---------------------------------------------------------------------------
PROSPECTUS March 1, 1998
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EVERGREENSM SOUTHERN STATE MUNICIPAL BOND FUNDS [GRAPHIC OMITTED]
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EVERGREEN FLORIDA MUNICIPAL BOND FUND (CLASS A, B AND C SHARES)
EVERGREEN GEORGIA MUNICIPAL BOND FUND (CLASS A AND B SHARES)
EVERGREEN MARYLAND MUNICIPAL BOND FUND (CLASS A, B AND C SHARES)
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND (CLASS A AND B SHARES)
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (CLASS A AND B SHARES)
EVERGREEN VIRGINIA MUNICIPAL BOND FUND (CLASS A AND B SHARES)
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (CLASS A, B AND C SHARES)
The Evergreen Southern State Municipal Bond Funds (the "Funds") are
designed to provide investors with current income exempt from federal
income tax and certain state income tax, consistent with the preservation
of capital. This prospectus provides information regarding the Class A,
Class B and, where applicable, Class C shares offered by the Funds. Each
Fund is a nondiversified series of an open-end, management investment
company (except for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND which
is diversified). This prospectus sets forth concise information about the
Funds that a prospective investor should know before investing. The address
of the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information ("SAI") for the Funds dated
March 1, 1998, as supplemented from time to time, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference
herein. The SAI 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 Funds at (800) 343-2898.
There can be no assurance that the investment objective of any Fund will be
achieved. Investors are advised to read this prospectus carefully.
AN INVESTMENT IN THE FUNDS 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.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND WILL INVEST AT LEAST 65%
OF THE VALUE OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES CONSISTING OF HIGH
YIELD (I.E., HIGH RISK), MEDIUM, LOWER RATED AND UNRATED BONDS. SUCH
SECURITIES ARE COMMONLY CALLED JUNK BONDS AND ARE SUBJECT TO GREATER MARKET
FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER RATED
SECURITIES. LOWER QUALITY SECURITIES INVOLVE A GREATER RISK OF DEFAULT AND,
CONSEQUENTLY, SHARES OF THE EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND
FUND ARE SPECULATIVE SECURITIES.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 2
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUNDS 11
Investment Objectives and Policies 11
Investment Practices and Restrictions 12
ORGANIZATION AND SERVICE PROVIDERS 16
Organization 16
Service Providers 17
Distribution Plans and Agreements 18
PURCHASE AND REDEMPTION OF SHARES 19
How to Buy Shares 19
How to Redeem Shares 22
Exchange Privilege 23
Shareholder Services 24
Banking Laws 25
OTHER INFORMATION 25
Dividends, Distributions and Taxes 25
General Information 27
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
a Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of a Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
--------------- --------------- ---------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.75%(1) None None
(as a % of offering price)
Maximum Contingent Deferred Sales Charge (as a % of original purchase price None 5.00%(2)(3) 1.00%(2)
or redemption proceeds, whichever is lower)
</TABLE>
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5.00% to 1.00% of
amounts redeemed within six years after the month of purchase. The deferred
sales charge on Class C shares is 1.00% on amounts redeemed within one year
after the month of purchase. The Funds do not charge a contingent deferred
sales charge on redemptions made after that. 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.
Annual operating expenses reflect the normal operating expenses of a
Fund, and include costs such as management, distribution and other fees. The
tables below show for each Fund (except EVERGREEN FLORIDA MUNICIPAL BOND FUND
and EVERGREEN MARYLAND MUNICIPAL BOND FUND) actual annual operating expenses for
the fiscal period ended August 31, 1997. For EVERGREEN FLORIDA MUNICIPAL BOND
FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND the table shows estimated annual
operating expenses for the fiscal period ending August 31, 1998. The examples
show what you would pay if you invested $1,000 over periods indicated. The
examples assume that you reinvest all of your dividends and that each 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. EACH FUND'S ACTUAL EXPENSES AND RETURNS WILL VARY. For a more
complete description of the various costs and expenses borne by each Fund see
"Organization and Service Providers."
EVERGREEN FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
------------------------------------------------------
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
------------------------------- ----------------------------- ---------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees 0.50% 0.50% 0.50% After 1 Year $57 $67 $27 $ 17 $17
After 3 Years $76 $83 $53 $ 53 $53
12b-1 Fees(1) 0.25% 1.00% 1.00%
Other Expenses 0.19% 0.19% 0.19%
------- ------- -------
Total 0.94% 1.69% 1.69%
------- ------- -------
------- ------- -------
</TABLE>
2
<PAGE>
EVERGREEN GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
--------------------------------
ANNUAL OPERATING Assuming Assuming
EXPENSES(2) Redemption no
(AFTER REIMBURSEMENTS) at End of Period Redemption
--------------------------- ------------------ ----------
Class A Class B Class A Class B Class B
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.00% 0.00%
After 1 Year $ 57 $ 67 $ 17
12b-1 Fees(1) 0.25% 1.00%
After 3 Years $ 76 $ 83 $ 53
Other Expenses 0.69% 0.69%
After 5 Years $ 97 $ 112 $ 92
------- -------
After 10 Years $ 157 $ 170 $170
Total 0.94% 1.69%
------- -------
------- -------
</TABLE>
EVERGREEN MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
----------------------------------------
Assuming
ANNUAL OPERATING EXPENSES Assuming Redemption no
(AFTER REIMBURSEMENTS) at End of Period Redemption
----------------------------- ----------------------------- -------
Class A Class B Class C Class A Class B Class C Class B
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
After 1 Year $ 61 $ 72 $ 32 $ 22
12b-1 Fees 0.25% 1.00% 1.00%
After 3 Years $ 90 $ 98 $ 68 $ 68
Other Expenses 0.41% 0.41% 0.41%
After 5 Years $ 121 $ 136 $ 116 $ 116
------- ------- -------
After 10 Years $ 209 $ 221 $ 249 $ 221
Total 1.41% 2.16% 2.16%
------- ------- -------
------- ------- -------
<CAPTION>
Class C
-------
<S> <C>
$ 22
12b-1 Fees
$ 68
Other Expenses
$ 116
$ 249
Total
<CAPTION>
Management Fees
</TABLE>
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
--------------------------------
Assuming Assuming
Redemption no
ANNUAL OPERATING EXPENSES at End of Period Redemption
--------------------------- ------------------ ----------
Class A Class B Class A Class B Class B
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50%
.50% After 1 Year $ 58 $ 69 $ 19
12b-1 Fees 0.25% 1.00%
After 3 Years $ 81 $ 88 $ 58
Other Expenses 0.36% 0.36%
After 5 Years $ 106 $ 121 $101
------- -------
After 10 Years $ 176 $ 189 $189
Total 1.11% 1.86%
------- -------
------- -------
</TABLE>
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
--------------------------------
ANNUAL OPERATING Assuming Assuming
EXPENSES(2) Redemption no
(AFTER REIMBURSEMENTS) at End of Period Redemption
--------------------------- ------------------ ----------
Class A Class B Class A Class B Class B
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.00% 0.00%
After 1 Year $ 57 $ 68 $ 18
12b-1 Fees(1) 0.25% 1.00%
After 3 Years $ 77 $ 84 $ 54
Other Expenses 0.73% 0.73%
After 5 Years $ 99 $ 114 $ 94
------- -------
After 10 Years $ 162 $ 175 $175
Total 0.98% 1.73%
------- -------
------- -------
</TABLE>
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
--------------------------------
ANNUAL OPERATING Assuming Assuming
EXPENSES(2) Redemption no
(AFTER REIMBURSEMENTS) at End of Period Redemption
--------------------------- ------------------ ----------
Class A Class B Class A Class B Class B
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.00% 0.00%
After 1 Year $ 58 $ 68 $ 18
12b-1 Fees(1) 0.25% 1.00%
After 3 Years $ 79 $ 86 $ 56
Other Expenses 0.78% 0.79%
After 5 Years $ 102 $ 117 $ 97
------- -------
After 10 Years $ 167 $ 181 $181
Total 1.03% 1.79%
------- -------
------- -------
</TABLE>
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
ANNUAL OPERATING EXPENSES(2) Assuming Redemption Assuming no
(AFTER REIMBURSEMENTS) at End of Period Redemption
------------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees 0.36% 0.36% 0.36% After 1 Year $ 56 $ 67 $ 27 $ 17 $ 17
After 3 Years $ 74 $ 81 $ 51 $ 51 $ 51
12b-1 Fees(1) 0.25% 1.00% 1.00%
After 5 Years $ 94 $ 109 $ 89 $ 89 $ 89
Other
Expenses 0.27% 0.27% 0.27% After 10 Years $ 151 $ 163 $ 193 $ 163 $ 193
------- ------- -------
Total 0.88% 1.63% 1.63%
------- ------- -------
------- ------- -------
</TABLE>
3
<PAGE>
(1) Although Class A shares can pay up to 0.75% of average net assets as a 12b-1
fee, for the foreseeable future such fees have been limited to 0.25% of
average net assets. For Class B shares, a portion of the 12b-1 fees
equivalent to 0.25% of average annual assets will be shareholder
servicing-related. Distribution-related 12b-1 fees will be limited to 0.75%
of average annual assets as permitted under the rules of the National
Association of Securities Dealers, Inc. ("NASD").
(2) First Union National Bank ("FUNB") has agreed to reimburse each Fund below
to the extent that each Fund's aggregate annual operating expenses exceed
1.00% of average net assets for any fiscal year. FUNB may cease these
voluntary expense reimbursements at any time. For the fiscal year ended
August 31, 1997, FUNB reimbursed and/or waived certain other expenses and/or
management fees of the Funds. Absent such reimbursements and/or waivers,
each Fund would have paid the expenses equal to the following percentages of
net assets:
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL FUND OPERATING
(WITHOUT WAIVERS EXPENSES (WITHOUT
MANAGEMENT FEES AND/OR WAIVERS AND/OR
FUND (WITHOUT WAIVER) REIMBURSEMENT) REIMBURSEMENT)
----- ---------------- ---------------- --------------------
<S> <C> <C> <C>
Evergreen Georgia Municipal Bond Fund
Class A........................................................ 0.50% 1.08% 1.83%
Class B........................................................ 0.50% 1.08% 2.58%
Evergreen South Carolina Municipal Bond Fund
Class A........................................................ 0.50% 1.41% 2.16%
Class B........................................................ 0.50% 1.41% 2.91%
Evergreen Virginia Municipal Bond Fund
Class A........................................................ 0.50% 1.09% 1.84%
Class B........................................................ 0.50% 1.09% 2.59%
Evergreen Florida High Income Municipal Bond Fund
Class A........................................................ 0.60% -- 1.12%
Class B........................................................ 0.60% -- 1.87%
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP, independent auditors of the Funds, has audited the
following tables for each Fund other than EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND. (Class C shares
of EVERGREEN FLORIDA MUNICIPAL BOND FUND were not offered until January 20,
1998. Therefore, no financial highlights are currently available for those
shares.) Price Waterhouse LLP, the Fund's independent auditors, has audited the
following tables for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND for each
period from May 1, 1995 through August 31, 1997. The Fund's prior auditors
audited the information for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
for the other periods. (EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND began
offering Class C shares as of the date of this prospectus. Therefore, no
financial highlights are currently available.) Deloitte & Touche LLP, the Fund's
prior independent auditors, has audited the following tables for EVERGREEN
MARYLAND MUNICIPAL BOND FUND. (As of the date of this prospectus, Class B and
Class C shares of EVERGREEN MARYLAND MUNICIPAL BOND FUND have not been offered.
Therefore, no financial highlights are currently available for those shares.)
The Funds' Annual Reports, which are incorporated by reference, include the
report of Deloitte & Touche LLP, KPMG Peat Marwick LLP and Price Waterhouse LLP,
as the case may be, for each of the periods presented. You may obtain from the
Funds free of charge copies of their Annual Reports, which contain the Funds'
financial statements, related notes and additional performance information.
EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, FOUR MONTHS YEAR ENDED APRIL 30,
-------------------- ENDED -------------------------
1997 1996 AUGUST 31, 1995 (C)* 1995(C) 1994(C)
-------- -------- -------------------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year..................... $9.70 $9.74 $9.61 $9.52 $9.95
-------- -------- -------------------- -------- --------
Income from investment operations:
Net investment income................................. 0.51 0.54 0.19 0.54 0.56
Net realized and unrealized gain (loss) on
investments......................................... 0.35 (0.04) 0.22 0.11 (0.36)
-------- -------- -------------------- -------- --------
Total from investment operations.................... 0.86 0.50 0.41 0.65 0.20
-------- -------- -------------------- -------- --------
Less distributions from:
Net investment income............................... (0.52) (0.54) (0.19) (0.54) (0.56)
Distributions in excess of net investment income.... 0 0 (0.03) 0 0
Net realized gains on investments................... (0.06) 0 (0.06) (0.02) (0.07)
Paid-in capital..................................... 0 0 0 0 0
-------- -------- -------------------- -------- --------
Total distributions................................. (0.58) (0.54) (0.28) (0.56) (0.63)
-------- -------- -------------------- -------- --------
Net asset value end of year......................... $9.98 $9.70 $9.74 $9.61 $9.52
-------- -------- -------------------- -------- --------
-------- -------- -------------------- -------- --------
TOTAL RETURN (B)...................................... 9.06% 5.15% 4.20% 7.05% 1.87%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses...................................... 0.74% 0.63% 0.82%(a) 0.61% 0.56%
Total expenses excluding indirectly paid expenses... 0.74% -- -- -- --
Total expenses excluding waivers and
reimbursements.................................... 0.91% 0.95% 1.05%(a) -- --
Net investment income............................... 5.22% 5.46% 4.89%(a) 5.73% 5.37%
Portfolio turnover rate............................... 41% 30% 29% 53% 32%
Net assets end of year (thousands).................... $105,673 $115,723 $136,449 $168,542 $199,612
</TABLE>
4
<PAGE>
EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS A SHARES -- CONTINUED
<TABLE>
<CAPTION>
MAY 11, 1988
(COMMENCEMENT OF
CLASS
OPERATIONS)
YEAR ENDED APRIL 30, THROUGH
------------------------------------------ APRIL 30,
1993(C) 1992(C) 1991(C) 1990(C) 1989(C)
-------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............................. $9.35 $9.21 $8.80 $9.09 $8.82
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income......................................... 0.56 0.61 0.66 0.58 0.47
Net realized and unrealized gain (loss) on investments........ 0.67 0.22 0.43 (0.24 ) 0.22
-------- -------- ------- ------- -------
Total from investment operations............................ 1.23 0.83 1.09 0.34 0.69
-------- -------- ------- ------- -------
Less distributions from:
Net investment income....................................... (0.56) (0.61) (0.68) (0.59 ) (0.42)
Distributions in excess of net investment income............ 0 0 0 0 0
Net realized gains on investments........................... (0.07) (0.04) 0 (0.04 ) 0
Paid-in capital............................................. 0 (0.04) 0 0 0
-------- -------- ------- ------- -------
Total distributions......................................... (0.63) (0.69) (0.68) (0.63 ) (0.42)
-------- -------- ------- ------- -------
Net asset value end of year................................. $9.95 $9.35 $9.21 $8.80 $9.09
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
TOTAL RETURN (B).............................................. 13.63% 9.30% 12.87% 3.74% 9.16%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.............................................. 0.58% 0.41% 0.10% 0.10% 0.30%(a)
Total expenses excluding indirectly paid expenses........... -- -- -- -- --
Total expenses excluding waivers and reimbursements......... -- 0.68% 0.88% 5.14% 20.40%(a)
Net investment income....................................... 5.66% 6.12% 6.55% 6.15% 5.30%(a)
Portfolio turnover rate....................................... 24% 24% 66% 82% 30%
Net assets end of year (thousands)............................ $198,286 $147,996 $75,791 $7,286 $717
</TABLE>
- -------------
* The Fund changed its fiscal year end from April 30 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
(c) On June 30, 1995, ABT Florida Tax-Free Fund sold substantially all of its
net assets to Evergreen Florida Municipal Bond Fund. As ABT Florida
Tax-Free Fund is the accounting survivor, its basis of accounting for
assets and liabilities and its operating results for periods prior to June
30, 1995 have been carried forward in these financial highlights.
EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JUNE 30, 1995
(COMMENCEMENT OF
YEAR ENDED CLASS
AUGUST 31, OPERATIONS)
----------------------- THROUGH
1997 1996 AUGUST 31, 1995
------- ------- ----------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............................................... $9.70 $9.74 $9.67
------- ------- --------
Income from investment operations:
Net investment income........................................................... 0.42 0.44 0.07
Net realized and unrealized gain (loss) on investments.......................... 0.35 (0.04) 0.10
------- ------- --------
Total from investment operations.............................................. 0.77 0.40 0.17
------- ------- --------
Less distributions from:
Net investment income......................................................... (0.43) (0.44) (0.07)
Net realized gains on investments............................................. (0.06) 0 (0.03)
------- ------- --------
Total distributions........................................................... (0.49) (0.44) (0.10)
------- ------- --------
Net asset value end of year................................................... $9.98 $9.70 $9.74
------- ------- --------
------- ------- --------
TOTAL RETURN (B)................................................................ 8.06% 4.17% 1.49%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................................ 1.66% 1.56% 1.44%(a)
Total expenses excluding indirectly paid expenses............................. 1.66% -- --
Total expenses excluding waivers and reimbursements........................... 1.84% 1.76% 1.64%(a)
Net investment income......................................................... 4.29% 4.52% 3.22%(a)
Portfolio turnover rate......................................................... 41% 30% 29%
Net assets end of year (thousands).............................................. $31,281 $28,849 $27,351
</TABLE>
- -------------
(a) Annualized.
(b) Excluding applicable sales charges.
5
<PAGE>
EVERGREEN GEORGIA MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JULY 2, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------ ------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............... $9.57 $9.47 $8.74 $10.19 $10.00
------ ------ ------- ------- -------
Income from investment operations:
Net investment income........................... 0.49 0.48 0.33 0.48 0.20
Net realized and unrealized gain (loss) on
investments................................... 0.33 0.10 0.73 (1.45) 0.19
------ ------ ------- ------- -------
Total from investment operations.............. 0.82 0.58 1.06 (0.97) 0.39
------ ------ ------- ------- -------
Less distributions from net investment income... (0.49) (0.48) (0.33) (0.48) (0.20)
------ ------ ------- ------- -------
Net asset value end of year................... $9.90 $9.57 $9.47 $8.74 $10.19
------ ------ ------- ------- -------
------ ------ ------- ------- -------
TOTAL RETURN (B)................................ 8.73% 6.22% 12.28% (9.64%) 3.96%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................ 0.94% 0.88% 0.71%(a) 0.53% 0.25%(a)
Total expenses excluding indirectly paid
expenses.................................... 0.94% -- -- -- --
Total expenses excluding waivers and
reimbursements.............................. 1.83% 2.82% 2.83%(a) 3.61% 6.82%(a)
Net investment income......................... 5.00% 4.96% 5.39%(a) 5.26% 4.71%(a)
Portfolio turnover rate......................... 32% 21% 91% 147% 15%
Net assets end of year (thousands).............. $2,201 $1,954 $2,098 $1,387 $817
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
EVERGREEN GEORGIA MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JULY 2, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
----------------- ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------- ------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............ $9.57 $9.47 $8.74 $10.19 $10.00
------- ------ ------- ------- -------
Income from investment operations:
Net investment income........................ 0.41 0.41 0.28 0.43 0.18
Net realized and unrealized gain (loss) on
investments................................ 0.33 0.10 0.73 (1.45) 0.19
------- ------ ------- ------- -------
Total from investment operations........... 0.74 0.51 1.01 (1.02) 0.37
------- ------ ------- ------- -------
Less distributions from net investment
income..................................... (0.41) (0.41) (0.28) (0.43) (0.18)
------- ------ ------- ------- -------
Net asset value end of year................ $9.90 $9.57 $9.47 $8.74 $10.19
------- ------ ------- ------- -------
------- ------ ------- ------- -------
TOTAL RETURN (B)............................. 7.93% 5.44% 11.72% (10.15%) 3.74%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............................. 1.69% 1.63% 1.46%(a) 1.13% 0.75%(a)
Total expenses excluding indirectly paid
expenses................................. 1.69% -- -- -- --
Total expenses excluding waivers and
reimbursements........................... 2.58% 3.54% 3.58%(a) 4.21% 7.32%(a)
Net investment income...................... 4.25% 4.21% 4.64%(a) 4.66% 4.15%(a)
Portfolio turnover rate...................... 32% 21% 91% 147% 15%
Net assets end of year (thousands)........... $10,870 $9,271 $7,538 $ 6,912 $3,692
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
6
<PAGE>
EVERGREEN MARYLAND MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
------- ------- ------- ------- ------- ------
Income from investment operations
Net investment income......................... 0.37 0.38 0.40 0.45 0.49 0.54
Net realized and unrealized gain (loss) on
investments................................. 0.35 (0.13) 0.54 (0.97) 0.85 0.29
------- ------- ------- ------- ------- ------
Total from investment operations............ 0.72 0.25 0.94 (0.52) 1.34 0.83
------- ------- ------- ------- ------- ------
Less distributions
Distributions from net investment income...... (0.37) (0.38) (0.40) (0.45) (0.49) (0.54)
Distributions from net realized gain on
investments................................. -- -- (0.02) (0.10) -- --
------- ------- ------- ------- ------- ------
Total distributions......................... (0.37) (0.38) (0.42) (0.55) (0.49) (0.54)
------- ------- ------- ------- ------- ------
Net asset value, end of period.............. $10.91 $10.56 $10.69 $10.17 $11.24 $10.39
------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------
TOTAL RETURN (B).............................. 6.92% 2.36% 9.81% (4.74%) 13.24% 8.31%
Ratios to average net assets
Expenses.................................... 1.69% 1.43% 1.24% 1.17% 1.00% 0.59%
Net investment income....................... 3.45% 3.57% 4.24% 4.22% 4.50% 5.11%
Expense waiver/reimbursement (d)............ -- 0.25% 0.44% 0.51% 0.77% 1.91%
Supplemental data
Net assets, end of period (thousands)....... $27,786 $31,284 $32,172 $34,580 $33,907 $4,053
Portfolio turnover.......................... 13% 138% 21% 27% 23% 34%
<CAPTION>
1991(A)
-------
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $10.00
-------
Income from investment operations
Net investment income......................... 0.53
Net realized and unrealized gain (loss) on
investments................................. 0.10
-------
Total from investment operations............ 0.63
-------
Less distributions
Distributions from net investment income...... (0.53 )
Distributions from net realized gain on
investments................................. --
-------
Total distributions......................... (0.53 )
-------
Net asset value, end of period.............. $10.10
-------
-------
TOTAL RETURN (B).............................. 6.64%
Ratios to average net assets
Expenses.................................... 0.60%(c)
Net investment income....................... 5.66%(c)
Expense waiver/reimbursement (d)............ 1.05%(c)
Supplemental data
Net assets, end of period (thousands)....... $2,940
Portfolio turnover.......................... 35%
</TABLE>
- -------------
(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.
