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PROSPECTUS November 12, 1997
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EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
- -----------------------------------------------------------(Evergreen tree
logo appears here.)
CLASS A SHARES
CLASS B SHARES
The Evergreen Connecticut Municipal Bond Fund (the "Fund") seeks current
income exempt from federal income taxes (other than the alternative minimum tax)
and Connecticut personal income taxes. The Fund also seeks to preserve capital.
The Fund looks to achieve its objective by investing primarily in municipal
obligations that are issued by the State of Connecticut.
This Prospectus provides information regarding the Class A and Class B
shares offered by the Fund. The Fund is a nondiversified series of an open-end,
management investment company. This Prospectus sets forth concise information
about the Fund that a prospective investor should know before investing. The
address of the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Fund dated November 12,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY AND INVOLVES RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
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TABLE OF CONTENTS
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EXPENSE INFORMATION 2
DESCRIPTION OF THE FUND 3
Investment Objectives and Policies 3
Investment Practices and Restrictions 3
ORGANIZATION AND SERVICE PROVIDERS 6
Organization 6
Service Providers 7
Distribution Plans 8
PURCHASE AND REDEMPTION OF SHARES 8
How to Buy Shares 8
How to Redeem Shares 11
Exchange Privilege 12
Shareholder Services 12
Banking Laws 13
OTHER INFORMATION 13
Dividends, Distributions and Taxes 13
General Information 14
</TABLE>
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EXPENSE INFORMATION
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The table and example below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Funds. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares
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<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.75% None
(as a % of offering price)
Maximum Contingent Deferred Sales Charge (as a % of original None1 5.00%2
purchase price or redemption proceeds, whichever is lower)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending March 31, 1998. The example shows what you would pay if you
invested $1,000 over periods indicated. The example assumes that you reinvest
all of your dividends and that the Fund's average annual return will be 5%. THE
EXAMPLES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. THE FUND'S ACTUAL
EXPENSES AND RETURNS WILL VARY. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL EXAMPLES
--------
OPERATING EXPENSES4
-----------------------
Class A Class B
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Assuming Assuming no
Redemption
<S> <C> <C> <C> <C> <C> <C>
at End of Period Redemption
----------------- -----------
Management Fees (after
expense
reimbursements) .50% .50% Class A Class B Class B
------- ------- -----------
After 1 Year $ 56 $ 66 $ 16
12b-1 Fees3 .25% 1.00%
After 3 Years $ 73 $ 81 $ 51
Other Expenses
(after expense
reimbursements) .10% .10%
------- -------
Total .85% 1.60%
------- -------
------- -------
</TABLE>
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(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5.00% to 1.00% of
amounts redeemed within six years after the month of purchase. No sales
charge is imposed on redemptions made thereafter. See "Purchase and
Redemption of Shares" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc. See "Purchase and Redemption of Shares" for more information.
(4) The Fund's investment adviser has voluntarily agreed to waive 0.10% of the
Fund's investment advisory fee. The investment adviser currently intends to
continue this expense waiver through the fiscal period ending March 31,
1998; however, it may modify or cancel its expense waiver at any time.
Without such waiver, the Fund's management fee would be 0.60%. See
"Organization and Service Providers" for more information. In addition, the
investment adviser has voluntarily limited the Other Expenses of the Fund to
0.10%. Absent expense waivers and/or reimbursements, the Total Operating
Expenses for Class A and Class B would be 1.12% and 1.87%, respectively.
2
<PAGE>
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DESCRIPTION OF THE FUND
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks current income exempt from federal income taxes other than
the alternative minimum tax and Connecticut personal income taxes. In addition,
the Fund seeks to preserve capital.
The Fund normally invests at least 80% of its assets in securities in
municipal obligations that are exempt from federal income tax (other than the
alternative minimum tax). In addition, the Fund will invest at least 65% its
total assets in Connecticut municipal obligations.
The Fund may make taxable investments and may, from time to time,
generate income subject to federal regular income tax and the alternative
minimum tax.
