1933 Act Registration No. 333-76115
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [X] Post-Effective
Amendment No. Amendment No. 1
EVERGREEN MUNICIPAL TRUST
(Evergreen High Grade Municipal Bond Fund)
(Exact name of registrant as specified in charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
----------------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
Evergreen Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
----------------------------------------
(Name and address of agent for service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act
of 1940 (File No. 333-36033); accordingly, no fee is payable herewith. Pursuant
to Rule 429, this Registration Statement relates to the aforementioned
registration on Form N-1A. A Rule 24f-2 Notice for the Registrant's most recent
fiscal year ended May 31, 1998 was filed with the Commission on or about
August 27, 1998.
It is proposed that this filing will become effective immediately upon
filing pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
EVERGREEN MUNICIPAL TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
- ---------------------------- ----------------------------------
1. Beginning of Registration Statement Cross Reference Sheet; Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis Information and Comparison of Fees and Expenses;
Risk Factors Summary; Comparison of Investment
Objectives and Policies; Risks
4. Information About the Transaction Summary; Reasons for the Mergers;
Information on Shareholders' Rights;
Exhibits A-1 and A-2 (Agreements and
Plans of Reorganization)
5. Information about the Registrant Cover Page; Summary; Risks;
Comparison of Investment Objectives
and Policies; Information on
Shareholders' Rights; Additional
Information
6. Information about the Company Cover Page; Summary; Risks;
Being Acquired Comparison of Investment Objectives
and Policies; Information on
Shareholders' Rights; Additional
Information
7. Voting Information Cover Page; Summary; Voting
Information Concerning the Meeting
8. Interest of Certain Persons Financial Statements and Experts;
and Experts Legal Matters
9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
- ---------------------------
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of Evergreen High Grade Municipal
Bond Fund dated April 1, 1999
<PAGE>
13. Additional Information about Statement of Additional Information
the Company Being Acquired of Evergreen California Municipal
Bond Fund and Evergreen New York
Municipal Bond Fund dated August 1,
1998
14. Financial Statements Financial Statements dated May 31,
1998 and November 30, 1998
(unaudited) of Evergreen High Grade
Municipal Bond Fund; Financial
Statements dated March 31, 1998 and
September 30, 1998 (unaudited) of
Evergreen California Municipal Bond
Fund and Evergreen New York Municipal
Bond Fund; Pro Forma Financial
Statements for the twelve month
period ended November 30, 1998
(unaudited)
Item of Part C of Form N-14
- ---------------------------
15. Indemnification Incorporated by Reference to Part A
Caption - "Information on
Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART A
PROSPECTUS/PROXY
<PAGE>
[Logo]
Prospectus/Proxy Statement June 1999
Important News For Evergreen Shareholders
We encourage you to read the attached Prospectus/Proxy Statement in full;
however, the following answers to common shareholder questions may provide
helpful information.
Q. Why is Evergreen sending me this prospectus/proxy statement?
Mutual fund companies are required to obtain shareholders' votes for certain
types of changes affecting their funds. As a shareholder, you have the right to
vote on major policy decisions, such as those included here.
Q. What are the issues contained in this prospectus/proxy statement?
We would like you to vote to approve a proposal to merge Evergreen California
Municipal Bond Fund and Evergreen New York Municipal Bond Fund into Evergreen
High Grade Municipal Bond Fund.
Q. Why is Evergreen proposing these fund mergers?
We believe that the small asset base in these funds and the lack of asset growth
in this type of fund throughout the mutual fund industry could diminish the net
yield and the total return for shareholders. Evergreen High Grade Municipal Bond
Fund has a larger asset base and offers the potential for greater yield and
overall investment returns because of its breadth of investment options.
Q. How will these changes affect shareholders?
The reorganization of these funds into Evergreen High Grade Municipal Bond Fund
means that Evergreen California Municipal Bond Fund and Evergreen New York
Municipal Bond Fund would no longer exist after July 23, 1999. Shareholders
would receive shares of the new fund in the same class, with comparable or lower
fees and the same contingent deferred sales charges as the shares held prior to
the reorganization. This is a non-taxable event for shareholders.
Although shareholders will lose their state-specific tax exemptions on dividend
income, Evergreen High Grade Municipal Bond Fund provides federal tax exemptions
on dividend income.
Q. How do the board members of my fund recommend I vote?
The Board members of each fund recommend you vote in favor of or FOR the
proposal on the enclosed Proxy Card.
Q. Whom do I call for more information or to place my vote?
Please call Shareholder Communications Corporation at 1-800-645-7816 for
additional information. You may vote using any of the following methods:
Use the enclosed Proxy Card to record your vote either FOR, AGAINST or ABSTAIN,
then return the card in the postpaid envelope provided, or
Complete the enclosed Proxy Card and FAX both sides of the card to
1-800-451-8683, or
Call 1-800-690-6903 and record your vote by telephone. Please have your Proxy
Card at hand when you call and enter the 12 digit Control Number found on the
card, then follow the simple instructions, or
Vote on the Internet by going to the website www.proxyvote.com or go to the
Proxy Voting link on the Evergreen Funds website at www.evergreen-funds.com.
Enter the 12 digit Control Number found on your Proxy Card, then follow the
simple instructions.
<PAGE>
LOGO
EVERGREEN CALIFORNIA FUND
and
EVERGREEN NEW YORK FUND
200 Berkeley Street
Boston, MA 02116
June 2, 1999
Dear Shareholder,
As a shareholder of Evergreen California Municipal Bond Fund ("California
Fund") or Evergreen New York Municipal Bond Fund ("New York Fund"), you are
invited to vote on an important matter affecting your Fund. Specifically, you
are invited to vote on a proposal to merge California Fund and New York Fund
into Evergreen High Grade Municipal Bond Fund ("High Grade Fund"). High Grade
Fund is a mutual fund managed by Evergreen Investment Management that invests
primarily in a broad range of municipal securities the income from which is
exempt from federal income taxes other than the alternative minimum tax.
If the merger is approved you will receive shares of High Grade Fund having
the same total value as the shares of California Fund or New York Fund you
currently own. Details about High Grade Fund's investment objective, portfolio
management team, performance, etc., along with additional information about the
proposed merger, are contained in the attached Prospectus/Proxy Statement. You
will not incur any federal income taxes as a result of the merger.
The Board of Trustees of Evergreen Municipal Trust has approved the merger
and recommends that you vote FOR this proposal.
I realize that the attached Prospectus/Proxy Statement will take time to
review, but your vote is very important. Please take the time to familiarize
yourself with this information. Votes on the proposal will be cast at a special
meeting of both California Fund and New York Fund shareholders to be held on
July 23, 1999. Although you are welcome to attend the meeting in person, you do
not need to do so in order to vote your shares. If you do not expect to attend
the meeting, please complete, date, sign and return the enclosed proxy card in
the enclosed postage paid envelope. Instructions on how to complete the proxy
card are included immediately after the Notice of Special Meeting.
If you have any questions about the proposal or the proxy card, please call
Shareholder Communications Corporation at 800-645-7816. You may also FAX your
completed and signed proxy card (both front and back sides) to Management
Information Services, an ADP Company, our proxy tabulator, at 800-451-8683 or
vote on the Internet by going to the website www.proxyvote.com or by going to
the voting link on the Evergreen funds' website at www.evergreen-funds.com.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
[signature]
William M. Ennis
Managing Director
Evergreen Funds
<PAGE>
EVERGREEN CALIFORNIA MUNICIPAL BOND FUND
and
EVERGREEN NEW YORK MUNICIPAL BOND FUND
200 Berkeley Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of each of Evergreen California Municipal Bond Fund ("California
Fund") and Evergreen New York Municipal Bond Fund ("New York Fund"), each a
series of Evergreen Municipal Trust, will be held at the offices of the
Evergreen funds, 26th Floor, 200 Berkeley Street, Boston, Massachusetts 02116,
on July 23, 1999 at 2:00 p.m. for the following purposes:
1. To consider and act upon the Agreements and Plans of Reorganization
(each a "Plan") dated as of April 30, 1999, providing for the acquisition
of all of the assets of each of California Fund and New York Fund by
Evergreen High Grade Municipal Bond Fund ("High Grade Fund"), a series of
Evergreen Municipal Trust, in exchange for shares of High Grade Fund and
the assumption by High Grade Fund of the identified liabilities of
California Fund and New York Fund. The Plan also provides for distribution
of these shares of High Grade Fund to shareholders of California Fund and
New York Fund, as applicable, in liquidation and subsequent termination of
California Fund and New York Fund. A vote in favor of the Plan is a vote in
favor of the liquidation and dissolution of California Fund or New York
Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of California Fund and New York Fund, the Trustees of Evergreen
Municipal Trust have fixed the close of business on May 5, 1999 as the record
date for the determination of shareholders of each Fund entitled to notice of
and to vote at the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Michael H. Koonce
Secretary
June 2, 1999
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 2, 1999
Acquisition of Assets of
EVERGREEN CALIFORNIA MUNICIPAL BOND FUND
and
EVERGREEN NEW YORK MUNICIPAL BOND FUND
each a series of
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN HIGH GRADE MUNICIPAL BOND FUND
a series of
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being sent to shareholders of Evergreen
California Municipal Bond Fund ("California Fund") and Evergreen New York
Municipal Bond Fund ("New York Fund"), to ask each of them to approve an
Agreement and Plan of Reorganization (each a "Plan" and together the "Plans") at
a Special Meeting of Shareholders to be held on July 23, 1999 at 2:00 p.m. at
the offices of the Evergreen funds, 200 Berkeley Street, 26th Floor, Boston,
Massachusetts 02116, and any adjournments thereof (the "Meeting").
Under the Plan, California Fund and New York Fund will be merged into
Evergreen High Grade Municipal Bond Fund ("High Grade Fund"). This will be
accomplished by High Grade Fund acquiring all of the assets of California Fund
and New York Fund in exchange for shares of High Grade Fund. Along with
acquiring the assets of California Fund and New York Fund, High Grade Fund will
also assume the identified liabilities of California Fund and New York Fund.
This transaction will be referred to as the "Merger" or "Mergers" for the rest
of this Prospectus/Proxy Statement. California Fund, New York Fund and High
Grade Fund are sometimes referred to each as the "Fund" or together as the
"Funds" in this Prospectus/Proxy Statement. After the Mergers, California Fund
and New York Fund shareholders will receive shares of High Grade Fund, and
California Fund and New York Fund will be terminated. California Fund and New
York Fund shareholders will receive High Grade Fund shares that have the same
letter description (i.e., Class A, Class B, Class C or Class Y), and the same
distribution-related fees, shareholder servicing-related fees and contingent
deferred sales charges ("CDSCs"), if any, as the shares they currently hold
("Corresponding Shares"). California Fund and New York Fund shareholders will
incur no fees in connection with receiving the Corresponding Shares. California
Fund and New York Fund shareholders will receive Corresponding Shares that have
the same aggregate net asset value as the shares they hold. Each Merger is being
structured as a tax-free reorganization for federal income tax purposes.
California Fund, New York Fund and High Grade Fund are each a separate
series of Evergreen Municipal Trust, an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The investment objective of High Grade Fund is to seek a high level of
federally tax free income (other than the alternative minimum tax ("AMT")) that
is consistent with preservation of capital. The investment objective of both
California Fund and New York Fund is to seek the highest possible current income
exempt from federal income taxes (other than the AMT), while preserving capital.
This Prospectus/Proxy Statement, which should be kept for future reference,
sets forth concisely the information about High Grade Fund that California Fund
and New York Fund shareholders should know before voting on the Mergers. Certain
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference
to (which means, legally considered to be part of) this Prospectus/Proxy
Statement. A Statement of Additional Information dated June 2, 1999 relating to
this Prospectus/Proxy Statement and the Mergers, which includes the most recent
annual and semi-annual financial statements of High Grade Fund, California Fund
and New York Fund, has been filed with the SEC and is legally considered to be
part of this Prospectus/Proxy Statement. A copy of such Statement of Additional
Information is available upon request and without charge by writing to High
Grade Fund at 200 Berkeley Street, Boston, Massachusetts 02116 or by calling
toll-free 1-800-645-7816.
The two Prospectuses of High Grade Fund, one offering Class A, Class B and
Class C shares and the other offering Class Y shares, dated April 1, 1999, its
Annual Report for the fiscal year ended May 31, 1998 and its Semi-Annual Report
for the six month period ended November 30, 1998 are legally considered to be
part of this Prospectus/Proxy Statement insofar as they relate to High Grade
Fund only and not to any other fund described therein. Along with this
Prospectus/Proxy Statement, shareholders of California Fund and New York Fund
will receive copies of the Prospectus pertaining to the class of shares of High
Grade Fund that they will receive as a result of the Mergers. Additional
information about High Grade Fund is contained in its Statement of Additional
Information dated April 1, 1999, which has been filed with the SEC and which is
available upon request and without charge by writing to or calling High Grade
Fund at the address or telephone number listed in the paragraph above.
The Prospectuses of California Fund and New York Fund, one offering Class
A, Class B and Class C shares of both Funds, and the other offering Class Y
shares (for New York Fund only) dated August 1, 1998, are legally considered to
be part of this Prospectus/Proxy Statement, insofar as they relate to California
Fund and New York Fund only and not to any other fund described therein. Copies
of the Prospectuses, related Statement of Additional Information, each Fund's
Annual Report for the fiscal year ended March 31, 1998 and each Fund's
Semi-Annual Report for the six month period ended September 30, 1998, are
available upon request and without charge by writing to California Fund or New
York Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-645-7816.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits or
obligations of any bank and are not insured or otherwise protected by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency and involve investment risk, including possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES.......................................... 7
SUMMARY ................................................................. 10
Proposed Plans of Reorganization.................................... 10
Tax Consequences.................................................... 11
Investment Objectives and Policies of the Funds..................... 11
Comparative Performance Information for each Fund................... 11
Management of the Funds............................................. 12
Investment Advisors................................................. 12
Administrator....................................................... 13
Portfolio Management................................................ 13
Distribution of Shares.............................................. 13
Purchase and Redemption Procedures.................................. 15
Exchange Privileges................................................. 15
Dividend Policy..................................................... 15
Risks............................................................... 16
REASONS FOR THE MERGERS.................................................. 17
Agreement and Plans of Reorganization............................... 18
Federal Income Tax Consequences..................................... 19
Pro-forma Capitalization............................................ 20
Shareholder Information............................................. 21
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................... 22
INFORMATION ON SHAREHOLDERS' RIGHTS...................................... 23
Form of Organization................................................ 23
Capitalization...................................................... 23
Shareholder Liability............................................... 23
Shareholder Meetings and Voting Rights.............................. 23
Liquidation or Dissolution.......................................... 24
Liability and Indemnification of Trustees........................... 24
ADDITIONAL INFORMATION................................................... 24
VOTING INFORMATION CONCERNING THE MEETING................................ 25
FINANCIAL STATEMENTS AND EXPERTS......................................... 27
LEGAL MATTERS............................................................ 27
OTHER BUSINESS........................................................... 27
EXHIBIT A-1.............................................................. A-1
EXHIBIT A-2.............................................................. A-2
EXHIBIT B................................................................ B-1
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts of fees and expenses for Class A, Class B, Class C and Class Y
shares of High Grade Fund and New York Fund and fees and expenses for Class A,
Class B and Class C shares of California Fund are set forth in the following
tables and in the examples. The amounts given are based on the actual expenses
of Class A, Class B and Class Y shares of High Grade Fund for the fiscal year
ended May 31, 1998, the estimated expenses of Class C shares of High Grade Fund
for the fiscal year ending May 31, 1999, and the estimated expenses of
California Fund and New York Fund for the fiscal year ending March 31, 1999. The
pro forma amounts for Class A, Class B, Class C and Class Y shares of High Grade
Fund are based on what the estimated combined expenses of High Grade Fund would
have been for the twelve months ended November 30, 1998. All amounts are
adjusted for voluntary expense waivers.
The following tables show:
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B and
Class C shares of each of California Fund, New York Fund and High
Grade Fund, and Class Y shares of each of New York Fund and High
Grade Fund, and
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B,
Class C and Class Y shares of High Grade Fund assuming the Mergers
take place ("High Grade Fund Pro Forma").
Comparison of
Class A, Class B, Class C and Class Y Shares of High Grade Fund
With
Class A, Class B and Class C Shares of California Fund and New York Fund
And Class Y Shares of New York Fund
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
Contingent Deferred Sales Charge (as a percentage of
Maximum Sales Load Imposed on Purchases (as a original purchase price or redemption
percentage of offering price) proceeds, whichever is lower)
<S> <C> <C>
High Grade Fund
Class A 4.75% None(1)
Class B None 5.00% in the first year
declining to 1.00% in the sixth
year and 0.00% thereafter
Class C None 1.00% in the first year
and 0.00% thereafter
Class Y None None
California Fund
Class A 4.75% None(1)
Class B None 5.00% in the first year
declining to 1.00% in the sixth
year and 0.00% thereafter
Class C None 1.00% in the first year
and 0.00% thereafter
<PAGE>
New York Fund
Class A 4.75% None(1)
Class B None 5.00% in the first year
declining to 1.00% in the sixth
year and 0.00% thereafter
Class C None 1.00% in the first year
and 0.00% thereafter
Class Y None None
High Grade Fund California Fund and New York Fund
Class A Class B Class C Class Y Class A Class B Class C Class Y
Annual Fund Operating Expenses (as a (NY
Percentage of average daily net assets) Fund
Only)
Management Fee (After Waiver)(2).......... 0.50% 0.50% 0.50% 0.50% 0.30% 0.30% 0.30% 0.30%
12b-1 Fees (3) ........................... 0.25% 1.00% 1.00% None 0.25% 1.00% 1.00% None
Other Expenses............................ 0.34% 0.34% 0.34% 0.34% 0.30% 0.30% 0.30% 0.30
----- ----- ----- ----- ----- ----- ----- ----
Annual Fund Operating Expenses (After
Waiver) (4)............................... 1.09% 1.84% 1.84% 0.84% 0.85% 1.60% 1.60% 0.60%
----- ----- ----- ----- ----- ----- ----- -----
High Grade Fund Pro Forma
Class A Class B Class C Class Y
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
Percentage of offering price)...................... 4.75% None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower)...................... None(1) 5.00% in the 1.00% in the None
first year first year and
declining to 0.00% thereafter
1.00% in the
sixth year and
0.00% thereafter
Annual Fund Operating Expenses (as a
Percentage of average daily net assets)
Management Fee........................................ 0.50% 0.50% 0.50% 0.50%
12b-1 Fees (3)........................................ 0.25% 1.00% 1.00% None
Other Expenses........................................ 0.25% 0.25% 0.25% 0.25%
----- ----- ----- -----
Annual Fund Operating Expenses........................ 1.00% 1.75% 1.75% 0.75%
----- ----- ----- -----
</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 of 1.00%
upon redemption within one year after the month of purchase.
(2) Absent waivers, California Fund and New York Fund's Management Fee would
have been 0.55% for Class A, Class B, and Class C shares.
(3) Class A shares can pay up to 0.75% of average daily net assets as a 12b-1
fee. For the foreseeable future, the Class A 12b-1 fees will be limited to
0.25% of average daily net assets.
(4) Absent fee waivers, Annual Fund Operating Expenses for the Class A, Class
B, and Class C shares of California Fund are estimated to be 1.10%, 1.85%
and 1.85%, respectively, for the fiscal year ending March 31, 1999, and for
the Class A, Class B, Class C and Class Y shares of New York Fund are
estimated to be 1.10%, 1.85%, 1.85% and 0.85%, respectively, for the fiscal
year ending March 31, 1999.
<PAGE>
Examples. The following tables show for High Grade Fund, California Fund
and New York Fund, and for High Grade Fund pro forma, assuming the Mergers take
place, examples of the cumulative effect of shareholder transaction expenses and
annual fund operating expenses indicated above on a $1,000 investment in each
class of shares for the periods specified, assuming (i) a 5% annual return, and
(ii) redemption at the end of such period. For Class B and Class C shares, the
tables also show the effect of shareholder expenses assuming the shares are not
redeemed. In the case of High Grade Fund pro forma, the examples do reflect the
imposition of the 4.75% maximum sales load on purchases.
<TABLE>
<CAPTION>
High Grade Fund
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class A........................................................ $58 $81 $105 $174
Class B (assuming redemption at the end of the period)......... $69 $88 $120 $187
Class B (assuming no redemption at the end of the period)...... $19 $58 $100 $187
Class C (assuming redemption at the end of the period)......... $29 $58 $100 $216
Class C (assuming no redemption at the end of the period)...... $19 $58 $100 $216
Class Y........................................................ $9 $27 $47 $104
California Fund
Three Five
One Year Years Years Ten Years
Class A........................................................ $56 $73 $92 $147
Class B (assuming redemption at the end of the period)......... $66 $80 $107 $160
Class B (assuming no redemption at the end of the period)...... $16 $50 $87 $160
Class C (assuming redemption at the end of the period)......... $26 $50 $87 $190
Class C (assuming no redemption at the end of the period)...... $16 $50 $87 $190
New York Fund
Three Five
One Year Years Years Ten Years
Class A........................................................ $56 $73 $92 $147
Class B (assuming redemption at the end of the period)......... $66 $80 $107 $160
Class B (assuming no redemption at the end of the period)...... $16 $50 $87 $160
Class C (assuming redemption at the end of the period)......... $26 $50 $87 $190
Class C (assuming no redemption at the end of the period)...... $16 $50 $87 $190
Class Y........................................................ $6 $19 $33 $75
High Grade Fund Pro Forma
Three Five
One Year Years Years Ten Years
Class A........................................................ $57 $78 $100 $164
Class B (assuming redemption at the end of the period)......... $68 $85 $115 $177
Class B (assuming no redemption at the end of the period)...... $18 $55 $95 $177
Class C (assuming redemption at the end of the period)......... $28 $55 $95 $206
Class C (assuming no redemption at the end of the period)...... $18 $55 $95 $206
Class Y........................................................ $8 $24 $42 $93
</TABLE>
The purpose of the foregoing examples is to assist California Fund and New
York Fund shareholders in understanding the various costs and expenses that an
investor in High Grade Fund as a result of the Mergers would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in California Fund or New York Fund. These examples
should not be considered a representation of past or future expenses or annual
return. Actual expenses may be greater or less than those shown.
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of High Grade Fund dated April 1, 1999 and the Prospectuses of both
California Fund and New York Fund dated August 1, 1998 (which are legally
considered to be a part of this Prospectus/Proxy Statement) and the Plans, the
forms of which are attached to this Prospectus/Proxy Statement as Exhibits A-1
and A-2.
Proposed Plans of Reorganization
The Plans generally provide for the following:
o the transfer of all of the assets of California Fund and New York
Fund in exchange for shares of High
Grade Fund, and
o the assumption by High Grade Fund of the identified liabilities of
California Fund and New York Fund. (The identified liabilities
consist only of those liabilities reflected on California Fund and
New York Fund's statement of assets and liabilities determined
immediately preceding the Mergers.)
The Plans also call for the distribution of shares of High Grade Fund to
the shareholders of California Fund and New York Fund in liquidation of
California Fund and New York Fund as part of the Mergers. After the Mergers, the
shareholders of California Fund and New York Fund will own Corresponding Shares
of High Grade Fund having the same aggregate net asset value as that of the
shareholders' shares of California Fund and New York Fund, as of the close of
business immediately prior to the date that California Fund and New York Fund's
assets are exchanged for shares of High Grade Fund. See "Reasons for the
Mergers--Agreements and Plans of Reorganization."
The Trustees of Evergreen Municipal Trust, including the Trustees who are
not "interested persons," as such term is defined in the 1940 Act (the
"Independent Trustees"), have concluded that the Mergers would be in the best
interests of California Fund and New York Fund shareholders, respectively, and
that their interests will not be diluted as a result of the Mergers.
Accordingly, the Trustees have submitted the Plans for the approval of
California Fund's and New York Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN MUNICIPAL TRUST
RECOMMENDS APPROVAL BY SHAREHOLDERS OF
CALIFORNIA FUND AND NEW YORK FUND
OF THE PLANS EFFECTING THE MERGERS.
The Trustees of Evergreen Municipal Trust have also approved the Plans on
behalf of High Grade Fund.
Approval of each Merger will require the following:
o In order to have the Meeting, at least 25% (a "quorum") of the
outstanding shares of each of California Fund and New York Fund
entitled to vote must be represented at the Meeting in person or by
shareholders sending in a proxy card.
o All classes of California Fund and all classes of New York Fund will
vote together as if they were a single class.
o A majority (greater than 50%) of each of California Fund's and New
York Fund's shares voted must vote FOR the Merger.
See "Voting Information Concerning the Meeting."
Each Merger is scheduled to take place on or about July 30, 1999. If
California Fund or New York Fund shareholders do not vote to approve the Merger,
the Trustees will consider other possible courses of action in the best
interests of shareholders.
<PAGE>
Tax Consequences
Prior to or at the completion of the Mergers, California Fund and New York
Fund will each have received an opinion of Sullivan & Worcester LLP that the
Mergers have been structured so that no gain or loss will be realized by the
Fund or its shareholders for federal income tax purposes as a result of
receiving High Grade Fund shares in connection with the Mergers. The holding
period and aggregate tax basis of shares of High Grade Fund that are received by
each Fund's shareholders will be the same as the holding period and aggregate
tax basis of shares of the Fund previously held by such shareholders, provided
that shares of the Fund are held as capital assets. In addition, the holding
period and tax basis of the assets of each Fund in the hands of High Grade Fund
as a result of the Mergers will be the same as in the hands of the Fund
immediately prior to the Mergers, and no gain or loss will be recognized by High
Grade Fund upon the receipt of the assets of each Fund in exchange for shares of
High Grade Fund and the assumption by High Grade Fund of each Fund's identified
liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of High Grade Fund, California
Fund and New York Fund are substantially similar.
The investment objective of each Fund is to seek a high level of
income, exempt from federal income taxes other than the AMT, that is consistent
with the preservation of capital. Each Fund will invest at least 80% of its
assets in federally tax-exempt municipal securities.The California Fund and New
York Fund each invest at least 65% of their assets in municipal obligations that
are also exempt from income taxes in the state for which the Fund is named.
In addition, each Fund invests in municipal securities of which at least 65%
(and in the case of California Fund and New York Fund, 80%) are insured by a
municipal bond insurance company.
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 the
nationally recognized statistical ratings organizations. Each Fund may invest
the remaining 20% of its assets in lower rated bonds, but will not invest in
bonds rated below B by Standard & Poor's Ratings Services ("S&P") or Moody's
Investors Service, Inc. ("Moody's").
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained in
the respective Prospectuses and Statements of Additional Information of the
Funds. The following tables set forth, as applicable, the total return of the
Class A, Class B, Class C and Class Y shares of High Grade Fund, California Fund
and New York Fund for the periods of time specified below. The calculations of
total return assume the reinvestment of all dividends and capital gains
distributions on the reinvestment date and the deduction of all recurring
expenses (including sales charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year Ended 5 Years Ended 10 Years Ended From Inception Inception
Nov. 30, 1998 Nov. 30, 1998 Nov. 30, 1998 To Nov. 30, 1998 Date
<S> <C> <C> <C> <C> <C>
High Grade Fund (2)
Class A shares..... 2.28% 4.85% N/A 6.54% 02/21/92
Class B shares..... 1.59% 4.80% N/A 6.68% 01/11/93
Class C shares...... N/A N/A N/A N/A 4/30/99(3)
Class Y shares..... 7.66% 6.13% N/A 7.50% 02/28/94
California Fund
Class A shares..... 2.56% N/A N/A 4.50% 02/01/94
Class B shares..... 1.98% N/A N/A 4.56% 02/01/94
Class C shares..... 5.98% N/A N/A 4.86% 02/01/94
New York Fund(4)
Class A shares..... 2.29% N/A N/A 4.84% 02/04/94
Class B shares..... 1.76% N/A N/A 4.82% 02/04/94
Class C shares..... 5.73% N/A N/A 5.14% 02/04/94
Class Y shares..... 7.42% N/A N/A 5.92% 10/29/98
</TABLE>
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total returns during the periods would have been lower.
(2) 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.
(3) The Class C shares of High Grade Fund commenced operations on April
30, 1999.
(4) Historical performance shown for Class Y prior to its inception is
based on the performance of Class A, one of the original classes
offered along with Class B and Class C. The historical returns for
Class Y include the effect of the .25% 12b-1 fee applicable to Class A.
Class Y does not pay a 12b-1 fee. If these fees had not been reflected,
returns for Class Y would have been higher. Class B and Class C each
pay a 12b-1 fee of 1.00%.
Important information about High Grade Fund (formerly named Evergreen High
Grade Tax Free Fund) is also contained in management's discussion of High Grade
Fund's performance, attached hereto as Exhibit B. This information also appears
in High Grade Fund's most recent Annual Report.
Management of the Funds
The overall management of High Grade Fund, California Fund and New York
Fund is the responsibility of, and is supervised by, the Board of Trustees of
Evergreen Municipal Trust.
Investment Advisors
The investment advisor to High Grade Fund is Evergreen Investment
Management ("EIM") (formerly known as the Capital Management Group). EIM is a
division of First Union National Bank ("FUNB"). FUNB is a subsidiary of First
Union Corporation ("First Union"), the 6th largest bank holding company in the
United States based on total assets of $223 billion as of March 31, 1999. EIM
with its predecessors, has been managing money for over 50 years and currently
manages $28.8 billion in assets for 44 of the Evergreen Funds as of March 31,
1999. EIM is located at 201 South College Street, Charlotte, North Carolina
28288-0630.
EIM manages investments and supervises the daily business affairs of High
Grade Fund subject to the authority of the Trustees. EIM is entitled to receive
from High Grade Fund an annual fee equal to 0.50% of the Fund's average daily
net assets.
The investment advisor to California Fund and New York Fund is Evergreen
Investment Management Company ("EIMC") (formerly known as Keystone Investment
Management Company). EIMC is also an indirect wholly owned subsidiary of FUNB.
EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $8.7 billion in assets for 25 of the Evergreen funds as
of March 31, 1999. EIMC is located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
EIMC manages investments and supervises the daily business affairs of
California Fund and New York Fund subject to the authority of the Trustees. EIMC
is entitled to receive from each of the Funds an annual fee equal to 0.55% of
the first $50,000,000 of the Fund's average daily net assets, plus 0.50% of the
next $50,000,000, 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.
Each investment advisor may reduce or waive their fees or reimburse a Fund
for certain of its other expenses in order to reduce their expense ratios. Each
investment advisor may also reduce or stop completely these voluntary waivers
and reimbursements at any time.
EIMC, EIM and their affiliates manage the Evergreen family of mutual funds
with assets of approximately $56 billion as of March 31, 1999. For further
information regarding EIM, EIMC, FUNB and First Union, see "Organization and
Service Providers--Service Providers" in the Prospectuses of High Grade Fund,
California Fund and New York Fund.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, High Grade Fund could be
adversely affected if the computer systems used by EIM and the Fund's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." EIM is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Fund.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
High Grade 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 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, and 0.010% on assets in excess of $30 billion. EIS also
provides facilities, equipment and personnel to California Fund and New York
Fund on behalf of the Funds' investment advisor and is reimbursed by the Funds
for its services.