(b) Excluding applicable sales charges.
(c) Annualized.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JANUARY 11, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------------- ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------ ------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year....... $9.98 $9.95 $9.16 $10.61 $10.00
------ ------ ------- ------- --------
Income from investment operations:
Net investment income................... 0.49 0.49 0.33 0.49 0.46
Net realized and unrealized gain (loss)
on investments........................ 0.40 0.02 0.79 (1.45) 0.64
------ ------ ------- ------- --------
Total from investment operations...... 0.89 0.51 1.12 (0.96) 1.10
------ ------ ------- ------- --------
Less distributions from:
Net investment income................... (0.50) (0.48) (0.33) (0.49) (0.46)
Net realized gains on investments....... 0 0 0 0 (0.03)
------ ------ ------- ------- --------
Total distributions................... (0.50) (0.48) (0.33) (0.49) (0.49)
------ ------ ------- ------- --------
Net asset value end of year........... $10.37 $9.98 $9.95 $9.16 $10.61
------ ------ ------- ------- --------
------ ------ ------- ------- --------
TOTAL RETURN (B)........................ 9.11% 5.21% 12.34% (9.12%) 11.28%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses........................ 1.11% 1.08% 0.92%(a) 0.79% 0.32%(a)
Total expenses excluding indirectly
paid expenses....................... 1.11% -- -- -- --
Total expenses excluding waivers and
reimbursements...................... 1.11% 1.35% 1.27%(a) 1.18% 1.25%(a)
Net investment income................. 4.77% 4.81% 5.09%(a) 5.11% 4.91%(a)
Portfolio turnover rate................. 50% 86% 117% 126% 57%
Net assets end of year (thousands)...... $8,115 $7,989 $8,279 $ 7,979 $ 12,739
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
7
<PAGE>
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JANUARY 11, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
------------------------ ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------- ------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year..... $9.98 $9.95 $9.16 $10.61 $10.00
------- ------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.41 0.42 0.28 0.44 0.42
Net realized and unrealized gain
(loss) on investments............... 0.40 0.02 0.79 (1.45) 0.64
------- ------- -------- -------- --------
Total from investment operations.... 0.81 0.44 1.07 (1.01) 1.06
------- ------- -------- -------- --------
Less distributions from:
Net investment income................. (0.42) (0.41) (0.28) (0.44) (0.42)
Net realized gains on investments..... 0 0 0 0 (0.03)
------- ------- -------- -------- --------
Total distributions................. (0.42) (0.41) (0.28) (0.44) (0.45)
------- ------- -------- -------- --------
Net asset value end of year......... $10.37 $9.98 $9.95 $9.16 $10.61
------- ------- -------- -------- --------
------- ------- -------- -------- --------
TOTAL RETURN (B)...................... 8.30% 4.42% 11.78% (9.64%) 10.80%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses...................... 1.86% 1.83% 1.67%(a) 1.37% 0.79%(a)
Total expenses excluding indirectly
paid expenses..................... 1.86% -- -- -- --
Total expenses excluding waivers and
reimbursements.................... 1.86% 2.10% 2.02%(a) 1.76% 1.74%(a)
Net investment income............... 4.02% 4.06% 4.34%(a) 4.53% 4.47%(a)
Portfolio turnover rate............... 50% 86% 117% 126% 57%
Net assets end of year (thousands).... $48,198 $49,382 $ 49,040 $44,616 $ 45,168
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
--------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ----- ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year................................... $9.69 $9.59 $8.62 $10.00
------ ----- ------- -------
Income from investment operations:
Net investment income............................................... 0.48 0.49 0.34 0.46
Net realized and unrealized gain (loss) on investments.............. 0.40 0.10 0.97 (1.38)
------ ----- ------- -------
Total from investment operations.................................. 0.88 0.59 1.31 (0.92)
------ ----- ------- -------
Less distributions from:
Net investment income............................................... (0.48) (0.49) (0.34) (0.46)
Net realized gains on investments................................... (0.01) 0 0 0
------ ----- ------- -------
Total distributions............................................... (0.49) (0.49) (0.34) (0.46)
------ ----- ------- -------
Net asset value end of year....................................... $10.08 $9.69 $ 9.59 $ 8.62
------ ----- ------- -------
------ ----- ------- -------
TOTAL RETURN (B).................................................... 9.33% 6.23% 15.35% (9.32%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................................................... 0.98% 0.86% 0.53%(a) 0.25%(a)
Total expenses excluding indirectly paid expenses................. 0.98% -- -- --
Total expenses excluding waivers and reimbursements............... 2.16% 4.00% 6.50%(a) 10.71%(a)
Net investment income............................................. 4.87% 4.98% 5.41%(a) 5.57%(a)
Portfolio turnover rate............................................. 62% 37% 66% 23%
Net assets end of year (thousands).................................. $1,025 $841 $610 $312
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
8
<PAGE>
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................. $9.69 $9.59 $8.62 $10.00
------ ------ ------- -------
Income from investment operations:
Net investment income.............................................. 0.41 0.41 0.29 0.41
Net realized and unrealized gain (loss) on investments............. 0.40 0.10 0.97 (1.38)
------ ------ ------- -------
Total from investment operations................................. 0.81 0.51 1.26 (0.97)
------ ------ ------- -------
Less distributions from:
Net investment income.............................................. (0.41) (0.41) (0.29) (0.41)
Net realized gains on investments.................................. (0.01) 0 0 0
------ ------ ------- -------
Total distributions.............................................. (0.42) (0.41) (0.29) (0.41)
------ ------ ------- -------
Net asset value end of year...................................... $10.08 $9.69 $9.59 $8.62
------ ------ ------- -------
------ ------ ------- -------
TOTAL RETURN (B)................................................... 8.52% 5.43% 14.77% (9.83%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................... 1.73% 1.61% 1.28%(a) 0.87%(a)
Total expenses excluding indirectly paid expenses................ 1.73% -- -- --
Total expenses excluding waivers and reimbursements.............. 2.91% 4.76% 7.25%(a) 11.33%(a)
Net investment income............................................ 4.13% 4.23% 4.66%(a) 4.88%(a)
Portfolio turnover rate............................................ 62% 37% 66% 23%
Net assets end of year (thousands)................................. $4,734 $4,282 $3,542 $2,456
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
EVERGREEN VIRGINIA MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JULY 2, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------ ------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............. $9.68 $9.67 $8.85 $10.19 $10.00
------ ------ ------- ------- -------
Income from investment operations:
Net investment income......................... 0.50 0.48 0.33 0.47 0.20
Net realized and unrealized gain (loss) on
investments................................. 0.37 0.01 0.82 (1.34) 0.19
------ ------ ------- ------- -------
Total from investment operations............ 0.87 0.49 1.15 (0.87) 0.39
------ ------ ------- ------- -------
Less distributions from net investment
income...................................... (0.50) (0.48) (0.33) (0.47) (0.20)
------ ------ ------- ------- -------
Net asset value end of year................. $10.05 $9.68 $9.67 $8.85 $10.19
------ ------ ------- ------- -------
------ ------ ------- ------- -------
TOTAL RETURN (B).............................. 9.05% 5.12% 13.09% (8.60%) 3.89%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.............................. 1.03% 0.93% 0.72%(a) 0.53% 0.25%(a)
Total expenses excluding indirectly paid
expenses.................................. 1.02% -- -- -- --
Total expenses excluding waivers and
reimbursements............................ 1.84% 3.47% 3.83%(a) 5.14% 7.75%(a)
Net investment income....................... 4.95% 4.83% 5.17%(a) 5.11% 4.64%(a)
Portfolio turnover rate....................... 72% 68% 87% 59% 0%
Net assets end of year (thousands)............ $2,934 $2,892 $1,983 $ 1,606 $1,306
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
9
<PAGE>
EVERGREEN VIRGINIA MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JULY 2, 1993
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED YEAR ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* DECEMBER 31, 1994 1993
------ ------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............. $9.68 $9.67 $8.85 $10.19 $10.00
------ ------ ------- ------- -------
Income from investment operations:
Net investment income......................... 0.41 0.41 0.28 0.42 0.17
Net realized and unrealized gain (loss) on
investments................................. 0.37 0.01 0.82 (1.34) 0.19
------ ------ ------- ------- -------
Total from investment operations............ 0.78 0.42 1.10 (0.92) 0.36
------ ------ ------- ------- -------
Less distributions from net investment
income...................................... (0.41) (0.41) (0.28) (0.42) (0.17)
------ ------ ------- ------- -------
Net asset value end of year................. $10.05 $9.68 $9.67 $8.85 $10.19
------ ------ ------- ------- -------
------ ------ ------- ------- -------
TOTAL RETURN (B).............................. 8.24% 4.34% 12.53% (9.13%) 3.66%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.............................. 1.79% 1.68% 1.47%(a) 1.12% 0.75%(a)
Total expenses excluding indirectly paid
expenses.................................. 1.78% -- -- -- --
Total expenses excluding waivers and
reimbursements............................ 2.59% 4.23% 4.58%(a) 5.73% 8.25%(a)
Net investment income....................... 4.21% 4.09% 4.42%(a) 4.54% 4.25%(a)
Portfolio turnover rate....................... 72% 68% 87% 59% 0%
Net assets end of year (thousands)............ $6,695 $5,963 $5,083 $ 3,817 $2,235
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JUNE 17, 1992
(COMMENCEMENT OF
CLASS
YEAR ENDED AUGUST 31, FOUR MONTHS YEAR ENDED APRIL 30, OPERATIONS)
----------------------- ENDED ----------------------- THROUGH
1997 1996 AUGUST 31, 1995* 1995 1994 APRIL 30, 1993
-------- ------- ---------------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.... $10.42 $10.40 $10.16 $10.08 $10.36 $10.00
-------- ------- -------- ------- ------- --------
Income from investment operations:
Net investment income................ 0.62 0.63 0.21 0.65 0.68 0.61
Net realized and unrealized gain
(loss) on investments.............. 0.47 0.02 0.24 0.08 (0.26) 0.39
-------- ------- -------- ------- ------- --------
Total from investment operations... 1.09 0.65 0.45 0.73 0.42 1.00
-------- ------- -------- ------- ------- --------
Less distributions from:
Net investment income................ (0.62) (0.63) (0.21) (0.65) (0.68) (0.61)
Net realized gains on investments.... 0 0 0 0 (0.02) (0.03)
-------- ------- -------- ------- ------- --------
Total distributions................ (0.62) (0.63) (0.21) (0.65) (0.70) (0.64)
-------- ------- -------- ------- ------- --------
Net asset value end of year........ $10.89 $10.42 $10.40 $10.16 $10.08 $10.36
-------- ------- -------- ------- ------- --------
-------- ------- -------- ------- ------- --------
TOTAL RETURN (B)..................... 10.77% 6.42% 4.43% 7.56% 3.94% 10.33%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses..................... 0.88% 0.85% 1.07%(a) 0.60% 0.14% 0.00%(a)
Total expenses excluding indirectly
paid expenses.................... 0.87% -- -- -- -- --
Total expenses excluding waivers
and reimbursements............... 1.12% 1.15% 1.42%(a) 1.26% 1.12% 1.12%(a)
Net investment income.............. 5.86% 6.02% 5.92%(a) 6.52% 6.16% 5.92%(a)
Portfolio turnover rate.............. 32% 42% 14% 28% 31% 50%
Net assets end of year (thousands)... $119,942 $76,267 $ 59,551 $65,043 $72,683 $ 33,541
</TABLE>
- -------------
* The Fund changed its fiscal year end from April 30 to August 31.
(a) Annualized.
(b) Excluding applicable sales charges.
10
<PAGE>
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JULY 10, 1995
(COMMENCEMENT OF
CLASS
YEAR ENDED AUGUST 31, OPERATIONS)
----------------------- THROUGH
1997 1996 AUGUST 31, 1995
------- ------- ----------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............................................ $10.42 $10.40 $10.41
------- ------- -------
Income from investment operations:
Net investment income........................................................ 0.54 0.55 0.08
Net realized and unrealized gain (loss) on investments....................... 0.47 0.02 (0.01)
------- ------- -------
Total from investment operations........................................... 1.01 0.57 0.07
Less distributions from net investment income................................ (0.54) (0.55) (0.08)
------- ------- -------
Net asset value end of year................................................ $10.89 $10.42 $10.40
------- ------- -------
------- ------- -------
TOTAL RETURN (B)............................................................. 9.95% 5.63% 0.64%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............................................................. 1.63% 1.59% 1.09%(a)
Total expenses excluding indirectly paid expenses.......................... 1.63% -- --
Total expenses excluding waivers and reimbursements........................ 1.87% 1.89% --
Net investment income...................................................... 5.09% 5.27% 3.40%(a)
Portfolio turnover rate...................................................... 32% 42% 14%
Net assets end of year (thousands)........................................... $63,475 $19,219 $3,137
</TABLE>
- -------------
(a) Annualized.
(b) Excluding applicable sales charges.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
EACH FUND, OTHER THAN EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND,
seeks current income exempt from federal regular income tax and, where
applicable, state income taxes, consistent with preservation of capital.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND seeks to provide a high
level of current income which is exempt from federal income taxes.
EACH FUND normally invests its assets according to standards issued by
the SEC concerning investments in tax free securities. The Funds cannot change
this policy without shareholder approval. The SEC currently requires the Funds
to invest at least 80% of their assets in federally tax exempt municipal
securities. The Funds also invest at least 65% of their assets in municipal
securities that are exempt from income or intangibles taxes, as applicable, in
the state for which the Fund is named.
EACH FUND, OTHER THAN EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
AND EVERGREEN MARYLAND MUNICIPAL BOND FUND, invests at least 80% of its assets
in investment grade municipal securities, which are bonds rated within the four
highest rating categories by Standard and Poor's ("S&P"), Fitch Investors
Service ("Fitch") or Moody's Investors Service ("Moody's"). Investment grade
securities normally have the capacity to pay interest and principal. Under
adverse economic conditions, however, bonds rated at the lower end of the
investment grade scale may not perform as well as those at the higher end.
These Funds may invest 20% of their assets in below investment grade
bonds, but not in those rated below B. Below investment grade bonds are commonly
referred to as "junk bonds" because they are usually backed by issuers of less
proven or questionable financial strength. Such issuers are more vulnerable to
financial setbacks and less certain to pay interest and principal than issuers
of bonds offering lower yields and risk. Markets may overreact to unfavorable
news about issuers of below investment grade bonds causing sudden and steep
declines in value.
EVERGREEN MARYLAND MUNICIPAL BOND FUND invests all of its assets in
investment grade municipal securities.
11
<PAGE>
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND normally invests at
least 65% of its assets in below investment grade municipal securities, which
are described above. However, the Fund will not invest in municipal securities
rated D or below. For temporary defensive purposes, the Fund may invest less
than 65% of its assets in below investment grade bonds. The Fund may assume a
defensive position if the yields on below investment grade bonds fail to justify
the increased risk associated with an investment in such securities. The Fund
may purchase higher grade bonds when there is a lack of below investment grade
bonds in which to invest. The Fund also may buy investment grade bonds, if
buying below investment grade bonds would jeopardize its proper diversification
and liquidity. During the fiscal year ended August 31, 1997, the Fund's holdings
had the following average credit quality characteristics:
<TABLE>
<CAPTION>
Percent of
Rating Net Assets
- ---------- ----------
<S> <C>
Aaa or AAA 11.10%
Aa or AA 2.00%
A 2.50%
Baa or BBB 16.70%
Ba or BB 1.20%
B 0.40%
Non-rated 66.10%
----------
Total 100.00%
----------
----------
</TABLE>
EACH FUND'S investment objective is nonfundamental; as a result, a Fund
may change its objective without a shareholder vote. Each Fund has also adopted
certain fundamental investment policies which are mainly designed to limit a
Fund's exposure to risk. Each Fund's fundamental policies cannot be changed
without a shareholder vote. See the SAI for more information regarding a Fund's
fundamental investment policies or other related investment policies. There can
be no assurance that a Fund's investment objective will be achieved.
INVESTMENT PRACTICES AND RESTRICTIONS
Non-Diversification. Each Fund, other than EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND, is a non-diversified series 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 a 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. Each of the Funds 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 each 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 each Fund's total assets, no more than 25% of its
total assets are invested in the securities of a single issuer.
Defensive Investments. The Funds may invest up to 20% or, for temporary
defensive purposes, up to 100% of their assets in high quality short-term
obligations, such as notes, commercial paper, certificates of deposit, bankers'
acceptances, bank deposits or United States ("U.S.") government securities.
Downgrades. If any security invested in by a 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.
Municipal Securities. Each Fund invests in municipal bonds, notes and commercial
paper issued by or for states, territories and possessions of the U.S. including
the District of Columbia and their political subdivisions, agencies and
instrumentalities. Municipal bonds include fixed, variable or floating rate
general obligation and revenue bonds. General obligation bonds are used to
support the government's general financial needs and are supported by the full
faith and credit of the municipality. General obligation bonds are repaid from
the issuer's general unrestricted revenues. Payment, however, may be dependent
upon legislative approval and may be subject to limitations on the issuer's
taxing power. Revenue bonds are used to finance public works and certain private
facilities. In contrast to general obligation bonds, revenue bonds are repaid
only with the revenue generated by the project financed.
Municipal notes include tax anticipation notes, bond anticipation notes
and revenue anticipation notes. Municipal commercial paper obligations are
unsecured promissory notes issued by municipalities to meet short-term credit
needs.
12
<PAGE>
Since the Funds invest primarily in municipal securities, you should be
aware of the risks associated with investing in such securities. The value of
municipal bonds tends to go up when interest rates go down and vice, versa. An
issuer's failure to make such payment due to political development or fiscal
mismanagement could affect its ability to make prompt payments of interest and
principal. Those events could also affect the market value of the security.
Moreover, the market for municipal bonds is often thin and can by temporarily
affected by large purchases and sales, including those by a Fund.
Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase
agreements are agreements by which a 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 Funds' 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 Funds to sell the
security in the open market in the case of a default. In such a case, the Funds
may incur costs in disposing of the security which would increase Fund expenses.
The Funds' investment adviser will monitor the creditworthiness of the firms
with which the Funds enter into repurchase agreements.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The values of these securities are subject to market fluctuations during
this period and no income accrues to a Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Securities Lending. To generate income and offset expenses, the Funds may lend
securities to broker-dealers and other financial institutions. Loans of
securities by a 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 a Fund and its shareholders. When a 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. Each Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that a
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. Each Fund may also borrow an additional 5%
of its total assets from banks and others. A Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. A Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Funds do not intend to leverage.
Illiquid Securities. The Funds may invest up to 15% of their 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 a Fund to dispose
of illiquid investments readily or at a reasonable price could impair a Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Funds may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1993 (the "1993 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 U.S. Each Fund's investment
adviser determines the liquidity of Rule 144A securities according to guidelines
and procedures adopted by Evergreen Municipal Trust'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.
Zero Coupon Debt Securities. The Funds 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
13
<PAGE>
daily dividends, each day the Funds take 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. Values of zero
coupon securities are affected to a greater extent by interest rate changes and
may be more volatile than securities which pay interest periodically and in
cash.
Securities with Put or Demand Rights. The Funds have the ability to enter into
put transactions, sometimes referred to as stand-by commitments, with respect to
municipal obligations held in their portfolios or to purchase securities which
carry a demand feature or put option which permit a 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 each Fund for all
such transactions.
The amount payable to a 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.
A Fund's right to exercise a put is unconditional and unqualified. A put
is not transferable by a Fund, although each Fund may sell the underlying
securities to a third party at any time. The Funds expect that puts will
generally be available without any additional direct or indirect cost. However,
if necessary and advisable, a 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.
A Fund may enter into put transactions only with broker-dealers (in
accordance with the rules of the SEC) and banks which, in the opinion of the
Funds' investment adviser, present minimal credit risks. The Funds' investment
adviser will monitor periodically the creditworthiness of issuers of such
obligations held by each Fund. The Funds' 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, a Fund might be
unable to recover all or a portion of any loss sustained from having to sell the
security elsewhere. The Funds intend to enter into put transactions solely to
maintain portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes.
Special Risk Factors Related to Investing In Municipal Securities and Securities
Issued by the State of Florida
It should be noted that municipal securities may be adversely affected by
local political and economic conditions and developments within a state. For
example, adverse conditions in a significant industry within Florida may from
time to time have a correspondingly adverse effect on specific issuers within
Florida or on anticipated revenue to the State itself; conversely, an improving
economic outlook for a significant industry may have a positive effect on such
issuers or revenues.
Under current law, the State of Florida is required to maintain a
balanced budget so that current expenses are met from current revenues. Florida
does not currently impose a tax on personal income. It does impose a tax on
corporate income derived from activities within the State. In addition, Florida
imposes and ad valorem tax on certain intangible property as well as sales and
use taxes. These taxes are the principal source of funds to meet State expenses,
including repayment of, and interest on, obligations backed solely by the full
faith and credit of the State.
Florida's Constitution permits the issuance of state municipal
obligations pledging the full faith and credit of the State, with a concurring
vote by the respective electors, to finance or refinance capital projects
authorized by the Legislature. The State Constitution also provides that the
Legislature shall appropriate monies sufficient to pay debt service on state
bonds pledging the full faith and credit of the State as they become due. All
State tax revenues, other than trust funds dedicated by the State Constitution
for other purposes, are available for such an appropriation, if required.
On the other hand, municipalities and other political subdivisions of the
State principally rely on combination of ad valorem taxes on real property, user
fees and occupational license fees to meet their day-to-day
14
<PAGE>
expenses including the repayment of principal of, and interest on, their
obligations backed by their full faith and credit. (Revenue bonds, of course,
are dependent on the revenue generated by a specific facility or enterprise.)
Florida has experienced substantial population increases as a result of
migration to Florida from other areas of the U.S. and from foreign countries.
This population growth is expected to continue, and it is anticipated that
corresponding increases in State revenues will be necessary during the next
decade to meet increased burdens on the various public and social services
provided by the State.
