1933 Act No. 333-36033
1940 Act No. 811-08367
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
EVERGREEN MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
EVERGREEN MUNICIPAL TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 10
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 10 to Registrant's Registration Statement
No. 333-36033/811-08367 consists of the following pages, items of information
and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectuses for Evergreen High Grade Municipal Bond Fund,
Evergreen Short-Intermediate Municipal Fund and Evergreen Municipal Bond Fund
are contained herein.
Prospectuses for Evergreen Florida High Income Municipal Bond Fund,
Evergreen Florida Municipal Bond Fund, Evergreen Georgia Municipal Bond Fund,
Evergreen Maryland Municipal Bond Fund, Evergreen North Carolina Municipal Bond
Fund, Evergreen South Carolina Municipal Bond Fund and Evergreen Virginia
Municipal Bond Fund contained in Post-Effective Amendment No.9 to Registration
Statement No.333-36033/811-08367 filed on October 30, 1998 are incorporated by
reference herein.
Prospectuses for Evergreen California Tax Free Fund, Evergreen Connecticut
Municipal Bond Fund, Evergreen Massachusetts Tax Free Fund, Evergreen Missouri
Tax Free Fund, Evergreen New York Tax Free Fund, Evergreen Pennsylvania Tax Free
Fund and Evergreen New Jersey Tax Free Income Fund contained in Post-
Effective Amendment No. 7 to Registration Statement No. 333-36033/811-08367
filed on July 31, 1998 are incorporated by reference herein.
PART B
------
Statement of Additional Information for Evergreen High Grade
Municipal Bond Fund, Evergreen Short-Intermediate Municipal Fund and Evergreen
Municipal Bond Fund are contained herein.
Statement of Additional Information for Evergreen Florida High Income
Municipal Bond Fund, Evergreen Florida Municipal Bond Fund, Evergreen Georgia
Municipal Bond Fund, Evergreen Maryland Municipal Bond Fund, Evergreen North
Carolina Municipal Bond Fund, Evergreen South Carolina Municipal Bond Fund and
Evergreen Virginia Municipal Bond Fund contained in Post-Effective Amendment
No.9 to Registration Statement No.333-36033/811-08367 filed on October 30, 1998
is incorporated by reference herein.
Statement of Additional Information for Evergreen High Grade Tax Free Fund,
Evergreen Short-Intermediate Municipal Fund and Evergreen Tax Free Fund
contained in Post-Effective Amendment No. 8 to Registration Statement
No. 333-36033/811-08367 filed on September 30, 1998 is incorporated
by reference herein.
Statement of Additional Information for Evergreen California Tax Free Fund,
Evergreen Connecticut Municipal Bond Fund, Evergreen Massachusetts Tax Free
Fund, Evergreen Missouri Tax Free Fund, Evergreen New York Tax Free Fund,
Evergreen Pennsylvania Tax Free Fund and Evergreen New Jersey Tax Free Income
Fund contained in Post-Effective Amendment No. 7 to Registration Statement
No. 333-36033/811-08367 filed on July 31, 1998 is incorporated by reference
herein.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Advisor
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART A
PROSPECTUSES
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS April 1, 1999
- -------------------------------------------------------------------------------
Evergreen SM National Municipal Bond Funds
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
- -------------------------------------------------------------------------------
Evergreen Short-Intermediate Municipal Fund
CLASS A SHARES
CLASS B SHARES
Evergreen High Grade Municipal Bond Fund
Evergreen Municipal Bond Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen National Municipal Bond Funds (each a "Fund," together the
"Funds") are designed to provide investors with income exempt from federal
income taxes. This prospectus provides information regarding the Class A and
Class B shares offered by Evergreen Short-Intermediate Municipal Fund and the
Class A, Class B and Class C shares offered by Evergreen High Grade Municipal
Bond Fund and Evergreen Municipal Bond Fund. Each Fund is a diversified series
of an open-end management investment company. This prospectus sets forth
information about the Funds that a prospective investor should have before
investing. The address of the Funds is 200 Berkeley Street, Boston,
Massachusetts 02116.
A Statement of Additional Information ("SAI") for the Funds dated April
1, 1999, as supplemented from time to time, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference herein. The
SAI provides information regarding certain matters discussed in this
prospectus and other matters which may be of interest to investors, and may be
obtained without charge by calling the Funds at (800) 343-2898. There can be
no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this prospectus carefully.
An investment in a Fund is not a deposit or an obligation of or guaranteed or
endorsed by, any bank, and shares are not insured or otherwise protected by
the U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency. An investment in a Fund
involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
EVERGREEN SM is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION....................... 3
FINANCIAL HIGHLIGHTS...................... 5
DESCRIPTION OF THE FUNDS.................. 11
Investment Objectives and Policies..... 11
Investment Practices and Restrictions.. 13
ORGANIZATION AND SERVICE PROVIDERS........ 17
Organization........................... 17
Service Providers...................... 17
Distribution Plans and Agreements...... 19
</TABLE>
<TABLE>
<S> <C>
PURCHASE AND REDEMPTION OF SHARES...... 20
How to Buy Shares................... 20
How to Redeem Shares................ 23
Exchange Privilege.................. 25
Shareholder Services................ 25
Effect of Banking Laws.............. 26
OTHER INFORMATION...................... 27
Dividends, Distributions and Taxes.. 27
General Information................. 28
</TABLE>
2
<PAGE>
- -------------------------------------------------------------------------------
EXPENSE INFORMATION
- -------------------------------------------------------------------------------
The table and examples below are designed to help you understand the
various expenses that you will bear, directly and indirectly, when you invest
in the Funds. Shareholder transaction expenses are fees paid directly from
your account when you buy or sell shares of the Funds.
<TABLE>
<CAPTION>
Shareholder Transaction
Expenses Class A Shares Class B Shares Class C Shares
----------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases
(as a % of offering price):
Evergreen High Grade Municipal
Bond Fund.................... 4.75% None None
Evergreen Short-Intermediate
Municipal Fund............... 3.25% None None
Evergreen Municipal Bond
Fund......................... 4.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a %
of offering price)............ None None None
Maximum Contingent Deferred
Sales Charge
(as a % of original purchase
price or redemption proceeds,
whichever is lower)........... None(1) 5%(2) 1%(2)
</TABLE>
Annual operating expenses reflect the normal operating expenses of each
Fund, and include costs such as management, distribution and other fees. The
table below shows the annual operating expenses for the fiscal year ended May
31, 1998 for Class A and Class B of Evergreen High Grade Municipal Bond Fund
and estimated annual operating expenses for the fiscal year ending May 31,
1999 for Class C of Evergreen High Grade Municipal Bond Fund, Class A and
Class B of Evergreen Short-Intermediate Municipal Fund and Class A, Class B
and Class C of Evergreen Municipal Bond Fund. The examples show what you would
pay if you invested $1,000 over the periods indicated. The examples assume
that you reinvest all of your dividends and that the Funds' average annual
return will be 5%. The examples are for illustration purposes only and should
not be considered a representation of past or future expenses or annual
return. The Funds' actual expenses and returns will vary. For a more complete
description of the various costs and expenses borne by the Funds see
"Organization and Service Providers."
Evergreen High Grade Municipal Bond Fund
<TABLE>
<CAPTION>
Examples
---------------------------------------
Assuming
Redemption at Assuming no
End of Period Redemption
----------------------- ---------------
Class A Class B Class C Class B Class C
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
After 1 Year............ $ 58 $ 69 $ 29 $ 19 $ 19
After 3 Years........... $ 81 $ 88 $ 58 $ 58 $ 58
After 5 Years........... $105 $120 $100 $100 $100
After 10 Years.......... $174 $187 $216 $187 $216
</TABLE>
<TABLE>
<CAPTION>
Annual Operating
Expenses
- ----------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Management
Fees........... 0.50% 0.50% 0.50%
12b-1 Fees(3)... 0.25% 1.00% 1.00%
Other Expenses.. 0.34% 0.34% 0.34%
---- ---- ----
Total........... 1.09% 1.84% 1.84%
==== ==== ====
</TABLE>
Evergreen Short-Intermediate Municipal Fund
<TABLE>
<CAPTION>
Examples
-------------------------------
Assuming
Redemption at Assuming no
End of Period Redemption
--------------- -----------
Class A Class B Class B
------- ------- -----------
<S> <C> <C> <C> <C>
After 1 Year.......... $ 40 $ 67 $ 17
After 3 Years......... $ 55 $ 82 $ 52
After 5 Years......... $ 72 $109 $ 89
After 10 Years........ $121 $159 $159
</TABLE>
<TABLE>
<CAPTION>
Annual Operating Expenses
- -------------------------
Class A Class B
------- -------
<S> <C> <C>
Management Fees (After
Waivers)*............... 0.43% 0.43%
12b-1 Fees(3)............ 0.10% 1.00%
Other Expenses........... 0.21% 0.21%
---- ----
Total 0.74% 1.64%
==== ====
</TABLE>
3
<PAGE>
Evergreen Municipal Bond Fund
<TABLE>
<CAPTION>
Examples
---------------------------------------
Assuming Redemption at Assuming no
End of Period Redemption
----------------------- ---------------
Class A Class B Class C Class B Class C
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
After 1 Year............ $ 57 $ 67 $ 27 $ 17 $ 17
After 3 Years........... $ 76 $ 83 $ 53 $ 53 $ 53
After 5 years........... $ 97 $111 $ 91 $ 91 $ 91
After 10 Years.......... $156 $169 $199 $169 $199
</TABLE>
<TABLE>
<CAPTION>
Annual Operating
Expenses
-----------------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Management
Fees........... 0.41% 0.41% 0.41%
12b-1 Fees(3)... 0.25% 1.00% 1.00%
Other Expenses.. 0.27% 0.27% 0.27%
---- ---- ----
Total........... 0.93% 1.68% 1.68%
==== ==== ====
</TABLE>
- -------
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5% to 1% on
amounts redeemed within six years after the month of purchase. The
deferred sales charge on Class C shares is 1% on amounts redeemed within
one year after the month of purchase. No sales charge is imposed on
redemptions made thereafter. See "Purchase and Redemption of Shares" for
more information.
(3) Class A shares of the Fund can pay up to 0.75% of average daily net assets
as a 12b-1 fee. For the forseeable future, the Class A 12b-1 fees will be
limited to 0.25% of average daily net assets for Evergreen High Grade
Municipal Bond Fund and Evergreen Municipal Bond Fund and 0.10% for
Evergreen Short-Intermediate Municipal Fund. Long-term shareholders may
pay more than the economic equivalent front-end sales charges permitted by
the National Association of Securities Dealers, Inc.
* From time to time each Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse a Fund for certain of its expenses in
order to reduce expense ratios. Each Fund's investment advisor may cease
these waivers and reimbursements at any time. Expenses for Evergreen Short-
Intermediate Municipal Fund reflect a management fee waiver of 0.07% of
average net assets. Absent such waiver, the management fee would be 0.50%.
Total Annual Operating Expenses, absent waiver of the management fee, would
be 0.81% and 1.71% for the Fund's Class A and Class B shares, respectively.
Evergreen Asset Management Corp. has agreed to reimburse Evergreen Short-
Intermediate Municipal Fund to the extent that its aggregate operating
expenses (including the investment advisor's fee, but excluding taxes,
interest, brokerage commissions, Rule 12b-1 distribution fees and
extraordinary expenses) exceed 1.0% of the average net assets. This
reimbursement may be discontinued at any time.
4
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The tables on the following pages present, for Evergreen High Grade
Municipal Bond Fund, Evergreen Short-Intermediate Municipal Fund and Evergreen
Municipal Bond Fund, financial highlights for a share outstanding throughout
each period indicated. The information for Evergreen High Grade Municipal Bond
Fund and Evergreen Short-Intermediate Municipal Fund has been audited by
PricewaterhouseCoopers LLP, the Funds' independent auditors. Information for
Evergreen High Grade Municipal Bond Fund for the fiscal years or periods ended
prior to August 31, 1996 was audited by other auditors. Information for
Evergreen Municipal Bond Fund has been audited by KPMG Peat Marwick LLP, the
Fund's independent auditors. The tables appear in the Funds' Annual Report to
shareholders and should be read in conjunction with each Fund's financial
statements and related notes, which also appear, together with the independent
auditors' reports, in the Funds' Annual Report to shareholders. The Funds'
financial statements, related notes, and independent auditors' reports are
incorporated by reference into the Funds' SAI.
Further information about a Fund's performance is contained in the Fund's
Annual Report to shareholders, which may be obtained upon request and without
charge.
Evergreen High Grade Municipal Bond Fund--Class A
<TABLE>
<CAPTION>
February 21,
1992
(Commence-
ment
Six Months of Class
Ended Nine Months Eight Months Year Ended Operations)
November 30, Year Ended Ended Year Ended Ended December 31, through
1998 May 31, May 31, August 31, August 31, ----------------- December 31,
(Unaudited) 1998 1997(a) 1996 1995(d) 1994 1993 1992
------------ ---------- ----------- ---------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $11.36 $10.89 $10.72 $10.69 $9.79 $11.16 $10.42 $10.00
------- ------- ------- ------- ------- ------- -------- -------
Income from investment
operations:
Net investment income.. 0.25 0.47 0.37 0.52 0.34 0.52 0.54 0.51
Net realized and
unrealized gain (loss)
on investments........ 0.17 0.48 0.17 0.03 0.90 (1.37) 0.81 0.42
------- ------- ------- ------- ------- ------- -------- -------
Total from investment
operations............. 0.42 0.95 0.54 0.55 1.24 (0.85) 1.35 0.93
------- ------- ------- ------- ------- ------- -------- -------
Less distributions from:
Net investment income.. (0.25) (0.48) (0.37) (0.52) (0.34) (0.52) (0.54) (0.51)
Net realized gains on
investments........... (0.27) 0 0 0 0 0 (0.07) 0
------- ------- ------- ------- ------- ------- -------- -------
Total distributions..... (0.52) (0.48) (0.37) (0.52) (0.34) (0.52) (0.61) (0.51)
------- ------- ------- ------- ------- ------- -------- -------
Net asset value end of
period................. $11.26 $11.36 $10.89 $10.72 $10.69 $9.79 $11.16 $10.42
======= ======= ======= ======= ======= ======= ======== =======
Total return(c)......... 3.74% 8.88% 5.13% 5.21% 12.83% (7.71%) 13.25% 9.48%
Ratios/supplemental
data:
Ratios to average net
assets:
Expenses............... 0.95%(b) 1.09% 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85% 0.49%(b)
Expenses excluding
indirectly paid
expenses.............. 0.95%(b) 1.09% 1.03%(b) -- -- -- -- --
Expenses excluding
waivers and/or
reimbursements........ 0.95%(b) 1.09% 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07% 1.11%(b)
Net investment income.. 4.27%(b) 4.25% 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99% 5.79%(b)
Portfolio turnover
rate................... 43% 127% 114% 65% 27% 53% 14% 7%
Net assets end of period
(thousands)............ $67,659 $64,526 $45,814 $50,569 $58,751 $57,676 $101,352 $90,738
</TABLE>
- -------
(a) The Fund changed its fiscal year end from August 31 to May 31.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
5
<PAGE>
Evergreen High Grade Municipal Bond Fund--Class B
<TABLE>
<CAPTION>
Six Months January 11, 1993
Ended Nine Months Eight Months (Commencement of
November 30, Year Ended Ended Year Ended Ended Year Ended Class Operations)
1998 May 31, May 31, August 31, August 31, December 31, through
(Unaudited) 1998 1997(a) 1996 1995(d) 1994 December 31, 1993
------------ ---------- ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $11.36 $10.89 $10.72 $10.69 $9.79 $11.16 $10.42
------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income.. 0.20 0.39 0.31 0.44 0.29 0.46 0.47
Net realized and
unrealized gain (loss)
on investments........ 0.17 0.48 0.17 0.03 0.90 (1.37) 0.81
------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 0.37 0.87 0.48 0.47 1.19 (0.91) 1.28
------- ------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income.. (0.20) (0.40) (0.31) (0.44) (0.29) (0.46) (0.47)
Net realized gain on
investments........... (0.27) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- ------- -------
Total distributions..... (0.47) (0.40) (0.31) (0.44) (0.29) (0.46) (0.54)
------- ------- ------- ------- ------- ------- -------
Net asset value end of
period................. $11.26 $11.36 $10.89 $10.72 $10.69 $9.79 $11.16
======= ======= ======= ======= ======= ======= =======
Total return(c)......... 3.35% 8.07% 4.55% 4.42% 12.27% (8.24%) 12.52%
Ratios/supplemental data
Ratios to average net
assets:
Expenses............... 1.70%(b) 1.84% 1.78%(b) 1.64% 1.81%(b) 1.58% 1.35%(b)
Expenses excluding
indirectly paid
expenses.............. 1.70%(b) 1.84% 1.78%(b) -- -- -- --
Expenses excluding
waivers and/or
reimbursements........ 1.70%(b) 1.84% 1.86%(b) 1.84% 1.84%(b) 1.59% 1.57%(b)
Net investment income.. 3.53%(b) 3.51% 3.85%(b) 4.03% 4.18%(b) 4.47% 4.44%(b)
Portfolio turnover
rate................... 43% 127% 114% 65% 27% 53% 14%
Net assets end of period
(thousands)............ $32,614 $32,822 $31,874 $32,221 $34,206 $32,435 $41,030
</TABLE>
- -------
(a) The Fund changed its fiscal year end from August 31 to May 31.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
6
<PAGE>
Evergreen Short-Intermediate Municipal Fund--Class A and Class B
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------------------------
January 5, 1995
Six (Commencement
Months Nine of Class
Ended Year Months Year Operations)
November Ended Ended Ended through
30, 1998 May 31, May 31, August 31, August 31,
(Unaudited) 1998 1997(a) 1996 1995
----------- ------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of
period.......... $10.19 $10.09 $10.08 $10.17 $9.97
------ ------ ------ ------- ------
Income from
investment
operations:
Net investment
income......... 0.20 0.41 0.30 0.43 0.30
Net realized and
unrealized gain
(loss) on
investments.... 0.08 0.10 0.01 (0.09) 0.20
------ ------ ------ ------- ------
Total from
investment
operations...... 0.28 0.51 0.31 0.34 0.50
------ ------ ------ ------- ------
Less
distributions
from:
Net investment
income......... (0.20) (0.41) (0.30) (0.43) (0.30)
Capital gains... (0.08) 0 0 0 0
------ ------ ------ ------- ------
Net asset value
end of period... $10.19 $10.19 $10.09 $10.08 $10.17
====== ====== ====== ======= ======
Total return(c).. 2.79% 5.11% 3.08% 3.37% 5.09%
Ratios/supplemental
data
Ratios to average
net assets
Expenses........ 0.75%(b) 0.81% 0.84%(b) 0.80% 0.70%(b)
Expenses
excluding
indirectly paid
expenses....... 0.74%(b) 0.81% 0.83%(b) -- --
Expenses
excluding
waivers and/or
reimbursements.. 0.76%(b) 0.85% 0.96%(b) 1.11% 1.14%(b)
Net investment
income......... 4.00%(b) 4.01% 3.94%(b) 4.05% 4.32%(b)
Portfolio
turnover rate... 36% 78% 34% 29% 80%
Net assets end of
period
(thousands)..... $7,663 $6,569 $6,072 $27,722 $6,820
<CAPTION>
Class B Shares
------------------------------------------------------------
January 5, 1995
Six (Commencement
Months Nine of Class
Ended Year Months Year Operations)
November Ended Ended Ended through
30, 1998 May 31, May 31, August 31, August 31,
(Unaudited) 1998 1997(a) 1996 1995
------------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of
period.......... $10.19 $10.10 $10.08 $10.17 $9.97
------------- -------- ---------- ---------- ---------------
Income from
investment
operations:
Net investment
income......... 0.16 0.32 0.23 0.34 0.24
Net realized and
unrealized gain
(loss) on
investments.... 0.08 0.09 0.02 (0.09) 0.20
------------- -------- ---------- ---------- ---------------
Total from
investment
operations...... 0.24 0.41 0.25 0.25 0.44
------------- -------- ---------- ---------- ---------------
Less
distributions
from:
Net investment
income......... (0.16) (0.32) (0.23) (0.34) (0.24)
Capital gains... (0.08) 0 0 0 0
------------- -------- ---------- ---------- ---------------
Net asset value
end of period... $10.19 $10.19 $10.10 $10.08 $10.17
============= ======== ========== ========== ===============
Total return(c).. 2.33% 4.07% 2.49% 2.44% 4.50%
Ratios/supplemental
data
Ratios to average
net assets
Expenses........ 1.65%(b) 1.71% 1.73%(b) 1.67% 1.58%(b)
Expenses
excluding
indirectly paid
expenses....... 1.64%(b) 1.71% 1.73%(b) -- --
Expenses
excluding
waivers and/or
reimbursements.. 1.66%(b) 1.74% 1.86%(b) 2.07% 2.26%(b)
Net investment
income......... 3.09%(b) 3.11% 3.04%(b) 3.28% 3.50%(b)
Portfolio
turnover rate... 36% 78% 34% 29% 80%
Net assets end of
period
(thousands)..... $6,179 $5,790 $6,742 $7,413 $6,050
</TABLE>
- -------
(a) The Fund changed its fiscal year end from August 31 to May 31.
(b) Annualized.
(c) Excluding applicable sales charges.