Municipal obligations are debt obligations issued by a state or local
entity to support a government's general financial needs or special projects,
such as housing projects or sewer works. Municipal obligations also include
certain types of industrial development bonds that the government has issued to
finance privately operated facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds involve the credit of
an issuer possessing taxing power and are payable from the issuer's general
unrestricted revenues. Their payment may be dependent upon an appropriation by
the issuer's legislative body and may be subject to quantitative limitations on
the issuer's taxing power. Limited obligation or revenue bonds are paid off only
with the revenue generated by the project financed by the bond or other
specified sources of revenue.
The Fund will invest at least 80% of its assets in bonds that, at the
date of investment, are rated within the four highest categories by Standard and
Poor's Ratings Group ("S&P") (AAA, AA, A and BBB), by Moody's Investor Service
("Moody's") (Aaa, Aa, A and Baa), by Fitch Investors Services, L.P. ("Fitch")
(AAA, AA, A and BBB) or, if not rated or rated under a different system, are of
comparable quality to obligations so rated as determined by another nationally
recognized statistical ratings organization or by the Fund's investment adviser.
The Fund may invest the remaining 20% of its assets in lower rated bonds, but it
will not invest in bonds rated below B. The Fund is not required to sell or
otherwise dispose of any security that loses its rating or has its rating
reduced after the Fund has purchased it. Also, if S&P, Moody's or Fitch changes
its ratings system, the Fund will try to use comparable ratings as standards
according to the Fund's investment objectives and policies.
The Fund also may invest up to 20% or, for temporary defensive purposes,
up to 100% of its assets in short-term obligations. Such obligations may include
master demand notes, commercial paper and notes, bank deposits and other
financial institution obligations.
The Fund's investment objectives are nonfundamental, as a result the Fund
may change its objectives without a shareholder vote. The Fund has also adopted
certain fundamental investment policies which are mainly designed to limit the
Fund's exposure to risk. The Fund's fundamental policies cannot be changed
without a shareholder vote. See the SAI for more information regarding the
Fund's fundamental investment policies or other related investment policies.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond yields are dependent on several factors including market
conditions, the size of an offering, the maturity of the bond, ratings of the
bond and the ability of issuers to meet their obligations. There is no limit on
the maturity of the bonds purchased by the Fund. Because bond prices fluctuate
inversely in relation to the direction of interest rates, the prices of longer
term bonds fluctuate more widely in response to market interest rate changes.
The Fund's concentration in securities issued by the State of Connecticut and
its political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities.
The Fund is not required to dispose of securities that have been
downgraded subsequent to their purchase. If the municipal obligations held by
the Fund (because of adverse economic conditions in the State of Connecticut,
for example) are downgraded, the Fund's concentration in State of Connecticut
securities may cause the Fund to be subject to the risks inherent in holding
material amounts of low-rated debt securities in its portfolio.
3
<PAGE>
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%.
Nondiversification. The Fund is a nondiversified portfolio of an investment
company and, as such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of the Fund's portfolio. The Fund intends
to comply with Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code") which requires that at the end of each quarter of each taxable
year, with regard to at least 50% of the Fund's total assets, no more than 5% of
the total assets may be invested in the securities of a single issuer and that
with respect to the remainder of the Fund's total assets, no more than 25% of
its total assets are invested in the securities of a single issuer.
Below-Investment Grade Bonds. The Fund may invest up to 20% of its assets in
below-investment grade bonds (i.e., a bond that is rated BB or lower by S&P or
Ba by Moody's). The Fund will not invest in bonds with a rating lower than B.
Since these bonds have low ratings, a degree of doubt surrounds the safety of
investment and the ability of the issuer to continue interest payments. These
bonds are also called "high risk, high yield" bonds or "junk" bonds. Junk bonds
are usually backed by issuers of less proven or questionable financial strength.
Compared with higher-grade bonds, issuers of junk bonds are more likely to face
financial problems and to be materially affected by those problems. As a result,
the ability of issuers of junk bonds to pay interest and principal is uncertain.
Moreover, the junk bond market may react strongly to real or perceived
unfavorable news about an issuer or the economy. If a junk bond issuer defaults,
the bond will lose some or all of its value.
