<PAGE>
<PAGE>
COREFUNDS, INC.
INTERMEDIATE MUNICIPAL BOND FUND
530 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
June 1, 1998
Dear Shareholder,
As a result of the Merger of CoreStates Financial Corp with and into a
wholly-owned subsidiary of First Union Corporation effective April 30,1998, I am
writing to shareholders of Intermediate Municipal Bond Fund (the "Fund"), a
series of CoreFunds, Inc., to inform you of a Special Shareholders' meeting to
be held on July 17, 1998. Before that meeting, I would like your vote on the
important issues affecting your Fund as described in the attached
Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes two proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Evergreen High Grade Tax Free Fund in exchange for either Class A or Class Y
shares of Evergreen High Grade Tax Free Fund and the assumption by Evergreen
High Grade Tax Free Fund of the identified liabilities of the Fund. You will
receive shares of Evergreen High Grade Tax Free Fund having an aggregate net
asset value equal to the aggregate net asset value of your Fund shares. Details
about Evergreen High Grade Tax Free Fund's investment objective, portfolio
management team, performance, etc., are contained in the attached
Prospectus/Proxy Statement. For federal income tax purposes, the transaction is
a non-taxable event for shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and CoreStates Investment Advisers, Inc.,
the Fund's current investment adviser. It is anticipated that the Interim
Investment Advisory Agreement will be in effect from April 30,
<PAGE>
1998 to the date the Reorganization is consummated (scheduled for July 27,
1998).
Information relating to the Interim Investment Advisory Agreement is contained
in the attached Prospectus/Proxy Statement.
The Board of Directors has approved the proposals and recommends that you vote
FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals. If you attend the meeting, you may vote your shares in person. If
you do not expect to attend the meeting, either complete, date, sign and return
the enclosed proxy card in the enclosed postage paid envelope or vote by calling
toll-free 1-800-723-8481, 24 hours a day. Instructions on how to complete the
proxy card or vote by telephone are included immediately after the Notice of
Special Meeting.
If you have any questions about the proxy, please call our proxy solicitor,
Shareholder Communications Corporation at 1-800-733- 8481 ext. 468. You may also
x your completed and signed proxy card to 1-800-733-1885. If we do not receive
your completed proxy card or your telephone vote within several weeks, you may
be contacted by Shareholder Communications Corporation, who will remind you to
vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
/s/Kevin P. Robins
Kevin P. Robins
Vice President
CoreFunds, Inc.
<PAGE>
COREFUNDS, INC.
INTERMEDIATE MUNICIPAL BOND FUND
530 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 17, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Intermediate Municipal Bond Fund (the "Fund"), a series of
CoreFunds, Inc., will be held at the offices of the Evergreen Funds, 26th Floor,
200 Berkeley Street, Boston, Massachusetts 02116, on July 17, 1998 at
2:00 p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of April 15, 1998, providing for the acquisition of all of
the assets of the Fund by Evergreen High Grade Tax Free Fund, a series of
Evergreen Municipal Trust, ("Evergreen High Grade") in exchange for shares of
Evergreen High Grade and the assumption by Evergreen High Grade of the
identified liabilities of the Fund. The Plan also provides for distribution of
these shares of Evergreen High Grade to shareholders of the Fund in liquidation
and subsequent termination of the Fund. A vote in favor of the Plan is a vote in
favor of the liquidation and dissolution of the Fund.
2. To consider and act upon the Interim Investment Advisory Agreement
between the Fund and CoreStates Investment
Advisers, Inc.
3. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of the Fund, the Directors of CoreFunds, Inc. have fixed the
close of business on May 29, 1998 as the record date for the determination of
shareholders of the Fund entitled to notice of and to vote at the Meeting or any
adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Directors
James W. Jennings
Secretary
-1-
<PAGE>
June 1, 1998
-2-
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual
signing the proxy card should be indicated unless it is reflected
in the form of Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
-1-
<PAGE>
INSTRUCTIONS FOR TELEPHONE VOTING
To vote your proxy by telephone follow the four easy steps below. Or if you
prefer you may send back your signed proxy ballot in the postage paid envelope
provided.
1. Read the accompanying proxy information and ballot.
2. Identify the twelve-digit "CONTROL NO." in the middle portion of your ballot
on the left hand side. This control number is the key to casting your vote over
the telephone.
3. Dial 1-800-733-8481 ext. 468.
4. Follow the simple instructions.
-2-
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 1, 1998
Acquisition of Assets of
INTERMEDIATE MUNICIPAL BOND FUND
a series of
CoreFunds, Inc.
530 East Swedesford Road
Wayne, Pennsylvania 19087
By and in Exchange for Shares of
EVERGREEN HIGH GRADE TAX FREE FUND
a series of
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Intermediate Municipal Bond Fund ("CoreFunds Intermediate") in connection with a
proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of CoreFunds Intermediate for consideration at a Special Meeting of
Shareholders to be held on July 17, 1998 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts, 02116,
and any adjournments thereof (the "Meeting"). The Plan provides for all of the
assets of CoreFunds Intermediate to be acquired by Evergreen High Grade Tax Free
Fund ("Evergreen High Grade") in exchange for shares of Evergreen High Grade and
the assumption by Evergreen High Grade of the identified liabilities of
CoreFunds Intermediate (hereinafter referred to as the "Reorganization").
Evergreen High Grade and CoreFunds Intermediate are sometimes hereinafter
referred to individually as the "Fund" and collectively as the "Funds."
Following the Reorganization, shares of Evergreen High Grade will be distributed
to shareholders of CoreFunds Intermediate in liquidation of CoreFunds
Intermediate and such Fund will be terminated. Holders of Class A shares of
CoreFunds Intermediate will receive Class A shares of Evergreen High Grade, and
holders of Class Y shares of CoreFunds Intermediate will receive Class Y shares
of Evergreen High Grade. Each such class of shares of Evergreen High Grade has
similar Rule 12b-1 distribution-related fees, if any, as the shares of the
respective class of CoreFunds Intermediate held by them prior to the
Reorganization. No sales charge will be imposed in connection with Class A
shares of Evergreen High Grade received by holders of Class A shares of
CoreFunds Intermediate. As a result of the proposed Reorganization, shareholders
of CoreFunds Intermediate will receive that number of full and fractional shares
of Evergreen High Grade having an aggregate net asset value equal to the
-3-
<PAGE>
aggregate net asset value of such shareholder's shares of CoreFunds
Intermediate. The Reorganization is being structured as a tax-free
reorganization for federal income tax purposes.
Evergreen High Grade is a separate series of Evergreen Municipal Trust,
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
Evergreen High Grade is to seek a high level of federally tax free income that
is consistent with preservation of capital. The investment objective of
CoreFunds Intermediate is substantially similar --to provide the highest level
of income exempt from federal income taxes that can be obtained consistent with
the preservation of capital. Each Fund invests in a portfolio of high quality,
municipal securities with intermediate term maturities.
Shareholders of CoreFunds Intermediate are also being asked to approve
the Interim Investment Advisory Agreement with CoreStates Investment Advisers,
Inc. ("CSIA"), a subsidiary of First Union Corporation (the "Interim Advisory
Agreement"), with the same terms and fees as the previous advisory agreement
between CoreFunds Inc. and CSIA. The Interim Advisory Agreement will be in
effect for the period of time between April 30, 1998, the date on which the
merger of CoreStates Financial Corp with and into a wholly-owned subsidiary of
First Union Corporation was consummated, and the date of the Reorganization
(scheduled for on or about July 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen High Grade that
shareholders of CoreFunds Intermediate should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated June 1,
1998, relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen High Grade dated May 31, 1997 and
November 30, 1997 and of CoreFunds Intermediate dated June 30, 1997 and December
31, 1997, has been filed with the SEC and is incorporated by reference in its
entirety into this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Evergreen High Grade at 200 Berkeley Street, Boston, Massachusetts 02116 or
by calling toll-free 1-800-343- 2898.
-4-
<PAGE>
The two Prospectuses of Evergreen High Grade dated September 3, 1997,
as supplemented March 25, 1998, its Annual Report for the fiscal year ended May
31, 1997 and its Semi-Annual Report for the six month period ended November 30,
1997 are incorporated herein by reference in their entirety, insofar as they
relate to Evergreen High Grade only, and not to any other fund described
therein. The Prospectuses, which pertain (i) to Class A and Class B shares and
(ii) to Class Y shares, differ only insofar as they describe the different
distribution and shareholder servicing arrangements applicable to the classes.
Shareholders of CoreFunds Intermediate will receive, with this Prospectus/Proxy
Statement, copies of the Prospectus pertaining to the class of shares of
Evergreen High Grade that they will receive as a result of the consummation of
the Reorganization. Additional information about Evergreen High Grade is
contained in its Statement of Additional Information dated September 3, 1997 as
supplemented January 30, 1998 which has been filed with the SEC and which is
available upon request and without charge by writing to or calling Evergreen
High Grade at the address or telephone number listed in the preceding paragraph.
The two Prospectuses of CoreFunds Intermediate which pertain (i) to
Class A shares (Individual Shares) and (ii) to Class Y shares (Institutional
Shares) dated November 1, 1997, insofar as they relate to CoreFunds Intermediate
only, and not to any other funds described therein, are incorporated herein in
their entirety by reference. Copies of the Prospectuses, related Statement of
Additional Information dated the same date, the Annual Report for the fiscal
year ended June 30, 1997 and the Semi-Annual Report for the six month period
ended December 31, 1997, are available upon request without charge by writing to
CoreFunds Intermediate at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800- 355-2673.
Included as Exhibits A and B to this Prospectus/Proxy Statement are a
copy of the Plan and the Interim Advisory Agreement, respectively.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-5-
<PAGE>
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and 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 involve investment risk, including
possible
loss of capital.
-6-
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES......................................7
SUMMARY ........................................................ 10
Proposed Plan of Reorganization 12
Tax Consequences ...13
Investment Objectives and Policies of the Funds ...13
Comparative Performance Information for each Fund ...14
Management of the Funds ...15
Investment Advisers ...15
Administrators ...16
Portfolio Management ...16
Distribution of Shares 16
Purchase and Redemption Procedures ...18
Exchange Privileges ...19
Dividend Policy ...19
Risks ...20
REASONS FOR THE REORGANIZATION......................................21
Agreement and Plan of Reorganization ...24
Federal Income Tax Consequences 26
Pro-forma Capitalization 28
Shareholder Information ...30
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................31
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS.................. 36
Forms of Organization 36
Capitalization 36
Shareholder Liability 36
Shareholder Meetings and Voting Rights 37
Liquidation or Dissolution 38
Liability and Indemnification of Trustees 38
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT............. 39
Introduction 39
Comparison of the Interim Advisory Agreement and
the Previous Advisory Agreement 40
Information About CoreFunds Intermediate's
Investment Adviser 41
ADDITIONAL INFORMATION........................................... 42
-7-
<PAGE>
VOTING INFORMATION CONCERNING THE MEETING........................ 43
FINANCIAL STATEMENTS AND EXPERTS................................. 46
LEGAL MATTERS.................................................... 46
OTHER BUSINESS................................................... 46
APPENDIX A....................................................... 48
EXHIBIT A..........................................................A-1
EXHIBIT B..........................................................B-1
EXHIBIT C..........................................................C-1
-8-
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y and Class A shares of Evergreen High Grade set
forth in the following tables and in the examples are based on the expenses of
Evergreen High Grade for the period ended May 31, 1997. The amounts for Class Y
and Class A shares of CoreFunds Intermediate set forth in the following tables
and in the examples are based on the expenses for CoreFunds Intermediate for the
fiscal year ending June 30, 1998, as set forth in the current Prospectuses of
CoreFunds Intermediate. The pro forma amounts for Class Y and Class A shares of
Evergreen High Grade are based on what the combined expenses would have been for
Evergreen High Grade for the fiscal year ending May 31, 1997. All amounts are
adjusted for voluntary expense waivers.
The following tables show for Evergreen High Grade, CoreFunds
Intermediate and Evergreen High Grade pro forma, assuming consummation of the
Reorganization, the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class Y and Class A shares of each
Fund.
