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PROSPECTUS
November 12, 1997
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Evergreen Tax Free Funds
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Evergreen Tax Free Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Tax Free Fund (the "Fund") seeks the highest possible
current income, exempt from federal income taxes, while preserving capital.
This Prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This Prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information for the Fund dated November 12,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is 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 the 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
TABLE OF CONTENTS
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUND 4
Investment Objective and Policies 4
Investment Practices and Restrictions 5
ORGANIZATION AND SERVICE PROVIDERS 8
Organization 8
Service Providers 8
Distribution Plans and Agreements 9
PURCHASE AND REDEMPTION OF SHARES 9
How to Buy Shares 9
How to Redeem Shares 12
Exchange Privilege 14
Shareholder Services 14
Banking Laws 15
OTHER INFORMATION 16
Dividends, Distributions and Taxes 16
General Information 17
2
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EXPENSE INFORMATION
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The table and examples below are designed to help you understand the
various expenses that you will bear, directly and 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.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
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SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) 4.75% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a % of offering price) None None None
Maximum Contingent Deferred Sales Charge (as a % of original purchase price or
redemption proceeds, whichever is lower) None(1) 5%(2) 1%(2)
</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 May 31, 1998. The examples show what you would pay if you invested
$1,000 over the periods indicated. The examples assume 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."
Class A Class B Class C
------- ------- -------
ANNUAL OPERATING EXPENSES
Management Fees .42% .42% .42%
12b-1 Fees(3) .25% 1.00% 1.00%
Other Expenses .16% .16% .16%
------- ------- -------
Total .83% 1.58% 1.58%
======= ======= =======
Examples
Assuming Redemption at Assuming no
End of Period Redemption
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Class A Class B Class C Class B Class C
------- ------- ------- ------- -------
After 1 Year $56 $66 $26 $16 $16
After 3 Years $73 $80 $50 $50 $50
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5% to 1% on
amounts redeemed within six years after the month of purchase. The deferred
sales charge on Class C shares is 1% on amounts redeemed within one year
after the month of purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc.
3
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FINANCIAL HIGHLIGHTS
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As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
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DESCRIPTION OF THE FUND
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks the highest possible current income, exempt from federal
income taxes, while preserving capital.
Since the Fund considers preservation of capital as well as the level
of tax exempt income, the Fund may realize less income than a fund willing to
expose shareholders' capital to greater risk.
The Fund's investment objective is nonfundamental; as a result the Fund
may change its objective 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 Statement of Additional Information ("SAI")
for more information regarding the Fund's fundamental investment policies or
other related investment policies. There can be no assurance that the Fund's
investment objective will be achieved.
Principal Investments and Investment Policies. Under ordinary
circumstances, the Fund invests substantially all and at least 80% of its assets
in federally tax-exempt obligations. These obligations include municipal bonds
and notes and tax-exempt commercial paper obligations that are issued by or on
behalf of the states, territories and possessions of the United States ("U.S."),
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest from which is, in the opinion of counsel to the
issuers, exempt from federal income taxes including the alternative minimum tax.
Municipal obligations are debt obligations issued by a state or local
entity to support a government's general financial needs or special projects,
such as housing projects or sewer works. Municipal obligations also include
certain types of industrial development bonds that the government has issued to
finance privately operated facilities. The Fund will limit its investments in
qualified "private activity" industrial development bonds to no more than 20% of
the Fund's total assets. The Fund does not currently intend to invest in
"private activity" (capital purpose) bonds.
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 Investors 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
will not invest in bonds rated below B. 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 objective and policies.
Other Eligible Securities. The Fund also may invest in securities that
pay interest that is not exempt from federal income taxes, such as corporate and
bank obligations, obligations issued or guaranteed by the U.S. government or by
any of its agencies or instrumentalities, commercial paper and repurchase
agreements. Such securities must be rated at least BBB by S&P or Baa by Moody's
or, if not rated, must be determined by the Fund's investment adviser to be of
comparable quality. The Fund will not invest more than 20% of its total assets
under ordinary circumstances and up to 100% of its total assets for temporary
defensive purposes in such securities.
In addition, the Fund may, but does not currently intend to, invest in
foreign securities or securities denominated in foreign currencies.