7
<PAGE>
Evergreen Municipal Bond Fund--Class A
<TABLE>
<CAPTION>
Six Months January 20, 1998
Ended (Commencement
November 30, of Class Operations)
1998 through
(Unaudited) May 31, 1998
------------ --------------------
<S> <C> <C>
Net asset value beginning of period........ $7.78 $7.91
---------- ----------
Income from investment operations:
Net investment income..................... 0.18 0.13 (c)
Net realized and unrealized loss on
investments.............................. (0.05) (0.13)
---------- ----------
Total from investment operations........... 0.13 0
---------- ----------
Less distributions from:
Net investment income..................... (0.18) (0.13)
Capital gains............................. (0.11) 0
---------- ----------
Net asset value end of period.............. $7.82 $7.78
========== ==========
Total return(b)............................ 3.26% 0.04%
Ratios/supplemental data
Ratios to average net assets:
Expenses.................................. 0.85%(a) 0.93%(a)
Expenses excluding indirectly paid
expenses................................. 0.85%(a) 0.93%(a)
Net investment income..................... 4.63%(a) 4.69%(a)
Portfolio turnover rate.................... 53% 77%
Net assets end of period (thousands)....... $1,163,997 $1,243,327
</TABLE>
- -------
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
8
<PAGE>
Evergreen Municipal Bond Fund--Class B
<TABLE>
<CAPTION>
Six Months
Ended Five Months Year Ended December 31,
November 30, 1998 Ended ----------------------------------------------
(Unaudited) May 31, 1998(a) 1997 1996 1995 1994
----------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12
-------- -------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income.. 0.15 0.12(d) 0.38 0.41 0.41 0.37
Net realized and
unrealized gain (loss)
on investments
and futures
contracts............. (0.05) (0.03) 0.23 (0.17) 0.74 (0.96)
-------- -------- ---------- ---------- ---------- ----------
Total from investment
operations............. 0.10 0.09 0.61 0.24 1.15 (0.59)
-------- -------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income.. (0.15) (0.13) (0.40) (0.39) (0.39) (0.37)
In excess of net
investment income..... (0.11) 0 0 0 0 (0.06)
Net realized gain on
investments........... 0 0 (0.10) 0 0 0
In excess of net
realized gain on
investments........... 0 0 0 0 0 0
-------- -------- ---------- ---------- ---------- ----------
Total distributions..... (0.26) (0.13) (0.50) (0.39) (0.39) (0.43)
-------- -------- ---------- ---------- ---------- ----------
Net asset value end of
period................. $ 7.62 $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10
======== ======== ========== ========== ========== ==========
Total return(c)......... 2.87% 1.15% 8.15% 3.15% 16.61% (7.34%)
Ratios/supplemental data
Ratios to average net
assets
Expenses............... 1.60%(b) 1.26%(b) 0.96% 0.87% 0.95% 1.55%
Expenses excluding
indirectly paid
expenses.............. 1.60%(b) 1.25%(b) 0.96% 0.86% 0.94% --
Net investment income.. 3.79%(b) 4.32%(b) 4.97% 5.34% 5.41% 4.92%
Portfolio turnover
rate................... 53% 77% 126% 69% 56% 84%
Net assets end of period
(thousands)............ $117,135 $124,664 $1,375,730 $1,557,886 $1,204,468 $1,197,727
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $ 8.04 $ 8.07 $ 7.90 $ 8.06 $ 8.18 $ 8.09
---------- ---------- ---------- ---------- -------- --------
Income from investment
operations:
Net investment income.. 0.39 0.46 0.46 0.52(d) 0.57 0.55
Net realized and
unrealized gain (loss)
on investments and
futures contracts..... 0.48 0.12 0.36 (0.01) 0.15 0.30
---------- ---------- ---------- ---------- -------- --------
Total from investment
operations............. 0.87 0.58 0.82 0.51 0.72 0.85
---------- ---------- ---------- ---------- -------- --------
Less distributions from:
Net investment income.. (0.39) (0.46) (0.46) (0.52) (0.60) (0.63)
In excess of net
investment income..... (0.06) (0.04) (0.07) (0.03) 0 0
Net realized gain on
investments........... (0.33) (0.11) (0.12) (0.12) (0.24) (0.13)
In excess of net
realized gain on
investments........... (0.01) 0 0 0 0 0
---------- ---------- ---------- ---------- -------- --------
Total distributions..... (0.79) (0.61) (0.65) (0.67) (0.84) (0.76)
---------- ---------- ---------- ---------- -------- --------
Net asset value end of
period................. $ 8.12 $ 8.04 $ 8.07 $ 7.90 $ 8.06 $ 8.18
========== ========== ========== ========== ======== ========
Total return(c)......... 11.15% 7.55% 10.80% 6.66% 9.11% 10.89%
Ratios/supplemental data
Ratios to average net
assets
Expenses............... 1.66% 1.38% 1.75% 1.18% 1.23% 1.79%
Expenses excluding
indirectly paid
expenses.............. -- -- -- -- -- --
Net investment income.. 4.72% 5.71% 5.78% 6.54% 6.94% 6.74%
Portfolio turnover
rate................... 76% 78% 77% 64% 69% 61%
Net assets end of period
(thousands)............ $1,548,503 $1,453,199 $1,146,185 $1,060,826 $901,912 $903,132
</TABLE>
- -------
(a) The Fund changed in its fiscal year end from December 31 to May 31 during
the period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Calculation based on average shares outstanding.
9
<PAGE>
Evergreen Municipal Bond Fund--Class C
<TABLE>
<CAPTION>
January 26, 1998
(Commencement
of Class
Six Months Operations)
Ended through
November 30, 1998 May 31,
(Unaudited) 1998
----------------- ----------------
<S> <C> <C>
Net asset value beginning of period......... $ 7.78 $ 7.85
------ ------
Income from investment operations:
Net investment income...................... 0.15 0.11(c)
Net realized and unrealized loss on
investments............................... (0.05) (0.07)
------ ------
Total from investment operations............ 0.10 0.04
------ ------
Less distributions from:
Net investment income...................... (0.15) (0.11)
Capital gains.............................. (0.11) --
------ ------
Total distributions......................... (0.26) (0.11)
------ ------
Net asset value end of period............... $ 7.62 $ 7.78
------ ------
Total return (b)............................ 2.87% 0.46%
Ratios/supplemental data
Ratios to average net assets
Expenses................................... 1.60%(a) 1.68%(a)
Expenses excluding indirectly paid
expenses.................................. 1.60%(a) 1.68%(a)
Net investment income...................... 3.78%(a) 3.94%(a)
Portfolio turnover rate..................... 53% 77%
Net assets end of period (thousands)........ $7,352 $7,708
</TABLE>
- -------
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
10
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
Each Fund's investment objective is nonfundamental; as a result each Fund
may change its objective without a shareholder vote. Each Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit each Fund's exposure to risk. The Funds' fundamental policies cannot be
changed without a shareholder vote. See the SAI for more information regarding
each Fund's fundamental investment policies or other related investment
policies. There can be no assurance that each Fund's investment objective will
be achieved.
Evergreen High Grade Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund seeks a high level of income,
exempt from federal income taxes other than the Alternative Minimum Tax
("AMT"), that is consistent with preservation of capital. The Fund will invest
at least 65% of its total assets in municipal securities insured by a
municipal bond insurance company rated AAA by Standard & Poor's Ratings
Services ("S&P") or Aaa by Moody's Investors Service ("Moody's"). Municipal
bond insurance guarantees that the Fund will receive timely payment of
principal and interest due on a bond. Such insurance does not, however,
guarantee the value of such bonds or the value of Fund shares. See the section
entitled "Municipal Bond Insurance" under "Investment Practices and
Restrictions" for further information.
Evergreen High Grade Municipal Bond Fund 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 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.
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund seeks as high a level of
current income, exempt from federal income taxes other than the AMT for
individuals and corporations, as is consistent with preserving capital and
providing liquidity. Under normal circumstances, it is anticipated that the
Fund will invest its assets so that at least 80% of its annual interest income
is exempt from federal income tax other than the AMT. The Fund may invest up
to 50% of its total assets in AMT-Subject Bonds. The Fund will invest
substantially all of its assets in a diversified portfolio of short and
intermediate-term municipal securities.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation to the issuer or some third party at a price approximating par
value before its stated maturity date.
Evergreen Municipal Bond Fund
Evergreen Municipal Bond Fund seeks the highest possible current income,
exempt from federal income taxes other than the AMT, while preserving capital.
Since the Fund considers preservation of capital as well as the level of tax
exempt income as its primary objective, the Fund may realize less income than
a fund willing to expose shareholders' capital to greater risk.
Under ordinary circumstances, the Fund invests at least 80% of its assets
in municipal securities the interest from which is exempt from federal income
taxes other than AMT.
Principal Investments and Investment Policies. Each Fund will invest at
least 80% of its assets in bonds that, at the date of investment, are rated
within the four highest categories by S&P (AAA, AA, A and BBB), by Moody's (Aaa,
Aa, A and Baa), by Fitch IBCA, Inc. ("Fitch") (AAA, AA, A and BBB) or, if not
rated or rated under
11
<PAGE>
a different system, are of comparable quality to obligations so rated as
determined by another nationally recognized statistical ratings organization
("SRO") or by the Fund's investment advisor. Each Fund may invest the
remaining 20% of its assets in lower rated bonds, but will not invest in bonds
rated below B.
Evergreen High Grade Municipal Bond Fund and Evergreen Short-Intermediate
Municipal Fund may temporarily invest up to 20% of their total assets in
taxable securities and Evergreen Short-Intermediate Municipal Fund may
temporarily invest its assets so that no more than 20% of its annual income
will be derived from 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, each such Fund may temporarily invest
more than 20% of its total assets in taxable securities for defensive
purposes. Each Fund may invest for defensive purposes during periods when each
Fund's assets available for investment exceed the available municipal
securities that meet each Fund's quality and other investment criteria.
Taxable securities in which Evergreen High Grade Municipal Bond Fund and
Evergreen Short-Intermediate Municipal Fund 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.
Evergreen Municipal Bond Fund also may invest in securities that pay
interest that is not exempt from federal income taxes, such as corporate and
bank obligations, obligations issued or guaranteed by the U.S. government or
by any of its agencies or instrumentalities, commercial paper and repurchase
agreements. Such securities must be rated at least BBB by S&P or Baa by
Moody's or, if not rated, must be determined by its investment advisor to be
of comparable quality. Evergreen Municipal Bond Fund will not invest more than
20% of its total assets under ordinary circumstances and up to 100% of its
total assets for temporary defensive purposes in such securities.
Evergreen Municipal Bond Fund may, but does not currently intend to,
invest in foreign securities or securities denominated in foreign currencies.
The Funds may also purchase municipal securities which are unrated at the
time of purchase, if such securities are determined by a Fund's investment
advisor to be of comparable quality to rated securities under the criteria set
forth above. Certain municipal securities (primarily variable rate demand
notes) may be entitled to the benefit of standby letters of credit or similar
commitments issued by banks and, in such instances, a Fund's investment
advisor will take into account the obligation of the bank in assessing the
quality of such security.
The ability of each Fund to meet its investment objectives is necessarily
subject to the ability of municipal issuers to meet their payment obligations.
In addition, the portfolio of each Fund will be affected by general changes in
interest rates which will result in increases or decreases in the value of the
obligations held by the Funds. Investors should recognize that, in periods of
declining interest rates, the yield of a Fund will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates, the
yield of a Fund will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to a Fund from the continuous sale of its
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the Fund's portfolio, thereby reducing the current yield
of the Fund. In periods of rising interest rates, the opposite can be expected
to occur.
INVESTMENT PRACTICES AND RESTRICTIONS
Municipal Securities. As noted above, each Fund will invest substantially all
of its assets in municipal securities. These include municipal bonds, short-
term municipal notes and tax-exempt commercial paper. Municipal securities are
debt obligations issued by states, territories and possessions of the United
States ("U.S."), including the District of Columbia, and their political
subdivisions, agencies and instrumentalities. They are used to raise money for
various public purposes. 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.
12
<PAGE>
A Fund's ability to achieve its objective depends partially on the prompt
payment by issuers of the interest on and principal of the municipal bonds
held by the Fund. A moratorium, default, or other non-payment of interest or
principal when due on any municipal bond, in addition to affecting the market
value and liquidity of that particular security, could affect the market value
and liquidity of other municipal bonds held by a Fund. In addition, the market
for municipal bonds is often thin and can be temporarily affected by large
purchases and sales, including those by a Fund.
From time to time, proposals have been introduced before the U.S.
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal bonds, and similar proposals may be
introduced in the future. The enactment of such a proposal could materially
affect the availability of municipal bonds for investment by a Fund and the
value of the Fund's portfolio. In the event of such legislation, each Fund
would re-evaluate its investment objective and policies and consider changes
in the structure of the Fund or dissolution.
Municipal Bond Insurance. The purpose of municipal bond insurance is to
guarantee the timely payment of principal at maturity and interest. Securities
in Evergreen High Grade Municipal Bond Fund'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. The
Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A
more detailed description of these insurers may be found in the SAI. 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 investments imposed by the guidelines in the Policies reduce
the yield to shareholders.
Bonds Subject to 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 he 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.
Risk Factors. Bond prices move inversely to interest rates, i.e., as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of
bond funds which will vary with interest rates. In addition, certain of the
obligations in which a 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.
Bonds Rated Below Investment Grade. Bonds rated lower than BBB by S&P or
Fitch, or lower than Baa by Moody's, are considered below investment grade.
Such bonds are surrounded by a degree of doubt with respect to the safety of
investment and the ability of the issuer to continue interest payments. These
bonds are also called "high risk, high yield" bonds or "junk" bonds. Junk
bonds are usually backed by issuers of less proven or questionable financial
strength. Compared with higher-grade bonds, issuers of junk bonds are more
likely to face financial problems and to be materially affected by those
problems. As a result, the ability of issuers of junk bonds to pay interest
and principal is uncertain. Moreover, the junk bond market may react strongly
to real or perceived unfavorable news about an issuer or the economy. If a
junk bond issuer defaults, the bond will lose some or all of its value. The
Funds will not invest in bonds rated below B.
Downgrades. If any security in which a Fund invests loses its rating or has
its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
13
<PAGE>
Floating Rate and Variable Rate Obligations. Municipal securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. 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. Each
Fund will limit the value of its investments in any floating or variable rate
security which is not readily marketable to 10% or less of its net assets.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund
may enter into transactions whereby it commits to buying a security, but does
not pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuations during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Evergreen Short-Intermediate Municipal Fund does not expect that
commitments to purchase when-issued securities will normally exceed 25% of its
total assets and Evergreen High Grade Municipal Bond Fund does not expect that
such commitments will exceed 20% of its total assets. Each Fund does not
intend to purchase when-issued or delayed delivery securities for speculative
purposes but only in furtherance of its investment objective.
Stand-by Commitments. Each Fund may also acquire stand-by commitments with
respect to municipal securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified
municipal securities at a specified price. Failure of the dealer to purchase
such municipal securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. The Funds expect that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a Fund may pay
for stand-by commitments either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities).
The total amount paid in either manner for outstanding stand-by commitments
held in each Fund's portfolio will not exceed 10% of the value of the Fund's
total assets calculated immediately after each stand-by commitment is
acquired. A Fund will maintain cash or liquid high grade debt obligations in a
segregated account with its custodian in an amount equal to such commitments.
A Fund will enter into stand-by commitments only with banks and broker-dealers
that, in the judgment of the Fund's investment advisor, present minimal credit
risks.
Repurchase Agreements. Each Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which a Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase
price reflects an agreed-upon interest rate for the time period of the
agreement. A Fund's risk is the inability of the seller to pay the agreed-upon
price on the delivery date. However, this risk is tempered by the ability of a
Fund to sell the security in the open market in the case of a default. In such
a case, a Fund may incur costs in disposing of the security which would
increase Fund expenses. A Fund's investment advisor will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
Evergreen Short-Intermediate Municipal Fund may not enter into repurchase
agreements if, as a result, more than 15% of the Fund's net assets would be
invested in repurchase agreements maturing in more than seven days. Evergreen
High Grade Municipal Bond Fund may not so invest more than 10% of its net
assets.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by a Fund to sell a
security and repurchase it at a specified time and price. A Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of a Fund.
14
<PAGE>
Illiquid Securities. Each Fund may invest up to 15% of its net assets in
illiquid securities and other securities which are not readily marketable.
Repurchase agreements with maturities longer than seven days will be included
for the purpose of the foregoing 15% limit. The inability of a Fund to dispose
of illiquid investments readily or at a reasonable price could impair its
ability to raise cash for redemptions or other purposes.
Restricted Securities. Each Fund may invest in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A establishes a
safe harbor from the registration requirements of the 1933 Act for resale by
large institutional investors of securities not publicly traded in the U.S.
Each Fund's investment advisor determines the liquidity of Rule 144A
securities according to guidelines and procedures adopted by the Trust's Board
of Trustees. (See "Organization.") The Board of Trustees monitors each
investment advisor's application of those guidelines and procedures.
Securities eligible for resale pursuant to Rule 144A, which a Fund's
investment advisor has determined to be liquid or readily marketable, are not
subject to the 15% limit on illiquid securities.
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. Each Fund may also borrow an additional
5% of its total assets from banks or others. The Funds may only borrow as a
temporary measure for extraordinary or emergency purposes such as the
redemption of Fund shares. A Fund will not purchase securities while
outstanding borrowings exceed 5% of its total assets except to exercise prior
commitments and to exercise subscription rights.
Securities Lending. To generate income and offset expenses, a Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by a Fund may not exceed 33 1/3% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay a Fund any income
accruing on the security. Also, a Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent
security will affect a Fund and its shareholders. When a Fund lends its
securities, it runs the risk that it could not retrieve the securities on a
timely basis, possibly losing the opportunity to sell the securities at a
desirable price. Also, if the borrower files for bankruptcy or becomes
insolvent, a Fund's ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. Each Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that a
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Options and Futures. Each Fund may buy and sell futures and options on futures
relating to (i) individual securities and (ii) indices. In addition, Evergreen
Municipal Bond Fund may buy and sell futures and options on futures relating
to foreign currencies. Such transactions may be entered into in order to hedge
against declines in markets and to gain exposure to markets prior to buying
individual securities.
Each Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and
listed put options on financial futures contracts for portfolio securities.
Each Fund may also purchase call options on financial futures contracts. Each
Fund may also write covered call options on its portfolio securities to
attempt to increase its current income. A Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series.
Each Fund may write (i.e., sell) covered call and put options. By writing
a call option, a Fund becomes obligated during the term of the option to
deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. Each Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). Each
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
A Fund will be considered "covered" with respect to a put option it writes if,
so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
15
<PAGE>
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. A Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more
than their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities
of the U.S. government. If a Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market interest rates.
Each Fund may also enter into financial futures contracts and write
options on such contracts. Each Fund intends to enter into such contracts and
related options for hedging purposes. Each Fund will enter into futures on
securities or index-based futures contracts in order to hedge against changes
in interest rates or securities prices. A futures contract is an agreement to
buy or sell securities during a designated month at whatever price exists at
that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. A Fund does not make
payment or deliver securities upon entering into a futures contract. Instead,
it puts down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which remains in effect until the contract is
terminated.
Each Fund may sell or purchase financial futures contracts. When a
futures contract is sold by the Fund, the profit on the contract will tend to
rise when the value of the underlying securities declines and to fall when the
value of such securities increases. Thus, a Fund sells futures contracts in
order to offset a possible decline in the profit on its securities. If a
futures contract is purchased by the Fund, the value of the contract will tend
to rise when the value of the underlying securities increases and to fall when
the value of such securities declines.
Each Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for
the purpose of closing out its options positions. A Fund's ability to enter
into closing transactions depends on the development and maintenance of a
liquid secondary market. There is no assurance that a liquid secondary market
will exist for any particular contract or at any particular time. As a result,
there can be no assurance that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the
Fund will continue to be required to maintain the margin deposits on the
contract and to complete the contract according to its terms, in which case
the Fund would continue to bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable a Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk
that the prices of the securities subject to the financial futures contracts
and options on financial futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio. This may cause the
financial futures contract and any related options to react to market changes
differently than the portfolio securities. In addition, the Fund's investment
advisor could be incorrect in its expectations and forecasts about the
direction or extent of market factors, such as interest rates, securities
price movements, and other economic factors. Even if the Fund's investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. In these events, the
Fund may lose money on the financial futures contracts or the options on
financial futures contracts. It is not certain that a secondary market for
positions in financial futures
16
<PAGE>
contracts or for options on financial futures contracts will exist at all
times. Although the Fund's investment advisor will consider liquidity before
entering into financial futures contracts or options on financial futures
contracts, there is no assurance that a liquid secondary market on an exchange
will exist for any particular financial futures contract or option on a
financial futures contract at any particular time. The Fund's ability to
establish and close out financial futures contracts and options on financial
futures contract positions depends on this secondary market. If the Fund is
unable to close out its position due to disruptions in the market or lack of
liquidity, the Fund may lose money on the futures contract or option, and the
losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
In addition to options and futures contracts, Evergreen Municipal Bond
Fund may also invest in certain other types of derivative instruments,
including structured securities. The Fund may invest in these other types of
derivatives only if the expected risks and rewards are consistent with its
objective and policies.
Losses from derivatives can sometimes be substantial. This is true partly
because small price movements in the underlying asset can result in immediate
and substantial gains or losses in the value of the derivative. Derivatives
can also cause the Fund to lose money if the Fund fails to correctly predict
the direction in which the underlying asset or economic factor will move.
- -------------------------------------------------------------------------------
ORGANIZATION AND SERVICE PROVIDERS
- -------------------------------------------------------------------------------
ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, each Fund is a diversified
series of an open-end, management investment company called Evergreen
Municipal Trust (the "Trust"). The Trust is a Delaware business trust
organized on September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Funds' activities, reviewing,
among other things, each Fund's performance and its contractual arrangements
with various service providers.
Shareholder Rights. All shareholders have equal voting, liquidation and other
rights. Each share owned is entitled to one vote for each dollar of net asset
value applicable to such share. Shareholders may exchange shares as described
under "Exchanges," but will have no other preference, conversion, exchange or
preemptive rights. When issued and paid for, shares will be fully paid and
nonassessable. Shares of the Funds are redeemable, transferable and freely
assignable as collateral. The Trust may establish additional classes or series
of shares.
The Funds do not hold annual shareholder meetings; a Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, the Funds are prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
Trustees.
SERVICE PROVIDERS
Investment Advisor. The investment advisor to Evergreen High Grade Municipal
Bond Fund is Evergreen Investment Management ("EIM") (formerly known as the
Capital Management Group), a division of First Union National Bank ("FUNB"),
which is a subsidiary of First Union Corporation ("First Union"). First Union
is located at 301 South College Street, and EIM at 201 South College Street,
Charlotte, North Carolina 28288-0630. First Union and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout
the U.S.
17
<PAGE>
The investment advisor to Evergreen Short-Intermediate Municipal Fund is
Evergreen Asset Management Corp. ("EAMC"), which is a wholly-owned subsidiary
of First Union. EAMC, with its predecessors, has served as investment advisor
to certain Evergreen mutual funds since 1971. EAMC is located at 2500
Westchester Avenue, Purchase, New York 10577.
The investment advisor to Evergreen Municipal Bond Fund is Evergreen
Investment Management Company ("EIMC"). EIMC has provided investment advisory
and management services to investment companies and private accounts since it
was organized in 1932. EIMC is an indirect subsidiary of FUNB. EIMC is located
at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
EIM manages investments and supervises the daily business affairs of
Evergreen High Grade Municipal Bond Fund and, as compensation therefor, is
entitled to receive an annual fee equal to 0.50% of average daily net assets
of the Fund.
EAMC manages investments and supervises the daily business affairs of
Evergreen Short-Intermediate Municipal Fund, and, as compensation therefor, is
entitled to receive an annual fee equal to 0.50% of the Fund's average daily
net assets.
Evergreen Municipal Bond Fund pays EIMC a fee, calculated on an annual
basis, equal to 2.0% of gross dividend and interest income of the Fund plus
0.50% of the first $100,000,000 of the aggregate net asset value of the shares
of the Fund, plus 0.45% of the next $100,000,000, plus 0.40% of the next
$100,000,000, plus 0.35% of the next $100,000,000, plus 0.30% of the next
$100,000,000, plus 0.25% of amounts over $500,000,000.
Portfolio Manager. The portfolio manager of Evergreen High Grade Municipal
Bond Fund is James T. Colby, III. Mr. Colby is a Vice President of FUNB. Mr.
Colby has also been associated with EAMC and its predecessor since 1992, and
with EIMC since 1998. He has served as portfolio manager of the Fund since
1995 and was portfolio manager of Evergreen National Tax Free Fund, whose
assets were acquired by the Fund on July 7, 1995, since that fund's inception
in 1992.
Evergreen Short-Intermediate Municipal Fund is co-managed by Richard K.
Marrone and Diane C. Beaver. Since joining FUNB in 1993, Mr. Marrone has been
a Vice President and Senior Fixed Income Portfolio Manager, with over 15 years
of investment and market experience. Mr. Marrone has also been associated with
EAMC since 1997. Prior to joining FUNB, Mr. Marrone was employed at Woodbridge
Capital Management where he served as a portfolio manager for mutual and
common trust funds from 1982 to 1993. Ms. Beaver is an Assistant Vice
President of FUNB and a Portfolio Manager with over 14 years of investment
experience. She also purchases municipal bonds for individual accounts. Mr.