Comparison of Class Y and Class A Shares
of Evergreen High Grade With Class Y and
Class A Shares of CoreFunds Intermediate
<TABLE>
<CAPTION>
Evergreen CoreFunds
High Grade Intermediate
Class Y Class A Class Y Class A
Shareholder Transaction
Expenses
<S> <C> <C> <C> <C>
Maximum Sales Load None 4.75% None 3.25%
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
-9-
<PAGE>
Contingent Deferred None None None None
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee (After 0.42% 0.42% 0.07% 0.07%
Waiver) (1)
12b-1 Fees(2) None 0.25% None 0.25%
Other Expenses (After 0.36% 0.36% 0.48% 0.48%
----- ----- ----- -----
Waiver) (3)
Annual Fund Operating 0.78% 1.03% 0.55% 0.80%
===== ===== ===== =====
Expenses (4)
</TABLE>
Evergreen High Grade Pro Forma
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
Class Y Class A
<S> <C> <C>
Maximum Sales Load Imposed on None 4.75%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on None None
Reinvested Dividends (as a
percentage of offering price)
Contingent Deferred Sales Charge None None
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses (as
a percentage of average daily net
assets)
-10-
<PAGE>
Management Fee (1)
0.42% 0.42%
12b-1 Fees(2) None 0.25%
Other Expenses 0.36% 0.36%
--------- ----------
Annual Fund Operating Expenses (4)
0.78% 1.03%
====== =======
</TABLE>
- ---------------
(1) The management fee for Evergreen High Grade and CoreFunds Intermediate
has been reduced from 0.50% of average daily net assets to reflect the
voluntary waiver by the investment advisers.
(2) Class A shares of Evergreen High Grade can pay up to 0.75% of average
daily net assets as a 12b-1 fee. For the foreseeable future, the Class
A 12b-1 fees will be limited to 0.25% of average daily net assets.
(3) Absent voluntary waivers by CoreFunds Intermediate's administrator,
Other Expenses would have been 0.57% of average daily net assets.
(4) Annual Fund Operating Expenses for the Class Y and Class A
shares of Evergreen High Grade would have been 0.86% and
1.11% for the fiscal year ended May 31, 1997 and Annual Fund
Operating Expenses for the Class Y and Class A shares of
CoreFunds Intermediate would have been 1.07% and
1.32% for the year ending June 30, 1998, absent
fee and expense waivers. The investment adviser of
Evergreen High Grade has undertaken to limit the Fund's
Annual Operating Expenses for a period of at least two years
to 1.07% and 1.32% for Class Y and Class A shares,
respectively.
Examples. The following tables show for Evergreen High Grade and
CoreFunds Intermediate, and for Evergreen High Grade pro forma, assuming
consummation of the Reorganization, examples of the cumulative effect of
shareholder transaction expenses and annual fund operating expenses indicated
above on a $1,000 investment in each class of shares for the periods specified,
assuming (i) a 5% annual return and (ii) redemption at the end of such period.
In the case of Evergreen High Grade pro forma, the examples do not reflect the
imposition of the 4.75% maximum sales load on purchases since CoreFunds
Intermediate shareholders who
-11-
<PAGE>
receive Class A shares of Evergreen High Grade in the Reorganization will not
incur any sales load.
Evergreen High Grade
<TABLE>
<CAPTION>
One Year Three Five Ten Years
Years Years
<S> <C> <C> <C> <C>
Class Y $8 $25 $43 $97
Class A $58 $79 $102 $167
CoreFunds Intermediate
Three Five
One Year Years Years Ten Years
Class Y $6 $18 $31 $69
Class A $40 $57 $75 $128
Evergreen High Grade Pro Forma
Three Five
One Year Years Years Ten Years
Class Y $8 $25 $43 $97
Class A $11 $33 $57 $126
</TABLE>
The purpose of the foregoing examples is to assist CoreFunds
Intermediate shareholders in understanding the various costs and expenses that
an investor in Evergreen High Grade as a result of the Reorganization would bear
directly and indirectly, as compared with the various direct and indirect
expenses currently borne by a shareholder in CoreFunds Intermediate. These
examples should not be considered a representation of past or future expenses or
annual return. Actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectuses of Evergreen High
-12-
<PAGE>
Grade dated September 3, 1997, as supplemented March 25, 1998 and the
Prospectuses of CoreFunds Intermediate dated November 1, 1997 (which are
incorporated herein by reference), the Plan and the Interim Advisory Agreement,
the forms of which are attached to this Prospectus/Proxy Statement as Exhibits A
and B, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of CoreFunds
Intermediate in exchange for shares of Evergreen High Grade and the assumption
by Evergreen High Grade of the identified liabilities of CoreFunds Intermediate.
The identified liabilities consist only of those liabilities reflected on the
Fund's statement of assets and liabilities determined immediately preceding the
Reorganization. The Plan also calls for the distribution of shares of Evergreen
High Grade to CoreFunds Intermediate shareholders in liquidation of CoreFunds
Intermediate as part of the Reorganization. As a result of the Reorganization,
the holders of Class A and Class Y shares of CoreFunds Intermediate will become
the owners of that number of full and fractional Class A and Class Y shares,
respectively, of Evergreen High Grade having an aggregate net asset value equal
to the aggregate net asset value of the shareholders' shares of CoreFunds
Intermediate, as of the close of business immediately prior to the date that
CoreFunds Intermediate's assets are exchanged for shares of Evergreen High
Grade. See "Reasons for the Reorganization - Agreement and Plan of
Reorganization."
The Directors of CoreFunds, Inc., including the Directors who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Directors"), have concluded that the Reorganization would be in the best
interests of shareholders of CoreFunds Intermediate, and that the interests of
the shareholders of CoreFunds Intermediate will not be diluted as a result of
the transactions contemplated by the Reorganization. Accordingly, the Directors
have submitted the Plan for the approval of CoreFunds Intermediate's
shareholders.
THE BOARD OF DIRECTORS OF COREFUNDS, INC.
RECOMMENDS APPROVAL BY SHAREHOLDERS OF COREFUNDS INTERMEDIATE
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Municipal Trust have also approved the Plan
and, accordingly, Evergreen High Grade's participation in the Reorganization.
-13-
<PAGE>
Approval of the Reorganization on the part of CoreFunds Intermediate
will require the affirmative vote of a majority of CoreFunds Intermediate's
outstanding shares, with all classes voting together as a single class at a
Meeting at which a quorum of the Fund's shares is present. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, is
required to constitute a quorum at the Meeting. See "Voting Information
Concerning the Meeting."
The merger of CoreStates Financial Corp ("CoreStates Financial") with
and into a wholly-owned subsidiary of First Union Corporation ("First
Union")(the "Merger") has been consummated and, as a result, by law the Merger
terminated the investment advisory agreement between CSIA and CoreFunds
Intermediate. Prior to consummation of the Merger, CoreFunds Intermediate
received an order from the SEC which permitted the implementation, without
formal shareholder approval, of a new investment advisory agreement between the
Fund and CSIA for a period of not more than 150 days beginning on the date of
the closing of the Merger and continuing through the date the Interim Advisory
Agreement is approved by the Fund's shareholders. The Interim Advisory Agreement
has the same terms and fees as the previous investment advisory agreement
between CoreFunds Intermediate and CSIA. The Reorganization is scheduled to take
place on or about July 27, 1998.
Approval of the Interim Advisory Agreement requires the affirmative
vote of (i) 67% or more of the shares of CoreFunds Intermediate present in
person or by proxy at the Meeting, if holders of more than 50% of the shares of
CoreFunds Intermediate outstanding on the record date are present, in person or
by proxy, or (ii) more than 50% of the outstanding shares of CoreFunds
Intermediate, whichever is less. See "Voting Information Concerning the
Meeting."
If the shareholders of CoreFunds Intermediate do not vote to approve
the Reorganization, the Directors will consider other possible courses of action
in the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, CoreFunds
Intermediate will have received an opinion of Sullivan & Worcester LLP that the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its shareholders for federal income tax purposes as a result of the
receipt of shares of Evergreen High Grade in the Reorganization. The holding
period and aggregate tax basis of shares of Evergreen
-14-
<PAGE>
High Grade that are received by CoreFunds Intermediate's shareholders will be
the same as the holding period and aggregate tax basis of shares of the Fund
previously held by such shareholders, provided that shares of the Fund are held
as capital assets. In addition, the holding period and tax basis of the assets
of CoreFunds Intermediate in the hands of Evergreen High Grade as a result of
the Reorganization will be the same as in the hands of the Fund immediately
prior to the Reorganization, and no gain or loss will be recognized by Evergreen
High Grade upon the receipt of the assets of the Fund in exchange for shares of
Evergreen High Grade and the assumption by Evergreen High Grade of the
identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen High Grade and
CoreFunds Intermediate are similar.
The investment objective of Evergreen High Grade is to achieve a high
level of federally tax free income that is consistent with preservation of
capital. At least 65%] of the value of the total assets of Evergreen High Grade
will be invested in high grade bonds. High grade bonds mean: bonds insured by a
municipal bond insurance company which is rated AAA by Standard & Poor's Ratings
Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds
rated A or better by S&P or Moody's; or, if unrated, of comparable quality as
determined by Evergreen High Grade's investment adviser. The insurance
guarantees the timely payment of principal and interest, but not the value of
the municipal bonds or the shares of the Fund.
Evergreen High Grade may also purchase instruments having variable
rates of interest. One example is variable amount master demand notes. These
notes represent a borrowing arrangement between a commercial paper issuer
(borrower) and an institutional lender, such as Evergreen High Grade, and are
payable upon demand. The underlying amount of the loan may vary during the
course of the contract, as may the interest on the outstanding amount, depending
on a stated short-term interest rate index.
The investment objective of CoreFunds Intermediate is to provide the
highest level of income exempt from federal income taxes that can be obtained
consistent with the preservation of capital. The quality of securities in which
CoreFunds Intermediate invests is similar to the quality of securities in
-15-
<PAGE>
which Evergreen High Grade may invest. See "Comparison of
Investment Objectives and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statement of Additional Information of the
Funds. The following tables set forth the total return of the Class A shares of
Evergreen High Grade for the one and five year periods ended March 31, 1998, of
the Class Y shares of Evergreen High Grade and of the Class Y and Class A shares
of CoreFunds Intermediate for the one year period ended March 31, 1998 and for
both Funds for the period from inception through March 31, 1998. The
calculations of total return assume the reinvestment of all dividends and
capital gains distributions on the reinvestment date and the deduction of all
recurring expenses (including sales charges) that were charged to shareholders'
accounts.
Average Annual Total Return (1)
<TABLE>
<CAPTION>
1 Year 5 Years From
Ended Ended Inception To
March 31, March 31, March 31, Inception
1998 1998 1998 Date
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
High Grade
Class A 5.21% 5.21% 6.48% 2/21/92
shares
Class Y 10.72% N/A 6.06% 2/28/94
shares
CoreFunds
Intermediate
Class A 3.73% N/A 3.49% 5/3/93
shares
Class Y 7.45% N/A 4.46% 5/3/93
shares
</TABLE>
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(1) Reflects waiver of advisory fees and reimbursements and/or
waivers of expenses. Without such reimbursements and/or
-16-
<PAGE>
waivers, the average annual total returns during the periods would have
been lower.
Important information about Evergreen High Grade is also contained in
management's discussion of Evergreen High Grade's performance, attached hereto
as Exhibit C. This information also appears in Evergreen High Grade's most
recent Annual Report.
Management of the Funds
The overall management of Evergreen High Grade and of CoreFunds
Intermediate is the responsibility of, and is supervised by, the Board of
Trustees of Evergreen Municipal Trust and the Board of Directors of CoreFunds,
Inc., respectively.
Investment Advisers
The investment adviser to Evergreen High Grade is the Capital
Management Group of First Union National Bank ("FUNB"). FUNB is a subsidiary of
First Union, the sixth largest bank holding company in the United States based
on total assets as of September 30, 1997. The Capital Management Group of FUNB
and its affiliates manage the Evergreen family of mutual funds with assets of
approximately $46 billion as of March 31, 1998. For further information
regarding FUNB and First Union, see "Management of the Funds - Investment
Advisers" in the Prospectuses of High Grade.
FUNB manages investments and supervises the daily business affairs of
Evergreen High Grade subject to the authority of the Trustees. FUNB is entitled
to receive from the Fund an annual fee equal to 0.50% of the Fund's average
daily net assets.
CSIA serves as the investment adviser for CoreFunds Intermediate. As
investment adviser, CSIA has overall responsibility for portfolio management of
the Fund. For its services as investment adviser, CSIA is entitled to receive a
fee at an annual rate of 0.50% of the Fund's average daily net assets.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Year 2000 Risks. Like other investment companies, financial and
business organizations and individuals around the world,
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<PAGE>
Evergreen High Grade could be adversely affected if the computer systems used by
the Fund's investment adviser and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Fund.
