SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __ [ ]
EVERGREEN MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
Registrant declares that it hereby elects pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940 to register by this
Registration Statement an indefinite number or amount of its securities under
the Securities Act of 1933, as amended.
Approximate Date of Proposed Offering:
As soon as practicable after the effective date
of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EVERGREEN MUNICIPAL TRUST
CONTENTS OF
REGISTRATION STATEMENT ON
FORM N-1A
This Registration Statement on Form N-1A of the Registrant consists of the
following pages, items of information and documents, together with the exhibits
indicated in Part C as being filed herewith:
Facing Sheet
Contents Page
Cross-Reference Sheet
PART A
Prospectus(es) of Evergreen Connecticut Municipal Bond Fund
PART B
Statement of Additional Information
PART C
Exhibits
Number of Security Holders
Idemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Signatures
<PAGE>
EVERGREEN MUNICIPAL TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
ITEM OF PART A OF FORM N-1A LOCATION IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis and Fee Table Expenses
3. Condensed Financial Information Not applicable
4. General Description of Registrant Cover Page; Fund Descriptions;
Fund Details
5. Management of the Fund Fund Details
6. Capital Stock and Other Securities Fund Descriptions
7. Purchase of Securities Being Offered Buying and Selling Shares
8. Redemption or Repurchase Buying and Selling Shares
9. Pending Legal Proceedings Not Applicable
LOCATION IN STATEMENT OF
ITEM IN PART B OF FORM N-1A ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Not applicable
Holders of Securities
16. Investment Advisory and Other Services Investment Advisory and Other
Services
17. Brokerage Allocation Brokerage Allocation and Other
Practices
18. Capital Stock and Other Securities Capital Stock and Other
Securities
19. Purchase, Redemption and Pricing of Purchase, Redemption and Pricing
of Securities Being Offered of Securities Being Offered
20. Tax Status Not applicable
21. Underwriters Principal Underwriter
22. Calculation of Performance Data Calcuation of Performance Data
23. Financial Statements Financial Statements
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART A
PROSPECTUS(ES)
<PAGE>
PROSPECTUS , 1997
EVERGREEN MUNICIPAL BOND FUNDS
EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
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 ,
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 3
DESCRIPTION OF THE FUND 4
Investment Objectives and Policies 4
Investment Practices and Restrictions 4
ORGANIZATION AND SERVICE PROVIDERS 7
Organization 7
Service Providers 8
Distribution Plans 8
PURCHASE AND REDEMPTION OF SHARES 9
How to Buy Shares 9
How to Redeem Shares 12
Exchange Privilege 13
Shareholder Services 13
Banking Laws 14
OTHER INFORMATION 14
Dividends, Distributions and Taxes 14
General Information 15
</TABLE>
2
<PAGE>
EXPENSE INFORMATION
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
<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>
EXAMPLES
Assuming
ANNUAL Redemption Assuming no
OPERATING EXPENSES4 at End of Period Redemption
Class A Class B Class A Class B Class B
<S> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50%
After 1 Year .56% .66% .16%
12b-1 Fees3 .25% 1.00%
After 3 Years .73% .81% .51%
Other Expenses .10% .10%
After 5 Years .92% 1.07% .87%
After 10 Years 1.47% 1.60% 1.60%
Total .85% 1.60%
</TABLE>
(1) Investments or $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 redemption 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.
3
<PAGE>
DESCRIPTION OF THE FUND
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 invests at least 80% of its assets in securities the income from
which is exempt from federal income tax other than the alternative minimum tax.
In addition, the Fund will invest at least 65% its assets in Connecticut
municipal obligations.
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 objective(s) are nonfundamental, as a result the
Fund may change its objective(s) 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.
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%.
4
<PAGE>
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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be
5
<PAGE>
illiquid or not readily marketable and, therefore, are not subject to the
aforementioned 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. The
liquidity of securities purchased by the Fund which are eligible for resale
pursuant to Rule 144A will be monitored by the Fund's investment adviser on an
ongoing basis, subject to the oversight of the Trustees as defined below. In the
event that such a security is deemed to be no longer liquid, the Fund's holdings
will be reviewed to determine what action, if any, is required to ensure that
the retention of such security does not result in the Fund having more than 15%
of its net assets invested in illiquid or not readily marketable 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.
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
6
<PAGE>
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.
Special 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.
ORGANIZATION AND SERVICE PROVIDERS
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.
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.
7
<PAGE>
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 stop 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 Keystone Investment Services ("EKIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EKIS provides the Fund with
facilities, equipment and personnel. For its services as administrator, EKIS 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
<S> <C>
0.060% on the first $7 billion
0.0425% on the next $3 billion
0.035% on the next $5 billion
0.025% on the next $10 billion
0.019% on the next $5 billion
0.014% 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 from EKIS
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 EKIS 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 EKIS 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 $30 billion
</TABLE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Keystone Service Company
("EKSC"), 200 Berkeley Street, Boston, Massachusetts 02116 acts as the Fund's
transfer agent and dividend disbursing agent. EKSC 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 Keystone Distributor, Inc. ("EKD"), 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.
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
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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:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
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.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), 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, Class B and
Class C 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 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
9
<PAGE>
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, EKD and any broker-dealer with whom EKD 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 EKD 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, EKD 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. EKD 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 EKD
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.
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.
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<PAGE>
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, EKD and certain of their affiliates,
and to members of the immediate families of such persons, to registered
representatives of firms with dealer agreements with EKD, 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, EKD and
EKIS 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 Keystone 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. EKD may also limit the
availability of such incentives to certain specified dealers. EKD 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 EKD 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.
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 EKSC, 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,
11
<PAGE>
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 EKSC; the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, EKSC, 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 EKSC 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 EKSC'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 EKSCs
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 EKSC 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, EKSC, and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Fund, EKSC, and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone 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 Keystone Express Line by dialing toll
free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a
week.
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
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<PAGE>
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 EKSC or by using the Evergreen Keystone
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 EKSC 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 EKSC 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, EKSC
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.
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 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Shares purchased under the Fund's Systematic Investment Plan or Telephone
Investment Plan may not be redeemed for ten days from the date of investment.
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<PAGE>
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 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
14
<PAGE>
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 four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994, owned shares
in a mutual fund advised by Evergreen Asset Management Corp., (ii) certain
institutional investors and (iii) investment advisory clients of FUNB or its
affiliates. The dividends payable with respect to Class A, Class B and Class C
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, Class B and
Class C shares and the fact that such expenses are not borne by Class Y 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 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
15
<PAGE>
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. EKD
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.
16
<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 Keystone 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 Keystone Distributor, Inc., 125 West 55th Street, New York, New York
10019
61934 541224
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 19, 1997
PROSPECTUS , 1997
EVERGREEN MUNICIPAL BOND FUNDS (Pine Tree Logo)
EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
CLASS Y 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 Y 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
, 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 3
DESCRIPTION OF THE FUND 4
Investment Objectives and Policies 4
Investment Practices and Restrictions 4
ORGANIZATION AND SERVICE PROVIDERS 7
Organization 7
Service Providers 8
PURCHASE AND REDEMPTION OF SHARES 9
How to Buy Shares 9
How to Redeem Shares 9
Exchange Privilege 10
Shareholder Services 11
Banking Laws 12
OTHER INFORMATION 12
Dividends, Distributions and Taxes 12
General Information 13
</TABLE>
2
<PAGE>
EXPENSE INFORMATION
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 Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
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 OPERATING EXAMPLE
EXPENSES (1) Class Y
<S> <C> <C> <C>
Management Fees 0.50%
12b-1 Fees None After 1 Year $ 6
Other Expenses 0.10% After 3 Years $19
Total 0.60%
</TABLE>
(1) 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 the Fund would be 0.87%.
3
<PAGE>
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVES 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 invests at least 80% of its assets in securities the income from
which is exempt from federal income tax other than the alternative minimum tax.
In addition, the Fund will invest at least 65% its assets in Connecticut
municipal obligations.
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 objective(s) are nonfundamental, as a result the
Fund may change its objective(s) 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.
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%.
4
<PAGE>
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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be
5
<PAGE>
illiquid or not readily marketable and, therefore, are not subject to the
aforementioned 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. The
liquidity of securities purchased by the Fund which are eligible for resale
pursuant to Rule 144A will be monitored by the Fund's investment adviser on an
ongoing basis, subject to the oversight of the Trustees as defined below. In the
event that such a security is deemed to be no longer liquid, the Fund's holdings
will be reviewed to determine what action, if any, is required to ensure that
the retention of such security does not result in the Fund having more than 15%
of its net assets invested in illiquid or not readily marketable 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.
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
6
<PAGE>
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.
Special 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.
ORGANIZATION AND SERVICE PROVIDERS
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.
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.
7
<PAGE>
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 stop 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 Keystone Investment Services ("EKIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EKIS provides the Fund with
facilities, equipment and personnel. For its services as administrator, EKIS 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
<S> <C>
0.060% on the first $7 billion
0.0425% on the next $3 billion
0.035% on the next $5 billion
0.025% on the next $10 billion
0.019% on the next $5 billion
0.014% 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 from EKIS
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 EKIS 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 EKIS 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 $30 billion
</TABLE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Keystone Service Company
("EKSC"), 200 Berkeley Street, Boston, Massachusetts 02116 acts as the Fund's
transfer agent and dividend disbursing agent. EKSC 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 Keystone Distributor, Inc. ("EKD"), 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.
8
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(i) persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset Management Corp., (ii) certain institutional
investors and (iii) investment advisory clients of FUNB and its affiliates.
Eligible investors may purchase Class Y shares of the Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EKD. In addition, you may purchase Class Y shares of the Fund by mailing to the
Fund, c/o Evergreen Keystone Service Company, 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.
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 Y shares are
offered through this Prospectus (see "General Information" -- "Other Classes of
Shares").
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.
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.
HOW TO REDEEM SHARES
You may redeem your Class Y shares in the Fund for cash, (at the net
redemption value) on any day the Exchange is open, either directly by writing to
the Fund, c/o EKSC, 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. 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 EKSC; the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is
9
<PAGE>
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 EKSC 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 EKSC's policies.
Shareholders may withdraw 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 EKSCs
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 EKSC 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, EKSC, and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Fund, EKSC, and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone 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 Keystone Express Line by dialing toll
free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a
week.
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 Class Y shares for
shares of the same Class in the other Evergreen funds through your financial
intermediary, by calling or writing to EKSC or by using the Evergreen Keystone
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
10
<PAGE>
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.
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 EKSC 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 EKSC 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, EKSC
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.
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 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Shares purchased under the Fund's Systematic Investment Plan or Telephone
Investment Plan may not be redeemed for ten days from the date of investment.
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.
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.
11
<PAGE>
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 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
12
<PAGE>
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 Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994, owned shares
in a mutual fund advised by Evergreen Asset Management Corp., (ii) certain
institutional investors and (iii) investment advisory clients of FUNB or its
affiliates. 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.
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 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.
13
<PAGE>
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. EKD
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 Statement 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.
14
<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 Keystone 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 Keystone Distributor, Inc., 125 West 55th Street, New York, New York
10019
61654 541907
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 19, 1997
EVERGREEN MUNICIPAL BOND FUNDS
200 BERKELEY STREET, BOSTON, MASSACHUSETTS
(800) 343-2898
STATEMENT OF ADDITIONAL INFORMATION
, 1997
EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
(THE "FUND")
THE FUND IS A SERIES OF AN OPEN-END
MANAGEMENT INVESTMENT COMPANY,
KNOWN AS "EVERGREEN MUNICIPAL
TRUST" (THE "TRUST").
This statement of additional information ("SAI") provides additional
information about all classes of shares of the Fund listed above. It is not a
prospectus and you should read it in conjunction with the prospectus of the Fund
dated ________, 1997, as supplemented from time to time. You may get a copy of
the prospectus from the Fund's principal underwriter, Evergreen Keystone
Distributor, Inc.
2
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES.........................................................3
Additional Information on Securities and Investment Practices......3
Investment Restrictions And Guidelines............................12
MANAGEMENT OF THE TRUST....................................................14
INVESTMENT ADVISORY AND OTHER SERVICES.....................................16
Investment Adviser................................................16
Distribution Plan.................................................17
Additional Service Providers......................................18
BROKERAGE ALLOCATION AND OTHER PRACTICES...................................18
Selection of Brokers..............................................18
Brokerage Commissions.............................................19
General Brokerage Policies........................................19
CAPITAL STOCK AND OTHER SECURITIES.........................................19
Form of Organization..............................................19
Description of Shares.............................................19
Voting Rights.....................................................19
Limitation of Trustees' Liability.................................20
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
BEING OFFERED.....................................................20
Purchases.........................................................20
Exchanges.........................................................20
How the Fund Values its Shares....................................21
PRINCIPAL UNDERWRITER......................................................22
CALCULATION OF PERFORMANCE DATA............................................22
ADDITIONAL INFORMATION.....................................................22
Other Information.................................................22
FINANCIAL STATEMENTS.......................................................23
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
21980
3
<PAGE>
INVESTMENT POLICIES
The investment objectives of the Fund and a description of the
securities in which the Fund may invest is set forth in the Fund's prospectus.