Portfolio Management
The portfolio manager of High Grade Fund is James T. Colby, III. Mr.
Colby is a Vice President of FUNB. Mr. Colby has been Vice President and
Portfolio Manager of FUNB and Evergreen Asset Management Corp., an affiliate of
FUNB, and its predecessor since 1992, and with EIM and 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 High Grade Fund
on July 7, 1995, since that fund's inception in 1992.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services
("BISYS"), acts as underwriter of shares of High Grade Fund, California Fund and
New York Fund. EDI distributes each Fund's shares directly or through
broker-dealers, banks (including FUNB), or other financial intermediaries. Each
Fund offers three classes of shares: Class A, Class B and Class C; High Grade
Fund and New York Fund also offer Class Y shares. Each class has separate
distribution arrangements and bears its own distribution expenses. (See
"Distribution-Related and Shareholder Servicing-Related Expenses" below.)
In the proposed Mergers, California Fund and New York Fund shareholders
will receive the Corresponding Shares of High Grade Fund. The Corresponding
Shares of High Grade Fund that California Fund and New York Fund shareholders
will receive have identical arrangements with respect to the imposition of Rule
12b-1 distribution and service fees as the shares they currently hold. Because
the Mergers will be effected at net asset value without the imposition of a
sales charge, California Fund and New York Fund shareholders will receive High
Grade Fund shares without paying any initial sales charge or CDSC as a result of
the Mergers. High Grade Fund Class B and Class C shares received by California
Fund and New York Fund shareholders as a result of the Mergers will continue to
be subject to a CDSC upon subsequent redemption, but the CDSC will be based on
the date of the original purchase of California Fund and New York Fund shares.
The following is a summary description of charges and fees for the Class A,
Class B, Class C and Class Y shares of High Grade Fund which will be received as
appropriate by California Fund and New York Fund shareholders in the Mergers.
More detailed descriptions of the distribution arrangements applicable to the
classes of shares are contained in High Grade Fund's, California Fund's and New
York Fund's Prospectuses and in the Funds' Statements of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge and, as indicated below, are subject to distribution-related fees.
For a description of the sales charges applicable to purchases of Class A
shares, see "Purchase and Redemption of Shares - How to Buy Shares" in the
Prospectuses of High Grade Fund, California Fund and New York Fund. No initial
sales charge will be imposed on Class A shares of High Grade Fund received by
California Fund and New York Fund's shareholders in the Mergers.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed during
the first six years after the month of purchase. In addition, Class B shares are
subject to distribution-related fees and shareholder servicing-related fees as
described below. For purposes of determining when Class B shares issued in the
Mergers to shareholders of California Fund and New York Fund will convert to
Class A shares, such shares will be deemed to have been purchased as of the date
Class B shares of California Fund and New York Fund were originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). 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 of the Fund.
Class C Shares. Class C shares are sold without initial sales charges but,
as indicated below, are subject to distribution-related and shareholder
servicing-related fees. Class C shares are subject to a 1% CDSC if such shares
are redeemed within 13 months of purchase. No CDSC is imposed on amounts
redeemed thereafter. Class C shares incur higher distribution-related and
shareholder servicing-related fees than Class A shares, but unlike Class B
shares, do not convert to any other class of shares.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related or
shareholder servicing-related fees. Class Y shares are only available to certain
classes of investors as is more fully described in the Class Y Prospectuses for
High Grade Fund and New York Fund.
Additional information regarding the classes of shares of each Fund is
included in its Prospectuses and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses. Each Fund
has adopted a Rule 12b-1 plan with respect to its Class A shares under which the
Class may pay for distribution-related expenses at an annual rate which may not
exceed 0.75% of average daily net assets attributable to the Class. Payments
with respect to Class A shares are currently limited to 0.25% of average daily
net assets attributable to the Class. This amount may be increased to the full
plan rate for each Fund by the Trustees without shareholder approval.
Each Fund has also adopted a 12b-1 plan with respect to its Class B and
Class C shares under which the Class may pay for distribution-related expenses
at an annual rate which may not exceed 1.00%. Of the total 1.00% 12b-1 fees, up
to 0.25% may be for payment in respect of "shareholder services." Consistent
with the requirements of Rule 12b-1 and the applicable rules of the National
Association of Securities Dealers, Inc., following the Mergers High Grade Fund
may make distribution-related and shareholder servicing-related payments with
respect to California Fund and New York Fund shares sold prior to the Mergers.
Additional information regarding the Rule 12b-1 plans adopted by each Fund
is included in its Prospectuses and Statement of Additional Information.
No 12b-1 plan has been adopted for the Class Y shares of any Fund.
Purchase and Redemption Procedures
Information concerning applicable sales charges and distribution-related
and shareholder servicing-related fees is provided above. Investments in the
Funds are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of any Fund. Each
Fund provides for telephone, mail or wire redemption of shares at net asset
value, less any CDSC, as next determined after receipt of a redemption request
on each day the New York Stock Exchange ("NYSE") is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in the Funds' Prospectuses.
Each Fund may involuntarily redeem shareholders' accounts that have less than
$1,000 of invested funds. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Holders of shares of a class of each Fund may exchange their shares for
shares of the same class of any other Evergreen fund. Each Fund limits exchanges
to five per calendar year and three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in the Funds' Prospectuses and Statements of Additional Information.
Dividend Policy
Each Fund distributes its investment company taxable income monthly and its
net realized gains at least annually. Shareholders begin to earn dividends on
the first business day after shares are purchased unless shares were not paid
for, in which case dividends are not earned until the next business day after
payment is received. Dividends and distributions are reinvested in additional
shares of the same class of the respective Fund, or paid in cash, as a
shareholder has elected. See the Funds' Prospectuses for further information
concerning dividends and distributions.
After the Mergers, shareholders of California Fund and New York Fund who
have elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from High Grade Fund reinvested in
shares of High Grade Fund. Shareholders of California Fund and New York Fund who
have elected to receive dividends and/or distributions in cash will receive
dividends and/or distributions from High Grade Fund in cash after the Mergers,
although they may, after the Mergers, elect to have such dividends and/or
distributions reinvested in additional shares of High Grade Fund.
Each of High Grade Fund, California Fund and New York Fund has qualified
and intends to continue to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). To
remain qualified as a regulated investment company, the Funds each must
distribute 90% of its taxable income and 90% of its net tax-exempt income. While
so qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
An investment in each Fund is subject to certain risks. There is no
assurance that investment performances will be positive and that the Funds will
meet their investment objectives. For a discussion of each Fund's objectives and
policies, see "Comparison of Investment Objectives and Policies."
Each Fund invests substantially in municipal securities. Although the
Funds will invest at least 80% of their assets in municipal securities of which
at least 65% (and in the case of California Fund and New York Fund, 80%) is
fully insured as to timely payment of all principal and interest due, the
insurance does not cover against market risk and therefore, does not guarantee
the market value of such securities or the value of Fund shares. While the
insurance feature reduces financial risks, the cost thereof and any restrictions
on investments imposed by the guidelines in the policies reduce the yield to
shareholders.
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.
Each Fund is subject to interest rate risk. The values of municipal
bonds tend to go up when interest rates go down, and, conversely, when interest
rates go up, the value of municipal bonds tends to fall. 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 fluctuations in interest rates.
In addition, each Fund may invest up to 20% in below investment grade
bonds. These bonds are usually backed by issuers of less proven or questionable
financial strength. Such issuers are more vulnerable to financial setbacks and
less certain to pay interest and principal than issuers of bonds offering lower
yields and risk. Markets may overreact to unfavorable news about issuers of
below investment grade bonds, causing sudden and steep declines in value.
California Fund and New York Fund are non-diversified portfolios and,
as such, there is no limit on the percentage of assets which can be invested in
any single issuer. An investment in a fund that is non-diversified entails
greater risk than an investment in a diversified fund. As non-diversified funds,
California Fund and New York Fund may invest up to 25% of their assets in a
single issuer and up to 50% of their assets may consist of securities of only
two issuers. A higher percentage of investments among fewer issuers may result
in greater fluctuation in the total market value of the Funds' portfolios. High
Grade Fund is a diversified portfolio.
Each Fund may employ for hedging purposes the strategy of engaging in
options and futures transactions. Such practices are used to hedge a Fund's
portfolio to protect against changes in interest rates and to adjust the
portfolio's duration. The risks involved in these strategies are described in
the Prospectuses and Statements of Additional Information of the Funds.
REASONS FOR THE MERGERS
At a regular meeting held on March 12, 1999, all of the Trustees of
Evergreen Municipal Trust, including the Independent Trustees, considered and
approved the Mergers as in the best interests of shareholders of each of
California Fund and New York Fund and determined that the interests of existing
shareholders of California Fund and New York Fund will not be diluted as a
result of the transactions contemplated by the Mergers.
Before approving the Plans, the Trustees reviewed various factors about the
Funds and the proposed Mergers. The Trustees considered among other things:
o the terms and conditions of the Mergers;
o whether the Mergers would result in the dilution of shareholders'
interests;
o expense ratios, fees and expenses of High Grade Fund, California Fund
and New York Fund;
o the comparative performance records of each of the Funds;
o compatibility of their investment objectives and policies;
o the investment experience, expertise and resources of EIM;
o the service and distribution resources available to the Evergreen
funds and the broad array of investment alternatives available to
shareholders of the Evergreen funds;
o the personnel and financial resources of First Union and its
affiliates;
o the fact that FUNB will bear the expenses incurred by California Fund
and New York Fund in connection with the Mergers;
o the fact that High Grade Fund will assume the identified liabilities of
California Fund and New York Fund;
o the expected federal income tax consequences of the Mergers, and
o alternatives available to shareholders of California Fund and New
York Fund, including the ability to redeem their shares.
First, the Trustees considered the substantial similarities between the
Funds. The Funds have similar investment objectives and policies as well as
comparable risk profiles. See "Comparison of Investment Objectives and Policies"
below. Next, the Trustees evaluated the potential economies of scale associated
with larger mutual funds and concluded that operational efficiencies may be
achieved by combining California Fund and New York Fund with High Grade Fund. As
of December 31, 1998, , High Grade Fund's net assets were approximately $125.9
million, California Fund's net assets were approximately $26.8 million and New
York Fund's net assets were approximately $21.9 million.
The Trustees also noted that each Fund invests primarily in municipal
securities; however, High Grade Fund is a national municipal bond fund while
California Fund and New York Fund are state municipal bond funds. Accordingly,
the Mergers will result in a loss in the exemption from state-specific taxes on
dividend income since High Grade Fund only seeks income free from federal
taxation. High Grade Fund offers the potential for greater yield and overall
investment returns due to a wider range of investment options.
Also, the Trustees noted that the current expense ratios of California Fund
and New York Fund are lower than High Grade Fund. They considered the voluntary
fee waivers that are currently in place for California Fund and New York Fund
and noted that the waivers could be removed at any time; thereby causing these
expense ratios to increase.
In addition, assuming that an alternative to the Mergers would be to
propose that California Fund and New York Fund continue their existence and be
separately managed by EIMC, California Fund and New York Fund would be offered
through common distribution channels with High Grade Fund. California Fund and
New York Fund would also have to bear the cost of maintaining their separate
existence. FUNB believes that the prospect of dividing the resources among three
similar funds could result in each Fund being disadvantaged due to an inability
to achieve optimum size, performance levels and greater economies of scale.
Another alternative to the Mergers would be to propose that California Fund and
New York Fund be liquidated. Accordingly, for the reasons noted above and
recognizing that there can be no assurance that any economies of scale or other
benefits will be realized, FUNB believes that the proposed Mergers would be in
the best interests of each Fund and their shareholders.
During their consideration of the Mergers, the Trustees met with Fund
counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees also concluded at the meeting that the proposed Mergers
would be in the best interests of shareholders of California Fund and New York
Fund and that the interests of the shareholders of California Fund and New York
Fund would not be diluted as a result of the transactions contemplated by the
Mergers.
THE TRUSTEES OF EVERGREEN MUNICIPAL TRUST RECOMMEND
THAT THE SHAREHOLDERS OF
CALIFORNIA FUND AND NEW YORK FUND
APPROVE THE PROPOSED MERGERS.
Agreements and Plans of Reorganization
The following summary is qualified in its entirety by reference to the
Plans (Exhibits A-1 and A-2 hereto).
Each Plan provides that High Grade Fund will acquire all of the assets of
California Fund and New York Fund, respectively, in exchange for shares of High
Grade Fund and the assumption by High Grade Fund of the identified liabilities
of California Fund and New York Fund on or about July 30, 1999 or such other
date as may be agreed upon by the parties (the "Closing Date"). Prior to the
Closing Date, California Fund and New York Fund will each endeavor to discharge
all of its known liabilities and obligations. High Grade Fund will not assume
any liabilities or obligations of California Fund and New York Fund other than
those reflected in an unaudited statement of assets and liabilities of
California Fund and New York Fund prepared as of the close of regular trading on
the NYSE, currently 4:00 p.m. Eastern time, on the business day immediately
prior to the Closing Date. The number of full and fractional shares of each
class of High Grade Fund to be received by the shareholders of California Fund
and New York Fund will be determined by multiplying the respective outstanding
class of shares of California Fund and New York Fund by a factor which shall be
computed by dividing the net asset value per share of the respective class of
shares of California Fund and New York Fund by the net asset value per share of
the respective class of shares of High Grade Fund. Such computations will take
place as of the close of regular trading on the NYSE on the business day
immediately prior to the Closing Date. The net asset value per share of each
class will be determined by dividing assets, less liabilities, in each case
attributable to the respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of High Grade Fund, Rule
22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, California Fund and New York Fund will
each have declared a dividend or dividends and distribution or distributions
which, together with all previous dividends and distributions, shall have the
effect of distributing to the Fund's shareholders (in shares of each Fund, or in
cash, as the shareholder has previously elected) all of the Fund's net
investment company taxable income for the taxable period ending on the Closing
Date (computed without regard to any deduction for dividends paid), all of the
Fund's net tax-exempt income and all of its net capital gains realized in all
taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, California Fund
and New York Fund will liquidate and distribute pro rata to shareholders of
record as of the close of business on the Closing Date the full and fractional
shares of High Grade Fund received by California Fund and New York Fund. Such
liquidation and distribution will be accomplished by the establishment of
accounts in the names of each Fund's shareholders on High Grade Fund's share
records of its transfer agent. Each account will represent the respective pro
rata number of full and fractional shares of High Grade Fund due to each Fund's
shareholders. All issued and outstanding shares of California Fund and New York
Fund, including those represented by certificates, will be canceled. The shares
of High Grade Fund to be issued will have no preemptive or conversion rights.
After these distributions and the winding up of their affairs, California Fund
and New York Fund will be terminated.
The consummation of each Merger is subject to the conditions set forth in
each Plan, including approval by each Fund's shareholders, accuracy of various
representations and warranties and receipt of opinions of counsel, including
opinions with respect to those matters referred to in "Federal Income Tax
Consequences" below. Notwithstanding approval of each Fund's shareholders, each
Plan may be terminated (a) by the mutual agreement of the Fund and High Grade
Fund; or (b) at or prior to the Closing Date by either party (i) because of a
breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
Whether or not the Mergers are consummated, FUNB will pay the expenses
incurred by California Fund and New York Fund in connection with the Mergers
(including the cost of any proxy soliciting agent). No portion of the expenses
will be borne directly or indirectly by California Fund or New York Fund or
their shareholders.
If California Fund and New York Fund shareholders do not approve the
Mergers, the Trustees will consider other possible courses of action which may
be in the best interests of shareholders.
Federal Income Tax Consequences
Each Merger is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a) of the Code. As a condition to the
closing of a Merger, California Fund and New York Fund will each receive an
opinion of Sullivan & Worcester LLP to the effect that, on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued thereunder,
current administrative rules, pronouncements and court decisions, for federal
income tax purposes, upon consummation of the Merger:
(1) The transfer of all of the assets of the Fund solely in exchange
for shares of High Grade Fund and the assumption by High Grade Fund of the
identified liabilities, followed by the distribution of High Grade Fund's
shares by the Fund in dissolution and liquidation of the Fund , will
constitute a "reorganization" within the meaning of section 368(a)(1)(C) of
the Code, and High Grade Fund and the Fund will each be a "party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by the Fund on the transfer of
all of its assets to High Grade Fund solely in exchange for High Grade
Fund's shares and the assumption by High Grade Fund of the identified
liabilities of the Fund or upon the distribution of High Grade Fund's
shares to the Fund's shareholders in exchange for their shares of the Fund;
(3) The tax basis of the assets transferred will be the same to High
Grade Fund as the tax basis of such assets to the Fund immediately prior to
the Merger, and the holding period of such assets in the hands of High
Grade Fund will include the period during which the assets were held by the
Fund;
(4) No gain or loss will be recognized by High Grade Fund upon the
receipt of the assets from the Fund solely in exchange for the shares of
High Grade Fund and the assumption by High Grade Fund of the identified
liabilities of the Fund;
(5) No gain or loss will be recognized by the Fund's shareholders upon
the issuance of the shares of High Grade Fund to them, provided they
receive solely such shares (including fractional shares) in exchange for
their shares of the Fund; and
(6) The aggregate tax basis of the shares of High Grade Fund,
including any fractional shares, received by each of the shareholders of
the Fund pursuant to the Merger will be the same as the aggregate tax basis
of the shares of the Fund held by such shareholder immediately prior to the
Merger, and the holding period of the shares of High Grade Fund, including
fractional shares, received by each such shareholder will include the
period during which the shares of the Fund exchanged therefor were held by
such shareholder (provided that the shares of the Fund were held as a
capital asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If a Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of California Fund or New York Fund
would recognize a taxable gain or loss equal to the difference between his or
her tax basis in his or her Fund shares and the fair market value of High Grade
Fund shares he or she received. Shareholders of California Fund and New York
Fund should consult their tax advisers regarding the effect, if any, of the
proposed Mergers in light of their individual circumstances. Since the foregoing
discussion relates only to the federal income tax consequences of the Mergers,
shareholders of California Fund and New York Fund should also consult their tax
advisers as to the state and local tax consequences, if any, of the Mergers.
Pro-forma Capitalization
The following table sets forth the capitalizations of High Grade Fund,
California Fund and New York Fund as of November 30, 1998 and the capitalization
of High Grade Fund on a pro forma basis as of November 30, 1998, giving effect
to the proposed acquisition of assets at net asset value. The pro forma data
reflects exchange ratios of approximately 0.892, 0.888, and 0.887 Class A, Class
B and Class B shares, respectively, of High Grade Fund issued for each Class A,
Class B and Class C share, respectively, of California Fund and exchange ratios
of 0.884, 0.876, 0.876 and 0.884 Class A, Class B, Class B and Class Y share,
respectively, of High Grade Fund issued for each Class A, Class B, Class C and
Class Y, respectively, of New York Fund.
<TABLE>
<CAPTION>
Capitalization of California Fund, New York Fund,
High Grade Fund and High Grade Fund (Pro Forma)
California Fund New York Fund High Grade Fund High Grade Fund
(After Merger)
<S> <C> <C> <C> <C>
Net Assets
Class A.................. $6,833,661 $3,598,797 $67,659,059 $78,091,517
Class B............ $18,366,582 $15,945,420 $32,614,187 $66,926,189
Class C.................. $1,127,778 $1,437,108 N/A $2,564,886
Class Y............ N/A $575,248 $27,055,276 $27,630,524
--- -------- ----------- -----------
Total Net Assets... $26,328,021 $21,556,573 $127,328,522 $175,213,116
Net Asset Value Per Share
Class A.................. $10.04 $9.95 $11.26 $11.26
Class B.................. $10.00 $9.86 $11.26 $11.26
Class C.................. $9.99 $9.86 N/A $11.26
Class Y.................. N/A $9.95 $11.26 $11.26
Shares Outstanding
Class A.................. 680,578 361,703 6,010,779 6,937,240
Class B.................. 1,836,428 1,617,339 2,897,452 5,944,632
Class C.................. 112,877 145,765 N/A 227,787
Class Y.................. N/A 57,808 2,403,599 2,454,682
--- ------ --------- ---------
All Classes.............. 2,629,883 2,182,615 11,311,830 15,564,341
</TABLE>
The table set forth above should not be relied upon to reflect the number
of shares to be received in the Mergers; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of each Merger.
Shareholder Information
As of May 5, 1999 (the "Record Date"), the following number of each Class
of shares of beneficial interest of each of California Fund and New York Fund
was outstanding:
Class of Shares New York Fund California Fund
--------------- ------------- ---------------
Class A........ 429,136.689 590,200.549
Class B........ 1,610,700.548 1,688,219.382
Class C........ 139,039.741 165,372.807
Class Y........ 152,359.409 N/A
----------- --------------
All Classes.... 2,331,236.387 2,443,792.738
As of the Record Date, the officers and Trustees of Evergreen Municipal
Trust beneficially owned as a group less than 1% of the outstanding shares of
each of California Fund and New York Fund. To Evergreen Municipal Trust's
knowledge, the following persons owned beneficially or of record more than 5% of
California Fund's or New York Fund's total outstanding shares as of the Record
Date:
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares of Shares of
Class Before Class After
Name and Address Class No. of Shares Merger Merger
<S> <C> <C> <C> <C>
CALIFORNIA FUND
-------------------------
MLPF&S for the Sole Benefit A 58,222.291 6.36% .6%
Of its customers
Attn: Fund Administration #97DG2
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Billie Cheek A 39,000.241 6.58% .9%
Irmgard Cheek Ttee
Cheek Family Trust
U/A DTD 06/14/95
PO Box 1041
Palm Desert, CA 92261
MLPF&S for the Sole Benefit B 323,991.963 19.10% 5.20%
Of its customers
Attn: Fund Administration #97DG2
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
MLPF&S for the Sole Benefit C 31.752.688 19.20% 1.04%
Of its customers
Attn: Fund Administration #97DG2
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Salomon Smith Barney Inc C 26,254.665 15.88% 8.62%
00167349880
333 West 34th St - 3rd Floor New York, NY 10001
Victor Edward Rylander C 18,557.352 11.22% 6.09%
Lucille Rylander Co-Ttees
Victor & Lucille Rylander Trust
U/A DTD 09-19-96
4102 Caflur Ave
San Diego, CA 92117-4436
Prudential Securities FBO C 12,604.931 7.62% 4.14%
Rakesh C Gupta
Neelam Gupta Co-Ttees
FBO Gupta Family Living Trust 12/22/94
Hemet, CA 92544
NFSC FEBO # OKS-714674 C 11,699.265 7.07% 3.84%
Rozeen L Kretz
776 Lawrence Dr
Gilroy, CA 95020
Salomon Smith Barney Inc C 10,886.755 6.58% 3.58%
00154933343
333 West 34th St - 3rd Floor
New York, NY 10001
Richard B Smith C 10,665.498 6.45% 3.50%
Mary L Smith Jt Wros
4853 Mt Royal Court
San Diego, CA 92117-2917
NEW YORK FUND
-----------------------
MLPF&S for the Sole Benefit A 27,052.098 9.82% .4%
Of its customers
Attn: Fund Administration #97DF0
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
MLPF&S for the Sole Benefit B 224,903.341 13.94% 3.65%
Of its customers
Attn: Fund Administration #97DF1
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Steven Starker & C 23,065.998 16.41% 7.57%
Farrel Starker JTWros
7 Flagler Drive
Rye, NY 10580-1851
Carol T Whitman C 19,472.951 13.85% 6.40%
PO Box 43
Whippleville, NY 12995
Carol L Moore C 13,938.631 9.91% 4.58%
Rt 2 Box 1055
Chateagay, NY 12920-9522
Henry W Demoy C 9,035.654 6.42% 2.97%
Patricia K Demoy JTWros
Rd 2 King Rd
Cambridge, NY 12816-9802
MLPF&S for the Sole Benefit C 7,796.431 5.54% 2.57%
Of its customers
Attn: Fund Administration #97DF8
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Robert C Rudd C 7,574.828 5.38% 2.49%
Audrey A Rudd JT Wros
20 Harborview Rd
Northport, NY 11768-3422
Moo Kit Tsui C 7,224.320 5.14% 2.37%
7235 Promenade Drive Apt 502J
Boca Raton, FL 33433-6916
First Union Nat'l Bk Y 147,842.664 97.03% 7.50%
Trust Accounts
Attn: Ginny Batten
CMG-1151 11th Fl
301 S Tryon St
Charlotte, NC 28202-1910
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the Prospectuses and Statements of Additional Information of the
Funds. The investment objectives, policies and restrictions of each Fund can be
found in the Prospectuses for High Grade Fund, California Fund and New York Fund
under the caption "Description of the Funds Investment Objectives and Policies"
and "--Investment Practices and Restrictions." The Prospectuses for High Grade
Fund, California Fund and New York Fund also offer additional funds advised by
FUNB or its affiliates. These additional funds are not involved in the Mergers,
and their shares are not offered hereby. The investment objective of each Fund
is non-fundamental and can by changed by the Board of Trustees without
shareholder approval.
The investment objective of High Grade Fund is to seek a high level of
income, exempt from federal income taxes other than the AMT, that is consistent
with the preservation of capital. The investment objective of each of California
Fund and New York Fund is to seek the highest possible current income exempt
from federal income taxes (other than the AMT), while preserving capital. Each
Fund invests at least 80% of its total assets in federally tax-exempt municipal
securities. California Fund and New York Fund each invest in municipal
securities of which at least 80% is insured by a municipal bond insurance
company while High Grade Fund only insures that at least 65% of its investment
in municipal securities is insured by a municipal bond insurance company. While
High Grade Fund may invest in a lower percentage of municipal securities insured
by a municipal bond insurance company, these securities are rated AAA by S&P or
Aaa by Moody's. The interest on these securities is, in the opinion of counsel
to the issuers, exempt from federal income taxes, other than the federal AMT.
Municipal bond insurance guarantees that the Fund will receive timely
payment of principal and interest due on a bond, but does not guarantee the
value of such bonds or the value of Fund shares. For additional information on
municipal bond insurance, see "Investment Practices and Restrictions--Municipal
Bond Insurance" in the Prospectus of High Grade Fund and "Investment Objectives
and Policies" in the Prospectus of California Fund and New York Fund.
Each Fund invests at least 80% of its assets in bonds that, at the date of
investment, are rated within the four highest categories by the nationally
recognized statistical ratings organizations. Each Fund may invest the remaining
20% of its assets in lower rated bonds, but will not invest in bonds rated below
B by S&P or Moody's.
While each Fund invests primarily in municipal securities, High Grade Fund
is a national municipal bond fund and California Fund and New York Fund are
state municipal bond funds. While High Grade Fund has no state-specific
minimums, California Fund and New York Fund each invest at least 65% of their
assets in municipal obligations that are exempt from income taxes in the state
for which each Fund is named. Although the merger of the Funds will result in a
loss in the exemption from state-specific taxes on dividend income, it will
offer the potential for greater yield and overall investment returns due to a
wider range of investment options.
Each Fund may invest in taxable investments from time to time.
After the Mergers, High Grade Fund may dispose of a portion of the
securities received from California Fund and New York Fund in the ordinary
course of business. This may result in additional transaction costs and capital
gains to shareholders of High Grade Fund.
The characteristics of each investment policy and the associated risks are
described in the Funds' Prospectuses and Statements of Additional Information.
The Funds have other investment policies and restrictions which are also set
forth in the Prospectuses and Statements of Additional Information of each Fund.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Evergreen Municipal Trust is an open-end management investment company
registered with the SEC under the 1940 Act, which continuously offers shares to
the public. Evergreen Municipal Trust is organized as a Delaware business trust
and is governed by its Declaration of Trust, By-Laws, a Board of Trustees and by
applicable Delaware and federal law. High Grade Fund, California Fund and New
York Fund are series of Evergreen Municipal Trust.
Capitalization
The beneficial interests in High Grade Fund, California Fund and New York
Fund are represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Municipal Trust's Declaration of
Trust permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by each Fund. Each Fund's
shares represent equal proportionate interests in the assets belonging to the
Fund. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by Fund as
to matters, such as approval of or amendments to investment advisory agreements
or proposed mergers, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are entitled
to the same limitation of personal liability extended to stockholders of
Delaware corporations. No similar statutory or other authority limiting business
trust shareholder liability exists in any other state. As a result, to the
extent that Evergreen Municipal Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Municipal
Trust to liability. To guard against this risk, the Declaration of Trust of
Evergreen Municipal Trust (a) provides that any written obligation of the Trust
may contain a statement that such obligation may only be enforced against the
assets of the Trust or the particular series in question and the obligation is
not binding upon the shareholders of the Trust; however, the omission of such a
disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of the Trust. Accordingly, the risk
of a shareholder of Evergreen Municipal Trust incurring financial loss beyond
that shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Municipal Trust is remote.
Shareholder Meetings and Voting Rights
Evergreen Municipal Trust on behalf of High Grade Fund, California Fund and
New York Fund is not required to hold annual meetings of shareholders. However,
a meeting of shareholders for the purpose of voting upon the question of removal
of a Trustee must be called when requested in writing by the holders of at least
10% of the outstanding shares of Evergreen Municipal Trust. In addition,
Evergreen Municipal Trust is required to call a meeting of shareholders for the
purpose of electing Trustees if, at any time, less than a majority of the
Trustees then holding office were elected by shareholders. Evergreen Municipal
Trust does not currently intend to hold regular shareholder meetings. Cumulative
voting is not permitted. Except when a larger quorum is required by applicable
law, with respect to each Fund, 25% of the outstanding shares entitled to vote
constitutes a quorum for consideration of a matter. For each Fund, a majority
(greater than 50%) of the votes cast and entitled to vote is sufficient to act
on a matter (unless otherwise specifically required by the applicable governing
documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Municipal Trust, each share of
High Grade Fund, California Fund and New York Fund will be entitled to one vote
for each dollar of net asset value applicable to such share.
Liquidation or Dissolution
In the event of the liquidation of High Grade Fund, California Fund or New
York Fund, the shareholders are entitled to receive, when and as declared by the
Trustees, the excess of the assets belonging to such Fund or attributable to the
class over the liabilities belonging to the Fund or attributable to the class.
In either case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
Under the Declaration of Trust of Evergreen Municipal Trust, a Trustee is
liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Municipal Trust, its By-Laws
and Delaware law and is not a complete description of those documents or law.
Shareholders should refer to the provisions of such Declaration of Trust,
By-Laws and Delaware law directly for more complete information.
ADDITIONAL INFORMATION
High Grade Fund. Information concerning the operation and management of
High Grade Fund is incorporated herein by reference from the Prospectuses dated
April 1, 1999, copies of which are enclosed, and the Statement of Additional
Information of the same date. A copy of such Statement of Additional Information
is available upon request and without charge by writing to High Grade Fund at
the address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-645-7816.
California Fund and New York Fund. Information about each Fund is included
in its current Prospectuses dated August 1, 1998 and in the Statement of
Additional Information of the same date, that have been filed with the SEC, all
of which are incorporated herein by reference. Copies of the Prospectuses and
Statement of Additional Information are available upon request and without
charge by writing to California Fund and New York Fund at the address listed on
the cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-645-7816.