Administrators
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Evergreen High Grade. As administrator, EIS provides facilities, equipment and
personnel to Evergreen High Grade and is entitled to receive an administration
fee from the Fund based on the aggregate average daily net assets of all the
mutual funds advised by FUNB and its affiliates, 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.
SEI Fund Resources ("SEI") acts as the administrator for CoreFunds
Intermediate and provides the Fund with certain administrative personnel and
services including certain legal and accounting services. SEI is entitled to
receive a fee for such services at the annual rate of 0.25% of the Fund's
average daily net assets. SEI will continue during the term of the Intermim
Advisory Agremeent as CoreFunds Intermeidate's administrator for the same
compensation as currently received.
Portfolio Management
James T. Colby, III is the Portfolio Manager of Evergreen
High Grade. Mr. Colby is a Vice President of FUNB and has been
associated with Evergreen Asset Management Corp. ("Evergreen
Asset") and its predecessor since 1992 and has served as
portfolio manager of Evergreen High Grade since 1995.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS
Fund Services, acts as underwriter of Evergreen High Grade's
shares. EDI distributes the Fund's shares directly or through
broker-dealers, banks (including FUNB), or other financial
-18-
<PAGE>
intermediaries. Evergreen High Grade offers three classes of
shares: Class A, Class B and Class Y. Each class has different
distribution arrangements. (See "Distribution-Related Expenses"
below.) No class bears the distribution expenses relating to the
shares of any other class.
In the proposed Reorganization, Class Y shareholders of CoreFunds
Intermediate will receive Class Y shares of Evergreen High Grade, and Class A
shareholders of CoreFunds Intermediate will receive Class A shares of Evergreen
High Grade. The Class Y and Class A shares of Evergreen High Grade have
substantially similar arrangements with respect to the imposition of Rule 12b-1
distribution and service fees as the Class Y and Class A shares of CoreFunds
Intermediate. Because the Reorganization will be effected at net asset value
without the imposition of a sales charge, Evergreen High Grade shares acquired
by shareholders of CoreFunds Intermediate pursuant to the proposed
Reorganization would not be subject to any initial sales charge or contingent
deferred sales charge as a result of the Reorganization.
The following is a summary description of charges and fees for the
Class Y and Class A shares of Evergreen High Grade which will be received by
CoreFunds Intermediate shareholders in the Reorganization. More detailed
descriptions of the distribution arrangements applicable to the classes of
shares are contained in the respective Evergreen High Grade Prospectuses and the
CoreFunds Intermediate Prospectuses and in each Fund's Statement of Additional
Information.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related
fees. Class Y shares are only available to (i) all shareholders of record in one
or more of the Evergreen family of funds for which Evergreen Asset serves as
investment adviser as of December 30, 1994, (ii) certain institutional investors
and (iii) investment advisory clients of FUNB, Evergreen Asset or their
affiliates. CoreFunds Intermediate shareholders who receive Evergreen High Grade
Class Y shares in the Reorganization who wish to make subsequent purchases of
Evergreen High Grade shares will be able to purchase Class Y shares.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the applicable Prospectus for Evergreen High
Grade. No initial sales
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<PAGE>
charge will be imposed on Class A shares of Evergreen High Grade received by
CoreFunds Intermediate's shareholders in the Reorganization. Subsequent
purchases of shares will be subject to initial sales charges.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statement of Additional Information.
Distribution-Related Expenses. Evergreen High Grade has adopted a Rule
12b-1 plan with respect to its Class A shares under which the Class may pay for
distribution-related expenses at an annual rate which may not exceed 0.75% of
average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.25% of average daily net assets
attributable to the Class. This amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
CoreFunds Intermediate has adopted a Rule 12b-1 plan with respect to
its Class A shares under which the Class may pay for distribution-related
expenses at an annual rate of 0.25% of average daily net assets attributable to
the Class. Neither Evergreen High Grade nor CoreFunds Intermediate has adopted a
Rule 12b-1 plan with respect to its Class Y shares. A Rule 12b-1 plan can only
be adopted with shareholder approval.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectuses and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the Funds are not
insured. The minimum initial purchase requirement for Evergreen High Grade is
$1,000. The minimum initial purchase requirement for Class A and Class Y shares
of CoreFunds Intermediate is $500 and $1,000,000, respectively. There is no
minimum for subsequent purchases of shares of either Fund. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectuses for each Fund. Each
Fund may involuntarily redeem shareholders' accounts that have less than $1,000
($500 for CoreFunds
-20-
<PAGE>
Intermediate Class A shares) of invested funds. All funds invested in each Fund
are invested in full and fractional shares. The Funds reserve the right to
reject any purchase order.
Exchange Privileges
CoreFunds Intermediate currently permits holders of Class A shares to
exchange such shares for Class A shares of another CoreFunds, Inc. portfolio.
Exchanges of Class Y shares are generally not permitted. Holders of shares of a
class of Evergreen High Grade generally may exchange their shares for shares of
the same class of any other Evergreen fund. CoreFunds Intermediate shareholders
will be receiving Class Y and Class A shares of Evergreen High Grade in the
Reorganization and, accordingly, with respect to shares of Evergreen High Grade
received by CoreFunds Intermediate shareholders in the Reorganization, the
exchange privilege is limited to the Class Y and Class A shares, as applicable,
of other Evergreen funds. Evergreen High Grade limits exchanges to five per
calendar year and three per calendar quarter. No sales charge is imposed on an
exchange. An exchange which represents an initial investment in another
Evergreen fund must amount to at least $1,000. The current exchange privileges,
and the requirements and limitations attendant thereto, are described in each
Fund's respective Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund declares dividends daily and distributes its income dividends
monthly. Distributions of any net realized gains of a Fund will be made at least
annually. Shareholders begin to earn dividends on the first business day after
shares are purchased unless shares were not paid for, in which case dividends
are not earned until the next business day after payment is received. Dividends
and distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectuses of each Fund for further information concerning
dividends and distributions.
After the Reorganization, shareholders of CoreFunds Intermediate who
have elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Evergreen High Grade reinvested in
shares of Evergreen High Grade. Shareholders of CoreFunds Intermediate who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Evergreen High Grade in cash after the Reorganization,
although they may, after
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<PAGE>
the Reorganization, elect to have such dividends and/or distributions reinvested
in additional shares of Evergreen High Grade.
Each of Evergreen High Grade and CoreFunds Intermediate has qualified
and intends to continue to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). While
so qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are
comparable, the risks involved in investing in each Fund's shares are similar.
Evergreen High Grade may engage in certain investment techniques and invest in
certain securities in which CoreFunds Intermediate may not invest or in which
CoreFunds Intermediate may invest but with a lower percentage of total assets.
In this regard, Evergreen High Grade may invest in options while CoreFunds
Intermediate may not. While both Evergreen High Grade and CoreFunds Intermediate
may engage in put transactions, premiums on all puts outstanding may not exceed
2% of CoreFunds Intermediate's total assets; Evergreen High Grade is not subject
to such a percentage limitation. For a discussion of the risks associated with
the foregoing investments and investment techniques, please see the Prospectuses
for Evergreen High Grade and CoreFunds Intermediate. There is no assurance that
investment performances will be positive and that the Funds will meet their
investment objectives. For a discussion of each Fund's objectives and policies,
see "Comparison of Investment Objectives and Policies."
Bond prices move inversely to interest rates, i.e., as interest rates
decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
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<PAGE>
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Like all fixed income funds, each Fund is also subject to credit risk
and call risk. Credit risk is the possibility that an issuer (or its guarantor)
will be unable to make timely payments of either principal or interest. Call
risk is the possibility that securities with high interest rates will be prepaid
(or "called") by the issuer prior to maturity during periods of falling interest
rates. This would require a Fund to invest the resulting proceeds elsewhere at
generally lower interest rates. This is also known as income risk.
At December 31, 1997, the dollar-weighted average maturity of Evergreen
High Grade's portfolio securities was 14.4 years and the dollar-weighted average
maturity of CoreFunds Intermediate's portfolio securities was 6.2 years. Prices
of longer-term bonds tend to be more volatile in periods of changing interest
rates than prices of shorter-term securities.
REASONS FOR THE REORGANIZATION
On November 18, 1997, First Union entered into an Agreement and Plan of
Merger with CoreStates Financial, which provided, among other things, for the
Merger of CoreStates Financial with and into a wholly-owned subsidiary of First
Union. The Merger was consummated on April 30, 1998. As a result of the Merger
it is expected that FUNB and its affiliates will succeed to the investment
advisory and administrative functions currently performed for CoreFunds
Intermediate by various units of CoreStates Financial and various unaffiliated
parties. It is also expected that CoreStates Financial and its subsidiaries will
no longer, upon completion of the Reorganization and similar reorganizations of
other portfolios of CoreFunds, Inc., provide investment advisory or
administrative services to investment companies.
Based on information received from CSIA and FUNB, at a meeting held on
February 6, 1998, all of the Directors present, including the Independent
Directors, considered and approved the Reorganization as in the best interests
of shareholders of CoreFunds Intermediate and determined that the
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<PAGE>
interests of existing shareholders of CoreFunds Intermediate will
not be diluted as a result of the transactions contemplated by
the Reorganization. In addition, the Directors approved the
Interim Advisory Agreement with respect to CoreFunds
Intermediate.
As noted above, CoreStates Financial has merged with and into a
wholly-owned subsidiary of First Union. CoreStates Financial is the parent
company of CSIA, investment adviser to the mutual funds which comprise
CoreFunds, Inc. The Merger caused, as a matter of law, termination of the
investment advisory agreement between each series of CoreFunds, Inc. and CSIA
with respect to the Fund. CoreFunds, Inc. has received an order from the SEC
which permits CSIA to continue to act as CoreFunds Intermediate's investment
adviser, without shareholder approval, for a period of not more than 150 days
from the date the Merger was consummated April 30, 1998 to the date of
shareholder approval of a new investment advisory agreement. Accordingly, the
Directors considered the recommendations of CSIA in approving the proposed
Reorganization.
In approving the Plan, the Directors reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen High Grade and CoreFunds Intermediate. Specifically, Evergreen
High Grade and CoreFunds Intermediate have substantially similar investment
objectives and policies and comparable risk profiles. See "Comparison of
Investment Objectives and Policies" below. At the same time, the Board of
Directors evaluated the potential economies of scale associated with larger
mutual funds and concluded that operational efficiencies may be achieved upon
the combination of CoreFunds Intermediate with Evergreen High Grade. As of
December 31, 1997, Evergreen High Grade's net assets were approximately $105
million and CoreFunds Intermediate's net assets were approximately $2 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that CoreFunds Intermediate continue its existence and be
separately managed by FUNB or one of its affiliates, CoreFunds Intermediate
would be offered through common distribution channels with the similar Evergreen
High Grade. CoreFunds Intermediate would also have to bear the cost of
maintaining its separate existence. CSIA and FUNB believe that the prospect of
dividing the resources of the Evergreen mutual fund organization between two
similar funds could result in each Fund being disadvantaged due to an inability
to achieve optimum size, performance levels and greater economies of scale.
Accordingly, for the reasons noted above and
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<PAGE>
recognizing that there can be no assurance that any economies of scale or other
benefits will be realized, CSIA and FUNB believe that the proposed
Reorganization would be in the best interests of each Fund and its shareholders.
The Board of Directors of CoreFunds, Inc. met and considered the
recommendation of CSIA and FUNB, and, in addition, considered among other
things, (i) the terms and conditions of the Reorganization; (ii) whether the
Reorganization would result in the dilution of shareholders' interests; (iii)
expense ratios, fees and expenses of Evergreen High Grade and CoreFunds
Intermediate and the agreement by Evergreen High Grade's investment adviser to
limit Evergreen High Grade's annual operating expenses for a period of at least
two years to the current annual operating expenses (before waivers) of CoreFunds
Intermediate; (iv) the comparative performance records of each of the Funds; (v)
compatibility of their investment objectives and policies; (vi) the investment
experience, expertise and resources of FUNB; (vii) the service and distribution
resources available to the Evergreen funds and the broad array of investment
alternatives available to shareholders of the Evergreen funds; (viii) the
personnel and financial resources of First Union and its affiliates; (ix) the
fact that FUNB will bear the expenses incurred by CoreFunds Intermediate in
connection with the Reorganization; (x) the fact that Evergreen High Grade will
assume the identified liabilities of CoreFunds Intermediate; and (xi) the
expected federal income tax consequences of the Reorganization.