Florida's ability to meet increasing expenses will be dependent in part
upon the State's continued ability to foster business and economic growth.
Options and Futures. The Funds may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market
or interest rate risk. The Funds do not use these transactions for speculation
or leverage.
The Funds may attempt to hedge all or a portion of their portfolios
through the purchase of both put and call options on their portfolio securities
and listed put options on financial futures contracts for portfolio securities.
The Funds may also write covered call options on their portfolio securities to
attempt to increase their current income. The Funds will maintain their
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 Funds 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. By
writing a put option, a 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 Funds also may write straddles (combinations of covered
puts and calls on the same underlying security). The Funds may only write
"covered" options. This means that so long as a 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. A 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 Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
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 a Fund would enter 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. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
The Funds may also enter into financial futures contracts and write
options on such contracts. The Funds intend to enter into such contracts and
related options for hedging purposes. The Funds will enter into futures on
securities or index-based futures contracts in order to hedge against changes in
interest rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities 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 Funds do not make
payment or deliver securities upon entering into a futures contract. Instead,
they put 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.
15
<PAGE>
The Funds may sell or purchase other financial futures contracts. When a
futures contract is sold by a Fund, the profit on the contract will tend to rise
when the value of the underlying securities declines and to fall when the value
of such securities increases. Thus, the Funds sell futures contracts in order to
offset a possible decline in the profit on their securities. If a futures
contract is purchased by a Fund, the value of the contract will tend to rise
when the value of the underlying securities increases and to fall when the value
of such securities declines.
The Funds 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 their options positions. A 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 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, in which case it 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 Funds to manage market or interest rate
risks, these investment devices can be highly volatile, and the Funds' use of
them can result in poorer performance (i.e., the Funds' return may be reduced).
The Funds' 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 Funds use 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 Funds' portfolios. This may cause the financial futures contracts and any
related options to react to market changes differently than the portfolio
securities. In addition, the Funds' 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 Funds' investment adviser correctly predicts interest rate movements, a
hedge could be unsuccessful if changes in the value of a 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 Funds' investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts transactions, 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
Funds' ability to establish and close out financial futures contracts and
options on financial futures contract positions depends on this secondary
market. If a 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.
The Funds may invest in derivatives only if the expected risks and
rewards are consistent with their objectives 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 a Fund to lose money if the Fund fails to correctly predict the
direction in which the underlying asset or economic factor will move.
- --------------------------------------------------------------------------------
ORGANIZATION AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, each Fund is a
non-diversified series of an open-end, management investment company, except for
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND which is diversified, called
Evergreen Municipal Trust (the "Trust"). The Trust is a Delaware business trust
organized on September 17, 1997.
16
<PAGE>
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Funds' activities, reviewing,
among other things, each Fund's performance and its contractual arrangements
with various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Funds' assets and have equal 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 Funds are redeemable,
transferable and freely assignable as collateral. The Funds may establish
additional classes or series of shares.
The Funds do not hold annual shareholder meetings; the Funds may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Funds are prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees. If any matters are to be voted on by shareholders,
each share owned as of the record date for the meeting would be entitled to one
vote for each dollar of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment adviser to the Funds is FUNB, a subsidiary of
First Union Corporation ("First Union"). First Union and FUNB are located at 201
South College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S.
Each Fund pays FUNB an annual management fee. See "Expense Information"
and "Financial Highlights" for the percentage of average net assets each Fund,
other than EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN MARYLAND
MUNICIPAL BOND FUND, paid to FUNB for the fiscal period ended August 31, 1997.
EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND
each pay FUNB an annual management fee equal to 0.50% of the Fund's average
daily net assets.
Portfolio Managers. The portfolio manager for EVERGREEN GEORGIA MUNICIPAL BOND
FUND, EVERGREEN MARYLAND MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL
BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND is Charles E. Jeanne. Since
joining First Union in 1993, Mr. Jeanne has been an Assistant Vice President and
Portfolio Manager. Prior to joining First Union, Mr. Jeanne served as a
trader/portfolio manager for First American Bank.
Richard K. Marrone has been the portfolio manager for EVERGREEN FLORIDA
MUNICIPAL BOND FUND since 1998, for EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
since 1993 and for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND since its
inception in 1995. Since joining First Union in 1993, Mr. Marrone has been a
Vice President and Senior Fixed Income Portfolio Manager. From 1982-1993, Mr.
Marrone was a portfolio manager for mutual and common trust funds at Woodbridge
Capital Management.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Funds' transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Funds' custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Funds.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Funds. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides each Fund with
facilities, equipment and personnel. For its services as administrator, EIS is
entitled to receive a fee based on the aggregate average daily net assets of
each Fund at a rate based on the total assets of all the mutual funds advised by
First Union subsidiaries. The administration fee is calculated in accordance
with the following schedule:
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<PAGE>
<TABLE>
<CAPTION>
Administration Fee
- ------------------
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. Each Fund's Class A, Class B and, where applicable, 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, each Fund may incur distribution-related and
shareholder servicing-related expenses which are based upon a maximum annual
rate as a percentage of a Fund's average daily net assets attributable to the
class, as follows:
<TABLE>
<S> <C>
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
</TABLE>
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 Funds' investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds 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 Funds' distributor pursuant to
Distribution Agreements entered into by each Fund.
Distribution Agreements. Each Fund has also entered into distribution agreements
(each a "Distribution Agreement" or collectively the "Distribution Agreements")
with EDI. Pursuant to the Distribution Agreements, each Fund will compensate EDI
for its services as distributor based upon the maximum annual rate as a
percentage of a Fund's average daily net assets attributable to the class, as
follows:
<TABLE>
<S> <C>
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
</TABLE>
The Distribution Agreements provide that EDI will use the distribution
fee received from each Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of a 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 a Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to a 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 a Fund.
In the event a Fund acquires the assets of other mutuals 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 a Fund in subsequent fiscal years.
18
<PAGE>
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PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You may purchase shares of any Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of a Fund by mailing to the Fund, c/o ESC, P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed application and a check payable to
the Fund. You may also telephone 1-800-343-2898 to obain the number of an
account to which you can wire or electronically transfer funds and then send in
a completed application. Subsequent investments in any amount may be made by
check, by wiring federal funds, by direct deposit or by an electronic funds
transfer.
The minimum initial investment is $1,000, which may be waived in certain
situations. 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 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:
<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
<C> <C> <C> <C> <S>
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%
$ 1,000,000 or more None None 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
$4,999,999
</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 fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EDI and any broker-dealer with whom EDI has entered into an
agreement to sell shares of the Funds, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen fund by
investors reinvesting the proceeds from a redemption within the preceding 30
days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain
broker-dealers or other financial institutions may impose a fee on transactions
in shares of the Funds.
Class A shares may also be purchased at net asset value by 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
19
<PAGE>
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 12 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 a 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 a Fund's Concurrent Purchases, Rights of
Accumulation, Letters 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 (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.
<TABLE>
<CAPTION>
CDCS
REDEMPTION TIMING IMPOSED
- ---------------------------------------------------------------------------------------------------------------- -------
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase 5.00%
Second twelve-month period following the month of purchase 4.00%
Third twelve-month period following the month of purchase 3.00%
Fourth twelve-month period following the month of purchase 3.00%
Fifth twelve-month period following the month of purchase 2.00%
Sixth twelve-month period following the month of purchase 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event a 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. A 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 and service fees 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 service 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.
Class C Shares_--_Level-Load Alternative (EVERGREEN FLORIDA MUNICIPAL BOND FUND,
EVERGREEN MARYLAND MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND only). 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-
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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 a 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 a 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.
Each Fund may also sell Class A, Class B or, where applicable, Class C
shares at net asset value without any initial sales charge or CDSC to certain
Directors, Trustees, officers and employees of the Funds, Keystone Investment
Management Company ("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 Funds Value Their Shares. The net asset value of each class of shares of
a 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 a 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.
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
a Fund and/or other Evergreen funds. Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the U.S.
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 broker-dealers. EDI from time to time sponsors promotions
involving First Union Brokerage Services, Inc., an affiliate of each Fund's
investment adviser, and select broker-dealers, pursuant to which incentives are
paid, including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum number of accounts. Such promotions are not being made available to
all broker-dealers. Certain broker-dealers may also receive payments from EDI or
21
<PAGE>
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 a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or its 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
Funds 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 a 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.
Redeeming Shares Through Your Financial Intermediary. A 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 a Fund, c/o ESC: the registrar, transfer
agent and dividend-disbursing agent for each 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 Funds and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESCs
offices are closed). Redemption requests received after 4:00 p.m. (eastern time)
will be processed using the net asset value determined on the next business day.
Such redemption requests must include the shareholder's account name, as
registered with a Fund, and the account number. During periods of drastic
economic or market changes, shareholders may experience difficulty in effecting
telephone redemptions. If you cannot reach the Fund by telephone, you should
follow the procedures for redeeming by mail or through a broker-dealer as set
forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the application and choose how
the redemption proceeds are to be paid. Redemption proceeds will either (i) be
mailed by check to the shareholder at the address in which the account is
registered or (ii) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. A 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.
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Except as otherwise noted, the Funds, 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 Funds, 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 Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the SEC so orders. The Funds reserve 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 Funds have elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is
obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of
a Fund's total net assets, during any 90 day period for any one shareholder.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. If the shares being tendered for exchange are still
subject to a CDSC or are eligible for conversion in a specified time, such
remaining charge or remaining time will carry over to the shares being acquired
in the exchange transaction. 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 a 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. A 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 a 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, a
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 a 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
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<PAGE>
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 Funds offer 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 a 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 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 gains distributions reinvested
automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified employee benefit and savings plans may make shares of the Funds
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 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 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 Funds have 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.
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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 Funds. 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. FUNB is
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 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 Funds by their
customers. If FUNB 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 Funds' shareholders to approve, a new
investment adviser. If this were to occur, it is not anticipated that the
shareholders of the Funds would suffer any adverse financial consequences.
- --------------------------------------------------------------------------------
OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds intend to declare dividends from net investment income daily
and distribute to their shareholders such dividends monthly. The Funds intend 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 a 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 a 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 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 a Fund with respect to
Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after a 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.
Each Fund intends to qualify to be treated as a regulated investment
company under 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 Funds, to the extent they do not
meet certain distribution requirements by the end of each calendar year. The
Funds anticipate meeting such distribution requirements.
The Funds 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 a 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.
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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 dividend income and capital gain dividends
are taxable as net 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, net long-term capital gains realized by an
individual on assets held for more than 18 months will generally be taxed at a
maximum rate of 20%. Net long-term capital gains realized by an individual on
assets held for more than 12 months and 18 months or less will generally be
taxed at a maximum rate of 28%. The rate applicable to corporations is 35%.
Since each 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.
Each 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 a 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 and loss realized upon a sale or exchange of shares
of the Fund.
Set forth below are brief descriptions of the personal income tax status
of an investment in each of the Funds under Florida, Georgia, Maryland, North
Carolina, South Carolina, and Virginia tax laws currently in effect. Income from
a Fund is not necessarily free from state income taxes in states other than its
designated state. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local laws.
EVERGREEN FLORIDA MUNICIPAL BOND FUND AND EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND. Florida does not currently impose a state income tax on
individuals. Thus, individual shareholders of the Funds will not be subject to
any Florida state income tax on distributions received from the Funds. However,
certain distributions will be taxable to corporate shareholders which are
subject to Florida corporate income tax. Florida currently imposes an
intangibles tax at the annual rate of 0.20% on certain securities and other
intangible assets owned by Florida residents. Certain types of tax exempt
securities of Florida issuers, U.S. government securities and tax exempt
securities issued by certain U.S. territories and possessions are exempt from
this intangibles tax. Shares of the Funds will also be exempt from the Florida
intangibles tax if the portfolio consists exclusively of securities exempt from
the intangibles tax on the last business day of the calendar year. If the
portfolio consists of any assets which are not so exempt on the last business
day of the calendar year, however, only the portion of the shares of the Funds
which relate to securities issued by the U.S. and its possessions and
territories will be exempt from the Florida intangibles tax, and the remaining
portion of such shares will be fully subject to the intangibles tax, even if
they partly relate to Florida tax exempt securities.
EVERGREEN GEORGIA MUNICIPAL BOND FUND. Under existing Georgia law,
shareholders of the Fund will not be subject to individual or corporate Georgia
income taxes on distributions from the Fund to the extent that such
distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to (1) interest-bearing obligations issued by or
on behalf of the State of Georgia or its political subdivisions, or (2) interest
on obligations of the U.S. or of any other issuer whose obligations are exempt
from state income taxes under federal law. Distributions, if any, derived from
capital gains or other sources generally will be taxable for Georgia income tax
purposes to shareholders of the Fund who are subject to the Georgia income tax.
Shareholders of EVERGREEN MARYLAND MUNICIPAL BOND FUND who are subject to
Maryland state and local income tax will not be subject to tax in Maryland on
dividends paid by the Portfolio to the extent that they are attributable to
interest on tax-exempt obligations of the State of Maryland or its political
subdivisions, interest on obligations of the U.S. or its possessions and
territories, or gains realized from the disposition of either of these
categories of obligations (with the express exception of dividends attributable
to gain from the disposition of obligations of a U.S. territory or possession
which are subject to Maryland state and local income tax). Dividends
attributable to interest on obligations issued by states other than Maryland and
income from repurchase agreements are subject to Maryland state and local income
tax.
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EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND. Under existing North
Carolina law, shareholders of the Fund will not be subject to individual or
corporate North Carolina income taxes on distributions from the Fund to the
extent that such distributions represent exempt-interest dividends for federal
income tax purposes that are attributable to (1) interest on obligations issued
by North Carolina and political subdivisions thereof, or (2) interest on
obligations of the U.S. or its territories or possessions. However, for
corporate shareholders, the exemption is limited to $15,000 per year, and
otherwise exempt income from the Fund will be subject to a corporate income tax.
Distributions, if any, derived from Fund net capital gains or other sources
generally will be taxable for North Carolina income tax purposes to shareholders
of the Fund who are subject to the North Carolina income tax.
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND. Under existing South
Carolina law, shareholders of the Fund will not be subject to individual or
corporate South Carolina income taxes on Fund distributions to the extent that
such distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to (1) interest on obligations of the State f
South Carolina, or any of its political subdivisions, (2) interest on
obligations of the U.S., or (3) interest on obligations of any agency or
instrumentality of the U.S. that is prohibited by federal law from being taxed
by a state or any political subdivision of a state. Distributions, if any,
derived from Fund net capital gains or other sources, generally will be taxable
for South Carolina income tax purposes to shareholders of the Fund who are
subject to South Carolina income tax.
EVERGREEN VIRGINIA MUNICIPAL BOND FUND. Under existing Virginia law,
shareholders of the Fund will not be subject to individual or corporate Virginia
income taxes on distributions received from the Fund to the extent that such
distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to interest earned on (1) obligations issued by
or on behalf of the Commonwealth of Virginia or any political subdivision
thereof, or (2) obligations issued by a territory or possession of the U.S. or
any subdivision thereof which federal law exempts from state income taxes.
Distributions, if any, derived from Fund net capital gains or other sources
generally will be taxable for Virginia income tax purposes to shareholders of
the Fund who are subject to Virginia income tax.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. 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 Funds in their states and localities. Each 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 portfolio turnover rates for each Fund are set forth
under "Financial Highlights."
Portfolio Transactions. Consistent with the Conduct Rules of the NASD, and
subject to seeking best price and execution, a Fund may consider sales of its
shares as a factor in the selection of broker-dealers to enter into portfolio
transactions with the Fund.
Other Classes of Shares. Each Fund currently offers three classes of shares,
Class A, Class B and Class Y (except for EVERGREEN FLORIDA MUNICIPAL BOND FUND,
EVERGREEN MARYLAND MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND which each offer 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 not 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, (ii) certain institutional investors and (iii) investment
advisory clients of FUNB or their 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. Investors should telephone (800)
343-2898 to obtain more information on other classes of shares.
27
<PAGE>
Performance Information. From time to time, a Fund may quote its "total return"
or "yield" for specified periods in advertisements, reports, or other
communications to shareholders. Total return and yield are computed separately
for each class of shares. Performance data for one or more classes may be
included in any advertisement or sales literature using performance data of a
Fund. A 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 a 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 a Fund earns on its
investments as a percentage of the Fund's share price. A 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, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a 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 a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Each 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 a Fund's tax-exempt
yield by the result of one minus a stated federal tax rate. If only a portion of
a 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 a 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 the Fund's
performance to various indices. A 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 12-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.
In marketing a 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 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 1933 Act.
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.
28
<PAGE>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank, 201 South College
Street, Charlotte, North Carolina 28288
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Service Company, 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
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
DISTRIBUTOR
Evergreen Distributor, Inc., 125 West 55th Street, New York, New York 10019
64939 536118rev04
<PAGE>
---------------------------------------------------------------------------
PROSPECTUS March 1, 1998
---------------------------------------------------------------------------
EVERGREENSM SOUTHERN STATE MUNICIPAL BOND FUNDS [GRAPHIC OMITTED]
---------------------------------------------------------------------------
EVERGREEN FLORIDA MUNICIPAL BOND FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND
EVERGREEN MARYLAND MUNICIPAL BOND FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
CLASS Y SHARES
The Evergreen Southern State Municipal Bond Funds (the "Funds") are
designed to provide investors with current income exempt from federal
income tax and certain state income tax, consistent with the preservation
of capital. This prospectus provides information regarding the Class Y
shares offered by the Funds. Each Fund is a nondiversified series of an
open-end, management investment company (except for EVERGREEN FLORIDA HIGH
INCOME MUNICIPAL BOND FUND which is diversified). This prospectus sets
forth concise information about the Funds that a prospective investor
should know before investing. The address of the Funds is 200 Berkeley
Street, Boston, Massachusetts 02116.
A Statement of Additional Information ("SAI") for the Funds dated
March 1, 1998, as supplemented from time to time, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference
herein. The SAI 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 Funds at (800) 343-2898.
There can be no assurance that the investment objective of any Fund will be
achieved. Investors are advised to read this prospectus carefully.
AN INVESTMENT IN THE FUNDS 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.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND WILL INVEST AT LEAST 65%
OF THE VALUE OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES CONSISTING OF HIGH
YIELD (I.E., HIGH RISK), MEDIUM, LOWER RATED AND UNRATED BONDS. SUCH
SECURITIES ARE COMMONLY CALLED JUNK BONDS AND ARE SUBJECT TO GREATER MARKET
FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER RATED
SECURITIES. LOWER QUALITY SECURITIES INVOLVE A GREATER RISK OF DEFAULT AND,
CONSEQUENTLY, SHARES OF THE EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND
FUND ARE SPECULATIVE SECURITIES.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 2
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUNDS 7
Investment Objectives and Policies 7
Investment Practices and Restrictions 8
ORGANIZATION AND SERVICE PROVIDERS 13
Organization 13
Service Providers 13
PURCHASE AND REDEMPTION OF SHARES 14
How to Buy Shares 14
How to Redeem Shares 15
Exchange Privilege 16
Shareholder Services 16
Banking Laws 17
OTHER INFORMATION 18
Dividends, Distributions and Taxes 18
General Information 20
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
a Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of a Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
</TABLE>
Annual operating expenses reflect the normal operating expenses of a
Fund, and include costs such as management, distribution and other fees. The
tables below show for each Fund (except EVERGREEN FLORIDA MUNICIPAL BOND FUND
and EVERGREEN MARYLAND MUNICIPAL BOND FUND) actual annual operating expenses for
the fiscal period ended August 31, 1997. For EVERGREEN FLORIDA MUNICIPAL BOND
FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND the table shows estimated annual
operating expenses for the fiscal period ending August 31, 1998. The examples
show what you would pay if you invested $1,000 over periods indicated. The
examples assume that you reinvest all of your dividends and that each 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. EACH FUND'S ACTUAL EXPENSES AND RETURNS WILL VARY. For a more
complete description of the various costs and expenses borne by each Fund see
"Organization and Service Providers."
EVERGREEN FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLE
ANNUAL OPERATING -------
EXPENSES Class Y
---------------- -------
<S> <C> <C> <C>
Management Fees 0.50%
After 1 Year $ 7
12b-1 Fees --
After 3 Years $ 22
Other Expenses 0.19%
------
Total 0.69%
------
------
</TABLE>
EVERGREEN GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING EXAMPLE
EXPENSES(1) -------
(AFTER REIMBURSEMENTS) Class Y
---------------------- -------
<S> <C> <C> <C>
Management Fees 0.00%
After 1 Year $ 7
12b-1 Fees --
After 3 Years $ 22
Other Expenses 0.69%
After 5 Years $ 38
------
After 10 Years $ 86
Total 0.69%
------
------
</TABLE>
2
<PAGE>
EVERGREEN MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING EXAMPLE
EXPENSES(1) -------
(AFTER REIMBURSEMENTS) Class Y
---------------------- -------
<S> <C> <C> <C>
Management Fees 0.75%
After 1 Year $ 12
12b-1 Fees --
After 3 Years $ 37
Other Expenses 0.41%
After 5 Years $ 64
------
After 10 Years $ 141
Total 1.16%
------
------
</TABLE>
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
EXAMPLE
ANNUAL OPERATING -------
EXPENSES Class Y
---------------- -------
<S> <C> <C> <C>
Management Fees 0.50%
After 1 Year $ 9
12b-1 Fees --
After 3 Years $ 27
Other Expenses 0.36%
After 5 Years $ 48
------
After 10 Years $ 106
Total 0.86%
------
------
</TABLE>
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING EXAMPLE
EXPENSES(1) -------
(AFTER REIMBURSEMENTS) Class Y
---------------------- -------
<S> <C> <C> <C>
Management Fees 0.00%
After 1 Year $ 7
12b-1 Fees --
After 3 Years $ 23
Other Expenses 0.73%
After 5 Years $ 41
------
After 10 Years $ 91
Total 0.73%
------
------
</TABLE>
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING EXAMPLE
EXPENSES(1) -------
(AFTER REIMBURSEMENTS) Class Y
---------------------- -------
<S> <C> <C> <C>
Management Fees 0.00%
After 1 Year $ 8
12b-1 Fees --
After 3 Years $ 25
Other Expenses 0.79%
After 5 Years $ 44
------
After 10 Years $ 98
Total 0.79%
------
------
</TABLE>
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING EXAMPLE
EXPENSES(1) -------
(AFTER REIMBURSEMENTS) Class Y
---------------------- -------
<S> <C> <C> <C>
Management Fees 0.36%
After 1 Year $ 6
12b-1 Fees --
After 3 Years $ 20
Other Expenses 0.27%
After 5 Years $ 35
------
After 10 Years $ 79
Total 0.63%
------
------
</TABLE>
3
<PAGE>
(1) First Union National Bank ("FUNB") has agreed to reimburse each Fund below
to the extent that each Fund's aggregate annual operating expenses exceed
1.00% of average net assets for any fiscal year. FUNB may cease these
voluntary expense reimbursements at any time. For the fiscal year ended
August 31, 1997, FUNB reimbursed and/or waived certain other expenses and/or
management fees of the Funds. Absent such reimbursements and/or waivers,
each Fund would have paid the expenses equal to the following percentages of
net assets:
<TABLE>
<CAPTION>
MANAGEMENT OTHER EXPENSES TOTAL FUND OPERATING
FEES (WITHOUT WAIVERS EXPENSES (WITHOUT
(WITHOUT AND/OR WAIVERS AND/OR
FUND WAIVER) REIMBURSEMENT) REIMBURSEMENT)
- ----------------------------------------------------------------- ---------- ---------------- --------------------
<S> <C> <C> <C>
Evergreen Georgia Municipal Bond Fund
Class Y........................................................ 0.50% 1.08% 1.58%
Evergreen South Carolina Municipal Bond Fund
Class Y........................................................ 0.50% 1.41% 1.91%
Evergreen Virginia Municipal Bond Fund
Class Y........................................................ 0.50% 1.10% 1.60%
Evergreen Florida High Income Municipal Bond Fund
Class Y........................................................ 0.60% -- 0.87%
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP, independent auditors of the Funds, has audited the
following tables for each Fund other than EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND. Price Waterhouse
LLP, the Fund's independent auditors, has audited the following tables for
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND for each period from May 1,
1995 through August 31, 1997. The Fund's prior auditors audited the information
for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND for the other periods.