Marrone began as manager of the Fund in November 1997. Ms. Beaver joined him
as co-manager in March 1998.
Evergreen Municipal Bond Fund is co-managed by George J. Kimball and
James T. Colby, III. Mr. Kimball has been employed by EIMC since 1991 and was
an Analyst prior to becoming a Vice President and Portfolio Manager. He has
more than 10 years of investment experience. Mr. Colby is a Vice President of
FUNB. Mr. Colby has also been associated with EAMC and its predecessor since
1992, and with EIMC since 1998. Both Mr. Colby and Mr. Kimball have co-managed
the Fund since March 1998.
Sub-Advisor. EAMC has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish EAMC with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolio
of Evergreen Short-Intermediate Municipal Fund. Lieber & Company will be
reimbursed by EAMC in connection with the rendering of services on the basis
of the direct and indirect costs of performing such services. There is no
additional charge to Evergreen Short-Intermediate Municipal Fund for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to Evergreen High Grade Municipal Bond Fund, subject to the
supervision and control of the Trustees. EIS provides the Fund with
facilities, equipment and personnel. For its services as administrator, EIS is
entitled to receive a fee based on
18
<PAGE>
the aggregate average daily net assets of the Fund at a rate based on the
total assets of all the mutual funds administered by EIS for which any
affiliate of FUNB serves as investment advisor. The administration fee is
calculated in accordance with the following schedule:
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EIS also provides facilities, equipment and personnel to Evergreen
Municipal Bond Fund on behalf of the Fund's investment advisor.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company
("ESC"), 200 Berkeley Street, Boston, Massachusetts 02116-5034, acts as the
Funds' transfer agent and dividend disbursing agent. ESC is an indirect,
wholly-owned subsidiary of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, acts as the Funds' custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of
The BISYS Group, Inc., located at 125 West 55th Street, New York, New York
10019, is the Funds' principal underwriter.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. Each Fund's Class A, Class B and, where applicable, Class
C shares pay for the expenses associated with the distribution of such shares
according to distribution plans adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") (each a "Plan" or collectively
the "Plans"). Under the Plans, each Fund may incur distribution-related and
shareholder servicing-related expenses which are based upon a maximum annual
rate as a percentage of each Fund's average daily net assets attributable to
the Class, as follows:
Class A shares 0.75%
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations,
which may include the Fund's investment advisor or its affiliates, for
personal services rendered to shareholders and/or the maintenance of
shareholder accounts. The Funds may not pay any distribution or service fees
during any fiscal period in excess of the amounts set forth above. Amounts
paid under the Distribution Plans are used to compensate the Funds'
distributor pursuant to the Distribution Agreements (as defined below) entered
into by each Fund.
Distribution Agreements. Each Fund has also entered into distribution
agreements (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EDI. Pursuant to the Distribution Agreements, each Fund will
compensate EDI for its services as distributor based upon the maximum annual
rate as a percentage of each Fund's average daily net assets attributable to
the Class, as follows:
Class A shares 0.25%*
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from each Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been
- -------
* Currently limited to 0.10% for Evergreen Short-Intermediate Municipal Fund.
19
<PAGE>
financed (EDI may assign its rights to receive compensation under the Plans to
secure such financings), (2) to otherwise promote the sale of shares of the
Fund, and (3) to compensate broker-dealers, depository institutions and other
financial intermediaries for providing administrative, accounting and other
services with respect to the Fund's shareholders. FUNB or its affiliates may
finance the payments made by EDI to compensate broker-dealers or other persons
for distributing shares of a Fund.
In the event a Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI
to the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more
or less than its actual expenses and may result in a profit to EDI.
Distribution expenses incurred by EDI in one fiscal year that exceed the level
of compensation paid to EDI for that year may be paid from distribution fees
received from a Fund in subsequent fiscal years.
- -------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------
HOW TO BUY SHARES
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of a Fund by mailing to the Fund, c/o Evergreen Service
Company, 200 Berkeley Street, Boston, Massachusetts 02116-5034, a completed
application and a check payable to the Fund. You may also telephone 1-800-343-
2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed application. The
minimum initial investment is $1,000, which may be waived in certain
situations. Subsequent investments in any amount may be made by check, by
wiring federal funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the application
for more information. Only Class A, Class B and Class C shares are offered
through this prospectus (see "General Information"--"Other Classes of
Shares").
Class A Shares--Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on
purchases under $1,000,000. You may purchase $1,000,000 or more of Class A
shares without a front-end sales charge; however, a contingent deferred sales
charge ("CDSC") equal to the lesser of 1% of the purchase price or the
redemption value will be imposed on shares redeemed during the month of
purchase and the 12-month period following the month of purchase. The schedule
of charges for Class A shares is as follows:
Initial Sales Charge
Evergreen High Grade Municipal Bond Fund
Evergreen Municipal Bond Fund
<TABLE>
<CAPTION>
Commission to
Dealer/Agent
as a % of the as a % of the as a % of
Amount of Purchase Net Amount Invested Offering Price Offering Price
------------------ ------------------- -------------- --------------
<S> <C> <C> <C>
Less than $50,000............. 4.99% 4.75% 4.25%
$ 50,000-$99,999............ 4.71% 4.50% 4.25%
$ 100,000-$249,999........... 3.90% 3.75% 3.25%
$ 250,000-$499,999........... 2.56% 2.50% 2.00%
$ 500,000-$999,999........... 2.04% 2.00% 1.75%
$1,000,000-$2,999,999......... None None 1.00%
$3,000,000-$4,999,999......... None None .50%
Over $5,000,000............... None None .25%
</TABLE>
20
<PAGE>
Evergreen Short-Intermediate Municipal Fund
<TABLE>
<CAPTION>
Commission to
Dealer/Agent
as a % of the as a % of the as a % of
Amount of Purchase Net Amount Invested Offering Price Offering Price
------------------ ------------------- -------------- --------------
<S> <C> <C> <C>
Less than $50,000............ 3.36% 3.25% 2.75%
$ 50,000--$99,999.......... 3.09% 3.00% 2.75%
$ 100,000--$249,999......... 2.56% 2.50% 2.25%
$ 250,000--$499,999......... 2.04% 2.00% 1.75%
$ 500,000--$999,999......... 1.52% 1.50% 1.25%
$1,000,000--$2,999,999....... None None 1.00%
$3,000,000--$4,999,999....... None None .50%
Over $5,000,000.............. None None .25%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory
or other fee; (c) clients of investment advisors or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and
retired employees of FUNB and its affiliates, EDI and any broker-dealer with
whom EDI has entered into an agreement to sell shares of the Funds, and
members of the immediate families of such employees; (g) upon the initial
purchase of an Evergreen fund by investors reinvesting the proceeds from a
redemption within the preceding thirty days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC; and (h) all qualified plan customers holding Evergreen
Class Y shares in connection with a rollover into an individual retirement
account. Certain broker-dealers or other financial institutions may impose a
fee on transactions in shares of the Funds.
Class A shares may also be purchased at net asset value by a corporation
or certain other qualified retirement plan or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by
an organization having 100 or more eligible employees or a TSA plan sponsored
by a public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments
are subject to reclaim in the event the shares are redeemed within twelve
months after purchase.
Certain employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares at net asset value provided
that such plans meet a certain required minimum number of eligible employees
or required amount of assets. Additional information concerning the waiver of
sales charges is set forth in the SAI.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees
to banks from sales charges for services performed on behalf of the customers
of such banks in connection with the purchase of shares of the Funds. In
addition to compensation paid at the time of sale, entities whose clients have
purchased Class A shares may receive a service fee equal to 0.25% of the
average daily net asset value on an annual basis of Class A shares held by
their clients. Certain purchases of Class A shares may qualify for reduced
sales charges in accordance with a Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. See "Sales Charge Waivers or Reductions" in the SAI for additional
information concerning these reduced sales charges.
Class B Shares--Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may
pay a CDSC if you redeem shares within six years after the
21
<PAGE>
month of purchase. The amount of the CDSC will vary according to the number of
years from the month of purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
----------------- -------
<S> <C>
Month of purchase and the first twelve-month period following
the month of purchase.......................................... 5.00%
Second twelve-month period following the month of purchase...... 4.00%
Third twelve-month period following the month of purchase....... 3.00%
Fourth twelve-month period following the month of purchase...... 3.00%
Fifth twelve-month period following the month of purchase....... 2.00%
Sixth twelve-month period following the month of purchase....... 1.00%
</TABLE>
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to EDI
or its predecessor. In the event a Fund acquires the assets of other mutual
funds, the CDSC may be paid by EDI to the distributors of the acquired funds.
Class B shares are subject to higher distribution and/or shareholder service
fees than Class A shares for a period of seven years after the month of
purchase (after which it is expected that they will convert to Class A shares
without imposition of a front-end sales charge). The higher fees mean a higher
expense ratio, so Class B shares pay correspondingly lower dividends and may
have a lower net asset value than Class A shares. The Funds will not normally
accept any purchase of Class B shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to
the higher distribution services fee imposed on Class B shares. Such
conversion will be on the basis of the relative net asset values of the two
Classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for
EDI to have been compensated for the expenses associated with the sale of such
shares. The CDSC applicable to Class B shares will be waived on redemptions
made by certain employer-sponsored retirement or savings plans, including
eligible 401(k) plans. See "Sales Charge Waivers or Reductions" in the SAI for
additional information.
Class C Shares (Evergreen Municipal Bond Fund and Evergreen High Grade
Municipal Bond Fund). Class C shares are offered only through broker-dealers
who have special distribution agreements with EDI. You may purchase Class C
shares at net asset value without any initial sales charge and, therefore, the
full amount of your investment will be used to purchase Fund shares. However,
you will pay a 1.00% CDSC if you redeem shares during the month of purchase
and the 12-month period following the month of purchase. No CDSC is imposed on
amounts redeemed thereafter. Class C shares incur higher distribution and/or
shareholder service fees than Class A shares but, unlike Class B shares, do
not convert to any other class of shares of the Fund. The higher fees mean a
higher expense ratio, so Class C shares pay correspondingly lower dividends
and may have a lower net asset value than Class A shares. The Fund will not
normally accept any purchase of Class C shares in the amount of $500,000 or
more. No CDSC will be imposed on Class C shares purchased by institutional
investors and through employee benefit and savings plans eligible for the
exemption from front-end sales charges described under "Class A Shares--Front-
End Sales Charge Alternative" above. Broker-dealers and other financial
intermediaries whose clients have purchased Class C shares may receive a
service fee equal to 0.75% of the average daily net asset value of such shares
on an annual basis held by their clients more than one year from the date of
purchase. The payment of service fees will commence immediately with respect
to shares eligible for exemption from the CDSC normally applicable to Class C
shares.
Contingent Deferred Sales Charge. Certain shares with respect to which a Fund
did not pay a commission on issuance, including shares obtained from dividend
or distribution reinvestment, are not subject to a CDSC. Any CDSC imposed upon
the redemption of Class A, Class B or Class C shares is a percentage of the
lesser of (1) the net asset value of the shares redeemed or (2) the net asset
value at the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of a Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset
22
<PAGE>
value of less than $1,000; (5) automatic withdrawals under the Systematic
Withdrawal Plan of up to 1.00% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions
or excess deferral amounts made to a retirement plan participant.
The Funds may also sell Class A, Class B or, if applicable, Class C
shares at net asset value without any initial sales charge or a CDSC to
certain Directors, Trustees, officers and employees of the Funds, FUNB, EIMC,
EAMC, EDI, Meridian Investment Company, First International Advisors, Inc.,
and certain of their affiliates, and to members of the immediate families of
such persons, to registered representatives of firms with dealer agreements
with EDI, and to a bank or trust company acting as a trustee for a single
account.
How the Funds Value Their Shares. The net asset value of each class of shares
of a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value. Non-dollar denominated securities will be valued as of the close
of the Exchange at the closing price of such securities in their principal
trading markets.
General. The decision as to which class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares,
which incur lower ongoing distribution and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment, you
might consider Class C shares, if available through your broker-dealer, since
there are no initial sales charges and, although there is no conversion
feature, the CDSC only applies to redemptions made during the first year.
Consult your financial intermediary for further information. The compensation
received by dealers and agents may differ depending on whether they sell Class
A, Class B or Class C shares. There is no size limit on purchases of Class A
shares.
In addition to the discount or commission paid to broker-dealers, EDI may
from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of a Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events
or theater performances, or payment for travel, lodging and entertainment
incurred in connection with travel by persons associated with a broker-dealer
and their immediate family members to urban or resort locations within or
outside the U.S. Such a dealer may elect to receive cash incentives of
equivalent amount in lieu of such payments. EDI may also limit the
availability of such incentives to certain specified dealers. EDI from time to
time sponsors promotions involving First Union Brokerage Services, Inc., an
affiliate of each Fund's investment advisor, and select broker-dealers,
pursuant to which incentives are paid, including gift certificates and
payments in amounts up to 1% of the dollar amount of shares of a Fund sold.
Awards may also be made based on the opening of a minimum number of accounts.
Such promotions are not being made available to all broker-dealers. Certain
broker-dealers may also receive payments from EDI or a Fund's investment
advisor over and above the usual service fees or shareholder servicing
payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a
purchase is canceled due to nonpayment or because an investor's check does not
clear, the investor will be responsible for any loss a Fund or its investment
advisor incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's
investment advisor for any loss. In addition, such investors may be prohibited
or restricted from making further purchases in any of the Evergreen funds. The
Funds will not accept third party checks other than those payable directly to
a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in a Fund to the Fund for cash
at their net redemption value on any day the Exchange is open, either directly
by writing to the Fund, c/o ESC, or through your financial
23
<PAGE>
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has
been collected (which may take up to 15 days). Once a redemption request has
been telephoned or mailed, it is irrevocable and may not be modified or
canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service. Certain
financial intermediaries may require that you give instructions earlier than
4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. You may redeem by mail by
sending a signed letter of instruction or stock power form to the Fund, c/o
ESC, (the registrar, transfer agent and dividend-disbursing agent for each
Fund). Stock power forms are available from your financial intermediary, ESC,
and many commercial banks. Additional documentation is required for the sale
of shares by corporations, financial intermediaries, fiduciaries and surviving
joint owners. Signature guarantees are required for all redemption requests
for shares with a value of more than $50,000. Currently, the requirement for a
signature guarantee has been waived on redemptions of $50,000 or less when the
account address of record has been the same for a minimum period of 30 days.
Each Fund and ESC reserve the right to withdraw this waiver at any time. A
signature guarantee must be provided by a bank or trust company (not a Notary
Public), a member firm of a domestic stock exchange or by other financial
institutions whose guarantees are acceptable under the Securities Exchange Act
of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
ESC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail
or through a broker-dealer as set forth herein. The telephone redemption
service is not made available to shareholders automatically. Shareholders
wishing to use the telephone redemption service must complete the appropriate
sections on the application and choose how the redemption proceeds are to be
paid. Redemption proceeds will either (i) be mailed by check to the
shareholder at the address in which the account is registered or (ii) be wired
to an account with the same registration as the shareholder's account in a
Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation
of your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if
the address and bank account of record have been the same for a minimum period
of 30 days. Each Fund reserves the right at any time to terminate, suspend, or
change the terms of any redemption method described in this prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, ESC and EDI will not assume
responsibility for the authenticity of any instructions received by any of
them from a shareholder in writing, over the Evergreen Express Line (described
below), or by telephone. ESC will employ reasonable procedures to confirm that
instructions received over the Evergreen Express Line or by telephone are
genuine. The Funds, ESC and EDI will not be liable when following instructions
received over the Evergreen Express Line or by telephone that ESC reasonably
believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to
do account transactions, including investments, exchanges and redemptions. You
may access the Evergreen Express Line by dialing toll free 1-800-346-3858 on
any touch-tone telephone, 24 hours a day, seven days a week.
24
<PAGE>
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists
and the Funds cannot dispose of their investments or fairly determine their
value; or (4) the SEC so orders. The Funds reserve the right to close an
account that through redemption has fallen below $1,000 and has remained so
for thirty days. Shareholders will receive sixty days' written notice to
increase the account value to at least $1,000 before the account is closed.
The Funds have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem shares solely in cash, up
to the lesser of $250,000 or 1% of the Fund's total net assets, during any
ninety-day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in other Evergreen funds through your financial intermediary
by calling or writing to ESC, or by using the Evergreen Express Line as
described above. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. An exchange which represents an initial
investment in another Evergreen fund is subject to the minimum investment and
suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For more information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at
any time by a Fund upon sixty days' notice to shareholders and is only
available in states in which shares of the fund being acquired may lawfully be
sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash
is applied. Also, Class B shares will continue to age following an exchange
for the purpose of conversion to Class A shares and for the purpose of
determining the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value
determined at the close of the next business day. During periods of drastic
economic or market changes, shareholders may experience difficulty in
effecting telephone exchanges. You should follow the procedures outlined below
for exchanges by mail if you are unable to reach ESC by telephone. If you wish
to use the telephone exchange service you should indicate this on the
application. As noted above, each Fund will employ reasonable procedures to
confirm that instructions for the redemption or exchange of shares
communicated by telephone are genuine. A telephone exchange may be refused by
a Fund or ESC if it is believed advisable to do so. Procedures for exchanging
Fund shares by telephone may be modified or terminated at any time. Written
requests for exchanges should follow the same procedures outlined for written
redemption requests in the section entitled "How to Redeem Shares"; however,
no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, ESC
or the toll-free number on the front page of this prospectus. Some services
are described in more detail in the application.
25
<PAGE>
Systematic Investment Plan. Under a Systematic Investment Plan you may invest
as little as $25 per month to purchase shares of a Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the
Systematic Withdrawal Plan (the "Withdrawal Plan") by filling out the
appropriate part of the Application. Under this Withdrawal Plan, you may
receive (or designate a third party to receive) a monthly or quarterly fixed-
withdrawal payment in a stated amount of at least $75 and as much as 1.0% per
month or 3.0% per quarter of the total net asset value of the Fund shares in
your account when the Withdrawal Plan was opened. Fund shares will be redeemed
as necessary to meet withdrawal payments. All participants must elect to have
their dividends and capital gains distributions reinvested automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and other
Evergreen funds available to their participants. Investments made by such
employee benefit plans may be exempt from front-end sales charges if they meet
the criteria set forth under "Class A Shares--Front End Sales Charge
Alternative". EAMC, EIMC or FUNB may provide compensation to organizations
providing administrative and recordkeeping services to plans which make shares
of the Evergreen funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends
and distributions are automatically reinvested in full and fractional shares
of a Fund at the net asset value per share at the close of business on the
record date, unless otherwise requested by a shareholder in writing. If the
transfer agent does not receive a written request for subsequent dividends
and/or distributions to be paid in cash at least three full business days
prior to a given record date, the dividends and/or distributions to be paid to
a shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results
in more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset
value is relatively high and may result in a lower average cost per share than
a less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen fund. You should designate on the application (i) the
dollar amount of each monthly or quarterly investment you wish to make and
(ii) the Fund in which the investment is to be made. Thereafter, on the first
day of the designated month, an amount equal to the specified monthly or
quarterly investment will automatically be redeemed from your initial account
and invested in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll
free 1-800-247-4075 or write to ESC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act
26
<PAGE>
as agent in connection with the purchase of shares of such an investment
company upon the order of their customer. FUNB and its affiliates are subject
to and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being
prevented from continuing to perform the services required under the
investment advisory contract or from acting as agent in connection with the
purchase of shares of a Fund by its customers. If FUNB and its affiliates were
prevented from continuing to provide the services called for under the
investment advisory agreement, it is expected that the Trustees would
identify, and call upon each Fund's shareholders to approve, a new investment
advisor. If this were to occur, it is not anticipated that the shareholders of
any Fund would suffer any adverse financial consequences.
- -------------------------------------------------------------------------------
OTHER INFORMATION
- -------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Funds intend to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Shareholders of a Fund who have not opted to
receive cash prior to the payable date for any dividend from net investment
income or the record date for any capital gains distribution will have the
number of such shares determined on the basis of the Fund's net asset value
per share computed at the end of that day after adjustment for the
distribution. Net asset value is used in computing the number of shares in
both capital gains and income distribution investments. There is a possibility
that shareholders may lose the tax-exempt status on accrued income on
municipal bonds if shares of a Fund are redeemed before a dividend has been
declared.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income
distributions paid by a Fund with respect to Class A shares will generally be
greater than those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after a Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case
may be, it will assume that a shareholder wishes to receive that distribution
and future capital gains and income distributions in shares. Instructions
continue in effect until changed in writing.
Each Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Code. While so qualified, so long
as a Fund distributes all of its investment company taxable income and any net
realized gains to shareholders, it is expected that the Funds will not be
required to pay any federal income taxes. A 4% nondeductible excise tax will
be imposed on a Fund if it does not meet certain distribution requirements by
the end of each calendar year. Each Fund anticipates meeting such distribution
requirements.
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income
for federal income tax purposes; however (1) all or a portion of such exempt-
interest dividends may be a specific preference item for purposes of the
federal individual and corporate AMT to the extent that they are derived from
certain types of private activity bonds issued after August 7, 1986, and (2)
all exempt-interest dividends will be a component of the "adjusted current
earnings" for purposes of the federal corporate AMT.
Dividends paid from taxable income, if any, and distributions of any net
realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of a Fund, and regardless of the investor's holding period
relating to the shares with respect to which such gains are distributed.
27
<PAGE>
Market discount recognized on taxable and tax-exempt bonds is taxable as
ordinary income, not as excludable income. Under current law, the highest
federal income tax rate applicable to net long-term gains realized by
individuals is 20% for most assets held more than 12 months. The rate
applicable to corporations is 35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax advisor.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any)
and redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the application, or on
a separate form supplied by the Fund's transfer agent, that the investor's
social security or taxpayer identification number is correct and that the
investor is not currently subject to backup withholding or is exempt from
backup withholding.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will set
forth the amount of income exempt from federal and, if applicable, state
taxation, and the amount, if any, subject to federal and state taxation.
Moreover, to the extent necessary, these statements will indicate the amount
of exempt-interest dividends which are a specific preference item for purposes
of the federal individual and corporate AMT. The exemption of interest income
for federal income tax purposes does not necessarily result in exemption under
the income or other tax law of any state or local taxing authority. Investors
should consult their own tax advisors about the status of distributions from
the Funds in their states and localities. Each Fund notifies shareholders
annually as to the interest exempt from federal taxes earned by the Fund.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this prospectus and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the SAI.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for each Fund
is not expected to exceed 100%. A portfolio turnover rate of 100% would occur
if all of a Fund's portfolio securities were replaced in one year. The
portfolio turnover rate experienced by a Fund directly affects the transaction
costs relating to the purchase and sale of securities which the Fund bears
directly. A high rate of portfolio turnover will increase such costs. See the
SAI for further information regarding the practices of each Fund affecting
portfolio turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. Evergreen High Grade Municipal Bond Fund and
Evergreen Municipal Bond Fund currently offer Class A, Class B, Class C and
Class Y shares. Evergreen Short-Intermediate Municipal Fund currently offers
Class A, Class B and Class Y shares but does not offer Class C shares. Each
Fund may in the future offer additional classes. Class Y shares are not
offered by this prospectus and are only available to (i) persons who at or
prior to December 31, 1994, owned shares in a mutual fund advised by EAMC,
(ii) certain institutional investors and (iii) investment advisory clients of
FUNB affiliates. The dividends payable with respect to Class A, Class B and
Class C shares will be less than those payable with respect to Class Y shares
due to the distribution and shareholder service related expenses borne by
Class A, Class B and Class C shares and the fact that such expenses are not
borne by Class Y shares.