The Directors also considered the benefits to be derived by
shareholders of CoreFunds Intermediate from the sale of its assets to Evergreen
High Grade. In this regard, the Directors considered the potential benefits of
being associated with a larger entity and the economies of scale that could be
realized by the participation in such an entity by shareholders of CoreFunds
Intermediate.
In addition, the Directors considered that there are alternatives
available to shareholders of CoreFunds Intermediate, including the ability to
redeem their shares, as well as the option to vote against the Reorganization.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection therewith
under certain conditions. One condition is that for three years thereafter, at
least 75% of the board of directors of a surviving investment company are not
-25-
<PAGE>
"interested persons" of the company's investment adviser or of the investment
adviser of the terminating investment company. Another condition is that no
"unfair burden" is imposed on the investment company as a result of the
understandings applicable thereto. The term "unfair burden" is considered under
the 1940 Act to include any arrangement during the two-year period after the
transaction whereby the investment adviser (or predecessor or successor
adviser), or any "interested person" of any such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company (other than fees for bona fide principal underwriting
services). FUNB advised CoreFunds Inc. that it intends to comply with conditions
set forth in Section 15(f).
During their consideration of the Reorganization the Directors met with
Fund counsel regarding the legal issues involved. The Trustees of Evergreen
Municipal Trust also concluded at a meeting on February 11, 1998 that the
proposed Reorganization would be in the best interests of shareholders of
Evergreen High Grade and that the interests of the shareholders of Evergreen
High Grade would not be diluted as a result of the transactions contemplated by
the Reorganization.
The Directors of CoreFunds, Inc. have voted to retain their ability to
make claims under their existing Directors and Officers Errors and Omissions
Liability Insurance Policy for a period of three years following the
consummation of the Reorganization. CoreStates Financial and First Union have
agreed to take appropriate steps to insure that the cost of extending such
coverage will not be borne by CoreFunds Intermediate's shareholders.
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND
THAT THE SHAREHOLDERS OF COREFUNDS INTERMEDIATE APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Evergreen High Grade will acquire all of the
assets of CoreFunds Intermediate in exchange for shares of Evergreen High Grade
and the assumption by Evergreen High Grade
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<PAGE>
of the identified liabilities of CoreFunds Intermediate on or about July 27,
1998 or such other date as may be agreed upon by the parties (the "Closing
Date"). Prior to the Closing Date, CoreFunds Intermediate will endeavor to
discharge all of its known liabilities and obligations. Evergreen High Grade
will not assume any liabilities or obligations of CoreFunds Intermediate other
than those reflected in an unaudited statement of assets and liabilities of
CoreFunds Intermediate prepared as of the close of regular trading on the NYSE,
currently 4:00 p.m. Eastern time, on the business day immediately prior to the
Closing Date. The number of full and fractional shares of each class of
Evergreen High Grade to be received by the shareholders of CoreFunds
Intermediate will be determined by multiplying the respective outstanding class
of shares of CoreFunds Intermediate by a factor which shall be computed by
dividing the net asset value per share of the respective class of shares of
CoreFunds Intermediate by the net asset value per share of the respective class
of shares of Evergreen High Grade. Such computations will take place as of the
close of regular trading on the NYSE on the business day immediately prior to
the Closing Date. The net asset value per share of each class will be determined
by dividing assets, less liabilities, in each case attributable to the
respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for Evergreen High
Grade, will compute the value of each Fund's respective portfolio securities.
The method of valuation employed will be consistent with the procedures set
forth in the Prospectuses and Statement of Additional Information of Evergreen
High Grade, Rule 22c-1 under the 1940 Act, and with the interpretations of such
Rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, CoreFunds Intermediate will have
declared a dividend or dividends and distribution or distributions which,
together with all previous dividends and distributions, shall have the effect of
distributing to the Fund's shareholders (in shares of the Fund, or in cash, as
the shareholder has previously elected) all of the Fund's net investment company
taxable income for the taxable period ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized in all taxable periods ending on the Closing Date (after
reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, CoreFunds
Intermediate will liquidate and distribute pro rata to shareholders of record as
of the close of business on the Closing
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<PAGE>
Date the full and fractional shares of Evergreen High Grade received by
CoreFunds Intermediate. Such liquidation and distribution will be accomplished
by the establishment of accounts in the names of the Fund's shareholders on
Evergreen High Grade's share records at its transfer agent. Each account will
represent the respective pro rata number of full and fractional shares of
Evergreen High Grade due to the Fund's shareholders. All issued and outstanding
shares of CoreFunds Intermediate, including those represented by certificates,
will be canceled. The shares of Evergreen High Grade to be issued will have no
preemptive or conversion rights. After these distributions and the winding up of
its affairs, CoreFunds Intermediate will be terminated. In connection with such
termination, CoreFunds, Inc. will file with the SEC an application for
termination as a registered investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by CoreFunds Intermediate's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel, including opinions with respect to those matters referred to in
"Federal Income Tax Consequences" below. Notwithstanding approval of CoreFunds
Intermediate's shareholders, the Plan may be terminated (a) by the mutual
agreement of CoreFunds Intermediate and Evergreen High Grade; or (b) at or prior
to the Closing Date by either party (i) because of a breach by the other party
of any representation, warranty, or agreement contained therein to be performed
at or prior to the Closing Date if not cured within 30 days, or (ii) because a
condition to the obligation of the terminating party has not been met and it
reasonably appears that it cannot be met.
The expenses of CoreFunds Intermediate in connection with the
Reorganization (including the cost of any proxy soliciting agent) will be borne
by FUNB whether or not the Reorganization is consummated. No portion of such
expenses will be borne directly or indirectly by CoreFunds Intermediate or its
shareholders.
If the Reorganization is not approved by shareholders of CoreFunds
Intermediate, the Board of Directors of CoreFunds, Inc. will consider other
possible courses of action in the best interests of shareholders.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of the Reorganization,
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<PAGE>
CoreFunds Intermediate will receive an opinion of Sullivan & Worcester LLP to
the effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) The transfer of all of the assets of CoreFunds Intermediate solely
in exchange for shares of Evergreen High Grade and the assumption by Evergreen
High Grade of the identified liabilities, followed by the distribution of
Evergreen High Grade's shares by CoreFunds Intermediate in dissolution and
liquidation of CoreFunds Intermediate, will constitute a "reorganization" within
the meaning of section 368(a)(1)(C) of the Code, and Evergreen High Grade and
CoreFunds Intermediate will each be a "party to a reorganization" within the
meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by CoreFunds Intermediate on the
transfer of all of its assets to Evergreen High Grade solely in exchange for
Evergreen High Grade's shares and the assumption by Evergreen High Grade of the
identified liabilities of CoreFunds Intermediate or upon the distribution of
Evergreen High Grade's shares to CoreFunds Intermediate's shareholders in
exchange for their shares of CoreFunds Intermediate;
(3) The tax basis of the assets transferred will be the same to
Evergreen High Grade as the tax basis of such assets to CoreFunds Intermediate
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen High Grade will include the period during which the
assets were held by CoreFunds Intermediate;
(4) No gain or loss will be recognized by Evergreen High Grade upon the
receipt of the assets from CoreFunds Intermediate solely in exchange for the
shares of Evergreen High Grade and the assumption by Evergreen High Grade of the
identified liabilities of CoreFunds Intermediate;
(5) No gain or loss will be recognized by CoreFunds Intermediate's
shareholders upon the issuance of the shares of Evergreen High Grade to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of CoreFunds Intermediate; and
(6) The aggregate tax basis of the shares of Evergreen High Grade,
including any fractional shares, received by each of the
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<PAGE>
shareholders of CoreFunds Intermediate pursuant to the Reorganization will be
the same as the aggregate tax basis of the shares of CoreFunds Intermediate held
by such shareholder immediately prior to the Reorganization, and the holding
period of the shares of Evergreen High Grade, including fractional shares,
received by each such shareholder will include the period during which the
shares of CoreFunds Intermediate exchanged therefor were held by such
shareholder (provided that the shares of CoreFunds Intermediate were held as a
capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of CoreFunds Intermediate
would recognize a taxable gain or loss equal to the difference between his or
her tax basis in his or her Fund shares and the fair market value of Evergreen
High Grade shares he or she received. Shareholders of CoreFunds Intermediate
should consult their tax advisers regarding the effect, if any, of the proposed
Reorganization in light of their individual circumstances. It is not anticipated
that the securities of the combined portfolio will be sold in significant
amounts in order to comply with the policies and investment practices of
Evergreen High Grade. Since the foregoing discussion relates only to the federal
income tax consequences of the Reorganization, shareholders of CoreFunds
Intermediate should also consult their tax advisers as to the state and local
tax consequences, if any, of the Reorganization.
Capital loss carry forwards of CoreFunds Intermediate will be available
to Evergreen High Grade to offset capital gains recognized after the
Reorganization, subject to limitations imposed by the Code. These limitations
provide generally that the amount of loss carryforward which may be used in any
year following the closing is an amount equal to the value of all of the
outstanding stock of CoreFunds Intermediate immediately prior to the
Reorganization, multiplied by a long-term tax-exempt bond rate determined
monthly by the Internal Revenue Service. The rate for February, 1998 was 5.23%.
A capital loss carryforward may generally be used without any limit to offset
gains recognized on sale of assets transferred by CoreFunds Intermediate to
Evergreen High Grade pursuant to the Reorganization, to the extent of the excess
of the value of any such asset on the Closing Date of the Reorganization over
its tax basis.
Pro-forma Capitalization
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The following table sets forth the capitalizations of Evergreen High
Grade and CoreFunds Intermediate as of December 31, 1997, and the capitalization
of Evergreen High Grade on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value. The pro forma data
reflects an exchange ratio of approximately 0.90070 and 0.90070 Class Y and
Class A shares, respectively, of Evergreen High Grade issued for each Class Y
and Class A share, respectively, of CoreFunds Intermediate.
Capitalization of CoreFunds Intermediate,
Evergreen High Grade and Evergreen
High Grade (Pro Forma)
<TABLE>
<CAPTION>
Evergreen
High Grade
(After
CoreFunds Evergreen Reorgani-
Intermediate High Grade zation)
---------- ---------- ----------
<S> <C> <C> <C>
Net Assets
Class A........................ $965,838 $46,568,009 $47,533,847
Class B........................ N/A $32,896,746 $32,896,746
Class Y........................ $906,211 $25,203,936 $26,110,147
------------ ----------- ------------
Total Net Assets . $1,872,049 $104,668,691 $106,540,740
Net Asset Value Per
Share
Class A........................ $10.25 $11.38 $11.38
Class B........................ N/A $11.38 $11.38
Class Y........................ $10.25 $11.38 $11.38
Shares Outstanding
Class A........................ 94,207 4,090,585 4,175,438
Class B........................ N/A 2,889,689 2,889,689
Class Y........................ 88,385 2,213,947 2,293,556
----------- --------- ----------
All Classes.................... 182,592 9,194,221
9,358,683
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.
-31-
<PAGE>
Shareholder Information
As of May 29, 1998 (the "Record Date"), the following number of each
Class of shares of beneficial interest of CoreFunds Intermediate was
outstanding:
Class of Shares
- ---------------
Class Y........................................ 104,243
Class A........................................ 91,864
-------
All Classes.................................... 196,107
As of March 31, 1998, the officers and Directors of CoreFunds, Inc.
beneficially owned as a group less than 1% of the outstanding shares of
CoreFunds Intermediate. To CoreFunds, Inc.'s knowledge, the following persons
owned beneficially or of record more than 5% of CoreFunds Intermediate's total
outstanding shares as of March 31, 1998:
<TABLE>
<CAPTION>
Percentage
of Shares Percentage of
of Class Shares of
Before Class After
No. of Reorgani- Reorgani-
Name and Address Class Shares zation zation
- ---------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
Patterson & Co Y
PNB Personal Trust 92,939 98.20%
Acctg
P.O. Box 7829
Philadelphia, PA
19101-7829
3.55%
-32-
<PAGE>
Percentage
of Shares Percentage of
of Class Shares of
Before Class After
No. of Reorgani- Reorgani-
Name and Address Class Shares zation zation
- ---------------- ----- ------ --------- ---------
National Financial A 13.43% 0.19%
Services Corp. For 12,392
Exclusive Use of Our
Customers
200 Liberty St.
4th Floor
1 World Financial
Center
New York NY 10281-
1003
A 5.78% 0.08%
Joseph T. Oprocha & 5,332
Theresa E. Oprocha
JTTEN
107 Snyder Ave.
Philadelphia PA
19148-2617
A 5.60% 0.08%
Irene Sungaila 5,164
5214 Burton Street
Philadelphia PA
19124-1502
A 6.50% 0.09%
Thomas Glenn 5,993
827 North 63rd St.
Philadelphia PA
19151-3411
A 5.44% 0.08%
Lowell S. Hunter 5,016
25 Hunter Road
Lambertville, NJ
08530-2704
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statement of
Additional Information of the Funds. The investment objective, policies and
restrictions of
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<PAGE>
Evergreen High Grade can be found in the Prospectuses of Evergreen High Grade
under the caption "Description of the Funds - Investment Objectives and
Policies" and "Investment Practices and Restrictions." Evergreen High Grade's
Prospectuses also offer additional funds advised by FUNB or its affiliates.