The following expands upon the discussion in the prospectus regarding certain
investments of the Fund.
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
DERIVATIVES
Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives may be standardized, exchange-traded contracts or customized,
privately negotiated contracts. Exchange-traded derivatives tend to be more
liquid and subject to less credit risk than those that are privately negotiated.
There are four principal types of derivative instruments -- options,
futures, forwards, and swaps -- from which virtually any type of derivative
transaction can be created. Debt instruments that incorporate one or more of
these building blocks for the purpose of determining the principal amount of
and/or rate of interest payable on the debt instruments are often referred to as
"structured securities." An example of this type of structured security is
indexed commercial paper. The term is also used to describe certain securities
issued in connection with the restructuring of certain foreign obligations. See
"Indexed Commercial Paper" and "Structured Securities" below. The term
"derivative" is also sometimes used to describe securities involving rights to a
portion of the cash flows from an underlying pool of mortgages or other assets
from which payments are passed through to the owner of, or that collateralize,
the securities. See "Mortgage Related Securities," "Collateralized Mortgage
Obligations," "Adjustable Rate Mortgage Securities," "Stripped Mortgage
Securities," "Mortgage Securities - Special Considerations," and "Other
Asset-Backed Securities."
The Fund can use derivatives to earn income, to enhance returns, to
hedge or adjust the risk profile of the portfolio, in place of more traditional
direct investments or to obtain exposure to otherwise inaccessible markets. A
Fund's use derivatives for non-hedging purposes entails greater risks than if a
Fund were to derivatives solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to a Fund's shareholders. The Fund's investment adviser is
not an aggressive user of derivatives with respect to the Fund. However, a Fund
may take positions in those derivatives that are within its investment policies
if, in the Adviser's judgment, this represents an effective response to current
or anticipated market conditions. the Adviser's use of derivatives is subject to
continuous risk assessment and control from the standpoint of a Fund's
investment objective and policies. While the judicious use of derivatives by
experienced investment managers, such as the Adviser, can be beneficial,
derivatives also involve risks different from, and, in certain cases, greater
than, the risks presented by more traditional investments. Following is a
general discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in a Fund.
Market Risk -- This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise
change in a way detrimental to a Fund's interest.
Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument, but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. Because derivatives are complex, the Fund and the Adviser
must (1) maintain controls to monitor the transactions entered into,
(2) assess the risk that a derivative adds to a Fund's portfolio and
(3) forecast price, interest rate or currency exchange rate movements
correctly.
Credit Risk -- This is the risk that a Fund may lose money because the
other party to a derivative (usually called a "counter party") failed
to comply with the terms of the derivative contract. The credit risk
for exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counter party to each exchange-traded derivative, guarantees
performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearing house to reduce
overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, a Fund considers the
creditworthiness of each counter party to a privately negotiated
derivative in evaluating potential credit risk.
Liquidity Risk -- Liquidity risk exists is the possibility that a Fund
will have difficulty buying or selling a particular instrument. If a
derivative transaction is particularly large or if the relevant market
is illiquid (as is the case with many privately negotiated
derivatives), a Fund may not be able to initiate a transaction or
liquidate a position at an advantageous price.
Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates, and indices. Many
derivatives, in particular privately negotiated derivatives, are
complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counter parties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, a Fund's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering a Fund's investment objective.
OPTIONS TRANSACTIONS
Writing Covered Options. The Fund may write (i.e., sell) covered call
and put options. By writing a call option, a Fund becomes obligated during the
term of the option to deliver the securities underlying the option upon payment
of the exercise price. Writing a put option obligates the Fund during the term
of the option to purchase the securities underlying the option at the exercise
price if the option buyer exercises the option. A Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that while a Fund
is obligated as the writer of a call option it will own the underlying
securities subject to the option or, with call options on U.S. Treasury bills,
it might own similar U.S. Treasury bills. If a Fund has written options against
all of its securities that are available for writing options, the Fund may be
unable to write additional options unless it sells some of its portfolio
holdings to obtain new securities against which it can write options. If this
were to occur, higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs may result. The Fund does not expect,
however, that this will occur. A Fund will be considered "covered" with respect
to a put option it writes if, while it is obligated as the writer of the put
option, it deposits and maintains with its custodian in a segregated account
liquid assets having a value equal to or greater than the exercise price of the
option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. A Fund receives a premium from writing a
call or put option, which it retains whether or not the option is exercised. By
writing a call option, a Fund might lose the potential for gain on the
underlying security while the option is open, and, by writing a put option, a
Fund might become obligated to purchase the underlying security for more than
its current market price upon exercise.
Purchasing Options. The Fund may purchase put or call options,
including put or call options for offsetting previously written put or call
options of the same series. Once a Fund has written a covered option, it will
continue to hold the segregated securities or assets until it effects a closing
purchase transaction. If the Fund is unable to close the option position, it
must hold the segregated securities or assets until the option expires or is
exercised. An option position may be closed out only in a secondary market for
an option of the same series. Although a Fund generally writes only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and, for some options, no secondary market may exist. In
such event, effecting a closing transaction for a particular option might not be
possible.
Options on some securities are relatively new, and predicting how much
trading interest there will be for such options is impossible. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair a Fund's ability to
use such options to achieve its investment objective.
Options Trading Markets. The Fund trades in options that are generally
listed on national securities exchanges, currently including the Chicago Board
Options Exchange and the New York, American, Pacific and Philadelphia Stock
Exchanges. Options on some securities are traded in the over-the-counter market,
and may not be listed on any exchange. Options traded in the over-the-counter
market involve a greater risk that the securities dealers participating in the
transactions could fail to meet their obligations to a Fund. Certain state
authorities may limit the use of options traded in the over-the-counter market.
A Fund will include the premiums it has paid for the purchase of
unlisted options and the value of securities used to cover options it has
written for purposes of calculating whether the Fund has complied with its
policies on illiquid securities.
FUTURES TRANSACTIONS
The Fund intends to enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by the Fund or as a hedge against
changes in the prices of securities held by a Fund or to be acquired by a Fund.
A Fund's hedging may include sales of futures as an offset against the effect of
expected increases in interest rates or securities prices and purchases of
futures as an offset against the effect of expected declines in interest rates.
For example, when a Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when a Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, a Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Funds intends to engage in options transactions which are related
to financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge their
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts they hold, the
Fund does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
Interest Rate Futures Contracts. The sale of an interest rate futures contract
creates an obligation by a Fund, as seller, to deliver the type of financial
instrument specified in the contract at a specified future time for a specified
price. The purchase of an interest rate futures contract creates an obligation
by a Fund, as purchaser, to accept delivery of the type of financial instrument
specified at a specified future time for a specified price. The specific
securities delivered or accepted, respectively, at settlement date, are not
determined until at or near that date. The determination is in accordance with
the rules of the exchange on which the futures contract sale or purchase was
made.
Currently, interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
(GNMA) certificates, 90-day domestic bank certificates of deposit, 90-day
commercial paper, and 90-day Eurodollar certificates of deposit. It is expected
that futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills
and U.S. Treasury notes are backed by the full faith and credit of the U.S.
government and GNMA certificates are guaranteed by a U.S. government agency, the
futures contracts in U.S. government securities are not obligations of the U.S.
Treasury.
Index Based Futures Contracts, Other Than Stock Index Based. It is expected that
bond index and other financially based index futures contracts will be developed
in the future. It is anticipated that such index based futures contracts will be
structured in the same way as stock index futures contracts but will be measured
by changes in interest rates, related indexes or other measures, such as the
consumer price index. In the event that such futures contracts are developed,
the Fund will sell interest rate index and other index based futures contracts
to hedge against changes which are expected to affect the Fund's portfolios.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by a Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to a Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when a
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, a Fund may elect to close the position. A final determination
of variation margin is then made, additional cash is required to be paid to or
released by the Broker, and the Fund realizes a loss or gain.
Each Trust intends to enter into arrangements with its custodian and
with Brokers to enable the initial margin of a Fund and any variation margin to
be held in a segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which a Fund enters into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument or index and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which a Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to a Fund.
There can be no assurance, however, that a Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If a Fund is not able to enter into an offsetting transaction,
the Fund will continue to be required to maintain the margin deposits on the
contract and to complete the contract according to its terms.
Options on Financial Futures. The Fund intends to purchase call and put options
on financial futures contracts and sell such options to terminate an existing
position. Options on futures are similar to options on stocks except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) rather than to
purchase or sell stock at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and value of the futures
contract.
The Fund intends to use options on financial futures contracts in
connection with hedging strategies. In the future the Fund may use such options
for other purposes.
Purchase of Put Options on Futures Contracts. The purchase of protective put
options on financial futures contracts is analogous to the purchase of
protective puts on individual stocks, where an absolute level of protection is
sought below which no additional economic loss would be incurred by a Fund. Put
options may be purchased to hedge a portfolio of stocks or debt instruments or a
position in the futures contract upon which the put option is based.
Purchase of Call Options on Futures Contracts. The purchase of call options on
financial futures contracts represents a means of obtaining temporary exposure
to market appreciation at limited risk. It is analogous to the purchase of a
call option on an individual stock, which can be used as a substitute for a
position in the stock itself. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
underlying financial instrument or index itself, purchase of a call option may
be less risky than the ownership of the interest rate or index based futures
contract or the underlying securities. Call options on commodity futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when a Fund is not fully invested.
Use of New Investment Techniques Involving Financial Futures Contracts or
Related Options. The Fund may employ new investment techniques involving
financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. Each Trust
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
Limitations on Purchase and Sale of Futures Contracts and Related Options on
Such Futures Contracts. A Fund will not enter into a futures contract if, as a
result thereof, more than 5% of the Fund's total assets (taken at market value
at the time of entering into the contract) would be committed to margin deposits
on such futures contracts, including any premiums paid for options on futures.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that a Fund owns, or futures contracts will be purchased to protect a
Fund against an increase in the price of securities it intends to purchase. The
Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with each Trust's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
Risks of Futures Contracts. Financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in a Fund's portfolio. In addition,
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable losses if, instead of
entering into the futures contract, it had invested in the underlying financial
instrument. Furthermore, in order to be certain that a Fund has sufficient
assets to satisfy its obligations under a futures contract, the Fund will
establish a segregated account in connection with its futures contracts which
will hold cash or cash equivalents equal in value to the current value of the
underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Risks of Options on Futures Contracts. In addition to the risks described above
for financial futures contracts, there are several special risks relating to
options on futures contracts. The ability to establish and close out positions
on such options will be subject to the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. A Fund will not
purchase options on any futures contract unless and until it believes that the
market for such options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection with the futures
contracts. Compared to the use of futures contracts, the purchase of options on
such futures involves less potential risk to a Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to a Fund, even though the use of a futures contract would not,
such as when there is no movement in the level of the futures contract.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf
of a state, a territory or a possession of the United States ("U.S."), the
District of Columbia or any political subdivision, agency or instrumentality
thereof (for example, counties, cities, towns, villages, districts, authorities)
to obtain funds for various public purposes, including the construction of a
wide range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to public or private institutions for the
construction of facilities, such as educational, hospital and housing
facilities. In addition, certain types of industrial development bonds have been
or may be issued by or on behalf of public authorities to finance certain
privately-operated facilities, and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposal. Such obligations are
included within the term municipal obligations if the interest paid thereon
qualifies as fully exempt from federal income tax. The income of certain types
of industrial development bonds used to finance certain privately-operated
facilities (qualified private activity bonds) issued after August 7, 1986, while
exempt from federal income tax, is includable for the purposes of the
calculation of the alternative minimum tax. Other types of industrial
development bonds, the proceeds from which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute municipal obligations, although the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal obligations are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. 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. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds that are municipal obligations are, in most cases, revenue
bonds and generally are not payable from the unrestricted revenues of the
issuer. The credit quality of industrial development revenue bonds is usually
directly related to the credit standing of the owner or user of the facilities.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications, depending on
numerous factors.
The yields on municipal obligations are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal obligations market, size of a
particular offering, and the maturity of the obligation and rating of the issue.
The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service ("Moody's") and Fitch Investor Services, L.P. ("Fitch"), as described
herein and in the prospectus, represent their opinions as to the quality of the
municipal obligations that they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of quality.