Deloitte & Touche LLP, the Fund's prior independent auditors, has audited the
following tables for EVERGREEN MARYLAND MUNICIPAL BOND FUND. The Funds' Annual
Reports, which are incorporated by reference, include the report of Deloitte &
Touche LLP, KPMG Peat Marwick LLP and Price Waterhouse LLP, as the case may be,
for each of the periods presented. You may obtain from the Funds free of charge
copies of their Annual Reports, which contain the Funds' financial statements,
related notes and additional performance information.
EVERGREEN FLORIDA MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
JUNE 30, 1995
(COMMENCEMENT OF
CLASS
YEAR ENDED AUGUST 31, OPERATIONS)
------------------------ THROUGH
1997 1996 AUGUST 31, 1995
------- ------- ----------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year............................................. $9.70 $9.74 $9.67
------- ------- -------
Income from investment operations:
Net investment income......................................................... 0.52 0.53 0.09
Net realized and unrealized gain (loss) on investments........................ 0.35 (0.03) 0.10
------- ------- -------
Total from investment operations............................................ 0.87 0.50 0.19
------- ------- -------
Less distributions from:
Net investment income......................................................... (0.53) (0.54) (0.09)
Net realized gains on investments............................................. (0.06) 0 (0.03)
------- ------- -------
Total distributions......................................................... (0.59) (0.54) (0.12)
------- ------- -------
Net asset value end of year................................................. $9.98 $9.70 $9.74
------- ------- -------
------- ------- -------
TOTAL RETURN.................................................................. 9.14% 5.22% 1.67%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.............................................................. 0.67% 0.57% 0.59%(a)
Total expenses excluding indirectly paid expenses........................... 0.67% -- --
Total expenses excluding waivers and reimbursements......................... 0.84% 0.77% 0.79%(a)
Net investment income....................................................... 5.27% 5.55% 4.93%(a)
Portfolio turnover rate....................................................... 41% 30% 29%
Net assets end of year (thousands)............................................ $24,850 $12,259 $3,602
</TABLE>
- -------------
(a) Annualized.
4
<PAGE>
EVERGREEN GEORGIA MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
FEBRUARY 28,
1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................. $9.57 $9.47 $8.74 $9.83
------ ------ ------- ------
Income from investment operations:
Net investment income.............................................. 0.51 0.50 0.35 0.42
Net realized and unrealized gain (loss) on investments............. 0.33 0.10 0.73 (1.09)
------ ------ ------- ------
Total from investment operations................................. 0.84 0.60 1.08 (0.67)
------ ------ ------- ------
Less distributions from net investment income...................... (0.51) (0.50) (0.35) (0.42)
------ ------ ------- ------
Net asset value end of year...................................... $9.90 $9.57 $9.47 $8.74
------ ------ ------- ------
------ ------ ------- ------
TOTAL RETURN....................................................... 9.00% 6.48% 12.47% (6.86%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................... 0.69% 0.63% 0.46%(a) 0.31%(a)
Total expenses excluding indirectly paid expenses................ 0.69% -- -- --
Total expenses excluding waivers and reimbursements.............. 1.58% 2.51% 2.58%(a) 3.39%(a)
Net investment income............................................ 5.25% 5.21% 5.64%(a) 5.68%(a)
Portfolio turnover rate............................................ 32% 21% 91% 147%
Net assets end of year (thousands)................................. $1,180 $1,620 $1,339 $284
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
EVERGREEN MARYLAND MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
------ ------ ------ ------- ------- ------
Income from investment operations:
Net investment income........................... 0.40 0.41 0.42 0.48 0.50 0.54
Net realized and unrealized gain (loss) on
investments................................... 0.35 (0.13) 0.54 (0.97) 0.85 0.29
------ ------ ------ ------- ------- ------
Total from investment operations.............. 0.75 0.28 0.96 (0.49) 1.35 0.83
------ ------ ------ ------- ------- ------
Less distributions:
Distributions from net investment income........ (0.40) (0.41) (0.42) (0.48) (0.50) (0.54)
Distributions from net realized gain on
investments................................... -- -- (0.02) (0.10) -- --
------ ------ ------ ------- ------- ------
Total distributions........................... (0.40) (0.41) (0.44) (0.58) (0.50) (0.54)
------ ------ ------ ------- ------- ------
Net asset value, end of period................ $10.91 $10.56 $10.69 $10.17 $11.24 $10.39
------ ------ ------ ------- ------- ------
------ ------ ------ ------- ------- ------
TOTAL RETURN (B)................................ 7.19% 2.61% 10.09% (4.50%) 13.37% 8.31%
Ratios to average net assets:
Expenses...................................... 1.44% 1.18% 0.99% 0.92% 0.86% 0.59%
Net investment income......................... 3.70% 3.82% 4.49% 4.46% 4.64% 5.11%
Expense waiver/reimbursement (d).............. -- 0.25% 0.44% 0.51% 0.77% 1.91%
Supplemental data:
Portfolio turnover............................ 13% 138% 21% 27% 23% 34%
Net assets, end of period (000 omitted)....... $5,683 $8,889 $9,447 $11,301 $12,014 $6,004
<CAPTION>
1991 (A)
--------
<S> <C>
Net asset value, beginning of period............ $10.00
--------
Income from investment operations:
Net investment income........................... 0.53
Net realized and unrealized gain (loss) on
investments................................... 0.10
--------
Total from investment operations.............. 0.63
--------
Less distributions:
Distributions from net investment income........ (0.53)
Distributions from net realized gain on
investments................................... --
--------
Total distributions........................... (0.53)
--------
Net asset value, end of period................ $10.10
--------
--------
TOTAL RETURN (B)................................ 6.64%
Ratios to average net assets:
Expenses...................................... 0.60%(c)
Net investment income......................... 5.66%(c)
Expense waiver/reimbursement (d).............. 1.05%(c)
Supplemental data:
Portfolio turnover............................ 35%
Net assets, end of period (000 omitted)....... $556
</TABLE>
- -------------
(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5
<PAGE>
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
FEBRUARY 28,
1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................. $9.98 $9.95 $9.16 $10.31
------ ------ ------- -------
Income from investment operations:
Net investment income.............................................. 0.51 0.51 0.35 0.43
Net realized and unrealized gain (loss) on investments............. 0.41 0.03 0.79 (1.15)
------ ------ ------- -------
Total from investment operations................................. 0.92 0.54 1.14 (0.72)
------ ------ ------- -------
Less distributions from net investment income...................... (0.53) (0.51) (0.35) (0.43)
------ ------ ------- -------
Net asset value end of year...................................... $10.37 $9.98 $9.95 $9.16
------ ------ ------- -------
------ ------ ------- -------
TOTAL RETURN....................................................... 9.39% 5.47% 12.52% (7.01%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................... 0.86% 0.84% 0.67%(a) 0.59%(a)
Total expenses excluding indirectly paid expenses................ 0.86% -- -- --
Total expenses excluding waivers and reimbursements.............. 0.86% 1.07% 1.02%(a) 0.98%(a)
Net investment income............................................ 5.02% 5.05% 5.34%(a) 5.58%(a)
Portfolio turnover rate............................................ 50% 86% 117% 126%
Net assets end of year (thousands)................................. $4,042 $3,771 $1,006 $642
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
FEBRUARY 28,
1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................. $9.69 $9.59 $8.62 $9.74
------ ------ ------- -------
Income from investment operations:
Net investment income.............................................. 0.51 0.51 0.35 0.43
Net realized and unrealized gain (loss) on investments............. 0.40 0.10 0.97 (1.12)
------ ------ ------- -------
Total from investment operations................................. 0.91 0.61 1.32 (0.69)
------ ------ ------- -------
Less distributions from:
Net investment income.............................................. (0.51) (0.51) (0.35) (0.43)
Net realized gains on investments.................................. (0.01) 0 0 0
------ ------ ------- -------
Total distributions.............................................. (0.52) (0.51) (0.35) (0.43)
------ ------ ------- -------
Net asset value end of year...................................... $10.08 $9.69 $9.59 $8.62
------ ------ ------- -------
------ ------ ------- -------
TOTAL RETURN....................................................... 9.60% 6.49% 15.54% (7.12%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................... 0.73% 0.62% 0.28%(a) 0.00%(a)
Total expenses excluding indirectly paid expenses................ 0.73% -- -- --
Total expenses excluding waivers and reimbursements.............. 1.91% 3.70% 6.25%(a) 10.46%(a)
Net investment income............................................ 5.12% 5.22% 5.66%(a) 5.92%(a)
Portfolio turnover rate............................................ 62% 37% 66% 23%
Net assets end of year (thousands)................................. $7,012 $4,555 $1,673 $92
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
6
<PAGE>
EVERGREEN VIRGINIA MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
FEBRUARY 28,
1994
(COMMENCEMENT OF
CLASS
YEAR ENDED OPERATIONS)
AUGUST 31, EIGHT MONTHS THROUGH
---------------- ENDED DECEMBER 31,
1997 1996 AUGUST 31, 1995* 1994
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................. $9.68 $9.67 $8.85 $9.83
------ ------ ------- -------
Income from investment operations:
Net investment income.............................................. 0.51 0.50 0.34 0.41
Net realized and unrealized gain (loss) on investments............. 0.37 0.01 0.82 (0.98)
------ ------ ------- -------
Total from investment operations................................. 0.88 0.51 1.16 (0.57)
------ ------ ------- -------
Less distributions from net investment income...................... (0.51) (0.50) (0.34) (0.41)
------ ------ ------- -------
Net asset value end of year...................................... $10.05 $9.68 $9.67 $8.85
------ ------ ------- -------
------ ------ ------- -------
TOTAL RETURN....................................................... 9.32% 5.38% 13.28% (5.80%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................... 0.79% 0.70% 0.47%(a) 0.28%(a)
Total expenses excluding indirectly paid expenses................ 0.78% -- -- --
Total expenses excluding waivers and reimbursements.............. 1.60% 3.24% 3.58%(a) 4.89%(a)
Net investment income............................................ 5.27% 5.05% 5.42%(a) 5.54%(a)
Portfolio turnover rate............................................ 72% 68% 87% 59%
Net assets end of year (thousands)................................. $6,195 $4,266 $965 $344
</TABLE>
- -------------
* The Fund changed its fiscal year end from December 31 to August 31.
(a) Annualized.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
SEPTEMBER 20, 1995
(COMMENCEMENT OF
CLASS OPERATIONS)
YEAR ENDED THROUGH
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value beginning of year.................................................. $10.42 $10.48
--------------- -------
Income from investment operations:
Net investment income.............................................................. 0.65 0.63
Net realized and unrealized gain (loss) on investments............................. 0.47 (0.06)
--------------- -------
Total from investment operations................................................. 1.12 0.57
Less distributions from net investment income...................................... (0.65) (0.63)
--------------- -------
Net asset value end of year...................................................... $10.89 $10.42
--------------- -------
--------------- -------
TOTAL RETURN....................................................................... 11.04% 5.54%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................................... 0.63% 0.59%(a)
Total expenses excluding indirectly paid expenses................................ 0.63% --
Total expenses excluding waivers and reimbursements.............................. 0.87% 0.89%(a)
Net investment income............................................................ 6.08% 6.27%(a)
Portfolio turnover rate............................................................ 32% 42%
Net assets end of year (thousands)................................................. $6,326 $1,970
</TABLE>
- -------------
(a) Annualized.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
EACH FUND, OTHER THAN EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND,
seeks current income exempt from federal regular income tax and, where
applicable, state income taxes, consistent with preservation of capital.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND seeks to provide a high
level of current income which is exempt from federal income taxes.
EACH FUND normally invests its assets according to standards issued by
the SEC concerning investments in tax free securities. The Funds cannot change
this policy without shareholder approval. The SEC currently
7
<PAGE>
requires the Funds to invest at least 80% of their assets in federally tax
exempt municipal securities. The Funds also invest at least 65% of their assets
in municipal securities that are exempt from income or intangibles taxes, as
applicable, in the state for which the Fund is named.
EACH FUND, OTHER THAN EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND
AND EVERGREEN MARYLAND MUNICIPAL BOND FUND, invests at least 80% of its assets
in investment grade municipal securities, which are bonds rated within the four
highest rating categories by Standard and Poor's ("S&P"), Fitch Investors
Service ("Fitch") or Moody's Investors Service ("Moody's"). Investment grade
securities normally have the capacity to pay interest and principal. Under
adverse economic conditions, however, bonds rated at the lower end of the
investment grade scale may not perform as well as those at the higher end.
These Funds may invest 20% of their assets in below investment grade
bonds, but not in those rated below B. Below investment grade bonds are commonly
referred to as "junk bonds" because they are usually backed by issuers of less
proven or questionable financial strength. Such issuers are more vulnerable to
financial setbacks and less certain to pay interest and principal than issuers
of bonds offering lower yields and risk. Markets may overreact to unfavorable
news about issuers of below investment grade bonds causing sudden and steep
declines in value.
EVERGREEN MARYLAND MUNICIPAL BOND FUND invests all of its assets in
investment grade municipal securities.
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND normally invests at
least 65% of its assets in below investment grade municipal securities, which
are described above. However, the Fund will not invest in municipal securities
rated D or below. For temporary defensive purposes, the Fund may invest less
than 65% of its assets in below investment grade bonds. The Fund may assume a
defensive position if the yields on below investment grade bonds fail to justify
the increased risk associated with an investment in such securities. The Fund
may purchase higher grade bonds when there is a lack of below investment grade
bonds in which to invest. The Fund also may buy investment grade bonds, if
buying below investment grade bonds would jeopardize its proper diversification
and liquidity. During the fiscal year ended August 31, 1997, the Fund's holdings
had the following average credit quality characteristics:
<TABLE>
<CAPTION>
Percent of
Rating Net Assets
- ---------- ----------
<S> <C>
Aaa or AAA 11.10%
Aa or AA 2.00%
A 2.50%
Baa or BBB 16.70%
Ba or BB 1.20%
B 0.40%
Non-rated 66.10%
----------
Total 100.00%
----------
----------
</TABLE>
EACH FUND'S investment objective is nonfundamental; as a result, a Fund
may change its objective without a shareholder vote. Each Fund has also adopted
certain fundamental investment policies which are mainly designed to limit a
Fund's exposure to risk. Each Fund's fundamental policies cannot be changed
without a shareholder vote. See the SAI for more information regarding a Fund's
fundamental investment policies or other related investment policies. There can
be no assurance that a Fund's investment objective will be achieved.
INVESTMENT PRACTICES AND RESTRICTIONS
Non-Diversification. Each Fund, other than EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND, is a non-diversified series 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 a 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. Each of the Funds 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 each 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 each Fund's total assets, no more than 25% of its
total assets are invested in the securities of a single issuer.
8
<PAGE>
Defensive Investments. The Funds may invest up to 20% or, for temporary
defensive purposes, up to 100% of their assets in high quality short-term
obligations, such as notes, commercial paper, certificates of deposit, bankers'
acceptances, bank deposits or United States ("U.S.") government securities.
Downgrades. If any security invested in by a 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.
Municipal Securities. Each Fund invests in municipal bonds, notes and commercial
paper issued by or for states, territories and possessions of the U.S. including
the District of Columbia and their political subdivisions, agencies and
instrumentalities. Municipal bonds include fixed, variable or floating rate
general obligation and revenue bonds. General obligation bonds are used to
support the government's general financial needs and are supported by the full
faith and credit of the municipality. General obligation bonds are repaid from
the issuer's general unrestricted revenues. Payment, however, may be dependent
upon legislative approval and may be subject to limitations on the issuer's
taxing power. Revenue bonds are used to finance public works and certain private
facilities. In contrast to general obligation bonds, revenue bonds are repaid
only with the revenue generated by the project financed.
Municipal notes include tax anticipation notes, bond anticipation notes
and revenue anticipation notes. Municipal commercial paper obligations are
unsecured promissory notes issued by municipalities to meet short-term credit
needs.
Since the Funds invest primarily in municipal securities, you should be
aware of the risks associated with investing in such securities. The value of
municipal bonds tends to go up when interest rates go down and vice, versa. An
issuer's failure to make such payment due to political development or fiscal
mismanagement could affect its ability to make prompt payments of interest and
principal. Those events could also affect the market value of the security.
Moreover, the market for municipal bonds is often thin and can by temporarily
affected by large purchases and sales, including those by a Fund.
Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase
agreements are agreements by which a 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 Funds' 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 Funds to sell the
security in the open market in the case of a default. In such a case, the Funds
may incur costs in disposing of the security which would increase Fund expenses.
The Funds' investment adviser will monitor the creditworthiness of the firms
with which the Funds enter into repurchase agreements.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The values of these securities are subject to market fluctuations during
this period and no income accrues to a Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Securities Lending. To generate income and offset expenses, the Funds may lend
securities to broker-dealers and other financial institutions. Loans of
securities by a Fund may not exceed 30% of the value of the Fund's total assets.
While securities are on loan, the borrower will pay the Funds any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect a Fund and its shareholders. When a Fund lends its securities, it
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. Each Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that a
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. Each Fund may also borrow an additional 5%
of its total assets from banks and others. A Fund may only borrow as
9
<PAGE>
a temporary measure for extraordinary or emergency purposes such as the
redemption of Fund shares. A Fund will not purchase securities while borrowings
are outstanding except to exercise prior commitments and to exercise
subscription rights. The Funds do not intend to leverage.
Illiquid Securities. The Funds may invest up to 15% of their 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 a Fund to dispose
of illiquid investments readily or at a reasonable price could impair a Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Funds may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1993 (the "1993 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 U.S. Each Fund's investment
adviser determines the liquidity of Rule 144A securities according to guidelines
and procedures adopted by Evergreen Municipal Trust'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.
Zero Coupon Debt Securities. The Funds 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 Funds take 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. Values of zero coupon securities are
affected to a greater extent by interest rate changes and may be more volatile
than securities which pay interest periodically and in cash.
Securities with Put or Demand Rights. The Funds have the ability to enter into
put transactions, sometimes referred to as stand-by commitments, with respect to
municipal obligations held in their portfolios or to purchase securities which
carry a demand feature or put option which permit a 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 each Fund for all
such transactions.
The amount payable to a 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 Funds 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.
A Fund's right to exercise a put is unconditional and unqualified. A put
is not transferable by a Fund, although each Fund may sell the underlying
securities to a third party at any time. The Funds expect that puts will
generally be available without any additional direct or indirect cost. However,
if necessary and advisable, a 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.
A Fund may enter into put transactions only with broker-dealers (in
accordance with the rules of the SEC) and banks which, in the opinion of the
Funds' investment adviser, present minimal credit risks. The Funds' investment
adviser will monitor periodically the creditworthiness of issuers of such
obligations held by each Fund. The Funds' 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, a Fund might be
unable to recover all or a portion of any loss sustained from having to sell the
security elsewhere. The Funds intend to enter into put transactions solely to
maintain portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes.
Special Risk Factors Related to Investing In Municipal Securities and Securities
Issued by the State of Florida
It should be noted that municipal securities may be adversely affected by
local political and economic conditions and developments within a state. For
example, adverse conditions in a significant industry within Florida
10
<PAGE>
may from time to time have a correspondingly adverse effect on specific issuers
within Florida or on anticipated revenue to the State itself; conversely, an
improving economic outlook for a significant industry may have a positive effect
on such issuers or revenues.
Under current law, the State of Florida is required to maintain a
balanced budget so that current expenses are met from current revenues. Florida
does not currently impose a tax on personal income. It does impose a tax on
corporate income derived from activities within the State. In addition, Florida
imposes and ad valorem tax on certain intangible property as well as sales and
use taxes. These taxes are the principal source of funds to meet State expenses,
including repayment of, and interest on, obligations backed solely by the full
faith and credit of the State.
Florida's Constitution permits the issuance of state municipal
obligations pledging the full faith and credit of the State, with a concurring
vote by the respective electors, to finance or refinance capital projects
authorized by the Legislature. The State Constitution also provides that the
Legislature shall appropriate monies sufficient to pay debt service on state
bonds pledging the full faith and credit of the State as they become due. All
State tax revenues, other than trust funds dedicated by the State Constitution
for other purposes, are available for such an appropriation, if required.
On the other hand, municipalities and other political subdivision of the
State principally rely on combination of ad valorem taxes on real property, user
fees and occupational license fees to meet their day-to-day expenses including
the repayment of principal of, and interest on, their obligations backed by
their full faith and credit. (Revenue bonds, of course, are dependent on the
revenue generated by a specific facility or enterprise.)
Florida has experienced substantial population increases as a result of
migration to Florida from other areas of the U.S. and from foreign countries.