These additional funds are not involved in the Reorganization, their investment
objectives and policies are not discussed in this Prospectus/Proxy Statement,
and their shares are not offered hereby. The investment objective, policies and
restrictions of CoreFunds Intermediate can be found in the respective
Prospectuses of the Fund under the caption "Information on the Funds." Unlike
the investment objective of CoreFunds Intermediate, which is fundamental, the
investment objective of Evergreen High Grade is non-fundamental and can be
changed by the Board of Trustees without shareholder approval.
The investment objective of Evergreen High Grade is to achieve a high
level of federally tax free income that is consistent with preservation of
capital. These securities are "Municipal Securities." (See below). At least 65%
of the value of the total assets of Evergreen High Grade will be invested in
high grade bonds. High grade bonds mean: bonds insured by a municipal bond
insurance company which is rated AAA by S&P and/or Aaa by Moody's; bonds rated A
or better by S&P or Moody's; or, if unrated, of comparable quality as determined
by Evergreen High Grade's investment adviser. The insurance guarantees the
timely payment of principal and interest, but not the value of the municipal
bonds or the shares of Evergreen High Grade. Evergreen High Grade may also
purchase instruments having variable amount master demand notes. These notes
represent a borrowing arrangement between a commercial paper issuer (borrower)
and an institutional lender, such as the Fund, and are payable upon demand. The
underlying amount of the loan may vary during the course of the contract, as may
the interest on the outstanding amount, depending on a stated short-term
interest rate index.
Under normal circumstances, at least 80% of CoreFunds Intermediate's
assets are invested in Municipal Securities the interest on which is exempt from
regular federal income taxes in the opinion of counsel to the issuer. Up to 20%
of the Fund's assets can be invested in taxable obligations for defensive
purposes or when appropriate tax-exempt securities are not available. CoreFunds
Intermediate strives to provide a return greater than bond indices such as the
Lehman Brothers 7-year Municipal Bond Index.
The Municipal Securities in which Evergreen High Grade invests are debt
obligations issued by states, territories
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<PAGE>
and possessions of the United States ("U.S.") and by the District of Columbia,
and their political subdivisions and duly constituted authorities, the interest
from which is exempt from federal income tax other than the Alternative Minimum
Tax ("AMT").
Under current tax law, a distinction is drawn between Municipal
Securities issued to finance certain "private activities" and other Municipal
Securities. Such private activity bonds include bonds issued to finance such
projects as airports, housing projects, resource recovery programs, solid waste
disposal facilities, student loan programs, and water and sewage projects.
Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes
an item of "tax preference" which is subject to the AMT when received by a
person in a tax year during which such person is subject to that tax. Because
interest income on AMT-Subject Bonds is taxable to certain investors, it is
expected, although there can be no guarantee, that such Municipal Securities
generally will provide somewhat higher yields than other Municipal Securities of
comparable quality and maturity.
Both Evergreen High Grade and CoreFunds Intermediate invest in
Municipal Securities so long as they are determined to be of high or upper
medium quality. Municipal securities meeting this criteria include bonds rated A
or higher by S&P, Moody's or another nationally recognized statistical rating
organization ("NRSRO"); notes rated SP-1 or SP-2 by S&P or MIG-1 or MIG-2 by
Moody's or rated VMIG-1 or VMIG-2 by Moody's in the case of variable rate demand
notes or having comparable ratings from another NRSRO; and commercial paper
rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's or having comparable
ratings from another NRSRO. Each Fund may also invest in general obligation
bonds which are rated BBB by S&P, Baa by Moody's or bear a similar rating from
another NRSRO. Medium grade bonds are more susceptible to adverse economic
conditions or changing circumstances than higher rate bonds. However, like the
higher rated bonds, these securities are considered to be investment grade. Each
Fund may also purchase Municipal Securities which are unrated at the time of
purchase, if such securities are determined by the Fund's investment adviser to
be of comparable quality.
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<PAGE>
Municipal Securities. Municipal Securities include municipal bonds,
short-term municipal notes and tax-exempt commercial paper. "Municipal
Securities" are debt obligations issued to obtain funds for various public
purposes that are exempt from federal income tax in the opinion of issuer's
counsel. The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific source such as from the user
of the facility being financed. The term "Municipal Securities" also includes
"moral obligation" issues which are normally issued by special purpose
authorities. Industrial development bonds ("IDBs") and private activity bonds
("PABs") are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. Participation interests are interests in
Municipal Securities, including IDBs and PABs, and floating and variable rate
obligations that are owned by banks. These interests carry a demand feature
permitting the holder to tender them back to the bank, which demand feature is
backed by an irrevocable letter of credit or guarantee of the bank. A put bond
is a municipal bond which gives the holder the unconditional right to sell the
bond back to the issuer at a specified price and exercise date, which is
typically well in advance of the bond's maturity date. "Short-term municipal
notes" and "tax-exempt commercial paper" include tax anticipation notes, bond
anticipation notes, revenue anticipation notes and other forms of short-term
loans. Such notes are issued with a short-term maturity in anticipation of the
receipt of tax funds, the proceeds of bond placements and other revenues.
Municipal Bond Insurance. Evergreen High Grade will require municipal bond
insurance when purchasing Municipal Securities which would not otherwise meet
the Fund's quality standards. Evergreen High Grade may also require insurance
when, in the opinion of the Fund's investment adviser, such insurance would
benefit the Fund (for example, through improvement of portfolio quality or
increased liquidity of certain securities). The purpose of municipal bond
insurance is to guarantee the timely payment of principal at maturity and
interest. CoreFunds Intermediate does not require such insurance.
-36-
<PAGE>
Securities in Evergreen High Grade's portfolio may be insured in one of
two ways: (1) by a policy applicable to a specific security, obtained by the
issuer of the security or by a third party ("Issuer-Obtained Insurance") or (2)
under master insurance policies issued by municipal bond insurers, purchased by
the Fund (the "Policies"). If a security's coverage is Issuer-Obtained, then
that security does not need to be covered in the Policies. Annual premiums for
these Policies are paid by the Fund and are estimated to range from 0.10% to
0.25% of the value of the Municipal Securities covered under the Policies, with
an average annual premium rate of approximately 0.175%. While the insurance
feature reduces financial risk, the cost thereof and the restrictions on
investment imposed by the guidelines in the Policies reduce the yield to
shareholders.
Floating Rate and Variable Rate Obligations. Municipal Securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. Each Fund may invest in floating rate and variable rate
obligations. These variable rate securities do not have fixed interest rates;
rather, those rates fluctuate based upon changes in specified market rates, such
as the prime rate, or are adjusted at predesignated periodic intervals. Certain
of these obligations may carry a demand feature that gives a Fund the right to
demand prepayment of the principal amount of the security prior to its maturity
date. The demand obligation may or may not be backed by letters of credit or
other guarantees of banks or other financial institutions. Such guarantees may
enhance the quality of the security.
-37-
<PAGE>
Taxable Investments. Evergreen High Grade may temporarily invest up to 20% of
its total assets in taxable securities under any one or more of the following
circumstances: (a) pending investment of proceeds of sale of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities, and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, Evergreen High Grade may temporarily invest more than
20% of its total assets in taxable securities for defensive purposes. Evergreen
High Grade may invest for defensive purposes during periods when its assets
available for investment exceed the available Municipal Securities that meet its
quality and other investment criteria. Taxable securities in which Evergreen
High Grade may invest on a short-term basis include obligations of the U.S.
government, its agencies or instrumentalities, including repurchase agreements
with banks or securities dealers involving such securities; time deposits
maturing in not more than seven days; other debt securities rated within the two
highest ratings assigned by any major rating service; commercial paper rated in
the highest grade by Moody's, S&P or any SRO; and certificates of deposit issued
by U.S. branches of U.S. banks with assets of $1 billion or more. CoreFunds
Intermediate may also invest up to 20% of its total assets in taxable
obligations for defensive purposes or when appropriate tax-exempt securities are
not available.
-38-
<PAGE>
The characteristics of each investment policy and the associated risks are
described in each Fund's respective Prospectuses and Statements of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectuses and Statement of Additional Information of
each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Municipal Trust and CoreFunds, Inc. are open-end
management investment companies registered with the SEC under the
1940 Act, which continuously offer shares to the public.
Evergreen Municipal Trust is organized as a Delaware business
trust and is governed by its Declaration of Trust, By-Laws and a
Board of Trustees. CoreFunds, Inc. is organized as a Maryland
corporation and is governed by its Articles of Incorporation, By-
Laws and a Board of Directors. Each entity is also governed by
applicable Delaware, Maryland and federal law. Evergreen High
-39-
<PAGE>
Grade is a series of Evergreen Municipal Trust and CoreFunds Intermediate is a
series of CoreFunds, Inc.
Capitalization
The beneficial interests in Evergreen High Grade are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. CoreFunds, Inc.'s authorized shares consist of 30 billion shares of
common stock, par value $.001 per share, of which 100 million are classified as
Class Y shares and 100 million are classified as Class A shares of CoreFunds
Intermediate. Evergreen Municipal Trust's Declaration of Trust and CoreFunds,
Inc.'s Articles of Incorporation permit the Trustees or Directors, respectively,
to allocate shares into an unlimited number of series, and classes thereof, with
rights determined by the Trustees or Directors, respectively, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Funds. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees or Directors. Shareholders of each Fund
vote separately, by class, as to matters, such as approval of or amendments to
Rule 12b-1 distribution plans, that affect only their particular class and by
Fund as to matters, such as approval of or amendments to investment advisory
agreements or proposed reorganizations, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Municipal Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Municipal
Trust to liability. To guard against this risk, the Declaration of Trust of
Evergreen Municipal Trust (a) provides that any written obligation of the Trust
may contain a statement that such obligation may only be enforced against the
assets of the Trust or the particular series in question and the obligation is
not binding upon the shareholders of the Trust; however, the omission of such a
disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the
-40-
<PAGE>
obligations of the Trust. Accordingly, the risk of a shareholder of Evergreen
Municipal Trust incurring financial loss beyond that shareholder's investment
because of shareholder liability is limited to circumstances in which: (i) the
court refuses to apply Delaware law; (ii) no contractual limitation of liability
was in effect; and (iii) the Trust itself is unable to meet its obligations. In
light of Delaware law, the nature of the Trust's business, and the nature of its
assets, the risk of personal liability to a shareholder of Evergreen Municipal
Trust is remote.
Under Maryland law, shareholders of CoreFunds Intermediate have no
personal liability as such for the acts or obligations of the Fund or CoreFunds,
Inc., as the case may be.
