<PAGE>
Evergreen
Maryland
March 31, 1998 Municipal Bond
Semiannual Report Fund
(Evergreen Logo appears here)
Evergreen Funds(SM)
SINCE 1932
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ...................... 1
Fund at a Glance ............................ 2
Financial Highlights ........................ 4
Schedule of Investments ..................... 7
Statement of Assets and Liabilities ......... 8
Statement of Operations ..................... 9
Statements of Changes in Net Assets ......... 10
Notes to Financial Statements ............... 11
Additional Information ...................... 14
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products
and services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
Mutual Funds:
<TABLE>
<S> <C>
ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Funds Distributor, Inc.
<PAGE>
Letter to Shareholders
----------------------
May 1998
Dear Shareholders:
(Photo of The 12-month period that ended on March 31,
William M. Ennis 1998, proved to be an especially rewarding one
appears here) for shareholders of the Evergreen state
municipal bond funds, as investors received
William M. Ennis generous returns made even more
Managing Director impressive on an after-tax basis.
The 12 months encompassed a period when the
U.S. economy showed stubborn resilience. Despite some international market
uncertainty brought on by the Asian crisis, the economy in the United States
continued to grow at a moderate rate, with restrained inflation. These factors,
combined with a declining federal budget deficit, allowed interest rates to
fall and bond prices to increase. The yields on longer-maturity bonds tended to
decrease more than the yields on shorter-maturity bonds. For example, the yield
on the 30-year Treasury fell during the 12 months from 7.07% to 5.93%, while
the yield on the three-month Treasury remained fairly stable, declining only
from 5.14% to 4.98%.
Competitive Performance
In this favorable economic and interest rate environment, the emphasis of the
Evergreen state municipal bond funds on investments in securities with higher
yields and longer maturities proved especially rewarding on both an absolute
and after-tax basis.1
Positive Outlook
Going forward, Evergreen portfolio managers continue to see a generally
supportive economic environment. With this scenario, the state municipal bond
funds are emphasizing a strategy of careful security selection among
higher-yielding, longer-maturity bonds. We believe this strategy gives
continued opportunity for the funds to provide competitive performance for tax-
conscious shareholders.
The Evergreen Funds Commitment
At Evergreen Funds, we are committed to providing a broad array of funds with a
variety of investment objectives to help investors pursue goals consistent with
their needs and risk tolerances. We encourage you, if you have any questions
about this fund or any other Evergreen Fund, to consult your financial advisor
or call us at 800-343-2898.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1 Some portion of the Fund's income may be subject to the Federal Alternative
Minimum Tax.
1
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
---------------
Total Net Assets $29,385,316
Average Credit Quality AA
Average Maturity 12.7 years
Average Duration 7.0 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears here with the following information:)
Duration
Short Int Long
Quality
High Med Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class Y
<S> <C> <C>
Inception Date 10/16/90 10/16/90
Average Annual Returns
6 months w/o sales charge 2.12% n/a
6 months with sales charge (2.73%) 2.25%
One year w/o sales charge 7.68% n/a
One year with sales charge 2.56% 7.94%
3 years 3.65% 5.61%
5 years 3.63% 4.90%
Since Inception 5.20% 6.06%
Maximum Sales Charge 4.75% n/a
Front End
30-day SEC Yield 3.34% 3.76%
Taxable Equivalent** 5.53% 6.23%
6-month dividends per share $ 0.16 $ 0.17
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
Note: No performance data available for Class B shares due to inception date
of March 27, 1998.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(A graph appears here with the following information:)
<TABLE>
<CAPTION>
10/90 3/91 3/92 3/93 3/94 3/95 3/96 3/97 3/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares (Customer to fill in plot points)
Lehman Brothers
Municipal 10-yr. Bond Index
Consumer Price Index (CPI)
</TABLE>
Comparison of a $10,000 investment in Evergreen Maryland Municipal Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Municipal
10-yr. Bond Index (LBMBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost. The Lehman Brothers Municipal Bond Index is an
unmanaged index. The index does not include transaction costs associated with
buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through March 31, 1998.