High Grade Fund, California Fund and New York Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
The SEC maintains a Web site (http://www.sec.gov) that contains the Funds'
Statements of Additional Information and other material incorporated by
reference herein together with other information regarding High Grade Fund,
California Fund and New York Fund.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of California
Fund and New York Fund in connection with a solicitation of proxies by the
Trustees of Evergreen Municipal Trust, to be used at the Special Meeting of
Shareholders to be held at 2:00 p.m., July 23, 1999, at the offices of the
Evergreen funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and at any adjournments thereof. This Prospectus/Proxy Statement, along with a
Notice of the Meeting and a proxy card, is first being mailed to shareholders of
California Fund and New York Fund on or about June 2, 1999. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to vote at, the Meeting or any adjournment thereof. The holders of 25%
of the outstanding shares entitled to vote at the close of business on the
Record Date present in person or represented by proxy will constitute a quorum
for the Meeting. If the enclosed form of proxy is properly executed and returned
in time to be voted at the Meeting, the proxies named therein will vote the
shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Mergers and FOR any
other matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will not have the effect of being counted as votes against the Plans, which must
be approved by a majority of the votes cast and entitled to vote. A proxy may be
revoked at any time on or before the Meeting by written notice to the Secretary
of Evergreen Municipal Trust at the address set forth on the cover of this
Prospectus/Proxy Statement. Unless revoked, all valid proxies will be voted in
accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plans and the Mergers contemplated thereby.
Approval of each Plan will require the affirmative vote of a majority of
the votes cast and entitled to vote, with all classes voting together as a
single class at the Meeting at which a quorum of each Fund's shares is present.
Each share outstanding is entitled to one vote for each dollar of net asset
value applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, through the Internet or by personal solicitations
conducted by officers and employees of FUNB, its affiliates or other
representatives of California Fund and New York Fund (who will not be paid for
their soliciting activities). If you wish to participate in the Meeting, you may
submit the proxy card included with this Prospectus/Proxy Statement, vote by fax
or attend in person. Any proxy given by you is revocable.
In the event that sufficient votes to approve a Merger are not received by
July 23, 1999, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. In determining whether
to adjourn the Meeting, the following factors may be considered: the percentage
of votes actually cast, the percentage of negative votes actually cast, the
nature of any further solicitation and the information to be provided to
shareholders with respect to the reasons for the solicitation. Any such
adjournment will require an affirmative vote by the holders of a majority of the
shares present in person or by proxy at the Meeting. The persons named as
proxies will vote upon such adjournment after consideration of all circumstances
which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to a proposed Merger will not be entitled under
either Delaware law or the Declaration of Trust of Evergreen Municipal Trust to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Mergers as proposed are not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Mergers are consummated, shareholders will be free to redeem the
shares of High Grade Fund which they receive in the transaction at their
then-current net asset value. Shares of California Fund and New York Fund may be
redeemed at any time prior to the consummation of the Mergers. Shareholders of
California Fund and New York Fund may wish to consult their tax advisers as to
any differing consequences of redeeming Fund shares prior to the Mergers or
exchanging such shares in the Mergers.
California Fund and New York Fund do not hold annual shareholder meetings.
If a Merger is not approved, shareholders wishing to submit proposals to be
considered for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of Evergreen
Municipal Trust at the address set forth on the cover of this Prospectus/Proxy
Statement so that they will be received by the Funds in a reasonable period of
time prior to the meeting.
The votes of the shareholders of High Grade Fund are not being solicited by
this Prospectus/Proxy Statement and are not required to carry out the Mergers.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise California Fund and New York Fund whether other persons are
beneficial owners of shares for which proxies are being solicited and, if so,
the number of copies of this Prospectus/Proxy Statement needed to supply copies
to the beneficial owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of High Grade Fund as of May 31, 1998, and the financial
statements and financial highlights for the periods indicated therein, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of PricewaterhouseCoopers LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The Annual Report of California Fund and New York Fund as of March 31,
1998, and the financial highlights and financial statements for the periods
indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of High Grade Fund
will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Municipal Trust do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
THE TRUSTEES OF EVERGREEN MUNICIPAL TRUST RECOMMEND APPROVAL OF THE PLANS
AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN
FAVOR OF APPROVAL OF THE PLANS.
June 2, 1999
<PAGE>
EXHIBIT A-1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of April, 1999, by and between Evergreen Municipal Trust,a
Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), , with respect to its
Evergreen High Grade Municipal Bond Fund series (the "Acquiring Fund"), and the
Trust, with respect to its Evergreen California Municipal Bond Fund series (the
"Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B and Class
C shares of beneficial interest, $.001 par value per share, of the Acquiring
Fund (the "Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of
the identified liabilities of the Selling Fund; and (iii) the distribution,
after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to
the shareholders of the Selling Fund in liquidation of the Selling Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Selling Fund for Acquiring Fund Shares and the assumption
of the identified liabilities of the Selling Fund by the Acquiring Fund on the
terms and conditions hereinafter set forth are in the best interests of the
Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND
LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including, without limitation,
all cash, securities, commodities, interests in futures and dividends or
interest receivables, that is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
In addition, upon completion of the reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 Liquidation and Distribution. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Class A, Class B and
Class C shares of the Selling Fund will receive Class A, Class B and Class C
shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or about
July 30, 1999 or such other date as the parties may agree to in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously immediately prior to the opening of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the
offices of the Evergreen funds, 200 Berkeley Street, Boston, MA 02116, or at
such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents
and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectus and statement of additional information of
the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not
result, in violation of any provision of the Trust's Declaration of Trust
or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date, except for liabilities, if any, to be discharged
or reflected in the Statement of Assets and Liabilities as provided in
paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business, or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(g) The unaudited semi-annual financial statements of the Selling Fund
at September 30, 1998 are in accordance with generally accepted accounting
principles consistently applied, and such statements (copies of which have
been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Selling Fund as of such date, and there are no known
contingent liabilities of the Selling Fund as of such date not disclosed
therein.
(h) Since September 30, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Selling Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and reports
of the Selling Fund required by law to have been filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer, and deliver such assets hereunder,
and, upon delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by
the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Selling Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating
to or affecting creditors' rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7) (other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(f) The unaudited semi-annual financial statements of the Acquiring
Fund at November 30, 1998 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of
which have been furnished to the Selling Fund) fairly reflect the financial
condition of the Acquiring Fund as of such date, and there are no known
contingent liabilities of the Acquiring Fund as of such date not disclosed
therein.
(g) Since November 30, 1998 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any
Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG LLP and
certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any case
within sixty days after the Closing Date, the Acquiring Fund and the Selling
Fund shall cause KPMG LLP to issue a letter addressed to the Acquiring Fund and
the Selling Fund, in form and substance satisfactory to the Funds, setting forth
the federal income tax implications relating to capital loss carry forwards (if
any) of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect
thereof.
(e) The Registration Statement, to such counsel's knowledge, has been
declared effective by the Commission and no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or the State of Delaware is required for
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be bound or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment, or decree
to which the Acquiring Fund is a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on
or before the effective date of the Registration Statement or the Closing
Date required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed
as required.
(i) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business,
other than as previously disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered by
the Selling Fund and, assuming due authorization, execution, and delivery
of this Agreement by the Acquiring Fund, is a valid and binding obligation
of the Selling Fund enforceable against the Selling Fund in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or
the imposition of any penalty, under any agreement, judgment, or decree to
which the Selling Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the descriptions
in the Prospectus and Proxy Statement of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present
the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement which
are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its
respective properties or assets and the Selling Fund is neither a party to
nor subject to the provisions of any order, decree or judgment of any court
or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and
the Selling Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the reorganization, and the holding period
of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the reorganization).
(f) The tax basis of the Selling Fund assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Selling Fund
immediately prior to the reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from PricewaterhouseCoopers LLP
a letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement
has been obtained from and is consistent with the accounting records of the
Selling Fund;
(c) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus
and Proxy Statement agree with the underlying accounting records of the
Acquiring Fund and Selling Fund or with written estimates provided by
officers of the Evergreen funds who have responsibility for financial and
reporting matters, and were found to be mathematically correct; ; and
(d) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the data utilized in the
calculations of the pro forma expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with the underlying
accounting records of the Selling Fund or with written estimates provided
by Selling Fund's management and were found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund shall
have received from PricewaterhouseCoopers LLP a letter addressed to the
Acquiring Fund dated on the Closing Date, in form and substance satisfactory to
the Acquiring Fund, to the effect that on the basis of limited procedures agreed
upon by the Acquiring Fund (but not an examination in accordance with generally
accepted auditing standards), the net asset value per share of the Selling Fund
as of the Valuation Date was computed and the valuation of the portfolio was
consistent with the valuation policy of the Acquiring Fund.
8.8 The Selling Fund shall have received from PricewaterhouseCoopers LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, indicating that:
(a) they are independent certified public accountants with respect to
the Acquiring Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) they had performed limited procedures agreed upon by the Selling
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards) which consisted of a reading of
any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and making inquiries of
appropriate officials of the Trust responsible for financial and accounting
matters whether such unaudited pro forma financial statements comply as to
form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the
Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the Selling Fund
(but not an examination in accordance with generally accepted auditing
standards), the data utilized in the calculations of the pro forma expense
ratios appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates provided by each Fund's management
and were found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund and
the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the
date first written above.
EVERGREEN MUNICIPAL TRUST
On behalf of Evergreen High Grade Municipal Bond Fund
By: /s/ Michael H. Koonce
_____________________________
Name: Michael H. Koonce
Title: Secretary
EVERGREEN MUNICIPAL TRUST
On behalf of Evergreen California Municipal Bond Fund
By: /s/ Michael H. Koonce
______________________________
Name: Michael H. Koonce
Title: Secretary
<PAGE>
EXHIBIT A-2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of April , 1999, by and between Evergreen Municipal Trust (the
"Trust"), a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116, with respect to its Evergreen High
Grade Municipal Bond Fund series (the "Acquiring Fund"), and the Trust, with
respect to its Evergreen New York Municipal Bond Fund series (the "Selling
Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B, Class C
and Class Y shares of beneficial interest, $.001 par value per share, of the
Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of the identified liabilities of the Selling Fund; and (iii) the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Selling Fund in liquidation of the
Selling Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Selling Fund for Acquiring Fund Shares and the assumption
of the identified liabilities of the Selling Fund by the Acquiring Fund on the
terms and conditions hereinafter set forth are in the best interests of the
Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND
LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including, without limitation,
all cash, securities, commodities, interests in futures and dividends or
interest receivables, that is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
In addition, upon completion of the reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 Liquidation and Distribution. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Class A, Class B, Class
C and Class Y shares of the Selling Fund will receive Class A, Class B, Class C
and Class Y shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or about
July 30, 1999 or such other date as the parties may agree to in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously immediately prior to the opening of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the
offices of the Evergreen funds, 200 Berkeley Street, Boston, MA 02116, or at
such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectuses and statement of additional information
of the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not
result, in violation of any provision of the Trust's Declaration of Trust
or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date, except for liabilities, if any, to be discharged
or reflected in the Statement of Assets and Liabilities as provided in
paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business, or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(g) The unaudited semi-annual financial statements of the Selling Fund
at September 30, 1998 are in accordance with generally accepted accounting
principles consistently applied, and such statements (copies of which have
been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Selling Fund as of such date, and there are no known
contingent liabilities of the Selling Fund as of such date not disclosed
therein.
(h) Since September 30, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Selling Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and reports
of the Selling Fund required by law to have been filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer, and deliver such assets hereunder,
and, upon delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by
the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Selling Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating
to or affecting creditors' rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7) (other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(f) The unaudited semi-annual financial statements of the Acquiring
Fund at November 30, 1998 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of
which have been furnished to the Selling Fund) fairly reflect the financial
condition of the Acquiring Fund as of such date, and there are no known
contingent liabilities of the Acquiring Fund as of such date not disclosed
therein.
(g) Since November 30, 1998 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any
Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG LLP and
certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any case
within sixty days after the Closing Date, the Acquiring Fund and the Selling
Fund shall cause KPMG LLP to issue a letter addressed to the Acquiring Fund and
the Selling Fund, in form and substance satisfactory to the Funds, setting forth
the federal income tax implications relating to capital loss carry forwards (if
any) of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect
thereof.
(e) The Registration Statement, to such counsel's knowledge, has been
declared effective by the Commission and no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or the State of Delaware is required for
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be bound or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment, or decree
to which the Acquiring Fund is a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on
or before the effective date of the Registration Statement or the Closing
Date required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed
as required.
(i) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business,
other than as previously disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered by
the Selling Fund and, assuming due authorization, execution, and delivery
of this Agreement by the Acquiring Fund, is a valid and binding obligation
of the Selling Fund enforceable against the Selling Fund in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or
the imposition of any penalty, under any agreement, judgment, or decree to
which the Selling Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the descriptions
in the Prospectus and Proxy Statement of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present
the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement which
are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its
respective properties or assets and the Selling Fund is neither a party to
nor subject to the provisions of any order, decree or judgment of any court
or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and
the Selling Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the reorganization, and the holding period
of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the reorganization).
(f) The tax basis of the Selling Fund assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Selling Fund
immediately prior to the reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from PricewaterhouseCoopers LLP
a letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement
has been obtained from and is consistent with the accounting records of the
Selling Fund;
(c) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus
and Proxy Statement agree with the underlying accounting records of the
Acquiring Fund and Selling Fund or with written estimates provided by
officers of the Evergreen funds who have responsibility for financial and
reporting matters, and were found to be mathematically correct; and
(d) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the data utilized in the
calculations of the pro forma expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with the underlying
accounting records of the Selling Fund or with written estimates provided
by Selling Fund's management and were found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund shall
have received from PricewaterhouseCoopers LLP a letter addressed to the
Acquiring Fund dated on the Closing Date, in form and substance satisfactory to
the Acquiring Fund, to the effect that on the basis of limited procedures agreed
upon by the Acquiring Fund (but not an examination in accordance with generally
accepted auditing standards), the net asset value per share of the Selling Fund
as of the Valuation Date was computed and the valuation of the portfolio was
consistent with the valuation policy of the Acquiring Fund.
8.8 The Selling Fund shall have received from PricewaterhouseCoopers LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, indicating that:
(a) they are independent certified public accountants with respect to
the Acquiring Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) they had performed limited procedures agreed upon by the Selling
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards) which consisted of a reading of
any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and making inquiries of
appropriate officials of the Trust responsible for financial and accounting
matters whether such unaudited pro forma financial statements comply as to
form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the
Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the Selling Fund
(but not an examination in accordance with generally accepted auditing
standards), the data utilized in the calculations of the pro forma expense
ratios appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates provided by each Fund's management
and were found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund and
the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the
date first written above.
EVERGREEN MUNICIPAL TRUST
On behalf of Evergreen High Grade Municipal Bond Fund
By: /s/ Michael H. Koonce
_____________________________
Name: Michael H. Koonce
Title: Secretary
EVERGREEN MUNICIPAL TRUST
On behalf of Evergreen New York Municipal Bond Fund
By: /s/ Michael H. Koonce
______________________________
Name: Michael H. Koonce
Title: Secretary
<PAGE>
EXHIBIT B
EVERGREEN
High Grade Tax Free Fund
Fund at a Glance as of May 31, 1998
It was a favorable period for municipal bond investing. The insured municipal
bonds, which this Fund emphasizes, continued to increase in presence and
importance in the overall market.
Portfolio
Management
------------------------------------------
[PHOTO OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: February 1992
----------------------------
CURRENT INVESTMENT STYLE
----------------------------
[GRAPH APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns
- --------------------------------------------------------------------------------
Class A Class B Class Y
Inception Date 2/21/92 1/11/93 2/28/94
................................................................................
Average Annual Returns*
................................................................................
One year with sales charge 3.71% 3.07% N/A
................................................................................
One year w/o sales charge 8.88% 8.07% 9.15%
................................................................................
3 years 4.80% 4.82% 6.78%
................................................................................
5 years 5.04% 5.02% --
................................................................................
Since Inception 6.45% 5.84% 6.05%
...............................................................................
Maximum Sales Charge 4.75% 5.00% N/A
Front End CDSC
................................................................................
30-day SEC yield 4.01% 3.47% 4.46%
................................................................................
Taxable equivalent yield** 6.64% 5.75% 7.38%
................................................................................
12-month dividends per share $0.48 $0.40 $0.51
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Evergreen High Grade
Consumer Lehman Brothers Tax Free Fund
Date Price Index Insured Bond Index Class A Shares
- -------- ------------ ------------------ --------------------
2/92 10,000 10,000 9,525
5/92 10,079 10,206 9,738
5/93 10,404 11,540 10,964
5/94 10,642 11,781 11,090
5/95 10,981 12,909 12,182
5/96 11,290 13,474 12,638
5/97 11,551 14,429 13,522
5/98 11,746 15,849 14,723
Comparison of a $10,000 investment in Evergreen High Grade Tax Free Fund,
Class A shares, versus a similar investment in the Lehman Brothers Insured Bond
Index (LBIBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The Lehman Brothers Insured Bond Index is an unmanaged index
and does not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
2
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
How did the Fund perform during the year?
The Fund had strong performance. For the 12 months that ended May 31, 1998, the
Fund's Class A shares had a total return of 8.88%, while Class B and Y shares
had returns of 8.07% and 9.15%, respectively. These returns are unadjusted for
any applicable sales charges. The returns were very competitive, compared to the
average return of 8.78% for the 52 funds in the Lipper Insured Municipal Bond
Fund category for the same period. Lipper Analytical Services is an independent
mutual fund rating company.
Portfolio
Characteristics
---------------
Total Net Assets $122,324,143
................................................................................
Average Credit Quality AAA
................................................................................
Average Maturity 20.0 years
................................................................................
Average Duration 8.2 years
................................................................................
What was the investment environment like during the 12 months?
It was a favorable period for municipal bond investing. The insured municipal
bonds, which this Fund emphasizes, continued to increase in presence and
importance in the overall market.
The U.S. economy had strong growth that was accompanied by low inflation.
Beginning in late 1997, the overall bond market was aided by the effects of the
economic slowdown in Asia, which helped keep inflation and interest rates low.
During the 12 months, the yield on the 30-year Treasury Bond declined by more
than a full percentage point, from 6.90% to 5.80%. As a general rule, bond
prices tend to increase as interest rates decrease.
The municipal bond market also had a good year, although it did not perform as
well as the Treasury market. The yield on 30-year AAA-rated municipal bonds, as
reflected by the Bond Buyers 40 Index, fell from 5.65% to 5.20%. A major factor
in the underperformance was the large supply of new bond issues and the
anticipated impact of the largest new municipal bond issuance in history in
mid-May, a $3.5 billion offering for the Long Island Power Authority, which
created some short-term volatility. Municipal bond market investors were
concerned that this issuance might cause an over-supply of bonds and hurt bond
prices. In fact, the Long Island Power offering went well, and municipal bonds
recovered smartly in late May. Supply clearly was the story for much of 1997,
which saw the second-largest issuance of new municipal bond debt of this decade.
This large new supply was created both by the need to fund new public projects
and by refinancing by public agencies that are refunding their older debt with
lower-interest-rate bonds.
While the municipal bond market did not perform as well as the overall bond
market during the year, the result now is that there is excellent investment
value in municipal bonds. For example, AAA-rated municipal bonds on May 31 were
offering about 90% of the yield of a 30-year Treasury, but with after-tax
advantages that the taxable bonds do not offer.
- --------------------------------------------------------------------------------
Portfolio Quality
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
AAA - 82.6%
AA - 11.8%
A - 5.6%
3
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
At the close of the fiscal year on May 31, 1998, 87% of Fund assets were
invested in insured municipal bonds. What was the environment like for insured
bonds, in which the Fund principally invests?
Due to increased issuance during the year, yields on insured municipal bonds
have risen in relation to the yields on uninsured bonds. As a result, insured
municipal bonds now are relatively cheaper in price because they have
underperformed general, uninsured municipal bonds. Shareholders of this Fund now
receive a comparably better yield in relation to a general municipal bond fund
than they did a year ago.
To understand how this happened, it is important to note how insured bonds have
come to occupy a larger presence in the municipal bond market. Five years ago,
approximately 25% of outstanding municipal bonds were insured, which means they
receive the equivalent of an AAA rating when their issuers purchase the added
insurance. Currently, approximately 50% of the bonds are insured. The primary
cause of this growth is the intense competition of municipal bond insurers,
which has driven down the cost of insurance and made it increasingly attractive
for bond issuers to pay the insurance premium and receive the benefits of lower
debt service costs.
As a consequence, insured bonds now are extremely liquid because owners
understand they can easily sell their securities whenever they want or need to,
knowing there always will be a buyer at a good price for an insured bond
carrying the equivalent of an AAA rating. This liquidity also means that the
price of insured bonds has become more volatile.
The trend of insured bonds taking a greater presence in the market has been
going on for some time and is likely to continue. At least part of all the very
large new issuances, including that of the Long Island Power Authority, have
offered insured bonds.
What were your principal strategies during the year in terms of interest rate
sensitivity?
The High Grade Tax Free Fund, throughout the year, has had a somewhat longer
duration, or interest rate sensitivity, than the average duration of competing
funds. This is consistent with our view that with no inflationary pressures in
sight, the long-term trend was toward declining interest rates. That proved to
be true during the year. Until January, we had a duration approximately
half-a-year longer than the Fund's peer group. After interest rates hit their
low point in January, we pulled back a little to reduce volatility. The Fund
still is long, but only slightly longer than its peer group average.
As of May 31, 1998, the Fund's duration was 8.15 years, compared to 8.45 years
in June 1997. Average weighted maturity, on May 31, 1998, was 20 years.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Industrial Development/Pollution Control - 15.4%
Hospitals - 14.1%
Water & Sewer - 14.0%
Transportation - 11.2%
Electric Power - 10.5%
Housing - 8.7%
Other Investments and other assets and liabilities, net - 7.4%
General Obligation - Local - 6.9%
General Obligation - State - 6.1%
Airports - 5.7%
4
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
What strategies did you follow in terms of sector selection for the 12 months?
We looked for opportunities to add incremental yield through sector selection.
This led us to buy housing bonds, some of which may be subject to the
alternative minimum tax, and to invest in the transportation and utilities
sectors. The market provided a number of opportunities both because of the start
of many new public construction projects and programs and because of the
continued deregulation of utilities. Consolidation and deregulation in the
utilities industry has resulted in some price volatility because of uncertainty
about the future of utilities. Confusion presents opportunity.
As of May 31, 1998, water and sewer, transportation, and electric power projects
represented more than 35% of portfolio assets.
What is your outlook?
Our outlook is favorable for the municipal bond market and the Evergreen High
Grade Tax Free Fund. While we do not intend to make short-term interest rate
plays, we still believe the long-term trend of interest rates is to decline, so
the Fund will be slightly longer in duration than its peer group.
The equity markets suffered quite a shock in the fourth quarter of 1997 because
of the Asian crisis. Interest rates came down as investors fled to the quality
of fixed income securities. We don't think we're out of the woods with Asia, and
problems may still appear in Japan, Indonesia and other Asian markets. If this
were to happen, the equity markets could have difficulty and the fixed income
markets could benefit. Demand from Asia still represents enough of a stimulus to
the U.S. economy so that inflationary pressures in the U.S. would decline if
demand from Asia were to decrease. This would take away any fear by the Federal
Reserve of a build-up of inflationary pressures and decrease the temptation to
raise short-term rates in the United States.
The sustained flow of new issues in the municipal bond market is likely to mean
that this market will under-perform the U.S. Treasury market. This will mean,
however, that municipal bonds will continue to offer yields on an after-tax
basis that will be very attractive when compared to Treasuries.
You have managed the Evergreen High Grade Tax Free Fund since 1992. Recently you
became co-manager of the Evergreen Tax Free Fund. What are the differences
between the two funds?
The main difference is in absolute quality. The Evergreen High Grade Tax Free
Fund will always have 65% or more of its assets in insured municipal bonds, and
it always will have an average credit quality of AAA. As of May 31, almost 83%
of assets of the Evergreen High Grade Tax Free Fund were rated AAA, compared to
about 56% of assets rated AAA in the Evergreen Tax Free Fund.
The Evergreen Tax Free Fund is a diversified, longer-maturity fund whose purpose
is to create higher returns and higher yields. It still will emphasize quality
investments, as illustrated by its average credit quality of AA on May 31.
Without sacrificing quality, we will try to find additional yield for
shareholders by selecting bonds from different sectors and quality ratings. Over
the years, there will be times when one fund will have better performance than
the other, depending upon market conditions. Typically, however, one would
expect the Evergreen Tax Free Fund to pay somewhat higher yields than the
Evergreen High Grade Tax Free Fund.
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN CALIFORNIA MUNICIPAL BOND FUND
and
EVERGREEN NEW YORK MUNICIPAL BOND FUND
each a Series of
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN HIGH GRADE MUNICIPAL BOND FUND
a Series of
EVERGREEN MUNICIPAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen California
Municipal Bond Fund ("California Fund") and Evergreen New York Municipal Bond
Fund ("New York Fund"), each a series of Evergreen Municipal Trust, to Evergreen
High Grade Municipal Bond Fund ("High Grade Fund"), also a series of Evergreen
Municipal Trust, in exchange for Class A, Class B, Class C and Class Y shares
(to be issued to holders of Class A, Class B, Class C and Class Y shares,
respectively, of New York Fund and to holders of Class A, Class B and Class C
shares, respectively, of California Fund) of beneficial interest, $.001 par
value per share, of High Grade Fund, consists of this cover page and the
following described documents, each of which is attached hereto and incorporated
by reference herein:
(1) The Statement of Additional Information of High Grade Fund dated
April 1, 1999;
(2) The Statement of Additional Information of California Fund and New
York Fund dated August 1, 1998;
(3) Annual Report of California Fund and New York Fund for the year ended
March 31, 1998;
(4) Semi-Annual Report of California Fund and New York Fund for the
six-month period ended September 30, 1998;
(5) Annual Report of High Grade Fund for the year ended May 31, 1998; and
(6) Semi-Annual Report of High Grade Fund for the six-month period ended
November 30, 1998.
(7) Pro Forma Financial Statements for the twelve-month period ended
November 30, 1998 (unaudited).
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of California Fund, New York Fund and High Grade Fund dated June 2,
1999. A copy of the Prospectus/Proxy Statement may be obtained without charge by
calling or writing to Evergreen Municipal Trust at the telephone number or
address set forth above.
The date of this Statement of Additional Information is June 2, 1999.
<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
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.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and President of
(DOB: 2/2/28) Centrum Equities and Centrum Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; former Director, Executive Vice
(DOB: 10/23/34) 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 Trustee Trustee, Treasurer and Chairman of the Finance Committee, Cambridge College;
(DOB: 10/12/38) Chairman Emeritus and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust (education); former
Chairman of the Board, Director, and Executive Vice President, The London
Harness Company; former Managing Partner, Roscommon Capital Corp.; former Chief
Executive Officer, Gifford Gifts of Fine Foods; former Chairman, Gifford,
Drescher & Associates (environmental consulting)
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for the Carolinas; and former
(DOB: 8/13/24) Board of Trustees Vice President of Lance Inc. (food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson Products Company;
(DOB: 2/14/39) Director of Phoenix Total Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation (manufacturing); and
(DOB: 8/2/39) former Director of Carolina Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR International, Inc.
(DOB: 9/14/41) (executive recruitment); former Senior Vice President, Boyden International Inc.
(executive recruitment); and Director, Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services; former Managed Health
(DOB: 6/2/47) Care Consultant; and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance agency); Executive
(DOB: 8/11/39) 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* President and Executive Vice President/Operations, BISYS Fund Services.
(DOB:8/30/58) Treasurer
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant Vice President,
(DOB: 6/6/63) Assistant Treasurer EAMC/First Union Bank; former Senior Tax Consulting/Acting Manager, Investment
Companies Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Michael H. Koonce Secretary Senior Vice President and Assistant General Counsel, First Union Corporation;
(DOB: 4/20/60) former Senior Vice President and General Counsel, Colonial Management
Associates, Inc.
</TABLE>
*Address: BISYS, 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.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required to hold
annual meetings. At meetings called for the initial election of Trustees or to
consider other matters, each share is entitled to one vote for each dollar of
net asset value applicable to such share. Shares generally vote together as one
class on all matters. Classes of shares of each Fund have equal voting rights.
No amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining 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
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(1) Assumed for purposes of this chart. Your tax may vary.
METHOD OF COMPUTING OFFERING PRICE FOR CLASS A SHARES
Class A shares are sold at the NAV plus a sales charge. Below is an example of
the method of computing the offering price of the Class A shares of each Fund.
The example assumes a purchase 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
<TABLE>
<CAPTION>
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
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
</TABLE>
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
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN STATE MUNICIPAL BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Evergreen California Tax Free Fund (the "California Fund")
Evergreen Massachusetts Tax Free Fund (the "Massachusetts Fund")
Evergreen Missouri Tax Free Fund (the "Missouri Fund")
Evergreen New York Tax Free Fund (the "New York Fund")
Evergreen Pennsylvania Tax Free Fund (the "Pennsylvania Fund")
Evergreen Connecticut Municipal Bond Fund (the "Connecticut Fund")
Evergreen New Jersey Tax Free Income Fund (the "New Jersey Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end management
investment company known as Evergreen
Municipal Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all classes of
shares of the Funds listed above. It is not a prospectus and should be read in
conjunction with the prospectuses dated August 1, 1998 for the Fund in which you
are making or contemplating an investment. The Funds are offered through two
separate prospectuses: one offering Class A and Class B shares of each Fund and
Class C shares of each Fund except the Connecticut Fund and the New Jersey Fund,
and one offering Class Y shares of the New York Fund, the Pennsylvania Fund, the
Connecticut Fund and the New Jersey Fund. You may obtain either of these
prospectuses from Evergreen Distributor, Inc.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES..........................................................3..
Fundamental Investment Policies.....................................3..
Additional Information on Securities and Investment Practices.......5
MANAGEMENT OF THE TRUST......................................................12
PRINCIPAL HOLDERS OF FUND SHARES.............................................15
INVESTMENT ADVISORY AND OTHER SERVICES.......................................21
Investment Advisers.................................................21.
Investment Advisory Agreements......................................22
Distributor.........................................................22.
Distribution Plans and Agreements...................................23
Additional Service Providers........................................24
BROKERAGE....................................................................25
Selection of Brokers..............................................25
Brokerage Commissions...............................................25.
General Brokerage Policies..........................................26.
TRUST ORGANIZATION...........................................................26.
Form of Organization................................................26.
Description of Shares...............................................26
Voting Rights.......................................................26.
Limitation of Trustees' Liability...................................27.
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................27
How the Funds Offer Shares to the Public............................27
Contingent Deferred Sales Charge....................................28.
Sales Charge Waivers or Reductions..................................29.
Exchanges...........................................................31.
Calculation of Net Asset Value Per Share ("NAV") ...................31
Valuation of Portfolio Securities...................................31
Shareholder Services................................................31.
PRINCIPAL UNDERWRITER........................................................32.
ADDITIONAL TAX INFORMATION...................................................33
Requirements for Qualification as a Regulated Investment Company....33
Taxes on Distributions..............................................33.