Consequently, municipal obligations with the same maturity, interest rate and
rating may have different yields while municipal obligations of the same
maturity and interest rate with different ratings may have the same yield. It
should also be noted that the standards of disclosure applicable to and the
amount of information relating to the financial condition of issuers of
municipal obligations are not generally as extensive as those generally relating
to corporations.
Subsequent to its purchase by the Fund, a municipal obligation or other
investment may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. Neither event requires the Fund to
sell such obligation from its portfolio, but its investment adviser will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal obligations to pay interest
and principal when due. Municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Act, and laws, if any, that may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that the result of litigation
or other conditions may materially affect the power or ability of an issuer to
pay principal of and interest on its municipal obligations when due. In
addition, the market for municipal obligations is often thin and can be
temporarily affected by large purchases and sales, including those by the Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations, and similar proposals may well be introduced
in the future. The enactment of such a proposal could materially affect the
availability of municipal obligations for investment by the Fund and the value
of the Fund's portfolio. In which event, the Trust would reevaluate the
investment objectives and policies of the Fund and consider changes in the
structure of the Fund or dissolution.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax-exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1)"public purpose" bonds, the income from which remains fully exempt
from federal income tax; (2) qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code of 1986, as amended (the "Code"), is includable
in the calculation of the federal alternative minimum tax; and (3) "private
activity" (private purpose) bonds, the income from which is not exempt from
federal income tax. A Fund will not invest in private purpose bonds and, except
as described under "Other Eligible Investments," will not invest in qualified
"private activity" industrial development bonds whose distributions are subject
to the alternative minimum tax.
The Fund may assume a temporary defensive position upon its investment
adviser's determination that market conditions so warrant.
LOANS OF SECURITIES
To generate income and offset expenses, the Fund may lend portfolio
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. While securitis are on loan, the borrower will pay the Fund any income
accruing on the security. The Fund may invest any collateral it receives in
additional portfolio securities, such as U.S. Treasury notes, certificates of
deposit, other high-grade, short-term obligations or interest bearing cash
equivalents. Gains or losses in the market value of a security lent will affect
the Fund and its shareholders.
When the Fund lends its securities, it will require the borrower to
give the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
Although voting rights attendant to securities lent pass to the
borrower, the Fund may call such loans at any time and may vote the securities
if it believes a material event affecting the investment is to occur. The Fund
may experience a delay in receiving additional collateral or in recovering the
securities lent or may even suffer a loss of rights in the collateral should the
borrower of the securities fail financially. The Fund may only make loans to
borrowers deemed to be of good standing, under standards approved by the Board
of Trustees, when the income to be earned from the loan justifies the attendant
risks.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the
investment of fluctuating amounts by the Fund at varying rates of interest
pursuant to direct arrangements between the Fund, as lender, and the issuer, as
borrower. Master demand notes may permit daily fluctuations in the interest rate
and daily changes in the amounts borrowed. The Fund has the right to increase
the amount under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount. The borrower may repay up to the full
amount of the note without penalty. Notes purchased by the Fund permit the Fund
to demand payment of principal and accrued interest at any time (on not more
than seven days' notice). Notes acquired by the Fund may have maturities of more
than one year, provided that (1) the Fund is entitled to payment of principal
and accrued interest upon not more than seven days' notice, and (2) the rate of
interest on such notes is adjusted automatically at periodic intervals, which
normally will not exceed 31 days, but may extend up to one year. The notes are
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the demand notice period. Because these types
of notes are direct lending arrangements between the lender and borrower, such
instruments are not normally traded and there is no secondary market for these
notes, although they are redeemable and thus repayable by the borrower at face
value plus accrued interest at any time. Accordingly, the Fund's right to redeem
is dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, the Fund's
investment adviser considers, under standards established by the Board of
Trustees, earning power, cash flow and other liquidity ratios of the borrower
and will monitor the ability of the borrower to pay principal and interest on
demand. These notes are not typically rated by credit rating agencies. Unless
rated, the Fund may invest in them only if at the time of an investment the
issuer meets the criteria established for commercial paper discussed in the
statement of additional information (which limits such investments to commercial
paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch).
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by government regulation.
Payment of interest and principal upon these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of such securities
may be held outside the U.S. and the Fund may be subject to the risks associated
with the holding of such property overseas. Examples of governmental actions
would be the imposition of currency controls, interest limitations, withholding
taxes, seizure of assets or the declaration of a moratorium. Various provisions
of federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as by governmental action in the country in which the foreign
bank has its head office. In addition, there may be less publicly available
information about a U.S. branch of a foreign bank than about a domestic bank.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accreted interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with entities that are
registered 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 the Fund's
Adviser (as hereinafter defined) to be creditworthy. A repurchase agreement is
an agreement by which a person (e.g., a Fund) obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or recognized securities dealer) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. 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 or its 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
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker-dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include obligations that the U.S. government agencies or
instrumentalities issued or guaranteed.
These securities are backed by:
(1) the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
(2) the credit of the agency or instrumentality issuing the
obligations. Examples of agencies and instrumentalities that may not
always receive financial support from the U.S. Government 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;
(vi) Government National Mortgage Association; and
(vii) Student Loan Marketing Association
GNMA Securities
The Fund may invest in securities issued by the Government National
Mortgage Association ("GNMA"), a wholly-owned U.S. Government corporation, which
guarantees the timely payment of principal and interest, but not premiums paid
to purchase these instruments. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. 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.
RESTRICTED AND ILLIQUID SECURITIES
Pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A"),
the Board of Trustees of the Trust determines the liquidity of certain
restricted securities Rule 144A is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. Rule 144A provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. Rule 144A was expected to further enhance the liquidity of
the secondary market for securities eligible for sale under Rule 144A. In
determining the liquidity of certain restricted securities the Trustees
consider: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and the nature of the marketplace
trades.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. These
transactions involve the purchase of debt obligations with delivery and payment
normally take place within a month or more after the date of commitment to
purchase. The Fund will only make commitments to purchase obligations on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date. The when-issued securities are subject
to market fluctuation, and no interest accrues on the security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment.
Segregated accounts will be established with the custodian, and the
Fund will maintain liquid assets in an amount at least equal in value to a
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, a Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
Purchasing obligations on a when-issued basis is a form of leveraging
and can involve a risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. In that case there could be an unrealized loss at the time of delivery.
A Fund uses when-issued, delayed-delivery and forward commitment
transactions to secure what it considers to be an advantageous price and yield
at the time of purchase. When a Fund engages in when- issued, delayed-delivery
and forward commitment transactions, it relies on the buyer or seller, as the
case may be, to consummate the sale. If the buyer or seller fails to complete
the sale, then the Fund may miss the opportunity to obtain the security at a
favorable price or yield.
Typically, no income accrues on securities a Fund has committed to
purchase prior to the time delivery of the securities is made, although the Fund
may earn income on securities it has deposited in a segregated account. When
purchasing a security on a when-issued, delayed delivery, or forward commitment
basis, the Fund assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Fund's other investments.
ZERO COUPON "STRIPPED" BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
INVESTMENT RESTRICTIONS AND GUIDELINES
FUNDAMENTAL POLICIES
The Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Unless otherwise stated, all references to the assets of the Fund are in
terms of current market value.
DIVERSIFICATION
The Fund may not make any investment that is inconsistent with its
classification as a nondiversified investment company under the 1940 Act.
CONCENTRATION
The Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in a particular
industry. This restriction does not apply to securities that are issued or
guaranteed by the United States government or its agencies or instrumentalities.
ISSUING SENIOR SECURITIES
Except as permitted under in the 1940 Act, the Fund may not issue
senior securities.
BORROWING
The Fund may not borrow money, except to the extent permitted by
applicable law and the guidelines set forth in the Fund's prospectus and
statement of additional information, as they may be amended from time to time.
UNDERWRITING SECURITIES ISSUED BY OTHER PERSONS
The Fund may not underwrite securities issued by other persons, except
insofar as the Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
REAL ESTATE
The Fund may not buy or sell real estate, except that, to the extent
permitted by law, the Fund may invest in (a) securities that are directly or
indirectly secured by real estate, or (b) securities issued by companies that
invest in real estate.
COMMODITIES
The Fund may not purchase or sell physical commodities or contracts on
commodities, except that the Fund may engage in financial futures contacts and
related options and currency contracts and related options on such contracts and
may otherwise do so in accordance with applicable law and the Fund's prospectus
and statement of additional information, and without registering as a commodity
pool operator under the Commodity Exchange Act.
LOANS TO OTHER PERSONS
The Fund may lend its portfolio securities to the extent permitted by
applicable law and the guidelines set forth in its current prospectus and
statement of additional information. Otherwise, the Fund may not make loans to
other persons. The Fund does not consider the acquistion of investment
instruments in accordance with the Fund's prospectus and statement of additional
information to be the making of a loan.
GUIDELINES
BORROWINGS
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. (as defined in
the 1940 Act) or enter into reverse repurchase agreements, in amounts up to 33
1/3 % of its total assets (including the amount borrowed). The Fund may borrow
up to an additional 5% of its total assets for temporary purposes.
CONCENTRATION
For purposes of the Fund's investment restriction on concentration, the
phrase "securities of issuers primarily engaged in any particular industry"
includes industrial development bonds from the same facility or similar types of
facitilies. Otherwise, the Fund may invest more than 25% of its assets in
industrial development bonds. Also, governmental issuers are not considered to
be members of an industry for concentration purposes.
ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
that are Illiquid. A security is Illiquid when a fund may not dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund may purchase the shares of other investment companies to the extent
permitted under the 1940 Act. Currently, the Fund may not (1) own more than 3%
of the outstanding voting stock of another investment company, (2) invest more
than 5% of its assets in any single investment compnay, and (3) invest more than
10% of its assets in investment compnaies. However, the Fund may invest all of
its investable assets in securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and limitations as the Fund.
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.
<TABLE>
<S> <C> <C>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
and President of Centrum Equities and Centrum
Properties, Inc.
NAME AND ADDRESS POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
and former Managing Director, Seaward
Management Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
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.
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
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,
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.
(steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
*William Walt Pettit Trustee Partner in the law firm of Holcomb and Pettit, P.A.
David M. Richardson Trustee Vice Chair and former Executive Vice President,
DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
Services; and former Managed Health Care
Consultant; former President, Primary Physician
Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
NAME AND ADDRESS POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
Richard J. Shima Trustee Chairman, Environmental Warranty, Inc. (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.
John J. Pileggi President and Senior Managing Director, Furman Selz LLC since
230 Park Avenue, Suite 910 1992; Managing Director from 1984 to 1992; Consultant
New York, NY. to BISYS Fund Services since 1996.
George O. Martinez Secretary Senior Vice President and Director of
3435 Stelzer Road, Columbus, Ohio Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995.
</TABLE>
*This Trustee may be considered an interested trustee within the
meaning of the 1940 Act.
The officers of the Trust are all officers and/or employees of BISYS
Fund Services ("BISYS"), except for Mr. Pileggi, who is a consultant to BISYS.
For more information on BISYS, see "Sub- Administrator" below.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Capital Management Group of FUNB is the investment adviser (the
"Adviser") to the Fund. FUNB is a subsidiary of First Union Corporation, a bank
holding company headquartered in Charlotte, North Carolina. First Union
Corporation and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States. First Union Corporation
and FUNB are located at 201 South College Street, Charlotte North Carolina 28288
Pursuant to the advisory agreement (the "Advisory Agreement") between
the Trust and the Adviser, and subject to the supervision of the Trust's Board
of Trustees, the Adviser furnishes to the Fund investment advisory, management
and administrative services, office facilities, and equipment in connection with
its services for managing the investment and reinvestment of the Fund's assets.
The Adviser pays for all of the expenses incurred in connection with the
provision of its services.
The 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; (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, statements of
additional information, 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 all extraordinary charges and expenses of such Fund.
The Fund pays the Adviser a fee for its services, expressed as a
percentage of average net assets, 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 stop this
waiver at any time.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). 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 (Trustees who are not interested
persons of the Fund, as defined in the 1940 Act, and who have no direct or
indirect financial interest in the Fund's Distribution Plan or any agreement
related thereto) cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement may be terminated, without penalty, on 60
days' written notice by the Trust's Board of Trustees or by a vote of a majority
of outstanding shares. The Advisory Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
DISTRIBUTION PLAN
Rule 12b-1 under the 1940 Act permits investment mutual funds to use
their assets to pay for distributing their shares. However, to take advantage of
Rule 12b-1, the 1940 Act requires that mutual funds comply with various
conditions, including adopting a distribution plan. The Fund has adopted a
distribution plan for its Class A and Class B Shares (each a "Plan"or "Plans")
that permits a Fund to deduct up to 0.25% of each average net assets to pay for
shareholder services. The Board of Trustees, including a majority of the
Independent Trustees has approved the plan.