2
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Portfolio
Management
----------
(Photo of Charles Jeanne appears here)
Charles Jeanne
Tenure: March 1998
Despite a turbulent fiscal period marked by the well-publicized crisis in Asian
financial markets, the Evergreen Maryland Municipal Bond Fund's Class Y shares
posted a 2.25% total return for the six months ended March 31, 1998. For the 12
months ended March 31, 1998, the Fund's Class Y shares had a total return of
7.94%. Our primary strategy during the fiscal period was to strengthen the
portfolio's current yield, thereby seeking to provide somewhat of a cushion
from volatility and fluctuating interest rates. Consistent with this strategy,
we sold shorter, lower-yielding general obligation bonds and replaced them with
higher-yielding issues which included economic development authority and
housing bonds. These purchases also succeeded in increasing the Fund's average
maturity. We also emphasized securities with non-callable features, a move
designed to help reduce the portfolio's prepayment risk. The portfolio
adjustments undertaken during this period have bolstered the Fund's current
yield and should positively impact performance going forward.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Graphic appears here with the following information:)
General Obligation Notes/Bonds - 36.1%
Hospitals/Healthcare - 11.9%
Water & Sewer - 11.7%
Lease Rental Bonds/
Municipal Leases - 11.5%
Housing - 6.9%
Industrial Development/
Pollution Control - 5.3%
Education - 5.1%
Other investments and other
assets and liabilities, net - 4.8%
Public Facilities - 3.5%
Transportation - 3.2%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
(Graphic appears here with the following information:)
AAA - 43.1%
AA - 40.8%
A - 15.6%
Not Rated - 0.5%
3
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998* --------------------------------------
(Unaudited) 1997* 1996* 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 10.91 $ 10.56 $ 10.69 $ 10.17
---------- -------- -------- --------
Income from investment operations
Net investment income 0.16 0.37 0.38 0.40
Net realized and unrealized gain (loss) on investments 0.07 0.35 ( 0.13) 0.54
---------- -------- --------- --------
Total from investment operations 0.23 0.72 0.25 0.94
---------- -------- --------- --------
Less distributions from
Net investment income ( 0.16) ( 0.37) ( 0.38) ( 0.40)
Net realized gain on investments 0 0 0 ( 0.02)
---------- --------- --------- ---------
Total distributions ( 0.16) ( 0.37) ( 0.38) ( 0.42)
---------- --------- --------- ---------
Net asset value end of period $ 10.98 $ 10.91 $ 10.56 $ 10.69
---------- --------- --------- ---------
Total return (b) 2.12% 6.92% 2.36% 9.81%
Ratios/supplemental data
Ratios to average net assets
Expenses 2.15%(a) 1.69% 1.43% 1.24%
Expenses excluding indirectly paid expenses 2.11%(a) - - -
Expenses excluding waivers and/or reimbursements 2.11%(a) 1.69% 1.68% 1.68%
Net investment income 2.94%(a) 3.45% 3.57% 4.24%
Portfolio turnover rate 8% 13% 138% 21%
Net assets end of period (thousands) $ 24,914 $ 27,786 $ 31,284 $ 32,172
</TABLE>
<TABLE>
<CAPTION>
October 16, 1990
(Commencement of
Year Ended September 30, Class Operations)
-------------------------------------- to
1994* 1993* 1992* September 30, 1991*
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 11.24 $ 10.39 $ 10.10 $ 10.00
-------- -------- -------- -----------
Income from investment operations
Net investment income 0.45 0.49 0.54 0.53
Net realized and unrealized gain (loss) on investments ( 0.97) 0.85 0.29 0.10
-------- -------- -------- -----------
Total from investment operations ( 0.52) 1.34 0.83 0.63
-------- -------- -------- -----------
Less distributions from
Net investment income ( 0.45) ( 0.49) ( 0.54) ( 0.53)
Net realized gain on investments ( 0.10) 0 0 0
-------- --------- --------- -----------
Total distributions ( 0.55) ( 0.49) ( 0.54) ( 0.53)
-------- --------- --------- -----------
Net asset value end of period $ 10.17 $ 11.24 $ 10.39 $ 10.10
-------- --------- --------- -----------
Total return (b) ( 4.74%) 13.24% 8.31% 6.64%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.17% 1.00% 0.59% 0.60%(a)
Expenses excluding indirectly paid expenses - - - -
Expenses excluding waivers and/or reimbursements 1.68% 1.77% 2.50% 1.65%(a)
Net investment income 4.22% 4.50% 5.11% 5.66%(a)
Portfolio turnover rate 27% 23% 34% 35%
Net assets end of period (thousands) $ 34,580 $ 33,907 $ 4,053 $ 2,940
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* On February 28, 1998, Virtus Maryland Municipal Bond Fund sold
substantially all of its net assets to Evergreen Maryland Municipal Bond
Fund. As Virtus Maryland Municipal Bond Fund is the accounting survivor,
its basis of accounting for assets and liabilities and its operating
results for the periods prior to February 28, 1998 have been carried
forward in these financial highlights.