Repurchase Agreements. The Fund may invest in repurchase agreements. Repurchase
agreements are agreements by which the Fund purchases a security (usually U.S.
government securities) for cash and obtains a simultaneous commitment from the
seller (usually a bank or broker-dealer) to repurchase the security at an
agreed-upon price and 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 inability of the seller to pay the agreed-upon price on the delivery
date. However, this risk is tempered by the ability of the Fund to sell the
security in the open market in the case of a default. In such a case, the Fund
may incur costs in disposing of the security which would increase Fund expenses.
The Fund's investment adviser will monitor the creditworthiness of the firms
with which the Fund enters into repurchase agreements.
When-Issued And Delayed Delivery Transactions. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date. The Fund may dispose of a commitment prior to
settlement if the Fund's investment adviser deems it appropriate to do so. In
addition, the Fund may enter into transactions to sell their purchase
commitments to third parties at current market values and simultaneously acquire
other commitments to purchase similar securities at later dates. The Fund may
realize short-term profits or losses upon the sale of such commitments.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. When someone borrows securities from the Fund, they 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 the Fund and its shareholders.
Investing In Securities Of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the 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 bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Fund does not intend to leverage.
4
<PAGE>
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit. The inability of the Fund to dispose of
illiquid or not readily marketable investments readily or at a reasonable price
could impair the Fund's ability to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. The Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment advisers' application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which the
Fund's investment adviser has determined to be liquid or readily marketable are
not subject to the 15% limit on illiquid securities.
Municipal Lease Obligations. The Fund may purchase municipal leases, which are
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. The Fund may purchase municipal securities in the
form of participation interests which represent undivided proportional interests
in lease payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease obligations may
be subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default. The trustee would only be able to enforce lease
payments as they become due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment or that the substitute source of payment
would generate tax-exempt income.
Resource Recovery Bonds. The Fund may purchase resource recovery bonds, which
may be general obligations of the issuing municipality or supported by corporate
or bank guarantees. The viability of the resource recovery project,
environmental protection regulations and project operator tax incentives may
affect the value and credit quality of resource recovery bonds.
Zero Coupon Debt Securities. The Fund may purchase zero coupon debt securities.
These securities do not make regular interest payments. Instead, they are sold
at a deep discount from their face value. In calculating their daily dividends,
each day the Fund takes into account as income a portion of the difference
between these securities' purchase price and their face value. Because they do
not pay current income, the prices of zero coupon debt securities can be very
volatile when interest rates change.
Securities with Put or Demand Rights. The Fund has the ability to enter into put
transactions, sometimes referred to as stand-by commitments, with respect to
municipal obligations held in its portfolio or to purchase securities which
carry a demand feature or put option which permit the Fund, as holder, to tender
them back to the issuer or a third party prior to maturity and receive payment
within seven days. Segregated accounts will be maintained by the Fund for all
such transactions.
The amount payable to the Fund by the seller upon its exercise of a put
will normally be (i) the Fund's acquisition cost of the securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during the period the
securities were owned by the Fund. Accordingly, the amount payable by a
broker-dealer or bank during the time a put is exercisable will be substantially
the same as the value of the underlying securities.
The Fund's right to exercise a put is unconditional and unqualified. A
put is not transferable by the Fund, although the Fund may sell the underlying
securities to a third party at any time. The Fund expects that puts will
generally be available without any additional direct or indirect cost. However,
if necessary and advisable, the Fund may pay for certain puts either separately
in cash or by paying a higher price for portfolio securities which are acquired
subject to such a put (thus reducing the yield to maturity otherwise available
to the same securities). Thus, the aggregate price paid for securities with put
rights may be higher than the price that would otherwise be paid.
5
<PAGE>
The Fund may enter into put transactions only with broker-dealers (in
accordance with the rules of the Securities and Exchange Commission) and banks
which, in the opinion of the Fund's investment adviser, present minimal credit
risks. The Fund's investment adviser will monitor periodically the
creditworthiness of issuers of such obligations held by the Fund. The Fund's
ability to exercise a put will depend on the ability of the broker-dealer or
bank to pay for the underlying securities at the time the put is exercised. In
the event that a broker-dealer should default on its obligation to purchase an
underlying security, the Fund might be unable to recover all or a portion of any
loss sustained from having to sell the security elsewhere. The Fund intends to
enter into put transactions solely to maintain portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes.