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 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 each Class of the Fund may terminate the Plan.
The Fund cannot change the Plan in a way that materially increases the
distribution expenses of Class A and Class B 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 Plans are in effect, the Fund will be required to commit the
selection and nomination of candidates for Independent Trustees to the
discretion of the Independent Trustees.
The Independent Trustees of the Trust have determined that the Fund
will benefit from the Plans.
ADDITIONAL SERVICE PROVIDERS
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to the Fund, subject to the supervision and control of the Trust's
Board of Trustees. EKIS provides the Fund with facilities, equipment and
personnel and is entitled to receiive a fee based on the aggregate average daily
net assets of the Fund based on the total assets of all mutual funds advised by
First Union subsidiaries. EKIS' fee is calculated in accordance with the
following schedule: 0.60% on the first $7 billion; 0.0425% on the next $3
billion; 0.035% on the next $5 billion; 0.025% on the next $10 billion; 0.019%
on the next $5 bilion and 0.014% on assets in excess of $30 billion.
SUB-ADMINISTRATOR
BISYS provides such personnel and certain administrative services to
the Fund pursuant to a sub- administrator agreement. For its services under that
agreement, BISYS receives a fee based on the aggregate average daily net assets
of the Fund at a rate based on the total assets of all mutual funds for which
First Union National Bank ("FUNB") affiliates serve as investment adviser and
BISYS serves as sub- administrator. The sub-administrator fee is calculated in
accordance with the following schedule: 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. BISYS is an affiliate of Evergreen Keystone Distributor,
Inc., the distributor of the Fund.
TRANSFER AGENT
Evergreen Keystone Service Company, 200 Berkeley Street, Boston,
Massachusetts 02116.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
In effecting transactions in portfolio securities for the Fund, the
Adviser seeks the best execution of orders at the most favorable prices. The
Adviser determines whether a broker has provided the 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
The Fund expects to buy and sell their fixed-income securities through
principal transactions that is directly from the issuer or from an underwriter
or market maker for the securities. Generally, the Fund will not pay brokerage
commissions for such purchases. Usually, when the Fund buys a security from an
underwriter, the purchase price will include underwriting commission or
concession. The purchase price for securities bought from dealers serving as
market makers will similarly include the dealer's mark up or reflect a dealer's
mark down. When the Fund executes transactions in the over-the-counter market,
they will deal with primary market makers unless more favorable prices are
otherwise obtainable.
GENERAL BROKERAGE POLICIES
The Adviser makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that the Adviser
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, the Adviser will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of the Fund's securities, the Fund believes that
in other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Fund may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews the Fund's brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
CAPITAL STOCK AND OTHER SECURITIES
FORM OF ORGANIZATION
The Trust was formed as a Delaware business trust on September 17, 1997
(the "Declaration of Trust"). A copy of the Declaration of Trust is on file as
an exhibit to the Trust's Registration Statement, of which this statement of
additional information 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
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. However, the Trust intends to hold meetings at least
annually. At meetings called for the initial election of Trustees or to consider
other matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of the Fund have equal
voting rights. No amendment may be made to the Declaration of Trust that
adversely affects any class of shares without the approval of a majority of the
shares of that class. Shares have non-cumulative voting rights, which means that
the holders of more than 50% of the 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 50% or less of the 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.
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 SECURITIES BEING
OFFERED
PURCHASES
The Fund will not accept third-party checks.
EXCHANGES
Investors may exchange shares of the Fund for shares of the same class of any
other Evergreen fund, as described under Exchanges in the Fund's prospectus.
Before you make an exchange, you should read the prospectus of the Evergreen
fund into which you wish to exchange. The Trust reserves the right to
discontinue, alter or limit the exchange privilege at any time.
HOW THE FUND VALUES ITS SHARES
How and When the Fund Calculates Its Net Asset Value Per Share ("NAV")
The Fund computes its net asset value once daily on Monday through
Friday, as described in the Prospectus. The Fund will 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.
Each Class of the Fund calculates its net asset value per share by
adding up its investments and other assets, subtracting its liabilities and then
dividing the result by the number of shares outstanding.
How the Fund Values The Securities It Owns
Current values for the Fund's portfolio securities are determined in
the following manner:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis
of the last sales price on the exchange where primarily traded or NMS
prior to the time of the valuation, provided that a sale has occurred;
(2) securities traded in the over-the-counter market, other than on NMS
are valued at the mean of the bid and asked prices at the time of
valuation;
(3) short-term investments maturing in more than sixty days for which
market quotations are readily available, are valued at current market
value;
(4) short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates
market;
(5) short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are
valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount), which, when combined
with accrued interest, approximates market; and
(6) securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS
if, in the Fund's opinion, the last sales price does not reflect a
current market value or if no sale occurred; and other assets are
valued at prices deemed in good faith to be fair under procedures
established by the Board of Trustees.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive
their dividends and capital grains distributions in cash instead of shares.
However, the Service Company 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 Fund will hold the returned distribution or
redemption proceeds in a non interest-bearing account in the shareholder's name
until the shareholder updates their address. Therefore, no Interest will accrue
on amounts represented by uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
Evergreen Keystone Distributor, Inc., 125 W. 55th Street, New York, New
York 10019 is the principal underwriter for the Trust and with respect to each
class of the Fund. The Trust has entered into a Principal Underwriting Agreement
( "Underwriting Agreement") with the Distributor with respect to each class of
the Fund. The Distributor is a subsidiary of The BISYS Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and statement of additional information. 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 conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's 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.
CALCULATION OF PERFORMANCE DATA
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
Current yield quotations as they may appear, from time to time, in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of a Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
ADDITIONAL INFORMATION
OTHER INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information 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 Fund's prospectus and SAI omit certain information contained in its
registration statement. The Fund has filed this SAI with the Securities and
Exchange Commission and you may get a copy of the SAI by writing to the
Securities and Exchange Commission's principal office in Washington, D.C. To get
a copy of the SAI from the Securities and Exchange Commission, you will have to
pay the fee prescribed by their rules and regulations.
FINANCIAL STATEMENTS
Attached are the audited statement of assets and liabilities and the
reports thereon of KPMG Peat Marwick LLP for the Fund will be filed by
amendment.
APPENDIX A
As described in the prospectus, the Fund will generally invest in
Connecticut municipal obligations. The performance of the Fund is therefore
susceptible to political, economical and regulatory factors affecting the State
of Connecticut and governmental bodies within the State of Connecticut. The
information summarized below briefly describes some of the more significant
factors that could affect the performance of the Fund or the ability of the
obligors to pay debt service on certain of the securities. Such information is
derived from sources that are generally available to investors and is believed
to be accurate. It is based on information from official statements of issuers
located in the State of Connecticut as well as other publicly available
documents. The Fund has not independently verified any of the information
contained in such statements and documents.
STATE ECONOMY
General. Connecticut, the southernmost of the New England States, is
located on the northeast coast and is bordered by Long Island Sound, New York,
Massachusetts and Rhode Island. Connecticut is situated directly between the
financial centers of Boston and New York and is a highly developed and urbanized
state. One-third of the total population of the United States and approximately
60% of the Canadian population live within 500 miles of the State. The State's
population grew at a rate which exceeded the United States' rate of population
growth during the period 1940 to 1970, slowed substantially during the 1970s and
1980s, and declined in the years 1992, 1993 and 1994.
Connecticut's economic performance is measured by personal income which
has been and is expected to remain among the highest in the nation; gross state
product (the current market value of all final goods and services produced by
labor and property located within the State) which demonstrated stronger output
growth than the nation in general during the 1980s and a decline in the 1990s;
and employment which has declined overall since the mid-1980s as manufacturing
employment has declined and non-manufacturing employment has risen.
Defense Industry. One important component of the manufacturing sector
in Connecticut is defense related business. Approximately one-quarter of
manufacturing establishments and total manufacturing employees in Connecticut
are involved in defense related businesses. Due to the scaling back of the
national defense budget in the past decade, spending on defense procurement as
well as outlays for personnel, research and development and construction has
been dramatically reduced. In fiscal year 1995, Connecticut received $2,718
million of prime contact awards. This accounted for 3.0% of national total
awards and ranked twelfth in total defense dollars awarded and fifth in per
capita dollars awarded among the 50 states. As measured by defense contract
awards as a percent of Gross State Product (GSP), awards to Connecticut based
firms has fallen to 2.5% of GSP in fiscal year 1995, down from over 12% of GSP
as recently as fiscal year 1982.
Similar to other states with a dependence on the defense budget, these
cuts not only negatively affect Connecticut's defense employment but also other
sectors that provide "support" activities to defense related businesses. These
budget cuts ultimately impact other industries in the manufacturing sector and
further extend to the nonmanufacturing sector such as grocery stores, gas
stations, and real estate, etc.
STATE BUDGETARY PROCESS
Balanced Budget Requirement. 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 General Assembly is precluded from
authorizing an increase in general budget expenditures for any fiscal year above
the amount of general budget expenditures authorized for the previous fiscal
year by a percentage which exceeds the greater of the percentage increase in
personal income or the percentage increase in inflation, unless the Governor
declares an emergency or the existence of extraordinary circumstances and at
least three-fifths of the members of each house of the General Assembly vote to
exceed such limit for the purposes of such emergency or extraordinary
circumstances. The limitation on general budget expenditures does not include
expenditures for the payment of bonds, notes or other evidences of indebtedness.
There is no statutory or constitutional prohibition against bonding for general
budget expenditures.
Biennium Budget. The State's fiscal year begins on July 1 and ends June
30. The Connecticut General Statutes require that the budgetary process be on a
biennium basis. The Governor is required to transmit a budget document in
February of each odd-numbered year setting forth the financial program for the
ensuing biennium with a separate budget for each of the two fiscal years and a
report which sets forth estimated revenues and expenditures for the three fiscal
years after the biennium to which the budget document relates. In each
even-numbered year, the Governor must prepare a report on the status of the
budget enacted in the previous year with any recommendations for adjustments and
revisions, and a report, with revisions, if any, which sets forth estimated
revenues and expenditures for the three fiscal years after the biennium in
progress.
Line Item Veto. Under the State Constitution, the Governor has the
power to veto any line of any itemized appropriations bill while at the same
time approving the remainder of the bill. A statement identifying the items so
disapproved and explaining the reasons therefor must be transmitted with the
bill to the Secretary of the State and, when in session, the General Assembly.
The General Assembly may separately reconsider and re-pass such disapproved
appropriation items by a two-thirds vote of each house.
State General Fund
The State finances most of its operations through the General Fund.
However, certain State functions are financed through other State funds.
1995-96 Operations. The Comptroller's August 30, 1996 annual report
indicated a 1995-96 General Fund surplus of $250.0 million. This surplus was
primarily the result of higher than anticipated revenue collections of $274.1
million above original budget projections. The most significant contributor to
this increase was the personal income tax for which estimates were revised
upward by $182.4 million. The improved revenue results are offset somewhat by
Medicaid expenditures higher than appropriations, the cost of a negotiated
settlement in a lawsuit and additional expenditures required in the Department
of Children and Families to comply with a 1991 consent decree.
1996-97 Operations. 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 of $255.3 million. This surplus is
primarily the result of revenue collections which exceeded the original
estimates adopted by the General Assembly by $516.8 million. Higher than
expected personal income tax collections combined with much lower than expected
refunds of taxes were responsible for $346.5 million of the revenue increase.
Expenditures for the fiscal year were also revised upward by $249.1 million, of
which $137.1 million were additional requirements of the current year with the
remainder used primarily to prepay certain other expenditures. For example, an
early retirement incentive package, offered as part of the upcoming biennial
budget, is anticipated to result in an increase in expenditures of $51.5 million
for payments to employees for accrued sick and vacation time. In addition, the
appropriation for debt service was increased by $44 million and will be utilized
for debt service payments during the upcoming biennium. Medicaid expenditures
were also increased by $30.2 million by paying the June capitation payment in
fiscal year 1996-97 as opposed to fiscal year 1997-98.
No assurance can be given that the final year-end report of the
Comptroller will not indicate changes in the anticipated General Fund result.
Per legislative action, $166.7 million of the fiscal 1996-97 surplus will be
reserved for the final two payments of the state's Economic Recovery Notes. The
remaining unappropriated surplus will be deposited into the Budget Reserve Fund
pursuant to the Connecticut General Statutes, which contains a balance of $241
million prior to any transfer for fiscal year 1996-97.