See Notes to Financial Statements.
4
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
March 27, 1998
(Commencement of
Class Operations)
to
March 31, 1998
(Unaudited)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 10.99
----------
Income from investment operations
Net investment income 0(c)
Net realized and unrealized loss on investments ( 0.01)
----------
Total from investment operations ( 0.01)
----------
Less distributions from net investment income 0
----------
Net asset value end of period $ 10.98
----------
Total return (b) 0.00%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.00%(a)
Expenses excluding indirectly paid expenses 0.00%(a)
Expenses excluding waivers and/or reimbursements 0.00%(a)
Net investment income 0.00%(a)
Portfolio turnover rate 8%
Net assets end of period (thousands) $ 5
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Amounts represent less than $0.01 per share.
See Notes to Financial Statements.
5
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998* -----------------------------------------
(Unaudited) 1997* 1996* 1995*
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 10.91 $ 10.56 $ 10.69 $ 10.17
----------- --------- --------- ---------
Income from investment operations
Net investment income 0.17 0.40 0.41 0.42
Net realized and unrealized gain (loss) on investments 0.07 0.35 ( 0.13) 0.54
----------- --------- ---------- ---------
Total from investment operations 0.24 0.75 0.28 0.96
----------- --------- ---------- ---------
Less distributions from
Net investment income ( 0.17) ( 0.40) ( 0.41) ( 0.42)
Net realized gain on investments 0 0 0 ( 0.02)
----------- ---------- ---------- ----------
Total distributions ( 0.17) ( 0.40) ( 0.41) ( 0.44)
----------- ---------- ---------- ----------
Net asset value end of period $ 10.98 $ 10.91 $ 10.56 $ 10.69
----------- ---------- ---------- ----------
Total return 2.25% 7.19% 2.61% 10.09%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.89%(a) 1.44% 1.18% 0.99%
Expenses excluding indirectly paid expenses 1.85%(a) - - -
Expenses excluding waivers and/or reimbursements 1.85%(a) 1.44% 1.43% 1.43%
Net investment income 3.19%(a) 3.70% 3.82% 4.49%
Portfolio turnover rate 8% 13% 138% 21%
Net assets end of period (thousands) $ 4,466 $ 5,683 $ 8,889 $ 9,447
</TABLE>
<TABLE>
<CAPTION>
October 16, 1990
(Commencement of
Year Ended September 30, Class Operations)
-------------------------------------- to
1994* 1993* 1992* September 30, 1991*
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 11.24 $ 10.39 $ 10.10 $ 10.00
-------- -------- -------- -----------
Income from investment operations
Net investment income 0.48 0.50 0.54 0.53
Net realized and unrealized gain (loss) on investments ( 0.97) 0.85 0.29 0.10
-------- -------- -------- -----------
Total from investment operations ( 0.49) 1.35 0.83 0.63
-------- -------- -------- -----------
Less distributions from
Net investment income ( 0.48) ( 0.50) ( 0.54) ( 0.53)
Net realized gain on investments ( 0.10) 0 0 0
-------- --------- --------- -----------
Total distributions ( 0.58) ( 0.50) ( 0.54) ( 0.53)
-------- --------- --------- -----------
Net asset value end of period $ 10.17 $ 11.24 $ 10.39 $ 10.10
-------- --------- --------- -----------
Total return ( 4.50%) 13.37% 8.31% 6.64%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.92% 0.86% 0.59% 0.60%(a)
Expenses excluding indirectly paid expenses - - - -
Expenses excluding waivers and/or reimbursements 1.43% 1.63% 2.50% 1.65%(a)
Net investment income 4.46% 4.64% 5.11% 5.66%(a)
Portfolio turnover rate 27% 23% 34% 35%
Net assets end of period (thousands) $ 11,301 $ 12,014 $ 6,004 $ 556
</TABLE>
(a) Annualized.