Shareholder Meetings and Voting Rights
Neither Evergreen Municipal Trust on behalf of Evergreen High Grade nor
CoreFunds, Inc. on behalf of CoreFunds Intermediate is required to hold annual
meetings of shareholders. However, a meeting of shareholders for the purpose of
voting upon the question of removal of a Trustee or Director must be called when
requested in writing by the holders of at least 10% of the outstanding shares of
Evergreen Municipal Trust or CoreFunds, Inc. In addition, each is required to
call a meeting of shareholders for the purpose of electing Trustees or Directors
if, at any time, less than a majority of the Trustees or Directors then holding
office were elected by shareholders. Neither Evergreen Municipal Trust nor
CoreFunds, Inc. currently intends to hold regular shareholder meetings and
neither entity permits cumulative voting. Except when a larger quorum is
required by applicable law, with respect to Evergreen High Grade, twenty-five
percent (25%) of the outstanding shares entitled to vote, and with respect to
CoreFunds Intermediate, a majority of the outstanding shares entitled to vote
constitutes a quorum for consideration of such matter. For Evergreen High Grade,
a majority of the votes cast and entitled to vote, and for CoreFunds
Intermediate, a majority of the outstanding shares, is sufficient to act on a
matter (unless otherwise specifically required by the applicable governing
documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Municipal Trust, each share
of Evergreen High Grade will be entitled to one vote for each dollar of net
asset value applicable to each share. Under the voting provisions governing
CoreFunds Intermediate, each share is entitled to one vote. Over time, the net
asset values of the mutual funds which are each a series of CoreFunds,
-41-
<PAGE>
Inc. have changed in relation to one another and are expected to continue to do
so in the future. Because of the divergence in net asset values, a given dollar
investment in a fund with a lower net asset value will purchase more shares, and
under CoreFunds Intermediate's voting provisions, have more votes, than the same
investment in a fund with a higher net asset value. Under the Declaration of
Trust of Evergreen Municipal Trust, voting power is related to the dollar value
of the shareholders' investment rather than to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen High Grade or CoreFunds
Intermediate, the shareholders are entitled to receive, when and as declared by
the Trustees or Directors, respectively, the excess of the assets belonging to
such Fund or attributable to the class over the liabilities belonging to the
Fund or attributable to the class. In either case, the assets so distributable
to shareholders of the Fund will be distributed among the shareholders in
proportion to the number of shares of a class of the Fund held by them and
recorded on the books of the Fund.
Liability and Indemnification of Trustees
The By-Laws of CoreFunds, Inc. provide that a present or former
Director or officer is entitled to indemnification to the full extent
permissible under the laws of the State of Maryland and the 1940 Act against
liabilities and expenses with respect to claims related to his or her position
with CoreFunds, Inc., provided that no indemnification shall be provided to a
Director or officer against any liability to CoreFunds, Inc. or any shareholder
by reasons of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Under the Declaration of Trust of Evergreen Municipal Trust, a Trustee
is liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross
-42-
<PAGE>
negligence or reckless disregard of such Trustee's duties; and (iii) in a
criminal proceeding, had reasonable cause to believe that such Trustee's conduct
was unlawful (collectively, "disabling conduct"). A determination that the
Trustee did not engage in disabling conduct and is, therefore, entitled to
indemnification may be based upon the outcome of a court action or
administrative proceeding or by (a) a vote of a majority of those Trustees who
are neither "interested persons" within the meaning of the 1940 Act nor parties
to the proceeding or (b) an independent legal counsel in a written opinion. The
Trust may also advance money for such litigation expenses provided that the
Trustee undertakes to repay the Trust if his or her conduct is later determined
to preclude indemnification and certain other conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Municipal Trust, Articles of
Incorporation , By-Laws, Delaware and Maryland law and is not a complete
description of those documents or law. Shareholders should refer to the
provisions of such Declaration of Trust, Articles of Incorporation of CoreFunds,
Inc., By-Laws, Delaware and Maryland law directly for more complete information.
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Directors of CoreFunds, Inc. recommends that shareholders of
CoreFunds Intermediate approve the Interim Advisory Agreement. The Merger became
effective on April 30, 1998. Pursuant to an order received from the SEC all fees
payable under the Interim Advisory Agreement will be placed in escrow and paid
to CSIA if shareholders approve the contract within 150 days of its effective
date. The Interim Advisory Agreement will remain in effect until the earlier of
the Closing Date for the Reorganization or two years from its effective date.
The terms of the Interim Advisory Agreement are essentially the same as the
Previous Advisory Agreement (as defined below). The only difference between the
Previous Advisory Agreement and the Interim Advisory Agreement, if approved by
shareholders, is the length of time each Agreement is in effect. A description
of the Interim Advisory Agreement pursuant to which CSIA continues as investment
adviser to CoreFunds Intermediate, as well as the services to be provided by
CSIA pursuant thereto, is set forth below under "Advisory Services." The
description of the Interim Advisory Agreement in
-43-
<PAGE>
this Prospectus/Proxy Statement is qualified in its entirety by reference to the
Interim Advisory Agreement, attached hereto as Exhibit B.
CSIA, a Pennsylvania corporation, is an indirect wholly-owned
subsidiary of First Union. CSIA's address is 1500 Market Street, Philadelphia,
Pennsylvania 19102. CSIA has served as investment adviser pursuant to an
Investment Advisory Agreement dated April 12, 1996. As used herein, the
Investment Advisory Agreement for CoreFunds Intermediate is referred to as the
"Previous Advisory Agreement." At a meeting of the Board of Directors of
CoreFunds, Inc. held on February 6, 1998, the Directors, including a majority of
the Independent Directors, approved the Interim Advisory Agreement for CoreFunds
Intermediate.
The Directors have authorized CoreFunds, Inc., on behalf of CoreFunds
Intermediate, to enter into the Interim Advisory Agreement with CSIA. Such
Agreement became effective on April 30, 1998. If the Interim Advisory Agreement
for CoreFunds Intermediate is not approved by shareholders, the Directors will
consider appropriate actions to be taken with respect to CoreFunds
Intermediate's investment advisory arrangements at that time. The Previous
Advisory Agreement was last approved by the Directors, including a majority of
the Independent Directors, on June 5, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by CSIA under the Interim Advisory Agreement are identical to those currently
provided by CSIA under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, CSIA manages the investment
portfolio of CoreFunds Intermediate, makes decisions about and places orders for
all purchases and sales of the Fund's securities, and maintains certain records
relating to these purchases and sales.
Fees. The investment advisory fees for CoreFunds
Intermediate under the Previous Advisory Agreement and the
-44-
<PAGE>
Interim Advisory Agreement are identical. See "Summary -
Investment Advisers."
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, CSIA was required to pay all expenses incurred by it in
connection with its activities under the Agreement other than the cost of
securities (including brokerage commissions, if any) purchased for the Fund and
the cost of obtaining market quotations of portfolio securities held by the
Fund.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
CSIA was not liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of the Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of CSIA in the performance of its duties
or from reckless disregard by it of its obligations and duties under the
Agreement.
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of CoreFunds Intermediate (as defined in the 1940 Act) or by a
vote of a majority of CoreFunds, Inc.'s entire Board of Directors on 60 days'
written notice to CSIA or by CSIA on 60 days' written notice to CoreFunds, Inc.
Also, the Interim Advisory Agreement will automatically terminate in the event
of its assignment (as defined in the 1940 Act).
The Previous Advisory Agreement contained identical provisions as to
termination and assignment.
Information About CoreFunds Intermediate's Investment Adviser
CSIA, a registered investment adviser, manages, in addition to the
Fund, other funds of CoreFunds, Inc. The name and address of each executive
officer and director of CSIA is set forth in Appendix A to this Prospectus/Proxy
Statement.
-45-
<PAGE>
During the fiscal years ended June 30, 1997, 1996 and 1995, CSIA
received from CoreFunds Intermediate management fees of $2,779, $871 and $2,752,
respectively, and voluntarily waived fees of $6,279, $5,571 and $6,425,
respectively. CSIA is currently waiving a portion of its management fee. See
"Comparison of Fees and Expenses." CoreStates Bank, N.A. acts without charge as
custodian for CoreFunds Intermediate.
The Board of Directors considered the Interim Advisory Agreement as
part of its overall approval of the Plan. The Board of Directors considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Directors also considered the fact that there were
no material differences between the terms of the Interim Advisory Agreement and
the terms of the Previous Advisory Agreement.
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND
THAT THE SHAREHOLDERS OF COREFUNDS INTERMEDIATE
APPROVE THE INTERIM ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen High Grade. Information concerning the operation and
management of Evergreen High Grade is incorporated herein by reference from the
Prospectuses, as supplemented, dated September 3, 1997, copies of which are
enclosed, and Statement of Additional Information of the same date, as
supplemented dated September 3, 1997. A copy of such Statement of Additional
Information is available upon request and without charge by writing to Evergreen
High Grade at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-343-2898.
CoreFunds Intermediate. Information about the Fund is included in its
current Prospectuses dated November 1, 1997 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to CoreFunds Intermediate at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-355-2673.
Evergreen High Grade and CoreFunds Intermediate are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be
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<PAGE>
inspected and copies obtained at the Public Reference Facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661- 2511 and Seven World Trade Center, Suite 1300, New
York, New York 10048.
The SEC maintains a Web site (http://www.sec.gov) that contains each
Fund's Statement of Additional Information and other material incorporated by
reference herein together with other information regarding Evergreen High Grade
and CoreFunds Intermediate.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Directors of CoreFunds, Inc. to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., July 17, 1998, at the
offices of the Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston,
Massachusetts 02116, and at any adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of CoreFunds Intermediate on or about June 8, 1998. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of a majority of the outstanding shares at the close of business on
the Record Date present in person or represented by proxy will constitute a
quorum for the Meeting. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Reorganization, FOR the
Interim Advisory Agreement and FOR any other matters deemed appropriate. Proxies
that reflect abstentions and "broker non-votes" (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the beneficial
owners or the persons entitled to vote or (ii) the broker or nominee does not
have discretionary voting power on a particular matter) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will have the effect of being counted as votes against
the Plan and the Interim Advisory Agreement which must be approved by a
percentage of the shares present at the Meeting or a majority of the outstanding
voting securities. A proxy may be revoked at any time on or before the Meeting
by written notice to the Secretary of CoreFunds, Inc. at the address
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set forth on the cover of this Prospectus/Proxy Statement. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or, in
the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby and FOR approval of the Interim Advisory
Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares, with all classes voting together as a single class at
the Meeting at which a quorum of the Fund's shares is present. Approval of the
Interim Advisory Agreement will require the affirmative vote of (i) 67% or more
of the outstanding voting securities present at the Meeting if holders of more
than 50% of the outstanding voting securities are present, in person or by
proxy, at the Meeting, or (ii) more than 50% of the outstanding voting
securities, whichever is less, with all classes voting together as one class.
Each full share outstanding is entitled to one vote and each fractional share
outstanding is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of FUNB or CSIA, their affiliates or other
representatives of CoreFunds Intermediate (who will not be paid for their
soliciting activities). Shareholder Communications Corporation ("SCC") and its
agents have been engaged by CoreFunds Intermediate to assist in soliciting
proxies, and may call shareholders to ask if they would be willing to authorize
SCC to execute a proxy on their behalf authorizing the voting of their shares in
accordance with the instructions given over the telephone by the shareholders.
In addition, shareholders may call SCC at 1-800-733-8481 extension 468 between
the hours of 9:00 a.m. and 11:00 p.m. Eastern time in order to initiate the
processing of their votes by telephone. SCC will utilize a telephone vote
solicitation procedure designed to authenticate the shareholder's identity by
asking the shareholder to provide his or her social security number (in the case
of an individual) or taxpayer identification number (in the case of an entity).
The shareholder's telephone instructions will be implemented in a proxy executed
by SCC and a confirmation will be sent to the shareholder to ensure that the
vote has been authorized in accordance with the shareholder's instructions.
Although a shareholder's vote may be solicited and cast in this manner, each
shareholder will receive a copy of this Prospectus/Proxy Statement and may vote
by mail using the enclosed proxy card. CoreFunds Intermediate believes that this
telephonic voting system complies with applicable law and has reviewed an
opinion of counsel to that effect.
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If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement, vote by telephone, vote by
fax or attend in person. Any proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by July 17, 1998, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Maryland law or the Articles of Incorporation of
CoreFunds, Inc. to demand payment for, or an appraisal of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of Evergreen High Grade which they receive in
the transaction at their then-current net asset value. Shares of CoreFunds
Intermediate may be redeemed at any time prior to the consummation of the
Reorganization. Shareholders of CoreFunds Intermediate may wish to consult their
tax advisers as to any differing consequences of redeeming Fund shares prior to
the Reorganization or exchanging such shares in the Reorganization.
CoreFunds Intermediate does not hold annual shareholder meetings. If
the Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of CoreFunds, Inc.
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
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The votes of the shareholders of Evergreen High Grade are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise CoreFunds Intermediate whether other persons are beneficial owners
of shares for which proxies are being solicited and, if so, the number of copies
of this Prospectus/Proxy Statement needed to supply copies to the beneficial
owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Evergreen High Grade as of May 31, 1997, and the
financial statements and financial highlights for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of Price Waterhouse LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements and financial highlights of CoreFunds
Intermediate incorporated in this Prospectus/Proxy Statement by reference from
the Annual Report of CoreFunds, Inc. for the year ended June 30, 1997 have been
audited by Ernst & Young LLP, independent auditors, as stated in their report,
which is incorporated herein by reference and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
High Grade will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Directors of CoreFunds, Inc. do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND APPROVAL OF THE PLAN AND THE
INTERIM ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN AND THE INTERIM ADVISORY
AGREEMENT.