Taxes on the Sale or Exchange of Fund Shares........................34
Other Tax Considerations............................................35.
FINANCIAL INFORMATION........................................................36.
ADDITIONAL INFORMATION.......................................................40.
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
APPENDIX C...................................................................C-1
APPENDIX D...................................................................D-1
APPENDIX E...................................................................E-1
APPENDIX F...................................................................F-1
APPENDIX G...................................................................G-5
APPENDIX H...................................................................H-1
APPENDIX I...................................................................I-1
3
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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 change, 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 non-diversified investment company under the 1940 Act.
Further Explanation of Non-Diversified Funds:
All of the Funds are classified as "non-diversified". A non-diversified
management investment company may have no more than 25% of its total assets
invested in the securities (other than United States ("U.S.") government
securities or the shares of other regulated investment companies) of any one
issuer and must invest 50% of its total assets under the 5% of its assets and
10% of outstanding voting securities tests applicable to diversified Funds. The
test for diversified Funds requires that Fund cannot purchase securities of an
issuer if the purchase would cause more than 5% of the Fund's total assets taken
at market value to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of
outstanding voting securities of any one issuer to be held in the Fund's
portfolio. Most Funds apply this limitation to 75% of their total assets.
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.
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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 borrowings are
outstanding 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
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.
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<PAGE>
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 Group ("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 Adviser (as defined later) would consider such events in
determining whether a Fund should continue to hold it.
6
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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 investment adviser may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by 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.
7
<PAGE>
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 to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which a Fund is
named. Each Fund does not presently intend to invest more than (a) 5% of its net
assets in the obligations of each of the Virgin Islands and Guam or (b) 25% of
its net assets in the obligations of Puerto Rico. Accordingly, a Fund may be
adversely affected by local political and economic conditions and developments
within the Virgin Islands, Guam and Puerto Rico affecting the issuers of such
obligations.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Funds may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more
at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued, delayed
delivery or forward commitment basis, a Fund will hold liquid assets worth at
least the equivalent of the amount due. The liquid assets will be monitored on a
daily basis and adjusted as necessary to maintain the necessary value.
Purchases made under such conditions are a form of leveraging and may
involve the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to 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
8
<PAGE>
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
Adviser 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, a Fund could receive less than the repurchase price on
any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Each Fund's Adviser 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 a 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 Adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Funds may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options
Each Fund may buy or sell (i.e., write) put and call options on securities
it holds or intends to acquire. The Funds may also buy and sell options on
financial futures contracts. Each Fund will use options as a hedge against
decreases or increases in the value of securities it holds or intends
9
<PAGE>
to acquire. The Funds may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions
Each Fund may enter into financial futures contracts and write options on
such contracts. Each Fund intends to enter into such contracts and related
options for hedging purposes. Each Fund will enter into futures 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. A Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which continues until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures contract
is sold by a Fund, the value of the contract will tend to rise when the value of
the underlying securities declines and to fall when the value of such securities
increases. Thus, each Fund would sell futures contracts in order to offset a
possible decline in the value of its securities. If a futures contract is
purchased by a Fund, the value of the contract will tend to rise when the value
of the underlying securities increases and to fall when the value of such
securities declines. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Adviser to be a favorable price and rate of
return for securities a Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. A Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that a Fund will be able to enter into an offsetting transaction with
respect to a particular contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the contract and to complete the contract
according to its terms, in which case it would continue to bear market risk on
the transaction.
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<PAGE>
Although futures and options transactions are intended to enable a Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates or market prices could result in poorer performance than if it
had not entered into these transactions. Even if the Adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. This lack of correlation between a Fund's futures and securities
positions may be caused by differences between the futures and securities
markets or by differences between the securities underlying a Fund's futures
position and the securities held by or to be purchased for a Fund. Each Fund's
Adviser will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by 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, each Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Funds do not pay or receive
money upon the purchase or sale of a futures contract. Rather, each Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by a Fund but is instead 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, a Fund
will mark-to-market its open futures positions. Each Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
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
Appendices H and I.) Bonds rated below BBB by S&P or Fitch or below Baa by
Moody's, commonly known as "junk bonds,"
11
<PAGE>
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.
12
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management
Company (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust
(education); former Chairman of the Board, Director,and
Executive Vice President, The London Harness Company; former
Managing Partner, Roscommon Capital Corp.; former Chief
Executive Officer, Gifford Gifts of Fine Foods; and former
Chairman, Gifford, Drescher & Associates (environmental
consulting).
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
12
<PAGE>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
Leroy Keith, Jr. 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 Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Hartford Hospital, Old
State House Association, Middlesex Mutual Assurance Company,
and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater Hartford
YMCA; former Director, Vice Chairman and Chief Investment
Officer, The Travelers Corporation; former Trustee, Kingswood-0
Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BISYS Fund Services.
13
<PAGE>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer 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* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund
(DOB: 3/30/59) Services
*Address: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-8001
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation for the fiscal year ended March
31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustee Aggregate Total Compensation from Deferred
Compensation Trust and Fund Complex Paid Compensation of
from Trust to Trustees Trustees
Laurence B. Ashkin $719.99 $72,681.15 N/A
Charles A. Austin, III $515.24 $49,296.64 $7,394.50
K. Dun Gifford $470.40 $46,060.91 N/A
James S. Howell $819.17 $109,570.07 N/A
Leroy Keith Jr. $498.25 $46,461.22 N/A
Gerald M. McDonnell $767.65 $94,500.33 $94,500.33
Thomas L. McVerry $774.27 $96,804.62 $96,804.62
William Walt Pettit $712.41 $86,612.76 $86,612.76
David M. Richardson $509.42 $48,673.36 N/A
Russell A. Salton, III $738.01 $95,030.64 $95,030.64
Michael S. Scofield $760.29 $97,793.88 N/A
Richard J. Shima $525.80 $67,324.78 N/A
Robert J. Jeffries* $143.04 $18,222.42 N/A
Foster Bam* $435.65 $53,235.54 N/A
</TABLE>
*Former Trustee; retired as of December 31, 1997
14
<PAGE>
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each fund as of June 30, 1998.
California Fund Class A
Peter Bodman and Frances 14.927%
Bodman Ttees
Bodman Family Trust
1325 Pinetree Drive
Frazier Park, CA 93225
MLPF&S for the Sole Benefit of 6.142%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Billie Cheek and Irmgard Cheek 5.769%
Ttees
Cheek Family Trust
PO Box1041
Palm Desert, CA 92261
California Fund Class B
MLPF&S for the Sole Benefit of 17.533%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
California Fund Class C
MLPF&S for the Sole Benefit of 36.825%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Victor Edward Rylander 10.525%
Lucille Rylander Co-ttees
Victor & Lucille Rylander Trust
4102 Caflur Ave
San Diego, CA 92117
15
<PAGE>
Prudential Securities FBO 6.961%
Rakesh C Gupta
Neelam Gupta Co-ttees
FBO Gupta Family Living Trust
Hemet, CA 92544
NFSC FEBO # OKS-714674 6.460%
Rozene L Kretz
776 Lawrence Drive
Gilroy, GA 95020
Smith Barney Inc 6.268%
388 Greenwich Street
New York, NY 10013
Richard B Smith 5.89%
Mary L Smith JT WROS
4853 MT Royal Court
San Diego, CA 92117
Massachusetts Fund Class A
Richard Nakashian 10.208%
PO Box 3150
Pocasset, MA 02559
Margaret Vogel 9.027%
Keystone Trust Company Trustee
c/o Youville Place
10 Pelham Road #306
Lexington, MA 02173
Ida R. Rodriguez 7.931%
Keystone Trust Company Trustee
58 Helen Road
Needham, MA 02192
Bertha M Beauchemin 6.924%
Keystone Trust Company Trustee
c/o Youville Place
10 Pelham Road #306
Lexington, MA 02173
Frank J. Pusateri and Helen C 6.016%
Pusateri Ttees
Pusateri Family Trust
1682 Dawes Road NE
Palm Bay, FL 32905
Ralph J Spuehler Jr and Sarah E 5.987%
Spuehler JT TEN
36 Bridle Path
Sudbury, MA 01776
Marion E Taylor Ttee 5.603%
Marion E Taylor Trust
10 Longwood Drive Apt 305
Westwood, MA 02090
16
<PAGE>
Massachusetts Fund Class C
Salvatore M Moscarello 8.65%
Irene A Moscarello JT TEN
24 Van Norden Road
Reading, MA 01867
Malcolm F Groves & Jean N 6.652%
Groves Ttees Malcolm F Groves
Rev Living Trust
80 Indian Hill Road
Cummaquid, MA 02367
William Ripley c/o Eastern 5.588%
Environmental Services Inc
45 Accord Park Drive
Norell, MA 02061
Jean J Shaughnessey & Paul F 5.371%
Shaughnessey JT TEN
76 Parkhurst Drive
Westford, MA 01886
John Pierce and Marie Pierce 5.357%
JT TEN
424 King's Town Way
Duxbury, MA 02332
Missouri Fund Class A
MLPF&S for the Sole Benefit of 47.973%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Missouri Fund Class B
MLPF&S for the Sole Benefit of 29.178%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Missouri Fund Class C
MLPF&S for the Sole Benefit of 23.222%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Painewebber for the benefit of 20.266%
Dorothy K Pruett Trustee
Dorothy K Pruett Revocable
c/o Mid America Mortgage
8645 College Blvd
Overland Park, KS 66210
17
<PAGE>
Felicia L Bart 5.862%
Vern E Alexander JT WROS
6501 Twin Springs Road
Parkville, MO 64152
Robert L Beckmann 5.776%
Carol A Beckmann JT TEN
940 Sherman Lane
Florissant , MO 63031
Painewebber for the benefit of 5.031%
Joseph Henry Children Trust
Edwin C Hogueland Ttee
Donnelly Meiners Jordan Kline
4600 Madison Suite 1100
Kansas City, MO 64112
New York Fund Class A
MLPF&S for the Sole Benefit of 6.889%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Prudential Securities Inc FBO 5.524%
Ms Sandra M Franck
c/o Ragtime #3
214 W 43rd ST
New York, NY 10036
New York Fund Class B
MLPF&S for the Sole Benefit of 13.138%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
New York Fund Class C
Bear Stearns Securities Corp 16.729%
FBO 626 60277 10
1 Metrotech Center North
Brooklyn, NY 11201
Carol T Whitman 13.250%
PO Box 43
Whippleville, NY 12995
Carol L Moore 9.903%
Rt 2 Box 1055
Chateaugay, NY 12920
MLPF&S for the Sole Benefit of 6.933%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
18
<PAGE>
Henry W Demoy JT WROS 6.231%
Patricia K Demoy JT WROS
Rd 2 King Road
Cambridge, NY 12816
Pennsylvania Fund Class A
MLPF&S for the Sole Benefit of 5.061%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Pennsylvania Fund Class B
MLPF&S for the Sole Benefit of 10.003%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Pennsylvania Fund Class C
MLPF&S for the Sole Benefit of 23.082%
its Customers
4800 Deer Lake Drive E 2nd Flr
Jacksonville, FL 32246
Pennsylvania Fund Class Y
First Union Natl Bank 98.730%
BK/EB/INT Cash Acct
Attn Trust Oper Fd Grp
401 S Tryon Street 3rd flr
CMG 1151
Charlotte, NC 28202
Connecticut Fund Class A
First Union Brokerage Services 38.615%
Crown Realty LLC
PO Box 2-224 Devon Station
Milford, CT 06460
Rose Santoro 26.660%
Bruce A McEntee JTWROS
19 Mitchell Ave
Waterbury, CT 06460
First Union Brokerage Services 16.179%
FBO Catharina Vandestadt
201 S College 5th floor
Charlotte, NC 28202
Bertram M Metter 13.251%
41 Nutmeg Drive
Greenwich, CT 06831
19
<PAGE>
Connecticut Fund Class B
First Union Brokerage Services 54.115%
Stewart Monroe Jr
92 Silver Spring Road
Wilton, CT 06897
First Union Brokerage Services 19.733%
Kathleen K Delaney
14 Smoke Hill Road
Stamford, CT 06903
First Union Brokerage Services 10.950%
FBO Henry F Goetz
201 S College 5th floor
Charlotte, NC 28202
First Union Brokerage Services 6.833%
William A Cotter
68 St Andrews Ave
East Haven, CT 06512
Connecticut Fund Class Y
First Union Natl Bank 99.834%
BK/EB/INT Cash Acct
Attn Trust Oper Fd Grp
401 S Tryon Street 3rd flr
CMG 1151
Charlotte, NC 28202
New Jersey Fund Class Y
First Union Natl Bank 96.536%
Trust Accounts
Attn Ginny Batten
401 S Tryon Street 3rd flr
CMG 1151
Charlotte, NC 28202
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISERS
The investment adviser (an "Adviser") to the California Fund, the
Massachusetts Fund, the Missouri Fund, the New York Fund, and the Pennsylvania
Fund is Keystone Investment Management Company ("Keystone"), 200 Berkeley
Street, Boston, Massachusetts, 02116-5034, a subsidiary of First Union National
Bank ("FUNB"), 201 South College Street, Charlotte, North Carolina 28288-0630.
FUNB 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 throughout the United States. Each Fund
pays Keystone a fee for its services at the
20
<PAGE>
annual rate set forth below:
Aggregate Net
Asset Value
of the Shares
Management Fee of the Fund
- ------------------------------- ------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, 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.
The Adviser's fee is computed as of the close of business each business day and
payable monthly.
The investment adviser (also an "Adviser") to the Connecticut Fund and
to the New Jersey Fund is the Capital Management Group ("CMG") of FUNB. The
Connecticut Fund pays CMG a fee for its services at the annual rate of 0.60% of
the average daily net assets. The New Jersey Fund pays CMG a fee for its
services at the annual rate set forth below:
Aggregate Net
Asset Value
of the Shares
Management Fee of the Fund
- ------------------------------- ------------------------------
0.50 of 1% the first $ 500,000,000, plus
0.45 of 1% the next $ 500,000,000, plus
0.40 of 1% of amounts over $1,000,000,000, plus
0.35 of 1% of amounts over $1,500,000,000
computed as of the close of business on each business day.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an investment
advisory agreement with each Adviser (the "Advisory Agreements"). Under the
Advisory Agreements, and subject to the supervision of the Trust's Board of
Trustees, each Adviser furnishes to the appropriate Fund investment advisory,
management and administrative services, office facilities, and equipment in
connection with its services for managing the investment and reinvestment of the
Fund's assets. The Adviser pays for all of the expenses incurred in connection
with the provision of its services. Each Fund pays for all charges and expenses,
other than those specifically referred to as being borne by the Adviser,
including, but not limited to: (1) custodian charges and expenses; (2)
bookkeeping and auditors' charges and expenses; (3) transfer agent charges and
expenses; (4) fees and expenses of Independent Trustees (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
21
<PAGE>
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 investment adviser. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment adviser. 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
22
<PAGE>
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, as well as Class C
shares (except in the case of the Connecticut Fund and the New Jersey Fund,
(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 Adviser may from time to time from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for successive
twelve-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreement related thereto.
The Plans permit the payment of fees to brokers and others for distribution
and shareholder-related administrative 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
23
<PAGE>
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 the Connecticut Fund and
the New Jersey Fund, subject to the supervision and control of the Trust's Board
of Trustees. EIS provides the Funds with facilities, equipment and personnel and
is entitled to receive a fee based on the aggregate average daily net assets of
the Funds at a rate based on the total assets of all mutual funds advised by
First Union subsidiaries and administered by EIS. The fee paid to EIS is
calculated in accordance with the following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion, and
0.010% on assets in excess of $30 billion.
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
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, audits
the financial statements of each Fund.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank keeps
custody of each Fund's securities and cash and performs other related duties.
The custodian's address is P.O. Box 9021, Boston, Massachusetts 02205-9827.
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<PAGE>
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 Adviser
seeks the best execution of orders at the most favorable prices. Each Adviser
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 Adviser makes investment decisions for a Fund independently from those
of its other clients. It may frequently develop, however, that an Adviser will
make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, an Adviser will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of a Fund's securities, each Fund believes that in
other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Funds may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews each Fund's brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
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<PAGE>
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 (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.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required to
hold annual meetings. At meetings called for the initial election of Trustees or
to consider other matters, each share is entitled to one vote for each dollar of
net asset value applicable to such share. Shares generally vote together as one
class on all matters. Classes of shares of each Fund have equal voting rights.
No amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining 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.
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<PAGE>
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 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. See also the section in this SAI entitled
"Financial Information" for an example of the method of computing the offering
price of Class A shares.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge,"
below).
Class B Shares
The Funds offer Class B shares at net asset value without an initial sales
charge. With certain exceptions, however, the Funds will charge a CDSC on shares
you redeem within 72 months after the month of your purchase, in accordance with
the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase............................5.00%
Second twelve-month period following the month of purchase........4.00%
Third twelve-month period following the month of purchase.........3.00%
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 (excluding the Connecticut and New Jersey Funds)
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 Fund will charge a CDSC of
27
<PAGE>
1.00% on shares you redeem within 12-months after the month of your purchase.
(See "Contingent Deferred Sales Charge" below).
Class Y Shares (excluding the California, Massachusetts and Missouri Funds)
No CDSC is imposed on the redemption of Class Y shares. Class Y shares are
not offered to the general public and are available only to (1) persons who at
or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset Management Corp. ("Evergreen Asset"), (2) certain institutional investors
and (3) investment advisory clients of CMG, Evergreen Asset, Keystone, or their
affiliates. Class Y shares are offered at net asset value without a front-end or
back-end sales charge and do not bear any Rule 12b-1 distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. 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
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<PAGE>
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 advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, 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.
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<PAGE>
Waiver of CDSC
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 59 1/2 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.
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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 sixty days or
less are carried at amortized cost, which approximates market value.
(3) Securities for which valuations are not available from an
independent pricing service, including restricted securities, are valued at fair
value according to procedures established by the 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.
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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; (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
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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 adviser concerning his qualification to receive
exempt-interest dividends should the Fund hold obligations financing such
facility.
Under regulations to be promulgated, to the extent attributable to interest
paid on certain private activity bonds, a Fund's exempt-interest dividends,
while otherwise tax-exempt, will be treated as a tax preference item for
alternative minimum tax purposes. Corporate shareholders should also be aware
that the receipt of exempt-interest dividends could subject them to alternative
minimum tax under the provisions of Section 56(g) of the Code (relating to
"adjusted current earnings").
Under particularly unusual circumstances, such as when a Fund is in a
prolonged defensive
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investment position, it is possible that no portion of a Fund's distributions of
income to its shareholders for a fiscal year would be exempt from federal income
tax. The Funds do not presently anticipate, however, that such unusual
circumstances will occur.
Each Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
Each Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of a Fund will not be deductible for federal income tax purposes
to the extent of the portion of the interest expense relating to exempt-interest
dividends. Such portion is determined by multiplying the total amount of
interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt-interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt-interest dividends
and the taxable distributions out of the Fund's investment income and long-term
capital gains received by the shareholder.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
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 advisers
about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of
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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.
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FINANCIAL INFORMATION
Expenses
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements," "Principal Underwriter" and "Purchase, Redemption and
Pricing of Shares."
<TABLE>
<CAPTION>
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
============================ =========== ============= ============ =========== ============== ===================
1998 Fund Expenses
<S> <C> <C> <C> <C> <C> <C>
California $150,177. $8,075 $191,945 $16,932 $46,632 $3,029
Massachusetts $62,171 $3,513 $67,467 $16,883 $22,859 $1,771
Missouri $138,262 $7,025 $183,796 $11,123 $138,428 $8,737
New York $132,245 $6,072 $173,914 $14,416 $62,317 $4,131
Pennsylvania $610,824 $41,755 $351,011 $61,038 $65,672 $6,605
Connecticut (a) $141,059 $51 $415 N/A $3,194 $476
New Jersey $429,995 $79,247* $108,770 N/A $44,432 $4,471
1997 Fund Expenses
California (b) $51,555 $2,121 $66,054 $4,972 $133,966 $60,931
Massachusetts $63,584 $2,689 $67,185 $19,460 $97,579 $29,745
Missouri (b) $46,447 $1,259 $64,269 $3,949 $96,918 $55,982
New York $135,473 $5,586 $166,682 $19,837 $236,114 $20,175
Pennsylvania $390,366 $39,570 $343,818 $71,610 $504,459 $106,694
Connecticut (a) N/A N/A N/A N/A N/A N/A
New Jersey (c) $135,196 $47,320 $25,809 N/A N/A N/A
1996 Fund Expenses
California (d) $163,334 $6,390 $178,969 $12,179 $341,589 $67,534
Massachusetts $62,760 $2,268 $64,033 $19,322 $108,131 $18,234
Missouri (d) $146,922 $12,309 $175,942 $15,518 $230,925 $94,279
New York $118,589 $5,471 $139,881 $21,378 $201,162 $201,162
Pennsylvania $402,467 $44,555 $321,061 $202,901 $482,423 $482,423
Connecticut (a) N/A N/A N/A N/A N/A N/A
New Jersey (e) $107,212 $42,750 $22,310 N/A N/A N/A
</TABLE>
*Of this amount, $50,718 was waived by the Distributor.
(a) The Fund commenced operations on November 24, 1997.
(b) Four months ended March 31, 1997. During the period, the California Fund
and the Missouri Fund changed their fiscal year end from November 30 to
March 31.
(c) Seven months ended March 31, 1997. During the period, the New Jersey Fund
changed its fiscal year end from August 31 to March 31.
(d) Year ended November 30, 1996.
(e) Six months ended August 31, 1996. The Fund changed its fiscal year end from
February 29 to August 31.
36
<PAGE>
Advisory Fee Waivers
In accordance with voluntary expense limitations in effect during the
fiscal year ended March 31, 1998, each Fund's Adviser voluntarily reimbursed or
waived advisory fees, as follows:
California $67,381
Massachusetts $54,590
Missouri $94,233
New York $58,744
Pennsylvania $174,928
Connecticut $64,322
New Jersey $296,793
Brokerage Commissions
The Funds paid no brokerage commissions during 1998, 1997 and 1996.
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.
37
<PAGE>
The annual total returns for each class of shares of the Funds (including
applicable sales charges) as of March 31, 1998 are as follows:
Since Inception
One Year Five Years Inception Date
California
Class A 5.30% -- 4.05% 2/1/94
Class B 4.75% -- 4.22% 2/1/94
Class C 8.77% -- 4.56% 2/1/94
Massachusetts
Class A 5.25% -- 3.60% 2/4/94
Class B 4.60% -- 3.69% 2/4/94
Class C 8.62% -- 4.06% 2/4/94
Missouri
Class A 5.73% -- 4.60% 2/1/94
Class B 5.26% -- 4.61% 2/1/94
Class C 9.15% -- 4.97% 2/1/94
New York
Class A 5.31% -- 4.46% 2/4/94
Class B 4.80% -- 4.53% 2/4/94
Class C 8.69% -- 4.90% 2/4/94
Class Y -- -- -- --
Pennsylvania
Class A 4.80% 5.04% 7.53% 12/27/90
Class B 4.27% 4.93% 5.50% 2/1/93
Class C 8.34% 5.28% 5.68% 2/1/93
Class Y -- -- 2.54% 11/24/97
Connecticut
Class A -- -- 0.77% 12/30/97
Class B -- -- (0.21%) 1/9/98
Class Y -- -- 2.39% 11/24/97
- ------------------------------------------- ------------------- ----------------
New Jersey
Class A 4.15% 4.98% 6.52% 7/16/91
- ------------------------------------------- ------------------- ----------------
Class B 3.35% -- 3.34% 1/30/96
- ------------------------------------------- ------------------- ----------------
Class Y 9.44% -- 5.36% 2/8/96
=========================================== =================== ================
38
<PAGE>
Current and Tax Equivalent Yields
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of a Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. Such yield will include
income from sources other than municipal obligations, if any. Tax equivalent
yield is, in general, the current yield divided by a factor equal to one minus a
stated income tax rate and reflects the yield a taxable investment would have to
achieve in order to equal on an after-tax basis a tax-exempt yield. For the
30-day period ended March 31, 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.
<TABLE>
<CAPTION>
30-Day Yield Tax-Equivalent Yield
================================== ===============================================
Fund Combined Class A Class B Class C Class Y Class A Class B Class C Class Y
Federal &
State Tax
Rate (1)
===================== ========== ======== ======== ===================== ============ ============ ============ ============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California 39.6% 4.11% 3.56% 3.56% -- 6.80% 5.89% 5.89% --
Massachusetts 39.6% 3.85% 3.31% 3.31% -- 6.37% 5.48% 5.48% --
Missouri 39.6% 4.33% 3.80% 3.79% -- 7.17% 6.29% 6.27% --
New York 39.6% 4.20% 3.66% 3.66% -- 6.95% 6.06% 6.06% --
Pennsylvania 39.6% 4.07% 3.52% 3.52% 4.52% 6.74% 5.83% 5.83% 7.48%
Connecticut 39.6% -- -- -- 4.11% -- -- -- 6.80%
New Jersey 39.6% 4.27% 3.57% -- 4.58% 7.07% 5.91% -- 7.58%
</TABLE>
(1) Assumed for purposes of this chart. Your tax may vary.
39
<PAGE>
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 March 31, 1998.
Fund Net Asset Value Maximum Per Offering Price
Share Sales Per Share
Charge
California $9.98 4.75% $10.48
Massachusetts $9.76 4.75% $10.25
Missouri $10.21 4.75% $10.72
New York $10.12 4.75% $10.62
Pennsylvania $11.70 4.75% $12.28
Connecticu $6.38 4.75% $6.70
New Jersey $11.11 4.75% $11.66
Financial Statements
The audited financial statements and the independent auditors' report
thereon are hereby incorporated by reference to each Fund's Annual Report, a
copy of which 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.
40
<PAGE>
APPENDIX A
EVERGREEN CALIFORNIA TAX FREE FUND
General
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of almost 33 million represents
over 12% of the total U.S. population and grew by 27% in the 1980's. Population
growth slowed to less than 1% annually in 1994 and 1995, but rose to 1.9% in
1996. During the early 1990's, net population growth in the State was due to
births and foreign immigration, but more recently net in-migration from the
other states has resumed. Total personal income in the State, at an estimated
$867 billion in 1997 accounts for more than 12% of all personal income in the
nation. Total civilian employment is over 14 million, the majority of which is
in the service, trade and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Job losses were the
worst of any post-war recession. Employment levels stabilized by late 1993 and
steady growth has occurred since the start of 1994; pre-recession job levels
were reached in 1996. Unemployment, while higher than the national average, has
come down significantly from the January, 1994 peak of 10% and is now at the
pre-recession level. Economic indicators show a steady recovery underway in
California since the start of 1994, with greatest strength in manufacturing,
high technology, exports, services, entertainment, tourism, and construction.
The Asian economic crisis starting in mid-1997 is expected to have a moderate
dampening effect on the State's economy. Any delay or reversal of the economic
recovery may cause a recurrence of revenue shortfalls for the State.
Constitutional Limitations on Taxes, Other Charges and Appropriations
Limitation on Property Taxes. Certain California municipal obligations may
be obligations of issuers that rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter-approved levy of
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"general taxes" that were not dedicated to a specific use.
Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted
to the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a
two-thirds vote. Further, any general purpose tax which was imposed, extended or
increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
Appropriation Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" excludes most State subventions to local governments. No limit is imposed
on
A-2
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appropriations of funds that are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population and any transfers of service
responsibilities between governmental units. The definitions for such
adjustments were liberalized in 1990 to follow more closely growth in the
State's economy.
"Excess" revenues are measured over a two-year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% paid to schools and community colleges. With more liberal annual adjustment
factors since 1988, and depressed revenues for several years after 1990 because
of the recession, few governments, including the State, are currently operating
near their spending limits, but this condition may change over time. The State's
1997-98 Budget Act provides for State appropriations of more than $6.3 billion
under the Article XIIIB limit. Local governments may by voter approval exceed
their spending limits for up to four years.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID, of
the California Constitution, the ambiguities and possible inconsistencies of
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these articles on California municipal obligations. It is not presently possible
to predict the outcome of any pending litigation with respect to the ultimate
scope, impact or constitutionality of these articles, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
Obligations of the State of California
As of April 1, 1998, the State had approximately $18.4 billion of long-term
general obligation bonds outstanding, plus $1.3 billion of general obligation
commercial paper which is planned to be refunded by long-term bonds in the
future ($600 million was so converted on April 30, 1998) and $6.5 billion of
lease-purchase debt supported by the General Fund. The State also had about $8.2
billion of authorized but unissued long-term general obligation bonds and
lease-purchase debt. In fiscal year 1996-1997, debt service on general
obligation bonds and lease-purchase debt was approximately 5.0% of General Fund
revenues. The State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt and short-term obligations when due.
Recent Financial Results
The principal sources of General Fund revenues in 1996-1997 were the
California personal income tax (47% of total revenues), the sales tax (34%),
bank and corporation taxes (12%), and
A-3
<PAGE>
the gross premium tax on insurance (2%). The State maintains a Special Fund for
Economic Uncertainties (SFEU), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund. Because of the recession and an
accumulated budget deficit, no reserve was budgeted in the SFEU from 1992-93 to
1995-96.
General. Throughout the 1980's, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently 35%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs.
Recent Budgets. As a result of the recession and other factors, the State
experienced substantial revenue shortfalls and greater than anticipated social
service costs in the early 1990's. The State accumulated and sustained a budget
deficit in the SFEU approaching $2.8 billion at its peak at June 30, 1993. The
Legislature and Governor agreed on a number of different steps to respond to
these adverse financial conditions produce Budget Acts in the Years 1991-92 to
1994- 95 (although not all these actions occurred in each year), including:
* significant cuts in health and welfare program expenditures;
* transfers of program responsibilities and some funding sources
from the state to local governments, coupled with some
reduction in mandates on local government;
* transfer of about $3.6 billion in annual local property tax
revenues from cities, counties, redevelopment agencies and
some other districts to local school districts, thereby
reducing state funding for schools;
* reduction in growth of support for higher education programs,
coupled with increases in student fees;
* revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were for a short duration;
* increased reliance on aid from the federal government to
offset the costs of incarcerating, educating and providing
health and welfare services to undocumented aliens (although
these efforts have produced much less federal aid than the
State Administration had requested); and
* various one-time adjustment and accounting changes.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results, with revenues equaling or exceeding expenditures
starting in FY 1992-93. As a result, the accumulated budget deficit of about
$2.8 billion was eliminated by June 30, 1997, when the State showed a positive
balance of about $408 million, on a budgetary basis, in the SFEU.
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<PAGE>
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts borrowed from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. The last of these deficit notes was repaid in
April, 1996.
The 1995-96 and 1996-97 Budget Acts reflected significantly improved
financial conditions, as the State's economy recovered and tax revenues soared
above projections. Over the two years, revenues averaged about $2 billion higher
than initially estimated. Most of the additional revenues were allocated to
school funding, as required by Proposition 98, and to make up shortfalls in
federal aid for health and welfare costs and costs of illegal aliens. The
budgets for both these years showed strong increases in funding for K-14 public
education, including implementation of initiatives to reduce class sizes for
lower elementary grades to not more than 20 pupils. Higher education funding
also increased. Spending for health and welfare programs was kept in check, as
previously implemented cuts in benefit levels were retained.