Performance Information. The Funds may quote their "total return" or "yield"
for a specified period in advertisements, reports or other communications to
shareholders. Total return and yield are computed separately for Class A,
Class B and Class C shares. Performance data for one or more Classes may be
included in any advertisement or sales literature using performance data of a
Fund. Each Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the SEC, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period.
28
<PAGE>
For purposes of computing total return, dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases of the Fund's
shares are assumed to have been paid.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of its share price. A Fund's yield is calculated
according to accounting methods that are standardized by the SEC for all stock
and bond funds. Because yield accounting methods differ from the method used
for other accounting purposes, a Fund's yield may not equal its distribution
rate, the income paid to your account or the net investment income reported in
the Fund's financial statements. To calculate yield, a Fund takes the interest
and dividend income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
The Funds may also quote tax-equivalent yields which show the taxable
yields an investor would have to earn before taxes to equal the Funds' tax-
free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-
exempt yield by the result of one minus a stated federal tax rate. If only a
portion of a Fund's income was tax-exempt, only that portion is adjusted in
the calculation.
Performance data may be included in any advertisement or sales literature
of the Funds. These advertisements may quote performance rankings or ratings
of a Fund by financial publications or independent organizations such as
Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's
performance to various indices. The Funds may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the
total ordinary income distributed (which may include the excess of short-term
capital gains over losses) to shareholders for the latest twelve-month period
by the maximum public offering price per share on the last day of the period.
Investors should be aware that past performance may not be indicative of
future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering
investment alternatives. The information provided to investors may also
include discussions of other Evergreen funds, products, and services, which
may include: retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; and charitable giving. In addition, the information provided to
investors may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund management,
investment philosophy, and investment techniques. EDI may also reprint, and
use as advertising and sales literature, articles from Evergreen Events, a
quarterly magazine provided free of charge to Evergreen fund shareholders.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment advisors and
the Funds' 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 Funds' investment advisors are taking
steps to address the Year 2000 Problem with respect to the computer systems
that they use and to obtain assurances that comparable steps are being taken
by the Funds' 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 Funds.
Registration Statement. This prospectus and SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statements filed by the Trust with the SEC under the Securities
Act of 1933, as amended. Copies of the Registration Statements may be obtained
at a reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
29
<PAGE>
Notes
30
<PAGE>
Investment Advisor
Evergreen Investment Management, 201 South College Street, Charlotte, North
Carolina 28288-0630
Evergreen High Grade Municipal Bond Fund
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577
Evergreen Short-Intermediate Municipal Fund
Evergreen Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
Evergreen Municipal Bond Fund
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts 02116-
5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
56660____________________________________________________________541690 RV3
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS April 1, 1999
- -------------------------------------------------------------------------------
Evergreen SM National Municipal Bond Funds
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
- -------------------------------------------------------------------------------
Evergreen High Grade Municipal Bond Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Municipal Bond Fund
CLASS Y SHARES
The Evergreen National Municipal Bond Funds (each a "Fund," together the
"Funds") are designed to provide investors with income exempt from federal
income taxes. This prospectus provides information regarding the Class Y
shares offered by the Funds. Each Fund is a diversified series of an open-end
management investment company. This prospectus sets forth information about
the Funds that a prospective investor should have before investing. The
address of the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information ("SAI") for the Funds dated April
1, 1999, as supplemented from time to time, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference herein. The
SAI provides information regarding certain matters discussed in this
prospectus and other matters which may be of interest to investors, and may be
obtained without charge by calling the Funds at (800) 343-2898. There can be
no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this prospectus carefully.
An investment in a Fund is not a deposit or an obligation of or guaranteed or
endorsed by, any bank, and shares are not insured or otherwise protected by
the U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency. An investment in a Fund
involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
EVERGREEN SM is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION....................... 3
FINANCIAL HIGHLIGHTS...................... 4
DESCRIPTION OF THE FUNDS.................. 6
Investment Objectives and Policies..... 6
Investment Practices and Restrictions.. 7
ORGANIZATION AND SERVICE PROVIDERS........ 12
Organization........................... 12
Service Providers...................... 13
</TABLE>
<TABLE>
<S> <C>
PURCHASE AND REDEMPTION OF SHARES...... 14
How to Buy Shares................... 14
How to Redeem Shares................ 15
Exchange Privilege.................. 16
Shareholder Services................ 17
Effect of Banking Laws.............. 18
OTHER INFORMATION...................... 18
Dividends, Distributions and Taxes.. 18
General Information................. 19
</TABLE>
2
<PAGE>
- -------------------------------------------------------------------------------
EXPENSE INFORMATION
- -------------------------------------------------------------------------------
The table and examples below are designed to help you understand the
various expenses that you will bear, directly and indirectly, when you invest
in a Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of a Fund.
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases..... None
Sales Charge on Dividend Reinvestments........ None
Contingent Deferred Sales Charge.............. None
Redemption Fee................................ None
</TABLE>
Annual operating expenses reflect the normal operating expenses of each
Fund, and include costs such as management, distribution and other fees. The
table below shows the Funds' annual operating expenses for the fiscal year
ended May 31, 1998 for Evergreen High Grade Municipal Bond Fund and estimated
annual operating expenses for the fiscal year ending May 31, 1999 for
Evergreen Short-Intermediate Municipal Fund and Evergreen Municipal Bond Fund.
The examples show what you would pay if you invested $1,000 over the periods
indicated. The examples assume that you reinvest all of your dividends and
that the Funds' average annual return will be 5%. The examples are for
illustration purposes only and should not be considered a representation of
past or future expenses or annual return. The Funds' actual expenses and
returns will vary. For a more complete description of the various costs and
expenses borne by the Funds see "Organization and Service Providers."
Evergreen High Grade Municipal Bond Fund
<TABLE>
<CAPTION>
Annual Operating
Expenses
----------------
<S> <C>
Management Fees......... .50%
Other Expenses.......... .34%
----
Total................... .84%
====
</TABLE>
<TABLE>
<CAPTION>
Example
-------
<S> <C>
After 1 Year $ 9
After 3 Years $ 27
After 5 Years $ 47
After 10 Years $104
</TABLE>
Evergreen Short-Intermediate Municipal Fund
<TABLE>
<CAPTION>
Annual Operating
Expenses
----------------
<S> <C>
Management Fees (After
Waivers)*.............. .43%
Other Expenses.......... .21%
----
Total................... .64%
====
</TABLE>
<TABLE>
<CAPTION>
Example
-------
<S> <C>
After 1 Year $ 7
After 3 Years $20
After 5 Years $36
After 10 Years $80
</TABLE>
Evergreen Municipal Bond Fund
<TABLE>
<CAPTION>
Annual Operating
Expenses
----------------
<S> <C>
Management Fees......... 0.41%
Other Expenses.......... 0.27%
-----
Total................... 0.68%
=====
</TABLE>
<TABLE>
<CAPTION>
Example
-------
<S> <C>
After 1 Year $ 7
After 3 Years $22
After 5 Years $38
After 10 Years $85
</TABLE>
- -------
* From time to time, each Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse a Fund for certain of its expenses in
order to reduce expense ratios. Each Fund's investment advisor may cease
these waivers and reimbursements at any time. Expenses for Evergreen Short-
Intermediate Municipal Fund reflect a management fee waiver of 0.07% of
average net assets. Absent such waiver, the management fee would be 0.50%.
Total Annual Operating Expenses, absent waiver of the management fee, would
be 0.71%.
Evergreen Asset Management Corp. has agreed to reimburse Evergreen Short-
Intermediate Municipal Fund to the extent that its aggregate operating
expenses (including the investment advisor's fee, but excluding taxes,
interest, brokerage commissions, Rule 12b-1 distribution fees and shareholder
servicing fees and extraordinary expenses) exceed 1.0% of the average net
assets. This reimbursement may be discontinued at any time.
3
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The tables on the following pages present, for Evergreen High Grade
Municipal Bond Fund and Evergreen Short-Intermediate Municipal Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the table has been audited by PricewaterhouseCoopers LLP, the
Funds' independent auditors. Information for Evergreen High Grade Municipal
Bond Fund for the fiscal years or periods prior to August 31, 1996 was audited
by other auditors. The tables appear in the Fund's Annual Report to
shareholders and should be read in conjunction with each Fund's financial
statements and related notes, which also appear, together with the independent
auditor's report, in the Funds' Annual Report to shareholders. The Funds'
financial statements, related notes, and independent auditor's report are
incorporated by reference into the Funds' SAI.
Further information about a Fund's performance is contained in the Fund's
Annual Report to shareholders, which may be obtained upon request and without
charge.
Evergreen High Grade Municipal Bond Fund--Class Y Shares
<TABLE>
<CAPTION>
February 28, 1994
(Commencement of
Six Months Nine Months Eight Months Class Operations)
Ended Year Ended Ended Year Ended Ended through
November 30, 1998 May 31, May 31, August 31, August 31, December 31,
(Unaudited) 1998 1997(a) 1996 1995(c) 1994
----------------- ---------- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $11.36 $10.89 $10.72 $10.69 $9.79 $10.93
------- ------- ------- ------- ------- ------
Income from investment
operations
Net investment income... 0.26 0.51 0.39 0.55 0.36 0.46
Net realized and
unrealized gain (loss)
on investments......... 0.17 0.47 0.17 0.03 0.90 (1.14)
------- ------- ------- ------- ------- ------
Total from investment
operations............. 0.43 0.98 0.56 0.58 1.26 (0.68)
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income.. (0.26) (0.51) (0.39) (0.55) (0.36) (0.46)
Capital gains.......... (0.27) 0 0 0 0 0
------- ------- ------- ------- ------- ------
Net asset value end of
period................. $11.26 $11.36 $10.89 $10.72 $10.69 $9.79
======= ======= ======= ======= ======= ======
Total return............ 3.87% 9.15% 5.32% 5.47% 13.02% (6.29%)
Ratios/supplemental data
Ratios to average net
assets
Expenses............... 0.70%(b) 0.84% 0.78%(b) 0.64% 0.81%(b) 0.76%(b)
Expenses excluding
indirectly paid
expenses.............. 0.70%(b) 0.84% 0.78%(b) -- -- --
Expenses excluding
waivers and/or
reimbursements........ 0.70%(b) 0.84% 0.86%(b) 0.84% 0.84%(b) 0.77%(b)
Net investment income.. 4.53%(b) 4.51% 4.85%(b) 5.03% 5.18%(b) 5.46%(b)
Portfolio turnover
rate................... 43% 127% 114% 65% 27% 53%
Net assets end of period
(thousands)............ $27,055 $24,976 $24,441 $25,112 $25,079 $4,318
</TABLE>
- -------
(a) The Fund changed its fiscal year end from August 31 to May 31.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to August 31.
4
<PAGE>
Evergreen Short-Intermediate Municipal Fund--Class Y Shares
<TABLE>
<CAPTION>
July 17, 1991
Six Months
(Commencement of
Ended Nine Months
Class Operations)
November 30, Year Ended Ended Year Ended August 31,
through
1998 May 31, May 31, -------------------------------------------
August 31,
(Unaudited) 1998 1997(a) 1996 1995 1994 1993 1992(c)
1991(c)
------------ ---------- ----------- ------- ------- ------- ------- -------
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period.... $10.19 $10.10 $10.07 $10.17 $10.21 $10.58 $10.33 $10.00
$10.00
-------- -------- ------- ------- ------- ------- ------- -------
- ------
Income from investment
operations
Net investment income.. 0.21 0.42 0.30 0.43 0.46 0.47 0.49
0.51 0.06
Net realized and
unrealized gain (loss)
on investments........ 0.08 0.09 0.03 (0.10) (0.04) (0.32) 0.25
0.33 0
-------- -------- ------- ------- ------- ------- ------- -------
- ------
Total from investment
operations............. 0.29 0.51 0.33 0.33 0.42 0.15 0.74
0.84 0.06
-------- -------- ------- ------- ------- ------- ------- -------
- ------
Less distributions from
Net investment income.. (0.21) (0.42) (0.30) (0.43) (0.46) (0.47) (0.49)
(0.51) (0.06)
In excess of net
investment income..... 0 0 0 0 0 (0.03) 0
0 0
Net realized gain on
investments........... (0.08) 0 0 0 0 (0.02) 0
0 0
-------- -------- ------- ------- ------- ------- ------- -------
- ------
Total distributions..... (0.29) (0.42) (0.30) (0.43) (0.46) (0.52) (0.49)
(0.51) (0.06)
-------- -------- ------- ------- ------- ------- ------- -------
- ------
Net asset value end of
period................. $10.19 $10.19 $10.10 $10.07 $10.17 $10.21 $10.58 $10.33
$10.00
======== ======== ======= ======= ======= ======= ======= =======
======
Total return............ 2.87% 5.11% 3.36% 3.30% 4.20% 1.40% 7.40%
8.56% 0.62%
Ratios/supplemental data
Ratios to average net
assets
Expenses............... 0.65%(b) 0.66% 0.74%(b) 0.70% 0.74% 0.58% 0.40%
0.17% 0.00%(b)
Expenses excluding
indirectly paid
expenses.............. 0.64%(b) 0.66% 0.73%(b) -- -- -- --
- -- --
Expenses excluding
waivers and/or
reimbursements........ 0.66%(b) 0.70% 0.86%(b) 0.90% 0.86% 0.83% 0.81%
0.86% 1.40%(b)
Net investment income.. 4.09%(b) 4.18% 4.04%(b) 4.27% 4.52% 4.54% 4.73%
4.85% 4.93%(b)
Portfolio turnover
rate................... 36% 78% 34% 29% 80% 32% 37%
57% --
Net assets end of period
(thousands)............ $157,760 $167,905 $32,293 $34,893 $40,581 $53,417 $66,607 $54,470
$4,025
</TABLE>
- -------
(a) The Fund changed its fiscal year end from August 31 to May 31.
(b) Annualized.
(c) On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding and the related per share data as of August 31, 1991 are
restated to reflect both a 1 for 2 reverse share split on October 30, 1991
and a 1 for 5 reverse share split on August 19, 1992. Total return
calculated after November 18, 1991 reflects the fluctuation in net asset
value per share.
5
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
Each Fund's investment objective is nonfundamental; as a result each Fund
may change its objective without a shareholder vote. Each Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit each Fund's exposure to risk. The Funds' fundamental policies cannot be
changed without a shareholder vote. See the SAI for more information regarding
each Fund's fundamental investment policies or other related investment
policies. There can be no assurance that each Fund's investment objective will
be achieved.
Evergreen High Grade Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund seeks a high level of income,
exempt from federal income taxes other than the Alternative Minimum Tax
("AMT"), that is consistent with preservation of capital. The Fund will invest
at least 65% of its total assets in municipal securities insured by a
municipal bond insurance company rated AAA by Standard & Poor's Ratings
Services ("S&P") or Aaa by Moody's Investors Service ("Moody's"). Municipal
bond insurance guarantees that the Fund will receive timely payment of
principal and interest due on a bond. Such insurance does not, however,
guarantee the value of such bonds or the value of Fund shares. See the section
entitled "Municipal Bond Insurance" under "Investment Practices and
Restrictions" for further information.
Evergreen High Grade Municipal Bond Fund 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 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.
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund seeks as high a level of
current income, exempt from federal income taxes other than AMT for
individuals and corporations, as is consistent with preserving capital and
providing liquidity. Under normal circumstances, it is anticipated that the
Fund will invest its assets so that at least 80% of its annual interest income
is exempt from federal income tax other than the AMT. The Fund may invest up
to 50% of its total assets in AMT-Subject Bonds. The Fund will invest
substantially all of its assets in a diversified portfolio of short and
intermediate-term municipal securities.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation to the issuer or some third party at a price approximating par
value before its stated maturity date.
Evergreen Municipal Bond Fund
Evergreen Municipal Bond Fund seeks the highest possible current income,
exempt from federal income taxes other than the AMT, while preserving capital.
Since the Fund considers preservation of capital as well as the level of tax
exempt income as its primary objective, the Fund may realize less income than
a fund willing to expose shareholders' capital to greater risk.
Under ordinary circumstances, the Fund invests at least 80% of its assets
in municipal securities the interest from which is exempt from federal income
taxes other than AMT.
Principal Investments and Investment Policies. Each Fund will invest at least
80% of its assets in bonds that, at the date of investment, are rated within
the four highest categories by S&P (AAA, AA, A and BBB), by Moody's (Aaa, Aa,
A and Baa), by Fitch IBCA, Inc. ("Fitch") (AAA, AA, A and BBB) or, if not
rated or rated under a different
6
<PAGE>
system, are of comparable quality to obligations so rated as determined by
another nationally recognized statistical ratings organization ("SRO") or by
its investment adviser. Each Fund may invest the remaining 20% of its assets
in lower rated bonds, but will not invest in bonds rated below B.
Evergreen High Grade Municipal Bond Fund and Evergreen Short-Intermediate
Municipal Fund may temporarily invest up to 20% of their total assets in
taxable securities and Evergreen Short-Intermediate Municipal Fund may
temporarily invest its assets so that no more than 20% of its annual income
will be derived from 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, each such Fund may temporarily invest
more than 20% of its total assets in taxable securities for defensive
purposes. Each Fund may invest for defensive purposes during periods when each
Fund's assets available for investment exceed the available municipal
securities that meet each Fund's quality and other investment criteria.
Taxable securities in which the Evergreen High Grade Municipal Bond Fund and
Evergreen Short-Intermediate Municipal Fund 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.
Evergreen Municipal Bond Fund also may invest in securities that pay
interest that is not exempt from federal income taxes, such as corporate and
bank obligations, obligations issued or guaranteed by the U.S. government or
by any of its agencies or instrumentalities, commercial paper and repurchase
agreements. Such securities must be rated at least BBB by S&P or Baa by
Moody's or, if not rated, must be determined by its investment advisor to be
of comparable quality. Evergreen Municipal Bond Fund will not invest more than
20% of its total assets under ordinary circumstances and up to 100% of its
total assets for temporary defensive purposes in such securities.
Evergreen Municipal Bond Fund may, but does not currently intend to,
invest in foreign securities or securities denominated in foreign currencies.
The Funds may also purchase municipal securities which are unrated at the
time of purchase, if such securities are determined by a Fund's investment
advisor to be of comparable quality to rated securities under the criteria set
forth above. Certain municipal securities (primarily variable rate demand
notes) may be entitled to the benefit of standby letters of credit or similar
commitments issued by banks and, in such instances, a Fund's investment
advisor will take into account the obligation of the bank in assessing the
quality of such security.
The ability of each Fund to meet its investment objectives is necessarily
subject to the ability of municipal issuers to meet their payment obligations.
In addition, the portfolio of each Fund will be affected by general changes in
interest rates which will result in increases or decreases in the value of the
obligations held by the Funds. Investors should recognize that, in periods of
declining interest rates, the yield of a Fund will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates, the
yield of a Fund will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to a Fund from the continuous sale of its
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the Fund's portfolio, thereby reducing the current yield
of the Fund. In periods of rising interest rates, the opposite can be expected
to occur.
INVESTMENT PRACTICES AND RESTRICTIONS
Municipal Securities. As noted above, each Fund will invest substantially all
of its assets in municipal securities. These include municipal bonds, short-
term municipal notes and tax-exempt commercial paper. Municipal securities are
debt obligations issued by states, territories and possessions of the United
States ("U.S."), including the District of Columbia, and their political
subdivisions, agencies and instrumentalities. They are used to raise money for
various public purposes. 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.
7
<PAGE>
A Fund's ability to achieve its objective depends partially on the prompt
payment by issuers of the interest on and principal of the municipal bonds
held by the Fund. A moratorium, default, or other non-payment of interest or
principal when due on any municipal bond, in addition to affecting the market
value and liquidity of that particular security, could affect the market value
and liquidity of other municipal bonds held by a Fund. In addition, the market
for municipal bonds is often thin and can be temporarily affected by large
purchases and sales, including those by a Fund.
From time to time, proposals have been introduced before the U.S.
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal bonds, and similar proposals may be
introduced in the future. The enactment of such a proposal could materially
affect the availability of municipal bonds for investment by the Fund and the
value of the Fund's portfolio. In the event of such legislation, each Fund
would re-evaluate its investment objective and policies and consider changes
in the structure of the Fund or dissolution.
Municipal Bond Insurance. The purpose of municipal bond insurance is to
guarantee the timely payment of principal at maturity and interest. Securities
in Evergreen High Grade Municipal Bond Fund'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. The
Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A
more detailed description of these insurers may be found in the SAI. 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 investments imposed by the guidelines in the Policies reduce
the yield to shareholders.
Bonds Subject to 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 he 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.
Risk Factors. Bond prices move inversely to interest rates, i.e., as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of
bond funds which will vary with interest rates. In addition, certain of the
obligations in which a 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.
Bonds Rated Below Investment Grade. Bonds rated lower than BBB by S&P or
Fitch, or lower than Baa by Moody's, are considered below investment grade.
Such bonds are surrounded by a degree of doubt with respect to the safety of
investment and the ability of the issuer to continue interest payments. These
bonds are also called "high risk, high yield" bonds or "junk" bonds. Junk
bonds are usually backed by issuers of less proven or questionable financial
strength. Compared with higher-grade bonds, issuers of junk bonds are more
likely to face financial problems and to be materially affected by those
problems. As a result, the ability of issuers of junk bonds to pay interest
and principal is uncertain. Moreover, the junk bond market may react strongly
to real or perceived unfavorable news about an issuer or the economy. If a
junk bond issuer defaults, the bond will lose some or all of its value. The
Funds will not invest in bonds rated below B.
8
<PAGE>
Downgrades. If any security in which a Fund invests loses its rating or has
its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
Floating Rate and Variable Rate Obligations. Municipal securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. 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. Each
Fund will limit the value of its investments in any floating or variable rate
security which is not readily marketable to 10% or less of its net assets.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. Each Fund
may enter into transactions whereby it commits to buying a security, but does
not pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuations during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, a Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Evergreen Short-Intermediate Municipal Fund does not expect that
commitments to purchase when-issued securities will normally exceed 25% of its
total assets and Evergreen High Grade Municipal Bond Fund does not expect that
such commitments will exceed 20% of its total assets. Each Fund does not
intend to purchase when-issued or delayed delivery securities for speculative
purposes but only in furtherance of its investment objective.
Stand-by Commitments. Each Fund may also acquire stand-by commitments with
respect to municipal securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified
municipal securities at a specified price. Failure of the dealer to purchase
such municipal securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. The Funds expect that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a Fund may pay
for stand-by commitments either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities).
The total amount paid in either manner for outstanding stand-by commitments
held in each Fund's portfolio will not exceed 10% of the value of the Fund's
total assets calculated immediately after each stand-by commitment is
acquired. A Fund will maintain cash or liquid high grade debt obligations in a
segregated account with its custodian in an amount equal to such commitments.
A Fund will enter into stand-by commitments only with banks and broker-dealers
that, in the judgment of the Fund's investment advisor, present minimal credit
risks.