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June 1, 1998
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APPENDIX A
The names and addresses of the principal executive officers
and directors of CoreStates Investment Advisers, Inc. are as
follows:
OFFICERS:
Name Address
- ---- -------
David C. Francis, Chief First Union National Bank
Investment Officer 201 South College Street
Charlotte, North Carolina 28288-
1195
L. Robert Cheshire, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
John E. Gray, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
Dillon S. Harris, Jr., Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
J. Kellie Allen, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-1195
DIRECTORS:
Name Address
- ---- -------
Donald A. McMullen First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
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Name Address
- ---- -------
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William D. Munn First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 15th day of April, 1998, by and between Evergreen Municipal Trust, a
Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
High Grade Tax Free Fund series (the "Acquiring Fund"), and CoreFunds, Inc., a
Maryland corporation, with its principal place of business at 530 East
Swedesford Road, Wayne, Pennsylvania 19087 ("CoreFunds"), with respect to its
Intermediate Municipal Bond Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest or shares of common stock, as the case may be;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of the identified liabilities of the Selling Fund by the Acquiring
Fund on the terms and conditions hereinafter set forth are in the best interests
of the Acquiring Fund's shareholders;
WHEREAS, based on the information furnished by CoreStates Investment
Advisers, Inc. and First Union National Bank, the Directors of CoreFunds have
determined that the Selling Fund
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should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in
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connection with the purchase and sale of securities and the
payment of its normal operating expenses.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the
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Acquiring Fund will add to its Aggregate NASD Cap immediately prior to the
Reorganization the Aggregate NASD Cap of the Selling Fund immediately prior to
the Reorganization, in each case calculated in accordance with such Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
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ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of Class A
and Class Y shares of the Selling Fund will receive Class A and Class Y shares,
respectively, of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about July 27, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously
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immediately prior to the opening of business on the Closing Date unless
otherwise provided. The Closing shall be held as of 9:00 a.m. at the offices of
the Evergreen Funds, 200 Berkeley Street, Boston, MA 02116, or at such other
time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. CoreStates Bank, N.A., as custodian for
the Selling Fund (the "Custodian"), shall deliver at the Closing a certificate
of an authorized officer stating that (a) the Selling Fund's portfolio
securities, cash, and any other assets shall have been delivered in proper form
to the Acquiring Fund on the Closing Date; and (b) all necessary taxes including
all applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date, shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent, to issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of CoreFunds or provide evidence satisfactory to the
Selling Fund that such Acquiring Fund Shares have been credited to the Selling
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund
represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland.
(b) The Selling Fund is a separate investment series of a
Maryland corporation that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of CoreFunds' Articles of Incorporation or By-Laws
or of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and
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adversely affect its financial condition, the conduct of its business, or the
ability of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
(g) The financial statements of the Selling Fund at December
31, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since December 31, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by
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the persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to
be included in the Registration Statement (as defined in paragraph 5.7)(other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
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4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
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(f) The financial statements of the Acquiring Fund at May 31,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since May 31, 1997 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
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laws relating to or affecting creditors' rights and to general
equity principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. CoreFunds will call a
meeting of the Selling Fund Shareholders to consider and act upon
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this Agreement and to take all other action necessary to obtain approval of the
transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by Price
Waterhouse LLP and certified by CoreFunds' President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The
Selling Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus, which
will include the proxy statement, referred to in paragraph 4.1(o)
(the "Prospectus and Proxy Statement"), all to be included in a
Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the 1940 Act in connection with the meeting of the Selling Fund
Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause Price Waterhouse LLP to issue a letter addressed to the
Acquiring Fund
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and the Selling Fund, in form and substance satisfactory to the Funds, setting
forth the federal income tax implications relating to capital loss carryforwards
(if any) of the Selling Fund and the related impact, if any, of the proposed
transfer of all of the assets of the Selling Fund to the Acquiring Fund and the
ultimate dissolution of the Selling Fund, upon the shareholders of the Selling
Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
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(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
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(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund at
which the contents of the Prospectus and Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the Trust's officers
and other representatives of the Acquiring Fund), no facts have come to their
attention that lead them to believe that the Prospectus and Proxy Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of CoreFunds and the Selling Fund. Such opinion shall contain such other
assumptions and limitations as shall be in the opinion of Sullivan & Worcester
LLP appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such
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Prospectus and Proxy Statement and not to any exhibits or attachments thereto or
to any documents incorporated by reference therein.
6.3 The merger between First Union Corporation and CoreStates Financial
Corp shall be completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by CoreFunds'
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of CoreFunds.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Morgan, Lewis & Bockius LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
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(b) The Selling Fund is a separate investment series of a
Maryland corporation registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Maryland is required for consummation by the Selling Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of CoreFunds' Articles of Incorporation or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
government proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
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an exhibit to the Registration Statement which are not described
or filed as required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than
the net asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Selling Fund are legally issued and fully
paid and non-assessable.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Selling Fund at which
the contents of the Prospectus and Proxy Statement and related matters were
discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (f) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of CoreFunds' officers and
other representatives of the Selling Fund), no facts have come to their
attention that lead them to believe that the Prospectus and Proxy Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Selling Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Selling Fund not misleading. Such
opinion may state that they do not express any opinion or belief as to the
financial statements or any financial or statistical data, or as to the
information relating to the Acquiring Fund, contained in the Prospectus and
Proxy Statement or Registration Statement, and that such opinion is solely for
the benefit of the Trust and the Acquiring Fund.
Such opinion shall contain such other assumptions and limitations as
shall be in the opinion of Morgan, Lewis & Bockius
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LLP appropriate to render the opinions expressed therein, and shall indicate,
with respect to matters of Maryland law, that as Morgan, Lewis & Bockius LLP are
not admitted to the bar of Maryland, such opinions are based either upon the
review of published statutes, cases and rules and regulations of the State of
Maryland or upon an opinion of Maryland counsel.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
7.4 The merger between First Union Corporation and CoreStates Financial
Corp shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of CoreFunds' Articles of
Incorporation and By-Laws and certified copies of the resolutions evidencing
such approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
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8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of the
Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of the
Selling Fund will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the
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assumption by the Acquiring Fund of the identified liabilities of
the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from Price Waterhouse LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
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been obtained from and is consistent with the accounting records
of the Selling Fund; and
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from Price
Waterhouse LLP a letter addressed to the Acquiring Fund dated on the Closing
Date, in form and substance satisfactory to the Acquiring Fund, to the effect,
that on the basis of limited procedures agreed upon by the Acquiring Fund (but
not an examination in accordance with generally accepted auditing standards),
the calculation of net asset value per share of the Selling Fund as of the
Valuation Date was determined in accordance with generally accepted accounting
practices and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from Price Waterhouse LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree
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with written estimates by each Fund's management and were found to be
mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees. In the event that the merger of First Union Corporation
and CoreStates Financial Corp is not completed, this Agreement shall terminate.
In such event, all expenses of the transactions contemplated by this Agreement
incurred by the Acquiring Fund will be borne by FUNB and all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund will be
borne by CoreStates Investment Advisers, Inc.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
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ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, CoreFunds, the respective Trustees,
Directors or officers, to the other party or its Trustees, Directors or
officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
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<PAGE>
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the State of Maryland,
without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust personally, but shall bind only the
trust property of the Acquiring Fund, as provided in the Declaration of Trust of
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust on behalf of the Acquiring Fund and signed by
authorized officers of the Trust, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of the
Acquiring Fund as provided in the Declaration of Trust of the Trust.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
EVERGREEN MUNICIPAL TRUST ON
BEHALF OF EVERGREEN HIGH GRADE
TAX FREE FUND
By:/s/ Nimish S. Bhatt
Name: Nimish S. Bhatt
Title: Assistant Treasurer
COREFUNDS, INC.
ON BEHALF OF INTERMEDIATE
MUNICIPAL BOND FUND
By:/s/ Carol Rooney
Name: Carol Rooney
Title: Treasurer
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<PAGE>
EXHIBIT B
INTERIM INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of April 30, 1998 between COREFUNDS, INC., a Maryland
corporation (hereinafter the "Company"), and CORESTATES INVESTMENT ADVISERS,
INC., a Pennsylvania corporation (hereinafter the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate classes representing shares in separate portfolios of securities and
other assets; and
WHEREAS, the Company desires to retain the Investment Adviser to
furnish investment advisory services to the Company and its portfolios, and the
Investment Adviser is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Investment Adviser to
act as investment adviser to the portfolios of the Company for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Fund has furnished the
Investment Adviser with copies properly certified or
authenticated of each of the following:
(a) the Company's Articles of Incorporation, as filed with the
Secretary of State of Maryland on September 11, 1984, and all amendments thereto
(such Articles, as presently in effect and as they shall from time to time be
amended or supplemented, are herein called the "Articles of Incorporation");
(b) the Company's By-Laws and amendments thereto (such ByLaws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
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<PAGE>
(c) resolutions of the Company's Board of Directors
authorizing the appointment of the Investment Adviser and
approving this Agreement;
(d) the Company's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission on
September 11, 1984 and all amendments thereto;
(e) the Company's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act") (File No. 2-93214) and under
the 1940 Act as filed with the Securities and Exchange Commission and all
amendments thereto; and
(f) the Company's most recent Prospectuses and Statement of
Additional Information (such Prospectuses and Statement of Additional
Information, as presently in effect and all amendments and supplements thereto,
are herein called the
"Prospectuses").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Company's Board of
Directors, the Investment Adviser will provide a continuous investment program
for each portfolio of the Company, including investment guidelines and
management with respect to all securities and investments and cash equivalents
held by the existing portfolios and such other portfolios (hereinafter
collectively, the "Portfolios") offered by the Company and identified by the
Company as appropriate. The Investment Adviser will determine from time to time
what securities and other investments will be purchased, retained, or sold by
the Company. The Investment Adviser will provide the services under this
Agreement in accordance with the Company's investment objective, policies, and
restrictions as stated in the Prospectuses and resolutions of the Company's
Board of Directors.
The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with any regulations of the
Comptroller of the Currency pertaining to the investment advisory activities of
national banks;
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<PAGE>
(b) will not make loans to any person to purchase or
carry the Company's shares or make loans to the Company;
(c) will place orders pursuant to its investment
determinations for the Company on behalf of its Portfolios either directly with
the issuer or with any broker or dealer. In placing orders with brokers and
dealers the primary consideration of the Investment Adviser will be the prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, brokers or dealers who provide supplemental research to
the Investment Adviser may receive orders for transactions with the Company. In
no instance will portfolio securities be purchased from or sold to CoreStates
Financial Corp or any affiliated person of either the Company or CoreStates
Financial Corp;
(d) will maintain all books and records with respect to the
Company's portfolio securities transactions and will furnish the Company's Board
of Directors such periodic and special reports as the Board may request;
(e) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior, present, or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Company;
(f) will provide to the Company and the Company's other
service providers, at such intervals as may be reasonably requested by the
Company, information relating to (i) the performance of services by the
Investment Adviser hereunder, and (ii) market quotations of portfolio securities
held by the Company on behalf of its Portfolios;
(g) will direct and use its best efforts to cause the broker
or dealer involved in any portfolio transaction with the Company to send a
written confirmation of such transaction to the Company's Custodian and Transfer
Agent; and
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<PAGE>
(h) will not purchase shares of the Company for itself or for
accounts with respect to which it is exercising sole investment discretion in
connection with such transactions.
4. Services Not Exclusive. The investment management services furnished
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to the Company any of such records upon the Company's
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company and the cost of obtaining market
quotations of portfolio securities held by the Company.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, effective as of the date of this Agreement, the
Company will pay the Investment Adviser and the Investment Adviser will accept
as full compensation for services rendered to the Portfolios therefor, the fees
detailed in Appendix A attached to this Agreement; provided, however, that if
the total expenses borne by any Portfolio of the Company in any fiscal year of
the Company exceeds any expense limitations imposed by applicable state
securities laws or regulations, the Investment Adviser will reimburse the
Portfolio for a portion of such excess equal to the amount of such excess times
the ratio of the fees otherwise payable to the Investment Adviser hereunder to
the aggregate fees otherwise payable to the Investment Adviser hereunder and SEI
Fund Resources pursuant to an Administration Agreement between it and the
Company. The Investment Adviser's obligation to reimburse the Company on behalf
of its Portfolios hereunder is limited in any fiscal year of the Company to the
amount of the Investment Adviser's fee hereunder for such fiscal year; provided,
however, that notwithstanding the foregoing, the Investment Adviser shall
reimburse the Company for such excess
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<PAGE>
regardless of the fees paid to it to the extent that the securities laws or
regulations of any state having jurisdiction over the Company so require. Any
such expense reimbursements will be estimated daily and reconciled and paid on a
monthly basis.