Fiscal Year 1997-98 Budget. With continued strong economic recovery and
surging tax receipts, the State entered the 1997-98 Fiscal Year in the strongest
financial position in the decade. However, in May 1997, the California Supreme
Court ruled that the State had acted illegally in 1993 and 1994 by using a
deferral of payments to the Public Employees Retirement Fund to help balance
earlier budgets. In response to this court decision, the Governor ordered an
immediate repayment to the Retirement Fund of about $1.235 billion, which was
made in late July, 1997, and substantially used up the expected additional
revenues for the fiscal year. The Budget Act as signed provided for about $52.8
billion of General Fund expenditures, and assumed about $52.5 billion of
revenues.
The 1997-98 Budget Act provided another year of rapidly increasing funding
for K-14 public education. Total General Fund support was targeted to reach
$5,150 per pupil, more than 20% higher than the recession-period levels which
were in effect as late as FY 1993-94. The $1.75 billion in new funding was
budgeted to be spent on class size reduction and other initiatives, as well as
fully funding growth and cost of living increases. Support for higher education
units in the State also increased by about 6 percent. Because of the pension
payment, most other State programs were funded at levels consistent with prior
years, and several initiatives had to be dropped. These included additional
assistance to local governments, state employee raises, and funding of a bond
bank.
Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called CalWORKs, became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal law,
new time limits were placed on receipt of welfare aid. Grant levels for 1997-98
remained at the reduced, prior years' levels.
The Department of Finance released updated budget estimates in May, 1998,
which showed that revenues for the 1997-98 Fiscal Year would be $54.6 billion,
almost $2 billion higher than initial budget estimates, as a result of the
strong economy. Expenditures were expected to increase to about $53.0 billion,
resulting in a significant balance in the SFEU at June 30, 1998.
Proposed 1998-99 Fiscal Year Budget. The Governor released his proposed FY
1998-99 Budget on January 9, 1998, and updated his revenue projections and
budgetary proposals on May 13, 1998 (the May Revision). The May Revision
projected General Fund revenues and transfers of
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<PAGE>
$57.8 billion. Revenue losses due to tax cuts enacted in late 1997 were expected
to be offset by higher capital gains realizations. These revenue estimates were
$2.5 billion higher than the Governor had projected with the January Budget
proposal. The Governor proposed expenditures of $58.3 billion. The Governor
proposed significant additional funding for K-12 schools under Proposition 98,
as well as additional funding for higher education, with a proposed reduction of
college student fees. State and federal funds will be used in the new CalWORKS
welfare program, with projections of a fourth consecutive year of caseload
decline. The Governor proposed a large capital expenditure program, focusing on
schools and universities, but also including corrections, environmental and
general government projects. These proposals would require approval of almost $
10 billion of new general obligation bonds over the next six years. No agreement
was reached with the Legislature to place any bond measures on the June, 1998
ballot, but negotiations will continue for bonds at the November, 1998 election.
With the significantly increased revenue projection for both 1997-98 and
1998-99, the Governor proposed in the May Revision that the State reduce its
Vehicle License Fee (a personal property tax on the value of automobiles, the
VLF) by 75% over four years. Under current law, the VLF is entirely dedicated to
city and county government, and the Governor proposed to use the State's
burgeoning General Fund to offset the loss of VLF funds to local government. All
of the Governor's proposals must be negotiated with the Legislature as part of
the annual budget process.
Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
Bond Ratings
The ratings on California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the recession.
In 1996 and 1997, the ratings of California's general obligation bonds were
raised by the three major rating agencies, which as of June 1997 assigned
ratings of A+ from Standard & Poor's, Al from Moody's and AA- from Fitch. There
can be no assurance that such ratings will be maintained in the future. It
should be noted that the creditworthiness of obligations issued by local
California issuers may be unrelated to creditworthiness of obligations issued by
the State of California, and that there is no obligation on the part of the
State to make payment on such local obligations in the event of default.
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include reductions in welfare
payments and the use of certain cigarette tax funds for health costs. All of
these cases are subject to further proceedings and appeals, and if California
eventually loses, the final remedies may not have to be implemented in one year.
Obligations of Other Issuers
Other Issuers of California Municipal Obligations. There are a number of
state agencies,
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<PAGE>
instrumentalities and political subdivisions of the State that issue municipal
obligations, some of which may be conduit revenue obligations payable from
payments from private borrowers. These entities are subject to various economic
risks and uncertainties, and the credit quality of the securities issued by them
may vary considerably from the credit quality of obligations backed by the full
faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Local
assistance (including public schools) has historically accounted for around 75%
of General Fund spending. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer a total of $3.9 billion of property tax revenues to school districts,
representing loss of all the post-Proposition 13 "bailout" aid. The largest
share of these transfers came from counties, and the balance from cities,
special districts and redevelopment agencies. Local governments have in return
received greater revenues and greater flexibility to operate health and welfare
programs.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. A number of other counties
have indicated that their budgetary condition is extremely serious. In the
1995-96 and 1996-97 fiscal years, Los Angeles County, the largest in the State,
had to make significant cuts in services and personnel, particularly in the
health care system, in order to balance its budget. The County's debt was
downgraded by Moody's and S&P in the summer of 1995. Orange County, which
recently emerged from federal bankruptcy protection, has substantially reduced
services and personnel in order to live within much reduced means.
Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the welfare-to- work programs exceed minimum targets; counties
are also responsible to provide general assistance for able-bodied indigents who
are ineligible for other welfare programs. The long-term financial impact of the
new CalWORKS system on local governments is still unknown.
Legislation enacted in late 1997 provides for the State to take over
financial responsibility for funding trial courts throughout the State. This is
estimated to save counties and cities a total of over $350 million annually.
Assessment Bonds. California municipal obligations that are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land that is undeveloped at the time of issuance, but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the
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only security for the bonds. Moreover, in most cases the issuer of these bonds
is not required to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except from amounts, if any, in a reserve fund
established for the bonds.
California Long-Term Lease Obligations. Based on a series of court
decisions, certain California long-term lease obligations, though payable from
the general fund of the municipality, are not considered indebtedness requiring
voter approval. Such leases are, however, subject to "abatement" in the event
the facility being leased is unavailable for beneficial use and occupancy by the
municipality during the term of the lease. Abatement is not a default, and there
may be no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common cases of
abatement are failure to complete construction of the facility before the end of
the period during which lease payments have been capitalized and uninsured
casualty losses to the facility (e.g. due to earthquake). In the event abatement
occurs with respect to a lease obligation, lease payments may be interrupted (if
all available insurance proceeds and reserves are exhausted) and the
certificates may not be paid when due. Litigation is brought from time to time
which challenges the constitutionality of such lease arrangements.
Other Considerations
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g. because of major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity that
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which typically are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
that would modify existing taxes or other revenue raising measures or that
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
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Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any security in the California Fund could be affected by an
interruption of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (I)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State governments to appropriate
sufficient funds within their respective budget limitations.
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APPENDIX B
EVERGREEN MASSACHUSETTS TAX FREE FUND
The Commonwealth of Massachusetts and certain of its cities and towns and
public bodies have experienced in the past, and may experience in the future,
financial difficulties that may adversely affect their credit standing. The
prolonged effects of such financial difficulties could adversely affect the
market value of the municipal securities held by the Massachusetts Fund. The
information summarized below describes some of the more significant factors that
could affect the Massachusetts Fund or the ability of the obligors to pay debt
service on certain of the securities. The sources of such information are the
official statement of issuers located in the Commonwealth of Massachusetts as
well as other publicly available documents, and statements of public officials.
The Massachusetts Fund has not independently verified any of the information
contained in such statements and documents but the Massachusetts Fund is not
aware of facts which would render such information inaccurate.
General
The Commonwealth's constitution requires, in effect, that its budget,
though not necessarily its operating expenditures and revenue, be balanced each
year. In addition, the Commonwealth has certain budgetary procedures and fiscal
controls in place that are designed to ensure that sufficient cash is available
to meet the Commonwealth's obligations, that state expenditures are consistent
with periodic allotments of annual appropriations and that funds are expended
consistent with statutory and public purposes. The condition of the three
principal operating funds (the General Fund, the Local Aid Fund and the Highway
Fund), viewed on a consolidated basis, is generally regarded as the principal
indicator of whether the Commonwealth's operating revenues and expenses are in
balance.
1998 FISCAL YEAR
The budget for fiscal 1998 was enacted by the Legislature on June 30, 1997
and approved by Governor Weld on July 10, 1997. (Appropriations covering the
first two weeks of the fiscal year were enacted and approved on June 30, 1997.)
The budget was based on a consensus tax revenue forecast of $12.85 billion, as
agreed by both houses of the Legislature in March. The Executive Office for
Administration and Finance revised the fiscal 1998 tax forecast to $13.06
billion on July 30, 1997 and, after a review of first quarter fiscal 1998 tax
receipts, to $13.20 billion on October 15, 1997. The fiscal 1998 tax revenue
estimates were revised again on January 16, 1998 to reflect an increase of $100
million in tax revenues. Tax law changes effective in fiscal 1998 have (I)
increased anticipated revenues by $19.0 million from miscellaneous fees to be
collected as a result of the convention center legislation approved on November
17, 1997, (ii) reduced tax revenues by an estimated $25.0 million as a result of
the exemption of military pensions from state income tax, effective January 1,
1998, which was approved by Acting Governor Cellucci on November 6, 1997, and
(iii) reduced tax revenues by an estimated $140 million as a result of a change
in the sales tax payment schedule. After taking into account such tax law
changes, the January 16, 1998 estimate was $13.154 billion. On May 5, 1998, the
tax revenue estimate was further revised upward to $13.3 billion. On June 1,
1998, Revenue Commissioner Mitchell Adams announced that year-to-date revenue
collections totaled $12.364 billion, which he found to be in line with revenue
estimates.
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The fiscal 1998 budget provides for total appropriations of approximately
$18.4 billion, a 2.8% increase over fiscal 1997 expenditures. The budget
incorporates tax cuts valued by the Department of Revenue at $61 million and
provides for an accelerated pension funding schedule. Supplemental
appropriations have been approved for fiscal 1998 in the amount of approximately
$210.4 million, including the transfer of approximately $34.8 million to the
Massachusetts Water Pollution Abatement Trust for state revolving fund programs.
In addition, on November 26, 1997, Acting Governor Cellucci approved legislation
transferring off-budget the $206.3 million Department of Medical Assistance
reserve to indemnify certain medical facilities against losses that might result
from providing uncompensated care. On January 30, 1998, Acting Governor Cellucci
filed two bills recommending supplemental appropriations for fiscal 1998
totaling $211.8 million. The bills incorporated most of the supplemental
appropriations recommended in bills filed by the Administration on October 6,
1997 and October 17, 1997 which were not enacted by the Legislature. The first
bill totaled $44.6 million in proposed spending to provide to certain
unanticipated obligations of the Commonwealth. The second bill recommended
$167.1 million in proposed spending to provide for one-time expenditures,
matching grants and capital initiatives, including $50 million for the
construction and repair of local roads and bridges, $20 million for the
development of a new human resource compensation management system and $10
million in additional funding for the upgrade of the Commonwealth's information
technology systems in preparation for the year 2000 conversion. On April 29,
1998, Acting Governor Cellucci approved a supplemental appropriations bill for
$116.4 million, of which $56.3 million is for expenditures contained in the
bills filed by the Acting Governor on January 30, 1998. The bill includes $21.1
million for snow and ice costs at the Massachusetts Highway Department, $15.4
million for child care services relating to welfare reform and $11 million at
the Department of Social Services for residential group care and adoption.
Projected Total fiscal 1998 expenditures are approximately $18.930 billion.
Cash Flow
The most recent cash flow projections for fiscal 1998 and fiscal 1999 were
released by the State Treasurer and the Secretary of Administration and Finance
on March 25, 1998. The forecast for fiscal 1998 is based on the fiscal 1998
budget signed by Governor Weld on July 10, 1997, and includes the value of all
fiscal 1998 supplemental budgets enacted by the Legislature. The fiscal 1999
forecast is based on the proposed fiscal 1999 budget submitted by the Acting
Governor on January 27, 1998. Both projections are based on revenue and spending
estimates prepared by the Executive Office for Administration and Finance and
incorporate actual results through January, 1998 and monthly projections through
June, 1999.
Fiscal 1998 is projected to end with a cash balance of $477.9 million,
without regard to any fiscal 1998 activity that may occur after June 30, 1998.
Such balance does not include the balance in the Stabilization Fund ($799.0
million at June 30, 1997) or interest earnings thereon expected during fiscal
1998; it does reflect the required Stabilization Fund transfer related to fiscal
1997 of $234.0 million during fiscal 1998. The cash flow statement notes that
general obligation bonds were issued for capital projects in August, 1997 in the
amount of $250 million and in January, 1998 in the amount of $250 million and
projects that an additional $428 million of general obligation bonds will be
issued for such purposes during the remainder of the fiscal year. The statement
also notes that $105 million of special obligation bonds were issued in October,
1997.
The cash flow statement notes that the Massachusetts Turnpike Authority and
the Massachusetts Port Authority are required to make payments to the
Commonwealth in connection with the Central Artery/Ted Williams Tunnel project
and forecasts that the Commonwealth will receive $430 million in the aggregate
during fiscal 1998 from such authorities or from the issuance
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of Commonwealth notes in anticipation of payments from such authorities. (The
statement also notes that the Commonwealth has the statutory authority to issue
bonds to pay any such notes.) The statement further forecasts, in connection
with the Central Artery/Ted Williams Tunnel project, that the Commonwealth will
issue $350 million of notes in anticipation of future federal highway grants,
noting that federal funding for such purposes has been extended on an interim
basis through March 31, 1998, and that successor federal funding legislation is
expected to be enacted by late 1998.
1999 FISCAL YEAR
On January 27, 1998, Acting Governor Cellucci filed his fiscal 1999 budget
recommendations with the House of Representatives. The proposal calls for
budgeted expenditures of approximately $19.06 billion, or total fiscal 1999
spending of $19.49 billion after adjusting for shifts to and from off-budget
accounts. The proposed fiscal 1999 spending level represents a $559 million, or
3.0%, increase over projected total fiscal 1998 expenditures of $18.930 billion.
Budgeted revenues for fiscal 1999 are projected to be $18.961 billion, or
$19.291 billion after adjusting for shifts to and from off-budget accounts. This
represents a $53.0 million, or 0.3%, increase over the $18.908 billion forecast
for fiscal 1998. (The $18.908 billion revenue estimate for fiscal 1998 reflects
the addition of $100 million in tax revenue incorporated into the forecast by
the Secretary of Administration and Finance on January 16, 1998 and the addition
of $146 million in tax revenue incorporated into the forecast by the Secretary
of Administration and Finance on May 5, 1998.) The Governor's proposal projects
a fiscal 1999 ending balance in the budgeted funds of $906.3 million, including
a Stabilization Fund balance of $878.1 million.
The Governor's budget recommendation is based on a tax revenue estimate of
$13.665 billion, a $365.0 million, or 2.7%, increase over fiscal 1998 projected
tax revenues of $13.300 billion. The projection incorporates $244.8 million in
income tax cuts proposed by the Governor, including a reduction of the Part B
("earned income') tax rate from 5.95% to 5% over three years ($205.8 million), a
reduction of the Part A ("unearned income"; i.e., interest from non-
Massachusetts banks, dividends, and short-term capital gains) tax rate from 12%
to 5% over five years ($30 million), credits and exemptions to encourage saving
for children's higher education ($3 million), an exemption from capital gains
taxes on the sale of a house ($2 million) and an exemption for providing care to
an elderly relative ($4 million). The recommendation also proposes moving $92.5
million in tax revenue in the Children's and Seniors Health Protection Fund off-
budget.
The proposed budget assumes non-tax revenues of $5.297 billion, or $5.624
billion when adjusted for the shifts to and from off-budget accounts, and
represents an increase of $15.4 million from fiscal 1998. Of the three classes
of non-tax revenue, federal reimbursements, including those for Medicaid, and
block grants for Temporary Assistance to Needy Families and Child Care programs
most affect the Commonwealth's budgetary considerations. These payments are
projected to total $3.216 billion in fiscal 1999, or $3.426 billion after the
impact of shifts to and from off-budget accounts is removed. This level of
federal payments represents an increase of $41.0 million, or 1.2%, from fiscal
1998, the result primarily of changes in federal reimbursement for Medicaid
programs. Fiscal 1999 departmental revenues of $1.130 billion, or $1.158 billion
after adjusting for shifts to and from off-budget accounts, represent a decrease
of approximately $127 million from fiscal 1998 projections, due primarily to the
implementation of free, lifetime driver licensing and vehicle registration and a
decrease of $29.3 million from fiscal 1998 in the revenue generated by the
revenue optimization program. Consolidated transfers, the third category of
non-tax revenue, consists primarily of state lottery profits which are
distributed to cities and towns. Consolidated transfers are projected to
increase by $1.8 million from fiscal 1998 levels.
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Lottery profits are expected to remain constant in fiscal 1999.
The Governor's budget proposal generally provides for maintaining current
levels of service for most state programs but recommends increased spending for
certain priority areas, including a $357 million increase in funding for the
Department of Education, $309.7 million in additional local aid to cities and
towns, $69 million for Medicaid program medical inflation and $34 million in
additional local aid funded by the State Lottery.
The Governor's fiscal 1999 budget recommendations call for appropriations
of $945.3 million for pension funding, $85.2 million less than the amount
appropriated for fiscal 1998 and $113.9 million less than the amount called for
in the most recent adopted funding schedule. The recommended amount reflects the
elimination in 1997 of the Commonwealth's responsibility for funding
cost-of-living adjustments incurred by local pension systems and assumes the
adoption of a revised funding schedule in the spring of 1998. The proposed
budget also includes a $20 million reserve to meet the Commonwealth's obligation
to reduce the unfunded pension liabilities attributable to former employees of
Franklin, Hampden, Middlesex and Worcester counties and certain incremental
benefit costs associated with legislation enacted in 1996; any expenditures from
the reserve are contingent upon the adoption of a new funding schedule.
On April 27, 1998, the House Committee on Ways and Means released its
proposed budget for fiscal 1999. Debate in the full House of Representatives
began on May 4, 1998. The House Committee's budget provides for total spending
of $19.592 billion and assumes total revenues of $19.446 billion. The House
Committee's budget is based on the consensus tax revenue estimate of $14.4
billion, less approximately $534 million from tax cuts proposed in such budget.
The Committee's budget includes the income tax provisions approved by the House
of Representatives on March 12, 1998. It would raise the statutory ceiling on
amounts in the Stabilization Fund from 5% to 7.5% of budgeted revenues and other
financial resources pertaining to the budgeted funds. The committee's budget
would add $18 million in appropriations for building maintenance and $21 million
in appropriations for debt service related to the "forward funding" of the
Massachusetts Bay Transportation Authority. The committee's budget would also
appropriate approximately $965.3 million for the Commonwealth's pension
liabilities.
On November 28, 1995 the Governor approved a modified version of the
legislation he had filed in September to establish a "single sales factor"
apportionment formula for the business corporations tax. As finally enacted, the
legislation applies the new formula, effective January 1, 1996, to certain
federal defense contractors and phases the new formula in over five years to
manufacturing firms generally. The Department of Revenue estimates that the new
law reduced revenues by $44 million in fiscal 1996 and will reduce revenues by
$90 million in fiscal 1997. If the new formula were fully effective for all
covered businesses, the Department estimates that the annual revenue reduction
would be $100 million to $150 million. On August 8, 1996, the Governor approved
legislation changing the apportionment formula for the business corporations tax
payable by certain mutual fund service corporations. The legislation changes the
computation of the sales factor effective January 1, 1997 and adopts the "single
sales factor" formula effective July 1, 1997 with respect to these companies. It
also requires the affected corporations to increase their numbers of employees
by 5% per year for five years, subject to certain exceptions. The Department of
Revenue estimates that the changes will reduce revenues by $10 million in fiscal
1997 and by approximately $39 million to $53 million per year beginning in
fiscal 1998.
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Limitations on Tax Revenues
In Massachusetts, efforts to limit and reduce levels of taxation have been
underway for several years. Limits were established on state tax revenues by
legislation enacted on October 25, 1986 and by an initiative petition approved
by the voters on November 4, 1986. The two measures are inconsistent in several
respects.
Chapter 62F, which was added to the General Laws by initiative petition in
November 1986, establishes a state tax revenue growth limit for each fiscal year
equal to the average positive rate of growth in total wages and salaries in the
Commonwealth, as reported by the federal government, during the three calendar
years immediately preceding the end of such fiscal year. Chapter 62F also
requires that allowable state tax revenues be reduced by the aggregate amount
received by local governmental units from any newly authorized or increased
local option taxes or excises. Any excess in state tax revenue collections for a
given fiscal year over the prescribed limit, as determined by the State Auditor,
is to be applied as a credit against the then current personal income tax
liability of all taxpayers in the Commonwealth in proportion to the personal
income tax liability of all taxpayers in the Commonwealth for the immediately
preceding tax year.
Unlike Chapter 29B, as described below, the initiative petition did not
exclude principal and interest payments on Commonwealth debt obligations from
the scope of its tax limit. However, the preamble contained in Chapter 62F
provides that "although not specifically required by anything contained in this
chapter, it is assumed that from allowable state tax revenues as defined herein
the Commonwealth will give priority attention to the funding of state financial
assistance to local governmental units, obligations under the state governmental
pension systems, and payment of principal and interest on debt and other
obligations of the Commonwealth".
The legislation enacted in October 1986, which added Chapter 29B to the
General Laws, also establishes an allowable state revenue growth factor by
reference to total wages and salaries in the Commonwealth. However, rather than
utilizing a three-year average wage and salary growth rate, as used by Chapter
62F, Chapter 29B utilizes an allowable state revenue growth factor equal to 1/3
of the positive percentage gain in Massachusetts wages and salaries, as reported
by the federal government during the three calendar years immediately preceding
the end of a given fiscal year. Additionally, unlike Chapter 62F, Chapter 29B
allows for an increase in maximum state tax revenues to fund the increase in
local aid and excludes from its definition of state tax revenues (I) income
derived from local option taxes and excises, and (ii) revenues needed to fund
debt service costs.
Proposition 2 1/2
In November 1980, voters in the Commonwealth approved a statewide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees imposed
on cities and towns by certain governmental entities, including county
governments. Proposition 2 1/2 is not a provision of the state constitution and
accordingly is subject to amendment or repeal by the legislature. Proposition 2
1/2, as amended to date, limits the property taxes that may be levied by any
city or town in any fiscal year to the lesser of (I) 2.5% of the full and fair
cash valuation of the real estate and personal property therein, and (ii) 2.5%
over the previous year's levy limit plus any growth in the tax base from certain
new construction and parcel subdivisions. Proposition 2 1/2 also limits any
increase in the charges and fees assessed by certain governmental entities,
including county governments, on cities and towns to the sum of (I) 2.5% of the
total charges and fees imposed in the preceding fiscal year, and (ii) any
increase in charges for services customarily provided locally or services
obtained by the city or
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town at its option. The law contains certain override provisions and, in
addition, permits debt service on specific bonds and notes and expenditures for
identified capital projects to be excluded from the limits by a majority vote at
a general or special election.
Many communities have responded to the limitations imposed by Proposition 2
1/2 through statutorily permitted overrides and exclusions. Override activity
peaked in fiscal 1991 and decreased thereafter. In fiscal 1992, 65 communities
approved one of the three types of referenda questions (override of levy limit,
exclusion of debt service, or exclusion of capital expenditures), adding $31.0
million to their levy limits.
In fiscal 1993, 59 communities added $16.3 million through override votes
and in fiscal 1994, only 48 communities had successful override referenda which
added $8.4 million to their levy limits. In fiscal 1995, 32 communities added
$8.8 million, and in fiscal 1996, 30 communities added $5.8 million to their
levy limits. Although Proposition 2 1/2 will continue to constrain local
property tax revenues, significant capacity exists for overrides in nearly all
cities and towns.
In addition to overrides, Proposition 2 1/2 allows a community, through
voter approval, to assess taxes in excess of its levy limit for the payment of
certain capital projects (capital outlay expenditure exclusions) and for the
payment of specified debt service costs (debt exclusions). Capital exclusions
were passed by 19 communities in fiscal 1996 and totaled $1.5 million. In fiscal
1996, the impact of successful debt exclusion votes going back as far as fiscal
1983, was to raise the levy limits of 229 communities by $125.8 million.
Litigation
There are pending in state and federal courts within the Commonwealth and
in the U.S. Supreme Court various suits in which the Commonwealth is a party. In
the opinion of the Attorney General, no litigation is pending or, to his
knowledge, threatened which is likely to result, either individually or in the
aggregate, in final judgments against the Commonwealth that would affect
materially its financial condition.
Other Factors
Many factors affect the financial condition of the Commonwealth, including
many social, environmental, and economic conditions, which are beyond the
control of the Commonwealth. As with most urban states, the continuation of many
of the Commonwealth's programs, particularly its human service programs, is, in
significant part, dependent upon continuing federal reimbursements, which are
expected to decline in fiscal 1997.
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APPENDIX C
EVERGREEN MISSOURI TAX FREE FUND
General
Missouri's economy includes manufacturing, commerce, trade, services,
agriculture, tourism and mining. The State's economy is diversified and closely
resembles that of the nation's although growth prospects are less favorable than
in the past. It is the nation's fifteenth largest state. The State employment
sectors, services, trade and manufacturing, also account for the primary sources
of national employment. Recent growth in the manufacturing sector has outpaced
the nation as a whole. Labor force growth has remained steady, totaling 2.65
million in 1993, up from 2.3 million in 1980. Through the 1980's and early
1990's the State's unemployment rate essentially mirrored that of the nation;
however, adverse changes in military appropriations, which play an important
role in the State's economy, could contribute to a significant increase in
unemployment. In 1996, according to the Bureau of Labor Statistics, the State
ranked seventeenth among the states in unadjusted nonagricultural employment. In
November 1996, the State's unemployment rate was estimated to be 4.0% as against
the national rate of 5.3%. In recent years, Missouri's wealth indicators have
grown at a slower rate than national levels and in 1995 the State's per capita
personal income was approximately 94.0% of the average for the nation as a
whole.
Missouri displayed strong fiscal performance during most of the 1980's.
However, Missouri has recently experienced difficulties in balancing its budget
as a result of increased expenses and declining sources of revenues. Other
factors contributing to Missouri's weak fiscal position relate to the reduction
of large manufacturing companies, including those in aerospace and the auto
industry. The Missouri portions of the St. Louis and Kansas City metropolitan
areas together contain over 50% of Missouri's population. Economic reversals in
either of these two areas would have a major impact on the overall economic
condition of the State of Missouri. Additionally, the State of Missouri has a
significant agricultural sector, which may experience problems comparable to
those which are occurring in other states. To the extent that any such problems
intensify, there could possibly be an adverse impact on the overall economic
condition of the State.
Currently, general obligations of Missouri are rated "AAA," "Aaa" and
"AAA," by S&P, Moody's and Fitch, respectively. There can be no assurance that
the economic conditions on which these ratings are based will continue or that
particular bond issues may not be adversely affected by changes in economic,
political or other conditions.
Revenue and Limitations Thereon
Article X, Section 16-24 of the Constitution of Missouri (the "Hancock
Amendment"), imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The State limit on taxes is tied to total State revenues for fiscal year
1980-81, as defined in the Hancock Amendment, adjusted annually in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri
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for certain designated periods. The details of the Amendment are complex and
clarification from subsequent legislation and further judicial decisions may be
necessary. Generally, if the total State revenues exceed the State revenue limit
imposed by Section 18 of Article X by more than one percent, the State is
required to refund the excess. The State revenue limitation imposed by the
Hancock Amendment does not apply to taxes imposed for the payment of principal
and interest on bonds, approved by the voters and authorized by the Missouri
constitution. The revenue limit also can be exceeded by a constitutional
amendment authorizing new or increased taxes or revenue adopted by the voters of
the State of Missouri.
The Hancock Amendment also limits new taxes, licenses and fees and
increases in taxes, licenses and fees by local governmental units in Missouri.
It prohibits counties and other political subdivisions (essentially all local
governmental units) from levying new taxes, licenses and fees or increasing the
current levy of an existing tax, license or fee without the approval of the
required majority of the qualified voters of that county or other political
subdivision voting thereon.
When a local government unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced to yield the same estimated gross revenue as on the prior base. It also
effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
Industry and Employment
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
During the 1970's, Missouri characteristically had a pattern of unemployment
levels well below the national averages. However, since the 1980 to 1983
recession periods Missouri unemployment levels generally approximated or
slightly exceeded the national average. A return to a pattern of high
unemployment could adversely affect the Missouri debt obligations acquired by
the Missouri Fund and, consequently, the value of the shares of the Fund.
The Missouri portions of the St. Louis and Kansas City metropolitan areas
contain approximately 1,949,956 and 1,039,241 residents, respectively,
constituting over fifty percent of Missouri's 1997 population census of
approximately 5,387,753. St. Louis is an important site for banking and
manufacturing activity, as well as a distribution and transportation center,
with nine Fortune 500 industrial companies (as well as other major educational,
financial, insurance, retail, wholesale and transportation companies and
institutions) headquartered there. Kansas City is a major agribusiness center
and an important center for finance and industry. Economic reversals in either
of these two areas would have a major impact on the overall economic condition
of the State of Missouri. Additionally, the State of Missouri has a significant
agricultural sector which is experiencing farm-related problems comparable to
those which are occurring in other states. To the extent that these problems
were to intensify, there could possibly be an adverse impact on the overall
economic condition of the State of Missouri.
Defense related business plays an important role in Missouri's economy.
There are a large number of civilians employed at the various military
installations and training bases in the state and recent action of the Defense
Base Closure and Realignment Commission will result in the loss of a
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substantial number of civilian jobs in the St. Louis Metropolitan area. Further,
aircraft and related businesses in Missouri are the recipients of substantial
annual dollar volumes of defense contract awards. The contractor receiving the
second largest dollar volume of defense contracts in the United States in 1995
was McDonnell Douglas Corporation which lost the number one position it held in
1994 by reason of the merger of the Lockheed and Martin Companies. McDonnell
Douglas Corporation, which was acquired by The Boeing Company on August 1, 1997,
is the State's largest employer, currently employing approximately 22,900
employees in Missouri. Recent changes in the levels of military appropriations
and the cancellation of the A-12 program has affected McDonnell Douglas
Corporation in Missouri and over the last four years it has reduced its Missouri
work force by such company approximately 30%. There can be no assurances that
there will be further changes in the levels of military appropriations, and, to
the extent that further changes in military appropriations are enacted by the
United States Congress, Missouri could be disproportionately affected. It is
impossible to determine what effect, if any, completion of the acquisition of
all McDonnell Douglas Corporation by The Boeing Company will have on the
operations conducted in Missouri by the former McDonnel Douglas Corporation.
However, any shift or loss of production now conducted in Missouri would have a
negative impact on the economy of the state and particularly the economy of the
St. Louis metropolitan area.