* On February 28, 1998, Virtus Maryland Municipal Bond Fund sold substantially
all of its net assets to Evergreen Maryland Municipal Bond Fund. As Virtus
Maryland Municipal Bond Fund is the accounting survivor, its basis of
accounting for assets and liabilities and its operating results for the
periods prior to February 28, 1998 have been carried forward in these
financial highlights.
See Notes to Financial Statements.
6
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Schedule of Investments
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 98.5%
Maryland - 98.5%
$ 1,000,000 Baltimore County, Maryland,
Auto Parking Revenue
5.25%, 7/1/08 .................. $ 1,045,260
1,000,000 Baltimore, Maryland,
Baltimore City Parking
Systems Revenue, Series A
5.25%, 7/1/17 .................. 1,025,600
1,000,000 Baltimore, Maryland,
Consolidated Public
Improvement, Series A
5.38%, 10/15/08, (AMBAC) ....... 1,041,460
1,000,000 Calvert County, Maryland,
Economic Development Revenue,
Asbury Solomons Inc.
5.00%, 1/1/17, (MBIA) .......... 978,490
1,500,000 Calvert County, Maryland,
Pollution Control Revenue
5.55%, 7/15/14 ................. 1,545,660
1,400,000 Carroll County, Maryland,
County Commissoners,
Consolidated Public
Improvement
5.35%, 12/1/16 ................. 1,432,354
1,430,000 Howard County, Maryland,
Consolidated Public
Improvement, Series A
5.25%, 8/15/11 ................. 1,475,746
Maryland State, Community
Development Administration:
500,000 Series B
5.30%, 9/1/23 .................. 496,525
1,470,000 Single Family Program, 5th Series
5.40%, 4/1/08 .................. 1,532,519
Maryland State, Health and
Higher Education Facilities:
1,000,000 Francis Scott Key Medical Center
5.30%, 7/1/08, (FGIC) .......... 1,044,550
1,400,000 Fredrick Memorial Hospital
5.20%, 7/1/08, (FGIC) .......... 1,471,442
1,800,000 Maryland State, Stadium
Authority, Lease Revenue
5.88%, 12/15/11, (AMBAC) ....... 1,933,578
Maryland State, State and
Local Facilities Loan:
2,500,000 1st Series
5.70%, 3/15/10 ................. 2,701,925
250,000 2nd Series
5.25%, 6/15/07 ................. 264,840
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Maryland - continued
$ 850,000 Maryland State,
Transportation Authority
Facilities Revenue
5.80%, 7/1/06 .................. $ 930,291
Maryland State, Washington
Suburban Sanitation District,
Water Supply Revenue:
1,600,000 5.38%, 6/1/11 ................. 1,643,408
1,700,000 5.50%, 6/1/10 ................. 1,792,412
500,000 Montgomery County, Maryland,
Consolidated Public
Improvement, Series A
5.75%, 7/1/06 .................. 548,780
1,000,000 Ocean City, Maryland, General
Obligation
5.50%, 3/15/09, (MBIA) ......... 1,058,690
1,000,000 Prince Georges County,
Maryland, Maryland National
Park and Planning Commission,
Park Aquisition and
Development, Series 2
5.13%, 7/1/10 .................. 1,032,270
1,300,000 Prince Georges County,
Maryland, Stormwater
Management
6.00%, 7/1/09 .................. 1,429,285
1,000,000 Rockville, Maryland, General
Obligation
4.90%, 4/15/07 ................. 1,021,000
1,400,000 University of Maryland,
Systems Auxiliary Revenue,
Series A
5.40%, 4/1/09 .................. 1,484,112
-----------
Total Municipal Obligations
(cost $27,689,442) ............. 28,930,197
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
MUTUAL FUND SHARES - 0.4% (cost $130,000)
130,000 Federated Municipal Obligation Fund 130,000
-------
Total Investments -
(cost $27,819,442) ..... 98.9% 29,060,197
Other Assets and
Liabilities - net ...... 1.1 325,119
----- ----------
Net Assets - ............ 100.0% $29,385,316
===== ===========
</TABLE>
Legend of Portfolio Abbreviations
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Notes to Financial Statements.
7
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Statement of Assets and Liabilities
March 31, 1998 (Unaudited)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
Assets
Investments at market value (identified cost - $27,819,442)..... $29,060,197
Cash ........................................................... 279
Interest receivable ............................................ 397,378
Receivable for Fund shares sold ................................ 15,000
- ----------------------------------------------------------------- -----------
Total assets ................................................. 29,472,854
- ----------------------------------------------------------------- -----------
Liabilities
Distributions to shareholders .................................. 32,666
Payable for Fund shares redeemed ............................... 25,992
Distribution fee payable ....................................... 11,083
Due to related parties ......................................... 7,290
Accrued Trustees' fees and expenses ............................ 75
Accrued expenses and other liabilities ......................... 10,432