Repurchase Agreements. Each Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which a Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase
price reflects an agreed-upon interest rate for the time period of the
agreement. A Fund's risk is the inability of the seller to pay the agreed-upon
price on the delivery date. However, this risk is tempered by the ability of a
Fund to sell the security in the open market in the case of a default. In such
a case, a Fund may incur costs in disposing of the security which would
increase Fund expenses. A Fund's investment advisor will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
Evergreen Short-Intermediate Municipal Fund may not enter into repurchase
agreements if, as a result, more than 15% of the Fund's net assets would be
invested in repurchase agreements maturing in more than seven days. Evergreen
High Grade Municipal Bond Fund may not so invest more than 10% of its net
assets.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by a Fund to sell a
security and repurchase it at a specified time and
9
<PAGE>
price. A Fund could lose money if the market values of the securities it sold
decline below their repurchase prices. Reverse repurchase agreements may be
considered a form of borrowing, and, therefore, a form of leverage. Leverage
may magnify gains or losses of a Fund.
Illiquid Securities. Each Fund may invest up to 15% of its net assets in
illiquid securities and other securities which are not readily marketable.
Repurchase agreements with maturities longer than seven days will be included
for the purpose of the foregoing 15% limit. The inability of a Fund to dispose
of illiquid investments readily or at a reasonable price could impair its
ability to raise cash for redemptions or other purposes.
Restricted Securities. Each Fund may invest in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A establishes a
safe harbor from the registration requirements of the 1933 Act for resale by
large institutional investors of securities not publicly traded in the U.S.
Each Fund's investment advisor determines the liquidity of Rule 144A
securities according to guidelines and procedures adopted by the Trust's Board
of Trustees. (See "Organization.") The Board of Trustees monitors each
investment advisor's application of those guidelines and procedures.
Securities eligible for resale pursuant to Rule 144A, which a Fund's
investment advisor has determined to be liquid or readily marketable, are not
subject to the 15% limit on illiquid securities.
Borrowing. Each Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. Each Fund may also borrow an additional
5% of its total assets from banks or others. The Funds may only borrow as a
temporary measure for extraordinary or emergency purposes such as the
redemption of Fund shares. A Fund will not purchase securities while
outstanding borrowings exceed 5% of its total assets except to exercise prior
commitments and to exercise subscription rights.
Securities Lending. To generate income and offset expenses, a Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by a Fund may not exceed 33 1/3% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay a Fund any income
accruing on the security. Also, a Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent
security will affect a Fund and its shareholders. When a Fund lends its
securities, it runs the risk that it could not retrieve the securities on a
timely basis, possibly losing the opportunity to sell the securities at a
desirable price. Also, if the borrower files for bankruptcy or becomes
insolvent, a Fund's ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. Each Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, a Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that a
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Options and Futures. Each Fund may buy and sell futures and options on futures
relating to (i) individual securities and (ii) indices. In addition, Evergreen
Municipal Bond Fund may buy and sell futures and options on futures relating
to foreign currencies. Such transactions may be entered into in order to hedge
against declines in markets and to gain exposure to markets prior to buying
individual securities.
Each Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and
listed put options on financial futures contracts for portfolio securities.
Each Fund may also purchase call options on financial futures contracts. Each
Fund may also write covered call options on its portfolio securities to
attempt to increase its current income. A Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series.
Each Fund may write (i.e., sell) covered call and put options. By writing
a call option, a Fund becomes obligated during the term of the option to
deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. Each Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). Each
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own
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substantially similar U.S. Treasury bills. A Fund will be considered "covered"
with respect to a put option it writes if, so long as it is obligated as the
writer of the put option, it deposits and maintains with its custodian in a
segregated account liquid assets having a value equal to or greater than the
exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. A Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more
than their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities
of the U.S. government. If a Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market interest rates.
Each Fund may also enter into financial futures contracts and write
options on such contracts. Each Fund intends to enter into such contracts and
related options for hedging purposes. Each Fund will enter into futures on
securities or index-based futures contracts in order to hedge against changes
in interest rates or securities prices. A futures contract is an agreement to
buy or sell securities during a designated month at whatever price exists at
that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. A Fund does not make
payment or deliver securities upon entering into a futures contract. Instead,
it puts down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which remains in effect until the contract is
terminated.
Each Fund may sell or purchase financial futures contracts. When a
futures contract is sold by the Fund, the profit on the contract will tend to
rise when the value of the underlying securities declines and to fall when the
value of such securities increases. Thus, a Fund sells futures contracts in
order to offset a possible decline in the profit on its securities. If a
futures contract is purchased by the Fund, the value of the contract will tend
to rise when the value of the underlying securities increases and to fall when
the value of such securities declines.
Each Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for
the purpose of closing out its options positions. A Fund's ability to enter
into closing transactions depends on the development and maintenance of a
liquid secondary market. There is no assurance that a liquid secondary market
will exist for any particular contract or at any particular time. As a result,
there can be no assurance that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the
Fund will continue to be required to maintain the margin deposits on the
contract and to complete the contract according to its terms, in which case
the Fund would continue to bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable a Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk
that the prices of the securities subject to the financial futures contracts
and options on financial futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio. This may cause the
financial futures contract and any related options to react to market changes
differently than the portfolio securities. In addition, the Fund's investment
advisor could be incorrect in its expectations and forecasts about the
direction or extent of market factors, such as interest rates, securities
price movements, and other
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economic factors. Even if the Fund's investment advisor correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of
its investments. In these events, the Fund may lose money on the financial
futures contracts or the options on financial futures contracts. It is not
certain that a secondary market for positions in financial futures contracts
or for options on financial futures contracts will exist at all times.
Although the Fund's investment advisor will consider liquidity before entering
into financial futures contracts or options on financial futures contracts,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular financial futures contract or option on a financial futures
contract at any particular time. The Fund's ability to establish and close out
financial futures contracts and options on financial futures contract
positions depends on this secondary market. If the Fund is unable to close out
its position due to disruptions in the market or lack of liquidity, the Fund
may lose money on the futures contract or option, and the losses to the Fund
could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
In addition to options and futures contracts, Evergreen Municipal Bond
Fund may also invest in certain other types of derivative instruments,
including structured securities. The Fund may invest in derivatives only if
the expected risks and rewards are consistent with its objective and policies.
Losses from derivatives can sometimes be substantial. This is true partly
because small price movements in the underlying asset can result in immediate
and substantial gains or losses in the value of the derivative. Derivatives
can also cause the Fund to lose money if the Fund fails to correctly predict
the direction in which the underlying asset or economic factor will move.
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ORGANIZATION AND SERVICE PROVIDERS
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ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, each Fund is a diversified
series of an open-end, management investment company called Evergreen
Municipal Trust (the "Trust"). The Trust is a Delaware business trust
organized on September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Funds' activities, reviewing,
among other things, each Fund's performance and its contractual arrangements
with various service providers.
Shareholder Rights. All shareholders have equal voting, liquidation and other
rights. Each share owned is entitled to one vote for each dollar of net asset
value applicable to such share. Shareholders may exchange shares as described
under "Exchanges," but will have no other preference, conversion, exchange or
preemptive rights. When issued and paid for, shares will be fully paid and
nonassessable. Shares of the Funds are redeemable, transferable and freely
assignable as collateral. The Trust may establish additional classes or series
of shares.
The Funds do not hold annual shareholder meetings; the Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, the Funds are prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
Trustees. If any matters are to be voted on by shareholders, each share owned
as of the record date for the meeting would be entitled to one vote for each
dollar of net asset value applicable to each share.
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SERVICE PROVIDERS
Investment Advisor. The investment advisor to Evergreen High Grade Municipal
Bond Fund is Evergreen Investment Management ("EIM") (formerly known as the
Capital Management Group), a division of First Union National Bank ("FUNB"),
which is a subsidiary of First Union Corporation ("First Union"). First Union
is located at 301 South College Street, and EIM at 201 South College Street,
Charlotte, North Carolina 28288-0630. First Union and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout
the U.S.
The investment advisor to Evergreen Short-Intermediate Municipal Fund is
Evergreen Asset Management Corp. ("EAMC"), which is a wholly-owned subsidiary
of First Union. EAMC, with its predecessors, has served as investment advisor
to certain Evergreen mutual funds since 1971. EAMC is located at 2500
Westchester Avenue, Purchase, New York 10577.
The investment advisor to Evergreen Municipal Bond Fund is Evergreen
Investment Management Company ("EIMC"). EIMC has provided investment advisory
and management services to investment companies and private accounts since it
was organized in 1932. EIMC is an indirect subsidiary of FUNB. EIMC is located
at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
EIM manages investments and supervises the daily business affairs of
Evergreen High Grade Municipal Bond Fund and, as compensation therefor, is
entitled to receive an annual fee equal to 0.50% of average daily net assets
of the Fund.
EAMC manages investments and supervises the daily business affairs of
Evergreen Short-Intermediate Municipal Fund, and, as compensation therefor, is
entitled to receive an annual fee equal to 0.50% of the Fund's average daily
net assets.
Evergreen Municipal Bond Fund pays EIMC a fee, calculated on an annual
basis, equal to 2.0% of gross dividend and interest income of the Fund plus
0.50% of the first $100,000,000 of the aggregate net asset value of the shares
of the Fund, plus 0.45% of the next $100,000,000, plus 0.40% of the next
$100,000,000, plus 0.35% of the next $100,000,000, plus 0.30% of the next
$100,000,000, plus 0.25% of amounts over $500,000,000.
Portfolio Manager. The portfolio manager of Evergreen High Grade Municipal
Bond Fund is James T. Colby, III. Mr. Colby is a Vice President of FUNB. Mr.
Colby has also been associated with EAMC and its predecessor since 1992, and
with EIMC since 1998. He has served as portfolio manager of the Fund since
1995 and was portfolio manager of Evergreen National Tax Free Fund, whose
assets were acquired by the Fund on July 7, 1995, since that fund's inception
in 1992.
Evergreen Short-Intermediate Municipal Fund is co-managed by Richard K.
Marrone and Diane C. Beaver. Since joining FUNB in 1993, Mr. Marrone has been
a Vice President and Senior Fixed Income Portfolio Manager, with over 15 years
of investment and market experience. Mr. Marrone has also been associated with
EAMC since 1997. Prior to joining FUNB, Mr. Marrone was employed at Woodbridge
Capital Management where he served as a portfolio manager for mutual and
common trust funds from 1982 to 1993. Ms. Beaver is an Assistant Vice
President of FUNB and a Portfolio Manager with over 14 years of investment
experience. She also purchases municipal bonds for individual accounts. Mr.
Marrone began as manager of the Fund in November 1997. Ms. Beaver joined him
as co-manager in March 1998.
Evergreen Municipal Bond Fund is co-managed by George J. Kimball and
James T. Colby, III. Mr. Kimball has been employed by EIMC since 1991 and was
an Analyst prior to becoming a Vice President and Portfolio Manager. He has
more than 10 years of investment experience. Mr. Colby is a Vice President of
FUNB. Mr. Colby has also been associated with EAMC and its predecessor since
1992, and with EIMC since 1998. Both Mr. Colby and Mr. Kimball have co-managed
the Fund since March 1998.
Sub-Advisor. EAMC has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish EAMC with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolio
of Evergreen Short-Intermediate Municipal Fund. Lieber & Company will be
reimbursed by EAMC in connection
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with the rendering of services on the basis of the direct and indirect costs
of performing such services. There is no additional charge to Evergreen Short-
Intermediate Municipal Fund for the services provided by Lieber & Company. The
address of Lieber & Company is 2500 Westchester Avenue, Purchase, New York
10577. Lieber & Company is an indirect, wholly-owned, subsidiary of First
Union.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to Evergreen High Grade Municipal Bond Fund, subject to the
supervision and control of the Trustees. EIS provides the Fund with
facilities, equipment and personnel. For its services as administrator, EIS is
entitled to receive a fee based on the aggregate average daily net assets of
the Fund at a rate based on the total assets of all the mutual funds and
administered by EIS for which any affiliate of FUNB serves as investment
advisor. The administration fee is calculated in accordance with the following
schedule:
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EIS also provides facilities, equipment and personnel to Evergreen Municipal
Bond Fund on behalf of the Fund's investment advisor.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company
("ESC"), 200 Berkeley Street, Boston, Massachusetts 02116-5034, acts as the
Funds' transfer agent and dividend disbursing agent. ESC is an indirect,
wholly-owned subsidiary of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Funds' custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of
The BISYS Group, Inc., located at 125 West 55th Street, New York, New York
10019, is the Funds' principal underwriter.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
Eligible investors may purchase Fund shares at net asset value by mail or
wire as described below. The Funds impose no sales charges on Class Y shares.
Class Y shares are the only class of shares offered by this prospectus and are
only available to (i) persons who at or prior to December 31, 1994 owned
shares in a mutual fund advised by EAMC, (ii) certain institutional investors
and (iii) investment advisory clients of FUNB affiliates.
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Service
Company, 200 Berkeley Street, Boston, Massachusetts 02106-5034, a completed
application and a check payable to the Fund. You may also telephone 1-800-343-
2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed application. The
minimum initial investment is $1,000, which may be waived in certain
situations. Subsequent investments in any amount may be made by check, by
wiring federal funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the application
for more information.
How the Funds Value Their Shares. The net asset value of each class of shares
of a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of
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<PAGE>
the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value. Non-dollar denominated securities will be valued as of the close
of the Exchange at the closing price of such securities in their principal
trading markets.
Additional Purchase Information. As a condition of this offering, if a
purchase is canceled due to nonpayment or because an investor's check does not
clear, the investor will be responsible for any loss a Fund or its investment
advisor incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's
investment advisor for any loss. In addition, such investors may be prohibited
or restricted from making further purchases in any of the Evergreen funds. The
Funds will not accept third party checks other than those payable directly to
a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in a Fund to the Fund for cash
at their net redemption value on any day the Exchange is open, either directly
by writing to the Fund, c/o ESC, or through your financial intermediary. The
amount you will receive is the net asset value adjusted for fractions of a
cent next calculated after the Fund receives your request in proper form.
Proceeds generally will be sent to you within seven days. However, for shares
recently purchased by check, the Fund will not send proceeds until it is
reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. You may redeem by mail by
sending a signed letter of instruction or stock power form to the Fund, c/o
ESC (the registrar, transfer agent and dividend-disbursing agent for each
Fund). Stock power forms are available from your financial intermediary, ESC,
and many commercial banks. Additional documentation is required for the sale
of shares by corporations, financial intermediaries, fiduciaries and surviving
joint owners. Signature guarantees are required for all redemption requests
for shares with a value of more than $50,000. Currently, the requirement for a
signature guarantee has been waived on redemptions of $50,000 or less when the
account address of record has been the same for a minimum period of 30 days.
Each Fund and ESC reserve the right to withdraw this waiver at any time. A
signature guarantee must be provided by a bank or trust company (not a Notary
Public), a member firm of a domestic stock exchange or by other financial
institutions whose guarantees are acceptable under the Securities Exchange Act
of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
ESC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail
or through a broker-dealer as set forth herein. The telephone redemption
service is not made available to shareholders automatically. Shareholders
wishing to use the telephone redemption service must complete the appropriate
sections on the application and choose how the redemption proceeds are to be
paid. Redemption proceeds will either (i) be mailed by check to the
shareholder at the address in which the account is registered or (ii) be wired
to an account with the same registration as the shareholder's account in a
Fund at a designated commercial bank.
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<PAGE>
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation
of your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if
the address and bank account of record have been the same for a minimum period
of 30 days. Each Fund reserves the right at any time to terminate, suspend, or
change the terms of any redemption method described in this prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, ESC and EDI will not assume
responsibility for the authenticity of any instructions received by any of
them from a shareholder in writing, over the Evergreen Express Line (described
below), or by telephone. ESC will employ reasonable procedures to confirm that
instructions received over the Evergreen Express Line or by telephone are
genuine. The Funds, ESC and EDI will not be liable when following instructions
received over the Evergreen Express Line or by telephone that ESC reasonably
believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to
do account transactions, including investments, exchanges and redemptions. You
may access the Evergreen Express Line by dialing toll free 1-800-346-3858 on
any touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists
and the Funds cannot dispose of their investments or fairly determine their
value; or (4) the SEC so orders. The Funds reserve the right to close an
account that through redemption has fallen below $1,000 and has remained so
for thirty days. Shareholders will receive sixty days' written notice to
increase the account value to at least $1,000 before the account is closed.
The Funds have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem shares solely in cash, up
to the lesser of $250,000 or 1% of the Fund's total net assets, during any
ninety-day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in other Evergreen funds through your financial intermediary
by calling or writing to ESC, or by using the Evergreen Express Line as
described above. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. An exchange which represents an initial
investment in another Evergreen fund is subject to the minimum investment and
suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For more information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at
any time by a Fund upon sixty days' notice to shareholders and is only
available in states in which shares of the fund being acquired may lawfully be
sold.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value
determined at the close of the next business day. During periods of drastic
economic or market changes, shareholders may experience difficulty in
effecting telephone exchanges.
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<PAGE>
You should follow the procedures outlined below for exchanges by mail if you
are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for
the redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified
or terminated at any time. Written requests for exchanges should follow the
same procedures outlined for written redemption requests in the section
entitled "How to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, ESC
or the toll-free number on the front page of this prospectus. Some services
are described in more detail in the application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest
as little as $25 per month to purchase shares of a Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the
Systematic Withdrawal Plan (the "Withdrawal Plan") by filling out the
appropriate part of the application. Under this Withdrawal Plan, you may
receive (or designate a third party to receive) a monthly or quarterly fixed-
withdrawal payment in a stated amount of at least $75 and as much as 1.0% per
month or 3.0% per quarter of the total net asset value of the Fund shares in
your account when the Withdrawal Plan was opened. Fund shares will be redeemed
as necessary to meet withdrawal payments. All participants must elect to have
their dividends and capital gains distributions reinvested automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and other
Evergreen funds available to their participants. EAMC, EIMC or FUNB may
provide compensation to organizations providing administrative and
recordkeeping services to plans which make shares of the Evergreen funds
available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends
and distributions are automatically reinvested in full and fractional shares
of a Fund at the net asset value per share at the close of business on the
record date, unless otherwise requested by a shareholder in writing. If the
transfer agent does not receive a written request for subsequent dividends
and/or distributions to be paid in cash at least three full business days
prior to a given record date, the dividends and/or distributions to be paid to
a shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results
in more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset
value is relatively high and may result in a lower average cost per share than
a less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen fund. You should designate on the application (i) the
dollar amount of each monthly or quarterly investment you wish to make and
(ii) the Fund in which the investment is to be made. Thereafter, on the first
day of the designated month, an amount equal to the specified monthly or
quarterly investment will automatically be redeemed from your initial account
and invested in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your application and indicate the Evergreen fund(s)
into which distributions are to be invested.
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Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll
free 1-800-247-4075 or write to ESC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase
of shares of such an investment company upon the order of their customer. FUNB
and its affiliates are subject to and in compliance with the aforementioned
laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being
prevented from continuing to perform the services required under the
investment advisory contract or from acting as agent in connection with the
purchase of shares of a Fund by its customers. If FUNB and its affiliates were
prevented from continuing to provide the services called for under the
investment advisory agreement, it is expected that the Trustees would
identify, and call upon each Fund's shareholders to approve, a new investment
advisor. If this were to occur, it is not anticipated that the shareholders of
any Fund would suffer any adverse financial consequences.
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Funds intend to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Shareholders of a Fund who have not opted to
receive cash prior to the payable date for any dividend from net investment
income or the record date for any capital gains distribution will have the
number of such shares determined on the basis of the Fund's net asset value
per share computed at the end of that day after adjustment for the
distribution. Net asset value is used in computing the number of shares in
both capital gains and income distribution investments. There is a possibility
that shareholders may lose the tax-exempt status on accrued income on
municipal bonds if shares of a Fund are redeemed before a dividend has been
declared.
Account statements and/or checks, as appropriate, will be mailed within
seven days after a Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case
may be, it will assume that a shareholder wishes to receive that distribution
and future capital gains and income distributions in shares. Instructions
continue in effect until changed in writing.
Each Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Code. While so qualified, so long
as a Fund distributes all of its investment company taxable income and any net
realized gains to shareholders, it is expected that the Fund will not be
required to pay any federal income taxes. A 4% nondeductible excise tax will
be imposed on a Fund if it does not meet certain distribution requirements by
the end of each calendar year. Each Fund anticipates meeting such distribution
requirements.
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income
for federal income tax purposes; however (1) all or a portion of such exempt-
interest dividends may be a specific preference item for purposes of the
federal individual and corporate AMT to the extent that they are derived from
certain types of private activity bonds issued after August 7, 1986, and (2)
all exempt-interest dividends will be a component of the "adjusted current
earnings" for purposes of the federal corporate AMT.
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Dividends paid from taxable income, if any, and distributions of any net
realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of a Fund, and regardless of the investor's holding period
relating to the shares with respect to which such gains are distributed.
Market discount recognized on taxable and tax-exempt bonds is taxable as
ordinary income, not as excludable income. Under current law, the highest
federal income tax rate applicable to net long-term gains realized by
individuals is 20% for most assets held more than 12 months. The rate
applicable to corporations is 35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax advisor.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any)
and redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the application, or on
a separate form supplied by the Fund's transfer agent, that the investor's
social security or taxpayer identification number is correct and that the
investor is not currently subject to backup withholding or is exempt from
backup withholding.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will set
forth the amount of income exempt from federal and, if applicable, state
taxation, and the amount, if any, subject to federal and state taxation.
Moreover, to the extent necessary, these statements will indicate the amount
of exempt-interest dividends which are a specific preference item for purposes
of the federal individual and corporate AMT. The exemption of interest income
for federal income tax purposes does not necessarily result in exemption under
the income or other tax law of any state or local taxing authority. Investors
should consult their own tax advisors about the status of distributions from
the Funds in their states and localities. Each Fund notifies shareholders
annually as to the interest exempt from federal taxes earned by the Fund.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this prospectus and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the SAI.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for each Fund
is not expected to exceed 100%. A portfolio turnover rate of 100% would occur
if all of a Fund's portfolio securities were replaced in one year. The
portfolio turnover rate experienced by a Fund directly affects the transaction
costs relating to the purchase and sale of securities which the Fund bears
directly. A high rate of portfolio turnover will increase such costs. See the
SAI for further information regarding the practices of each Fund affecting
portfolio turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. Evergreen High Grade Municipal Bond Fund and
Evergreen Municipal Bond Fund currently offer Class A, Class B, Class C and
Class Y shares. Evergreen Short-Intermediate Municipal Fund currently offers
Class A, Class B and Class Y shares but does not offer Class C shares. Each
Fund may in the future offer additional classes. Class A, Class B and Class C
shares are not offered by this prospectus. The dividends payable with respect
to Class A, Class B and Class C shares will be less than those payable with
respect to Class Y shares due to the distribution and shareholder servicing
related expenses borne by Class A, Class B and Class C shares and the fact
that such expenses are not borne by Class Y shares.
Performance Information. The Funds may quote their "total return" or "yield"
for a specified period in advertisements, reports or other communications to
shareholders. Total return and yield are computed separately for each class of
shares. Performance data for one or more classes may be included in any
advertisement or sales literature using performance data of a Fund. Each
Fund's total return for each such period is computed by
19
<PAGE>
finding, through the use of a formula prescribed by the SEC, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the
period.