Adopted Budget 1997-98 and 1998-99. The Governor submitted his proposed
budget document to the legislature on February 13, 1997. Special Act 97-21,
adopted by the legislature on June 3, 1997 and signed by the Governor on June 6,
1997, as amended, made General Fund appropriations and set forth estimated
revenues for each of the 1997-98 and 1998-99 fiscal years, and constitutes the
adopted budget.
The adopted budget for fiscal 1997-98 anticipates General Fund revenues
of $9,342.4 million and General Fund expenditures of $9,342.2 million. For
fiscal 1998-99, the adopted budget anticipates General Fund revenues of $9,496.0
million and General Fund expenditures of $9,495.9 million. The adopted budget is
within the expenditure limits proscribed by the Constitution of the State of
Connecticut, $213.1 million below the cap in fiscal 1997-98 and $325.1 million
below the cap in fiscal 1998-99.
STATE DEBT
Constitutional Provisions. The State has no constitutional limit on its
power to issue obligations or incur debt other than it may borrow only for
public purposes. There are no reported court decisions relating to State bonded
debt other than two cases validating the legislative determination of the public
purpose for improving employment opportunities and related activities. The State
Constitution has never required a public referendum on the question of incurring
debt. Therefore, the authorization and issuance of State debt, including the
purpose, amount and nature thereof, the method and manner of the incidence of
such debt, the maturity and terms of repayment thereof, and other related
matters are statutory.
Types of State Debt. Pursuant to various public and special acts the
State has authorized a variety of types of debt. These types fall generally into
the following categories: direct general obligation debt, which is payable from
the State's General Fund; special tax obligation debt, which is payable from
specified taxes and other funds which are maintained outside the State's General
Fund; and special obligation and revenue debt, which is payable from specified
revenues or other funds which are maintained outside the State's General Fund.
In addition, the State has a number of programs under which the State is
contingently liable on the debt of certain State quasi-public agencies and
political subdivisions.
Statutory Authorization and Security Provisions for State General
Obligation Debt. In general the State issues general obligation bonds pursuant
to specific statutory bond acts and Section 3-20 of the Connecticut General
Statues, the State general obligation bond procedure act. That act provides that
such bonds shall be general obligations of the State and that the full faith and
credit of the State of Connecticut are pledged for the payment of the principal
of an interest on such bonds as the same become due. Such act further provides
that, as a part of the contract of the State with the owners of such bonds,
appropriation of all amounts necessary for the punctual payment of such
principal and interest is made, and the Treasurer shall pay such principal and
interest as the same become due. As of August 1, 1997, there was legislatively
authorized general obligation bond indebtedness in the aggregate amount of
$11,104,515,000, of which $9,625,344,000 had been approved for issuance and
$8,649,420,000 had been issued. As of August 1, 1997, $6,297,760,000 was
outstanding.
There are no State Constitutional provisions precluding the exercise of
State power by statute to impose any taxes, including taxes on taxable property
in the State or on income, in order to pay debt service on bonded debt now or
thereafter incurred. The constitutional limit on increases in general fund
expenditures for any fiscal year does not include expenditures for the payment
of bonds, notes or other evidences of indebtedness. There are also no
constitutional or statutory provisions requiring or precluding the enactment of
liens on or pledges of State general fund revenues or taxes, or the
establishment of priorities for payment of debt service on the State's general
obligation bonds. There are no express statutory provisions establishing any
priorities in favor of general obligation bondholders over other valid claims
against the State.
Statutory Debt Limit. Section 3-21 of the Connecticut General Statutes
provides that no bonds, notes or other evidences of indebtedness for borrowed
money payable from General Fund tax receipts of the State shall be authorized by
the General Assembly except to the extent such authorization shall cause the
aggregate amount of (1) the total amount of bonds, notes or other evidences of
indebtedness payable from General Fund tax receipts authorized by the General
Assembly but which have not been issued and (2) the total amount of such
indebtedness which has been issued and remains outstanding, to exceed 1.6 times
the total estimated General Fund tax receipts of the State for the fiscal year
in which any such authorization will become effective, as estimated for such
fiscal year by the joint standing committee of the General Assembly having
cognizance of finance, revenue and bonding. However, in computing the aggregate
amount of indebtedness at any time, there shall be excluded or deducted revenue
anticipation notes having a maturity of one year or less, refunded indebtedness,
bond anticipation notes, borrowings payable solely from the revenues of a
particular project, the balances of debt retirement funds associated with
indebtedness subject to the debt limit as certified by the Treasurer, the amount
of federal grants certified by the Secretary of the Office of Policy and
Management as receivable to meet the principal of certain indebtedness, all
authorized and issued indebtedness to fund any budget deficits of the State for
any fiscal year ending on or before June 30, 1991, and all authorized debt to
fund the Connecticut Development Authority's tax increment bond program under
Section 32-285 of the Connecticut General Statutes. For purpose of the debt
limit statute, all bonds and notes issued or guaranteed by the State and payable
from General Fund tax receipts are counted against the limit, except for the
exclusions or deductions described above.
In accordance with Section 2-27b of the Connecticut General Statutes,
the Treasurer shall compute the aggregate amount of indebtedness as of January 1
and July 1 of each year and shall certify the results of such computation to the
Governor and the General Assembly. If the aggregate amount of indebtedness
reaches 90% of the statutory debt limit, the Governor shall review each bond act
for which no bonds, notes or other evidences of indebtedness have been issued,
and recommend to the General Assembly priorities for repealing authorizations
for remaining projects.
Obligations of Other State Issuers. The State conducts certain of its
operations through State funds other than the General Fund and pursuant to
legislation may issue debt secured by special taxes or revenues pledged to such
funds. In addition, there are a number of state agencies and instrumentalities
of the State that issue conduit revenue obligations payable from payments by
private borrowers. These entities are subject to various economic risks
uncertainties, and the credit quality of the securities issued by them may vary
considerably from the credit quality of obligations backed by the full faith and
credit of the State.
LITIGATION
The State, its officers and employees are defendants in numerous
lawsuits. The ultimate disposition and fiscal consequences of these lawsuits are
not presently determinable. In the cases described below the fiscal impact of an
adverse decision might be significant but is not determinable at this time. The
cases described in this section generally do not include any individual case
where the fiscal impact of an adverse judgment is expected to be less than $15
million, but adverse judgments in a number of such cases could, in the aggregate
and in certain circumstances, have a significant impact.
Connecticut Criminal Defense Lawyers Association v. Forst is an action
brought in 1989 in Federal Court alleging a pervasive campaign by the State and
various State Police officials of illegal electronic surveillance, wiretapping
and bugging for a number of years at Connecticut State Police facilities. The
plaintiffs seek compensatory damages, punitive damages, as well as other damages
and costs and attorneys fees, as well as temporary and permanent injunctive
relief. In November 1991, the court issued an order which will allow the
plaintiffs to represent a class of all persons who participated in wire or oral
communications to, from, or within State Police facilities between January 1,
1974 and November 9, 1989 and whose communications were intercepted, recorded
and/or used by the defendants in violation of the law. This class includes a
sub-class of the Connecticut State Police Union, current and former Connecticut
State Police officers who are not defendants in this or any consolidated case,
and other persons acting on behalf of the State Police who participated in oral
or wire communications to, from or within State Police facilities between such
dates.
Sheff v. O'Neill is a Superior Court action brought in 1989 on behalf
of black and Hispanic school children in the Hartford school district. The
plaintiffs sought a declaratory judgment that the public schools in the greater
Hartford metropolitan area are segregated de facto by race and ethnicity and are
inherently unequal to their detriment. They also sought injunctive relief
against state officials to provide them with an "integrated education." On April
12, 1995, the Superior Court entered judgment for the State. On July 9, 1996,
the State Supreme Court reversed the Superior Court judgment and remanded the
case with direction to render a declaratory judgment in favor of the plaintiffs.
The Court directed the legislature to develop appropriate measures to remedy the
racial and ethnic segregation in the Hartford public schools. The Supreme Court
also directed the Superior Court to retain jurisdiction of this matter. In
response to the Supreme Court decision, the 1997 General Assembly enacted P.A.
97-290, an Act Enhancing Educational Choices and Opportunities.
The Connecticut Traumatic Brain Injury Association, Inc. v. Hogan is a
Federal District Court civil rights action brought in 1990 on behalf of all
persons with retardation or traumatic brain injury who have been, or may be,
placed in Norwich, Fairfield Hills or Connecticut Valley Hospitals. The
plaintiffs claim that the treatment and training they need is unavailable in
state hospitals for the mentally ill and that placement in those hospitals
violates their constitutional rights. The plaintiffs seek relief which would
require that the plaintiff class members be transferred to community residential
settings with appropriate support services. This case has been settled as to all
persons with mental retardation by their eventual discharge from Norwich and
Fairfield Hills Hospital. The case is still proceeding as to those persons with
traumatic brain injury.
Several suits have been filed since 1977 in the Federal District Court
and the Connecticut Superior Court on behalf of alleged Indian Tribes in various
parts of the State, claiming monetary recovery as well as ownership to land in
issue. Some of these suits have been settled or dismissed. The plaintiff group
in the remaining suits is the alleged Golden Hill Paugussett Tribe and the lands
involved are generally located in Bridgeport, Trumbull, Orange, Shelton and
Seymour.
LOCAL GOVERNMENT DEBT
General. Numerous governmental units, cities, school districts and
special taxing districts, issue general obligation bonds backed by their taxing
power. Under Connecticut statutes, such entities have the power to levy ad
valorem taxes on all taxable property without limit as to rate or amount, except
as to certain classified property such as certified forest land taxable at a
limited rate and dwelling houses of qualified elderly persons of low income or
qualified disabled persons taxable at limited amounts. Under existing statutes,
the State is obligated to pay to such entities the amount of tax revenue which
it would have received except for the limitation on its power to tax such
dwelling houses.
Payment of principal and interest on such general obligations is not
limited to property tax revenues or any other revenue source, but certain
revenues may be restricted as to use and therefore may not be available to pay
debt service on such general obligations.
Local government units may also issue revenue obligations, which are
supported by the revenues generated from particular projects or enterprises.
Debt Limit. Pursuant to the Connecticut General Statutes, local
governmental units are prohibited from incurring indebtedness in any of the
following categories if such indebtedness would cause the aggregate indebtedness
in that category to exceed, excluding sinking fund contributions, the multiple
for such category times the aggregate annual tax receipts of such local
governmental unit for the most recent fiscal year ending prior to the date of
issue:
Debt Category Multiple
(i) all debt other than urban renewal projects,
water pollution control projects and school
building projects.................................... 2 1/4
(ii) urban renewal projects............................... 3 1/4
(iii) water pollution control projects.................... 3 3/4
(iv) school building projects............................. 4 1/2
(v) total debt, including (i), (ii), (iii) and (iv)
above................................................ 7
<PAGE>
APPENDIX B
CORPORATE AND MUNICIPAL BOND RATINGS
S&P Corporate and Municipal Bond Ratings
A. Municipal Notes
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 are used in making that
assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note), and
b. 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 ratings are as follows:
1. 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.
2. SP-2 - Satisfactory capacity to pay principal and interest.
3. SP-3 - Speculative capacity to pay principal and interest.
B. Tax Exempt Demand Bonds
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+" ).
C. Corporate and Municipal Bond Ratings
An S&P corporate or municipal bond rating is a current assessment of
the creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default and capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
C. Bond ratings are as follows:
a. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
b. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. 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.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
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.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of teh 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.
D. Moody's Corporate and Municipal Bond Ratings
Moody's ratings are as follows:
1. 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 of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
3. 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.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Con. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase
A-1, by Standard & Poor's Ratings Group (S&P), or Prime-1 by Moody's Investors
Service, Inc., (Moody's) or F-1 by Fitch Investors Services, L.P. (Fitch's); or,
if not rated, will be issued by companies which have an outstanding debt issue
rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P,
or will be determined by a Fund's investment adviser to be of comparable
quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of Prime-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
To be filed by Amendment
(b) Exhibits. Unless otherwise indicated, each of the Exhibits listed below is
filed herewith.
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
1 Declaration of Trust
2 By-laws To be filed by amendment
3 Not applicable
4 Provisons of instruments defining the rights
of holders of the securities being registered
are contained in the Declaration of Trust
Articles II, V, VI, VIII, IX and By-laws
Articles II and VI included as part of
Exhibits 1 and 2 of this Registration
Statement
5 Form of Investment Advisory Agreement between To be filed by amendment
the Registrant and First Union National Bank
6 Form of Principal Underwriting Agreement between To be filed by amendment
the Registrant and Evergreen Keystone Distributor,
Inc.