Other Factors
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty. Litigation
continues on many issues, notwithstanding a 1995 U.S. Supreme Court favorable to
the State in the Kansas City desegregation litigation; court orders are
unpredictable, and school district spending patterns have proven difficult to
predict. The State paid $282 million for desegregation costs in fiscal 1994,
$315 million for fiscal 1995 and $274 million for fiscal 1996. This expense
accounted for close to 7% of total state General Revenue Fund spending in fiscal
1994 and 1995, and close to 5% in fiscal 1996.
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APPENDIX D
EVERGREEN NEW YORK TAX FREE FUND
Special Considerations Relating to New York Municipal Securities
The financial condition of the State of New York ("New York State" or the
"State"), its public authorities and public benefit corporations (the
"Authorities") and its local governments, particularly the City of New York (the
"City"), could affect the market values and marketability of, and therefore the
net asset value per share and the interest income of a Fund, or result in the
default of existing obligations, including obligations which may be held by the
Fund. The following section provides only a brief summary of the complex factors
affecting the financial situation in New York and is based on information
obtained from New York State, certain of its Authorities, the City and certain
other localities as publicly available on the date of this Annual Information
Statement. The information contained in such publicly available documents has
not been independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
New York State, and that there is no obligation on the part of New York State to
make payment on such local obligations in the event of default in the absence of
a specific guarantee or pledge provided by New York State.
Economic Factors. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse, with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
Both the State and the City experienced substantial revenue increases in
the mid-1980s attributable directly (corporate income and financial corporations
taxes) and, indirectly (personal income and a variety of other taxes) to growth
in new jobs, rising profits and capital appreciation derived from the finance
sector of the City's economy. Economic activity in the City has experienced
periods of growth and recession and can be expected to experience periods of
growth and recession in the future. In recent years, the City has experienced
increases in employment. Real per capita personal income (i.e., per capita
personal income adjusted for the effects of inflation and the differential in
living costs) has generally experienced fewer fluctuations than employment in
the City. Although the City periodically experienced declines in real per capita
personal income between 1969 and 1981, real per capita personal income in the
City has generally increased from the mid-1980s until the present. In nearly all
of the years between 1969 and 1988 the City experienced strong increases in
retail sales. However, from 1989 to 1993, the City experienced a weak period of
retail sales. Since 1994, the City has returned to a period of growth in retail
sales. Overall, the City's economic improvement accelerated significantly, in
fiscal year 1997. Much of the increase can be traced to the performance of the
securities industry, but the City's economy also produced gains in the retail
trade sector, the hotel and tourism industry, and business services, with
private sector employment higher than previously forecasted. The City's current
Financial Plan assumes that, after strong growth in 1997- 1998, moderate
economic growth will exist through calendar year 2002, with moderating job
growth and wage increases. However, there can be no assurance that the economic
projections assumed in the Financial Plan will occur or that the tax revenues
projected in the Financial Plan to be received will be received in the amounts
anticipated.
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During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation as a whole. In the
1990-1991 national recession, the economy of the Northeast region in general and
the State in particular was more heavily damaged than that of the rest of the
nation and has been slower to recover.
Although the national economy began to expand in 1991, the State economy
remained in recession until 1993, when employment growth resumed. Currently the
State economy continues to expand, but growth remains somewhat slower than in
the nation. Although the State has added over 400,000 jobs since late 1992,
employment growth has been hindered during recent years by significant cutbacks
in the computer and instrument manufacturing, utility, defense and banking
industries. Government downsizing has also moderated these job gains. Personal
income increased substantially in 1992 and 1993. The State's economy entered
into the fourth year of a slow recovery in 1996. Most of the growth occurred in
the trade, construction and service industries, with business, social services
and health sectors accounting for most of the service industry growth.
The State has released information regarding the national and state
economic activity in its Annual Information Statement of the State of New York
dated June 26, 1998 ("Annual Information Statement"). At the State level, the
Annual Information Statement projects continued expansion during the 1998
calendar year, with employment growth gradually slowing as the year progresses.
The financial and business service sectors are expected to continue to do well,
while employment in the manufacturing and government sectors will post only
small, if any, declines. On an average annual basis, the employment growth rate
in the State is expected to be higher than in 1997 and the unemployment rate is
expected to drop further to 6.1 percent. Personal income is expected to record
moderate gains in 1998. Wage growth in 1998 is expected to be slower than in the
previous year as the recent robust growth in bonus payments moderates.
Personal income tax collections for 1998-99 are projected to reach $21.24
billion, or $3.5 billion above the reported 1997-98 collection total. Total
business tax collections in 1998-99 are now projected to be $4.96 billion, $91
million less than received in the prior fiscal year. Receipts from user taxes
and fees are projected to total $7.14 billion, an increase of $107 million from
reported collections in the prior year. Other tax receipts are projected to
total $1.02 billion-$75 million below last year's amount. Total miscellaneous
receipts are projected to reach $1.40 billion, down almost $200 million from the
prior year. Transfers from other funds are expected to total $1.8 billion, or
$222 million less than total receipts from this category during 1997-98.
General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78 billion.
This represents an increase of $2.43 billion or 7.1 percent from 1997-98. Nearly
one-half of the growth is for educational purposes, reflecting increased support
for public schools, special education programs and the State and City university
systems. The remaining increase is primarily for Medicaid, mental hygiene, and
other health and social welfare programs, including children and family
services. The 1998-99 Financial Plan also includes funds for the current
negotiated salary increases for State employees, as well as increased transfers
for debt service. Grants to local governments is the largest category of General
Fund disbursements and includes financial assistance to local governments and
not-for-profit corporations, as well as entitlement benefits to individuals. The
1998-99 Financial Plan projects spending of $25.14 billion in this category, an
increase of $1.88 billion or 8.1 percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs, and community projects grants. The 1998-99 budget provides
$9.65 billion in support of public schools. The year-to-year increase of $769
million is comprised of partial funding for a 1998-99 school year increase of
$847 million as well as the remainder of the 1997-98 school year increase that
occurs in State fiscal year 1998-99. Spending for all other educational
programs, which includes the State and City university systems, the Tuition
Assistance Program, and handicapped programs, is estimated at
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$3.00 billion, an increase of $270 million over 1997-98 levels. Medicaid costs
are estimated at $5.60 billion, an increase of $144 million from the prior year.
The 1998-99 Financial Plan projects a closing fund balance in the General
Fund of $1.42 billion. This fund balance is composed of a reserve of $761
million available for future needs, a $400 million balance in the TSRF, a $158
million in the CPF, and a balance of $100 million in the CRF, after a projected
deposit of $32 million in 1998-99.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. Because of the uncertainty and
unpredictability of these factors, their impact cannot, as a practical matter,
be included in the assumptions underlying the State's projections at this time.
As a result, there can be no assurance that the State economy will not
experience results in the current fiscal year that are worse than predicted,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial sector,
federal fiscal and monetary policies, the level of interest rates, and the
condition of the world economy, which could have an adverse effect on the
State's projections of receipts and disbursements.
The State. Owing to the factors mentioned above and other factors, the
State may, in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from a lower
recurring receipts base and the future costs of maintaining State programs at
current levels.
Total General Fund receipts in 1998-99 are projected to be $37.56 billion,
an increase of over $3 billion from the $34.55 billion recorded in 1997-98. This
total included $34.36 billion in tax receipts, $1.40 billion in miscellaneous
receipts, and $1.80 billion in transfers from other funds. However, many complex
political, social and economic forces influence the State's economy and
finances, which may in turn affect the State's Financial Plan. These forces may
affect the State unpredictably from fiscal year to fiscal year and are
influenced by governments, institutions, and organizations that are not subject
to the State's control. The State Financial Plan is also necessarily based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections.
An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and of federal disallowances now pending against
the State, which could adversely affect the States projections of receipts and
disbursements. The State Financial Plan assumes no significant litigation or
federal disallowance or other federal actions that could affect State finances,
but has significant reserves in the event of such an action.
Revenue Base. The State's principal revenue sources are economically
sensitive, and include the personal income tax, user taxes and fees and business
taxes. The 1998-99 Financial
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Plan projects General Fund receipts (including transfers from other funds) of
$37.56 billion, an increase of over 3 billion from the $34.55 billion recorded
in 1997-98. This total includes $34.36 billion in tax receipts, $1.40 billion in
miscellaneous receipts, and $1.80 billion in transfers from other funds.
The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by depressing
reported 1997-98 figures and inflating 1998-99 projections. Conversely, the
incremental cost of tax reductions newly effective in 1998-99 and the impact of
statutes earmarking certain tax receipts to other funds work to depress apparent
growth below the underlying growth in receipts attributable to expansion of the
State's economy. On an adjusted basis, State tax revenues in the 1998-99 fiscal
year are projected to grow at approximately 7.5 percent, following an adjusted
growth of roughly nine percent in the 1997-98 fiscal year. On an adjusted basis,
State tax revenues in the 1998-99 fiscal year are projected to grow at
approximately 7.5 percent, following an adjusted growth of roughly nine percent
in the 1997-98 fiscal year.
The Personal Income Tax is imposed on the income of individuals, estates
and trusts and is based on federal definitions of income and deductions with
certain modifications. This tax continues to account for over half of the
State's General Fund receipts base. Net personal income tax collections are
projected to reach $21.24 billion, nearly $3.5 billion above the reported
1997-98 collection total. Since 1997 represented the completion of the 20
percent income tax reduction program enacted in 1995, growth from 1997 to 1998
will be unaffected by major income tax reductions. Adding to the projected
annual growth is the net impact of the transfer of the surplus from 1997-98 to
the current year which affects reported collections by over $2.4 billion on a
year- over-year basis, as partially offset by the diversion of slightly over
$700 million in income tax receipts to the STAR fund to finance the initial year
of the school tax reduction program. The STAR program was enacted in 1997 to
increase the State share of school funding and reduce residential school taxes.
Adjusted for these transactions, the growth in net income tax receipts is
roughly $1.7 billion, an increase of over 9 percent. This growth is largely a
function of over 8 percent growth in income tax liability projected for 1998 as
well as the impact of the 1997 tax year settlement on 1998-99 net collections.
User taxes and fees comprised of three quarters of the State four percent
sales and use tax (the balance, one percent, flows to support Government
Assistance Corporation ("LGAC") debt service requirements), cigarette, alcoholic
beverage container, and auto rental taxes, and a portion of the motor fuel
excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees. A portion of the
motor fuel tax and motor vehicle registration fees and all of the highway use
tax are earmarked for dedicated transportation funds.
Receipts from user taxes and fees receipts are projected to total $7.14
billion, an increase of $107 million from reported collections in the prior
year. The sales tax component of this category accounts for all of the 1998-99
growth, as receipts from all other sources decline $100 million. The growth in
yield of the sales tax in 1998-99, after adjusting for tax law and other
changes, is projected at 4.7 percent. The yields of most of the excise taxes in
this category show a long-term declining trend, particularly cigarette and
alcoholic beverage taxes. These General Fund declines are exacerbated in 1998-99
by revenue losses from scheduled and newly enacted tax reductions, and by an
increase in earmarking of motor vehicle registration fees to the Dedicated
Highway and Bridge Trust Fund.
Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross receipt
taxes on utilities and galling-based
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petroleum business taxes. Beginning in 1994, a 15 percent surcharge on these
levies began to be phased out and, for most taxpayers, there is no surcharge
liability for taxable periods ending in 1997 and thereafter.
Total business tax collections in 1998-99 are now projected to be $4.96
billion, $91 million less than received in the prior fiscal year. The category
includes receipts from the largely income- based levies on general business
corporations, banks and insurance companies, gross receipts taxes on energy and
telecommunication service providers and a per-gallon imposition on petroleum
business. The year-over-year decline in projected receipts in this category is
largely attributable to statutory changes between the two years. These include
the first year of utility-tax rate cuts and the Power for Jobs tax reduction
program for energy providers, and the scheduled additional diversion of General
Fund petroleum business and utility tax receipts to other funds. In addition,
profit growth is also expected to slow in 1998.
Other taxes include estate, gift and real estate transfer taxes, a tax on
gains from the sale or transfer of certain real estate (this tax was repealed in
1996), a pari-mutuel tax and other minor levies. They are now projected to total
$1.02 billion-$75 million below last year's amount. Two factors account for a
significant part of the expected decline in collections from this category.
First, the effects of the elimination of the real property gains tax
collections; second, a decline in estate tax receipts, following the explosive
growth recorded in 1997-98, when receipts expanded by over 16 percent.
Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost $200
million from the prior year, reflecting the loss of non-recurring receipts in
1997-98 and the growing effects of the phase-out of the medical provider
assessments.
Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one percent
sales tax used to support payments to LGAC. Transfers from other funds are
expected to total $1.8 billion, or $222 million less than total receipts from
this category during 1997-98. Total transfers of sales taxes in excess of LGAC
debt service requirements are expected to increase by approximately $51 million,
while transfers from all other funds are expected to fall by $273 million,
primarily reflecting the absence, in 1998-99, of a one-time transfer of nearly
$200 million for retroactive reimbursement of certain social services claims
from the federal government.
State Debt. General Fund disbursements in 1998-99, including transfers to
support capital projects, debt service and other funds are estimated at $36.78
billion. This represents an increase of $2.43 billion or 7.1 percent from
1997-98. Nearly one-half of the growth is for educational purposes, reflecting
increased support for public schools, special education programs and the State
and City university systems. The remaining increase is primarily for Medicaid,
mental hygiene and other health and social welfare programs, including children
and family services. The 1998-99 Financial Plan also includes funds for the
current negotiated salary increase for State employees, as well as increased
transfers for debt service.
Nonrecurring Sources. The Division of the Budget estimates that the 1998-99
State Financial Plan contains actions that provide nonrecurring resources or
savings totaling approximately $64 million, the largest of which is a
retroactive reimbursement of federal welfare claims.
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Outyear Projections of Receipts and Disbursements
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than- expected entitlement
spending. However, the States projections in 1999-00 currently assume actions to
achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1999- 00 Financial Plan will achieve savings from initiatives
by State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
person income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlays
for school aid, Medicaid, welfare reform, mental health community reinvestment,
and other multi-year spending commitments in law.
Labor Costs. The State government workforce is mostly unionized, subject to
the Taylor- Law which authorizes collective bargaining and prohibits (but has
not, historically, prevented) strikes and work slowdowns. Costs for employee
health benefits have increased substantially, and can be expected to further
increase. The State has a substantial unfunded liability for future pension
benefits, and has utilized changes in its pension fund investment return
assumptions to reduce current contribution requirements. If such investment
earnings assumptions are not sustained by actual results, additional State
contributions will be required in future years to meet the State's contractual
obligations. The State's change in actuarial method from the aggregate cost
method to a modified projected unit credit in FY1990-91 created a substantial
surplus that was amortized and applied to offset the State's contribution
through FY1993-94. This change in actuarial method was ruled unconstitutional by
the State's highest court and the State returned to the aggregate cost method in
FY1994-95 using a four year phase in. Employer contributions, including the
State's, are expected to increase over the next five to ten years. Since January
1995, the State's workforce has been reduced by about 10 percent, and is
projected to remain at its current level of approximately 191,000 persons in
1998-99 year. The State is currently preparing for negotiations with various
unions to establish new agreements since most of the
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existing contracts will expire on March 31, 1999.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The new law abolishes the federal Aid to Families with Dependent Children
program (AFDC), and creates a new Temporary Assistance to Needy Families with
Dependent Children program (AFDC), and creates a new Temporary Assistance to
Needy Families program (TANF) funded with a fixed federal block grant to states.
The new law also imposes (with certain exceptions) a five era durational limit
on TANF recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receipt benefits, and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
Proposed legislation that includes both provisions necessary to implement
the State's TANF plan to conform with federal law and implement the Governor's
welfare reform proposal is still pending before the Legislature. There can be no
assurances of timely enactment of certain conforming provisions required under
the federal law. Further delay increases the risk that the State could incur
fiscal penalties for failure to comply with federal law.
Medicaid. New York participates in the federal Medicaid program under a
state plan approved by the Health Care Financing Administration. The federal
government provides a substantial portion of eligible program costs, with the
remainder shared by the State and its counties (including the City). Basic
program eligibility and benefits are determined by federal guidelines, but the
State provides a number of optional benefits and expanded eligibility. Program
costs have increased substantially in recent years, and account for a rising
share of the State budget. Federal law requires that the State adopt
reimbursement rates for hospitals and nursing homes that are reasonable and
adequate to meet the costs that must be incurred by efficiently and economically
operated facilities in providing patient care, a standard that has led to past
litigation by hospitals and nursing homes seeking higher reimbursement from the
State. General Fund payments for Medicaid are projected to be $5.60 billion, an
increase of $144 million from the prior year. After adjusting 1997-98 for the
$116 million prepayment of an additional Medicaid cycle, Medicaid spending is
projected to increase $260 million or 4.9 percent. Disbursements for all other
health and social welfare programs are projected to total $3.63 billion, an
increase of $131 million from 1997-98. This includes an increase in support for
children and families and local public health programs, offset by a decline in
welfare spending of $75 million that reflects continuing State and local efforts
to reduce welfare fraud, declining caseloads, and the impact of State and
federal welfare reform legislation.
The State Authorities. The fiscal stability of the State is related in part
to the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself and may issue bonds and notes within the amounts and
restrictions set forth in legislative authorization. The State's access to the
public credit markets could be impaired and the market price of its outstanding
debt may be materially and adversely affected if any of its public authorities
were to default on their respective obligations, particularly those using the
financing techniques referred to as State-supported or State-related debt.
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The State has numerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, charges for public
power, electric and gas utility services, rentals charged for housing units, and
charges for occupancy at medical care facilities. In addition, State legislation
authorizes several financing techniques for public authorities. Also there are
statutory arrangements providing for State local assistance payments otherwise
payable to localities to be made under certain circumstances to public
authorities. Although the State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
public authorities under these arrangements, the affected localities may seek
additional State assistance if local assistance payments are diverted. Some
authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs. The MTA receives the bulk of this
money in order to provide transit and commuter services.
Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan.
Metropolitan Transportation Authority
Since 1980, the State has enacted several taxes including a surcharge on
the profits of banks, insurance corporations and general business corporations
doing business in the 12 county Metropolitan Transportation Region served by the
MTA and a special one quarter of 1 percent regional sales and use tax that
provide revenues for mass transit purposes, including assistance to the MTA.
Since 1987 State law has required that the proceeds of a one quarter of 1
percent mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. In 1993, the State dedicated a portion of certain additional
State petroleum business tax receipts to fund operating or capital assistance to
the MTA. For the 1998-99 fiscal year, State assistance to the MTA is projected
to total approximately $1.3 billion, an increase of $133 million over the
1997-98 fiscal year.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, Triborough Bridge and Tunnel Authority and Transit Authority to issue
an aggregate of $6.5 billion in bonds to finance a portion of the $12.17 billion
MTA capital plan for the 1995 through 1999 calendar years (the "1995-99 Capital
Program"). In July 1997, the Capital Program Review Board (CPRB) approved the
1995-99 Capital Program (subsequently amended in August 1997), which supersedes
the overlapping portion of the MTA's 1992-96 Capital Program. The 1995-99
Capital Program is the fourth capital plan since the Legislature authorized
procedures for the adoption, approval and amendment of MTA capital programs and
is designed to upgrade the performance of the MTA's transportation systems by
investing in new rolling stock, maintaining replacement schedules for existing
assets and bringing the MTA system into a state of good repair. The 1995- 99
Capital Program assumes the issuance of an estimated $5.2 billion in bonds under
this $6.5 billion aggregate bonding authority. The remainder of the plan is
projected to be financed through assistance from the State, the federal
government, and the City of New York, and from various other revenues generated
from actions taken the MTA.
There can be no assurance that all the necessary governmental actions for
the 1995-99 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be decreased or eliminated, or
that the 1995-99 Capital Program, or parts thereof, will not be delayed or
reduced. Should funding levels fall below current projections, the MTA would
have to revise its 1995-99 Capital Program accordingly. If the 1995-99 Capital
Program is delayed or
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reduced, ridership and Fare revenues may decline, which could, among other
things, impair the MTA's ability to meet its operating expenses without
additional assistance.
The City
The fiscal health of the State may also be affected by the fiscal health of
New York City (City), which continues to receive significant financial
assistance from the State. State aid contributes to the City's ability to
balance its budget and meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets.
The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at that time.
However, in the early 1970s, the City incurred substantial operating deficits,
and its financial controls, accounting practices and disclosure policies were
widely criticized. In response to the City's fiscal crisis in 1975, the State
took action to assist the City in returning to fiscal stability. Among these
actions, the State established the Municipal Assistance Corporation For The City
of New York ("MAC") to provide financing assistance for the City; the New York
State Financial Control Board (the Control Board) to oversee the City's
financial affairs; and the Office of the State Deputy Comptroller for the City
of New York (OSDC) to assist the Control Board in exercising its powers and
responsibilities. A "control period" existed from 1975 to 1986, during which the
City was subject to certain statutorily conditions were met. State law requires
the Control Board to reimpose a control period upon the occurrence, or
"substantial likelihood and imminence" of the occurrence, of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million or impaired access to the public credit markets.
The City provides services usually undertaken by counties, school districts
or special districts in other large urban areas, including the provision of
social services such as day care, foster care, health care, family planning,
services for the elderly and special employment services for needy individuals
and families who qualify for such assistance. State law requires the City to
allocate a large portion of its total budget to Board of Education operations,
and mandates that the City assume the local share of public assistance and
Medicaid costs. For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable generally accepted accounting principles ("GAAP"). The City was
required to close substantial budget gaps in recent years in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or additional reductions in. City
services or entitlement programs, which could adversely affect the City's
economic base.
Pursuant to the New York State Financial Emergency Act for The City of New
York (the "Financial Emergency Act" or the "Act"), the City prepares a four year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap closing programs for years with projected budget gaps. The City's
projections set forth in the 1999-2002 Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly effect the City's ability to
balance its budget and to meet its annual cash flow and financing requirements.
Such assumptions and contingencies include the timing and pace of a regional and
local economic recovery, increases in tax revenues, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives which may require in certain cases the cooperation of the
City's municipal unions, the ability of New York City Health and Hospitals
Corporation and the Board of Education to take actions to offset reduced
revenues, the ability to complete revenue generating transactions,
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provision of State and federal aid and mandate relief, and the impact on City
revenues of proposals for federal and State welfare reform. No assurance can be
given that the assumptions used by the City in the 1999-2002 Financial Plan will
be realized. Due to the uncertainty existing on the federal and state levels,
the ultimate adoption of the State budget for FY 1997-98 may result in
substantial reductions in projected expenditures for social spending programs.
Cost containment assumptions contained in the 1997-2000 Financial Plan and the
City FY 1997-98 Budget may therefore be significantly adversely affected upon
the final adoption of the State budget for FY 1997-98. Furthermore, actions
taken in recent fiscal years to avert deficits may have reduced the City's
flexibility in responding to future budgetary imbalances, and have deferred
certain expenditures to later fiscal year.
The 1999-2002 Financial Plan projects revenues and expenditures for the
1999 fiscal year balanced in accordance with GAAP, and projects gaps of $1.5
billion, $2.1 billion and $1.6 billion for the 2000, 2001 and 2002 fiscal years,
respectively.
On April 24, 1998, the City released the Financial Plan for the 1999
through 2002 fiscal years, which relates to the City and certain entities which
receive funds from the City, and which is based on the Executive Budget and
Budget Message for the City's 1999 fiscal year (the "Executive Budget"). The
Executive Budget and Financial Plan project revenues and expenditures for the
1999 fiscal year balanced in accordance with GAAP, and project gaps of $1.5
billion, $2.1 billion and $1.6 billion for the 2000, 2001 and 2002 fiscal years,
respectively.
Changes since the June Financial Plan include: (I) an increase in projected
tax revenues of $1.3 billion, $1.1 billion, $955 million, $897 million and $1.7
billion in the 1998 through 2002 fiscal years, respectively; (ii) a reduction in
assumed State aid of $283 million in the 1998 fiscal year and of between $134
million and $142 million in each of the 1999 through 2002 fiscal years,
reflecting the adopted budget for the State's 1998 fiscal year; (iii) a delay in
the assumed collection of $350 million of projected rent payments for the City's
airports in the 1999 fiscal year to fiscal years 2000 through 2002; (iv) a
reduction in projected debt service expenditures totaling $197 million, $361
million, $204 million and $226 million in the 1998 through 2001 fiscal years,
respectively; (v) an increase in the Board of Education (the "BOE") spending of
$266 million, $26 million, $58 million and $193 million in the 1999 through 2002
fiscal years, respectively; (vi) an increase in expenditures for the City's
proposed drug initiatives totaling $68 million in the 1998 fiscal year and of
between $167 million and $193 million in each of the 1999 through 2002 fiscal
years; (vii) other agency net spending initiatives totaling $112 million, $443
million, $281 million, $273 million and $677 million in fiscal years 1998
through 2002, respectively; and (viii) reduced pension costs of $116 million,
$168 million and $404 million in fiscal years 2000 through 2002, respectively.
The Financial Plan also sets forth gap closing actions for the 1998 through 2002
fiscal years, which include: (I) additional agency actions totaling $176
million, $595 million, $516 million, $494 million and $552 million in fiscal
years 1998 through 2002, respectively, and (ii) assumed additional Federal and
State aid of $100 million in each of fiscal years 1999 through 2002.
The 1998 Modification and the 1999-2002 Financial Plan include a proposed
discretionary transfer in the 1998 fiscal year of approximately $2.0 billion to
pay debt service due in the 1999 fiscal year, and a proposed discretionary
transfer in the 1999 fiscal year of $416 million to pay debt service due in
fiscal year 2000, included in the Budget Stabilization Plan for the 1998 and
1999 fiscal years, respectively. In addition, the Financial Plan reflects
proposed tax reduction programs totaling $237 million, $537 million, $657
million and $666 million in fiscal years 1999 through 2002, respectively,
including the elimination of the City
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sales tax on all clothing as of December 1, 1999, a City funded acceleration of
the State funded personal income tax reduction for the 1999 through 2001 fiscal
years, the extension of current tax reductions for owners of cooperative and
condominium apartments starting in fiscal year 2000 and a personal income tax
credit for child care and for residential holders of Subchapter S corporations,
which are subject to State legislative approval, and reduction of the commercial
rent tax commencing in fiscal year 2000.
Although the City has maintained balanced budgets in each of its last
sixteen fiscal years and is projected to achieve balanced operating results for
the 1998 fiscal year, there can be no assurance that the gap closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.
The City derives its revenues from a variety of local taxes, user charges
and miscellaneous revenues, as well as from Federal and State unrestricted and
categorical grants. State aid as a percentage of the City's revenues has
remained relatively constant over the period from 1980 to 1997, while
unrestricted Federal aid has been sharply reduced. The City projects that local
revenues will provide approximately 66.9% of total revenues in the 1998 fiscal
year while Federal aid, including categorical grants, will provide 13.2%, and
State aid, including unrestricted aid and categorical grants, will provide
19.7%.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short term obligations within their fiscal
year of issuance. The City has issued $1.075 billion of short term obligations
in fiscal year 1998 to finance the City's projected cash flow needs for the 1998
fiscal year. The City issued $2.4 billion of short term obligations in fiscal
year 1997. Seasonal financing requirements for the 1996 fiscal year increased to
$2.4 billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal
years, respectively. The delay in the adoption of the State's budget in certain
past fiscal years has required the city to issue short term notes in amounts
exceeding those expected early in such fiscal years.
The City makes substantial capital expenditures to reconstruct and
rehabilitate the city's infrastructure and physical assets, including City mass
transit facilities, sewers, streets, bridges and tunnels, and to make capital
investments that will improve productivity in City operations.
The City utilizes a three tiered capital planning process consisting of the
Ten Year Capital Strategy, the Four Year Capital Plan and the current year
Capital Budget. The Ten Year Capital Strategy is a long term planning tool
designed to reflect fundamental allocation choices and basic policy objectives.
The Four Year Capital Program translates mid-range policy goals into specific
projects. The Capital Budget defines specific projects and the timing of their
initiation, design, construction and completion.
This City's projection of its capital financing need pursuant to the
Mayor's Declaration of Need and Proposed Transitional Capital Plan of June 30,
1997 indicates additional projected debt and contract liabilities of
approximately $3 billion for fiscal year 1998. To provide for the City's capital
program, State legislation was enacted which created the Finance Authority, the
debt of which is not subject to the general debt limit. Without the Finance
Authority or other legislative relief, new contractual commitments for the
City's general obligation financed capital program would have been virtually
brought to a halt during
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the Financial Plan period beginning early in the 1998 fiscal year. By
utilizing projected Finance Authority borrowing and including the Finance
Authority's projected borrowing as part of the total debt incurring power set
forth in the following table, the City's total debt incurring power has been
increased. Even with the increase, the City may reach the limit of its capacity
to enter into new contractual commitments in fiscal year 2000.
Other Localities. Certain localities outside New York City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The cities of Yonkers and Troy
continue to operate under State-ordered control agencies. The potential impact
on the State of any future requests by localities for additional oversight or
financial assistance is not included in the projections of the State's receipts
and disbursements for the State's 1998-99 fiscal year.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998-99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98 and continued this increase in 1998- 99.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short term
and long term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Twenty-one
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1996.
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APPENDIX E
EVERGREEN PENNSYLVANIA TAX FREE FUND
General
The Commonwealth of Pennsylvania, the fifth most populous state,
historically has been identified as a heavy industry state, although that
reputation has changed with the decline of the coal, steel and railroad
industries and the resulting diversification of the Commonwealth's industrial
composition. The major new sources of growth are in the service sector,
including trade, medical and health services, educational and financial
institutions. Manufacturing has fallen behind in both the service sector and the
trade sector as a source of employment in Pennsylvania. The Commonwealth is the
headquarters for 58 major corporations. Pennsylvania's average annual
unemployment rate for the year 1990 has generally not been more than one percent
greater or lesser than the nation's annual average unemployment rate. The
seasonally adjusted unemployment rate for Pennsylvania for May, 1998 was 4.3%
and for the United States for May, 1998 was 4.3%. The population of
Pennsylvania,12.02 million people in 1997 according to the U.S. Bureau of the
Census, represents an increase from the 1988 estimate of 11.846 million. Per
capita income in Pennsylvania for 1996 of $24, 803 was higher than the per
capita income of the United States of $24,426. The Commonwealth's General Fund,
which receives all tax receipts and most other revenues and through which debt
service on all general obligations of the Commonwealth are made, closed fiscal
years ended June 30, 1995, June 30, 1996 and June 30, 1997 with positive fund
balances of $688.304 million, $635.182 million and $1,364.9 million
respectively.
Debt
The Commonwealth may incur debt to rehabilitate areas affected by disaster,
debt approved by the electorate, debt for certain capital projects (for projects
such as highways, public improvements, transportation assistance, flood control,
redevelopment assistance, site development and industrial development) and tax
anticipation debt payable in the fiscal year of issuance. The Commonwealth had
outstanding general obligation debt of $4.795 million at June 30, 1997. The
Commonwealth is not permitted to fund deficits between fiscal years with any
form of debt. All year-end deficit balances must be funded within the succeeding
fiscal year's budget. At March 11, 1997, all outstanding general obligation
bonds of the Commonwealth were rated AA- by Standard & Poor's Corporation and
Aa3 by Moody's Investors Service, Inc. (see Appendix H). There can be no
assurance that these ratings will remain in effect in the future. Over the
five-year period ending June 30, 2003, the Commonwealth has projected that it
will issue notes and bonds totaling $2,984.5 million and retire bonded debt in
the principal amount of $2,350.9 million.
