declaration of Trust").
A copy of the Declaration of Trust is on file at the SEC as an exhibit to the
Trust's Registration Statement, of which this SAI is a part. This summary is
qualified in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each 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 net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each 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, 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.
18
<PAGE>
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen "Select" fund, as described under the section entitled
"Exchanges" in a Fund's 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.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV twice daily on Monday through Friday, as
described in the Prospectus. A Fund will not compute its NAV on days on which
there have been no purchases or sales of its shares. A Fund will also not
compute its NAV on the day the following legal holidays are observed: 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 each Fund is calculated by dividing the value of a Fund's
net assets attributable to that class by all of the shares issued for that
class.
VALUATION OF PORTFOLIO SECURITIES
The securities in a Fund's portfolio are valued on an amortized cost
basis. Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter a constant straight-line amortization of any
discount or premium is assumed each day regardless of the impact of fluctuating
interest rates on the market value of the security. The market value of the
obligations in a Fund's portfolio can be expected to vary inversely to changes
in prevailing rates. As a result, the market value of the obligations in a
Fund's portfolio may vary from the value determined using the amortized cost
method. Securities which are not rated are normally valued on the basis of
valuations provided by a pricing service when such prices are believed to
reflect the fair value of such securities. Other assets and securities for which
no quotations are readily available are valued at the fair value as determined
in good faith by the Trustees.
SHAREHOLDER SERVICES
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 convert a shareholder's distribution option so that the
shareholder reinvests 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. The Funds
will hold the returned distribution or
19
<PAGE>
redemption proceeds in a noninterest-bearing account in the shareholder's name
until the shareholder updates his or her address. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and each
class of each Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with the Distributor with respect to each
class of each 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 Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly comply
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 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.
20
<PAGE>
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY
100% Treasury Fund intends to qualify for and elect, and each of the
other Funds have qualified and intend 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"). (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, a
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; (ii)
derive less than 30% of its gross income from the sale or other disposition of
securities, options, futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward contracts
thereon) that are not directly related to the RIC's principal business of
investing in securities (or options and futures with respect thereto) held for
less than three months (this requirement is repealed for Fund fiscal years
beginning after August 5, 1997); and (iii) diversify its holdings so that, at
the end of each quarter of its taxable year, (a) at least 50% of the market
value of a 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 a 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, a 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 a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder may 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. Also, a shareholder must treat as long-term
capital gains or losses any capital gains or losses on Fund shares held for more
than one year. Capital gain on assets held for more than eighteen months is
generally subject to a maximum federal income tax rate of 20% for an individual.
The maximum capital gains tax rate for capital assets held by an individual for
more than twelve months but not more than eighteen months is generally 28%.
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 sixty-one-day period
beginning thirty days before and ending thirty 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 a 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
21
<PAGE>
redemption proceeds will be reduced by the amounts required to be withheld.
Investors may wish to consult their own tax advisers about the applicability of
the backup withholding provisions.
TAXES ON DISTRIBUTIONS
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 a 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 investment income plus net realized
short-term capital gains, if any). Since none of a Fund's income will consist of
corporate dividends, no distributions will qualify for the 70% corporate
dividends received deduction.
From time to time, each Fund will distribute the excess of its net
long-term capital gains over its short-term capital losses to shareholders. For
federal tax purposes, shareholders must include such distributions when
calculating their long-term capital gains. Each Fund will inform its
shareholders of the portion if any of a long-term capital gain distribution
which is subject to tax at the maximum 28% rate and the portion if any of
long-term capital gain distribution which is subject to tax at the maximum 20%
rate. Distributions of long-term capital gains are taxable as such to a
shareholder, no matter how long the shareholder has held the shares.
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 his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
SPECIAL TAX CONSIDERATIONS FOR MUNICIPAL 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" of a
facility financed with an issue of tax-exempt obligations or a "related person"
to such a user should consult a tax adviser concerning such user's 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").
22
<PAGE>
Under particularly unusual circumstances, such as when the Fund is in a
prolonged defensive investment position, it is possible that no portion of the
Fund's distributions of income to its shareholders for a fiscal year would be
exempt from federal income tax. The Fund does not presently anticipate, however,
that such unusual circumstances will occur.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of a 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.
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 advisers regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a 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.