7 Not applicable
8 Form of Custodian Agreement between the Registrant To be filed by amendment
and State Street Bank and Trust Company
9(a) Form of Administration Agreement between Evergreen To be filed by amendment
Keystone Investment Services, Inc. and the
Registrant
9(b) Form of Sub Administrator Agreement between BISYS To be filed by amendment
Fund Services and Evergreen Keystone Investment
Services, Inc.
9(c) Form of Transfer Agent Agreement between the To be filed by amendment
Registrant and Evergreen Keystone Service Company.
10 Opinion and Consent of Sullivan & Worcester To be filed by amendment
11 Consent of KPMG Peat Marwick LLP To be filed by amendment
12 Not applicable
13 Not applicable
15 Distribution Plan for the Institutional Service To be filed by amendment
Class Adopted Pursuant to Rule 12b-1
18 Multiple Class Plan To be filed by amendment
19 Powers of Attorney
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
Item 26. Number of Holders of Securities (as of September 19, 1997).
None
Item 27. Indemnification.
Provisions for the indemnification of the Registrant's Trustees and
officers are contained the Registrant's Declaration of Trust a copy of which is
filed herewith.
Provisions for the indemnification of Evergreen Keystone Distributor, Inc.,
the Registrant's principal underwriter, are contained in the Principal
Underwriting Agreement between Evergreen Keystone Distributor, Inc. and the
Registrant.
Item 28. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
Anthony P. Terracciano President, First Union Corporation; President
First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, First Union National Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President
All of the above persons are located at the following address: First
Union National Bank, One First Union Center, Charlotte, NC 28288.
Item 29. Principal Underwriters.
Evergreen Keystone Distributor, Inc. The Director and principal executive
officers are:
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven D. Blecher VP, Treasurer, Secretary
Elizabeth Q. Solazzo Assistant Secretary
Evergreen Keystone Distributor, Inc. acts as principal underwriter for each
registered investment company of series thereof that is a part of the Evergreen
Keystone "fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.
Item 30. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Keystone Investment Services, Inc. and Evergreen Keystone
Service Company, both located at 200 Berkeley Street, Boston, Massachusetts
02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
The Registrant hereby undertakes to file with the Securities and Exchange
Commission a Post-Effective Amendment to this Registration Statement using
financial statements, which need not be audited, within four to six months from
the effective date of Registrant's Registration Statement.
The Registrant hereby undertakes to comply with the provision of Section
16(c) of the Investment Company Act of 1940 with respect to the removal of
Trustees and the calling of special shareholder meetings by shareholders.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and State of New York, on the 19th day of
September, 1997.
EVERGREEN MUNICIPAL TRUST
By: /s/ John J. Pileggi
-----------------------------
Name: John J. Pileggi
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 19th day of September, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/John J. Pileggi /s/ Laurence B. Ashkin /s/ Charles A. Austin III
- ------------------------- ----------------------------- --------------------------------
John J. Pileggi Laurence B. Ashkin* Charles A. Austin III*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/Gerald M. McDonnell
- ---------------------------- ---------------------------- -------------------------------
K. Dun Gifford* James S. Howell* Gerald M. McDonell*
Trustee Trustee Trustee
/s/Thomas L. McVerry /s/ William Walt Pettit /s/ David M. Richardson
- ----------------------------- ------------------------------ ------------------------------
Thomas L. McVerry* William Walt Pettit* David M. Richardson*
Trustee Trustee Trustee
/s/ Russell A. Salton, III MD /s/ Michael S. Scofield /s/ Richard J. Shima
- ------------------------------- ------------------------------- ------------------------------
Russell A. Salton, III MD* Michael S. Scofield* Richard J. Shima*
Trustee Trustee Trustee
</TABLE>
*By: /s/ Martin J. Wolin
- -------------------------------
Martin J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
1 Declaration of Trust
19 Powers of Attorney
AGREEMENT AND DECLARATION OF TRUST
of
EVERGREEN MUNICIPAL TRUST
a Delaware Business Trust
Principal Place of Business:
200 Berkeley Street
Boston, Massachusetts 02116
Agent for Service of
Process in Delaware:
Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND DECLARATION OF TRUST
ARTICLE I Name and Definitions............................................1
1. Name .......................................................1
2. Definitions.....................................................1
(a) By-Laws................................................1
(b) Certificate of Trust...................................1
(c) Class..................................................1
(d) Commission.............................................2
(e) Declaration of Trust...................................2
(f) Delaware Act...........................................2
(g) Interested Person......................................2
(h) Adviser(s).............................................2
(i) 1940 Act...............................................2
(j) Person.................................................2
(k) Principal Underwriter..................................2
(l) Series.................................................2
(m) Shareholder............................................2
(n) Shares.................................................2
(o) Trust..................................................2
(p) Trust Property.........................................2
(q) Trustees...............................................2
ARTICLE II Purpose of Trust................................................3
ARTICLE III Shares..........................................................3
1. Division of Beneficial Interest.................................3
2. Ownership of Shares.............................................4
3. Transfer of Shares..............................................4
4. Investments in the Trust........................................5
5. Status of Shares and Limitation of Personal Liability...........5
6. Establishment, Designation, Abolition or
Termination, etc. of Series or Class............................5
(a) Assets Held with Respect to a Particular Series........5
(b) Liabilities Held with Respect to a Particular Series...6
(c) Dividends, Distributions, Redemptions,
and Repurchases........................................7
(d) Equality...............................................7
(e) Fractions..............................................7
(f) Exchange Privilege.....................................7
- -i-
<PAGE>
(g) Combination of Series...................................7
ARTICLE IV Trustees.........................................................8
1. Number, Election, and Tenure.....................................8
2. Effect of Death, Resignation, etc. of a Trustee..................8
3. Powers...........................................................9
4. Payment of Expenses by the Trust................................12
5. Payment of Expenses by Shareholders.............................13
6. Ownership of Assets of the Trust................................13
7. Service Contracts...............................................13
8. Trustees and Officers as Shareholders...........................14
9. Compensation....................................................15
ARTICLE V Shareholders' Voting Powers and Meetings........................15
1. Voting Powers, Meetings, Notice and Record Dates................15
2. Quorum and Required Vote........................................15
3. Record Dates....................................................16
4. Additional Provisions...........................................16
ARTICLE VI Net Asset Value, Distributions and Redemptions..................16
1. Determination of Net Asset Value, Net Income
and Distributions...............................................16
2. Redemptions and Repurchases.....................................16
ARTICLE VII Limitation of Liability; Indemnification........................17
1. Trustees, Shareholders, etc. Not Personally
Liable; Notice..................................................17
2. Trustees' Good Faith Action; Expert Advice;
No Bond or Surety...............................................18
3. Indemnification of Shareholders.................................19
4. Indemnification of Trustees, Officers, etc......................19
5. Compromise Payment..............................................20
6. Indemnification Not Exclusive, etc..............................20
7. Liability of Third Persons Dealing with Trustees................20
8. Insurance.......................................................21
ARTICLE VIIIMiscellaneous
1. Termination of the Trust or Any Series or Class.................21
2. Reorganization..................................................21
3. Amendments......................................................22
4. Filing of Copies; References; Headings..........................23
-ii-
<PAGE>
5. Applicable Law..................................................23
6. Provisions in Conflict with Law or Regulations..................24
7. Business Trust Only.............................................24
-iii-
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
EVERGREEN MUNICIPAL TRUST
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
the date set forth below by the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions hereinafter
set forth.
NOW, THEREFORE, the Trustees hereby direct that the Certificate of
Trust be filed with the Office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities, and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same upon
the following terms and conditions for the benefit of the holders of Shares of
this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Evergreen Municipal Trust
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "Adviser(s)" means a party or parties furnishing services to the
Trust pursuant to any investment advisory or investment management contract
described in Article IV, Section 6(a) hereof;
(b) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;
(c) "Certificate of Trust" means the certificate of trust, as amended
or restated from time to time, filed by the Trustees in the Office of the
Secretary of State of the State of Delaware in accordance with the Delaware Act;
(d) "Class" means a class of Shares of a Series of the Trust
established in accordance with the provisions of Article III hereof;
-1-
<PAGE>
(e) "Commission" shall have the meaning given such term in the 1940
Act;
(f) "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;
(g) "Delaware Act" means the Delaware Business Trust Act, 12 Del. C.
ss.ss. 3801 et seq., as amended from time to time;
(h) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
(i) "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates, and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(k) "Principal Underwriter" shall have the meaning given such term in
the 1940 Act;
(l) "Series" means each Series of Shares established and designated
under or in accordance with the provisions of Article III hereof; and where the
context requires or where appropriate, shall be deemed to include "Class" or
"Classes";
(m) "Shareholder" means a record owner of outstanding Shares;
(n) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(o) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or for the
account of the Trust; and
(q) "Trustees" means the Person or Persons who have signed this
Declaration of Trust and all other Persons who may from time to time be duly
elected or appointed to serve as Trustees in accordance with the provisions
hereof, in each case so long as such Person shall continue in office in
accordance with the terms of this Declaration of
-2-
<PAGE>
Trust, and reference herein to a Trustee or the Trustees shall refer to such
Person or Persons in his or her or their capacity as Trustees hereunder.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of an investment company registered under the 1940 Act through one or
more Series and to carry on such other business as the Trustees may from time to
time determine. The Trustees shall not be limited by any law limiting the
investments which may be made by fiduciaries.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. The Trustees may divide each
Series into Classes. Subject to the further provisions of this Article III and
any applicable requirements of the 1940 Act, the Trustees shall have full power
and authority, in their sole discretion, and without obtaining any authorization
or vote of the Shareholders of any Series or Class thereof, (i) to divide the
beneficial interest in each Series or Class thereof into Shares, with or without
par value as the Trustees shall determine, (ii) to issue Shares without
limitation as to number (including fractional Shares) to such Persons and for
such amount and type of consideration, including cash or securities, subject to
any restriction set forth in the By-Laws, at such time or times and on such
terms as the Trustees may deem appropriate, (iii) to establish and designate and
to change in any manner any Series or Class thereof and to fix such preferences,
voting powers, rights, duties and privileges and business purpose of each Series
or Class thereof as the Trustees may from time to time determine, which
preferences, voting powers, rights, duties and privileges may be senior or
subordinate to (or in the case of business purpose, different from) any existing
Series or Class thereof and may be limited to specified property or obligations
of the Trust or profits and losses associated with specified property or
obligations of the Trust, (iv) to divide or combine the Shares of any Series or
Class thereof into a greater or lesser number without thereby materially
changing the proportionate beneficial interest of the Shares of such Series or
Class thereof in the assets held with respect to that Series, (v) to classify or
reclassify any issued Shares of any Series or Class thereof into shares of one
or more Series or Classes thereof; (vi) to change the name of any Series or
Class thereof; (vii) to abolish or terminate any one or more Series or Classes
thereof; (viii) to refuse to issue Shares to any Person or class of Persons; and
(ix) to take such other action with respect to the Shares as the Trustees may
deem desirable.
-3-
<PAGE>
Subject to the distinctions permitted among Classes of the same Series
as established by the Trustees, consistent with the requirements of the 1940
Act, each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series, and each holder of Shares of a Series
shall be entitled to receive such Shareholder's pro rata share of distributions
of income and capital gains, if any, made with respect to such Series and upon
redemption of the Shares of any Series, such Shareholder shall be paid solely
out of the funds and property of such Series of the Trust.
All references to Shares in this Declaration of Trust shall be deemed
to be Shares of any or all Series or Classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust and each Class thereof, except as the context otherwise
requires.
All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend or other distribution in Shares or a split
or reverse split of Shares, shall be fully paid and nonassessable. Except as
otherwise provided by the Trustees, Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or those of a transfer or similar agent for
the Trust, which books shall be maintained separately for the Shares of each
Series or Class of the Trust. No certificates certifying the ownership of Shares
shall be issued except as the Trustees may otherwise determine from time to
time. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the transfer of Shares of each Series or Class
of the Trust and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall be conclusive
as to the identity of the Shareholders of each Series or Class of the Trust and
as to the number of Shares of each Series or Class of the Trust held from time
to time by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his or her duly authorized agent upon delivery to
the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the holder of record of Shares shall be deemed to be
the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee, or
agent of the Trust, shall be affected by any notice of a proposed transfer.