This population growth is expected to continue, and it is anticipated that
corresponding increases in State revenues will be necessary during the next
decade to meet increased burdens on the various public and social services
provided by the State.
Florida's ability to meet increasing expenses will be dependent in part
upon the State's continued ability to foster business and economic growth.
Options and Futures. The Funds may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market
or interest rate risk. The Funds do not use these transactions for speculation
or leverage.
The Funds may attempt to hedge all or a portion of their portfolios
through the purchase of both put and call options on their portfolio securities
and listed put options on financial futures contracts for portfolio securities.
The Funds may also write covered call options on their portfolio securities to
attempt to increase their current income. The Funds will maintain their
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 Funds 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. By
writing a put option, a 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 Funds also may write straddles (combinations of covered
puts and calls on the same underlying security). The Funds may only write
"covered" options. This means that so long as a 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. A 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 Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
11
<PAGE>
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 a Fund would enter 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. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
The Funds may also enter into financial futures contracts and write
options on such contracts. The Funds intend to enter into such contracts and
related options for hedging purposes. The Funds will enter into futures on
securities or index-based futures contracts in order to hedge against changes in
interest rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities 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 Funds do not make
payment or deliver securities upon entering into a futures contract. Instead,
they put 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 Funds may sell or purchase other financial futures contracts. When a
futures contract is sold by a Fund, the profit on the contract will tend to rise
when the value of the underlying securities declines and to fall when the value
of such securities increases. Thus, the Funds sell futures contracts in order to
offset a possible decline in the profit on their securities. If a futures
contract is purchased by a Fund, the value of the contract will tend to rise
when the value of the underlying securities increases and to fall when the value
of such securities declines.
The Funds 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 their options positions. A 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 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, in which case it 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 Funds to manage market or interest rate
risks, these investment devices can be highly volatile, and the Funds' use of
them can result in poorer performance (i.e., the Funds' return may be reduced).
The Funds' 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 Funds use 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 Funds' portfolios. This may cause the financial futures contracts and any
related options to react to market changes differently than the portfolio
securities. In addition, the Funds' 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 Funds' investment adviser correctly predicts interest rate movements, a
hedge could be unsuccessful if changes in the value of a 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 Funds' investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts transactions, 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
Funds' ability to establish and close out financial futures contracts and
options on financial futures contract positions depends on this secondary
market. If a 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.
12
<PAGE>
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.
The Funds may invest in derivatives only if the expected risks and
rewards are consistent with their objectives 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 a Fund to lose money if the Fund fails to correctly predict the
direction in which the underlying asset or economic factor will move.
- --------------------------------------------------------------------------------
ORGANIZATION AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, each Fund is a
non-diversified series of an open-end, management investment company, except for
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND which is diversified, 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 Funds' activities, reviewing,
among other things, each Fund's performance and its contractual arrangements
with various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Funds' assets and have equal 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 Funds are redeemable,
transferable and freely assignable as collateral. The Funds may establish
additional classes or series of shares.
The Funds do not hold annual shareholder meetings; the Funds may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Funds are prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees. If any matters are to be voted on by shareholders,
each share owned as of the record date for the meeting would be entitled to one
vote for each dollar of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment adviser to the Funds is FUNB, a subsidiary of
First Union Corporation ("First Union"). First Union and FUNB are located at 201
South College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S.
Each Fund pays FUNB an annual management fee. See "Expense Information"
and "Financial Highlights" for the percentage of average net assets each Fund,
other than EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN MARYLAND
MUNICIPAL BOND FUND, paid to FUNB for the fiscal period ended August 31, 1997.
EVERGREEN FLORIDA MUNICIPAL BOND FUND and EVERGREEN MARYLAND MUNICIPAL BOND FUND
each pay FUNB an annual management fee equal to 0.50% of the Fund's average
daily net assets.
Portfolio Managers. The portfolio manager for EVERGREEN GEORGIA MUNICIPAL BOND
FUND, EVERGREEN MARYLAND MUNICIPAL BOND FUND, EVERGREEN SOUTH CAROLINA MUNICIPAL
BOND FUND and EVERGREEN VIRGINIA MUNICIPAL BOND FUND is Charles E. Jeanne. Since
joining First Union in 1993, Mr. Jeanne has been an Assistant Vice President and
Portfolio Manager. Prior to joining First Union, Mr. Jeanne served as a
trader/portfolio manager for First American Bank.
Richard K. Marrone has been the portfolio manager for EVERGREEN FLORIDA
MUNICIPAL BOND FUND since 1998, for EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND
since 1993 and for EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND since its
inception in 1995. Since joining First Union in 1993, Mr. Marrone has been a
Vice
13
<PAGE>
President and Senior Fixed Income Portfolio Manager. From 1982-1993, Mr. Marrone
was a portfolio manager for mutual and common trust funds at Woodbridge Capital
Management.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Funds' transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Funds' custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Funds.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Funds. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides each Fund with
facilities, equipment and personnel. For its services as administrator, EIS is
entitled to receive a fee based on the aggregate average daily net assets of
each Fund at a rate based on the total assets of all the mutual funds advised by
First Union subsidiaries. The administration fee is calculated in accordance
with the following schedule:
<TABLE>
<CAPTION>
Administration Fee
- ------------------
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>
- --------------------------------------------------------------------------------
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
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain
institutional investors and (3) investment advisory clients of FUNB, Evergreen
Asset, Keystone Investment Management Company ("Keystone"), or their affiliates.
Eligible investors may purchase Class Y shares of any Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EDI. In addition, you may purchase Class Y shares of a Fund by mailing to the
Fund, c/o ESC, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obain the number of an account to which you can wire or
electronically transfer funds and then send in a completed application.
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. See the application
for more information.
How the Funds Value Their Shares. The net asset value of each class of shares of
a 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 a 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.
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 a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an
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<PAGE>
investor's account to reimburse the Fund or its 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 Funds 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 Class Y shares in a 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 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. A 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 a Fund, c/o ESC: the registrar, transfer
agent and dividend-disbursing agent for each 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 Funds and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESCs
offices are closed). Redemption requests received after 4:00 p.m. (eastern time)
will be processed using the net asset value determined on the next business day.
Such redemption requests must include the shareholder's account name, as
registered with a Fund, and the account number. During periods of drastic
economic or market changes, shareholders may experience difficulty in effecting
telephone redemptions. If you cannot reach the Fund by telephone, you should
follow the procedures for redeeming by mail or through a broker-dealer as set
forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the application and choose how
the redemption proceeds are to be paid. Redemption proceeds will either (i) be
mailed by check to the shareholder at the address in which the account is
registered or (ii) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. A 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 Funds, 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 Funds, 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.
15
<PAGE>
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 Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the SEC so orders. The Funds reserve 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 Funds have elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is
obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of
a Fund's total net assets, during any 90 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 ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund, is subject to the minimum
investment and suitability requirements of the Fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by a 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.
Exchanges Through Your Financial Intermediary. A 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 a 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, a
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 a 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 Funds offer 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 a Fund with no minimum initial
investment required.
16
<PAGE>
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the 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 gains distributions reinvested
automatically.
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 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 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 Funds have 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 Funds. 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. FUNB is
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 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 Funds by their
customers. If FUNB 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 Funds' shareholders to approve, a new
investment adviser. If this were to occur, it is not anticipated that the
shareholders of the Funds would suffer any adverse financial consequences.
17
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds intend to declare dividends from net investment income daily
and distribute to their shareholders such dividends monthly. The Funds intend 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 a 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 a Fund are redeemed
before a dividend has been declared.
Account statements and/or checks, as appropriate, will be mailed within
seven days after a 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.
Each Fund intends to qualify to be treated as a regulated investment
company under 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 Funds, to the extent they do not
meet certain distribution requirements by the end of each calendar year. The
Funds anticipate meeting such distribution requirements.
The Funds 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 a 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 dividend income and capital gain dividends
are taxable as net 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, net long-term capital gains realized by an
individual on assets held for more than 18 months will generally be taxed at a
maximum rate of 20%. Net long-term capital gains realized by an individual on
assets held for more than 12 months and 18 months or less will generally be
taxed at a maximum rate of 28%. The rate applicable to corporations is 35%.
Since each 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.
Each 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 a 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 and loss realized upon a sale or exchange of shares
of the Fund.
18
<PAGE>
Set forth below are brief descriptions of the personal income tax status
of an investment in each of the Funds under Florida, Georgia, Maryland, North
Carolina, South Carolina, and Virginia tax laws currently in effect. Income from
a Fund is not necessarily free from state income taxes in states other than its
designated state. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local laws.
EVERGREEN FLORIDA MUNICIPAL BOND FUND AND EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND. Florida does not currently impose a state income tax on
individuals. Thus, individual shareholders of the Funds will not be subject to
any Florida state income tax on distributions received from the Funds. However,
certain distributions will be taxable to corporate shareholders which are
subject to Florida corporate income tax. Florida currently imposes an
intangibles tax at the annual rate of 0.20% on certain securities and other
intangible assets owned by Florida residents. Certain types of tax exempt
securities of Florida issuers, U.S. government securities and tax exempt
securities issued by certain U.S. territories and possessions are exempt from
this intangibles tax. Shares of the Funds will also be exempt from the Florida
intangibles tax if the portfolio consists exclusively of securities exempt from
the intangibles tax on the last business day of the calendar year. If the
portfolio consists of any assets which are not so exempt on the last business
day of the calendar year, however, only the portion of the shares of the Funds
which relate to securities issued by the U.S. and its possessions and
territories will be exempt from the Florida intangibles tax, and the remaining
portion of such shares will be fully subject to the intangibles tax, even if
they partly relate to Florida tax exempt securities.
EVERGREEN GEORGIA MUNICIPAL BOND FUND. Under existing Georgia law,
shareholders of the Fund will not be subject to individual or corporate Georgia
income taxes on distributions from the Fund to the extent that such
distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to (1) interest-bearing obligations issued by or
on behalf of the State of Georgia or its political subdivisions, or (2) interest
on obligations of the U.S. or of any other issuer whose obligations are exempt
from state income taxes under federal law. Distributions, if any, derived from
capital gains or other sources generally will be taxable for Georgia income tax
purposes to shareholders of the Fund who are subject to the Georgia income tax.
Shareholders of EVERGREEN MARYLAND MUNICIPAL BOND FUND who are subject to
Maryland state and local income tax will not be subject to tax in Maryland on
dividends paid by the Portfolio to the extent that they are attributable to
interest on tax-exempt obligations of the State of Maryland or its political
subdivisions, interest on obligations of the U.S. or its possessions and
territories, or gains realized from the disposition of either of these
categories of obligations (with the express exception of dividends attributable
to gain from the disposition of obligations of a U.S. territory or possession
which are subject to Maryland state and local income tax). Dividends
attributable to interest on obligations issued by states other than Maryland and
income from repurchase agreements are subject to Maryland state and local income
tax.
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND. Under existing North
Carolina law, shareholders of the Fund will not be subject to individual or
corporate North Carolina income taxes on distributions from the Fund to the
extent that such distributions represent exempt-interest dividends for federal
income tax purposes that are attributable to (1) interest on obligations issued
by North Carolina and political subdivisions thereof, or (2) interest on
obligations of the U.S. or its territories or possessions. However, for
corporate shareholders, the exemption is limited to $15,000 per year, and
otherwise exempt income from the Fund will be subject to a corporate income tax.
Distributions, if any, derived from Fund net capital gains or other sources
generally will be taxable for North Carolina income tax purposes to shareholders
of the Fund who are subject to the North Carolina income tax.
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND. Under existing South
Carolina law, shareholders of the Fund will not be subject to individual or
corporate South Carolina income taxes on Fund distributions to the extent that
such distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to (1) interest on obligations of the State of
South Carolina, or any of its political subdivisions, (2) interest on
obligations of the U.S., or (3) interest on obligations of any agency or
instrumentality of the U.S. that is prohibited by federal law from being taxed
by a state or any political subdivision of a state. Distributions, if any,
derived from Fund net capital gains or other sources, generally will be taxable
for South Carolina income tax purposes to shareholders of the Fund who are
subject to South Carolina income tax.
EVERGREEN VIRGINIA MUNICIPAL BOND FUND. Under existing Virginia law,
shareholders of the Fund will not be subject to individual or corporate Virginia
income taxes on distributions received from the Fund to the extent that such
distributions represent exempt-interest dividends for federal income tax
purposes that are attributable to interest earned on (1) obligations issued by
or on behalf of the Commonwealth of Virginia or any political subdivision
thereof, or (2) obligations issued by a territory or possession of the U.S. or
any subdivision thereof
19
<PAGE>
which federal law exempts from state income taxes. Distributions, if any,
derived from Fund net capital gains or other sources generally will be taxable
for Virginia income tax purposes to shareholders of the Fund who are subject to
Virginia income tax.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. 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 Funds in their states and localities. Each 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
The portfolio turnover rates for each Fund are set forth under "Financial
Highlights."
Portfolio Transactions. Consistent with the Conduct Rules of the NASD, and
subject to seeking best price and execution, a Fund may consider sales of its
shares as a factor in the selection of broker-dealers to enter into portfolio
transactions with the Fund.
Other Classes of Shares. Each Fund currently offers three classes of shares,
Class A, Class B and Class Y (except for EVERGREEN FLORIDA MUNICIPAL BOND FUND,
EVERGREEN MARYLAND MUNICIPAL BOND FUND and EVERGREEN FLORIDA HIGH INCOME
MUNICIPAL BOND FUND which each offer 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, (ii) certain institutional investors and
(iii) investment advisory clients of FUNB or their 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. Investors should
telephone (800) 343-2898 to obtain more information on other classes of shares.
Performance Information. From time to time, a Fund may quote its "total return"
or "yield" for specified periods in advertisements, reports, or other
communications to shareholders. Total return and yield are computed separately
for each class of shares. Performance data for one or more classes may be
included in any advertisement or sales literature using performance data of a
Fund. A 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 a 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 a Fund earns on its
investments as a percentage of the Fund's share price. A 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, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a 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 a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Each 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 a Fund's tax-
20
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exempt yield by the result of one minus a stated federal tax rate. If only a
portion of a 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 a 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 the Fund's
performance to various indices. A 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 12-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.
In marketing a 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 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 1933 Act.
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.
21
<PAGE>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank, 201 South College
Street, Charlotte, North Carolina 28288
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Service Company, 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
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
DISTRIBUTOR
Evergreen Distributor, Inc., 125 West 55th Street, New York, New York 10019
65382 536126rv4
<PAGE>
EVERGREEN MUNICIPAL TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700
SOUTHERN STATE MUNICIPAL BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1998
EVERGREEN FLORIDA MUNICIPAL BOND FUND (THE "FLORIDA FUND")
EVERGREEN GEORGIA MUNICIPAL BOND FUND (THE "GEORGIA FUND")
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND (THE "NORTH CAROLINA FUND")
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (THE "SOUTH CAROLINA FUND")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND (THE "VIRGINIA FUND")
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND (THE "FLORIDA HIGH INCOME
FUND") EVERGREEN MARYLAND MUNICIPAL BOND FUND (THE "MARYLAND FUND")
(EACH A "FUND"; TOGETHER, THE "FUNDS")
EACH FUND IS A SERIES OF AN OPEN-END MANAGEMENT
INVESTMENT COMPANY KNOWN AS EVERGREEN
MUNICIPAL TRUST (THE "TRUST").
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus and should
be read in conjunction with the prospectuses dated March 1, 1998 for the Fund in
which you are making or contemplating an investment. The Funds are offered
through two separate prospectuses: one offering Class A and Class B shares of
each Fund and Class C shares of the Florida Fund and one offering Class Y shares
of each Fund. You may obtain either of these prospectuses from Evergreen
Distributor, Inc.
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TABLE OF CONTENTS
FUND INVESTMENTS.......................................................3
General Information.........................................3
Fundamental Policies..........................................9
Investment Guidelines........................................10
MANAGEMENT OF THE TRUST...............................................12
PRINCIPAL HOLDERS OF FUND SHARES......................................15
INVESTMENT ADVISORY AND OTHER SERVICES................................18
Investment Adviser...........................................18
Investment Advisory Agreements...............................18
Distributor..................................................20
Distribution Plans and Agreements............................20
Additional Service Providers.................................21
BROKERAGE.............................................................22
Selection of Brokers........................................22
Brokerage Commissions........................................22
General Brokerage Policies...................................23
TRUST ORGANIZATION....................................................23
Form of Organization.........................................23
Description of Shares........................................23
Voting Rights................................................23
Limitation of Trustees' Liability............................24
PURCHASE, REDEMPTION AND PRICING OF SHARES............................24
How the Funds Offer Shares to the Public.....................24
Contingent Deferred Sales Charge...........................25
Sales Charge Waivers or Reductions...........................25
Exchanges....................................................28
Calculation of Net Asset Value Per Share.....................28
Valuation of Portfolio Securities............................28
Shareholder Services.........................................29
PRINCIPAL UNDERWRITER.................................................29
ADDITIONAL TAX INFORMATION............................................30
Requirements for Qualification as a
Registered Investment Company.............................30
Taxes on Distributions......................................30
Taxes on the Sale or Exchange of Fund Shares................32
Other Tax Considerations....................................32
FINANCIAL INFORMATION.................................................33
ADDITIONAL INFORMATION................................................37
APPENDIX A............................................................A-1
APPENDIX B............................................................B-1
APPENDIX C............................................................C-1
APPENDIX D............................................................D-3
APPENDIX E............................................................E-1
APPENDIX F............................................................F-1
APPENDIX G............................................................G-5
APPENDIX H............................................................H-1
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FUND INVESTMENTS
GENERAL INFORMATION
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in each Fund's
prospectus. The following expands upon the discussion in the prospectuses
regarding certain investments of the Funds.
Municipal Bonds
The Funds may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Funds may also invest in municipal bonds of any political subdivision,
agency or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Funds may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service ("Moody's") and Fitch Investor Services, L.P.
("Fitch"). Such ratings, however, are opinions, not absolute standards of
quality. Municipal bonds with the same maturity, interest rates and rating may
have different yields, while municipal bonds with the same maturity and interest
rate, but different ratings, may have the same yield. Once purchased by a Fund,
a municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require a Fund to sell
the bond, but a Fund's investment adviser would consider such events in
determining whether a Fund should continue to hold it.
The ability of a Fund to achieve its investment objective depends upon
the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may
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otherwise restrict a Fund's ability to enforce its rights in the event of
default. Since there is generally less information available on the financial
condition of municipal bond issuers compared to other domestic issuers of
securities, the Fund's investment adviser may lack sufficient knowledge of an
issue's weaknesses. Other influences, such as litigation, may also materially
affect the ability of an issuer to pay principal and interest when due. In
addition, the market for municipal bonds is often thin and can be temporarily
affected by large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by a Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in a Fund's investment objectives and
policies or dissolution of a Fund.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. Government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
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The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
Virgin Islands, Guam and Puerto Rico
Each Fund may invest in obligations of the governments of the Virgin
Islands, Guam and Puerto Rico to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which the Fund is
named. Each Fund does not presently intend to invest more than (a) 5% of its net
assets in the obligations of each of the Virgin Islands and Guam or (b) 25% of
its net assets in the obligations of Puerto Rico. Accordingly, a Fund may be
adversely affected by local political and economic conditions and developments
within the Virgin Islands, Guam and Puerto Rico affecting the issuers of such
obligations.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Funds may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more
at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis, a Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions are a form of leveraging and may
involve the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to the fund. In addition, when a Fund engages in such purchases, it relies
on the other party to consummate the sale. If the other party fails to perform
its obligations, the Fund may miss the opportunity to obtain a security at a
favorable price or yield.
Loans of Securities
To generate income, each Fund may lend portfolio securities to
broker-dealers and other financial institutions. A Fund will require borrowers
to provide collateral in cash or government securities at least equal to the
value of the securities loaned. A Fund may invest such collateral in additional
portfolio securities, such as U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest-bearing cash equivalents.
While securities are on loan, the borrower will pay a Fund any income accruing
on the security.
Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. If a borrower fails financially, a Fund may have difficulty
recovering the securities lent or may lose its right to the
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collateral.
Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.
Repurchase Agreements
The Funds may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Adviser (as defined later) to be creditworthy. In a repurchase agreement, a Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
A Fund 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 a
Fund, a Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Each Fund's Adviser believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the
investment adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Funds may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
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Options
The Funds may buy or sell (i.e., write) put and call options on
securities it holds or intends to acquire. The Funds may also buy and sell
options on financial futures contracts. The Funds will use options as a hedge
against decreases or increases in the value of securities it holds or intends to
acquire. The Funds may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions
Each Fund may enter into financial futures contracts and write options
on such contracts. Each Fund intends to enter into such contracts and related
options for hedging purposes. Each Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. A Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures
contract is sold by a Fund, the value of the contract will tend to rise when the
value of the underlying securities declines and to fall when the value of such
securities increases. Thus, each Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by a Fund, the value of the contract will tend to rise when the value
of the underlying securities increases and to fall when the value of such
securities declines. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Adviser to be a favorable price and rate of
return for securities the Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in
order to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. A 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
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will exist for any particular contract or at any particular time. As a result,
there can be no assurance 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, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable a Fund
to manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates or market prices could result in poorer performance than if it
had not entered into these transactions. Even if the Adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. This lack of correlation between a Fund's futures and securities
positions may be caused by differences between the futures and securities
markets or by differences between the securities underlying a Fund's futures
position and the securities held by or to be purchased for a Fund. Each Fund's
Adviser will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund.
Each Fund will not change these policies without supplementing the information
in the prospectus and SAI.
The Funds will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, each Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather, each Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by a Fund to finance the transactions. Initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by a Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Funds are also required to
deposit and maintain margin when it writes call options on futures contracts.
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High Yield, High Risk Bonds
Each Fund other than the Florida High Income Fund may invest up to 20%
of its assets in bonds rated BB or B by S&P or Fitch or rated Ba or B by
Moody's. The Florida High Income Fund will, under normal market conditions,
invest at least 65% of its total assets in municipal securities rated BBB
through C-1 by S&P or Baa through C by Moody's or in unrated municipal
securities. (For more information about bond ratings, see Appendices F and G.)
Bonds rated below BBB by S&P or Fitch or below Baa by Moody's, commonly known as
"junk bonds," offer high yield, but also high risk. While investment in junk
bonds provides opportunities to maximize return over time, they are considered
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. Investors should be aware of the following
risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality municipal bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) a Fund's ability to sell the bond and
(c) a Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
FUNDAMENTAL POLICIES
The Funds have adopted the fundamental investment restrictions set
forth below which may not be changed without the vote of a majority of each
Fund's outstanding shares, as defined in the Investment Company Act of 1940 , as
amended (the "1940 Act"). Unless otherwise stated, all references to the assets
of a Fund are in terms of current market value.