Risk Factors Related to Investing in Securities issued by the State of
Connecticut. Because it invests primarily in State of Connecticut municipal
securities, the performance of the Fund is in part tied to state-wide, regional
and local conditions within the State of Connecticut. Adverse changes to
state-wide, regional or local economies may adversely affect the
creditworthiness of the State of Connecticut, its municipalities, subdivisions
and instrumentalities. Also, some revenue obligations may be issued to finance
construction of capital projects of nongovernmental entities. Adverse economic
conditions might affect those entities' ability to meet their obligations to the
respective governmental authority which in turn might jeopardize the repayment
of the principal of, or the interest on, the revenue obligations.
Until recently, the State of Connecticut's economic performance had
significantly declined and the State had experienced general fund budget
deficits for several consecutive years. In 1991, the State imposed an income tax
on individuals, trusts and estates. For each fiscal year since fiscal 1991-92,
the General Fund has operated at a surplus. The State's income tax generates
approximately 28% of the State's total revenues. Future changes in the level of
economic activity in Connecticut may affect State income tax collections and
General Fund operations.
In November 1992, State electors approved an amendment to the State
Constitution providing that the amount of general budget expenditures authorized
for any fiscal year shall not exceed the estimated amount of revenue for such
fiscal year. This amendment also provides for a cap on budget expenditures. The
adopted budget for fiscal 1996-97 anticipated General Fund revenues of $9,049.7
million and General Fund expenditures of $9,049.4 million resulting in a
projected surplus of $0.3 million. The Comptroller's monthly report for the
period ending June 30, 1997, indicated a projected General Fund surplus for
fiscal 1996-97 of $255.3 million.
An expanded discussion of the risks associated with the purchase of
securities issued by the State of Connecticut is contained in the Statement of
Additional Information.
The value of municipal securities may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal and state income tax rates, the supply of tax-exempt bonds, the size of
the particular offering, the maturity of the obligation, the credit quality and
rating of the issue, and perceptions with respect to the level of interest
rates. In general, the value of bonds tends to appreciate when interest rates
decline and depreciate when interest rates rise.
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ORGANIZATION AND SERVICE PROVIDERS
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ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests shareholders'
money towards a specified goal. In technical terms, the Fund is a nondiversified
series of an open-end, investment management company, called "Evergreen
Municipal Trust" (the "Trust"). The Trust is a Delaware business trust organized
on September 17, 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 the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate equally in dividends and
distributions from the 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.
Shares of the Fund are redeemable, transferable and freely assignable as
collateral. The Fund may establish additional classes or series of shares.
6
<PAGE>
The Fund does not hold annual shareholder meetings; the 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 Fund is 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.
SERVICE PROVIDERS
Investment Adviser. The investment adviser to the Fund is the Capital Management
Group ("CMG") of First Union National Bank ("FUNB"), a subsidiary of First Union
Corporation. First Union Corporation and FUNB are located at 201 South College
Street, Charlotte, North Carolina 28288-0630. First Union Corporation and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
The Fund pays CMG an annual fee for its services equal to 0.60% of
average daily net assets. CMG has voluntarily agreed to reduce or waive a
portion of its fee equal to 0.10%, resulting in a net advisory fee of 0.50%. CMG
may change or cancel this waiver at any time.
Portfolio Manager. Jocelyn Turner is the Fund's portfolio manager. Ms. Turner
has been Vice President of Tax Exempt Fixed Income since she joined First Union
Corporation (then First Fidelity Bank) in November 1992. Before that time, Ms.
Turner was a municipal bond fund portfolio manager and Vice President of Tax
Exempt Fixed Income at One Federal Asset Management, Boston, MA.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides the Fund 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
Corporation subsidiaries. The administration fee is calculated in accordance
with the following schedule.
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets Of Mutual Funds For Which Any
Subsidiary Of First Union Corporation Serves As Investment
Administrative Fee Adviser
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<S> <C>
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>
Sub Administrator. BISYS Fund Services serves as sub-administrator to the Fund.