Certain agencies created by the Commonwealth have statutory authorization
to incur debt for which Commonwealth appropriations to pay debt service thereon
are not required. As of June 30, 1997, one of these agencies, the Pennsylvania
Turnpike Commission, had total outstanding indebtedness of $1,177.6 million. The
Combined total debt outstanding for all other above mentioned agencies as of
December 31, 1997 was $7,047.4. The debt of these agencies is supported by
assets of, or revenues derived from, the various projects financed and is not an
obligation of the Commonwealth. Some of these agencies, however, are indirectly
dependent on Commonwealth appropriations. The only obligations of agencies in
the Commonwealth that bear a moral obligation of the Commonwealth are those
issued by the Pennsylvania Housing Finance Agency ("PHFA"), a state-created
agency which provides housing for lower and moderate income families, and The
Hospitals and Higher Education Facilities Authority of Philadelphia (the
"Hospital Authority"), an agency created by the City of Philadelphia to acquire
and prepare various sites for
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use as intermediate care facilities for the mentally retarded.
Local Government Debt
Numerous local government units in Pennsylvania issue general obligation
(i.e., backed by taxing power) debt, including counties, cities, boroughs,
townships and school districts. School district obligations are supported
indirectly by the Commonwealth. The issuance of non-electoral general obligation
debt is limited by constitutional and statutory provisions. Electoral debt,
i.e., that approved by the voters, is unlimited. In addition, local government
units and municipal and other authorities may issue revenue obligations that are
supported by the revenues generated from particular projects or enterprises.
Examples include municipal authorities (frequently operating water and sewer
systems), municipal authorities formed to issue obligations benefitting
hospitals and educational institutions, and industrial development authorities,
whose obligations benefit industrial or commercial occupants. In some cases,
sewer or water revenue obligations are guaranteed by taxing bodies and have the
credit characteristics of general obligations debt.
Litigation
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
example, in Baby Neal v. Commonwealth, the American Civil Liberties Union filed
a lawsuit against the Commonwealth seeking an order that would require the
Commonwealth to provide additional funding for child welfare services. County of
Allegheny v. Commonwealth of Pennsylvania involves litigation regarding the
state constitutionality of the statutory scheme for county funding of the
judicial system. In Pennsylvania Association of Rural and Small Schools v.
Casey, the constitutionality of Pennsylvania's system for funding local school
districts has been challenged. No estimates for the amount of these claims are
available.
Other Factors
The performance of the obligations held by the Fund issued by the
Commonwealth, its agencies, subdivisions and instrumentalities are in part tied
to state-wide, regional and local conditions within the Commonwealth and to the
creditworthiness of certain non-Commonwealth related obligers, depending upon
the Pennsylvania Fund's portfolio mix at any given time. Adverse changes to the
state-wide, regional or local economies or changes in government may adversely
affect the creditworthiness of the Commonwealth, its agencies and
municipalities, and certain other non-government related obligers of
Pennsylvania tax-free obligations (e.g., a university, a hospital or a corporate
obligor). The City of Philadelphia, for example, experienced severe financial
problems which impaired its ability to borrow money and adversely affected the
ratings of its obligations and their marketability. Conversely, some obligations
held by the Fund will be almost exclusively dependent on the creditworthiness of
one underlying obligor, such as a project occupant or provider of credit or
liquidity support.
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APPENDIX F
EVERGREEN CONNECTICUT MUNICIPAL BOND FUND
As described in the prospectus, the Fund will generally invest in
Connecticut municipal obligations. The performance of the Fund is therefore
susceptible to political, economical and regulatory factors affecting the State
of Connecticut and governmental bodies within the State of Connecticut. The
information summarized below briefly describes some of the more significant
factors that could affect the performance of the Fund or the ability of the
obligors to pay debt service on certain of the securities. Such information is
derived from sources that are generally available to investors and is believed
to be accurate. It is based on information from official statements of issuers
located in the State of Connecticut as well as other publicly available
documents. The Fund has not independently verified any of the information
contained in such statements and documents.
State Economy
General. Connecticut, the southernmost of the New England States, is
located on the northeast coast and is bordered by Long Island Sound, New York,
Massachusetts and Rhode Island. Connecticut is situated directly between the
financial centers of Boston and New York and is a highly developed and urbanized
state. More than one-quarter of the total population of the United States and
approximately 60% of the Canadian population live within 500 miles of the State.
The State's population grew at a rate which exceeded the United States' rate of
population growth during the period 1940 to 1970, slowed substantially during
the 1970s and 1980s, and declined in the years 1992 through 1995.
Connecticut's economic performance is measured by personal income which has
been and is expected to remain among the highest in the nation; gross state
product (the current market value of all final goods and services produced by
labor and property located within the State) which demonstrated stronger output
growth than the nation in general during the 1980s and a lower growth in the
1990s; and employment which, although rising, still remains below the levels
achieved in the late 1980s as manufacturing employment has declined and
non-manufacturing employment has recovered most of its losses.
Defense Industry. One important component of the manufacturing sector in
Connecticut is defense related business. Approximately one-quarter of
manufacturing establishments and total manufacturing employees in Connecticut
are involved in defense related businesses. Nonetheless, its significance in the
state economy has declined considerably due to the scaling back of the national
defense budget in the past decade, spending on defense procurement as well as
outlays for personnel, research and development and construction has been
dramatically reduced. In fiscal year 1996, Connecticut received $2,638 million
of prime contact awards. This accounted for 2.4% of national total awards and
ranked thirteenth in total defense dollars awarded and fifth in per capita
dollars awarded among the 50 states. As measured by defense contract awards as a
percent of Gross State Product (GSP), awards to Connecticut based firms has
fallen to 2.1% of GSP in fiscal year 1996, down from over 12% of GSP as recently
as fiscal year 1982.
Similar to other states with a dependence on the defense budget, these cuts
not only negatively affect Connecticut's defense employment but also other
sectors that provide "support" activities to defense related businesses. These
budget cuts ultimately impact other industries in the manufacturing sector and
further extend to the nonmanufacturing sector such as grocery stores,
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gas stations, and real estate, etc.
State Budgetary Process
Balanced Budget Requirement. In November 1992, State electors approved an
amendment to the State Constitution providing that the amount of general budget
expenditures authorized for any fiscal year shall not exceed the estimated
amount of revenue for such fiscal year. This amendment also provides for a cap
on budget expenditures. The General Assembly is precluded from authorizing an
increase in general budget expenditures for any fiscal year above the amount of
general budget expenditures authorized for the previous fiscal year by a
percentage which exceeds the greater of the percentage increase in personal
income or the percentage increase in inflation, unless the Governor declares an
emergency or the existence of extraordinary circumstances and at least
three-fifths of the members of each house of the General Assembly vote to exceed
such limit for the purposes of such emergency or extraordinary circumstances.
The limitation on general budget expenditures does not include expenditures for
the payment of bonds, notes or other evidences of indebtedness. There is no
statutory or constitutional prohibition against bonding for general budget
expenditures.
Biennium Budget. The State's fiscal year begins on July 1 and ends June 30.
The Connecticut General Statutes require that the budgetary process be on a
biennium basis. The Governor is required to transmit a budget document in
February of each odd-numbered year setting forth the financial program for the
ensuing biennium with a separate budget for each of the two fiscal years and a
report which sets forth estimated revenues and expenditures for the three fiscal
years after the biennium to which the budget document relates. In each
even-numbered year, the Governor must prepare a report on the status of the
budget enacted in the previous year with any recommendations for adjustments and
revisions, and a report, with revisions, if any, which sets forth estimated
revenues and expenditures for the three fiscal years after the biennium in
progress.
Adoption of the Budget. The Governor or a representative appeals before the
appropriate committee of the General Assembly to explain and address questions
concerning the budget document. Prior to June 30 of each odd-numbered year, the
General Assembly generally enacts one bill making all appropriations for the
next two fiscal years and setting forth revenue estimates for those years.
Subsequent appropriations of revenue bills are occasionally passed.
Line Item Veto. Under the State Constitution, the Governor has the power to
veto any line of any itemized appropriations bill while at the same time
approving the remainder of the bill. A statement identifying the items so
disapproved and explaining the reasons therefore must be transmitted with the
bill to the Secretary of the State and, when in session, the General Assembly.
The General Assembly may separately reconsider and re-pass such disapproved
appropriation items by a two-thirds vote of each house.
State General Fund
The State finances most of its operations through the General Fund.
However, certain State functions are financed through other State funds.
1996-97 Operations. The Comptroller's August 29, 1997 annual report
indicated a 1996-97 General Fund surplus of $262.6 million. This surplus was
primarily the result of higher than anticipated revenue collections, the most
significant of which was an increase in personal income tax collections. The
improved revenue results are offset somewhat by Medicaid expenditures higher
than appropriations, and the prepayment of expenditures for the 1997-98 fiscal
year.
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1997-98 Operations. The adopted budget for fiscal 1997-98 anticipated
General Fund revenues of $9,342.4 million and General Fund expenditures of
$9,342.2 million resulting in a projected surplus of $0.3 million.
The Comptroller's monthly report for the period ending April 30, 1998,
indicated a projected General Fund surplus of $191.9 million. This surplus is
primarily the result of revenue collections which exceeded the original
estimates adopted by the General Assembly by $691.2 million. Expenditures for
the fiscal year were also increased, including $115.0 million for a one time tax
rebate program and $79.5 million for Year 200 conversions.
No assurance can be given that the final year-end report of the Comptroller
will not indicate changes in the anticipated General Fund result. Any
unappropriated surplus will be deposited into the Budget Reserve Fund, pursuant
to the limits set forth in the Connecticut General Statutes, and the balance
will be used to reduce bonded indebtedness. The Budget Reserve Fund contains a
balance of $336.9 million prior to any transfer for fiscal year 1997-98.
Adopted Budget 1998-99. On February 4, 1998, the Governor submitted to the
legislature a status report including proposed Midterm Budget Adjustments for
the 1998-99 fiscal year. After consideration of the Governor's proposal, the
legislature adopted budget adjustments for fiscal year 1998-99 in Special Act
No. 98-6. The adopted Midterm Budget Adjustments for fiscal year 1998- 99
anticipate General Fund expenditures of $9,972.4 million, General Fund revenues
of $9,992.0 million and an estimated General Fund surplus of $19.6 million.
The enacted Midterm Budget Adjustments for fiscal year 1998-99 are within
the limits imposed by the expenditure cap. For fiscal year 1998-99, permitted
growth in capped expenditures is estimated at 4.86%. The enacted Midterm Budget
Adjustments would result in a fiscal 1998-99 budget that is $82.3 million below
the expenditure cap.
State Debt
Constitutional Provisions. The State has no constitutional limit on its
power to issue obligations or incur debt other than it may borrow only for
public purposes. There are no reported court decisions relating to State bonded
debt other than two cases validating the legislative determination of the public
purpose for improving employment opportunities and related activities. The State
Constitution has never required a public referendum on the question of incurring
debt. Therefore, the authorization and issuance of State debt, including the
purpose, amount and nature thereof, the method and manner of the incidence of
such debt, the maturity and terms of repayment thereof, and other related
matters are statutory.
Types of State Debt. Pursuant to various public and special acts the State
has authorized a variety of types of debt. These types fall generally into the
following categories: direct general obligation debt, which is payable from the
State's General Fund; special tax obligation debt, which is payable from
specified taxes and other funds which are maintained outside the State's General
Fund; and special obligation and revenue debt, which is payable from specified
revenues or other funds which are maintained outside the State's General Fund.
In addition, the State has a number of programs under which the State is
contingently liable on the debt of certain State quasi-public agencies and
political subdivisions.
Statutory Authorization and Security Provisions for State General
Obligation Debt. In general the State issues general obligation bonds pursuant
to specific statutory bond acts and Section 3-20 of the Connecticut General
Statues, the State general obligation bond procedure act. That act provides that
such bonds shall be general obligations of the State and that the full faith
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and credit of the State of Connecticut are pledged for the payment of the
principal of an interest on such bonds as the same become due. Such act further
provides that, as a part of the contract of the State with the owners of such
bonds, appropriation of all amounts necessary for the punctual payment of such
principal and interest is made, and the Treasurer shall pay such principal and
interest as the same become due. As of December 1, 1997, there was legislatively
authorized general obligation bond indebtedness in the aggregate amount of
$11,460,239,000, of which $10,159,950,000 had been approved for issuance and
$9,181,272,000 had been issued. As of December 1, 1997, $6,877,330,000 was
outstanding.
There are no State Constitutional provisions precluding the exercise of
State power by statute to impose any taxes, including taxes on taxable property
in the State or on income, in order to pay debt service on bonded debt now or
thereafter incurred. The constitutional limit on increases in general fund
expenditures for any fiscal year does not include expenditures for the payment
of bonds, notes or other evidences of indebtedness. There are also no
constitutional or statutory provisions requiring or precluding the enactment of
liens on or pledges of State general fund revenues or taxes, or the
establishment of priorities for payment of debt service on the State's general
obligation bonds. There are no express statutory provisions establishing any
priorities in favor of general obligation bondholders over other valid claims
against the State.
Statutory Debt Limit. Section 3-21 of the Connecticut General Statutes
provides that no bonds, notes or other evidences of indebtedness for borrowed
money payable from General Fund tax receipts of the State shall be authorized by
the General Assembly except to the extent such authorization shall cause the
aggregate amount of (1) the total amount of bonds, notes or other evidences of
indebtedness payable from General Fund tax receipts authorized by the General
Assembly but which have not been issued and (2) the total amount of such
indebtedness which has been issued and remains outstanding, to exceed 1.6 times
the total estimated General Fund tax receipts of the State for the fiscal year
in which any such authorization will become effective, as estimated for such
fiscal year by the joint standing committee of the General Assembly having
cognizance of finance, revenue and bonding. However, in computing the aggregate
amount of indebtedness at any time, there shall be excluded or deducted revenue
anticipation notes having a maturity of one year or less, refunded indebtedness,
bond anticipation notes, borrowings payable solely from the revenues of a
particular project, the balances of debt retirement funds associated with
indebtedness subject to the debt limit as certified by the Treasurer, the amount
of federal grants certified by the Secretary of the Office of Policy and
Management as receivable to meet the principal of certain indebtedness, all
authorized and issued indebtedness to fund any budget deficits of the State for
any fiscal year ending on or before June 30, 1991, and all authorized debt to
fund the Connecticut Development Authority's tax increment bond program under
Section 32-285 of the Connecticut General Statutes. For purpose of the debt
limit statute, all bonds and notes issued or guaranteed by the State and payable
from General Fund tax receipts are counted against the limit, except for the
exclusions or deductions described above.
In accordance with Section 2-27b of the Connecticut General Statutes, the
Treasurer shall compute the aggregate amount of indebtedness as of January 1 and
July 1 of each year and shall certify the results of such computation to the
Governor and the General Assembly. If the aggregate amount of indebtedness
reaches 90% of the statutory debt limit, the Governor shall review each bond act
for which no bonds, notes or other evidences of indebtedness have been issued,
and recommend to the General Assembly priorities for repealing authorizations
for remaining projects.
Ratings. As of March 18, 1998, all outstanding general obligation bonds of
the State were rated AA3 by Moody's Investors Service, Inc., AA- by Standard &
Poor's Rating Service, a division of the McGraw-Hill Companies, Inc., and AA by
Fitch IBCA, Inc. There can be no assurance that
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these ratings will remain in effect in the future.
Obligations of Other State Issuers. The State conducts certain of its
operations through State funds other than the General Fund and pursuant to
legislation may issue debt secured by special taxes or revenues pledged to such
funds. In addition, there are a number of state agencies and instrumentalities
of the State that issue conduit revenue obligations payable from payments by
private borrowers. These entities are subject to various economic risks
uncertainties, and the credit quality of the securities issued by them may vary
considerably from the credit quality of obligations backed by the full faith and
credit of the State.
Litigation
The State, its officers and employees are defendants in numerous lawsuits.
The ultimate disposition and fiscal consequences of these lawsuits are not
presently determinable. In the cases described below the fiscal impact of an
adverse decision might be significant but is not determinable at this time. The
cases described in this section generally do not include any individual case
where the fiscal impact of an adverse judgment is expected to be less than $15
million, but adverse judgments in a number of such cases could, in the aggregate
and in certain circumstances, have a significant impact.
Connecticut Criminal Defense Lawyers Association v. Forst is an action
brought in 1989 in Federal Court alleging a pervasive campaign by the State and
various State Police officials of illegal electronic surveillance, wiretapping
and bugging for a number of years at Connecticut State Police facilities. The
plaintiffs seek compensatory damages, punitive damages, as well as other damages
and costs and attorneys fees, as well as temporary and permanent injunctive
relief. In November 1991, the court issued an order which will allow the
plaintiffs to represent a class of all persons who participated in wire or oral
communications to, from, or within State Police facilities between January 1,
1974 and November 9, 1989 and whose communications were intercepted, recorded
and/or used by the defendants in violation of the law. This class includes a
sub-class of the Connecticut State Police Union, current and former Connecticut
State Police officers who are not defendants in this or any consolidated case,
and other persons acting on behalf of the State Police who participated in oral
or wire communications to, from or within State Police facilities between such
dates.
Sheff v. O'Neill is a Superior Court action brought in 1989 on behalf of
black and Hispanic school children in the Hartford school district. The
plaintiffs sought a declaratory judgment that the public schools in the greater
Hartford metropolitan area are segregated de facto by race and ethnicity and are
inherently unequal to their detriment. They also sought injunctive relief
against state officials to provide them with an "integrated education." On April
12, 1995, the Superior Court entered judgment for the State. On July 9, 1996,
the State Supreme Court reversed the Superior Court judgment and remanded the
case with direction to render a declaratory judgment in favor of the plaintiffs.
The Court directed the legislature to develop appropriate measures to remedy the
racial and ethnic segregation in the Hartford public schools. The Supreme Court
also directed the Superior Court to retain jurisdiction of this matter. In
response to the Supreme Court decision, the 1997 General Assembly enacted P.A.
97-290, an Act Enhancing Educational Choices and Opportunities. Plaintiffs, the
Supreme Court recently ordered the State to show cause as to whether there has
been compliance with the Supreme Court's ruling.
The Connecticut Traumatic Brain Injury Association, Inc. v. Hogan is a
Federal District Court civil rights action brought in 1990 on behalf of all
persons with retardation or traumatic brain injury who have been, or may be,
placed in Norwich, Fairfield Hills or Connecticut Valley Hospitals. The
plaintiffs claim that the treatment and training they need is unavailable in
state hospitals for the
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mentally ill and that placement in those hospitals violates their constitutional
rights. The plaintiffs seek relief which would require that the plaintiff class
members be transferred to community residential settings with appropriate
support services. This case has been settled as to all persons with mental
retardation by their eventual discharge from Norwich and Fairfield Hills
Hospital. The case is still proceeding as to those persons with traumatic brain
injury. The Court recently expanded the class of plaintiffs to include persons
who are in the custody of the Department of Mental Health and Addiction Services
at any time during the pendency of the case for treatment or benefits in any
program which is provided by or is the responsibility of the State, by reason of
being diagnosed with acquired brain injury (which includes traumatic and other
brain injuries).
Johnson v. Rowland is a Superior Court action brought in 1998 in the name
of several public school students and the Connecticut municipalities in which
the students reside, seeking a declaratory judgement that the State's current
system of financing public education through local property taxes and State
payments to municipalities determined under a statutory Education Cost Sharing
("ECS") formula violates the Connecticut Constitution. Additionally, the suit
seeks various injunctive orders requiring the State to, among other things cease
implementation of the present system, modify the ECS formula, and fund the ECS
formula at the level contemplated in the original 1988 public act which
established the ECS.
Several suits have been filed since 1977 in the Federal District Court and
the Connecticut Superior Court on behalf of alleged Indian Tribes in various
parts of the State, claiming monetary recovery as well as ownership to land in
issue. Some of these suits have been settled or dismissed. The plaintiff group
in the remaining suits is the alleged Golden Hill Paugussett Tribe and the lands
involved are generally located in Bridgeport, Trumbull, Orange, Shelton and
Seymour.
Local Government Debt
General. Numerous governmental units, cities, school districts and special
taxing districts, issue general obligation bonds backed by their taxing power.
Under Connecticut statutes, such entities have the power to levy ad valorem
taxes on all taxable property without limit as to rate or amount, except as to
certain classified property such as certified forest land taxable at a limited
rate and dwelling houses of qualified elderly persons of low income or qualified
disabled persons taxable at limited amounts. Under existing statutes, the State
is obligated to pay to such entities the amount of tax revenue which it would
have received except for the limitation on its power to tax such dwelling
houses.
Payment of principal and interest on such general obligations is not
limited to property tax revenues or any other revenue source, but certain
revenues may be restricted as to use and therefore may not be available to pay
debt service on such general obligations.
Local government units may also issue revenue obligations, which are
supported by the revenues generated from particular projects or enterprises.
Debt Limit. Pursuant to the Connecticut General Statutes, local
governmental units are prohibited from incurring indebtedness in any of the
following categories if such indebtedness would cause the aggregate indebtedness
in that category to exceed, excluding sinking fund contributions, the multiple
for such category times the aggregate annual tax receipts of such local
governmental unit for the most recent fiscal year ending prior to the date of
issue:
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DEBT CATEGORY MULTIPLE
(I) all debt other than urban renewal projects,
water pollution control projects and school
building projects............................................2 1/4
(ii) urban renewal projects.......................................3 1/4
(iii) water pollution control projects.............................3 3/4
(iv) school building projects.....................................4 1/2
(v) total debt, including (I), (ii), (iii) and (iv)
above........................................................7
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APPENDIX G
EVERGREEN NEW JERSEY TAX FREE INCOME FUND
New Jersey Municipal Securities
The financial condition of the State of New Jersey, its public authorities
(the "Authorities") and its local governments, could affect the market values
and marketability of, and therefore the net asset value per share and the
interest income of New Jersey Tax Free Income Fund, or result in the default of
existing obligations, including obligations which may be held by the Fund. The
following section provides only a brief summary of the complex factors affecting
the financial situation in New Jersey and is based on information obtained from
New Jersey, certain of its Authorities and certain other localities, as publicly
available on the date of this Statement of Additional Information. The
information contained in such publicly available documents has not been
independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
New Jersey, and that there is no obligation on the part of New Jersey to make
payment on such local obligations in the event of default in the absence of a
specific guarantee or pledge provided by New Jersey.
Economic Factors
New Jersey is the ninth largest state in population and the fifth smallest
in land area. With an average of 1,077 people per square mile, it is the most
densely populated of all the states. The State's economic base is diversified,
consisting of a variety of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. The extensive
facilities of the Port Authority of New York and New Jersey, the Delaware River
Port Authority and the South Jersey Port Corporation across the Delaware River
from Philadelphia augment the air, land and water transportation complex which
has influenced much of the State's economy. The State's central location in the
northeastern corridor, the transportation and port facilities and proximity to
New York City make the State an attractive location for corporate headquarters
and international business offices. According to the United States Bureau of the
Census, the population of New Jersey was 7,170,000 in 1970, 7,365,000 in 1980,
7,730,000 in 1990 and 7,988,000 in 1996. Historically, New Jersey's average per
capita income has been well above the national average, and in 1996 the State
ranked second among the states in per capita personal income ($31,053).
While New Jersey's economy continued to expand during the late 1980s, the
level of growth slowed considerably after 1987. By the beginning of the national
recession in July 1990 (according to the National Bureau of Economic Research),
construction activity had already been declining in New Jersey for nearly two
years, growth had tapered off markedly in the service sectors and the long-term
downward trend of factory employment had accelerated, partly because of a
leveling off of industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as wholesale
trade, retail trade, finance, utilities and trucking and warehousing. The net
effect was a decline in the State's total nonfarm wage and salary employment
from a peak of 3,689,800 in 1989 to a low of 3,457,900 in 1992. This loss has
been followed by an employment gain of 255,600 from May 1992 to June 1997, a
recovery of 97.5% of the jobs lost during the recession. In July 1991, S&P
lowered the State's general obligation bond rating from AAA to AA+.
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Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 8.5%
during 1992. Since then, the unemployment rate fell to 6.2% during 1996 and 5.5%
for the six month period from January 1997 through June 1997.
For the recovery period as a whole, May 1992 to June 1997,
service-producing employment in New Jersey has expanded by 283,500 jobs. Hiring
has been reported by food stores, wholesale distributors, trucking and
warehousing firms, security and commodity brokers, business and
engineering/management service firms, hotels/hotel-casinos, social service
agencies and health care providers other than hospitals. Employment growth was
particularly strong in business services and its personnel supply component with
increases of 17,300 and 7,500, respectively, in the 12-month period ending June
1997.
In the manufacturing sector, employment losses slowed between 1992 and
1994. After an average annual job loss of 33,500 from 1989 through 1992, New
Jersey's factory job losses fell to 13,300 during 1993 and 7,300 during 1994.
During 1995 and 1996, however, manufacturing job losses increased slightly to
10,100 and 13,900 respectively, reflecting a slowdown in national manufacturing
production activity. While experiencing growth in the number of production
workers in 1994, the number declined in 1995 at the same time that managerial
and office staff were also reduced as part of nationwide downsizing. Through
August 1996, layoffs of white collar workers and corporate downsizing appear to
be abating.
Conditions have slowly improved in the construction industry, where
employment has risen by 18,600 since its low in May 1992. Between 1992 and 1996,
this sector's hiring rebound was driven primarily by increased homebuilding and
nonresidential projects. During 1996 and the first five months of 1997, public
works projects and homebuilding became the growth segments while nonresidential
construction lessened but remained positive.
State Finances
The State operates on a fiscal year beginning July 1 and ending June 30.
For example, "Fiscal Year 1999" refers to the State's fiscal year beginning July
1, 1998 and ending June 30, 1999.
The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute, most
federal revenue and certain miscellaneous revenue items are recorded in the
General Fund. The appropriations act provides the basic framework for the
operation of the General Fund. Undesignated Fund Balances are available for
appropriation in succeeding fiscal years. There have been positive Undesignated
Fund Balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. The estimates for Fiscal Year 1998 and Fiscal
Year 1999 reflect the amounts contained in the Governor's Fiscal Year 1999
Budget Message delivered on February 10, 1998.
In Fiscal Years 1996 and 1997, the actual General Fund balances were $442.0
million and $280.5 million, respectively, and total Undesignated Fund Balances
were $882.2 million and $1,106.4 million. For Fiscal Years 1998 and 1999 General
Fund balances are estimated to be $268.7 million and $144.0 million,
respectively, and total Undesignated Fund Balances are estimated to be $1,021.3
million and $6750.0 million.
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Fiscal Years 1998 and 1999 State Revenue Estimates
Sales and Use Tax. The revised estimate forecasts Sales and Use tax
collections for Fiscal Year 1998 as $4,720.0 million, a 6.9% increase from the
Fiscal Year 1997 revenue. The Fiscal Year 1999 estimate of $4,928.0 million, is
a 4.4% increase from the Fiscal Year 1998 estimate.
Gross Income Tax. The revised estimate forecasts Gross Income Tax
collections for Fiscal Year 1998 of $5,340.0 million, a 10.7% increase from
Fiscal Year 1997 revenue. The Fiscal Year 1999 estimate of $5,860.0 million, is
a 9.7% increase from the Fiscal Year 1998 estimate. Included in the Fiscal Year
1998 estimate and the Fiscal Year 1999 estimate is the enactment of a property
tax deduction, to be phased in over a three-year period, permitting a deduction
by resident taxpayers against gross income tax of a percentage of their property
taxes.
Corporation Business Tax. The revised estimate forecasts Corporation
Business Tax collection for Fiscal Year 1998 as $1,315.1 million, a 2.2%
decrease from Fiscal Year 1997 revenue. The Fiscal Year 1999 estimate of
$1,431.0 million, is an 8.8% increase from the Fiscal Year 1998 estimate.
General Considerations. Estimated receipts from State taxes and revenues,
including the three principal taxes set forth above, are forecasts based on the
best information available at the time of such forecasts. Changes in economic
activity in the State and the nation, consumption of durable goods, corporate
financial performance and other factors that are difficult to predict may result
in actual collections being more or less than forecasted.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent. Under the State Constitution, no general appropriations law or other law
appropriating money for any State purpose may be enacted if the amount of money
appropriated therein, together with all other prior appropriations made for the
same fiscal year, exceeds the total amount of revenue on hand and anticipated to
be available for such fiscal year, as certified by the Governor.
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APPENDIX H
S&P AND MOODY'S BOND RATINGS
S&P Corporate and Municipal Bond Ratings
A. Municipal Notes
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note),
and
b. Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 - Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
2. SP-2 - Satisfactory capacity to pay principal and interest.
3. SP-3 - Speculative capacity to pay principal and interest.
B. Tax Exempt Demand Bonds
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes", S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
C. Corporate and Municipal Bond Ratings
An S&P corporate or municipal bond rating is a current assessment of
the creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
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The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default and capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
C. Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in
small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D. Moody's Corporate and Municipal Bond Ratings
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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10. Con. (...) - Municipal bonds for which the security depends
upon the completion of some act or the fulfillment of some
condition are rated conditionally. These are bonds secured
by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase
A-1, by S&P, or Prime-1 by Moody's or F-1 by Fitch; or, if not rated, will be
issued by companies which have an outstanding debt issue rated at the time of
purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P or Fitch, or will be
determined by a Fund's investment adviser to be of comparable quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative
degree of safety.
2. A-1: This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting
institutions) are deemed to have a superior capacity for repayment
of short term promissory obligations. Repayment capacity of
Prime-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on debt
and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
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APPENDIX I
FITCH BOND RATINGS
Investment Grade Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these securities and,
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for securities with higher
ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raise or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
Rating Outlook: An outlook is used to describe the most likely
direction of any rating change over the intermediate term. It is described as
"Positive" or "Negative." The absence of a designation indicates a stable
outlook.
Speculative Grade Bond Ratings BB: Bonds are considered speculative.
The obligor's ability to pay interest and repay principal may be affected over
time by adverse economic changes.