- ----------------------------------------------------------------- -----------
Total liabilities ............................................ 87,538
- ----------------------------------------------------------------- -----------
Net assets ...................................................... $29,385,316
================================================================= ===========
Net assets represented by
Paid-in capital ................................................ $28,314,041
Accumulated net realized loss on investments ................... (169,480)
Net unrealized appreciation on investments ..................... 1,240,755
- ----------------------------------------------------------------- -----------
Total net assets ............................................. $29,385,316
================================================================= ===========
Net assets consist of
Class A ........................................................ $24,914,074
Class B ........................................................ 4,998
Class Y ........................................................ 4,466,244
- ----------------------------------------------------------------- -----------
$29,385,316
================================================================= ===========
Shares Outstanding
Class A ........................................................ 2,268,334
Class B ........................................................ 455
Class Y ........................................................ 406,635
- ----------------------------------------------------------------- -----------
Net asset value per share
Class A ........................................................ $ 10.98
================================================================= ===========
Class A - Offering price (based on sales charge of 4.75%) ...... $ 11.53
================================================================= ===========
Class B ........................................................ $ 10.98
================================================================= ===========
Class Y ........................................................ $ 10.98
================================================================= ===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Statement of Operations
Six Months Ended March 31, 1998* (Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest .............................................................. $793,071
- ------------------------------------------------------------------------ ---------
Expenses
Management fee ........................................................ 111,644
Transfer agent fees ................................................... 54,777
Administrative services fee ........................................... 35,221
Custodian fees ........................................................ 35,009
Distribution Plan expenses ............................................ 33,396
Professional fees ..................................................... 22,737
Shareholder reports expense ........................................... 17,743
Trustee's fees and expenses ........................................... 1,119
Other ................................................................. 19,625
- ------------------------------------------------------------------------ ---------
Total expenses ...................................................... 331,271
Less: Expenses paid indirectly ........................................ (5,806)
- ------------------------------------------------------------------------ ---------
Net expenses ........................................................ 325,465
- ------------------------------------------------------------------------ ---------
Net investment income ............................................... 467,606
======================================================================== =========
Net realized and unrealized gain on investments
Net realized gain on investments ...................................... 182,252
Net change in unrealized appreciation (depreciation) on investments ... 51,344
- ------------------------------------------------------------------------ ---------
Net realized and unrealized gain on investments ....................... 233,596
- ------------------------------------------------------------------------ ---------
Net increase in net assets resulting from operations .................. $701,202
======================================================================== =========
</TABLE>
* On February 28, 1998, Virtus Maryland Municipal Bond Fund sold substantially
all of its net assets to Evergreen Maryland Municipal Bond Fund. As Virtus
Maryland Municipal Bond Fund is the accounting survivor, its basis of
accounting for assets and liabilities and its operating results for the
periods to February 28, 1998 have been carried forward in these financial
statements.