For its services, BISYS Fund Services is entitled to receive a fee calculated on
the aggregate average daily net assets of the Fund at a rate based on the total
assets of all mutual funds administered by EIS for which subsidiaries of First
Union Corporation also serve as investment adviser. The sub-administrator fee is
calculated in accordance with the following schedule:
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets Of Mutual Funds For Which Any
Subsidiary Of First Union Corporation Serves As Investment
Sub-Administrative Fee Adviser
- ---------------------- ----------------------------------------------------------------
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
</TABLE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116 acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of FUNB.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc. located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
7
<PAGE>
DISTRIBUTION PLANS
Distribution Plans. The Fund's Class A and Class B shares pay for the expenses
associated with the distribution of its shares according to a distribution plan
that it has adopted pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" or
collectively the "Plans"). Under the Plans, the Fund may incur
distribution-related and shareholder servicing-related expenses which are based
upon a maximum annual rate as a percent of the Fund's average daily net assets
attributable to the Class, as follows:
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries or directly through EDI. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Service Company
("ESC"), P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
Application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed Application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring Federal
funds, by direct deposit or by an electronic funds transfer ("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information. Only Class A and Class B
shares are offered through this Prospectus (see "General Information" -- "Other
Classes of Shares").
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of the Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
Initial Sales Charge
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,000 4.71% 4.50% 4.25%
$ 100,000 - $ 249,999 3.90% 3.75% 3.25%
$ 250,000 - $ 499,999 2.56% 2.50% 2.00%
$ 500,000 - $ 999,999 2.04% 2.00% 1.75%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such
8
<PAGE>
clients a management, consulting, advisory or other fee; (c) clients of
investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EDI and any broker-dealer with whom EDI has entered into an
agreement to sell shares of the Funds, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen fund by
investors reinvesting the proceeds from a redemption within the preceding thirty
days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain broker-
dealers or other financial institutions may impose a fee on transactions in
shares of the Fund.
Class A shares may also be purchased at net asset value by a corporation
or certain other qualified retirement plan or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. Certain
purchases of Class A shares may qualify for reduced sales charges in accordance
with the Fund's Concurrent Purchases, Rights of Accumulation, Letter of Intent,
certain Retirement Plans and Reinstatement Privilege. Consult the Application
for additional information concerning these reduced sales charges.
Class B Shares -- Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC will vary according to the number of years from the month of
purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
- ------------------------------------------------------------------------------------------------------------------ --------
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to EDI
or its predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares without imposition of a front-end sales charge). The higher fees
mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares. The Funds
will not normally accept any purchase of Class B shares in the amount of
$250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to
the higher distribution services fee imposed on Class B shares. Such conversion
will be on the basis of the relative net asset values of the two Classes,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee paid by
holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
9
<PAGE>
Contingent Deferred Sales Charge. Shares obtained from dividend or distribution
reinvestment are not subject to a CDSC. Any CDSC imposed upon the redemption of
Class A and Class B shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Fund may also sell Class A and Class B shares at net asset value
without any initial sales charge or a CDSC to certain Directors, Trustees,
officers and employees of the Fund, FUNB, EDI and certain of their affiliates,
and to members of the immediate families of such persons, to registered
representatives of firms with dealer agreements with EDI, and to a bank or trust
company acting as a trustee for a single account.
How the Fund Values Its Shares. The net asset value of each Class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the outstanding shares of that Class.
Shares are valued each day the New York Stock Exchange (the "Exchange") is open
as of the close of regular trading (currently 4:00 p.m. Eastern time). The
Exchange is closed on 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 securities in the Fund are valued at their current market
value determined on the basis of market quotations or, if such quotations are
not readily available, such other methods as the Trustees of the Trust under
which the Fund operates believe would accurately reflect fair market value.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A or Class B shares. There is no size limit on purchases of Class A
shares.