4
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e., as
interest rates decline the values of the bonds increase, and vice versa. The
longer the maturity of a bond, the greater the exposure to market price
fluctuations. The same market factors are reflected in the share price or net
asset value of bond funds which will vary with interest rates. In addition,
certain of the obligations in which the Fund may invest may be variable or
floating rate instruments, which may involve a conditional or unconditional
demand feature, and may include variable amount master demand notes. While these
types of instruments may, to a certain degree, offset the risk to principal
associated with rising interest rates, they would not be expected to appreciate
in a falling interest rate environment.
Below-Investment Grade Bonds. Below-investment grade bonds have low
ratings, and 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.
Municipal Obligations. The Fund's ability to achieve its objective
depends partially on the prompt payment by issuers of the interest on and
principal of the municipal bonds held by the Fund. A moratorium, default, or
other non-payment of interest or principal when due on any municipal bond, in
addition to affecting the market value and liquidity of that particular
security, could affect the market value and liquidity of other municipal bonds
held by the Fund. In addition, the market for municipal bonds is often thin and
can be temporarily affected by large purchases and sales, including those by the
Fund.
From time to time, proposals have been introduced before the U.S.
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal bonds, and similar proposals may be
introduced in the future. The enactment of such a proposal could materially
affect the availability of municipal bonds for investment by the Fund and the
value of the Fund's portfolio. In the event of such legislation, the Fund would
re-evaluate its investment objective and policies and consider changes in the
structure of the Fund or dissolution.
Downgrades. If any security invested in by the Fund loses its rating or
has its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement 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.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. A reverse repurchase agreement is an agreement by the
Fund to sell a security and repurchase it at a specified time and price. The
Fund could lose money if the market values of the securities it sold decline
below their repurchase prices. Reverse repurchase agreements may be considered a
form of borrowing, and, therefore, a form of leverage. Leverage may magnify
gains or losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The
Fund may enter into transactions whereby it commits to buying a security, but
does not pay for or take delivery of the security until some specified date in
the future. The value of these securities is subject to market fluctuations
during this period and no income accrues to the Fund until settlement. At the
time of settlement, a when-issued security may be valued at less than its
purchase price. When entering into these transactions, the Fund relies on the
other party to consummate the transaction; if the other party fails to do so,
the Fund may be disadvantaged.
5
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. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may
invest in the securities of other investment companies. As a shareholder of
another investment company, the Fund would pay its portion of the other
investment company's expenses. These expenses would be in addition to the
expenses that the Fund currently bears concerning its own operations and may
result in some duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 331/3% 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. The inability of the Fund to dispose
of illiquid investments readily or at a reasonable price could impair the Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A establishes a safe
harbor from the registration requirements of the 1933 Act for resale by large
institutional investors of securities not publicly traded in the United States.
The Fund's investment adviser determines the liquidity of Rule 144A securities
according to guidelines and procedures adopted by the Fund's Board of Trustees.
The Board of Trustees monitors the investment adviser's application of those
guidelines and procedures. Securities eligible for resale pursuant to Rule 144A,
which the Fund's investment adviser has determined to be liquid or readily
marketable, are not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures
transactions. Options and futures transactions are intended to enable the Fund
to manage market, interest rate or exchange rate risk, and the Fund will not use
these transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and listed
put options on financial futures contracts for portfolio securities. The Fund
may also purchase call options on financial futures contracts. The Fund may also
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The 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 so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as 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. The 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, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
6
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the profit on its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case the Fund would continue to
bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and
futures transactions are intended to enable the Fund to manage market, exchange,
or interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Fund may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based
on an underlying asset, such as a stock or a bond, or an underlying economic
factor, such as an index or an interest rate.
7
In addition to options and futures contracts, the Fund may also invest
in certain other types of derivative instruments, including structured
securities. The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objective and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
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ORGANIZATION AND SERVICE PROVIDERS
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ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests
shareholders' money toward a specified goal. In technical terms, the Fund is a
diversified series of an open-end, management investment 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 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, 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 for each dollar of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment adviser to the Fund is Keystone
Investment Management Company ("Keystone"). Keystone has provided investment
advisory and management services to investment companies and private accounts
since it was organized in 1932. Keystone is an indirect subsidiary of First
Union National Bank ("FUNB"). FUNB is a subsidiary of First Union Corporation.
Both FUNB and First Union Corporation 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 Keystone a fee, calculated on an annual basis, equal to
2.0% of gross dividend and interest income of the Fund plus 0.50% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.45% of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35%
of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of
amounts over $500,000,000, computed as of the close of business each business
day and paid monthly.
Portfolio Manager. The Portfolio Manager of the Fund is Betsy A.