See Notes to Financial Statements.
9
<PAGE>
EVERGREEN
Maryland Municipal Bond Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998* Year Ended
(Unaudited) September 30, 1997*
------------------ --------------------
<S> <C> <C>
Operations
Net investment income ..................................................... $ 467,606 $ 1,275,863
Net realized gain on investments .......................................... 182,252 163,436
Net change in unrealized appreciation (depreciation) on investments ....... 51,344 982,703
- ---------------------------------------------------------------------------- ------------ -------------
Net increase in net assets resulting from operations ..................... 701,202 2,422,002
- ---------------------------------------------------------------------------- ------------ -------------
Distributions to shareholders from net investment income
Class A ................................................................... (392,682) (1,015,074)
Class Y ................................................................... (74,924) (261,815)
- ---------------------------------------------------------------------------- ------------ -------------
Total distributions to shareholders ...................................... (467,606) (1,276,889)
- ---------------------------------------------------------------------------- ------------ -------------
Capital share transactions
Proceeds from shares sold ................................................. 417,496 2,708,043
Proceeds from reinvestment of distributions ............................... 256,458 770,265
Payments for shares redeemed .............................................. (4,991,015) (11,327,459)
- ---------------------------------------------------------------------------- ------------ -------------
Net decrease in net assets resulting from capital share transactions ..... (4,317,061) (7,849,151)
- ---------------------------------------------------------------------------- ------------ -------------
Total decrease in net assets ........................................... (4,083,465) (6,704,038)
- ---------------------------------------------------------------------------- ------------ -------------
Net assets
Beginning of period ....................................................... 33,468,781 40,172,819
- ---------------------------------------------------------------------------- ------------ -------------
End of period [Including undistributed net investment income as
follows: 1998-$0 and 1997- $0]............................................ $ 29,385,316 $ 33,468,781
============================================================================ ============ =============
</TABLE>
* On February 28, 1998, Virtus Maryland Municipal Bond Fund sold substantially
all of its net assets to Evergreen Maryland Municipal Bond Fund. As Virtus
Maryland Municipal Bond Fund is the accounting survivor, its basis of
accounting for assets and liabilities and its operating results for the
periods prior to February 28, 1998 have been carried forward in these
financial statements.
See Notes to Financial Statements.
10
<PAGE>
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Maryland Municipal Bond Fund (the "Fund") is a non-diversified
series of Evergreen Municipal Trust (the "Trust"), a Delaware business trust
organized on September 17, 1997. The Trust is an open end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class B shares will automatically
convert to Class A shares after seven years. Class C shares are sold subject to
a contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Class Y shares are sold at net asset value and are
not subject to contingent deferred sales charges or distribution fees. Class Y
shares are sold only to investment advisory clients of First Union Corporation
("First Union") and its affiliates, certain institutional investors or Class Y
shareholders of record of certain other funds managed by First Union and its
affiliates as of December 30, 1994. As of March 31, 1998, Class C shares had
not yet commenced operations.