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Section 4. Investments in the Trust. Investments may be accepted by the
Trust from Persons, at such times, on such terms, and for such consideration as
the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination, or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust, nor
entitle the representative of any such Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but shall
entitle such representative only to the rights of such Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust Property or any right to call for a
participation or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. No Shareholder
shall be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
any Series. Neither the Trust nor the Trustees, nor any officer, employee, or
agent of the Trust shall have any power to bind personally any Shareholder, nor,
except as specifically provided herein, to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 6. Establishment, Designation, Abolition or Termination etc. of
Series or Class. The establishment and designation of any Series or Class of
Shares of the Trust shall be effective upon the adoption by a majority of the
Trustees then in office of a resolution that sets forth such establishment and
designation and the relative rights and preferences of such Series or Class of
the Trust, whether directly in such resolution or by reference to another
document including, without limitation, any registration statement of the Trust,
or as otherwise provided in such resolution. The abolition or termination of any
Series or Class of Shares of the Trust shall be effective upon the adoption by a
majority of the Trustees then in office of a resolution that abolishes or
terminates such Series or Class.
Shares of each Series or Class of the Trust established pursuant to
this Article III, unless otherwise provided in the resolution establishing such
Series or Class, shall have the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source derived
(including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be) shall
irrevocably be held separate with respect to that Series for all
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purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits and proceeds thereof, from
whatever source derived, (including, without limitation) any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds), in whatever form the same may
be, are herein referred to as "assets held with respect to" that Series. In the
event that there are any assets, income, earnings, profits and proceeds thereof,
funds or payments which are not readily identifiable as assets held with respect
to any particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the Series
in such manner and on such basis as the Trustees, in their sole discretion, deem
fair and equitable, and any General Assets so allocated to a particular Series
shall be held with respect to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes. Separate and distinct records shall be maintained for each Series and
the assets held with respect to each Series shall be held and accounted for
separately from the assets held with respect to all other Series and the General
Assets of the Trust not allocated to such Series.
(b) Liabilities Held with Respect to a Particular Series. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges, and reserves attributable to that Series, except that
liabilities and expenses allocated solely to a particular Class shall be borne
by that Class. Any general liabilities of the Trust which are not readily
identifiable as being held with respect to any particular Series or Class shall
be allocated and charged by the Trustees to and among any one or more of the
Series or Classes in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. All liabilities, expenses, costs, charges,
and reserves so charged to a Series or Class are herein referred to as
"liabilities held with respect to" that Series or Class. Each allocation of
liabilities, expenses, costs, charges, and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series or Classes for all
purposes. Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets held with respect to such Series only and not
against the assets of the Trust generally or against the assets held with
respect to any other Series. Notice of this contractual limitation on
liabilities among Series may, in the Trustees' discretion, be set forth in the
Certificate of Trust and upon the giving of such notice in the Certificate of
Trust, the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look only to the
assets of that Series to satisfy or enforce any debt, with respect to that
Series. No Shareholder or former Shareholder of any Series shall have a claim on
or any right to any assets allocated or belonging to any other Series.
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(c) Dividends, Distributions. Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article Vl, no dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
or Class with respect to, nor any redemption or repurchase of, the Shares of any
Series or Class, shall be effected by the Trust other than from the assets held
with respect to such Series, nor shall any Shareholder or any particular Series
or Class otherwise have any right or claim against the assets held with respect
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital, and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series or Class thereof
and such rights and preferences as may have been established and designated with
respect to any Class within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series. With respect to any
Class of a Series, each such Class shall represent interests in the assets held
with respect to that Series and shall have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class may be borne solely by such Class as determined by
the Trustees and a Class may have exclusive voting rights with respect to
matters affecting only that Class.
(e) Fractions. Any fractional Share of a Series or Class thereof shall
carry proportionately all the rights and obligations of a whole Share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the right
to exchange said Shares for Shares of one or more other Series of Shares or
Class of Shares of the Trust or of other investment companies registered under
the 1940 Act in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more Series or Classes into assets and liabilities held
with respect to a single Series or Class.
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ARTICLE IV
Trustees
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be 12, who shall be Laurence B. Ashkin, Charles A. Austin, III, K. Dun
Gifford, James S. Howell, Leroy Keith, Jr., Gerald M. McDonnell, Thomas L.
McVerry, David M. Richardson, Russell A. Salton, III, Michael S. Scofield,
Richard J. Shima, and William W. Pettit. Thereafter, the number of Trustees
shall at all times be at least one and no more than such number as determined,
from time to time, by the Trustees pursuant to Section 3 of this Article IV.
Each Trustee shall serve during the lifetime of the Trust until he or she dies,
resigns, has reached any mandatory retirement age as set by the Trustees, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor. In the event that less than a majority of the Trustees holding
office have been elected by the Shareholders, the Trustees then in office shall
take such actions as may be necessary under applicable law for the election of
Trustees. Any Trustee may resign at any time by written instrument signed by him
or her and delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any meeting of
Shareholders by a vote of two-thirds of the outstanding Shares of the Trust.
Section 2. Effect of Death. Resignation. etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Adviser(s) are empowered to appoint new Trustees subject to the
provisions of the 1940 Act.
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Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in transactions of all kinds on
behalf of the Trust as described in this Declaration of Trust. Without limiting
the foregoing, the Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the management of the affairs of the Trust
and may amend and repeal such By-Laws to the extent that such By-Laws do not
reserve that right to the Shareholders; enlarge or reduce the number of
Trustees; remove any Trustee with or without cause at any time by written
instrument signed by at least two-thirds of the number of Trustees prior to such
removal, specifying the date when such removal shall become effective, and fill
vacancies caused by enlargement of their number or by the death, resignation,
retirement or removal of a Trustee; elect and remove, with or without cause,
such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees, consisting of two or more Trustees, that may exercise the
powers and authority of the Board of Trustees to the extent that the Trustees so
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank; employ an administrator for the Trust and may
authorize such administrator to employ subadministrators; employ an investment
adviser or investment advisers to the Trust and may authorize such Advisers to
employ subadvisers; retain a transfer agent or a shareholder servicing agent, or
both; provide for the issuance and distribution of Shares by the Trust directly
or through one or more Principal Underwriters or otherwise; redeem, repurchase
and transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and pay
dividends and distributions to Shareholders of each Series from the assets of
such Series; and in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Trustees and to any agent
or employee of the Trust or to any such custodian, transfer or shareholder
servicing agent, or Principal Underwriter. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified herein or in the By-Laws or required by law, any action by
the Trustees shall be deemed effective if approved or taken by a majority of the
Trustees present at a meeting of Trustees at which a quorum of Trustees is
present, within or without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and
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securities of every nature and kind, including, without limitation, all types of
bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial papers, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and all
Persons, including without limitation, states, territories, and possessions of
the United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust; and
to exercise any and all rights, powers, and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons to exercise any of
said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not
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so deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith to issue notes or
other evidences of indebtedness; and to mortgage and pledge the Trust Property
or any part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all of such obligations;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance polices insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such Person against
liability;
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(n) To operate as and carry out the business of an investment company,
and exercise all the powers necessary or appropriate to the conduct of such
operations;
(o) To enter into contracts of any kind and description;
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(p) To employ as custodian of any assets of the Trust one or more
banks, trust companies or companies that are members of a national securities
exchange or such other entities as the Commission may permit as custodians of
the Trust, subject to any conditions set forth in this Declaration of Trust or
in the By-Laws;
(q) To employ auditors, counsel or other agents of the Trust, subject
to any conditions set forth in this Declaration of Trust or in the By-Laws;
(r) To interpret the investment policies, practices, or limitations of
any Series or Class;
(s) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
III;
(t) To the full extent permitted by the Delaware Act, to allocate
assets, liabilities and expenses of the Trust to a particular Series and Class
or to apportion the same between or among two or more Series or Classes,
provided that any liabilities or expenses incurred by a particular Series or
Class shall be payable solely out of the assets belonging to that Series or
Class as provided for in Article III;
(u) To invest all of the assets of the Trust, or any Series or any
Class thereof in a single investment company;
(v) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may engage.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, Advisers, Principal
Underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, which
expenses, fees, charges, taxes and liabilities shall be allocated in accordance
with Article III, Section 6 hereof.
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Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, expenses of the Trust as described in Section 4 of this Article IV
("Expenses"), in an amount fixed from time to time by the Trustees, by setting
off such Expenses due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such Expenses due from such Shareholder,
provided that the direct payment of such Expenses by Shareholders is permitted
under applicable law.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for any Series (or
Class thereof) with any Person and any such contract may contain such other
terms as the Trustees may determine, including, without limitation, authority
for the Adviser(s) or administrator to delegate certain or all of its duties
under such contracts to other qualified investment advisers and administrators
and to determine from time to time without prior consultation with the Trustees
what investments shall be purchased, held sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract
with any Person, appointing such Person exclusive or nonexclusive distributor or
Principal
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Underwriter for the Shares of one or more of the Series (or Classes) or other
securities to be issued by the Trust.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any Person, appointing such Person or Persons the
custodian, transfer agent and/or shareholder servicing agent for the Trust or
one or more of its Series.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any Person to provide such other services to the Trust or
one or more of the Series, as the Trustees determine to be in the best interests
of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or
officers of the Trust is a shareholder,
director, officer, partner, trustee,
employee, Adviser, Principal Underwriter,
distributor, or affiliate or agent of or for
any Person, or for any parent or affiliate
of any Person with which an advisory,
management, or administration contract, or
Principal Underwriter's or distributor's
contract, or transfer agent, shareholder
servicing agent or other type of service
contract may have been or may hereafter be
made, or that any such organization, or any
parent or affiliate thereof, is a
Shareholder or has an interest in the Trust;
or that
(ii) any Person with which an advisory,
management, or administration contract or
Principal Underwriter's or distributor's
contract, or transfer agent or shareholder
servicing agent contract may have been or
may hereafter be made also has an advisory,
management, or administration contract, or
Principal Underwriter's or distributor's or
other service contract with one or more
other Persons, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
shareholders.
Section 8. Trustees and Officers as Shareholders. Any Trustee, officer
or agent of the Trust may acquire, own and dispose of Shares to the same extent
as if he or she were not a Trustee, officer or agent; and the Trustees may issue
and sell and cause to be issued and sold Shares to, and redeem such Shares from,
any such Person or any firm or company in which such Person is interested,
subject only to the general limitations contained herein or in the By-Laws
relating to the sale and redemption of such Shares.
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Section 9. Compensation. The Trustees in such capacity shall be
entitled to reasonable compensation from the Trust and they may fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for such services by the Trust.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Meetings. Notice. and Record Dates. The
Shareholders shall have power to vote only: (i) for the election or removal of
Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to
such additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration statement of the
Trust with the Commission (or any successor agency) or as the Trustees may
consider necessary or desirable. Shareholders shall be entitled to one vote for
each dollar, and a fractional vote for each fraction of a dollar, of net asset
value per Share for each Share held, as to any matter on which the Share is
entitled to vote. Notwithstanding any other provision of this Declaration of
Trust, on any matters submitted to a vote of the Shareholders, all shares of the
Trust then entitled to vote shall be voted in aggregate, except: (i) when
required by the 1940 Act, Shares shall be voted by individual Series; (ii) when
the matter involves any action that the Trustees have determined will affect
only the interests of one or more Series, then only Shareholders of such Series
shall be entitled to vote thereon; and (iii) when the matter involves any action
that the Trustees have determined will affect only the interests of one or more
Classes, then only the Shareholders of such Class or Classes shall be entitled
to vote thereon. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. A proxy may be given in
writing. The By-Laws may provide that proxies may also, or may instead, be given
by an electronic or telecommunications device or in any other manner. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the By-Laws to be
taken by the Shareholders. Meetings of the Shareholders shall be called and
notice thereof and record dates therefor shall be given and set as provided in
the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
twenty-five percent (25%) of the Shares issued and outstanding shall constitute
a quorum at a Shareholders' meeting but any lesser number shall be sufficient
for adjourned sessions. When any one or more Series (or Classes) is to vote as a
single Series (or Class) separate from any other Shares, twenty-five percent
(25%) of the Shares of each such Series (or Class) issued and outstanding shall
constitute a quorum at a Shareholders' meeting of that Series (or Class). Except
when a larger vote is required by any provision of this Declaration of Trust or
the By-Laws or by applicable law, when a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a
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plurality of the Shares voted shall elect a Trustee, provided that where any
provision of law or of this Declaration of Trust requires that the holders of
any Series shall vote as a Series (or that holders of a Class shall vote as a
Class), then a majority of the Shares of that Series (or Class) voted on the
matter (or a plurality with respect to the election of a Trustee) shall decide
that matter insofar as that Series (or Class) is concerned.
Section 3. Record Dates. For the purpose of determining the
Shareholders of any Series (or Class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or Class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or Classes) at any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or Classes).