Hutchings, a Keystone Senior Vice President since 1995 and Senior Portfolio
Manager since 1993. Ms. Hutchings joined Keystone in 1988 and has served as a
portfolio manager of tax-free bond funds since 1990.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company
("ESC"), 200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's
transfer agent and dividend disbursing agent. ESC is an indirect, wholly-owned
subsidiary of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
8
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a
subsidiary of The BISYS Group, Inc., located at 125 West 55th Street, New York,
New York 10019, is the principal underwriter of the Fund.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. The Fund's Class A, Class B and Class C shares pay
for the expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which are based upon a maximum annual rate as a
percentage 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%
Class C 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 service fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Plans are used to compensate the Fund's distributor pursuant to the
Distribution Agreements entered into by the Fund.
Distribution Agreements. The Fund has also entered into distribution
agreements (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EDI. Pursuant to the Distribution Agreements, the Fund will
compensate EDI for its services as distributor based upon the maximum annual
rate as a percentage of the Fund's average daily net assets attributable to the
Class, as follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Plans to secure such financings), (2) to otherwise
promote the sale of shares of the Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. FUNB or its affiliates may finance the payments made by EDI to
compensate broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o Evergreen 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.
9
There is no minimum amount for subsequent investments. Investments of
$25 or more are allowed under the Systematic Investment Plan. See the
Application for more information.
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
Commission to
As a % of the Dealer/Agent
Net Amount As a % of the as a % of
Invested Offering Price Offering Price
- ------------------ ------------- -------------- --------------------------
AMOUNT OF PURCHASE
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000-$ 99,999 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%
1.00% of the amount
invested up to $2,999,999,
.50% of the amount
invested over $2,999,999,
up to $4,999,999; and
.25% of the excess over
$1,000,000 or more None None $4,999,999
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 fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of FUNB and its affiliates, EDI and any broker-dealer with whom EDI
has entered into an agreement to sell shares of the Fund, and members of the
immediate families of such employees; (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 corporate
or certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. 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.
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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 (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the month of purchase of Class B shares as set forth below.
CDSC
Redemption Timing Imposed
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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.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. 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 Fund 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 and service fees
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.
Class C Shares-Level-Load Alternative. Class C shares are only offered
through broker-dealers who have special distribution agreements with EDI. You
may purchase Class C shares at net asset value without any initial sales charge
and, therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC if you redeem shares during the month
of purchase and the 12-month period following the month of purchase. No CDSC is
imposed on amounts redeemed thereafter. Class C shares incur higher distribution
and/or shareholder service fees than Class A shares but, unlike Class B shares,
do not convert to any other class of shares of the Fund. The higher fees mean a
higher expense ratio, so Class C shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares. The Fund will not normally
accept any purchase of Class C shares in the amount of $500,000 or more. No CDSC
will be imposed on Class C shares purchased by institutional investors and
through employee benefit and savings plans eligible for the exemption from
front-end sales charges described under "Class A Shares-Front-End Sales Charge
Alternative" above. Broker-dealers and other financial intermediaries whose
clients have purchased Class C shares may receive a trailing commission equal to
0.75% of the average daily net asset value of such shares on an annual basis
held by their clients more than one year from the date of purchase. Trailing
commissions will commence immediately with respect to shares eligible for
exemption from the CDSC normally applicable to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which
the Fund did not pay a commission on issuance, including shares obtained from
dividend or distribution reinvestment, are not subject to a CDSC. Any CDSC
imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net asset value at the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 591/2 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.
11
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, FUNB, Evergreen Asset Management
Corp. ("Evergreen Asset"), EDI and certain of their affiliates, and to members
of the immediate families of such persons, to registered representatives of
firms with dealer agreements with EDI, and to a bank or trust company acting as
a trustee for a single account.
How the Fund Values Its Shares. The net asset value of each Class of
shares of the Fund is calculated by dividing the value of the amount of the
Fund's net assets attributable to that Class by the number of 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 securities in the Fund are valued at their current market
values determined on the basis of market quotations or, if such quotations are
not readily available, such other methods as the Trustees believe would
accurately reflect fair value. Non-dollar denominated securities will be valued
as of the close of the Exchange at the closing price of such securities in their
principal trading markets.