For purposes of computing total return, dividends and capital gains
distributions paid on shares of the Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases of the Fund's
shares are assumed to have been paid.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of its share price. A Fund's yield is calculated
according to accounting methods that are standardized by the SEC for all stock
and bond funds. Because yield accounting methods differ from the method used
for other accounting purposes, a Fund's yield may not equal its distribution
rate, the income paid to your account or the net investment income reported in
the Fund's financial statements. To calculate yield, a Fund takes the interest
and dividend income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
The Funds may also quote tax-equivalent yields which show the taxable
yields an investor would have to earn before taxes to equal the Funds' tax-
free yields. A tax-equivalent yield is calculated by dividing a Fund's tax-
exempt yield by the result of one minus a stated federal tax rate. If only a
portion of a Fund's income was tax-exempt, only that portion is adjusted in
the calculation.
Performance data may be included in any advertisement or sales literature
of the Funds. These advertisements may quote performance rankings or ratings
of a Fund by financial publications or independent organizations such as
Lipper Analytical Services, Inc. and Morningstar, Inc. or compare a Fund's
performance to various indices. The Funds may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the
total ordinary income distributed (which may include the excess of short-term
capital gains over losses) to shareholders for the latest twelve-month period
by the maximum public offering price per share on the last day of the period.
Investors should be aware that past performance may not be indicative of
future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering
investment alternatives. The information provided to investors may also
include discussions of other Evergreen funds, products, and services, which
may include: retirement investing; brokerage products and services; the
effects of periodic investment plans and dollar cost averaging; saving for
college; and charitable giving. In addition, the information provided to
investors may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to fund management,
investment philosophy, and investment techniques. EDI may also reprint, and
use as advertising and sales literature, articles from Evergreen Events, a
quarterly magazine provided free of charge to Evergreen fund shareholders.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment advisors and
the Funds' 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 Funds' investment advisors are taking
steps to address the Year 2000 Problem with respect to the computer systems
that they use and to obtain assurances that comparable steps are being taken
by the Funds' 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 Funds.
Registration Statement. This prospectus and SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statements filed by the Trust with the SEC under the Securities
Act of 1933, as amended. Copies of the Registration Statements may be obtained
at a reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
20
<PAGE>
Investment Advisor
Evergreen Investment Management, 201 South College Street, Charlotte, North
Carolina 28288
Evergreen High Grade Municipal Bond Fund
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577
Evergreen Short-Intermediate Municipal Fund
Evergreen Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
Evergreen Municipal Bond Fund
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts 02116-
5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
57003____________________________________________________________541691 RV3
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN NATIONAL MUNICIPAL BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1999
Evergreen High Grade Municipal Bond Fund ("High Grade")
Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate")
Evergreen Municipal Bond Fund ("Municipal")
Each Fund is a series of an open-end management investment company known as
Evergreen Municipal Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all classes of
shares of the Funds listed above. It is not a prospectus but should be read in
conjunction with the prospectuses of the Funds dated April 1, 1999.The Funds are
offered through two separate prospectuses: one offering Class A , Class B and
Class C shares of each Fund (except that Short-Intermediate does not offer Class
C) and one offering Class Y shares of each Fund. You may obtain either of these
prospectuses from Evergreen Distributor, Inc.
TABLE OF CONTENTS
INVESTMENT POLICIES
Fundamental Investment Policies
Additional Information on Securities and Investment Practices
MANAGEMENT OF THE TRUST
PRINCIPAL HOLDERS OF FUND SHARES
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisors
Investment Advisory Agreements
Distributor
Distribution Plans and Agreements
Additional Service Providers
BROKERAGE
Selection of Brokers
Brokerage Commissions
General Brokerage Policies
TRUST ORGANIZATION
Form of Organization
Description of Shares
Voting Rights
Limitation of Trustees' Liability
PURCHASE, REDEMPTION AND PRICING OF SHARES
How the Funds Offer Shares to the Public
Contingent Deferred Sales Charge
Sales Charge Waivers or Reduction Exchanges
Calculation of Net Asset Value Per Share ("NAV")
Valuation of Portfolio Securities
Shareholder Services
PRINCIPAL UNDERWRITER
ADDITIONAL TAX INFORMATION
Requirements for Qualification as a Regulated Investment Company
Taxes on Distributions
Taxes on the Sale or Exchange of Fund Shares
Other Tax Considerations
EXPENSES
PERFORMANCE
METHOD OF COMPUTING OFFERING PRICE FOR CLASS A SHARES
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
APPENDIX A
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the"1940
Act"). Where necessary, an explanation beneath a fundamental policy describes a
Fund's practices with respect to that policy, as allowed by current law.
If the law governing a policy changes, the Fund's practices may change
accordingly without a shareholder vote. Unless otherwise stated, all references
to the assets of a Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940 Act,
each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities that are
issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at market
value, in the securities of issuers primarily engaged in any particular industry
(other than securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by applicable
law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks in an amount up to 33 1/3% of its total assets,
taken at market value. Each Fund may also borrow up to an additional 5% of its
total assets from banks or others. Each Fund may borrow only as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. A Fund will not purchase securities while outstanding borrowings exceed
5% of its total assets except to exercise prior commitments and to exercise
subscription rights (as defined in the 1940 Act) or enter into reverse
repurchase agreements, in amounts up to 33 1/3% of its total assets (including
the amount borrowed). Each Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities. Each
Fund may purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
5. Underwriting
tc \l4 " Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the extent
permitted by applicable law, each Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on commodities,
except to the extent that each Fund may engage in financial futures contracts
and related options and currency contracts and related options and may otherwise
do so in accordance with applicable law and without registering as a commodity
pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that each Fund may lend
its portfolio securities in accordance with applicable law. The acquisition of
investment securities or other investment instruments shall not be deemed to be
the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay each Fund any income accruing on the security. Each
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect each Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give the Fund
collateral in cash or government securities. Each Fund will require collateral
in an amount equal to at least 100% of the current market value of the
securities lent, including accrued interest. Each Fund has the right to call a
loan and obtain the securities lent any time on notice of not more than five
business days. Each Fund may pay reasonable fees in connection with such loans.
9. Investment in Federally Tax Exempt Securities
Each Fund will, during periods of normal market conditions, invest its
assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning investment in tax-exempt securities
for funds with the words tax exempt, tax free or municipal in their names.
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
The investment objective of each Fund and a description of the securities in
which each Fund may invest is set forth in the Funds' prospectuses. The
following expands upon the discussion in the prospectuses regarding certain
investments of each Fund.
Municipal Bonds
The Funds may invest in municipal bonds of any state, territory or
possession of the U.S. including the District of Columbia. The Funds may also
invest in municipal bonds of any political subdivision, agency or
instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon
legislative approval and may be subject to limitations on the issuer's taxing
power. Enforcement of payments due under general obligation bonds varies
according to the law applicable to the issuer. In contrast, revenue bonds are
supported only by the revenues generated by the project or facility.
The Funds may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development
bond must qualify as fully exempt from federal income tax. However, the
interest paid on an industrial development bond may be subject to the federal
Alternative Minimum Tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by Standard & Poor's Ratings Service
("S&P"), Moody's Investors Service ("Moody's") and Fitch IBCA, Inc. ("Fitch").
Such ratings, however, are opinions, not absolute standards of quality.
Municipal bonds with the same maturity, interest rate and rating may have
different yields, while municipal bonds with the same maturity and interest
rate, but different ratings, may have the same yield. Once purchased by a Fund,
a municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by a Fund. Neither event would require a Fund to sell the
bond, but a Fund's investment advisor (the "Advisor") would consider such events
in determining whether a Fund should continue to hold it.
The ability of a Fund to achieve its investment objective depends upon the
continuing ability of issuers of municipal bonds to pay interest and principal
when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict a Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, a
Fund's Advisor may lack sufficient knowledge of an issue's weaknesses. Other
influences, such as litigation, may also materially affect the ability of an
issuer to pay principal and interest when due. In addition, the market for
municipal bonds is often thin and can be temporarily affected by large purchases
and sales, including those by a Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by a Fund. If such legislation were passed, the
Trust's Board of Trustees may recommend changes in a Fund's investment
objectives and policies or dissolution of a Fund.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by U.S. government
agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the U.S.
government to purchase certain obligations of agencies or instrumentalities or
(2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not paid at
maturity but over the life of the security in scheduled monthly payments. While
mortgages pooled in a GNMA certificate may have maturities of up to 30 years,
the certificate itself will have a shorter average maturity and less principal
volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due not only
to market fluctuations, but also to early prepayments of mortgages within the
pool. Since prepayment rates vary widely, it is impossible to accurately predict
the average maturity of a GNMA pool. In addition to the guaranteed principal
payments, GNMA certificates may also make unscheduled principal payments
resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. government securities, they may be less effective as a means
of locking in attractive long- term rates because of the prepayment feature. For
instance, when interest rates decline, prepayments are likely to increase as the
holders of the underlying mortgages seek refinancing. As a result, the value of
a GNMA certificate is not likely to rise as much as the value of a comparable
debt security would in response to the same decline. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price compared to its par value, which may result in a
loss.
Virgin Islands, Guam and Puerto Rico
Each Fund may invest in obligations of the governments of the Virgin Islands,
Guam and Puerto Rico. Each Fund does not presently intend to invest more than
(a) 10% of its net assets in the obligations of each of the Virgin Islands and
Guam or (b) 25% of its net assets in the obligations of Puerto Rico.
Accordingly, a Fund may be adversely affected by local political and economic
conditions and developments within the Virgin Islands, Guam and Puerto Rico
affecting the issuers of such obligations.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds may purchase securities on a when-issued or delayed-delivery basis and
may purchase or sell securities on a forward commitment basis. Settlement of
such transactions normally occurs within a month or more after the purchase or
sale commitment is made.
The Funds may purchase securities under such conditions only with the intention
of actually acquiring them, but may enter into a separate agreement to sell the
securities before the settlement date. Since the value of securities purchased
may fluctuate prior to settlement, a Fund may be required to pay more at
settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed-delivery or forward commitment basis, a Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions are a form of leveraging and may involve
the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to a Fund. In addition, when a Fund engages in such purchases, it relies on
the other party to consummate the sale. If the other party fails to perform its
obligations, a Fund may miss the opportunity to obtain a security at a favorable
price or yield.
Repurchase Agreements
The Funds may enter into repurchase agreements with entities that are registered
as U.S. government securities dealers, including member banks of the Federal
Reserve System having at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by the Advisor to
be creditworthy. In a repurchase agreement, a Fund obtains a security and
simultaneously commits to return the security to the seller at a set price
(including principal and interest) within a period of time usually not exceeding
seven days. The resale price reflects the purchase price plus an agreed upon
market rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value of the underlying security.
The Funds' custodian or a third party will take possession of the securities
subject to repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the securities
from a Fund, the Fund could receive less than the repurchase price on any sale
of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by a Fund might
be delayed pending court action. Each Fund's Advisor believes that under the
regular procedures normally in effect for custody of a Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Funds will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker-dealers, which are
deemed by the Advisor to be creditworthy pursuant to guidelines established by
the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Funds may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options
Each Fund may buy or sell (i.e., write) put and call options on securities it
holds or intends to acquire. Each Fund may also buy and sell options on
financial futures contracts. Each Fund will use options as a hedge against
decreases or increases in the value of securities it holds or intends to
acquire. Each Fund may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
Each Fund may write only covered options. With regard to a call option, this
means that the Fund will own, for the life of the option, the securities subject
to the call option. A Fund will cover put options by holding, in a segregated
account, liquid assets having a value equal to or greater than the price of
securities subject to the put option. If the Fund is unable to effect a closing
purchase transaction with respect to the covered options it has sold, it will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised.
Futures Transactions
Each Fund may enter into financial futures contracts and write options on such
contracts. Each Fund intends to enter into such contracts and related options
for hedging purposes. A Fund will enter into futures contracts on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures contract is
sold by a Fund, the value of the contract will tend to rise when the value of
the underlying securities declines and to fall when the value of such securities
increases. Thus, the Fund would sell futures contracts in order to offset a
possible decline in the value of its securities. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Advisor to be a favorable price and rate of
return for securities the Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures contracts for
hedging purposes. A put option purchased by a Fund would give it the right to
assume a position as the seller of a futures contract. A call option purchased
by a Fund would give it the right to assume a position as the purchaser of a
futures contract. The purchase of an option on a futures contract requires the
Fund to pay a premium. In exchange for the premium, the Fund becomes entitled to
exercise the benefits, if any, provided by the futures contract, but is not
required to take any action under the contract. If the option cannot be
exercised profitably before it expires, the Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. A Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.
Although futures and options transactions are intended to enable a Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates or market prices could result in poorer performance than if it
had not entered into these transactions. Even if the Advisor correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of its
investments. This lack of correlation between the Fund's futures and securities
positions may be caused by differences between the futures and securities
markets or by differences between the securities underlying the Fund's futures
position and the securities held by or to be purchased for the Fund. Each Fund's
Advisor will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.
Each Fund does not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
Each Fund will not change these policies without supplementing the information
in the prospectuses and SAI.
Each Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive money
upon the purchase or sale of a futures contract. Rather, the Fund is required to
deposit an amount of "initial margin" in cash or U.S. Treasury bills with its
custodian (or the broker, if legally permitted). The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract initial margin does not involve the borrowing of funds
by the Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day, the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market". Variation margin
does not represent a borrowing or loan by the Fund but is instead a settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark-to-market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
Foreign Securities (Municipal only)
The Fund may invest in foreign securities or U.S. securities traded in foreign
markets. In addition to securities issued by foreign companies, permissible
investments may also consist of obligations of foreign branches of U.S. banks
and of foreign banks, including European certificates of deposit, European time
deposits, Canadian time deposits and Yankee certificates of deposit. The Fund
may also invest in Canadian commercial paper and Europaper. These instruments
may subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. issuers. Such risks include the
possibility of adverse political and economic developments; imposition of
withholding taxes on interest or other income; seizure, nationalization, or
expropriation of foreign deposits; establishment of exchange controls or
taxation at the source; greater fluctuations in value due to changes in exchange
rates, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
Foreign Currency Transactions (Municipal only)
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on the investment advisor's ability
to predict accurately the future exchange rates between foreign currencies and
the U.S. dollar. The value of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates also may affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund. The Fund may also purchase and sell
options related to foreign currencies in connection with hedging strategies.
Below Investment Grade Bonds
Each Fund may invest up to 20% of its assets in lower rated bonds but will not
invest in bonds rated below B. (For more information about bond ratings, see
Appendix A.) Bonds rated below BBB by S&P or Fitch or below Baa by Moody's,
commonly known as "junk bonds," offer high yield, but also high risk. While
investments in junk bonds provide opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing.
Also, an economic downturn or an increase in interest rates may increase the
potential for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality municipal bonds.
(3) The value of junk bonds, like that of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) a Fund's ability to sell the bond, and
(c) a Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities that are
illiquid. A security is illiquid when a Fund cannot dispose of it in the
ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
Each Fund may invest in "restricted" securities, i.e., securities subject to
restrictions on resale under federal securities laws. Rule 144A under the
Securities Act of 1933 ("Rule 144A") allows certain restricted securities to be
traded freely among qualified institutional investors. Since Rule 144A
securities may have limited markets, the Board of Trustees will determine
whether such securities should be considered illiquid for the purpose of
determining a Fund's compliance with the limit on illiquid securities indicated
above. In determining the liquidity of Rule 144A securities, the Trustees will
consider: (1) the frequency of trades and quotes for the security; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the extent
permitted under the 1940 Act. Currently, each Fund may not: (1) own more than 3%
of the outstanding voting stock of another investment company; (2) invest more
than 5% of its assets in any single investment company; and (3) invest more than
10% of its assets in investment companies. However, each Fund may invest all of
its investable assets in securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and limitations as the Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is the
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen fund complex.
Name Position with Trust Principal Occupations for Last Five Year
Laurence B. Ashkin
(DOB: 2/2/28)
Trustee
Real estate developer and construction consultant;
and President of Centrum Equities and Centrum Properties, Inc.
Charles A. Austin III
(DOB: 10/23/34)
Trustee
Investment Counselor to Appleton Partners, Inc.;
former Director, Executive Vice President and
Treasurer, State Street Research & Management
Company (investment advice); Director, The
Andover Companies (Insurance); and Trustee,
Arthritis Foundation of New England.
K. Dun Gifford
(DOB: 10/12/38)
Trustee
Trustee, Treasurer and Chairman of the Finance Committee, Cambridge College;
Chairman Emeritus and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust (education); former
Chairman of the Board, Director, and Executive Vice President, The London
Harness Company; former Managing Partner, Roscommon Capital Corp.; former Chief
Executive Officer, Gifford Gifts of Fine Foods; and former Chairman, Gifford,
Drescher & Associates (environmental consulting).
James S. Howell
(DOB: 8/13/24)
Chairman of the
Board of Trustees
Former Chairman of the Distribution Foundation for
the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
Leroy Keith, Jr.
(DOB: 2/14/39)
Trustee
Chairman of the Board and Chief Executive Officer, Carson Products Company;
Director of Phoenix Total Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell
(DOB: 7/14/39)
Trustee
Sales Representative with Nucor-Yamoto, Inc.
(steel producer).
Thomas L. McVerry
(DOB: 8/2/39)
Trustee
Former Vice President and Director of Rexham Corporation (manufacturing); and
former Director of Carolina Cooperative Federal Credit Union.
William Walt Pettit
(DOB: 8/26/55)
Trustee
Partner in the law firm of William Walt Pettit, P.A.
David M. Richardson
(DOB: 9/14/41)
Trustee
Vice Chair and former Executive Vice President,
DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD
(DOB: 6/2/47)
Trustee
Medical Director, U.S. Health Care/Aetna Health
Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield
(DOB: 2/20/43)
Trustee
Attorney, Law Offices of Michael S. Scofield.
Richard J. Shima
(DOB: 8/11/39)
Trustee
Former Chairman, Environmental Warranty, Inc. (insurance agency); Executive
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Hartford Hospital, Old State House
Association, Middlesex Mutual Assurance Company, and Enhance Financial Services,
Inc.; Chairman, Board of Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice Chairman and Chief Investment Officer, The
Travelers Corporation; former Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller, Inc.
William J. Tomko*
(DOB:8/30/58)
President and
Treasurer
Senior Vice President and Operations Executive,
BISYS Fund Services.
Nimish S. Bhatt*
(DOB: 6/6/63)
Vice President and
Assistant Treasurer
Vice President, Tax, BISYS Fund Services; former Assistant Vice President,
Evergreen Asset Management Corp./First Union Bank; former Senior Tax
Consulting/Acting Manager, Investment Companies Group, Price Waterhouse LLP, NY.
Bryan Haft*
(DOB: 1/23/65)
Team Leader, Fund Administration, BISYS Fund
Services.
Michael H. Koonce
(DOB: 4/20/60)
Vice President
Secretary
Senior Vice President and Assistant General
Counsel, First Union Corporation; former Senior
Vice President and General Counsel, Colonial
Management Associates, Inc.
*Address: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
Listed below is the Trustee compensation for the fiscal year ended May 31,
1998. The Trustees do not receive pension or retirement benefits from the
Funds.
Trustee Aggregate Total Compensation
Compensation from from Trust and Fund
Trust Complex Paid to Trustee
Laurence B. Ashkin $6,901 $70,370
Charles A. Austin, III $6,725 $52,343
K. Dun Gifford $6,253 $49,231
James S. Howell $8,725 $104,002
Leroy Keith Jr. $6,529 $50,711
Gerald M. McDonnell $7,919 $87,149
Thomas L. McVerry $7,899 $91,037
William Walt Pettit $7,041 $78,845
David M. Richardson $6,604 $50,886
Russell A. Salton, III $7,434 $87,502
Michael S. Scofield $7,901 $90,266
Richard J. Shima $6,702 $65,844
Robert J. Jeffries* $1,300 $20,932
Foster Bam* $4,904 $49,987
*Former Trustee; retired as of December 31, 1997
**Certain Trustees have elected to defer all or part of their total compensation
for the twelve months ended May 31, 1998. The amounts listed below will be
payable in later years to the respective Trustees:
Austin $4,763
McVerry $90,742
Howell $74,036
Salton $87,025
Petit $78,625
McDonnell $86,183
Scofield $28,593
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust owned
as a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each Fund's
knowledge, owned beneficially or of record more than 5% of the outstanding
shares of any class of each fund as of February 28, 1999.
Evergreen High Grade Municipal Bond Fund
Class A
Heather Agency, Inc. 7.66%
FBO Alletta Laird Downs Ttee FBO
Alletta Laird Downs Trust
Dtd 3-29-89
P.O. Box 3666
Wilimington, DE 19807
Evergreen High Grade Municipal Bond Fund
Class Y
First Union National Bank 32.69%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG - 1151
301 S. Tryon Street
Charlotte, NC 28202-1910
First Union National Bank 11.19%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG - 1151
301 S. Tryon Street
Charlotte, NC 28202-1910
Charles Schwab & Co. Inc. 5.80%
Special Custody Account FBO
Exclusive Benefit of Customers
Reinvest Account Attn Mutual Fd
101 Montgomery Street
San Franciso, CA 94104-4122
Evergreen Short-Intermediate Municipal Fund
Class A
Joseph Romano 25.42%
2164 Troon Road
Houston, TX 77019-6325
First Union Brokerage Services 15.95%
Haywood D. Cochrane, Jr.
21 Castlewood Court
Nashville, TN 37215
Raymond James & Assoc. Inc. 7.16%
Mario Michael Moscone Rev Tr
U/A dtd
382 Cranbrook Court
Bloomfield Hills, MI 48304
Fubs & Co. FEBO 5.58%
Anthony M. Truscello Sr and
Carolyn A. Truscello
878 Taylor Drive
Folcroft, PA 19032-1523
5.58%
Evergreen Short-Intermediate Municipal Fund
Class B
Fubs & Co. FEBO 7.11%
Carl R. Nodine and
Linda F. Nodine
P.O. Box 210086
Nashville, TN 37221-0086
MLPF&S for the sole 6.75%
benefit of its customers
Attn: Fund Administration #97H95
4800 Deer Lake Dr. E. 2nd Fl.
Jacksonville, FL 32246-6484
Fubs & Co. FEBO 5.39%
Shirley L. Roberts
2770 S. Garden Drive
210 Bldg. 21
Lake Worth, FL 33461-6280
Arthur I. Roe, Jr. 5.10%
TOD Gail A. Strickland
P.O. Box 510
Arcadia, FL 34266
Evergreen Short-Intermediate Municipal Fund
Class Y
First Union National Bank/EB/INT 81.27%
Cash Account
Attn Trust Operations Fund Group
401 S. Tryon St., 3rd Fl.
CMG 1151
Charlotte, NC 28202-1911
Municipal Bond Fund Class A
MLPF&S For the Sole Benefit 11.47%
of its Customers
Attn: Fund Admin #97TU1
4800 Deer Lake Dr. E 2nd Fl
Jacksonville, FL 32246-6484
Municipal Bond Fund Class B
MLPF&S For the Sole Benefit 20.92%
of its Customers
Attn: Fund Admin #98309
4800 Deer Lake Dr. E 2nd Fl
Jacksonville, FL 32246-6484
Municipal Bond Fund Class C
MLPF&S For the Sole Benefit 40.79%
of its Customers
Attn: Fund Admin #97TU2
4800 Deer Lake Dr. E 2nd Fl
Jacksonville, FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
Each Fund's Advisor is a subsidiary of First Union Corporation ("First Union"),
a bank holding company headquartered at 301 South College Street, Charlotte,
North Carolina 28288-0630. First Union and its subsidiaries provide a broad
range of financial services to individuals and businesses througout the United
States.