8. Use of Investment Adviser's Name and Logo. The Company agrees that
it shall furnish to the Investment Adviser, prior to any use or distribution
thereof, copies of all prospectuses, statements of additional information, proxy
statements, reports to shareholders, sales literature, advertisements, and other
material prepared for distribution to shareholders of the Portfolios of the
Company or to the public, which in any way refer to or describe the Investment
Adviser or which include any trade names, trademarks, or logos of the Investment
Adviser or any affiliate of the Investment Adviser. The Company further agrees
that it shall not use or distribute any such material if the Investment Adviser
reasonably objects in writing to such use or distribution within ten business
days after the date such material is furnished to the Investment Adviser. The
provisions of this section shall survive the termination of this Agreement.
9. Limitation of Liability. The Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
10. Duration and Termination. This Agreement will become effective for
each Portfolio as of the date first above written. Subject to the provisions for
termination as provided herein, this Agreement shall remain in effect for each
Portfolio until the earlier of the Closing Date defined in the Agreement and
Plan of Reorganization dated as of April 15, 1998 with respect to each Portfolio
or for two years from the date first above written and from year to year
thereafter, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Company's Board of
Directors who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Company's Board of Directors or by vote
of a majority of the Portfolio's outstanding voting securities. Notwithstanding
the foregoing,
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<PAGE>
this Agreement may be terminated at any time on sixty days written notice,
without the payment of any penalty, by the Company (by vote of the Board of
Directors or by vote of a majority of the Portfolio's outstanding voting
securities) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940 Act.)
11. Name Protection After Termination. In the event this Agreement is
terminated by either party or upon written notice from the Investment Adviser at
any time, the Company hereby agrees that it will eliminate from its corporate
name any references to the name "CoreFunds." The Company shall have the
nonexclusive use of the name "CoreFunds" in whole or in part so long as this
Agreement is effective or until such notice is given.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved by vote of a majority of the Portfolio's outstanding
voting securities.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Pennsylvania law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
COREFUNDS, INC.
By /s/ Carol
Rooney
CORESTATES INVESTMENT ADVISERS, INC.
By /s/ Mark
Stalnecker
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<PAGE>
APPENDIX A
Portfolio Advisory Fee as a
Percentage of average
daily net assets
Growth Equity Fund .75%
Core Equity Fund .74%
Special Equity Fund 1.50%
Equity Index Fund .40%
International Growth Fund .80%
Balanced Fund .70%
Short-Intermediate Bond Fund .50%
Bond Fund .74%
Short Term Income Fund .74%
Government Income Fund .50%
Intermediate Municipal Bond Fund .50%
Pennsylvania Municipal Bond Fund .50%
New Jersey Municipal Bond Fund .50%
Global Bond Fund .60%
Cash Reserve .40%
Treasury Reserve .40%
Tax-Free Reserve .40%
Elite Cash Reserve .20%
Elite Government Reserve .20%
Elite Treasury Reserve .20%
Elite Tax-Free Reserve .20%
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<PAGE>
Exhibit C
Evergreen
HIGH GRADE TAX FREE FUND
[EVERGREEN LOGO] ---------------------------------------------------------------
FUND-AT-A-GLANCE
As of May 31, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE Class A Class B Class Y
- - --------------------------------------------------------------
<S> <C> <C> <C>
One year with sales charge 1.90% 1.19% 7.25%
One year w/o sales charge 6.99% 6.19% 7.25%
One year dividends per share 50.2c 42.1c 52.0c
30-day SEC Yield
(as of 5/31/97) 4.19% 3.63% 4.66%
<CAPTION>
AVERAGE
ANNUAL RETURNS** Class A Class B Class Y
- - --------------------------------------------------------------
<S> <C> <C> <C>
Three years 5.11% 5.16% 7.10%
Five years 5.75% N/A N/A
Since Inception* 6.00% 5.13% 5.11%
<CAPTION>
CUMULATIVE RETURNS** Class A Class B Class Y
- - --------------------------------------------------------------
<S> <C> <C> <C>
Nine months w/o sales charge 5.13% 4.55% 5.32%
Three years 16.13% 16.30% 22.83%
Five years 32.24% N/A N/A
Since Inception* 36.01% 24.55% 17.64%
</TABLE>
*Class A began 2/21/92; Class B began 1/11/93; Class Y began 2/28/94.
**All returns include the maximum sales charge, if applicable.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS May 31, 1997
- - --------------------------------------------------------------
<S> <C>
Total Net Assets (all classes) $102.1 million
Average Credit Quality AAA
Average Maturity 12.3 years
Average Duration 8.2 years
</TABLE>
PORTFOLIO COMPOSITION May 31, 1997
- - --------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
Portfolio allocations are subject to change.
OBJECTIVE
- --------------------------------------------------------------------------------
Evergreen High Grade Tax Free Fund seeks income exempt from federal income taxes
while conserving capital. Income may be subject to local taxes and the Federal
Alternative Minimum Tax for certain investors.
STRATEGY
- --------------------------------------------------------------------------------
The Fund seeks its objective by investing in insured municipal securities and
municipal securities rated high grade by independent bond rating services. The
portfolio management team will, in seeking the Fund's objectives, buy and sell
<PAGE>
securities to effect changes in portfolio maturities and to change allocations
among different sectors. Insured bonds are bonds insured as to timely payment of
principal and interest. The Fund itself is not insured, nor is the value of its
shares guaranteed. Insured bonds must be insured by a municipal bond insurance
company which is rated AAA by Standard & Poors Ratings Group (S&P) and/or Aaa by
Moody's Investors Service, Inc., (Moody's). Bonds that are considered high grade
are rated A or better by S&P or Moody's or, if unrated, are considered of
comparable quality as determined by the Fund's investment advisor.
PORTFOLIO MANAGEMENT TEAM
- -------------------------------------------------------------------------------
James T. Colby, III, the Senior Portfolio Manager, is a Vice
President and Senior Portfolio Manager of Evergreen Asset
Management. He also is Senior Portfolio Manager for Evergreen
U.S. Government Securities Fund and is co-manager of the
Evergreen Tax Strategic Foundation Fund. Prior to joining
Evergreen in 1992, Mr. Colby was Vice President and Senior
[PHOTO] Portfolio Manager for $5 billion in tax-exempt holdings at
American Express. Mr. Colby also has served in portfolio
management capacities at Marinvest, a subsidiary of Marine
Midland Bank. He is a graduate of Brown University and holds
an MBA from Hofstra University. In 1996, Mr. Colby was
Chairman of the Municipal Bond Buyers Conference .
C-1
<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
- -------------------------------------------------------------------------------
MANAGEMENT REPORT
July 1997
Dear Fellow Shareholders:
We are pleased to report on Evergreen High Grade Tax Free Fund for the fiscal
period that ended on May 31, 1997. You may recall that you recently received a
semi-annual report for the six-month period that ended on February 28, 1997. We
have changed your Fund's fiscal year so it now will end each May 31. This is
part of an effort by Evergreen Keystone Funds to streamline, and increase the
efficiency of, fund administration. Funds with similar investment objectives, in
this case national tax free funds, are placed on the same fiscal year cycle.
Information about these funds will be presented in common annual and semi-annual
reports. The next report you will receive will be a semiannual report for the
period ending November 30, 1997. You should expect to receive it in January
1998.
PERFORMANCE
We believe your fund performed well as a high quality municipal bond fund during
a period marked by short-term interest rate volatility. The charts and tables on
page 2 provide a comprehensive view of the performance for the fiscal period, as
well as since each class of shares began.
STRATEGY
Evergreen High Grade Tax Free Fund is managed with a long-term view, with the
goal of providing federally tax-free income from insured and high quality
municipal bonds while protecting principal. We do not structure the portfolio in
anticipation of short-term movements in interest rates, but try to employ
strategies that build value over time based on longer-term trends in the
municipal bond marker. The nine-month period that ended on May 31 was a
generally favorable period for municipal bond investing. During this period, we
kept the maturities of bonds in the portfolio relatively consistent, with
average maturities remaining in the 12-to-16 year range, and average duration in
the 7-to-9-year range. This policy proved successful during a time when
long-term interest rates, despite some short-term volatility, remained in a
consistent trading range of 6 1/2% to 7%.
<PAGE>
Your Fund is required to invest at least 65% of net assets in high grade
municipal bonds. In fact, the Fund held 87% of net assets in insured municipal
bonds, with 95% of net assets AAA-rated at the ned of the period. The bonds are
insured for the timely payment of principal and interest. The value of insured
bonds can fluctuate. The Fund itself is not insured. The Fund does not search
for opportunities among bonds that are below investment grade.
Evergreen High Grade Tax Free Fund invests in different sectors of the market
based upon evolving trends. For example, two sectors--the hospital/health care
and the electric utility sectors--have experienced changes which affected
portfolio strategy recently. In the hospital sector, the process of
consolidation has left behind the weaker institutions which we have pointedly
avoided. We hold only the dominant regional facilities or those aligned with
strong national systems, which we believe have the strongest potential to
survive the new era of competition. Accordingly, we have increased the Fund's
allocation to 14.8% of the net assets. Conversely, the impact of deregulation
and competition upon municipal utilities is less clear and we have decreased the
Fund's allocation to this sector to 7.9%, though we will closely monitor
important legislation pending in states on the east and west coasts which may
soon set new strategic parameters for this sector. For comparison, three years
ago this Fund's relative weightings of these two sectors would have been
reversed.
OUTLOOK
Looking ahead, we continue to see a favorable investment environment for
municipal bonds. We anticipate long=term interest rates, as represented by the
bench-mark 30-year U.S. Treasury Bond, to trade in the 6-to-7% range, with
relatively firm economic growth and stable inflation.
Within this environment, we will continue our strategy of seeking to provide as
reasonable a yield as is possible, without assuming significant market risks by
extending maturities. At the same item, we will continue to monitor changes in
the municipal bond industry and put in place further strategies that have the
potential to benefit from evolving trends.
Thank you for your support of the Evergreen High Grade Tax Free Fund.
Sincerely,
/s/ James T. Colby, III
James T. Colby, III
Vice President
Senior Portfolio Manager
Evergreen Asset Management Corp.
C-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
INTERMEDIATE MUNICIPAL BOND FUND
a Series of
COREFUNDS, INC.
530 East Swedesford Road
Wayne, Pennsylvania 19087
(800) 355-2673
By and In Exchange For Shares of
EVERGREEN HIGH GRADE TAX FREE FUND
a Series of
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Intermediate Municipal Bond
Fund ("CoreFunds Intermediate"), a series of CoreFunds, Inc., to Evergreen High
Grade Tax Free Fund ("Evergreen High Grade"), a series of Evergreen Municipal
Trust, in exchange for Class A shares (to be issued to holders of Class A shares
of CoreFunds Intermediate) and Class Y shares (to be issued to holders of Class
Y shares of CoreFunds Intermediate) of beneficial interest, $.001 par value per
share, of Evergreen High Grade, consists of this cover page and the following
described documents, each of which is attached hereto and incorporated by
reference herein:
(1) The Statement of Additional Information of Evergreen High
Grade dated September 3, 1997, as supplemented January 30,
1998;
(2) The Statement of Additional Information of CoreFunds
Intermediate dated November 1, 1997;
(3) Annual Report of CoreFunds Intermediate for the year ended
June 30, 1997;
(4) Semi-Annual Report of CoreFunds Intermediate for the six month
period ended December 31, 1997;
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<PAGE>
(5) Annual Report of Evergreen High Grade for the year ended May
31, 1997; and
(6) Semi-Annual Report of Evergreen High Grade for the six month
period ended November 30, 1997.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen High Grade and CoreFunds Intermediate dated June 1, 1998.
A copy of the Prospectus/Proxy Statement may be obtained without charge by
calling or writing to Evergreen High Grade or CoreFunds Intermediate at the
telephone numbers or addresses set forth above.
The date of this Statement of Additional Information is June 1, 1998.
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<PAGE>