Diversification
The Florida High Income Fund may not make any investment that is
inconsistent with its classification as a diversified investment company under
the 1940 Act.
Each Fund other than the Florida High Income Fund is nondiversified.
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Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in a particular industry (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities).
Issuing Senior Securities
Except as permitted under in the 1940 Act, each Fund may not issue
senior securities.
Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities except to the extent that each Fund may engage in financial futures
contacts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law, and without registering as a
commodity pool operator under the Commodity Exchange Act.
Loans to Other Persons
Each Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
Investment in Federally Tax Exempt Securities
Each Fund will, during periods of normal market conditions, invest its
assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning investment in tax-exempt securities
for Funds with the words tax exempt, tax free or municipal in their names.
INVESTMENT GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are in terms of current
market value.
22987
10
<PAGE>
Diversification
To remain classified as a diversified investment company under the 1940
Act, the Florida High Income Fund must conform with the following: With respect
to the 75% of its total assets, a diversified investment company may not invest
more than 5% of its total assets, determined at market or other fair value at
the time of purchase, in the securities of any one issuer, or invest in more
than 10% of the outstanding voting securities of any one issuer, determined at
the time of purchase. These limitations do not apply to investments in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
As a nondiversified investment company, each Fund other than Florida
High Income Fund is not subject to the limitations imposed on diversified
investment companies under the 1940 Act, but it must meet other diversification
requirements as a regulated investment company (a "RIC") under Subchapter M of
the Internal Revenue Code of 1986 (the "Code"). Under the Code, a RIC is
permitted to invest 50% of its total assets in two issuers (i.e., 25% each); the
remaining 50% of its total assets must be diversified according to the 5% and
10% limits described above.
Borrowings
Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total assets from banks or others. Each Fund may
borrow only as a temporary measure for extraordinary or emergency purposes. Each
Fund will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights. Each Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. Each Fund may purchase securities on margin
to the extent permitted by applicable law.
Concentration
For purposes of the 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
facilities. Otherwise, each 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 and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
Each Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determine
the liquidity of Rule 144A securities, the Trustees will consider: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the
22987
11
<PAGE>
nature of the marketplace trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, each Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as each Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen Fund complex, other than Evergreen
Variable Trust of which Messrs. Howell, Salton and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine;
Chairman and President, Oldways Preservation and
Exchange Trust (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates
(environmental consulting); and former Director,
Keystone Investments, Inc.
22987
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<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix Total
Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The
Phoenix Big Edge Series Fund; and former President,
Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit* Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Hartford
Hospital, Old State House Association, Middlesex
Mutual Assurance Company, and Enhance Financial
Services, Inc.; Chairman, Board of Trustees,
Hartford Graduate Center; Trustee, Greater Hartford
YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation;
former Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller,
Inc.
22987
13
<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
William J. Tomko** President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BYSIS Fund Services.
George O. Martinez** Secretary Senior Vice President and Director of
(DOB: 3/11/59) Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995.
</TABLE>
*This Trustee may be considered an interested trustee within the meaning
of the 1940 Act.
**Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
The officers of the Trust are all officers and/or employees of BISYS
Fund Services.
Trustee Compensation
Listed below is the Trustee compensation for the fiscal year ended
August 31, 1997.
TRUSTEE COMPENSATION FROM COMPENSATION FROM
TRUST TRUST AND FUND
COMPLEX
Laurence B. Ashkin $3,176 $56,200
Charles A.Austin III * -0- $48,200
K. Dun Gifford* -0- $39,600
James S. Howell $3,979 $89,229
Leroy Keith Jr.* -0- $45,200
Gerald M. McDonnell $3,154 $81,001
Thomas L. McVerry $3,820 $81,468
William Walt Pettit $3,483 $79,009
David M. Richardson* -0- $48,200
Russell A. Salton,III $3,501 $81,601
Michael S. Scofield $5,572 $77,501
Richard J. Shima $4,180 $58,667
*Not a Trustee of the Trust during the relevant fiscal period.
14
<PAGE>
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust
owned as a group less than 1% of the outstanding shares of any class of each
Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each fund as of December 26, 1997 for the
Maryland Fund and January 30, 1998 for the other funds.
FLORIDA FUND CLASS A
MFPF&S for the Sole Benefit of 5.812%
its Customers
Attn: Fund Administration
4800 Deer Lake Drive E, 3rd FL
Jacksonville, FL 32246-6484
FLORIDA FUND CLASS B
MFPF&S for the Sole Benefit of 11.356%
its Customers
Attn: Fund Administration
4800 Deer Lake Drive E, 3rd FL
Jacksonville, FL 32246-6484
FLORIDA FUND CLASS Y
First Union National Bank 98.706%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
FLORIDA HIGH INCOME FUND CLASS A
MLPF&S for the Sole Benefit of 10.664%
its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484
FLORIDA HIGH INCOME FUND CLASS B
MLPF&S for the Sole Benefit of 10.644%
its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484
FLORIDA HIGH INCOME FUND CLASS Y
First Union National Bank 84.514%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union National Bank 8.118%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
GEORGIA FUND CLASS A
FUBS & Co. FEBO 9.784%
Lee R. Meadows and
Mary Lee Meadows
1270 Hicks Cir SW
Conyers, GA 30207-4221
FUBS & Co. FEBO 5.913%
William F. Hill Jr. and Marvin Hill
P O Box 554 Silver Creek, GA 30173-0554
FUBS & Co. FEBO 5.339%
Samuel A Barber
Velma H Barber
4852 Banner Elk Drive
Stone Mountain, GA 30083
FUBS & Co. FEBO 5.065%
Larry N Merritt
Ann C Merritt
310 Chinquapin Drive
Marietta, GA 30064-3506
GEORGIA FUND CLASS B
None
GEORGIA FUND CLASS Y
First Union National Bank 97.307%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
NORTH CAROLINA FUND CLASS A
None
NORTH CAROLINA FUND CLASS B
None
NORTH CAROLINA FUND CLASS Y
First Union National Bank 99.167%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
SOUTH CAROLINA FUND CLASS A
MLPF&S for the Sole Benefit of 28.210%
its Customers
Attn: Fund Administration
4800 Deer Lake Drive E, 3rd FL
Jacksonville, FL 32246-6484
FUBS & Co. FEBO 16.111%
Charles W. Lombard Trust
Charlotte Lombard and
Warren Prout Co-tees
U/A/D 5/4/94
Boone, NC 28607
FUBS & Co. FEBO 8.770%
Warren A. Ransom Jr.
Laurie P. Ransom
1162 East Parkview Place
Mount Pleasant, SC 29464-7909
First Union Brokerage Services 7.938%
Ann D. Schwab
A/C 7448-7777
2189 Windy Oaks Rd.
Ft. Mills, SC 29715
FUBS & Co. FEBO 5.107%
Charles Dean Turner
103 Carolina Club Drive
Spartanburg, SC 29306-6601
SOUTH CAROLINA FUND CLASS B
FUBS & Co. FEBO 6.141%
Ruby B. Motsinger and
Joseph G. Motsinger JTTENCOM
550 Brandon Rd.
Clover, SC 29710-9667
SOUTH CAROLINA FUND CLASS Y
First Union National Bank 93.090%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union National Bank 6.329%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
VIRGINIA FUND CLASS A
Duff M Green 7.965%
638 Kings Highway
Fredericksburg, VA 22405-3156
FUBS & Co. FEBO 6.334%
David A. Hetzer and Iris L. Hetzer
5009 Laburch Lane
Annandale, VA 22003-6019
VIRGINIA FUND CLASS B
FUBS & Co. FEBO 5.982%
Patsy B. Williams and
Harry S. Williams
P O Box 888
Marion, VA 24354
VIRGINIA FUND CLASS Y
First Union National Bank 98.111%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
MARYLAND FUND CLASS A
Stephens Inc. 24.95%
P.O. Box 34127
Little Rock, AR 72203
MARYLAND FUND CLASS B
None
MARYLAND FUND CLASS C
None
MARYLAND FUND CLASS Y
Bova & Co. 100.00%
P.O. Box 26311
Richmond, VA 23260
18
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser to each Fund (the "Adviser") is the Capital
Management Group ("CMG") of First Union National Bank ("FUNB"), 201 South
College Street, Charlotte, North Carolina 28288. FUNB is a subsidiary of First
Union Corporation ("First Union"), a bank holding company headquartered at 301
South College Street, Charlotte, North Carolina 28288. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. The Adviser is entitled to receive from
the Florida High Income Fund an annual fee equal to 0.60% of the Fund's average
daily net assets. The Adviser is entitled to receive from each of the other
Funds an annual fee equal to 0.50% of each Fund's average daily net assets.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each if its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements") .
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Adviser furnishes to the appropriate 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. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Adviser, including, but not limited to, (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees; (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable) (8) taxes and
trust fees payable to governmental agencies; (9) the cost of share certificates;
(10) fees and expenses of the registration and qualification of such Fund and
its shares with the Securities and Exchange Commission or under state or other
securities laws; (11) expenses of preparing, printing and mailing prospectuses,
SAIs, notices, reports and proxy materials to shareholders of each Fund; (12)
expenses of shareholders' and Trustees' meetings; (13) charges and expenses of
legal counsel for each 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. (See also the section
entitled "Financial Information.")
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
each Fund's outstanding shares. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Independent Trustees (Trustees who are not interested persons of a Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
19
<PAGE>
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment adviser. The Rule 17a-7 Procedures also allow
the Funds to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment adviser. The Funds may
engage in such transaction if they are equitable to each participant and
consistent with each participant's investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is 125
W. 55th Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Note: Information regarding Class C shares is relevant to the Florida
Fund only.
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A and Class B shares (each a "Plan" and
collectively, the "Plans"), the Treasurer of each Fund reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the disinterested Trustees
are committed to the discretion of such disinterested Trustees then in office.
The Adviser may from time to time from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B
20
<PAGE>
and Class C shares. The Plans are designed to (i) stimulate brokers to provide
distribution and administrative support services to each Fund and holders of
Class A, Class B and Class C shares and (ii) stimulate administrators to render
administrative support services to the Fund and holders of Class A, Class B and
Class C shares. The administrative services are provided by a representative who
has knowledge of the shareholder's particular circumstances and goals, and
include, but are not limited to providing office space, equipment, telephone
facilities, and various personnel including clerical, supervisory, and computer,
as necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding Class A, Class B and Class C shares; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as the Fund reasonably requests for its Class A, Class B and Class C
shares.
FUNB or its affiliates may finance the payments made by the Distributor
to compensate broker/dealers or other persons for distributing shares of a fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan or Distribution
Agreement may be terminated (i) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by Class or by a majority vote of the disinterested Trustees,
or (ii) by the Distributor. To terminate any Distribution Agreement, any party
must give the other parties 60 days' written notice; to terminate a Plan only,
the Fund need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment. (See also the section
entitled "Financial Information.")
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Funds, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Funds with facilities, equipment and personnel and is
entitled to receive a fee from the Fund based on the total assets of all mutual
funds advised by First Union subsidiaries. The fee paid to EIS is calculated in
accordance with the following schedule: 0.050% on the first $7 billion; 0.035%
on the next $3 billion; 0.030% on the next $5 billion; 0.020% on the next $10
billion; 0.015% on the next $5 billion and 0.010% on assets in excess of $30
billion.
21
<PAGE>
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. The transfer agent issues and redeems
shares, pays dividends and performs other duties in connection with the
maintenance of shareholder accounts. The transfer agent's address is Box 2121,
Boston, Massachusetts 02106-2121.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the financial statements of each Fund other than the Florida High Income
Fund.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
10036, audits the annual financial statements of the Florida High Income Fund.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
SELECTION OF BROKERS
In effecting transactions in portfolio securities for each Fund, the
Adviser seeks the best execution of orders at the most favorable prices. The
Adviser determines whether a broker has provided each Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things, the broker's ability to execute large or potentially difficult
transactions, and the financial strength and stability of the broker.
BROKERAGE COMMISSIONS
Each Fund expects to buy and sell its fixed-income securities through
principal transactions, that is, directly from the issuer or from an underwriter
or market maker for the securities. Generally, a Fund will not pay brokerage
commissions for such purchases. Usually, when a Fund buys a security from an
underwriter, the purchase price will include underwriting commission or
concession. The purchase price for securities bought from dealers serving as
market makers will similarly include the dealer's mark up or reflect a dealer's
mark down. When a Fund executes transactions in the over-the-counter market, it
will deal with primary market makers unless more favorable prices are otherwise
obtainable.
22
<PAGE>
GENERAL BROKERAGE POLICIES
The Adviser makes investment decisions for each 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 a Fund's securities, each 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 Funds may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews each 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.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment company,
known as "Evergreen Municipal Trust" (the "Trust"). 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 SAI is a part. This summary is qualified
in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining 50%
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<PAGE>
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 SHARES
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers four classes of shares that differ
primarily with respect to sales charges and distribution fees. Depending upon
the class of shares, you will pay an initial sales charge when you buy a Fund's
shares, a contingent deferred sales charge (a "CDSC") when you redeem a Fund's
shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. See also the section in this SAI entitled
"Financial Information" for an example of the method of computing the offering
price of Class A shares.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge,"
below).
Class B Shares
The Funds offer Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Funds will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIMING CDSC RATE
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%
24
<PAGE>
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%
Thereafter..........................................................0.00%
Class B shares that have been outstanding for seven years after the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificate to ESC.)
Class C Shares (Florida Fund only)
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Fund
offers Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Fund will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by
Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain institutional
investors and (3) investment advisory clients of CMG, Evergreen Asset, Keystone
Investment Management Company, or their affiliates. Class Y shares are offered
at net asset value without a front-end or back-end sales charge and do not bear
any Rule 12b-1 distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, a Fund will first seek to redeem shares
not subject to the CDSC and/or shares held the longest, in that order. The CDSC
on any redemption is, to the extent permitted by the National Association of
Securities Dealers, Inc. ("NASD"), paid to the Distributor or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
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<PAGE>
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Funds may sell their shares at net asset value without an initial
sales charge to:
1. purchases of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. 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;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, Evergreen Distributor,
Inc., any broker-dealer with whom Evergreen Distributor, Inc.,
has entered into an agreement to sell shares
26
<PAGE>
of the Funds, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCS
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawals made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
27
<PAGE>
Merrill Lynch Plans
Class A and B shares are made available to employer-sponsored
retirement or savings plans ("Plans") without a sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Services Agreement
between Merrill Lynch and the Fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments"); or
(ii) the Plan is record kept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
the Merrill Lynch plan conversion manager, on the date the
Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares convert to Class A shares once the Plan has reached $5 million
invested in Applicable Investments. The Plan will receive a Plan level share
conversion.
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
a Fund's prospectus. Before you make an exchange, you should read the prospectus
of the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the Prospectus. A 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.
The NAV of each Fund is calculated by dividing the value of a Fund's
net assets attributable to that class by all of the shares issued for that
class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
(1) An independent pricing service values each Fund's municipal bonds
at fair value using a
28
<PAGE>
variety of factors which may include yield, liquidity, interest rate risk,
credit quality, coupon, maturity and type of issue.
(2) Short-term investments with remaining maturities of sixty days or
less are carried at amortized cost, which approximates market.
(3) Securities for which valuations are not available from an
independent pricing service, including restricted securities, are valued at fair
value according to 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, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates their address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ( "Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly 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.
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<PAGE>
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.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT COMPANY
Each Fund intends to qualify for and elect the tax treatment
applicable to regulated investment companies ("RIC") under Subchapter M of the
Code. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, a Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; (ii) derive less than 30% of its gross income from the sale or other
disposition of securities, options, futures or forward contracts (other than
those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months (this requirement is repealed for Fund
fiscal years beginning after August 5, 1997); and (iii) diversify its holdings
so that, at the end of each quarter of its taxable year, (a) at least 50% of the
market value of the Fund's total assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies).
By so qualifying, a Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.
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To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net investment income plus net realized
short-term capital gains, if any). Since none of a Fund's income will consist of
corporate dividends, no distributions will qualify for the 70% corporate
dividends received deduction.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders. For
federal tax purposes, shareholders must include such distributions when
calculating their long-term capital gains. Distributions of long-term capital
gains are taxable as such to a shareholder, no matter how long the shareholder
has held the shares.
Distributions by a Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder must pay
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Each Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by a Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of a Fund who may be a "substantial user" of a facility
financed with an issue of tax-exempt obligations or a "related person" to such a
user should consult his tax adviser concerning his qualification to receive
exempt interest dividends should the Fund hold obligations financing such
facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, a Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Under particularly unusual circumstances, such as when a Fund is in a
prolonged defensive
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investment position, it is possible that no portion of a Fund's distributions of
income to its shareholders for a fiscal year would be exempt from federal income
tax. The Funds do not presently anticipate, however, that such unusual
circumstances will occur.
Each Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
Each Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of a Fund will not be deductible for federal income tax
purposes to the extent of the portion of the interest expense relating to exempt
interest dividends. Such portion is determined by multiplying the total amount
of interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt interest dividends
and the taxable distributions out of the Fund's investment income and long-term
capital gains received by the shareholder.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
eighteen months is generally subject to a maximum federal income tax rate of 20%
for an individual. The maximum capital gains tax rate for capital assets held by
an individual for more than twelve months but not more than eighteen months is
generally 28%. Also, a shareholder must treat as long-term capital gains or
losses any capital gains or losses on Fund shares held for more than one year.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will not allow a shareholder to realize a loss on
the sale of Fund shares held by the shareholder for six months or less to the
extent the shareholder received exempt interest dividends on such shares.
Moreover, the Code will treat a shareholder's loss on shares held for six months
or less as a long-term capital loss to the extent the shareholder received
distributions of net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts
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and estates). It does not reflect the special tax consequences to certain
taxpayers (e.g., banks, insurance companies, tax exempt organizations and
foreign persons). Shareholders are encouraged to consult their own tax advisers
regarding specific questions relating to federal, state and local tax
consequences of investing in shares of a Fund. Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and foreign
tax consequences of ownership of shares of a Fund, including the possibility
that such a shareholder may be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts treated as income from
U.S. sources under the Code.
FINANCIAL INFORMATION
Expenses
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements," "Principal Underwriter" and "Purchase, Redemption and
Pricing of Shares."
<TABLE>
<CAPTION>
Total Underwriting
Advisory Class A Class B Underwriting Commissions
Fees 12b-1 Fees 12b-1 Fees Commissions Retained
============================== ================ ================ =================== ===================== ===============
1997 Fund Expenses
- ------------------------------
<S> <C> <C> <C> <C> <C>
Florida $791,322 $275,983* $298,114 $236,607 $22,335
Georgia $66,245 $5,499 $96,055 $22,854 $2,488
North Carolina $305,634 $20,523 $490,164 $35,137 $2,377
South Carolina $58,299 $2,271 $45,393 $5,744 $710
Virginia $70,972 $7,230 $61,471 $14,653 $1,596
Florida High Income $813,790 $235,662 $383,197 $757,824 $34,454
Maryland $273,851 $73,620 -- -- --
- ------------------------------
1996 Fund Expenses
- ------------------------------
Florida $803,741 $240,978 $287,825 $49,589 $5,996
Georgia $63,102 $5,047 $84,596 $7,300 $875
North Carolina $306,892 $20,833 $500,469 $16,557 $154
South Carolina $40,781 $1,917 $39,896 $1,447 $2,228
Virginia $51,952 $6,048 $57,906 $20,400 $2,033
Florida High Income $477,128 $169,651 $106,733 $276,615 $29,467
Maryland $315,941 $82,278 -- -- --
- ------------------------------
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<PAGE>
Virginia
- ------------------------------ $70,972 $7,230 $61,471 $14,653 $1,596
- ------------------------------
1995 Fund Expenses
- ------------------------------
Florida $243,413 $59,721 $37,405 $87,755 $4,301
Georgia $32,646 $2,856 $49,968 $56,210 $4,220
North Carolina $190,284 $13,739 $319,719 $123,175 $7,843
South Carolina $13,154 $788 $20,125 $35,241 $3,595
Virginia $23,156 $3,127 $30,267 $45,713 $2,320
Florida High Income $123,320 $41,690 $2,087 $196,614 $24,672
Maryland $316,194 $80,136 -- -- --
============================== ================ ================ =================== ==================== ============
</TABLE>
*Of this amount, $191,541 was waived by the Distributor.
Advisory Fee Waivers
In accordance with voluntary expense limitations in effect during the
fiscal year ended September 30, 1997 for the Maryland Fund and August 31, 1997
for the other Funds, each Fund's Adviser voluntarily reimbursed or waived
advisory fees, as follows:
Florida $81,274
Georgia $66,245
North Carolina $0
South Carolina $58,299
Virginia $70,972
Florida High Income $330,629
Maryland $0
============================= ===============
Brokerage Commissions
The Funds paid no brokerage commissions during 1997, 1996 and 1995.
Total Return
Total return quotations for a class of shares of a 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.