The Advisor to High Grade is the Evergreen Investment Management ("EIM")
(formerly known as the Capital Management Group), a division of First Union
National Bank ("FUNB), 201South College Street, Charlotte, North Carolina
28288-0630. EIM is entitled to receive from High Grade an annual fee equal to
0.50% of the Fund's average daily net assets.
The Advisor to Short-Intermediate is Evergreen Asset Management Corp. ("EAMC"),
2500 Westchester Avenue, Purchase, New York 10577. EAMC is entitled to receive
from Short-Intermediate an annual fee equal to 0.50% of the Fund's average daily
net assets. Lieber and Company, 2500 Westchester Avenue, Purchase, New York
10577, a First Union subsidiary, is the Fund's subadvisor. Lieber and Company is
reimbursed by EAMC for the direct and indirect costs of providing subadvisory
services to the Fund.
The Advisor to Municipal is Evergreen Investment Management Company ("EIMC"),
200 Berkeley Street, Boston, MA 02116. EIMC is entitled to receive an annual fee
equal to 2.0% of Municipal's gross dividend and interest income plus a
percentage of the aggregate net asset value of Fund shares, as follows: 0.50% of
the first $100 million, plus 0.45% of the next $100 million, plus 0.40% of the
next $100 million, plus 0.35% of the next $100 million, plus 0.30% of the next
$100 million, plus 0.25% of amounts over $500 million.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an investment
advisory agreement with each Advisor (the "Advisory Agreements"). Under the
Advisory Agreements, and subject to the supervision of the Trust's Board of
Trustees, each Advisor furnishes to the appropriate Fund investment advisory,
management and administrative services, office facilities, and equipment in
connection with its services for managing the investment and reinvestment of the
Fund's assets. The Advisor pays for all of the expenses incurred in connection
with the provision of its services. Each Fund pays for all charges and expenses,
other than those specifically referred to as being borne by the Advisor,
including, but not limited to: (1) custodian charges and expenses; (2)
bookkeeping and auditors' charges and expenses; (3) transfer agent charges and
expenses; (4) fees and expenses of Independent Trustees (Trustees who are not
interested persons of a Fund as defined in the 1940 Act); (5) brokerage
commissions, brokers' fees and expenses; (6) issue and transfer taxes; (7) costs
and expenses under the Distribution Plan (as applicable); (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of such Fund and its
shares with the Securities and Exchange Commission ("SEC") or under state or
other securities laws; (11) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of such
Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges and
expenses of legal counsel for such Fund and for the Independent Trustees of the
Trust on matters relating to such Fund; (14) charges and expenses of filing
annual and other reports with the SEC and other authorities; and (15) all
extraordinary charges and expenses of such Fund. (See also the section entitled
Financial Information")
Each Advisory Agreement continues in effect for two years from its effective
date and, thereafter, from year to year only if approved at least annually by
the Board of Trustees of the Trust or by a vote of a majority of each Fund's
outstanding shares. In either case, the terms of the Advisory Agreement and
continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 under the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union is an Advisor. The Rule 17a-7 Procedures also allow the Funds to buy or
sell securities from other advisory clients for whom a subsidiary of First Union
is an Advisor. The Funds may engage in such transactions if they are equitable
to each participant and consistent with each participant's investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class B and
Class C shares and are charged as class expenses, as accrued. The distribution
fees attributable to the Class B and Class C shares are designed to permit an
investor to purchase such shares through broker-dealers without the assessment
of a front-end sales charge, while at the same time permitting the Distributor
to compensate broker-dealers in connection with the sale of such shares. In this
regard, the purpose and function of the combined contingent deferred sales
charge and distribution services fee on the Class B shares are the same as those
of the front-end sales charge and distribution fee with respect to the Class A
shares in that in each case the sales charge and/or distribution fee provide for
the financing of the distribution of the Fund's shares.
The National Association of Securities Dealers, Inc. ("NASD") limits the amount
that a mutual fund may pay annually in distribution costs for sale of its shares
and shareholder service fees. The NASD limits annual expenditures to 1.00% of
the aggregate average daily net asset value of its shares, of which 0.75% may be
used to pay such distribution costs and 0.25% may be used to pay shareholder
services fees. The NASD also limits the aggregate amount that a Fund may pay for
such distribution costs to 6.25% of gross share sales since the inception of the
distribution plan, plus interest at the prime rate plus 1.00% on such amounts
remaining unpaid from time to time.
Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund with
respect to each of its Class A and Class B shares and, as applicable, Class C
shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund
reports the amounts expended under the Plans and the purposes for which such
expenditures were made to the Trustees of the Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
the Independent Trustees are committed to the discretion of such Independent
Trustees then in office.
Each Advisor may from time to time from its own funds or such other resources as
may be permitted by rules of the SEC make payments for distribution services to
the Distributor; the latter may in turn pay part or all of such compensation to
brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for successive
twelve-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreement related thereto.
The Plans permit the payment of fees to brokers and others for distribution and
shareholder- related administrative service and to broker-dealers, depository
institutions, financial intermediaries and administrators for administrative
services as to Class A, Class B and Class C shares (as applicable). The Plans
are designed to (i) stimulate brokers to provide distribution and administrative
support services to each Fund and holders of such Class A, Class B and Class C
shares and (ii) stimulate administrators to render administrative support
services to a Fund and holders of such Class A, Class B and Class C shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to, providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding such
Class A, Class B and Class C shares; assisting clients in changing dividend
options, account designations, and addresses; and providing such other services
as a Fund reasonably requests for its Class A, Class B and Class C shares, as
applicable.
FUNB or its affiliates may finance the payments made by the Distributor to
compensate broker/dealers or other persons for distributing shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by a
Fund to the Distributor with respect to that class or classes, and (ii) a Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution service fees in respect of shares of such class or classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be approved
by a vote of the Trustees of the Trust or the holders of a Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of a Fund may bear pursuant to the Plan or Distribution Agreement without
the approval of a majority of the holders of the outstanding voting shares of
the class affected. Any Plan or Distribution Agreement may be terminated (i) by
a Fund without penalty at any time by a majority vote of the holders of the
outstanding voting securities of the Fund, voting separately by class or by a
majority vote of the Independent Trustees, or (ii) by the Distributor. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, a Fund need give no notice to
the Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment. (See also the section entitled "Financial
Information.")
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street, Boston,
Massachusetts 02116- 5034, serves as administrator to High Grade, subject to the
supervision and control of the Trust's Board of Trustees. EIS provides the Fund
with facilities, equipment and personnel and is entitled to receive a fee based
on the aggregate average daily net assets of the Funds at a rate based on the
total assets of all mutual funds administered by EIS for which any affiliate of
FUNB serves as Advisor, as follows: 0.050% of the first $7 billion, plus 0.035%
of the next $3 billion, plus 0.030% of the next $5 billion, plus 0.020% of the
next $10 billion, plus 0.015% of the next $5 billion, plus 0.010% of amounts
over $30 billion.
Transfer Agent
Evergreen Service Company ("ESC") a subsidiary of First Union, is the Funds'
transfer agent. The transfer agent issues and redeems shares, pays dividends and
performs other duties in connection with the maintenance of shareholder
accounts. The transfer agent's address is 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Independent Auditors
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110
audits the financial statements of High Grade and Short-Intermediate. KPMG Peat
Marwick LLP, 99 High Street, Boston, Massachusetts 02110 audits the financial
statements of Municipal.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank keeps
custody of each Fund's securities and cash and performs other related duties.
The custodian's address is P.O. Box 9021, Boston, Massachusetts 02205-9827.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is 1025
Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
Selection of Brokers
In effecting transactions in portfolio securities for a Fund, each
Advisor seeks the best execution of orders at the most favorable prices. Each
Advisor determines whether a broker has provided a Fund with best execution and
price in the execution of a securities transaction by evaluating, among other
things, the broker's ability to execute large or potentially difficult
transactions, and the financial strength and stability of the broker.
Brokerage Commissions
Each Fund expects to buy and sell its fixed-income securities through
principal transactions, that is, directly from the issuer or from an underwriter
or market maker for the securities. Generally, a Fund will not pay brokerage
commissions for such purchases. Usually, when a Fund buys a security from an
underwriter, the purchase price will include an underwriting commission or
concession. The purchase price for securities bought from dealers serving as
market makers will similarly include the dealer's mark up or reflect a dealer's
mark down. When a Fund executes transactions in the over-the-counter market, it
will deal with primary market makers unless more favorable prices are otherwise
obtainable.
General Brokerage Policies
Each Advisor makes investment decisions for a Fund independently from
those of its other clients. It may frequently develop, however, that an Advisor
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, an Advisor will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of a Fund's securities, each Fund believes that in
other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Funds may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews each Fund's brokerage policy. Because
of the possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the Board of Trustees may change,
modify or eliminate any of the foregoing practices.
TRUST ORGANIZATION
Form of Organization
Each Fund is a series of an open-end management investment company known as
"Evergreen Municipal Trust" (the "Trust"). The Trust was formed as a Delaware
business trust on September 18, 1997 pursuant to an Agreement and Declaration of
Trust (the "Declaration of Trust"). A copy of the Declaration of Trust is on
file at the SEC as an exhibit to the Trust's Registration Statement, of which
this SAI is a part. This summary is qualified in its entirety by reference to
the Declaration of Trust.
Descriptoin of Shares
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required to hold
annual meetings. At meetings called for the initial election of Trustees or to
consider other matters, each share is entitled to one vote for each dollar of
net asset value applicable to such share. Shares generally vote together as one
class on all matters. Classes of shares of each Fund have equal voting rights.
No amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
Limitation Of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for errors
of judgment or mistakes of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties involved in the conduct of his office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
How the Funds Offer Shares to the Public
You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers three or four classes of shares that
differ primarily with respect to sales charges and distribution fees. Depending
upon the class of shares, you will pay an initial sales charge when you buy a
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem a
Fund's shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay a maximum
sales charge of 3.25% for Short-Intermediate, 4.75% for the other Funds. (The
prospectus contains a complete table of applicable sales charges and a
discussion of sales charge reductions or waivers that may apply to purchases.
See also the section in this SAI entitled "Method of Computing Offering Price
for Class A Shares." If you purchase Class A shares in the amount of $1 million
or more, without an initial sales charge, the Funds will charge a CDSC of 1.00%
if you redeem during the month of your purchase and the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
Class B Shares
The Funds offer Class B shares at net asset value without an initial sales
charge. With certain exceptions, however, the Funds will charge a CDSC on shares
you redeem within 72 months after the month of your purchase, in accordance with
the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase.......................... 5.00%
Second twelve-month period following the month of purchase......... 4.00%
Third twelve-month period following the month of purchase............ 3.00%
Fourth twelve-month period following the month of purchase......... 3.00%
Fifth twelve-month period following the month of purchase.............. 2.00%
Sixth twelve-month period following the month of purchase............ 1.00%
Thereafter........................................................ 0.00%
Class B shares that have been outstanding for seven years after the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee.
(Conversion of Class B shares represented by stock certificates will require
the return of the stock certificate to ESC).
Class C Shares (High Grade and Municipal only)
Class C shares are available only through broker-dealers who have entered into
special distribution agreements with the Distributor. The Funds offer Class C
shares at net asset value without an initial sales charge. With certain
exceptions, however, the Funds will charge a CDSC of 1.00% on shares you redeem
within 12-months after the month of your purchase. (See "Contingent Deferred
Sales Charge" below).
Class Y Shares
Class Y shares are not offered to the general public and are available only to
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by EAMC, (2) certain institutional investors and (3) investment advisory
clients of FUNB affiliates. Class Y shares are offered at net asset value
without a front-end or back-end sales charge and do not bear any Rule 12b-1
distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. If a shareholder requests a redemption, the Fund will
seek to minimize the CDSC the shareholder is required to pay by first redeeming
shares not subject to a CDSC and, thereafter, redeeming shares held the longest.
The CDSC on any redemption is, to the extent permitted by the NASD, paid to the
Distributor or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine multiple
purchases of Class A shares in Evergreen funds and take advantage of lower sales
charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A shares of
multiple Evergreen funds. For example, if you invested $75,000 in each of two
different Evergreen funds, you would pay a sales charge based on a $150,000
purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares of
Evergreen funds you already own to the amount of your next Class A investment.
For example, if you hold Class A shares valued at $99,999 and purchase an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the application,
purchase Class A shares over a 13-month period and receive the same sales charge
as if you had invested all the money at once. All purchases of Class A shares of
an Evergreen fund during the period will qualify as Letter of Intent purchases.
Waiver of Initial Sales Charges
The Funds may sell their shares at net asset value without an initial sales
charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax sheltered annuity or
TSA plan sponsored by an organization having 100 or more eligible employees (a
"Qualifying Plan") or a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust departments
and registered investment advisors;
4. investment advisors, consultants or financial planners who place
trades for their own accounts or the accounts of their clients and who charge
such clients a management, consulting, advisory or other fee;
5. clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to a master account of
such investment advisors or financial planners on the books of the broker-dealer
through whom shares are purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these plans, which place
trades through an omnibus account maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor, has entered into an agreement to sell
shares of the Funds, and members of the immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the Evergreen
funds, the Distributor or their affiliates and the immediate families of such
persons; or
9. a bank or trust company in a single account in the name of such bank
or trust company as trustee if the initial investment in or any Evergreen fund
made pursuant to this waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by a Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Funds do not impose a CDSC when the shares you are redeeming represent:
1. an increase in the share value above the net cost of such shares;
2. certain shares for which a Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of 1974 ("ERISA");
5.an automatic withdrawal from the ERISA plan of a shareholder who is
a least 592 years old;
6. shares in an account that a Fund has closed because the account has
an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Withdrawal Plan of up to
1.0% per month of your initial account balance;
8.a withdrawal consisting of loan proceeds to a retirement plan
participant;
9.a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan that
purchased Class C shares (this waiver is not available in the event a Qualifying
Plan, as a whole, redeems substantially all of its assets).
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of any
other Evergreen fund, as described under the section entitled "Exchanges" in a
Fund's prospectus. Before you make an exchange, you should read the prospectus
of the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as described in
the prospectuses. A Fund will not compute its NAV on the day the following legal
holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The NAV of each Fund is calculated by dividing the value of a Fund's net assets
attributable to that class by all of the shares issued for that class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
(1) An independent pricing service values each Fund's municipal bonds
at fair value using a variety of factors which may include yield, liquidity,
interest rate risk, credit quality, coupon, maturity and type of issue.
(2) Short-term investments with remaining maturities of 60 days or less
are carried at amortized cost, which approximates market value.
(3) Short-term investments maturing in more than 60 days for which
market quotations are readily available are valued at current market value.
(4) Securities for which valuations are not available from an
independent pricing service, including restricted securities, are valued at fair
value according to procedures established by the Trust's Board of Trustees.
SHAREHOLDER SERVICES
As described in the prospectuses, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically convert a shareholder's distribution option so that the
shareholder reinvests all dividends and distributions in additional shares when
it learns that the postal or other delivery service is unable to deliver checks
or transaction confirmations to the shareholder's address of record. The Funds
will hold the returned distribution or redemption proceeds in a non-interest
bearing account in the shareholder's name until the shareholder updates his or
her address. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ("Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly comply
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60 days'
written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement.
The Underwriting Agreement will terminate automatically upon its "assignment,"
as that term is defined in the 1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has qualified and intends to continue to qualify for and elect the
tax treatment applicable to a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code ("the Code"). (Such qualification does
not involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, a Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, a Fund is not subject to federal income tax if it
timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions out of taxable income or capital gains will be taxable to
shareholders whether made in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of a Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by a Fund from its investment
company taxable income (net investment income plus net realized short-term
capital gains, if any).
From time to time, a Fund will distribute the excess of its net
long-term capital gains over its short-term capital losses to shareholders. For
federal tax purposes, shareholders must include such distributions when
calculating their long-term capital gains. Each Fund will inform its
shareholders of the portion, if any, of a long-term capital gain distribution
which is subject to tax at the maximum 28% rate and the portion, if any, of a
long term capital gain distribution which is subject to tax at the maximum 20%
rate. Distributions of long-term capital gains are taxable as such to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by a Fund reduce its NAV. A distribution that reduces a
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before a Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder must pay
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
Each Fund expects that substantially all of its dividends will be
"exempt-interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt-interest dividends, at least 50% of the
value of a Fund's assets must consist of federally tax-exempt obligations at the
close of each quarter. An exempt-interest respect to its net federally
excludable municipal obligation interest and designated as an exempt-interest
dividend in a written notice mailed to each shareholder not later than 60 days
after the close of its taxable year. The percentage of the total dividends paid
by a Fund with respect to any taxable year that qualifies as exempt-interest
dividends will be the same for all shareholders of the Fund receiving dividends
with respect to such year. If a shareholder receives an exempt-interest dividend
with respect to any share and such share has been held for six months or less,
any loss on the sale or exchange of such share will be disallowed to the extent
of the exempt-interest dividend amount.
Any shareholder of a Fund who may be a "substantial user" of a facility
financed with an issue of tax-exempt obligations or a "related person" to such a
user should consult his tax advisor concerning his qualification to receive
exempt-interest dividends should the Fund hold obligations financing such
facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, a Fund's exempt-interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt-interest dividends could subject them to
Alternative Minimum Tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Under particularly unusual circumstances, such as when a Fund is in a
prolonged defensive investment position, it is possible that no portion of a
Fund's distributions of income to its shareholders for a fiscal year would be
exempt from federal income tax. The Funds do not presently anticipate, however,
that such unusual circumstances will occur.
Each Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
Each Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of a Fund will not be deductible for federal income tax
purposes to the extent of the portion of the interest expense relating to
exempt-interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt-interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt-interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
twelve months is generally subject to a maximum federal income tax rate of 20%
for an individual.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will not allow a shareholder to realize a loss on
the sale of Fund shares held by the shareholder for six months or less to the
extent the shareholder received exempt-interest dividends on such shares.
Moreover, the Code will treat a shareholder's loss on shares held for six months
or less as a long-term capital loss to the extent the shareholder received
distributions of net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisors regarding specific questions relating to federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
EXPENSES
The table below shows the total dollar amounts paid by each Fund for services
rendered during the fiscal periods specified. For more information on specific
expenses, see "Investment Advisory and Other Services," "Distribution Plans and
Agreements," "Principal Underwriter" and "Purchase, Redemption and Pricing of
Shares."
Investment Advisory Fees
tc \l3 "Investment Advisory Fees
Below are the investment advisory fees paid by each Fund for each fiscal year or
period indicated. For more information, see "Investment Advisors" and A
Investment Advisory Agreements" under "Investment Advisory and Other Services"
above.
Year and Fund Advisory Fee Waiver
1998
High Grade (a) $542,365 0
Short-Intermediate (a) $622,594 $45,432
Municipal (b) $2,410,469 0
1997
High Grade (c) $399,929 $64,199
Short-Intermediate (c) $248,564 $60,003
Municipal (d) $6,029,348 0
1996
High Grade (e) $575,456 $228,548
Short-Intermediate(e) $287,149 $140,581
Municipal (f) $6,642,609 0
(a) Year ended 5/31/98
(b) Five months ended 5/31/98
(c) Nine months ended 5/31/97
(d) Year ended 12/31/97
(e) Year ended 8/31/96
(f) Year ended 12/31/96
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for its respective fiscal year or
period ended 5/31/98. For more information, see "Distribution Plans and
Agreements" under "Investment Advisory and Other Services" above.
Fund
Class A Class B Class C
Distribution Service Distribution Service Distribution Service
Fees Fees Fees Fees Fees Fees
High Grade
$127,730 0 $243,971 $81,324 N/A N/A
Short-
Intermediate
$5,615 0 $47,636 $15,878 N/A N/A
Municipal
$1,157,033 0 $421,288 $284,060 $20,909 $6,970
Underwriting Commissions
Below are the total underwriting commissions paid and underwriting commissions
retained for each fiscal year or period indicated. For more information, see
"Principal Underwriter" above.
Year and Fund Total Underwriting Underwriting
Commissions Commissions Retained
1998
High Grade (a) $2,497,757 $107,759
Short-Intermediate (a) $2,384,015 $18,533
Municipal (b) $1,137,406 $45,491
1997
High Grade (c) $46,714 $6,389
Short-Intermediate (c) $26,752 $3,820
Municipal (d) $1,208,779 $27,849
1996
High Grade (e) $73,014 $9,050
Short-Intermediate(e) $33,816 $8,464
Municipal (f) $2,402,158 $632,014
(a) Year ended 5/31/98
(b) Five months ended 5/31/98
(c) Nine months ended 5/31/97
(d) Year ended 12/31/97
(e) Year ended 8/31/96
(f) Year ended 12/31/96
Brokerage Comissions Paid
Each Fund paid no brokerage commissions during its respective fiscal year or
period ended 1998, 1997 or 1996. For more information, see "Brokerage" above.
PERFORMANCE
Total Return
Total return quotations for a class of shares of a Fund as they may appear from
time to time in advertisements are calculated by finding the average annual
compounded rates of return over one, five and ten year periods, or the time
periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. All dividends and
distributions are added to the initial investment, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The annual total returns for each class of shares of the Funds (including
applicable sales charges) as of November 30, 1998 are as follows:
Fund One Year Five Years Ten Years or Inception
Since Inception Date
High Grade (1) 2.28% 4.85% 6.54% 2/21/92
Class A
Class B 1.59% 4.80% 6.68% 1/11/93
Class Y 7.66% 6.13% 7.50% 2/28/94
Short-)
Intermediate(2
Class A 1.73% 3.19% 4.43% 1/5/95
Class B (0.91) 2.83% 4.43% 1/5/95
Class Y 5.13% 3.95% 4.99% 7/17/91*
Municipal(3)
Class A 1.37% 4.44% 6.96% 1/20/98
Class B 0.79% 4.76% 6.96% 1/19/78
Class C 4.65% 4.67% 6.54% 1/26/98
(1) Historical performance shown for Classes B and Y prior to their inception is
based on the performance of Class A, the original class offered. These
historical returns for Classes B and Y have not been adjusted to reflect the
effect of each class' 12b-1 fees. These fees for Classes A and B are .25% and
1.00%, respectively. Class Y does not pay a 12b-1 fee. If these fees had been
reflected, returns for Class B would have been lower while returns for Class Y
would have been higher.
(2) Historical performance shown for Classes A and B prior to their inception is
based on the performance of Class Y, the original class offered. These
historical returns for Classes A and B have not been adjusted to reflect the
effect of each class' 12b-1 fees. These fees for Classes A and B are .10% and
1.00 %, respectively. Class Y does not pay a 12b-1 fee. If these fees had been
reflected, returns would have been lower.
(3) Historical performance shown for Classes A and C prior to their
inception is based on the performance of Class B, the original class offered.
The historical returns for Class A have been adjusted to eliminate the effect of
the higher 12b-1 fees applicable to Class B. The 12b-1 fees for Classes A, B and
C are .25%, 1.00%, and 1.00%, respectively. If these fees had not been
eliminated, returns would have been lower.
* Performance calculated since 11/18/91, prior to which Class Y shares of
Short-Intermediate were shares of a money market fund.