EXPENSES
TRUSTEE COMPENSATION
Listed below is the Trustee compensation for the twelve-month period
ended February 28, 1998.
TRUSTEE COMPENSATION FROM COMPENSATION FROM
TRUST TRUST AND FUND
COMPLEX
================================ ========================== ==================
Laurence B. Ashkin $5,971 $70,838
Charles B. Austin III $981 $44,135
K. Dun Gifford $938 $40,027
James S. Howell $8,210 $110,819
23
<PAGE>
TRUSTEE COMPENSATION FROM COMPENSATION FROM
TRUST TRUST AND FUND
COMPLEX
================================ ========================== ==================
Leroy Keith Jr. $938 $40,427
Gerald M. McDonnell $6,655 $96,988
Thomas L. McVerry $7,093 $98,502
William Walt Pettit $6,611 $94,266
David M. Richardson $938 $43,719
Russell A. Salton, III $6,834 $97,526
Michael S. Scofield $6,898 $100,290
Richard J. Shima $4,146 $64,560
================================ ========================== ==================
ADVISORY FEES
The table below shows amounts the Adviser was entitled to receive from
each Fund for the fiscal year or period indicated. These fees, however, were
wholly or partially waived by the Adviser. Partial waiver amounts are noted
below. Otherwise, the Adviser completely waived its fee. For more information,
see "Investment Advisory and Other Services."
ADVISORY FEES
Year/Period
FUND Ended 1998 Period Ended 1997
============================= ============================ =====================
Money Fund $2,502,328 (a) (1) $337,302 (c)
Municipal Fund $489,951 (a) $77,430 (d)
Treasury Fund $2,181,556 (a) (2) $199,136 (d)
100% Treasury Fund $111, 904 (b) N/A
============================= ============================ =====================
(a) Year ended 2/28/98
(b) 12/8/97* to 2/28/98
(c) 11/19/96* to 2/28/97
(d) 11/20/96* to 2/28/97
* commencement of operations
(1) Of that amount, $522,139 waived by Adviser.
(2) Of that amount, $708,945 waived by Adviser.
In addition to the waivers described above, the Adviser reimbursed
$25,052 of Municipal Fund's expenses and $63,413 of 100% Treasury Fund's
expenses.
24
<PAGE>
DISTRIBUTION FEES FOR INSTITUTIONAL SERVICE SHARES
Pursuant to each Fund's Distribution Plan, the following amounts were
deducted from the net assets of each Fund's Institutional Service Shares for the
fiscal year or period ended February 28, 1998. For more information, see
"Distribution Plan for Institutional Service Shares."
DISTRIBUTION FEES
============================================================
Money Fund (a) $2,025,350
Municipal Fund (a) $62,315
Treasury Fund (a) $1,467,114
100% Treasury Fund (b) $2,203
================================= =========================
(a) Year ended 2/28/98
(b) 12/8/97 (commencement of operations) to 2/28/98
BROKERAGE COMMISSIONS PAID
The Funds have paid no brokerage commissions since their respective
inceptions.
PERFORMANCE
CURRENT, EFFECTIVE AND TAX-EQUIVALENT YIELDS
Each Fund may quote a "current yield" or "effective yield" from time to
time. The current yield is an annualized yield based on the actual total return
for a seven-day period. The effective yield is an annualized yield based on a
compounding of the current yield. These yields are each computed by first
determining the net change in account value for a hypothetical account having a
share balance of one share at the beginning of a seven-day period (shown as
"beginning account value" in the formula below), excluding capital changes. The
net change in account value will generally equal the total dividends declared
with respect to the account. The yields are then computed as follows:
Current Yield = BEGINNING ACCOUNT VALUE X 365/7
Effective Yield = [(1 + TOTAL DIVIDEND FOR 7 DAYS) 365/7]-1
Yield fluctuations may reflect changes in a Fund's net investment
income. Portfolio changes resulting from net purchases or net redemptions of the
Fund's shares may also affect the yield. Accordingly, a Fund's yield may vary
from day to day. The yield stated for a particular past period is not
necessarily representative of its future yield. Since each Fund uses the
amortized cost method of net asset value computation, it does not anticipate any
change in yield resulting from unrealized gains or losses not reflected in the
yield computation, or change in net asset value during the period used for
computing yield. If any of these conditions should occur, yield quotations would
be suspended. A Fund's yield is not guaranteed, and the principal is not
insured.