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and
Distributions. Subject to applicable law and Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall set forth in the
By-Laws or in a duly adopted vote of the Trustees such bases and time for
determining the per Share or net asset value of the Shares of any Series or
Class or net income attributable to the Shares of any Series or Class, or the
declaration and payment of dividends and distributions on the Shares of any
Series or Class, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust, or a Person designated
by the Trust, that the Trust purchase such Shares or in accordance with such
other procedures for redemption as the Trustees may from time to time authorize;
and the Trust will pay therefor the net asset value thereof as determined by the
Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws, any registration statement of the Trust and applicable law. Unless
extraordinary circumstances exist, payment for said Shares shall be made by the
Trust to the Shareholder in accordance with the 1940 Act and any rules and
regulations thereunder or as otherwise required by the Commission. The
obligation set forth in this Section 2(a) is subject to the provision that,
during any
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emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets held with respect to such Series, such obligation may be suspended or
postponed by the Trustees. In the case of a suspension of the right of
redemption as provided herein, a Shareholder may either withdraw the request for
redemption or receive payment based on the net asset value per share next
determined after the termination of such suspension.
(b) The redemption price may in any case or cases be paid wholly or
partly in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Shareholders of the Series or Class thereof for which
the Shares are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under authority of
the Trustees. In no case shall the Trust be liable for any delay of any Adviser
or other Person in transferring securities selected for delivery as all or part
of any payment-in-kind.
(c) If the Trustees shall, at any time and in good faith, determine
that direct or indirect ownership of Shares of any Series or Class thereof has
or may become concentrated in any Person to an extent that would disqualify any
Series as a regulated investment company under the Internal Revenue Code of
1986, as amended (or any successor statute thereof), then the Trustees shall
have the power (but not the obligation) by such means as they deem equitable (i)
to call for the redemption by any such Person of a number, or principal amount,
of Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification, (ii) to
refuse to transfer or issue Shares of any Series or Class thereof to such Person
whose acquisition of the Shares in question would result in such
disqualification, or (iii) to take such other actions as they deem necessary and
appropriate to avoid such disqualification. Any such redemption shall be
effected at the redemption price and in the manner provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.
ARTICLE VII
Limitation of Liability; Indemnification
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations, or in limiting or omitting any other actions
for or in connection with the Trust, are or shall be deemed to be acting as
Trustees, officers, employees or agents of the Trust and not in their own
capacities. No Shareholder shall be subject to any
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personal liability whatsoever in tort, contract or otherwise to any other Person
or Persons in connection with the assets or the affairs of the Trust or of any
Series, and subject to Section 4 of this Article VII, no Trustee, officer,
employee or agent of the Trust shall be subject to any personal liability
whatsoever in tort, contract, or otherwise, to any other Person or Persons in
connection with the assets or affairs of the Trust or of any Series, save only
that arising from his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office or the discharge of his or her functions. The Trust (or if the matter
relates only to a particular Series, that Series) shall be solely liable for any
and all debts, claims, demands, judgments, decrees, liabilities or obligations
of any and every kind, against or with respect to the Trust or such Series in
tort, contract or otherwise in connection with the assets or the affairs of the
Trust or such Series, and all Persons dealing with the Trust or any Series shall
be deemed to have agreed that resort shall be had solely to the Trust Property
of the Trust (or if the matter relates only to a particular Series, that of such
Series), for the payment or performance thereof.
The obligations of any instrument made or issued by the Trustees or by
any officer of officers of the Trust are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, or the particular Series in question, as the case may be. The
omission of any statement to such effect from such instrument shall not operate
to bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the assets of any Series to the
obligations of any other Series.
Section 2. Trustees' Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 4 of this Article
VII, a Trustee shall be liable for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, Adviser, administrator,
distributor or Principal Underwriter, custodian or transfer agent, dividend
disbursing agent, shareholder servicing agent or accounting agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written reports
made to the Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of a contracting party employed by
the Trust. The Trustees as such shall not be required to give any bond or surety
or any other security for the performance of their duties.
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Section 3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being or
having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request by
the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified against
all loss and expense arising from such liability.
Section 4. Indemnification of Trustees, Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 4, the Trust
shall indemnify (from the assets of one or more Series to which the conduct in
question relates) each of its Trustees, officers, employees and agents
(including Persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter, together with such Person's
heirs, executors, administrators or personal representative, referred to as a
"Covered Person")) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust; or
(ii) had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office;
and (iii) for a criminal proceeding, had reasonable cause to believe that his or
her conduct was unlawful (the conduct described in (i), (ii) and (iii) being
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative proceeding against a
Covered Person for insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of Disabling Conduct by (a) a vote of a majority of a
quorum of the Trustees who are neither "interested persons" of the Trust as
defined in the 1940 Act nor parties to the proceeding (the "Disinterested
Trustees"), or (b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so
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incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), may be paid from time to
time by one or more Series to which the conduct in question related in advance
of the final disposition of any such action, suit or proceeding; provided that
the Covered Person shall have undertaken to repay the amounts so paid to such
Series if it is ultimately determined that indemnification of such expenses is
not authorized under this Article VII and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the Disinterested Trustees, or an independent legal counsel in a written
opinion, shall have determined, based on a review of readily available facts (as
opposed to a full trial type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to indemnification.
Section 5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 4 of this
Article VII, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent legal
counsel pursuant to clause (ii) shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with either of
such clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in or not opposed
to the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the Covered Person's
office.
Section 6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VII shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article VII, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article VII shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.
Section 7. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
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Section 8. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee, or agent of the Trust in connection with
any claim, action, suit, or proceeding in which he or she may become involved by
virtue of his or her capacity or former capacity as a Trustee of the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Termination of the Trust or Any Series or Class.
(a) Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trustees in their sole discretion may terminate
the Trust.
(b) Upon the requisite action by the Trustees to terminate the Trust or
any one or more Series of Shares or any Class thereof, after paying or otherwise
providing for all charges, taxes, expenses, and liabilities, whether due or
accrued or anticipated, of the Trust or of the particular Series or any Class
thereof as may be determined by the Trustees, the Trust shall in accordance with
such procedures as the Trustees may consider appropriate reduce the remaining
assets of the Trust or of the affected Series or Class to distributable form in
cash or Shares (if any Series remain) or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series or
Classes involved, ratably according to the number of Shares of such Series or
Class held by the Shareholders of such Series or Class on the date of
distribution. Thereupon, the Trust or any affected Series or Class shall
terminate and the Trustees and the Trust shall be discharged from any and all
further liabilities and duties relating thereto or arising therefrom, and the
right, title, and interest of all parties with respect to the Trust or such
Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up
of its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Section 2. Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into or transfer its assets and
any liabilities to one or more trusts (or series thereof to the extent permitted
by law), partnerships, associations, corporations or other business entities
(including trusts, partnerships, associations, corporations or other business
entities created by the Trustees to accomplish such merger or consolidation or
transfer of assets and any liabilities) so long
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as the surviving or resulting entity is an investment company as defined in the
1940 Act, or is a series thereof, that will succeed to or assume the Trust's
registration under the 1940 Act and that is formed, organized, or existing under
the laws of the United States or of a state, commonwealth, possession or colony
of the United States, unless otherwise permitted under the 1940 Act, (ii) cause
any one or more Series (or Classes) of the Trust to merge or consolidate with or
into or transfer its assets and any liabilities to any one or more other Series
(or Classes) of the Trust, one or more trusts (or series or classes thereof to
the extent permitted by law), partnerships, associations, corporations, (iii)
cause the Shares to be exchanged under or pursuant to any state or federal
statute to the extent permitted by law or (iv) cause the Trust to reorganize as
a corporation, limited liability company or limited liability partnership under
the laws of Delaware or any other state or jurisdiction.
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Declaration of Trust, an agreement of merger or consolidation
or exchange or transfer of assets and liabilities approved by the Trustees in
accordance with this Section 2 may (i) effect any amendment to the governing
instrument of the Trust or (ii) effect the adoption of a new governing
instrument of the Trust if the Trust is the surviving or resulting trust in the
merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series or classes thereof.
Section 3. Amendments. Except as specifically provided in this Section
3, the Trustees may, without Shareholder vote, restate, amend, or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote
on (i) any amendment that would affect their right to vote granted in Article V,
Section 1 hereof, (ii) any amendment to this Section 3 of Article VIII; (iii)
any amendment that may require their vote under applicable law or by the Trust's
registration statement, as filed with the Commission, and (iv) any amendment
submitted to them for their vote by the Trustees. Any amendment required or
permitted to be submitted to the Shareholders that, as the Trustees determine,
shall affect the Shareholders of one or more Series shall be authorized by a
vote of the Shareholders of each Series affected and no vote of Shareholders of
a Series not affected shall be required. Notwithstanding anything else herein,
no amendment hereof shall limit the rights to insurance provided by Article VII
hereof with respect to any acts or omissions of Persons covered thereby prior to
such amendment nor shall any such amendment limit the rights to indemnification
referenced in Article VIl hereof as provided in the By-Laws with respect to any
actions or omissions of Persons covered thereby prior to such amendment. The
Trustees may, without Shareholder vote, restate, amend, or otherwise supplement
the Certificate of Trust as they deem necessary or desirable.
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Section 4. Filing of Copies; References; Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such restatements and/or
amendments, references to this instrument, and all expressions such as "herein,"
"hereof," and "hereunder," shall be deemed to refer to this instrument as
amended or affected by any such restatements and/or amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. Whenever the singular number is used herein, the same shall include
the plural; and the neuter, masculine and feminine genders shall include each
other, as applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 5. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 5(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees, or this
Declaration of Trust either the provisions of Section 3540 of Title 12 of the
Delaware Code or any provisions of the laws (statutory or common) of the State
of Delaware (other than the Delaware Act) pertaining to trusts that relate to or
regulate: (i) the filing with any court or governmental body or agency of
Trustee accounts or schedules of trustee fees and charges; (ii) affirmative
requirements to post bonds for trustees, officers, agents, or employees of a
trust; (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding, or disposition of real or personal
property; (iv) fees or other sums applicable to trustees, officers, agents or
employees of a trust; (v) the allocation of receipts and expenditures to income
or principal; (vi) restrictions or limitations on the permissible nature,
amount, or concentration of trust investments or requirements relating to the
titling, storage, or other manner of holding of trust assets; or (vii) the
establishment of fiduciary or other standards or responsibilities or limitations
on the acts or powers or liabilities or authorities and powers of trustees that
are inconsistent with the limitations or liabilities or authorities and powers
of the Trustees set forth or
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referenced in this Declaration of Trust; or (viii) activities similar to those
referenced in the foregoing items (i) through (vii).
Section 6. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any such
provision is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, the Delaware Act or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such decision shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall, not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 7. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners, or members of a joint stock association.
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IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Agreement and Declaration of Trust as of the 18th day of September,
1997.
/s/ Laurence B. Ashkin /s/ Thomas L. McVerry
Laurence B. Ashkin Thomas L. McVerry
Trustee and not individually Trustee and not individually
/s/ Charles A. Austin, III /s/ David M. Richardson
Charles A. Austin, III David M. Richardson
Trustee and not individually Trustee and not individually
/s/ K. Dun Gifford /s/ Russell A. Salton, III
K. Dun Gifford Russell A. Salton, III
Trustee and not individually Trustee and not individually
/s/ James S. Howell /s/ Michael S. Scofield
ames S. Howell Michael S. Scofield
Trustee and not individually Trustee and not individually
/s/ Leroy Keith, Jr. /s/ Richard J. Shima
Leroy Keith, Jr. Richard J. Shima
Trustee and not individually Trustee and not individually
/s/ Gerald M. McDonnell /s/ William W. Pettit
Gerald M. McDonnell William W. Pettit
Trustee and not individually
THE PRINCIPAL PLACE OF BUSINESS
OF THE TRUST IS:
200 Berkeley Street
Boston, Massachusetts 02116
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POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Laurence B. Ashkin
____________________________ Director/Trustee
Laurence B. Ashkin
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POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Charles A. Austin III
_____________________________ Director/Trustee
Charles A. Austin III
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POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ K. Dun Gifford
_____________________________ Director/Trustee
K. Dun Gifford
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ James S. Howell
_____________________________ Director/Trustee
James S. Howell
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Gerald M. McDonnell
_____________________________ Director/Trustee
Gerald M. McDonnell
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Thomas L. McVerry
_____________________________ Director/Trustee
Thomas L. McVerry
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ William Walt Pettit
_____________________________ Director/Trustee
William Walt Pettit
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ David M. Richardson
_____________________________ Director/Trustee
David M. Richardson
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Russell A. Salton, III MD
_____________________________ Director/Trustee
Russell A. Salton, III MD
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Michael S. Scofield
_____________________________ Director/Trustee
Michael S. Scofield
20388
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
SIGNATURE TITLE
/s/ Richard J. Shima
_____________________________ Director/Trustee
Richard J. Shima
20388