In addition to the discount or commission paid to broker-dealers, EDI and
EIS may from time to time pay to broker-dealers additional cash or other
incentives that are conditioned upon the sale of a specified minimum dollar
amount of shares of a Fund and/or other Evergreen funds. Such incentives will
take the form of payment for attendance at seminars, lunches, dinners, sporting
events or theater performances, or payment for travel, lodging and entertainment
incurred in connection with travel by persons associated with a broker-dealer
and their immediate family members to urban or resort locations within or
outside the United States. Such a dealer may elect to receive cash incentives of
equivalent amount in lieu of such payments. EDI may also limit the availability
of such incentives to certain specified dealers. EDI from time to time sponsors
promotions involving FUBS, an affiliate of each Fund's investment adviser, and
select broker-dealers, pursuant to which incentives are paid, including gift
certificates and payments in amounts up to 1% of the dollar amount of shares of
a Fund sold. Awards may also be made based on the opening of a minimum number of
accounts. Such promotions are not being made available to all broker-dealers.
Certain broker-dealers may also receive payments from EDI or a Fund's investment
adviser over and above the usual trail commissions or shareholder servicing
payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen funds. The Fund
will not accept third party checks other than those payable directly to an
account which has been in existence at least thirty days.
10
<PAGE>
HOW TO REDEEM SHARES
You may redeem Fund shares for cash, (at the net redemption value) on any
day the Exchange is open, either directly by writing to the Fund, c/o ESC, or
through your financial intermediary. The amount you will receive is the net
asset value adjusted for fractions of a cent next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to 15 days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC; the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESCs
offices are closed). Redemption requests received after 4:00 p.m. (Eastern time)
will be processed using the net asset value determined on the next business day.
Such redemption requests must include the shareholder's account name, as
registered with the Fund, and the account number. During periods of drastic
economic or market changes, shareholders may experience difficulty in effecting
telephone redemptions. If you cannot reach the Fund by telephone, you should
follow the procedures for redeeming by mail or through a broker-dealer as set
forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the Application and choose how
the redemption proceeds are to be paid. Redemption proceeds will either (i) be
mailed by check to the shareholder at the address in which the account is
registered or (ii) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. The Fund reserves the right at any time to terminate, suspend, or change
the terms of any redemption method described in this Prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
11
<PAGE>
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below $1,000 and
has remained so for thirty days. Shareholders will receive sixty days' written
notice to increase the account value to at least $1,000 before the account is
closed. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is obligated to redeem shares solely in cash, up to
the lesser of $250,000 or 1% of the Fund's total net assets, during any ninety
day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of the Fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B shares are exchanged for
Class B shares of other Evergreen funds. If you redeem shares, the CDSC
applicable to the Class B shares of the Evergreen fund originally purchased for
cash is applied. Also, Class B shares will continue to age following an exchange
for the purpose of conversion to Class A shares and for the purpose of
determining the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges by Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares may be modified, including the
right to charge for exchanges, or terminated at any time. Written requests for
exchanges should follow the same procedures outlined for written redemption
requests in the section entitled "How to Redeem Shares", however, no signature
guarantee is required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more information
about these services or your account, contact your financial intermediary, ESC
or call the toll-free number on the front page of this Prospectus. Some services
are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
12
<PAGE>
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Fund's
Systematic Withdrawal Plan by filling out the appropriate part of the
Application. Under this plan, you may receive (or designate a third party to
receive) a monthly or quarterly fixed-withdrawal payment in a stated amount of
at least $75 and may be as much as 1.0% per month or 3.0% per quarter of the
total net asset value of the Fund shares in your account when the Plan was
opened. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable CDSC will be waived with
respect to redemptions occurring under a Systematic Withdrawal Plan during a
calendar year to the extent that such redemptions do not exceed 12% of (i) the
initial value of the account plus (ii) the value, at the time of purchase, of
any subsequent investments.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen fund. You should designate on the application (1) the
dollar amount of each monthly or quarterly investment you wish to make and (2)
the fund in which the investment is to be made. Thereafter, on the first day of
the designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen fund shares you may own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your application and indicate the Evergreen fund(s)
into which distributions are to be invested.
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 the Fund. However, a Bank may act as 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.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends will be declared daily and paid monthly. Distributions
of any net realized gains of the Fund will be made at least annually.