25
<PAGE>
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of (1) the kind and quality of the instruments a Fund holds, (2)
portfolio maturity, (3) operating expenses and (4) market conditions.
In periods of declining interest rates, yields will tend to be somewhat
higher than prevailing market rates. In periods of rising interest rates, yields
will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a Fund from the continuous sale of its shares will
likely be invested in instruments producing lower yields than the balance of the
Fund's investments, thereby reducing the current yield of the Fund. In periods
of rising interest rates, the opposite can be expected to occur.
For the MUNICIPAL FUND, a tax-equivalent yield is calculated,
reflecting the rate an investor would need to earn from a fully taxable
investment to equal the yield the Fund would provide after federal taxes.
The following formula is used:
Tax-Equivalent Yield = EFFECTIVE YIELD
----------------------------
1 - FEDERAL TAX RATE
Below are the yields of each Fund for the seven-day period ended
February 28, 1998. With respect to the tax-equivalent yield of MUNICIPAL FUND, a
federal tax rate of 36% is assumed.
FUND Current Effective Tax
Yield Yield Equivalent
Yield
===================================== ================ ============== =========
MONEY FUND
================ ============== =========
Institutional Shares 5.61% 5.76% N/A
Institutional Service Shares 5.36% 5.50% N/A
MUNICIPAL FUND
Institutional Shares 3.65% 3.71% 5.80%
Institutional Service Shares 3.40% 3.45% 5.39%
TREASURY FUND
Institutional Shares 5.46% 5.58% N/A
Institutional Service Shares 5.21% 5.32% N/A
100% TREASURY FUND
Institutional Shares 5.17% 5.30% N/A
Institutional Service Shares 4.88% 4.99% N/A
===================================== ================ ============== =========
26
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to each Fund's Annual Report, a copy of which may be
obtained without charge from ESC by calling 1-800- 633-2700 or by writing to ESC
at P.O. Box 2121, Boston, Massachusetts 02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, each
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 Funds'
prospectuses, SAI or in supplemental sales literature issued by such Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Funds' prospectuses 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.
27
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP ("S&P").
An S&P corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees. The debt rating is not a recommendation to
purchase, sell or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished to S&P by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
any audit in connection with the ratings and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in or unavailability of such information, or due to other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default-capacity and willingness of the obligor to make timely
payment of interest and repayment of principal in accordance with the terms of
the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or their arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations. Capacity to
pay interest and repay principal is very strong and in the majority of instances
it differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating
A-0
<PAGE>
category is also used for debt subordinated to senior debt that is assigned
an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. It is used when interest payments or
principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods; it will also be used upon a filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit quality,
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.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. Debt obligations of issuers
outside the United States and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings measure the credit
worthiness of the obligor but do not take into account currency exchange and
related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A and BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
A brief description of the applicable Moody's rating symbols and their meanings
follows:
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
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
A-1
<PAGE>
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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in 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 sometime 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. Some bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. NOTE: Bonds within the above
categories which possess the strongest investment attributes are designated by
the symbol "1" following the rating.
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 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 a 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 to 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.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk factors;
AA -- high credit quality, with strong protection factors and modest risk, which
may vary very slightly from time to time because of economic conditions;
A--average credit quality with adequate protection factors, but with greater and
more variable risk factors in periods of economic stress. The indicators "+" and
"-" to the AA and A categories indicate the relative position of credit within
those rating categories.
Fitch Investors Service L.P.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to these categories
indicate the relative position of credit within those rating categories.
A-2
<PAGE>
DESCRIPTION OF MUNICIPAL NOTE RATINGS
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run. Rating
symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security elements are
accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's: Commercial paper rated "Prime" carries the smallest degree of
investment risk. The modifiers 1, 2, and 3 are used to denote relative strength
within this highest classification.
S&P: "A" is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating category
utilized by Duff & Phelps, which uses + or - to denote relative strength within
this classification. Duff 2 represents good certainty of timely payment, with
minimal risk factors. Duff 3 represents satisfactory protection factors, with
risk factors larger and subject to more variation.
A-4
<PAGE>
Fitch Investors Service L.P.: F-1+ -- denotes exceptionally strong credit
quality given to issues regarded as having the strongest degree of assurance for
timely payment; F-1 -- very strong, with only a slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
A-5