Current and Tax Equivalent Yields
Current yield quotations as they may appear from time to time in advertisements
will consist of a quotation based on a 30-day period ended on the date of the
most recent balance sheet of a Fund, computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the base period. Such yield will include income from
sources other than municipal obligations, if any. Tax equivalent yield is, in
general, the current yield divided by a factor equal to one minus a stated
income tax rate and reflects the yield a taxable investment would have to
achieve in order to equal on an after-tax basis a tax-exempt yield. For the
30-day period ended November 30, 1998, the current and tax-equivalent yields of
the Funds are shown below. Any given yield or total return quotation should not
be considered representative of the Fund's yield or total return for any future
period.
30-day Yield Tax Equivalent Yield
Fund
Federal Class A Class B Class C Class Y Class A Class B Class C Class Y
Tax Rate(1)
High Grade
39.6% 4.28% 3.52% N/A 4.54% 7.09% 5.83% N/A 7.52%
Short-
Intermediate
39.6% 3.80% 2.92% N/A 3.92% 6.29% 4.83% N/A 6.49%
Municipal
39.6% 4.50% 3.75% 3.74% N/A 7.45% 6.21% 6.19% N/A
(1) Assumed for purposes of this chart. Your tax may vary.
METHOD OF COMPUTING OFFERING PRICE
FOR CLASS A SHARES
Class A shares are sold at the NAV plus a sales charge. Below is an example of
the method of computing the offering price of the Class A shares of each Fund.
The example assumes a purchase aggregating less than $50,000 based upon the NAV
of each Fund's Class A shares as of November 30, 1998. For more information, see
"Purchase, Redemption and Pricing of Shares" above.
Fund Net Asset Value Maximum Per Offering Price Per
Share Sales Charge Share
High Grade $11.26 4.75% $11.82
Short-
Intermediate $10.19 3.25% $10.53
Municipal $7.62 4.75% $8.00
FINANCIAL STATEMENTS
The audited financial statements and the independent auditors' reports thereon
are hereby incorporated by reference to the Funds' Annual Report dated May 31,
1998. In addition, the unaudited financial statements are hereby incorporated by
reference to the Fund's Semiannual Report dated November 30, 1998. This
Semiannual Report is available and may be obtained without charge by writing to
ESC, P.O. Box 2121, Boston, Massachusetts 02106-2121, or by calling ESC
toll-free at 1- 800-343-2898.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses or required by law, each
Fund reserves the right to change the terms of the offer stated in its
prospectuses without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in a Fund's
prospectuses, SAI or in supplemental sales literature issued by such Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
Each Fund's prospectuses and SAI omit certain information contained in
the Trust's registration statement, which you may obtain for a fee from the SEC
in Washington, D.C.
Appendix A
BOND RATINGS
Each Fund relies on ratings provided by independent rating services to help
determine the credit quality of bonds and other obligations a Fund intends to
purchase or already owns. A rating is an opinion of an issuer's ability to pay
interest and/or principal when due. Ratings reflect an issuer's overall
financial strength and whether it can meet its financial commitments under
various economic conditions.
The principal rating services, commonly used by the Funds and investors
generally, are Standard & Poor's Ratings Services (S&P) and Moody's Investors
Service (Moody's). A Fund may also rely on ratings provided by Fitch IBCA, Inc.
(Fitch). Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
MOODY'S S&P FITCH Credit Quality
Aaa AAA AAA Excellent Quality (lowest risk)
Aa AA AA Almost Excellent Quality (very low risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some risk)
Ba BB BB Questionable Quality (definite risk)
B B B Low Quality (high risk)
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
______ D DDD/DD/D In Default
LONG-TERM BOND RATINGS
Moody's Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody"s applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments.
This capacity is highly unlikely to be adversely affected by foreseeable
events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM RATINGS
Moody's Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added A+@ to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
A-8
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
Unless otherwise noted, the exhibits listed below are contained herein.
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on October 8, 1997
(b) By-laws Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on October 8, 1997
(c) Provisions of instruments defining the rights Incorporated by reference to
of holders of the securities being registered Registrant's Post-Effective Amendment No. 1
are contained in the Declaration of Trust Filed on July 31, 1998
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII
included as part of Exhibits 1 and 2, above.
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Registrant's Post-Effective Amendment No. 7
Union National Bank Filed on July 31, 1998
(d)(2) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Post-Effective Amendment No. 7
Asset Management Corp. Filed on July 31, 1998
(d)(3) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Post-Effective Amendment No. 7
Investment Management Company Filed on July 31, 1998.
(formerly Keystone Investment Management Company)
(e)(1) Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Post-Effecive Amendment No. 7
Distributor, Inc. Filed on July 31, 1998.
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor Registrant's Post-Effective Amendment No. 7
Inc. (B-1) Filed on July 31, 1998.
(e)(3) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Post-Effective Amendment No. 7
Inc. (B-2) Filed on July 31, 1998.
(e)(4) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Post-Effective Amendment No. 7
Inc. (Evergreen/KCF) Filed on July 31, 1998.
(e)(5) Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Post-Effective Amendment No. 7
Inc. Filed on July 31, 1998.
(e)(6) Specimen copy of Dealer Agreement used by Incorporated by reference to
Evergreen Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed November 12, 1997
(f) Form of Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 2
Filed on November 10, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(h)(1) Administration Agreement between Evergreen Incorporated by reference to
Investment Services, Inc. and the Registrant Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997
(j)(1) Consent of PricewaterhouseCoopers LLP
(j)(2) Consent of KPMG Peat Marwick LLP
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to
Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(m)(3) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-1) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(4) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-2) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(m)(5) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KCF/Evergreen) Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998.
(m)(6) 12b-1 Distribution Plan for Class C Incorporated by reference to
Registrant's Post-Effective Amendment No. 7
Filed on July 31, 1998
(n) Financial Data Schedules
(o) Multiple Class Plan
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustees and
officers are also contained the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors are
contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust Company,
the Registrant's custodian, are contained in the Custodian Agreement between
State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
John R. Georgius President, First Union Corporation; Vice
Chairman and President, First Union National
Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
Dennis Sheehan Director, Chief Financial Officer
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address: Evergreen
Distributor, Inc., 125 West 55th Street, New York, New York 10019.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company, all located at 200 Berkeley
Street, Boston, Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, and State of Ohio, on the 1st day of
April, 1999.
EVERGREEN MUNICIPAL TRUST
By: /s/ William J. Tomko
-----------------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 1st day of April, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Chairman of the Board Trustee
and Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ------------------------------ ------------------------------- --------------------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.
Trustee Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Maureen Towle
- -------------------------------
Maureen Towle
Attorney-in-Fact
*Maureen Towle, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
(p) Multiple Class Plan
(j)(1) Consent of PricewaterhouseCoopers LLP
(j)(2) Consent of KPMG Peat Marwick LLP
(n) Financial Data Schedules
MULTIPLE CLASS PLAN
FOR THE
EVERGREEN FUNDS
As of March 12, 1998
Each Fund in the Evergreen group of mutual funds currently offers one or more of
the following nine classes of shares with the following class provisions and
current offering and exchange characteristics. Additional classes of shares
(such classes being shares having characteristics referred to in Rule 18f-3
under the Investment Company Act of 1940, as amended (the "1940 Act")), when
created, may have characteristics that differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act (a "12b-1 Distribution Plan") and/or a shareholder
services plan. The plans provide for annual payments of distribution and/or
shareholder service fees that are based on a percentage of average daily net
assets of Class A shares, as described in a Fund's current prospectus.
2. Class A Shares are offered with a front-end sales load,
except that purchases of Class A Shares made under certain circumstances are not
subject to the front-end load or may be subject to a contingent deferred sales
charge ("CDSC"), as described in a Fund's current prospectus.
3. Shareholders may exchange Class A Shares of a Fund for Class
A Shares of any other fund named in a Fund's prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class B shares, as described in a Fund's current
prospectus.
2. Class B Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Class B Shares automatically convert to Class A Shares
without a sales load or exchange fee after designated periods.
4. Shareholders may exchange Class B Shares of a Fund for Class
B Shares of any other fund described in a Fund's prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a percentage of
average daily net assets of Class C shares, as described in a Fund's current
prospectus.
2. Class C Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Shareholders may exchange Class C Shares of a Fund for Class
C Shares of any other fund named in a Fund's prospectus.
D. Class J Shares
1. Class J Shares have adopted a 12b-1 Distribution Plan and/or
a shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder service fees that are based on a percentage of
average daily net assets of Class J shares, as described in a Fund's current
prospectus.
2. Class J Shares are offered with a front-end sales load,
except that purchases of Class J Shares made under certain circumstances are not
subject to the front-end load or may be subject to a CDSC, as described in a
Fund's current prospectus.
3. Shareholders may exchange Class J Shares of a Fund for Class
J Shares of any other fund named in a Fund's prospectus.
E. Class Y Shares
1. Class Y Shares have no distribution or shareholder services
plans.
2. Class Y Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Class Y Shares of a Fund for Class
Y Shares of any other fund described in a Fund's prospectus.
F. Institutional Service Shares
1. Institutional Service Shares have adopted a 12b-1
Distribution Plan and/or shareholder services plan. .The plans provide for
annual payments of distribution and/or shareholder services fees that are based
on a percentage of average daily net assets of Institutional Service Shares, as
described in a Fund's current prospectus.
2. Institutional Service Shares are offered at net asset value
without a front-end sales load or CDSC.
3. Shareholders may exchange Institutional Service Shares
of a Fund forInstitutional Service Shares of any other fund named in a Fund's
prospectus, to the extent they are offered by a Fund.
G. Institutional Shares
1. Institutional Shares have no distribution or shareholder services
plans.
2. Institutional Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a Fund for
Institutional Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
H. Charitable Shares
1. Charitable Shares have no distribution or shareholder
services plans.
2. Charitable Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Charitable Shares of a Fund for
Charitable Shares of any other fund described in a Fund's prospectus, to the
extent they are offered by a Fund.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or shareholder
services plan. Class J Shares shall also bear that portion of the Transfer
Agency fees and other expenses allowed by Rule 18f-3 that are attributable to
them due to distribution outside of the United States. There currently are no
other class specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses not
assigned to a class will be allocated to each class based on the relative net
asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter
submitted to its shareholders that relates solely to its class
arrangement.
B. Each class will have separate voting rights on any matter
submitted to shareholders where the interests of one class
differ from the interests of any other class.
C. In all other respects, each class has the same rights and obligations as
each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of Evergreen Municipal Trust of our report dated July 6, 1998,
relating to the financial statements and financial highlights of Evergreen High
Grade Municipal Bond Fund (formerly Evergreen High Grade Tax Free Fund) and
Evergreen Short-Intermediate Municipal Fund (the "Funds"), appearing in the
Funds' May 31, 1998 Annual Report to Shareholders, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectuses and under the
heading "Independent Auditors" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
March 30, 1999
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Municipal Trust:
We consent to the use of our report dated July 3, 1998 for Evergreen
Municipal Bond Fund (formerly Evergreen Tax Free Fund) incorporated herein by
reference and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectuses and "Independent Auditors" in the Statement of
Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 31, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> HIGH GRADE MUNICIPAL BONDFUND CLASS A
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 118,650,934
<INVESTMENTS-AT-VALUE> 125,782,434
<RECEIVABLES> 5,877,785
<ASSETS-OTHER> 24,891
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,685,110
<PAYABLE-FOR-SECURITIES> 3,991,345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 365,243
<TOTAL-LIABILITIES> 4,356,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,131,709
<SHARES-COMMON-STOCK> 6,010,779
<SHARES-COMMON-PRIOR> 5,678,221
<ACCUMULATED-NII-CURRENT> 45,522
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (50,066)
<ACCUM-APPREC-OR-DEPREC> 6,531,894
<NET-ASSETS> 67,659,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,765,308
<OTHER-INCOME> 0
<EXPENSES-NET> (321,091)
<NET-INVESTMENT-INCOME> 1,444,217
<REALIZED-GAINS-CURRENT> 875,598
<APPREC-INCREASE-CURRENT> 174,145
<NET-CHANGE-FROM-OPS> 2,493,960
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,444,217)
<DISTRIBUTIONS-OF-GAINS> (1,616,602)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 735,545
<NUMBER-OF-SHARES-REDEEMED> (592,445)
<SHARES-REINVESTED> 189,458
<NET-CHANGE-IN-ASSETS> 3,132,702
<ACCUMULATED-NII-PRIOR> 45,522
<ACCUMULATED-GAINS-PRIOR> 690,939
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (168,720)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (321,092)
<AVERAGE-NET-ASSETS> 67,382,628
<PER-SHARE-NAV-BEGIN> 11.36
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> HIGH GRADE MUNICIPAL BOND FUND CLASS B
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 118,650,934
<INVESTMENTS-AT-VALUE> 125,782,434
<RECEIVABLES> 5,877,785
<ASSETS-OTHER> 24,891
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,685,110
<PAYABLE-FOR-SECURITIES> 3,991,345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 365,243
<TOTAL-LIABILITIES> 4,356,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,751,634
<SHARES-COMMON-STOCK> 2,897,452
<SHARES-COMMON-PRIOR> 2,888,261
<ACCUMULATED-NII-CURRENT> 30,111
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 150,537
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (318,095)
<NET-ASSETS> 32,614,187
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 861,305
<OTHER-INCOME> 0
<EXPENSES-NET> (280,024)
<NET-INVESTMENT-INCOME> 581,281
<REALIZED-GAINS-CURRENT> 424,073
<APPREC-INCREASE-CURRENT> 55,185
<NET-CHANGE-FROM-OPS> 1,060,539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (581,281)
<DISTRIBUTIONS-OF-GAINS> (780,637)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 228,100
<NUMBER-OF-SHARES-REDEEMED> (294,040)
<SHARES-REINVESTED> 75,131
<NET-CHANGE-IN-ASSETS> (207,314)
<ACCUMULATED-NII-PRIOR> 30,111
<ACCUMULATED-GAINS-PRIOR> 507,101
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (82,303)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (280,024)
<AVERAGE-NET-ASSETS> 32,808,601
<PER-SHARE-NAV-BEGIN> 11.36
<PER-SHARE-NII> 0.2
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 1.7
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> HIGH GRADE MUNICIPAL BOND FUND CLASS Y
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 118,650,934
<INVESTMENTS-AT-VALUE> 125,782,434
<RECEIVABLES> 5,877,785
<ASSETS-OTHER> 24,891
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,685,110
<PAYABLE-FOR-SECURITIES> 3,991,345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 365,243
<TOTAL-LIABILITIES> 4,356,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,893,621
<SHARES-COMMON-STOCK> 2,403,599
<SHARES-COMMON-PRIOR> 2,197,899
<ACCUMULATED-NII-CURRENT> 22,973
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 220,981
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 917,701
<NET-ASSETS> 27,055,276
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 697,709
<OTHER-INCOME> 0
<EXPENSES-NET> (93,559)
<NET-INVESTMENT-INCOME> 604,150
<REALIZED-GAINS-CURRENT> 345,362
<APPREC-INCREASE-CURRENT> 68,394
<NET-CHANGE-FROM-OPS> 1,017,906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (604,150)
<DISTRIBUTIONS-OF-GAINS> (641,983)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 331,187
<NUMBER-OF-SHARES-REDEEMED> (200,503)
<SHARES-REINVESTED> 75,016
<NET-CHANGE-IN-ASSETS> 2,078,991
<ACCUMULATED-NII-PRIOR> 22,973
<ACCUMULATED-GAINS-PRIOR> 517,602
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (66,684)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (93,559)
<AVERAGE-NET-ASSETS> 26,578,648
<PER-SHARE-NAV-BEGIN> 11.36
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 0.7
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND CLASS A
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 166,137,492
<INVESTMENTS-AT-VALUE> 169,020,519
<RECEIVABLES> 3,078,426
<ASSETS-OTHER> 42,684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,141,629
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 539,561
<TOTAL-LIABILITIES> 539,561
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,476,731
<SHARES-COMMON-STOCK> 752,180
<SHARES-COMMON-PRIOR> 644,684
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 84,860
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 101,481
<NET-ASSETS> 7,663,072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 161,132
<OTHER-INCOME> 0
<EXPENSES-NET> (25,194)
<NET-INVESTMENT-INCOME> 135,938
<REALIZED-GAINS-CURRENT> 56,701
<APPREC-INCREASE-CURRENT> (10,170)
<NET-CHANGE-FROM-OPS> 182,469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (135,938)
<DISTRIBUTIONS-OF-GAINS> (56,521)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 210,929
<NUMBER-OF-SHARES-REDEEMED> (112,747)
<SHARES-REINVESTED> 9,314
<NET-CHANGE-IN-ASSETS> 1,094,365
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (17,025)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (25,811)
<AVERAGE-NET-ASSETS> 6,783,661
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND CLASS B
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 166,137,492
<INVESTMENTS-AT-VALUE> 169,020,519
<RECEIVABLES> 3,078,426
<ASSETS-OTHER> 42,684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,141,629
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 539,561
<TOTAL-LIABILITIES> 539,561
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,131,877
<SHARES-COMMON-STOCK> 606,512
<SHARES-COMMON-PRIOR> 568,072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,279
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (18,206)
<NET-ASSETS> 6,178,950
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 141,433
<OTHER-INCOME> 0
<EXPENSES-NET> (49,036)
<NET-INVESTMENT-INCOME> 92,397
<REALIZED-GAINS-CURRENT> 49,003
<APPREC-INCREASE-CURRENT> (7,742)
<NET-CHANGE-FROM-OPS> 133,658
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (92,396)
<DISTRIBUTIONS-OF-GAINS> (44,004)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 96,129
<NUMBER-OF-SHARES-REDEEMED> (67,336)
<SHARES-REINVESTED> 9,647
<NET-CHANGE-IN-ASSETS> 388,683
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (14,945)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (49,589)
<AVERAGE-NET-ASSETS> 5,964,931
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> EVERGREEN SHORT INTERMEDIATE MUNICIPAL BOND FUND CLASS Y
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 166,137,492
<INVESTMENTS-AT-VALUE> 169,020,519
<RECEIVABLES> 3,078,426
<ASSETS-OTHER> 42,684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,141,629
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 539,561
<TOTAL-LIABILITIES> 539,561
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 154,541,793
<SHARES-COMMON-STOCK> 15,484,743
<SHARES-COMMON-PRIOR> 16,472,867
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 418,501
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,799,752
<NET-ASSETS> 157,760,046
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,838,088
<OTHER-INCOME> 0
<EXPENSES-NET> (518,914)
<NET-INVESTMENT-INCOME> 3,319,174
<REALIZED-GAINS-CURRENT> 1,278,005
<APPREC-INCREASE-CURRENT> (141,771)
<NET-CHANGE-FROM-OPS> 4,455,408
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,319,175)
<DISTRIBUTIONS-OF-GAINS> (1,185,596)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,279,741
<NUMBER-OF-SHARES-REDEEMED> (2,402,172)
<SHARES-REINVESTED> 134,307
<NET-CHANGE-IN-ASSETS> (10,144,620)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (405,402)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (535,086)
<AVERAGE-NET-ASSETS> 161,722,833
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN MUNICIPAL BOND FUND CLASS A
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,224,363,680
<INVESTMENTS-AT-VALUE> 1,279,472,309
<RECEIVABLES> 33,860,262
<ASSETS-OTHER> 239,112
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,571,683
<PAYABLE-FOR-SECURITIES> 20,134,861
<SENIOR-LONG-TERM-DEBT> ERR
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 25,087,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,205,344,537
<SHARES-COMMON-STOCK> 152,805,972
<SHARES-COMMON-PRIOR> 159,872,745
<ACCUMULATED-NII-CURRENT> 6,940
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,761,886)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (33,592,224)
<NET-ASSETS> 1,163,997,367
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,897,748
<OTHER-INCOME> 1,469,248
<EXPENSES-NET> (5,116,219)
<NET-INVESTMENT-INCOME> 27,250,777
<REALIZED-GAINS-CURRENT> 17,560,596
<APPREC-INCREASE-CURRENT> (6,377,766)
<NET-CHANGE-FROM-OPS> 38,433,607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,239,667)
<DISTRIBUTIONS-OF-GAINS> (35,326,188)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,444,006
<NUMBER-OF-SHARES-REDEEMED> (13,239,459)
<SHARES-REINVESTED> 4,728,680
<NET-CHANGE-IN-ASSETS> (79,329,851)
<ACCUMULATED-NII-PRIOR> (4,170)
<ACCUMULATED-GAINS-PRIOR> 10,003,704
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (2,496,348)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (5,116,219)
<AVERAGE-NET-ASSETS> 1,198,624,492
<PER-SHARE-NAV-BEGIN> 7.78
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.62
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> EVERGREEN MUNICIPAL BOND FUND CLASS B
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,224,363,680
<INVESTMENTS-AT-VALUE> 1,279,472,309
<RECEIVABLES> 33,860,262
<ASSETS-OTHER> 239,112
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,571,683
<PAYABLE-FOR-SECURITIES> 20,134,861
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,952,433
<TOTAL-LIABILITIES> 25,087,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,008,997
<SHARES-COMMON-STOCK> 15,377,480
<SHARES-COMMON-PRIOR> 16,030,234
<ACCUMULATED-NII-CURRENT> 390,697
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,518,465
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 90,217,098
<NET-ASSETS> 117,135,257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,145,086
<OTHER-INCOME> 149,485
<EXPENSES-NET> (979,038)
<NET-INVESTMENT-INCOME> 2,315,533
<REALIZED-GAINS-CURRENT> 1,786,056
<APPREC-INCREASE-CURRENT> (671,300)
<NET-CHANGE-FROM-OPS> 3,430,289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,314,415)
<DISTRIBUTIONS-OF-GAINS> (3,564,826)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 888,771
<NUMBER-OF-SHARES-REDEEMED> (1,989,940)
<SHARES-REINVESTED> 448,415
<NET-CHANGE-IN-ASSETS> (7,528,722)
<ACCUMULATED-NII-PRIOR> 389,578
<ACCUMULATED-GAINS-PRIOR> 10,297,238
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (254,103)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (979,038)
<AVERAGE-NET-ASSETS> 121,953,076
<PER-SHARE-NAV-BEGIN> 7.78
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.62
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> EVERGREEN MUNICIPAL BOND FUND CLASS C
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 1,224,363,680
<INVESTMENTS-AT-VALUE> 1,279,472,309
<RECEIVABLES> 33,860,262
<ASSETS-OTHER> 239,112
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,571,683
<PAYABLE-FOR-SECURITIES> 20,134,861
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,952,433
<TOTAL-LIABILITIES> 25,087,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,929,736
<SHARES-COMMON-STOCK> 965,148
<SHARES-COMMON-PRIOR> 991,117
<ACCUMULATED-NII-CURRENT> 44
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (61,770)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,516,245)
<NET-ASSETS> 7,351,765
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 193,954
<OTHER-INCOME> 9,224
<EXPENSES-NET> (60,410)
<NET-INVESTMENT-INCOME> 142,768
<REALIZED-GAINS-CURRENT> 109,507
<APPREC-INCREASE-CURRENT> (42,194)
<NET-CHANGE-FROM-OPS> 210,081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (142,698)
<DISTRIBUTIONS-OF-GAINS> (220,155)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98,142
<NUMBER-OF-SHARES-REDEEMED> (158,868)
<SHARES-REINVESTED> 34,757
<NET-CHANGE-IN-ASSETS> (356,186)
<ACCUMULATED-NII-PRIOR> (26)
<ACCUMULATED-GAINS-PRIOR> 48,877
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (15,670)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (60,410)
<AVERAGE-NET-ASSETS> 7,529,349
<PER-SHARE-NAV-BEGIN> 7.78
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.62
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