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. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
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 the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the
United States. Such a dealer may elect to receive cash incentives of equivalent
amount in lieu of such payments. EDI may also limit the availability of such
incentives to certain specified dealers. EDI from time to time sponsors
promotions involving First Union Brokerage Services, Inc., an affiliate of the
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 the Fund sold. Awards may also be made
based on the opening of a minimum number of accounts. Such promotions are not
being made available to all broker-dealers. Certain broker-dealers may also
receive payments from EDI or the 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 its
investment adviser for any loss. In addition, such investor 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 a
shareholder whose account has been in existence at least 30 days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) 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.
12
Redeeming Shares Through Your Financial Intermediary. The Fund must
receive instructions from your financial intermediary before 4:00 p.m. (Eastern
time) for you to receive that day's net asset value (less any applicable CDSC).
Your financial intermediary is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. 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 section on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific
fund account information and price and yield quotations as well as the ability
to do account transactions, including investments, exchanges and redemptions.
You may access the Evergreen Express Line by dialing toll free 1-800-346-3858 on
any touch-tone telephone, 24 hours a day, seven days a week.
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 30 days. Shareholders will receive 60 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 90 day
period for any one shareholder.
13
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for
shares of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each 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 60 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 shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. The Fund must receive
exchange instructions from your financial intermediary before 4:00 p.m. (Eastern
time) for you to receive that day's net asset value. Your financial intermediary
is responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined at the close of the next business day. During periods of drastic
economic or market changes, shareholders may experience difficulty in effecting
telephone exchanges. You should follow the procedures outlined below for
exchanges by mail if you are unable to reach ESC by telephone. If you wish to
use the telephone exchange service you should indicate this on the Application.
As noted above, the Fund will employ reasonable procedures to confirm that
instructions for the redemption or exchange of shares communicated by telephone
are genuine. A telephone exchange may be refused by the Fund or ESC if it is
believed advisable to do so. Procedures for exchanging Fund shares by telephone
may be modified or terminated at any time. Written requests for exchanges should
follow the same procedures outlined for written redemption requests in the
section entitled "How to Redeem Shares;" however, no signature guarantee is
required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may
invest as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing
account electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is
opened or when an existing account reaches that size, you may participate in the
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 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 gains distributions
reinvested automatically.
14
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified employee benefit and savings plans may make shares
of the Fund and the other Evergreen funds available to their participants.
Investments made by such employee benefit plans may be exempt from front-end
sales charges if they meet the criteria set forth under "Class A
Shares-Front-End Sales Charge Alternative." Evergreen Asset, Keystone or FUNB
may provide compensation to organizations providing administrative and
recordkeeping services to plans which make shares of the Evergreen funds
available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all
dividends and distributions are automatically reinvested in full and fractional
shares of a 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 a 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 Evergreen fund shares you 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.
Tax Sheltered Retirement Plans. The Fund has various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Salary
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Medical
Savings Accounts; Pension and Target Benefit and Money Purchase Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur, it is not anticipated
that the shareholders of the Fund would suffer any adverse financial
consequences.
15
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Fund intends to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of that
class of shares upon which the distribution is based or, at the shareholder's
option, in cash. Shareholders of the Fund who have not opted to receive cash
prior to the payable date for any dividend from net investment income or the
record date for any capital gains distribution will have the number of such
shares determined on the basis of the Fund's net asset value per share computed
at the end of that day after adjustment for the distribution. Net asset value is
used in computing the number of shares in both capital gains and income
distribution investments. There is a possibility that shareholders may lose the
tax-exempt status on accrued income on municipal bonds if shares of the Fund are
redeemed before a dividend has been declared.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do 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 gains
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investor's 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. A shareholder who acquires Class A shares of the Fund and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain or loss realized upon a sale or exchange of shares
of the Fund.
16
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.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for
the Fund is not expected to exceed 100%. A portfolio turnover rate of 100% would
occur if all of the Fund's portfolio securities were replaced in one year. The
portfolio turnover rate experienced by the Fund directly affects the transaction
costs relating to the purchase and sale of securities which the Fund bears
directly. A high rate of portfolio turnover will increase such costs. See the
SAI for further information regarding the practices of the Fund affecting
portfolio turnover.
Portfolio Transactions. Consistent with the Conduct Rules 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 broker-dealers to enter into portfolio transactions with the
Fund.
Performance Information. From time to time, the Fund may quote its
"total return" or "yield" for a specified period in advertisements, reports or
other communications to shareholders. Total return and yield are computed
separately for Class A, Class B and Class C shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
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 net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend 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.
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.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's
performance to various indices. 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 indicative of future results.
17
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. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen Events, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This Prospectus and the SAI, which has 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.
18
Investment Adviser
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
542079