Effective on the close of business on February 28, 1998, the Fund acquired all
of the assets and certain liabilities of the Virtus Maryland Municipal Bond
Fund (the "Virtus Fund") through a tax-free exchange of shares. Shareholders of
Investment Shares and Trust Shares in the Virtus Fund became owners of that
number of full and fractional shares of Class A and Class Y, respectively, of
the Fund having an aggregate net asset value equal to the aggregate net asset
value of their shares of the Virtus Fund immediately prior to the close of
business on February 28, 1998. The Fund had no operations prior to the merger.
Since both the Fund and the Virtus Fund were similar funds, and the Virtus Fund
contributed the majority of the net assets and shareholders, its basis of
accounting for assets and liabilities and its operating results for prior
periods are carried forward as the accounting survivor.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
An independent pricing service values the Fund's municipal bonds at fair value
using a variety of factors which may include yield, liquidity, interest rate
risk, credit quality, coupon, maturity and type of issue. Securities for which
valuations are not available from an independent pricing service, including
restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
C. Federal Taxes
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund will not incur any federal income tax liability since
it is expected to distribute all of its net investment company taxable income,
net tax-exempt income and net capital gains, if any, to its shareholders. The
Fund also intends to avoid any excise tax liability by making the required
distributions under the Code. Accordingly, no provision for federal taxes is
required. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is the Fund's policy not to distribute such gains.
D. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
11
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
E. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
3. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Fund are
currently divided into Class A, Class B and Class Y. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
March 31, 1998 September 30, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ................................... 37,264 $ 408,419 192,865 $ 2,067,713
Shares issued in reinvestment of distributions 23,336 256,458 71,862 770,265
Shares redeemed ............................... (340,117) (3,740,439) (679,110) (7,269,728)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (279,517) $ (3,075,562) (414,383) $ (4,431,750)
=============================================== =========== ============= =========== -------------
</TABLE>
<TABLE>
<CAPTION>
March 27, 1998
(Commencement of
Class Operations)
to
March 31, 1998
------------------
Shares Amount
- ------------------------------------------------------------------
<S> <C> <C>
Class B
Shares sold ................................... 455 $5,000
Shares issued in reinvestment of distributions 0 0
Shares redeemed ............................... 0 0
- ----------------------------------------------- ------ -------
Net increase .................................. 455 $5,000
=============================================== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
March 31, 1998 September 30, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Class Y
Shares sold ................................... 368 $ 4,077 59,419 $ 640,330
Shares issued in reinvestment of distributions 0 0 0 0
Shares redeemed ............................... (114,820) (1,250,576) (380,036) (4,057,731)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (114,452) $ (1,246,499) (320,617) $ (3,417,401)
=============================================== =========== ============= =========== -------------
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were $2,489,815 and $ 4,106,931, respectively, for the
six months ended March 31, 1998.
As of September 30, 1997, the Fund had capital loss carryovers for federal
income tax purposes of $351,799 expiring in the year 2004.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to the Fund. Prior to
March 1, 1998, Federated Securities Corp. served as the principal underwriter
for the Fund.
The Fund has adopted a Distribution Plan for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the class. Class B and Class C also pay distribution
fees equal to 0.75% of the average daily net assets of the Class. Distribution
Plan expenses are calculated daily and paid monthly.
12
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
During the six months ended March 31, 1998, amounts paid to EDI pursuant to the
Fund's Class A and Class B Distribution Plans were $13,539 and $0,
respectively. Amounts paid to Federated Securities Corp. during the six months
ended March 31, 1998, with respect to Class A and Class B shares were $19,857
and $0, respectively.
With respect to Class B and Class C shares, the principal underwriter may pay
distribution fees greater than the allowable annual amounts the Fund is
permitted to pay under the Distribution Plans.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
6. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The Capital Management Group ("CMG") of First Union National Bank of North
Carolina, a subsidiary of First Union, serves as the investment adviser to the
Fund and is paid a management fee that is computed daily and paid monthly. CMG
is paid at an annual rate of 0.50% of the average daily net assets of the Fund.