Shareholders will begin to earn dividends on the first business day after shares
are purchased unless shares were not paid for, in which case dividends are not
earned until the next business day after payment is received. The Fund intends
to qualify to be treated as a regulated investment company under the Code. While
so qualified, so long as the Fund distributes all of its investment company
taxable income and any net realized gains to shareholders, it is expected that
the Fund will not be required to pay any federal income taxes. A 4%
nondeductible excise tax will be imposed on the Fund if it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
The 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
13
<PAGE>
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 the
"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
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investors holding period
relating to the shares with respect to which such gains are distributed. Market
discount recognized on taxable and tax-exempt bonds is taxable as ordinary
income, not as excludable income. Under current law, the highest federal income
tax rate applicable to net long-term gains realized by individuals is 20% for
most assets held more than 18 months. The rate applicable to corporations is
35%.
Since the Fund's gross income is ordinarily expected to be tax-exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax adviser.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
Exempt-interest dividends paid by the Fund, to the extent such dividends
are exempt from federal income tax and are derived from interest payments on
municipal securities of the State of Connecticut and its political subdivisions,
instrumentalities, state or local authorities, districts or similar public
entities created under Connecticut law, are not subject to the Connecticut
income tax on individuals, trusts and estates. Long-term capital gain dividends
are also not subject to the Connecticut income tax to the extent derived from
securities issued by such entities. Ordinary income dividends are subject to the
Connecticut income tax. Distributions from the Fund to shareholders subject to
the Connecticut corporation business tax are included in gross income for
purposes of the corporation business tax, but a dividends received deduction may
be available for a portion thereof except to the extent such distributions
constitute exempt-interest dividends or capital gain dividends for federal
income tax purposes.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Fund. These statements will set
forth the amount of income exempt from federal and if applicable, state
taxation, and the amount, if any, subject to federal and state taxation.
Moreover, to the extent necessary, these statements will indicate the amount of
exempt-interest dividends which are a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes. The exemption of
interest income for federal income tax purposes does not necessarily result in
exemption under the income or other tax law of any state or local taxing
authority. Investors should consult their own tax advisers about the status of
distributions from the Fund in their states and localities. The Fund notifies
shareholders annually as to the interest exempt from Federal taxes earned by the
Fund.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Conduct of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers three classes of shares,
Class A, Class B and Class Y, and may in the future offer additional classes.
Class A and Class B shares are the only classes of shares offered by this
Prospectus. The dividends payable with respect to Class A and Class B shares
will be less than those payable with respect to Class Y shares due to the
distribution and distribution related expenses borne by Class A and Class B
shares and the fact that such expenses are not borne by Class Y shares.
Investors should telephone (800) 343-2898 to obtain more information on other
classes of shares.
Performance Information. The Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the
14
<PAGE>
SEC for all stock and bond funds. Because yield accounting methods differ from
the method used for other accounting purposes, the Fund's yield may not equal
its distribution rate, the income paid to your account or the income reported in
the Fund's financial statements. To calculate yield, the Fund takes the interest
income it earned from its portfolio of investments (as defined by the SEC
formula) for a 30-day period (net of expenses), divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in the Fund. The Fund's total return shows
its overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects the
Fund's performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, the Fund may separate its cumulative and average annual total
returns into income results and realized and unrealized gain or loss.
The Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing the Fund's tax-exempt
yield by the result of one minus a stated federal tax rate. If only a portion of
the Fund's income was tax-exempt, only that portion is adjusted in the
calculation.
Comparative performance information may also be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar and other industry publications. The Fund
may also advertise in items of sales literature an "actual distribution rate"
which is computed by dividing the total ordinary income distributed (which may
include the excess of short-term capital gains over losses) to shareholders for
the latest twelve month period by the maximum public offering price per share on
the last day of the period. Investors should be aware that past performance may
not be reflective of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. EDI
may also reprint, and use as advertising and sales literature, articles from
EVERGREEN EVENTS, a quarterly magazine provided to Evergreen fund shareholders.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Trust
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
15
<PAGE>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank, 201 South College
Street, Charlotte, North Carolina 28288
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts, 02116
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Distributor, Inc., 125 West 55th Street, New York, New York 10019
61934 542277