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<PAGE>
The annual total returns for each class of shares of the Funds
(including applicable sales charges) as of September 30, 1997 for the Maryland
Fund and August 31, 1997 for the other Funds are as follows:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS INCEPTION DATE
<S> <C> <C> <C> <C>
Florida
Class A 3.88% 5.92% 7.47% 5/11/88
Class B 3.06% - 5.03% 6/30/95
Class Y 9.14% - 7.38% 6/30/95
Georgia
Class A 3.57% - 3.63% 7/2/93
Class B 2.93% - 3.73% 7/2/93
Class Y 9.00% - 5.73% 2/28/94
North Carolina
Class A 3.93% - 4.79% 1/11/93
Class B 3.30% - 4.85% 1/11/93
Class Y 9.39% - 5.51% 2/28/94
South Carolina
Class A 4.14% - 4.06% 1/3/94
Class B 3.52% - 3.99% 1/3/94
Class Y 9.60% - 6.62% 2/28/94
Virginia
Class A 3.87% - 3.90% 7/2/93
Class B 3.24% - 3.98% 7/2/93
Class Y 9.32% - 6.06% 2/28/94
Florida High Income
Class A 5.51% 7.33% 7.34% 6/17/92
Class B 4.95% - 6.24% 7/10/95
Class Y 11.04% - 8.47% 9/20/95
Maryland
Class A 4.87% 5.33% 6.01% 10/30/90
Class Y 7.19% 5.56% 6.18% 10/30/90
============================= =================== =================== =================== ===================
</TABLE>
35
<PAGE>
Current and Tax Equivalent Yields
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. Such yield will include
income from sources other than municipal obligations, if any. Tax equivalent
yield is, in general, the current yield divided by a factor equal to one minus a
stated income tax rate and reflects the yield a taxable investment would have to
achieve in order to equal on an after-tax basis a tax-exempt yield. For the
30-day period ended September 30, 1997 for the Maryland Fund and August 31, 1997
for the other Funds, the current and tax-equivalent yields of the Funds are
shown below. Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
<TABLE>
<CAPTION>
30-DAY YIELD TAX-EQUIVALENT YIELD
================================= ================================================= ==============================================
FUND COMBINED CLASS A CLASS B CLASS Y CLASS A CLASS B CLASS Y
FEDERAL &
STATE TAX
RATE (1)
================== ============= ================ =============== =============== =============== ================ =============
<S> <C> <C> <C> <C> <C> <C> <C>
Florida 28% 4.94% 4.02% 5.02% 6.86% 5.58% 6.97%
Georgia 34% 4.80% 4.04% 5.05% 7.27% 6.12% 7.65%
North Carolina 28% 4.67% 3.92% 4.92% 6.49% 5.44% 6.83%
South Carolina 35% 4.65% 3.90% 4.90% 7.15% 6.00% 7.54%
Virginia 33.25% 4.78% 4.03% 5.03% 7.16% 6.04% 7.54%
Florida High 28% 5.48% 4.73% 5.73% 7.61% 6.57% 7.96%
Income
Maryland 28% 3.10% -- 3.35% 4.31% -- 4.65%
================== ============= ================ =============== =============== =============== ================ =============
</TABLE>
(1) Assumed for purposes of this chart. Your tax may vary.
Method of Computing Offering Price for Class A Shares
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of the Class A shares of
each Fund. The example assumes a purchase of Class A shares of each Fund
aggregating less than $100,000 based upon the NAV of each Fund's Class A shares
at the end of each Fund's latest fiscal period.
FUND DATE NET ASSET VALUE PER SHARE SALES OFFERING PRICE PER
CHARGE SHARE
Florida 8/31/97 $9.98 4.75% $10.48
Georgia 8/31/97 $9.90 4.75% $10.39
North Carolina 8/31/97 $10.37 4.75% $10.89
South Carolina 8/31/97 $10.08 4.75% $10.58
Virginia 8/31/97 $10.05 4.75% $10.55
Florida High
Income 8/31/97 $10.89 4.75% $11.43
Maryland 9/30/97 $10.91 4.75% $11.52
================ ========= =============== ================================
Financial Statements
The audited financial statements and the reports thereon are hereby
incorporated by reference to each Fund's Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, each
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in a Fund's prospectus,
SAI or in supplemental sales literature issued by such Fund or the Distributor,
and no person is entitled to rely on any information or representation not
contained therein.
Each Fund's prospectus and SAI omit certain information contained in
the Trust's registration statement, which you may obtain for a fee from the SEC
in Washington, D.C.
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APPENDIX A
ADDITIONAL INFORMATION CONCERNING FLORIDA
The performance of the Florida Fund and the Florida High Income Fund is
susceptible to various statutory, political and economic factors unique to the
State of Florida. The information summarized below describes some of the more
significant factors that could affect the ability of the bond issuers to repay
interest and principal on securities acquired by each Fund. Such information is
derived from various public sources all of which are available to investors
generally and which each Fund believes to be accurate.
State Economy
General. Florida is the nation's fourth most populous state with an
estimated population of 14,400,000 as of April 1, 1996. Only California, New
York and Texas have populations larger than Florida. The State's population grew
from 6,800,000 in 1970 to 12,900,000 in 1990 and to an estimated 14,400,000 in
1996. This represents an 11.4% growth since the 1990 Census. Florida's
population is primarily an urban population with approximately 85% of its
population located in urbanized areas. The University of Florida, Bureau of
Economic and Business Research projects Florida's population will exceed
17,800,000 by April 1, 2010.
Economic Condition and Outlook. The current Florida Economic Consensus
Estimating Conference (February 28, 1997) forecast shows that the Florida
economy is expected to grow at a moderate pace along with the nation, but will
continue to outperform the U.S. as a whole as a result of relatively rapid
population growth. Total non-farm employment is expected to increase 2.8% for
fiscal year ("FY") 1997-98 fiscal year which began July 1, 1997. By the end of
1997-98, non-farm employment is expected to reach an average of 6.5 million.
Trade and service employment, the two largest sectors, account for more than
half of total non-farm employment. Florida's unemployment rate is forecasted at
5.1% for 1997, then to rise to 5.2% in 1998 and 5.3% in 1999. Payrolls are
projected to increase 3.2% for 1997-98, 2.7% for 1998-99 and 2.5% for 1999-
2000.
Tourism is an important element of Florida's economy and the number of
out-of-state visitors grew 5.2% during 1996, surpassing the 43 million visitor
count for the first time. 1997 estimates project an increase of 1.7% or 720,000
visitors over 1996's record level.
Florida's Budget Process
Balanced Budget Requirement. Florida's constitution requires an annual
balanced budget. In addition, the constitution requires a Budget Stabilization
Fund equal to 4% of the last fully completed fiscal year's net revenue
collections for the General Revenue Fund for FY 1997-1998 and 5% for FY
1998-1999 and thereafter.
State Revenue Limitations. On November 8, 1994, the citizens of Florida
enacted a Constitutional Amendment on state revenue. This amendment provides
that the rate of growth in state revenues is limited to no more than the growth
rate in Florida personal income. Revenue growth in excess of the limitation is
to be deposited into the Budget Stabilization Fund unless two-thirds of the
members of both houses of the Legislature vote to raise the limit. The revenue
limit is determined by multiplying the average annual growth rate in Florida
personal income over
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the previous year.
State revenues are defined as taxes, licenses, fees, and charges for
services. Based on current estimates by the Revenue Estimating Conference, the
maximum amount of state revenue permitted in FY 1997- 98 is calculated at
$22,619.9 million. The Revenue Estimating Conferences's projection of state
revenues subject to the limitation for FY 1997-98 is $21,848.2 million, leaving
excess capacity available under the limit of $771.7 million.
Budget Stabilization Fund. The Budget Stabilization Fund was
established in FY 1994-95 with an amount equal to 1 percent of the prior fiscal
year's net revenue collections. This fund is scheduled to receive a higher
percentage from the General Revenue Fund every fiscal year with a minimum of 5
percent by FY 1998-99. In the Governor's Recommended Budget, the Budget
Stabilization Fund is required to be funded at 4 percent, or $586 million.
Budget Process. Chapter 216, Florida Statutes ("FS"), promulgates the
process used to develop the budget for the State of Florida. By September 1 of
each year, the head of each State agency and the Chief Justice of the Supreme
Court for the Judicial Branch submit a final annual legislative budget request
to the Governor and Legislature. Then, at least 45 days before the scheduled
annual legislative session in each year, the Governor, as Chief Budget Officer,
submits his recommended budget to each legislator.
The Governor also provides estimates of revenues sufficient to fund the
recommended appropriations. Estimates for the General Revenue Fund, Budget
Stabilization Fund and Working Capital Fund are made by the Revenue Estimating
Conference. This group includes members of the executive and legislative
branches with forecasting experience who develop official information regarding
anticipated State and local government revenues as needed for the State
budgeting process. In addition to the Revenue Estimating Conference, other
consensus estimating conferences cover national and state economics, national
and state demographics, the state public education system, criminal justice
system, social services system, transportation planning and budgeting, the child
welfare system, the juvenile justice system and the career education planning
process.
The Governor's recommended budget forms the basis of the appropriations
bill. As amended and approved by the Legislature (subject to the line-item veto
power of the Governor and override authority of the Legislature), this bill
becomes the General Appropriations Act.
The Governor and the Comptroller are responsible for detecting
conditions which could lead to a deficit in any agency's funds and reporting
that fact to the Administration Commission and the Chief Justice of the Supreme
Court. The Constitution of the State, Article VII, Section 1(d), states,
"Provision shall be made by law for raising sufficient revenue to defray the
expenses of the State for each fiscal year."
The Legislature is responsible for annually providing direction in the
General Appropriations Act regarding the use of the Working Capital Fund to
offset General Revenue Fund deficits. Absent any specific direction to the
contrary, the Governor and the Chief Justice of the Supreme Court shall comply
with guidelines provided in Section 216.221(5), FS, for reductions in the
approved operating budgets of the executive branch and the judicial branch.
The State of Florida is progressing toward full implementation of a
performance-based budgeting system. Chapter 216., FS, designates when each
department will be phased into this new budgeting method. Some agencies are
already subject to the performance-based budgeting
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standards and all agencies will be under this new system by the fiscal year
ended June 30, 2002. With performance-based budgeting, a department receives a
lump-sum appropriation from the Legislature for each designated program at the
beginning of the year. The Governor for State agencies or the Chief Justice for
the judicial branch is responsible for allocating the amounts among the
traditional appropriation categories so that specified performance standards can
be met. At any time during the year, the agency head or Chief Justice may
transfer appropriations between categories within the performance-based program
with no limit on the amount of the transfer in order for the designated program
to accomplish its objectives. However, no transfer from any other budget entity
may be made into the performance- based program, nor may any funds be
transferred from the performance-based program to another budget entity, except
pursuant to Section 216.77, FS
Line Item Veto. Florida's Constitution grants the Governor the power to
veto any specific appropriation in a general appropriation bill, but the
Governor may not veto any qualification or restriction without also vetoing the
appropriation to which it relates. A statement identifying the items vetoed and
containing his or her objections thereto must be delivered to the appropriate
house in which the bill originated, if in session, otherwise to the Secretary of
State. The legislature may reconsider and reinstate the vetoed specific
appropriation items by a two-thirds vote of each house.
Revenues. The State accounts for its receipts using fund accounting. It
has established the General Revenue Fund, the working Capital Fund and various
other trust funds, which are maintained for the receipt of monies which under
law or trust agreements must be maintained separately. The General Revenue Fund
consists of all monies received by the State from every source whatsoever which
are not allocable to the other funds. Major sources of tax revenues for the
General Revenue Fund are the sales and use tax, the corporate income tax, and
the intangible personal property tax, which are projected for FY 1997-98 to
amount to 71%, 8% and 4%, respectively, of the total receipts of that fund. The
Florida Constitution and its statutes mandate that the State budget as a whole
and each separate fund within the State budget be kept in balance from currently
available revenues for each fiscal year.
Sales and Use Tax. The greatest single source of tax receipts in Florida is
the sales and use tax, which is projected to amount to $11.0 billion for fiscal
year 1997-98. The sales tax rate is 6% of the sales price of tangible personal
property sold at retail in the state. The use tax rate is 6% of the cash price
of fair market value of tangible personal property when it is not sold but is
used, or stored for use, in the State. In other words, the use tax applies to
the use of tangible personal property in Florida, which was purchased in another
state but would have been subject to the sales tax if purchased in Florida.
Approximately 10% of the sales tax is designated for local governments and is
distributed to the respective counties in which collected for use by such
counties and municipalities therein. In addition to this distribution, local
governments may (by referendum) assess a 1% sales surtax within their county.
Proceeds from this local option sales surtax can be earmarked for funding county
wide bus and rapid transit systems local infrastructure construction and
maintenance, medical care for indigents and capital projects for county school
districts as set forth in Section 212.055(2), of the Florida Statutes.
The two taxes, sales and use, stand as complements to each other, and
taken together provide a uniform tax upon either the sale at retail or the use
of all tangible personal property irrespective of where it may have been
purchased. The sales tax also includes a levy on the following: (1) rentals on
tangible personal property and accommodations in hotels, motels, some
apartments, offices, real estate, parking and storage places in parking lots,
garages and marinas for motor vehicles or boats; (ii) admissions to places of
amusements, most sports and
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<PAGE>
recreation events; (iii) utilities, except those used in homes; and (iv)
restaurant meals and expendables used in radio and television broadcasting.
Exemptions include: groceries; medicines; hospital rooms and meals; seeds,
feeds, fertilizers and farm crop protection materials; purchases by religious,
charitable and educational nonprofit institutions; professional services,
insurance and certain personal service transaction; newspapers; apartments used
as permanent dwellings; and kindergarten through community college athletic
contests or amateur plays.
Other State Taxes. Other taxes which Florida levies include the motor fuel
tax, intangible property tax, documentary stamp tax, grow receipts utilities tax
and severance tax on the production of oil and gas and the mining of solid
minerals, such as phosphate and sulfur.
Government Debt. Florida maintains a high bond rating from Moody's (Aa), S&P
(AA) and Fitch. (AA) on all State general obligation bonds. Outstanding general
obligations bonds have been issued to finance capital outlay for educational
projects of local school districts, community colleges and state universities,
environmental protection and highway construction.
Numerous government units, counties, cities, school districts and
special taxing districts, issue general obligation bonds backed by their taxing
power. State and local government units may issue revenue obligations, which are
supported by the revenues generated from the particular projects or enterprises.
Examples include obligations issued to finance the construction of water and
sewer systems, health care facilities and educational facilities. In some cases,
sewer or water revenue obligations are issued to finance the construction of
water and sewer systems, health care facilities and educational facilities. In
some cases, sewer or water revenue obligations may be additionally secured by
the full faith and credit of the State.
Florida's Constitution generally limits State bonds pledging the full faith
and credit of the State, to those necessary to finance or refinance the cost of
state fixed capital outlay projects authorized by law, and then only upon
approval by a vote of the electors. The constitution further limits the total
outstanding principal of such bonds to no more than 50% of the total tax
revenues of the State for the two preceding fiscal years, excluding any tax
revenues held in trust. Exceptions to the requirement for voter approval are:
(i) bonds issued for pollution control and abatement and solid waste disposal
facilities and other water facilities authorized by general law and operated by
State or local governmental agencies; and (ii) bonds issued to finance or
refinance the cost of acquiring real property or rights thereto for State roads
as defined by law, or to finance or refinance the cost of State bridge
construction.
State revenue bonds may be issued without a vote of the electors to
finance or refinance the cost of State fixed capital outlay projects authorized
by law, as long as they are payable solely from funds derived directly from
sources other than State tax revenues. Revenue bonds may be issued to establish
a student loan fund, as well as to finance or refinance housing and related
facilities so long as repayments come solely from revenues derived from the fund
or projects so financed. The Constitution imposes no limit on the principal
amount of revenue bonds which may be issued by the State on and Local
Governmental Agency. Local Governmental Agencies, such as counties, school
boards or municipalities may issue bonds, certificates of indebtedness or any
form of tax anticipation certificate, payable from ad valorem taxes and maturing
more than 12 months from the date of issuance only: (i) to finance or refinance
capital projects authorized by law, and only when approved by a vote of the
electors who are property owners living within boundaries of the agency.
Generally, ad valorem taxes levied by a Local Governmental Agency may not exceed
10 mills on the value of real estate and tangible personal property unless
approved by the electors. Local Governmental Agencies may issue revenue bonds to
finance or refinance the cost of capital projects for airports or port
facilities or for
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industrial or manufacturing plants, without the vote of electors, so long as the
revenue bonds are payable solely from revenues derived from the projects.
Other Factors. The performance of the obligations issued by Florida, its
municipalities, subdivisions and instrumentalities are in part tied to
state-wide, regional and local conditions within Florida. Adverse changes to
state-wide, regional or local economies may adversely affect the
creditworthiness of Florida municipal bond issuers. Also, some revenue
obligations may be issued to finance construction of capital projects which are
leased to nongovernmental entities. Adverse economic conditions might affect
those lessees' 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.
Litigation
Due to its size and broad range of activities, the State is involved in
numerous routine legal actions. The ultimate disposition and fiscal consequences
of these lawsuits are not presently determinable; however, according to the
departments involved, the results of such litigation pending or anticipated will
not materially affect the State of Florida's financial position. The information
disclosed in this Litigation Section has been deemed material by the Florida
Auditor General and has been derived from information disclosed in the Florida
Comptroller's Annual Report dated January 1, 1997. No assurance can be made that
other litigation has not been filed or is not pending which may have a material
impact of the State's financial position.
A. Coastal Petroleum v. State of Florida
Case No. 90-3195, 2nd Judicial Circuit. This is an inverse condemnation
case claiming that the action of the Trustees and Legislature constitute a
taking of Coastal's leases for which compensation is due. The Circuit judge
granted the State's motion for summary judgment finding that as a matter of law,
the State had not deprived Coastal of any royalty they might have. Coastal
appealed to the First District Court of Appeals, but the case was remanded to
Circuit Court for trial. On August 6, 1996, final judgment was made in favor of
the State; however, Coastal has appealed the judgment to the First District
Court of Appeals.
B. Florida Department of Transportation v. 745 Property Investments, CSX
Transportation, Inc. and Continental Equities
Case No. 94-17739 CA 27, Dade County Circuit Court. This cases involves
the Florida Department of Transportation (FDOT) and CSX Transportation, Inc.
FDOT has filed an action against the adjoining property owners seeking a
declaratory judgment from the Dade County Circuit Court that the Department is
not the owner of the property that is subject to a claim by the U.S.
Environmental Protection Agency (EPA). The case was dismissed and FDOT's appeal
of the order of dismissal is pending in the Third District Court of Appeal.
The EPA is seeking clean-up costs, pursuant to the Comprehensive
Environmental Response Compensation and Liability Act, regarding property which
the EPA alleges is owned by the FDOT (and formerly owned by CSX Transportation,
Inc.). The EPA has agreed to await the outcome of the Department's declaratory
action before proceeding further. If the Department is unsuccessful in its
actions, the possible clean-up costs could exceed $25 million.
C. Jenkins v. Florida Department of Health and Rehabilitative Services
Case No. 79-102-CIV-J-16, United States District Court. This is a class
action suit on behalf
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of clients of residential placement for the developmentally disabled seeking
refunds for services where children were entitled to free education under the
Education for Handicapped Act. The district court held that the State could not
charge maintenance fees for children between the ages of 5 and 17 based on the
Education for Handicapped Act. The State's potential cost of refunding these
charges could exceed $42 million. However, there are no active negotiations
going on with regard to this matter.
D. Nathan M. Hameroff, M.D., et. al. v. Agency for Health Care
Administration, et. al.
Case No. 95-5036, Leon County Circuit Court. The plaintiffs challenge
the constitutionality of the Public Medical Assistance Trust Fund (PMATF) annual
assessment on net operating revenue of free-standing out-patient facilities
offering sophisticated radiology services. A trial has not been scheduled.
Plaintiff filed a Notice of Pendency of Class Action on July 29, 1997.If the
State is unsuccessful in its actions, the potential refund liability could
amount to approximately $70 million.
E. Walden v. Department of Corrections
Case No. 95-40357-WS (USDC N.D. Fla.) This action is brought by one
captain and one lieutenant in the Department of Corrections seeking declaratory
judgment that they (and potentially 700 similarly situated others) are not
exempt employees under the Fair Labor Standards Act (FLSA) and, therefore, are
entitled to overtime compensation at a rate of not less than one and one-half
times their regular rate of pay for overtime hours worked since April 1, 1992,
forward and including liquidated damages. The U.S. District Court for the
Northern District of Florida entered an order dismissing the case for lack of
jurisdiction on June 24, 1996. Plaintiffs filed a lawsuit against the Department
(Case No. 96-3955) in July 1996 at the State level (Circuit Court, Second
Judicial Circuit), making the same allegations at that level which plaintiffs
previously made before the U.S. District Court for the Northern District of
Florida. On December 20, 1996, that Court determined that it has jurisdiction
over the FLSA claim. Plaintiffs have filed a notice of hearing for October 28,
1997.
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APPENDIX B
ADDITIONAL INFORMATION CONCERNING GEORGIA
The performance of the Georgia Fund is influenced by the political,
economic and statutory environment within the State. The Fund invests in
obligations of Georgia issuers, which results in the Fund's performance being
subject to risks associated with the most current conditions in the State. The
information presented below describes in more detail the factors that could
affect the ability of the bond issuers to repay interest and principal on
securities acquired by the Fund. The following information has been obtained
from a variety of public sources and is believed to be accurate, but should not
be relied upon as a complete description of all relevant information.
General:
The State of Georgia has continued to benefit from job growth, personal income
growth and continued economic expansion. The State ranks tenth in population and
26th in personal income according to the U.S. Bureau of Economic Statistics. The
State has yet to feel the post-Olympic headache that was expected when the games
closed in July of 1996. Employment gains have slowed from 3.7% in 1996, but
still continued at a respectable 2.4% in 1997. The unemployment rate has
continued to notch down to the present level of 3.8%. This stands at 0.9% lower
than the national average of 4.7%. The slow growth that was anticipated after
the Olympics is probably still on its way, but it may not arrive until late 1998
or 1999. Some negative trends in employment in the apparel industry, utilities
and the military have surfaced during this expansion. However, these have been
offset by gains in services, transportation and finance. The construction
industry has seen a $3.5 billion boost due to school construction. Georgia is
following most states in their push to upgrade old school buildings and build
new structures to meet population growth and keep current with technological
advances.
Budget Process:
The State has been consistently rebuilding their reserves that were drawn down
in the early 1990's. At that time, the state had basically reduced its reserves
to zero. As of fiscal year-end 1996, the State's main reserves of Revenue
Shortfall, Lottery and Midyear Adjustment stood at $313 million, $128 million
and $105 million, respectively. In continuing with this positive trend, the
State ended fiscal 1997 with another substantial surplus of $476.4 million. The
1998 budget again reflects a healthy increase in revenues of 4.7%.
In 1997, the grocery sales tax was reduced by one cent. This should have had a
negative effect, but the State had set aside $129 million to buffer this in 1996
surplus. The State will again reduce this by a penny in the fall of 1998, which
will eliminate the tax completely. Each cent reduction signals a loss of
approximately $175 million in tax revenue.
The budget for 1998 authorized $564.1 million in new debt. This new issuance
should not have an adverse affect on their moderate level of $651 debt per
capita. The State has been able to use their extremely successful lottery to
enhance their budgetary reserves. Specific programs funded by the lottery are
intended to be educational in nature and one time expenses.
B-1
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State's Revenues and Expenditures:
State revenue estimates show that the reduction in grocery sales tax did not
derail the tax collections to this point in the year. Collections now stand at
6.1% above the original projections through six months. Tax collections should
benefit from strong capital gains for individuals and continued strong corporate
collections. These increases should help the State post a 9% increase in
collections. However, rising labor costs will probably lead to a slowdown in
fiscal 1999 that will cause growth to temper to a still respectable 7%. As is
the case in many southeastern States, Georgia continues to spend heavily on
education and transportation. These initiatives will continue to be a large part
of their spending.