Prior to March 1, 1998, the Fund paid its prior investment adviser, Virtus
Capital Management Inc., an advisory fee at an annual rate of 0.75% of the
Fund's average daily net assets. During the six months ended March 31, 1998,
the Fund paid or accrued $6,590 to CMG for management fees.
Evergreen Investment Services, Inc. ("EIS"), a subsidiary of First Union, is
the administrator and BISYS Fund Services is sub-administrator for the Fund.
The administrator and sub-administrator for the Fund are entitled to an annual
fee based on the average daily net assets of the funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the
investment advisers. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The
sub-administration fee is calculated by applying percentage rates, which start
at 0.01% and decline to 0.004% per annum as net assets increase, to the average
daily net asset value of the Fund. Prior to March 1, 1998, Federated
Administrative Services provided the Fund with administrative personnel and
services and was paid a fee based on the level of average daily net assets of
the Virtus Funds, the Blanchard Funds and the Blanchard Precious Metals Fund,
Inc. but not less than $50,000 per year.
During the six months ended March 31, 1998, the Fund paid or accrued $700 to
EIS for certain administrative services.
Evergreen Service Company ("ESC"), an indirect wholly owned subsidiary of First
Union, serves as the transfer and dividend disbursing agent for the Fund. Prior
to March 1, 1998, Federated Shareholder Services Company served as the Fund's
transfer and dividend disbursing agent. Total transfer agent fees paid by the
Fund to ESC for the period from March 1, 1998 to March 31, 1998 were $2,000.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. As sub-administrator to the Fund, BISYS Fund Services provides
the officers of the Funds.
7. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
8. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Fund may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
9. CONCENTRATION OF CREDIT RISK
The Fund invests a substantial portion of its assets in issuers located in a
single state, therefore, it may be more affected by economic and political
developments in that state or region than would be a comparable general
tax-exempt mutual fund.
13
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On February 20, 1998 a special meeting of shareholders for the Virtus Maryland
Municipal Bond Fund was held to consider a number of proposals. On December 26,
1997, the record date for the meeting, the Virtus Maryland Municipal Bond Fund
had the following shares outstanding and the following number of shares were
represented at the meeting:
<TABLE>
<S> <C>
Record Date Shares Outstanding ................................................................... 2,865,325
Shares represented at meeting .................................................................... 2,072,264
Percentage of record date shares represented at meeting .......................................... 72.32%
Proposal 1 - To approve the proposed Agreement and Plan of Conversion with Evergreen
Maryland Municipal Bond Fund, a series of the Evergreen Municipal Trust:
Shares voted "For" ......................................................................... 1,530,024
Shares voted "Against" ..................................................................... 50,247
Shares voted "Abstain" ..................................................................... 67,650
Broker "Non-Vote" .......................................................................... 424,343
Proposal 2 - To approve an interim investment advisory agreement between the Virtus Maryland
Municipal Bond Fund and Virtus Capital Management, Inc., until the reorganization of
the Virtus Maryland Municipal Bond Fund into the Evergreen Maryland Municipal Bond Fund:
Shares voted "For" ......................................................................... 1,949,873
Shares voted "Against" ..................................................................... 51,147
Shares voted "Abstain" ..................................................................... 71,244
Proposal 3 - To approve the proposed reclassification of the Virtus Maryland Municipal Bond
Fund's investment objective from fundamental to nonfundamental:
Shares voted "For" ......................................................................... 1,431,427
Shares voted "Against" ..................................................................... 71,802
Shares voted "Abstain" ..................................................................... 144,692
Broker "Non-Vote" .......................................................................... 424,343
Proposal 4 - To approve the proposed changes to the Virtus Maryland Municipal
Bond Fund's fundamental investment restrictions:
Shares voted "For" ......................................................................... 1,441,620
Shares voted "Against" ..................................................................... 56,525
Shares voted "Abstain" ..................................................................... 149,776
Broker "Non-Vote" .......................................................................... 424,343
</TABLE>
14
<PAGE>
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<PAGE>
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<PAGE>
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