As of December 31, 1997, general obligations of the State of North Carolina were
rated Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic, political or other conditions.
B-2
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APPENDIX C
ADDITIONAL INFORMATION CONCERNING NORTH CAROLINA
The performance of the North Carolina Fund is influenced by the
political, economic and statutory environment within the State. The Fund invests
in obligations of North Carolina issuers, which results in the Fund's
performance being subject to risks associated with the most current conditions
in the State. The information presented below describes in more detail the
factors that could affect the ability of the bond issuers to repay interest and
principal on securities acquired by the Fund. The following information has been
obtained from a variety of public sources and is believed to be accurate, but
should not be relied upon as a complete description of all relevant information.
General:
North Carolina's economy has historically been dependent on small manufacturing
and agriculture. More recently, the employment base has shifted away from the
traditional roots in textiles and furniture making into services and trade.
Areas of growth include financial, high technology and research. The State
benefits from (1) a friendly environment for businesses, (2) being the banking
center of the southeast, (3) the research facilities of the Raleigh/Durham area
and (4) access to ports in Wilmington. Tobacco remains the primary cash crop.
The State has continued to post economic gains, although the current wealth
levels are 32nd according to the U.S. Bureau of the Census. This ranks North
Carolina, the 11th largest state in population, just above the national average
for wealth.
Budget Process:
The State of North Carolina has continued to expand its economy and diversify
its employment base, while maintaining conservative fiscal and debt management
policies. The State has enjoyed significant surpluses in the past two years ad
has been able to reallocate these to best serve their many needs in
transportation and education. The State has kept its issuance of debt down to a
very conservative level of $242 per capita or approximately $1.7 billion in
total. The amortization for this debt is a respectable 60% over the next ten
years.
The proposed budget for the 1997-1999 biennium of $22.8 billion calls for
significant increases in spending. The 13% increase will be offset by strong
projected tax revenue growth and the historically conservative nature of the
State's expenditures which continually come in under budget. The main areas of
emphasis for spending include transportation and education.
The State has been very cognizant of its finances since the early 1990's
recessionary period. The addition of permanent revenue enhancements and
conservative spending policies have resulted in a general fund balance of almost
$1.5 billion in 1997. Nearly $600 million of that money is held in the budget
stabilization reserve account. This helps protect the State from future economic
downturns.
The Governor has proposed $250 million of budget cuts for fiscal 1997-98 to pay
for his initiatives. His two main objectives are to take teachers pay to the
national average and to promote an early-childhood program. He originally asked
for a 3% increase, but new sources of revenue suggest that a 4% increase may be
available.
State's Revenues and Expenditures:
State revenues have continued to come in above projections and even
expectations. For Fiscal 1997, tax collections increased 8.3% which exceed the
2.9% budgeted increase by a wide margin. Revenues outpaced their budgeted levels
in almost every category. The early indications for 1998 show results ahead of
projections. One unexpected expense was the transfer of $116 million to a
disaster relief fund. On July 1, 1998, the State
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will be reducing its sales tax on food to 2% from 3%. This lost revenue has been
accounted for in "recurring" income from the personal income tax payments from
non-wage income.
As of December 31, 1997, general obligations of the State of North Carolina were
rated Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic, political or other conditions.
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APPENDIX D
ADDITIONAL INFORMATION CONCERNING SOUTH CAROLINA
The performance of the South Carolina Fund is influenced by the political,
economic and statutory environment within the State. The Fund invests in
obligations of South Carolina issuers, which results in the Fund's performance
being subject to risks associated with the most current conditions in the State.
The information presented below describes in more detail the factors that could
affect the ability of the bond issuers to repay interest and principal on
securities acquired by the Fund. The following information has been obtained
from a variety of public sources and is believed to be accurate, but should not
be relied upon as a complete description of all relevant information.
General:
The State's population currently ranks 26th in the nation with approximately 3.7
million people. The income per capita ranks 41st. The State has enjoyed strong
growth in many areas including durable goods, trade and services over the past
decade. The additions of BMW in Greenville/Spartenburg and Nucor, Inc. In
Charleston have produced significant job growth in the State. In 1996, jobs were
distributed almost evenly between manufacturing, service and trade at 22%, 22%
and 24%, respectively. The textile industry has been hit hard over the last
eight years. It has seen a 28% decrease in employment while the State has seen
16% growth in employment over the corresponding period. The increases to offset
the textile losses have come from service (45%) and trade (22%).
Budget Process:
The South Carolina State Constitution mandates a balanced budget. If a deficit
occurs, the General Assembly must account from it in the succeeding fiscal year.
In addition, if a deficit appears likely, the State Budget and Control Board may
reduce appropriations during the current fiscal year as necessary to prevent the
deficit. The State Constitution limits annual increases in State appropriations
to the average growth rate of the economy of the State and annual increases in
the number of State employees to the average growth of the population of the
State.
The State Constitution requires a General Reserve Fund that equals three percent
of General Fund revenues for the latest fiscal year. When deficits have
occurred, the State has funded them out of the General Fund. The State
Constitution also requires a Capital Reserve Fund equal to two percent of
General Fund revenues. Before March 1st of each year, the Capital Fund must be
used to offset mid-year budget reductions before mandating cuts in operating
appropriations, and after March 1st, the Capital Fund may be appropriated by a
special vote of the General Assembly to finance previously authorized capital
improvements or other non-recurring purposes. Monies in the Capital Fund not
appropriated or any appropriation for a particular project or item that has been
reduced due to application of the monies to a year-ended deficit must go back to
the General Fund.
Debt levels have been very conservative over the years. The current level of
$339 debt per capita and aggressive amortization of 80% of outstanding
indebtedness over the next ten years should continue their previous success.
Currently, the maximum limit for debt service is 5% of the prior year's
revenues. Also, highway bonds are limited to an amount which can be serviced by
15% of the highway revenues.
State's Revenues and Expenditures:
State Revenues primarily come from income and sales taxes. The reduction in
property taxes in fiscal 1996 should be offset with better than budgeted
revenues that have created a surplus. Education and healthcare
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continue to lead the way in expenditures. Like many other states, South Carolina
has been conscious of the need to upgrade their school infrastructure and become
competitive in salaries with the national averages. A big positive for issuers
within the State is the revamping of the South Carolina State Aid Intercept
Program. The credit enhancement provided by Section 59-71-15, Code of Laws of
South Carolina, has been amended to provide extra protection for bondholders.
The school districts now are required to notify the State Treasurer 15 days
prior to an interest or principal payment of a deficiency in funds on hand to
make the scheduled payment. The law now requires the state to advance funds from
the state's distributed school district revenues or the state's general fund for
an amount up to the total amount appropriated for the Education Finance Act for
that fiscal year.
Road and transportation upgrades are another big initiative for the State. The
State Legislature passed a bill in their last session to fund a state
infrastructure bank that will allow the state to issue up to $1 billion in
bonds. This new funding source should help the State meet their ever expanding
highway needs around their major cities and vacation spots.
As of December 31, 1997, general obligations of the State of South Carolina were
rated Aaa/AAA/AAA by Moody's, S & P and Fitch, respectively. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic, political or other conditions.
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APPENDIX E
ADDITIONAL INFORMATION CONCERNING VIRGINIA
The performance of the Virginia Fund is influenced by the political,
economic and statutory environment within the State. The Fund invests in
obligations of Virginia issuers, which results in the Fund's performance being
subject to risks associated with the most current conditions in the State. The
information presented below describes in more detail the factors that could
affect the ability of the bond issuers to repay interest and principal on
securities acquired by the Fund. The following information has been obtained
from a variety of public sources and is believed to be accurate, but should not
be relied upon as a complete description of all relevant information.
General:
Virginia is the nation's twelfth most populous state. As of July 1997, the
State's population exceeded 6.7 million. The population of the State has
increased 8.8% since 1990 according to the U.S. Bureau of the Census. As for
personal income, the State is currently ranked fourteenth. Although Virginia is
largely rural, almost 80% of the population lives in the eight metropolitan
statistical areas.
Current growth is being fueled by service industries. Employment in the services
increased 19.8% from 1992-96 and now makes up approximately 29% of all
employment. The additions of major semiconductor plants, continued expansion of
healthcare and financial services make up the majority of these gains. Virginia
has one of the highest concentrations of high technology jobs in the nation.
Currently, almost 150,000 people work for approximately 3,900 firms. Many of the
original high-tech jobs were related to defense, but have more recently been
attributed to the computer industry. The State's unemployment rate has typically
remained about 1.0% below the national average. In 1996, the unemployment rate
was 4.4%. The State is governed by the Right-to-Work Law and is considered one
of the least unionized of the industrialized states. This has created a very
favorable business climate in the past.
Tourism continues to be important for the State. In 1994, retail spending by
domestic travelers represented nearly 20% of all retail sales. The main draws
include the beach, mountains, metropolitan cities and the amusement parks. These
tourism dollars represent a significant asset for the State.
The State has been able to weather the most recent base closings in 1993. In
some cases, the State's military bases have actually benefited from realignment
of units and programs. The concern of base closings is still evident, but has
subsided for the near-term.
Virginia's Budget Process:
With its new Governor, James S. Gilmore III, who took office in January of 1998,
the State is continuing its policy of strong fiscal management. During his
campaign, Governor Gilmore promised to eliminate the personal property tax on
motor vehicles. His current plans include a five-year phase-in period whereby
the State will make up the lost revenues to the localities. The previous
Governor, George Allen, left office after submitting a biennium budget that
included $39.8 billion in spending and procedures in place to continue the
recent success of budget surpluses (4 out of the last 5 years). The State
currently has a fund balance of $491.8 million as of year-end 1997 and a rainy
day fund in excess of $215 million and general obligation debt service of 3% of
operating expenditures. The State also enjoys low debt levels at just $177 per
capita and nearly 68% of the State-backed debt outstanding is not tax supported.
The exceptional revenue growth over the next three years is anticipated to
provide an additional $320 million in revenues above previous projections. The
Debt Capacity Advisory Committee has stated that the State can issue $445
million a year for the next ten years. This figure is up significantly from the
1996 projection of $225 million.
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State's Revenues and Expenditures:
The State derives over 93% of its revenues from taxes. Individual and fiduciary
income and estate taxes supply nearly two thirds of all tax revenue. State sales
taxes account for nearly 28%. The top expenditure categories include education
(45%), individual and family services (28%) and the administration of justice
(20%).
Governor's Objectives:
Governor Gilmore has made it clear that his first priority is the elimination of
the personal property tax on motor vehicles, as stated earlier. This decision
has caused some concern for the localities that rely on this source of taxes so
heavily, but a rebate system is being discussed which will allow those
localities to recoup their losses. The second initiative that the Governor has
insisted upon is the addition of 1,000 new elementary teachers. This is expected
to increase the dollars spent per student to $2,192 per year.
As of December 31, 1997, general obligations of the State of Virginia were rated
Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively. There can be no assurance
that the economic conditions on which these ratings are based will continue or
that particular bond issues may not be adversely affected by changes in
economic, political or other conditions.
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APPENDIX F
ADDITIONAL INFORMATION CONCERNING MARYLAND
The following information constitutes only a brief summary, does not purport
to be a complete description of risk factors, and is principally drawn from
official statements relating to securities offerings of the State of Maryland
that were available as of the date of this Statement of Additional Information.
According to 1990 Census reports, Maryland's population in that year was
4,797,676, reflecting an increase of 13.8% from the 1980 Census. Maryland's
population in 1996 was 5,071,600. Maryland's population is concentrated in urban
areas: the eight counties and Baltimore City located in the Baltimore-Washington
Corridor contain 37.4% of the State's land area and 86.9% of its population. The
estimated 1990 population for the Baltimore Standard Metropolitan Statistical
Area was 2,382,172 and for the Maryland portion of the Washington Standard
Metropolitan Statistical Area, 1,789,029. Overall, Maryland's population per
square mile in 1990 was 487.7.
Personal income in Maryland grew at annual rates between 8.1% and 9.2% in
each of the years 1986 through 1988, but fell from a rate of 8.7% in 1989 to
3.0% in 1991. Commencing in 1992, however, personal income growth rebounded,
increasing at annual rates of between 4.0% and 5.2% in each of the years 1992
through 1996. Similarly, per capita personal income, which had grown at rates no
lower than 6.4% for the period from 1972 to 1989, grew at a rate of 4.8% in 1990
and only 1.8% in 1991. Subsequently, per capita personal income has grown at
annual rates of between 3.0% and 4.3% in each of the years 1992 through 1996.
Unemployment in Maryland peaked in 1982 at 8.4%, then decreased steadily to a
low of 3.7% in 1989. In 1990, unemployment increased to 4.7%, and increased
further to 6.0% in 1991, 6.7% in 1992 and 6.2% in 1993, before dropping to 5.1%
in 1994 and 1995, and 4.9% in 1996. In April, 1997, the Maryland unemployment
rate was 4.4%.
Retail sales in Maryland dropped by 2.2% in 1991, but rebounded slightly and
grew by 0.2% in 1992, 6.1% in 1993, 9.6% in 1994, 2.9% in 1995 and 1.5% in 1996,
versus nationwide growth of 0.6%, 4.8%, 6.5%, 7.4%, 4.6% and 4.9% in such years,
respectively.
Services (including mining), wholesale and retail trade, government and
manufacturing (primarily printing and publishing, food and kindred products,
instruments and related products, industrial machinery, electronic equipment and
chemical and allied products) are the leading areas of employment in the State
of Maryland. In contrast to the nation as a whole, more people in Maryland are
employed in government than in manufacturing (19.1% versus 7.9% in 1996).
Between 1976 and 1996, manufacturing wages decreased by 25.2%, while
non-manufacturing wages increased by 60.5%
The State's total expenditures for the fiscal years ending June 30, 1993,
1994, 1995 and 1996 were $11.8 billion, $12.4 billion, $13.5 billion and $14.2
billion, respectively. The State's General Fund, representing approximately 55%
to 60% of each year's total budget, had a surplus on a budgetary basis of
$55,000 in fiscal year 1991 and a deficit of $56.4 million in fiscal year 1992.
These results were due primarily to revenue collections which fell short of
projections, and increases in expenditures for public assistance. The Governor
of Maryland reduced fiscal year 1993 appropriations by approximately $56 million
to offset the fiscal year 1992 deficit. On a budgetary
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basis, the State's General Fund surplus rose to $10.5 million in fiscal year
1993, $60 million in 1994 and $26.5 million in 1995 (after budgeting $106
million for 1996 expenses) and $13.1 million in 1996 (of which $3.1 million was
designated for fiscal 1997 operations). The State Constitution mandates a
balanced budget. Balances in the Revenue Stabilization Account of the State
Reserve Fund have also risen from $300,000 in 1992 to $50.9 million in 1993,
$161.8 million in 1994, $286.1 million in 1995 and $461.2 million in 1996
(reflecting a net transfer to the General Fund of $56.4 million).
In April 1996, the General Assembly approved a $14.6 billion 1997 fiscal year
budget. The budget as enacted includes funds sufficient to meet all fiscal year
1996 deficiencies and to meet all specific statutory funding requirements; the
budget incorporates $29 million in savings from revisions to the State personnel
system and reform to the welfare and Medicare programs. When this budget was
enacted, the State estimated that the General Fund surplus on a budgetary basis
at June 30, 1996 would be approximately $22.5 million, in addition to which the
State projected that there would be $490.4 million in the Revenue Stabilization
Account of the State Reserve Fund. The State currently projects a General Fund
balance on a budgetary basis of $144.5 million.
In April 1997, the General Assembly approved a $15.4 billion 1998 fiscal year
budget. This budget (i) includes funds sufficient to meet all specific statutory
funding requirements; (ii) incorporates the first year of a five-year phase-in
of a 10% reduction in personal income taxes (estimated to reduce revenues by
$38.5 million in fiscal year 1998 and $450 million when fully phased in) and
certain reductions in sales taxes on certain manufacturing equipment (estimated
to reduce revenues by $38.6 million when the reductions are fully phased in, in
fiscal year 2001); and (iii) includes the first year's $30 million funding under
an agreement to provide additional funds totaling $230 million over a five-year
period to schools in the City of Baltimore and related grants to other
subdivisions totaling $32 million. When this budget was enacted, the State
estimated the General Fund surplus on a budgetary basis would be $28.2 million,
in addition to which the State projected that there would be a balance of $554
million in the Revenue Stabilization Account of the State Reserve Fund.
The State of Maryland and its various political subdivisions issue a number
of different kinds of municipal obligations, including general obligation bonds
supported by tax collections, revenue bonds payable from certain identified tax
levies or revenue streams, conduit revenue bonds payable from the repayment of
certain loans to authorized entities such as hospitals and universities, and
certificates of participation in tax-exempt municipal leases.
The State of Maryland issues general obligation bonds, which are payable from
ad valorem property taxes. The State Constitution prohibits the contracting of
State debt unless the debt is authorized by law levying an annual tax or taxes
sufficient to pay the debt service within 15 years and prohibiting the repeal of
the tax or taxes or their use for another purpose until the debt has been paid.
The State also enters into lease-purchase agreements, in which participation
interests are often sold publicly as individual securities.
As of March 1997, the State's general obligation bonds were rated "Aaa" by
Moody's, "AAA" by S&P, and "AAA" by Fitch Investors Service, Inc. ("Fitch").
The Maryland Department of Transportation issues Consolidated Transportation
Bonds, which are payable out of specific excise taxes, motor vehicle taxes, and
corporate income taxes, and from the general revenues of the Department. Issued
to finance highway, port, transit, rail or aviation facilities, these bonds are
rated "Aa" by Moody's, "AA" by S&P, and "AA" by Fitch. The Maryland
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Transportation Authority, a unit of the Department, issues its own revenue bonds
for transportation facilities, which are payable from certain highway, bridge
and tunnel tolls. These bonds are rated "A+" by S&P.
Other State agencies which issue municipal obligations include the Maryland
Stadium Authority, which has issued bonds payable from sports facility and other
lease revenues and certain lottery revenues and convention center lease revenue
bonds; the Maryland Water Quality Financing Administration, which issues bonds
to provide loans to local governments for wastewater control projects; the
Community Development Administration of the Department of Housing and Community
Development, which issues mortgage revenue bonds for housing; the Maryland
Environmental Service, which issues bonds secured by the revenues from its
various water supply, wastewater treatment and waste management projects; and
the various public institutions of higher education in Maryland (which include
the University of Maryland System, Morgan State University and State University,
and St. Mary's College of Maryland) which issue their own revenue bonds. None of
these bonds constitute debts or pledges of the full faith and credit of the
State of Maryland. The issuers of these obligations are subject to various
economic risks and uncertainties, and the credit quality of the securities
issued by them may vary considerably from the quality of obligations backed by
the full faith and credit of the State.
In addition, the Maryland Health and Higher Educational Facilities Authority
and the Maryland Industrial Development Financing Authority issue conduit
revenue bonds, the proceeds of which are lent to borrowers eligible under
relevant state and federal law. The Northeast Maryland Waste Disposal Authority,
the Maryland Economic Development Corporation and the Maryland Energy Financing
Administration also issue conduit revenue bonds. These bonds of these issuers
are payable solely from the loan payments made by borrowers and other financing
participants, and their credit quality varies with the financial strengths of
these entities.
Maryland has 24 geographical subdivisions, composed of 23 counties plus the
independent City of Baltimore, which functions much like a county. Some of the
counties and the City of Baltimore operate pursuant to the provisions of codes
of their own adoption, while others operate pursuant to State-approved charters
and State statutes.
Maryland counties and municipalities and the City of Baltimore receive most
of their revenues from ad valorem taxes on real and personal property,
individual income taxes, transfer taxes, miscellaneous taxes and aid from the
State. Their expenditures include public safety, public works, health, public
welfare, court and correctional services, education, and general governmental
costs.
The economic factors affecting the State, as discussed above, also have
affected the counties, municipalities and the City of Baltimore. In addition,
reductions in State aid caused by State budget deficits have caused the local
governments to trim expenditures and, in some cases, raise taxes.
According to recent available ratings, general obligation bonds of Montgomery
County (abutting Washington, D.C.) are rated "Aaa" by Moody's and "AAA" by S&P.
Prince George's County, also in the Washington, D.C. suburbs, issues general
obligation bonds rated "Aa" by Moody's and "AA-" by S&P, while Baltimore County,
a separate political subdivision surrounding the City of Baltimore, issues
general obligation bonds rated "Aaa" by Moody's and "AAA" by S&P and Anne
Arundel County issues general obligation bonds which are rated "AA+" by both
Fitch and S&P and "Aa1" by Moody's. The City of Baltimore's general obligation
bonds are rated "A1" by Moody's and "A" by S&P. The other counties in Maryland
all have general obligation bond ratings of "A" or better, except for Allegheny
County and Garrett County, the bonds of which are rated "Baa2" and "Baa3",
respectively, by Moody's. The Washington Suburban Sanitary District, a bi-county
agency
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providing water and sewerage services in Montgomery and Prince George's
counties, issues general obligation bonds rated "Aa1" by Moody's and "AA" by
S&P. Additionally, some of the large municipal corporations in Maryland (such as
the cities of Rockville, Annapolis and Frederick) have issued general obligation
bonds. There can be no assurance that these ratings will continue.
Many of Maryland's counties and the City of Baltimore have established
subsidiary agencies with bond issuing powers, such as housing authorities,
parking revenue authorities, and industrial development authorities. In
addition, all Maryland municipalities have the authority under State law to
issue conduit revenue bonds. These entities are subject to various economic
risks and uncertainties and the credit quality of the securities issued by them
may vary considerably from the credit quality of obligations backed by the full
the faith and credit of the State.
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APPENDIX G
S&P AND MOODY'S 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.
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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 the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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
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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.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in defauolt or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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
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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 S&P, or Prime-1 by Moody's or F-1 by Fitch; 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 Fitch, 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;
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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.
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APPENDIX H
FITCH BOND RATINGS
Investment Grade Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these securities and,
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for securities with higher
ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raise or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
Rating Outlook: An outlook is used to describe the most likely
direction of any rating change over the intermediate term. It is described as
"Positive" or "Negative." The absence of a designation indicates a stable
outlook.
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Speculative Grade Bond Ratings
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified, which
could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While securities in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such securities are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
securities, and "D" represents the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.
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F-5: Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
D: Default. Issues assigned this rating are in actual or imminent
payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
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