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However, business and financial alternatives can be identified, which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While securities in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such securities are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
securities, and "D" represents the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
I-2
<PAGE>
D: Default. Issues assigned this rating are in actual or imminent
payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
I-3
<PAGE>
March 31, 1998
Annual Report
[Evergreen Logo Appears here]
Evergreen Funds (SM)
SINCE 1932
Evergreen
State Municipal
Bond Funds
[Graphic appears here of metropolitan city with bond certificates in foreground]
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ................... 1
Fund at a Glance
California Tax Free Fund .............. 2
Connecticut Municipal Bond Fund ....... 4
Massachusetts Tax Free Fund ........... 6
Missouri Tax Free Fund ................ 8
New Jersey Tax Free Income Fund ....... 10
New York Tax Free Fund ................ 12
Pennsylvania Tax Free Fund ............ 14
Financial Highlights
California Tax Free Fund .............. 16
Connecticut Municipal Bond Fund ....... 18
Massachusetts Tax Free Fund ........... 20
Missouri Tax Free Fund ................ 22
New Jersey Tax Free Income Fund ....... 24
New York Tax Free Fund ................ 26
Pennsylvania Tax Free Fund ............ 28
</TABLE>
<TABLE>
<S> <C>
Schedule of Investments
California Tax Free Fund .............. 31
Connecticut Municipal Bond Fund ....... 33
Massachusetts Tax Free Fund ........... 35
Missouri Tax Free Fund ................ 37
New Jersey Tax Free Income Fund ....... 39
New York Tax Free Fund ................ 43
Pennsylvania Tax Free Fund ............ 45
Statements of Assets and Liabilities ..... 49
Statements of Operations ................. 50
Statements of Changes in Net Assets -
Year Ended March 31, 1998 ............. 51
Year Ended March 31, 1997 ............. 52
For the Periods Indicated ............. 53
Combined Notes to Financial
Statements ............................ 54
Independent Auditors' Report:
KPMG Peat Marwick LLP ................. 63
Additional Information ................... 64
</TABLE>
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
<TABLE>
<S> <C>
Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
Copyright 1998.
<PAGE>
Letter to Shareholders
May 1998
Dear Shareholders:
The 12-month period that ended on March 31,
1998, proved to be an especially rewarding one
[Photograph appears here for shareholders of the Evergreen state
of William M. Ennis] municipal bond funds, as investors received
generous
returns made even more impressive on an
after-tax basis.
William M. Ennis
Managing Director
The 12 months encompassed a period when the
U.S. economy showed stubborn resilience. Despite some international market
uncertainty brought on by the Asian crisis, the economy in the United States
continued to grow at a moderate rate, with restrained inflation. These factors,
combined with a declining federal budget deficit, allowed interest rates to
fall and bond prices to increase. The yields on longer-maturity bonds tended to
decrease more than the yields on shorter-maturity bonds. For example, the yield
on the 30-year Treasury fell during the 12 months from 7.07% to 5.93%, while
the yield on the three-month Treasury remained fairly stable, declining only
from 5.14% to 4.98%.
Competitive Performance
In this favorable economic and interest rate environment, the emphasis of the
Evergreen state municipal bond funds on investments in securities with higher
yields and longer maturities proved especially rewarding on both an absolute
and after-tax basis.(1)
Positive Outlook
Going forward, Evergreen portfolio managers continue to see a generally
supportive economic environment. With this scenario, the state municipal bond
funds are emphasizing a strategy of careful security selection among
higher-yielding, longer-maturity bonds. We believe this strategy gives
continued opportunity for the funds to provide competitive performance for tax-
conscious shareholders.
The Evergreen Funds Commitment
At Evergreen Funds, we are committed to providing a broad array of funds with a
variety of investment objectives to help investors pursue goals consistent with
their needs and risk tolerances. We encourage you, if you have any questions
about this fund or any other Evergreen Fund, to consult your financial advisor
or call us at 800-343-2898.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ Bill Ennis
William M. Ennis
Managing Director
Evergreen Funds
(1) Some portion of the Funds' income may be subject to the Federal Alternative
Minimum Tax (AMT).
1
<PAGE>
EVERGREEN
California Tax Free Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $27,121,776
Average Credit Quality AAA
Average Maturity 17.2 years
Average Duration 8.9 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic of Style Box Morningstar's Style Box is based on a
appears here] portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 2/1/94 2/1/94 2/1/94
Average Annual Returns
One year with sales charge 5.30% 4.75% 8.77%
One year w/o sales charge 10.55% 9.75% 9.77%
3 years 5.89% 5.96% 6.82%
Since Inception 4.05% 4.22% 4.56%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
30-day SEC Yield 4.11% 3.56% 3.56%
Taxable Equivalent** 6.80% 5.89% 5.89%
12-month distributions per share $ 0.44 $ 0.36 $ 0.36
Lipper ranking out of 26 California Insured
Municipal Funds(1) (for the 1 year period
ending 3/31/98) #12 #26 #24
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Growth Chart appears here with the following plot points]
Lehman Brothers CA. Consumer Lehman Brothers
Class A Shares Municipal Bond Index Price Index Muni. Bond Index
2/94 9,525 10,000 10,000 10,000
3/94 8,963 9,344 10,068 9,285
3/95 9,463 10,039 10,356 9,996
3/96 10,220 10,880 10,638 10,865
3/97 10,671 11,474 10,944 11,469
3/98 11,797 12,702 11,094 12,772
Comparison of a $10,000 investment in Evergreen California Tax Free Fund, Class
A shares, versus a similar investment in the Lehman Brothers Municipal Bond
Index, the Lehman Brothers California Municipal Bond Index, and the Consumer
Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index and the
Lehman Brothers California Municipal Bond Index are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through March 31, 1998.
2
<PAGE>
EVERGREEN
California Tax Free Fund
Portfolio
Management
[Photograph appears here of George Kimball, CFA]
George Kimball, CFA
Tenure: January 1996
For the 12 months ended March 31, 1998, your Fund's Class A shares generated a
total return of 10.55%, placing it in the top 46% of California municipal bond
funds followed by Lipper Analytical Services, an independent mutual fund rating
company.1 California municipal bondholders continued to benefit from the
state's strong economic recovery and ongoing improvement in its fiscal
operations. Demand has remained steady for California bonds, despite unusually
heavy supply in the first quarter of 1998. Going forward, we believe supply
will begin to moderate, which should be positive for prices. During the past
twelve months, we focused on quality, yield, and total return. As the reporting
period closed, 95% of the Fund was invested in securities rated "AAA". Bonds
with higher ratings provided the most attractive relative value in our opinion,
as their lower-rated counterparts typically offered little additional yield. To
build yield, we emphasized Certificates of Participation (COPs), the Health and
Hospitals sector and industrial revenue bonds, also maintaining a maximum
position in securities that are subject to the alternative minimum tax (AMT).
We increased total return potential in several ways. We invested in bonds with
maturities of at least 20 years, as well as some zero coupon bonds, which
enhanced price appreciation as interest rates declined. The Fund's substantial
position of local general obligation bonds also contributed to the Fund's total
return, by capitalizing on the state's economic and fiscal strength.
1 Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the
effect of a sales charge. Past performance is no guarantee of future
results.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie chart appears here with the following values]
Lease Rental Bonds/
Municipal Leases--23.1%
Special Feature Revenue
and General Obligation Bonds--22.1%
Housing--13.6%
Hospitals/Healthcare--11.8%
General Obligation Notes/Bonds--9.1%
Utility--5.3%
Other investments and other
assets and liabilities, net--4.4%
Airport--4.1%
Industrial Development/
Pollution Control--3.8%
Transportation--2.7%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie Chart appears here with the following values]
AAA--94.6%
A--3.5%
B--1.9%
3
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $68,152,241
Average Credit Quality AA+
Average Maturity 12.1 years
Average Duration 7.2 years
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index and the
Lehman Brothers Connecticut Municipal Bond Index are unmanaged indices. The
indices do not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through March 31, 1998.
Performance information includes the performance of the Fund's predecessor
common trust fund for periods before the Fund's registration statement became
effective on November 24, 1997. Performance for the common trust fund has been
adjusted to include the effect of estimated expenses based upon the mutual fund
expense ratio as stated in the Fund's current Prospectus. The common trust fund
was not registered under the Investment Company Act of 1940 (the "1940 Act") or
subject to certain investment restrictions that are imposed by the 1940 Act. If
the common trust fund had been registered under the 1940 Act, its performance
may have been adversely affected.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class Y
<S> <C>
Inception Date 1/31/81
Average Annual Returns
One year w/o sales charge n/a
One year with sales charge 8.52%
3 years 6.26%
5 years 4.95%
10 years 5.94%
Since Inception 7.20%
Maximum Sales Charge n/a
30-day SEC Yield 4.11%
Taxable Equivalent** 6.80%
Distribution per share for the period*** $ 0.10
</TABLE>
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
*** The period from the Fund's inception on November 24, 1997 through March 31,
1998.
Note: No performance data is available for Class A and Class B shares; their
inception dates were December 30, 1997 and January 9, 1998, respectively.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Line graph appears here with the following plot points]
Lehman Brothers
Class Y Shares Municipal Bond Index Consumer Price Index
3/88 10,000 10,000 10,000
3/90 11,159 11,583 11,047
3/92 13,004 14,239 11,957
3/94 14,206 16,394 12,635
3/96 15,928 19,089 13,350
3/98 17,814 22,285 13,923
Comparison of a $10,000 investment in Evergreen Connecticut Municipal Bond
Fund, Class Y shares, versus a similar investment in the Lehman Brothers
Municipal Bond Index and the Consumer Price Index.
Class Y shares represent an Institutional class of shares which has a lower
expense ratio than Class A and Class B shares. Returns in Class A and Class B
shares would be lower.
4
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Portfolio
Management
[Photograph appears here of Jocelyn Turner]
Jocelyn Turner
Tenure: November 1997
Spreads - or the difference in yields -
between high-rated and low-rated securities narrowed considerably in the
municipal bond market over the last twelve months. We took advantage of this
compression of spreads by focusing security selection on higher quality issues.
Subsequently, the portfolio's weighting of AAA-rated issues increased from 59%
to 66% during the fiscal year. Likewise, the Fund's duration increased nearly
13% during the same period. Duration was lengthened in response to our belief
that rates would remain in a low and stable trading range, a forecast which
proved accurate due primarily to moderating economic growth and benign
inflation. Given our cautiously positive market outlook, we anticipate
maintaining a duration which is neutral to modestly long during the coming
months.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie chart appears here with the following values]
General Obligation Notes/Bonds--35.6%
Hospitals/Healthcare--24.7%
Other investments and other assets
and liabilities, net--14.7%
Education--8.0%
Sales Tax--7.3%
Industrial Development/
Pollution Control--2.9%
Housing--2.8%
Escrow--2.5%
Water & Sewer--1.5%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie chart appears here with the following values]
AAA--66.2%
AA--21.3%
A--7.8%
BAA--4.7%
5
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $10,099,107
Average Credit Quality AAA
Average Maturity 14.4 years
Average Duration 7.3 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic of Style Box Morningstar's Style Box is based on a
appears here] portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 2/4/94 2/4/94 2/4/94
Average Annual Returns
One year with sales charge 5.25% 4.60% 8.62%
One year w/o sales charge 10.50% 9.60% 9.62%
3 years 5.61% 5.63% 6.52%
Since Inception 3.60% 3.69% 4.06%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front-End CDSC CDSC
30-day SEC Yield 3.85% 3.31% 3.31%
Taxable Equivalent** 6.37% 5.48% 5.48%
12-month distributions per share $ 0.42 $ 0.35 $ 0.35
Lipper Ranking out of 56 Massachusetts
Municipal Debt Funds(1)
(for the 1 year period ending 3/31/98) #14 #39 #38
</TABLE>
* Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
1 Lipper Analytical Services, Inc., an independent mutual fund rating company.
The rankings are based on total return and do not include the effect of a
sales charge. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Performance graph appears here with the following plot points]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Lehman Brothers Consumer Lehman Brothers
Class A Shares Municipal Bond Index Price Index Massachusetts Municipal Bond Index
2/94 9,525 10,000 10,000 10,000
3/94 8,820 9,344 10,068 9,359
3/95 9,370 10,039 10,356 10,088
3/96 9,993 10,880 10,638 10,919
3/97 10,484 11,474 10,944 11,532
3/98 11,585 12,702 11,094 12,728
</TABLE>
Comparison of a $10,000 investment in Evergreen Massachusetts Tax Free Fund,
Class A shares, versus a similar investment in the Lehman Brothers Municipal
Bond Index, the Lehman Brothers Massachusetts Municipal Bond Index, and the
Consumer Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index and the
Lehman Brothers Massachusetts Municipal Bond Index are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through March 31, 1998.
6
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Portfolio
Management
[Photograph of George Kimball appears here]
George Kimball, CFA
Tenure: January 1996
For the twelve months ended March 31, 1998, your Fund's Class A shares
produced a total return of 10.50%, placing it in the top 25% of the
Massachusetts municipal bond funds followed by Lipper Analytical
Services, an independent mutual fund rating company.1 The investment
environment in Massachusetts continued to be positive. The state's
general obligation bonds were upgraded to AA- from A+ in light of the
strength of the Massachusetts economy and improving fiscal operations.
These favorable conditions have been the driving force behind the strong
performance of Massachusetts tax-exempt bonds, as investors absorbed
heavy supply in the year's first quarter and continue to monitor the
political uncertainties associated with the upcoming election year. With
this as a background, we emphasized income, quality and total return. We
focused on bonds with 15-20 year maturities and invested in some zero
coupon bonds to increase the Fund's potential for total return. The
Fund's heaviest sector weightings were in state and local general
obligation bonds, the transportation sector, and water and sewer bonds.
This enabled us to increase liquidity and benefit from the state's
positive investment environment. We also invested in the Health and
Hospitals sector and securities issued by the Commonwealth of Puerto
Rico to increase the Fund's yield. As of the end of the reporting
period, 73% of the Fund's assets were invested in AAA-rated securities.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie chart appears here with the following values]
General Obligation Notes/Bonds--34.6%
Transportation--14.9%
Water & Sewer--12.5%
Education--12.0%
Hospitals/Healthcare--10.8%
Other investments and other assets
and liabilities, net--7.9%
Industrial Development/
Pollution Control--4.1%
Housing--3.2%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie Chart appears here with the following plot points]
AAA--73.1%
AA--15.7%
A--5.7%
BAA--5.5%
7
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $25,439,198
Average Credit Quality AA
Average Maturity 17.2 years
Average Duration 7.3 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic appears here] Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 2/1/94 2/1/94 2/1/94
Average Annual Returns
One year with sales charge 5.73% 5.26% 9.15%
One year w/o sales charge 11.01% 10.26% 10.15%
3 years 6.37% 6.44% 7.31%
Since Inception 4.60% 4.61% 4.97%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
30-day SEC Yield 4.33% 3.80% 3.79%
Taxable Equivalent** 7.17% 6.29% 6.27%
12-month distributions per share $ 0.47 $ 0.39 $ 0.39
Lipper Ranking out of 24 Missouri
Municipal Debt Funds(1)
(for the 1 year period ending 3/31/98) #3 #9 #11
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
1 Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the
effect of a sales charge. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Line graph appears here with the following plot points]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lehman Brothers Consumer Lehman Brothers
Class A Shares Municipal Bond Index Price Index Missouri Municipal Bond Index
2/94 9,525 10,000 10,000 10,000
3/94 9,069 9,344 10,068 9,315
3/95 9,545 10,039 10,356 10,012
3/96 10,327 10,880 10,638 10,863
3/97 10,866 11,474 10,944 11,406
3/98 12,062 12,702 11,094 12,571
</TABLE>
Comparison of a $10,000 investment in Evergreen Missouri Tax Free Fund, Class
A shares, versus a similar investment in the Lehman Brothers Municipal Bond
Index, the Lehman Brothers Missouri Municipal Bond Index, and the Consumer
Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index and the
Lehman Brothers Missouri Municipal Bond Index are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through March 31, 1998.
8
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Portfolio
Management
[Photograph appears here of George Kimball]
George Kimball, CFA
Tenure: January 1996
Your Fund's Class A shares returned 11.01% for the twelve-month period ended
March 31, 1998, ranking it in the top 13% of the Missouri municipal bond funds
followed by Lipper Analytical Services, an independent mutual fund rating
company.1 Over the past twelve months, prices of Missouri municipal bonds rose
on a combination of the State's ongoing sound fiscal and economic health, a
limited supply of new Missouri tax-exempt debt and steady demand. We expect a
similar relationship between supply and demand to exist as we head further into
1998, which should continue to be positive for Missouri bondholders. We
emphasized income, quality and total return in managing your Fund. As of March
31, 1998, 54% of net assets were invested in securities rated "AAA". To enhance
income, we held a substantial position in the Health and Hospitals sector,
Leases and Certificates of Participation (COPs) and securities issued by the
Commonwealth of Puerto Rico. We focused on bonds with 15-20 year maturities to
improve both yield and total return potential. The yields on these bonds were
higher and their prices rose faster than those with shorter maturities in the
declining interest rate environment that existed over the past year.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie graph appears here with the following values]
Hospitals/Healthcare--23.5%
General Obligation Notes/Bonds--22.8%
Lease Rental Bonds/
Municipal Leases--18.5%
Utility--8.5%
Housing--8.0%
Water & Sewer--7.0%
Education--6.3%
Transportation--4.6%
Other assets and liabilities, net--0.8%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie chart appears here with the following values]
AAA--54.1%
AA--19.7%
A--15.5%
BAA--6.4%
Not Rated--4.3%
9
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $150,589,731
Average Credit Quality AA+
Average Maturity 14.9 years
Average Duration 8.6 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic appears here] Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class Y
<S> <C> <C> <C>
Inception Date 7/16/91 1/30/96 2/8/96
Average Annual Returns
One year with sales charge 4.15% 3.35% n/a
One year w/o sales charge 9.34% 8.35% 9.44%
3 years 5.35% - -
5 years 4.98% - -
Since Inception 6.52% 3.34% 5.36%
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
30-day SEC Yield 4.27% 3.57% 4.58%
Taxable Equivalent** 7.07% 5.91% 7.58%
12-month distributions per share $ 0.62 $ 0.52 $ 0.63
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Line graph appears here with the following plot points]
Lehman Brothers Municipal
Class A Shares Bond Index Consumer Price Index
7/91 9,525 10,000 10,000
3/92 10,046 10,639 10,228
3/93 11,384 11,972 10,543
3/94 11,629 12,249 10,808
3/95 12,415 13,160 11,116
3/96 13,315 14,263 11,419
3/97 13,938 15,041 11,747
3/98 15,240 16,651 11,909
Comparison of a $10,000 investment in Evergreen New Jersey Tax
Free Income Fund, Class A shares, versus a similar investment in the Lehman
Brothers Municipal Bond Index and the Consumer Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index is an
unmanaged index. The index does not include transaction costs associated with
buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through March 31, 1998.
10
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Portfolio
Management
[Photograph appears here of Jocelyn Turner]
Jocelyn Turner
Tenure: November 1992
Investors witnessed a relatively scarce supply of municipal bonds within the
state of New Jersey over the past twelve months.
Spreads - or the difference between yields - between high- and low-rated bonds
narrowed considerably during the same period. This compression of spreads
essentially meant that investors received less reward for assuming a greater
amount of risk associated with lower-rated securities. As a result, we shifted
our security selection to focus on higher quality issues. During the final
months of the fiscal period, a portion of new inflows were allocated into cash
as a protective measure against potentially increasing interest rates. Despite
short-term volatility, we feel that moderating economic growth and benign
inflation provide the backdrop for a low, stable trading range for interest
rates over the long term. Subsequently, we anticipate maintaining a neutral to
slightly longer duration in the coming months.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie chart appears here with the following values]
General Obligation Notes/Bonds--22.9%
Other investments and other assets
and liabilities, net--19.3%
Water & Sewer--17.4%
Hospitals/Healthcare--14.0%
Transportation-13.4%
Education--5.7%
Escrow--3.7%
Industrial Development/
Pollution Control--1.8%
Lease Rental Bonds/
Municipal Leases--1.8%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie Chart Appears here with the following values]
AAA--65.9%
AA--21.9%
A--6.8%
BBB--2.1%
Not Rated--3.3%
11
<PAGE>
EVERGREEN
New York Tax Free Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $22,268,608
Average Credit Quality AAA
Average Maturity 15.9 years
Average Duration 7.5 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic appears here] Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 2/4/94 2/4/94 2/4/94
Average Annual Returns
One year with sales charge 5.31% 4.80% 8.69%
One year w/o sales charge 10.56% 9.80% 9.69%
3 years 5.97% 6.04% 6.93%
Since Inception 4.46% 4.53% 4.90%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
30-day SEC Yield 4.20% 3.66% 3.66%
Taxable Equivalent** 6.95% 6.06% 6.06%
12-month distributions per share $ 0.52 $ 0.44 $ 0.44
Lipper Ranking out of 15 New York
Insured Funds(1)
(for the 1 year period ending 3/31/98) #1 #5 #7
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
(1) Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the
effect of a sales charge. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Graph appears here. See the table below for the plot points.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A Lehman Brothers Consumer Lehman Brothers
Shares Municipal Bond Index Price Index New York Municipal Bond Index
2/94 9,525 10,000 10,000 10,000
3/94 8,962 9,344 10,068 9,377
3/95 9,597 10,039 10,356 10,018
3/96 10,339 10,880 10,638 10,880
3/97 10,843 11,474 10,944 11,522
3/98 11,988 12,702 11,094 12,848
</TABLE>
Comparison of a $10,000 investment in Evergreen New York Tax Free Fund, Class A
shares, versus a similar investment in the Lehman Brothers Municipal Bond
Index, the Lehman Brothers New York Municipal Bond Index, and the Consumer
Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index and the
Lehman Brothers New York Municipal Bond Index are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through March 31, 1998.
12
<PAGE>
EVERGREEN
New York Tax Free Fund
Portfolio
Management
(Photo of George Kimball)
George Kimball, CFA
Tenure: January 1996
Your Fund's Class A shares returned 10.56% for the twelve-month period ended
March 31, 1998, ranking it the #1 fund among the insured New York municipal
bond funds followed by Lipper Analytical Services, an independent mutual fund
rating company.1 New York tax-exempt bonds were among the top-performing asset
classes in the municipal bond market over the past twelve months. Economic
strength, rising tax revenues and conservative budgeting strengthened the
financial conditions of New York municipalities; and, reflecting these
improving financial conditions, the general obligations of New York City, the
state of New York and state-appropriated paper all received rating upgrades. We
capitalized on this environment by maintaining a substantial position in state
and local general obligation bonds, as well as state-appropriated debt. We
increased the portfolio's potential for yield and total return by investing in
bonds with 15-20 year maturities, many of which were non-callable. We also
boosted yield by increasing the Fund's position in uninsured bonds, emphasizing
securities rated "AA" and "BBB".
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie Chart Appears here with the following values]
General Obligation Notes/Bonds--36.4%
Water & Sewer--14.1%
Hospitals/Healthcare--13.8%
Other investments and other assets and liabilities, net--13.8%
Education--9.7%
Transportation--6.1%
Housing--4.2%
Variable Rate Demand Notes--0.9%
Airport--0.5%
Industrial Development/Pollution Control--0.5%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie Chart Appears here with the following values]
AAA--86.6%
AA--5.6%
A--1.3%
BAA--6.5%
13
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Fund at a Glance as of March 31, 1998
Portfolio
Characteristics
Total Net Assets $220,528,331
Average Credit Quality AA+
Average Maturity 14.9 years
Average Duration 8.5 years
-------------------------------------------------------
CURRENT INVESTMENT STYLE
[Graphic appears here] Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 12/27/90 2/1/93 2/1/93 11/24/97
Average Annual Returns
One year with sales charge 4.80% 4.27% 8.34% -
One year w/o sales charge 10.02% 9.27% 9.34% -
3 years 5.92% 5.97% 6.90% -
5 years 5.04% 4.93% 5.28% -
Since Inception 7.53% 5.50% 5.68% 2.54%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 4.07% 3.52% 3.52% 4.52%
Taxable Equivalent** 6.74% 5.83% 5.83% 7.48%
12-month distributions per
share $ 0.54 $ 0.44 $ 0.45 $ 0.19***
</TABLE>
*Adjusted for maximum applicable sales charge.
**Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
***Represents dividends since inception, November 24, 1997.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[Graph appears here. See the table below for plot points.]
Lehman Brothers Municipal
Class A Shares Bond Index Consumer Price Index
12/90 9,525 10,000 10,000
3/91 9,941 10,226 10,090
3/92 11,141 11,247 10,411
3/93 12,623 12,656 10,733
3/94 12,949 12,950 11,002
3/95 13,584 13,912 11,315
3/96 14,628 15,078 11,624
3/97 15,403 15,901 11,958
3/98 16,946 17,603 12,123
Comparison of a $10,000 investment in Evergreen Pennsylvania Tax Free Fund,
Class A shares, versus a similar investment in the Lehman Brothers Municipal
Bond Index and the Consumer Price Index.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Municipal Bond Index is an
unmanaged index. The index does not include transaction costs associated with
buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through March 31, 1998.
14
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Portfolio
Management
[Photo of Jocelyn Turner]
Jocelyn Turner
Tenure: November 1992
Yields between high- and low-rated municipal bonds narrowed considerably during
the twelve months ended March 31. This compression of spreads essentially meant
that investors were offered less incentive to purchase lower quality municipal
bonds. Subsequently, we shifted our focus toward higher quality issues,
prompting the portfolio's weighting of AAA-rated bonds to edge up over 69%.
Duration increased a rather substantial 38%, from 6.2 years to 8.5 years. This
move was in response to our analysis that indicated rates would remain
relatively low and range-bound through early 1998. Due to moderating economic
growth and few signs of significant inflationary pressure, we anticipate
maintaining a neutral to modestly long duration relative to the benchmark in
the coming months.
----------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[Pie Chart Appears here with the following values]
General Obligation Notes/Bonds--31.7%
Hospitals/Healthcare--13.5%
Water & Sewer--10.8%
Industrial Development/Pollution Control--10.5%
Education--9.9%
Other investments and other assets and liabilities, net--9.5%
Transportation--4.9%
Escrow--4.4%
Housing--3.2%
Public Facilities--1.6%
----------------------------------------------------------------
PORTFOLIO QUALITY
(as a percentage of portfolio assets)
[Pie Chart Appears here with the following values]
AAA--69.2%
AA--18.6%
A--8.1%
BAA--3.6%
Not Rated--0.5%
15
<PAGE>
EVERGREEN
California Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.44 $ 9.73
======== ==========
Income from investment operations
Net investment income 0.45 0.16
Net realized and unrealized gain (loss) on investments
and futures contracts 0.53 ( 0.28)
-------- ----------
Total from investment operations 0.98 ( 0.12)
-------- ----------
Less distributions from
Net investment income ( 0.44) ( 0.16)
In excess of net investment income 0 ( 0.01)
--------- ----------
Total distributions ( 0.44) ( 0.17)
--------- ----------
Net asset value end of year $ 9.98 $ 9.44
========= ==========
Total return (b) 10.55% ( 1.29%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.78% 0.77%(a)
Expenses excluding indirectly paid expenses 0.78% 0.75%(a)
Expenses excluding waivers and/or reimbursements 1.03% 1.24%(a)
Net investment income 4.60% 4.91%(a)
Portfolio turnover rate 74% 39%
Net assets end of year (thousands) $ 6,420 $ 4,192
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.86 $ 8.70 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.48 0.49 0.44
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.11) 1.17 ( 1.30)
-------- ------- -----------
Total from investment operations 0.37 1.66 ( 0.86)
-------- ------- -----------
Less distributions from
Net investment income ( 0.48) ( 0.47) ( 0.44)
In excess of net investment income ( 0.02) ( 0.03) 0
-------- -------- -----------
Total distributions ( 0.50) ( 0.50) ( 0.44)
-------- -------- -----------
Net asset value end of year $ 9.73 $ 9.86 $ 8.70
======== ======== ===========
Total return (b) 3.99% 19.63% ( 8.78%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.77% 0.72% 0.41%(a)
Expenses excluding indirectly paid expenses 0.75% 0.69% -
Expenses excluding waivers and/or reimbursements 1.19% 1.31% 1.66%(a)
Net investment income 5.06% 5.37% 5.53%(a)
Portfolio turnover rate 120% 119% 104%
Net assets end of year (thousands) $ 4,759 $ 4,555 $ 3,006
</TABLE>
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.40 $ 9.69
======== ==========
Income from investment operations
Net investment income 0.37 0.13
Net realized and unrealized gain (loss) on investments
and futures contracts 0.53 ( 0.28)
-------- ----------
Total from investment operations 0.90 ( 0.15)
-------- ----------
Less distributions from
Net investment income ( 0.36) ( 0.13)
In excess of net investment income 0 ( 0.01)
--------- ----------
Total distributions ( 0.36) ( 0.14)
--------- ----------
Net asset value end of year $ 9.94 $ 9.40
========= ==========
Total return (b) 9.75% ( 1.54%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.52%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50%(a)
Expenses excluding waivers and/or reimbursements 1.77% 1.99%(a)
Net investment income 3.87% 4.16%(a)
Portfolio turnover rate 74% 39%
Net assets end of year (thousands) $ 18,967 $ 21,794
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.82 $ 8.68 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.41 0.44 0.40
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.11) 1.17 ( 1.28)
------- ------- -----------
Total from investment operations 0.30 1.61 ( 0.88)
------- ------- -----------
Less distributions from
Net investment income ( 0.41) ( 0.44) ( 0.40)
In excess of net investment income ( 0.02) ( 0.03) ( 0.04)
------- ------- -----------
Total distributions ( 0.43) ( 0.47) ( 0.44)
------- ------- -----------
Net asset value end of year $ 9.69 $ 9.82 $ 8.68
======= ======= ===========
Total return (b) 3.23% 18.95% ( 9.00%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.48% 1.16%(a)
Expenses excluding indirectly paid expenses 1.50% 1.45% -
Expenses excluding waivers and/or reimbursements 1.94% 2.07% 2.36%(a)
Net investment income 4.31% 4.57% 4.83%(a)
Portfolio turnover rate 120% 119% 104%
Net assets end of year (thousands) $22,719 $22,743 $ 11,415
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
California Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.38 $ 9.68
======== ==========
Income from investment operations
Net investment income 0.37 0.14
Net realized and unrealized gain (loss) on investments
and futures contracts 0.53 ( 0.30)
-------- ----------
Total from investment operations 0.90 ( 0.16)
-------- ----------
Less distributions from
Net investment income ( 0.36) ( 0.13)
In excess of net investment income 0 ( 0.01)
--------- ----------
Total distributions ( 0.36) ( 0.14)
--------- ----------
Net asset value end of year $ 9.92 $ 9.38
========= ==========
Total return (b) 9.77% ( 1.64%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.52%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50%(a)
Expenses excluding waivers and/or reimbursements 1.77% 1.99%(a)
Net investment income 3.87% 4.16%(a)
Portfolio turnover rate 74% 39%
Net assets end of year (thousands) $ 1,735 $ 1,849
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.80 $ 8.68 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.41 0.43 0.39
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.10) 1.15 ( 1.29)
-------- ------- -----------
Total from investment operations 0.31 1.58 ( 0.90)
-------- ------- -----------
Less distributions from
Net investment income ( 0.41) ( 0.43) ( 0.39)
In excess of net investment income ( 0.02) ( 0.03) ( 0.03)
-------- -------- -----------
Total distributions ( 0.43) ( 0.46) ( 0.42)
-------- -------- -----------
Net asset value end of year $ 9.68 $ 9.80 $ 8.68
======== ======== ===========
Total return (b) 3.34% 18.69% ( 9.08%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.49% 1.16%(a)
Expenses excluding indirectly paid expenses 1.50% 1.46% -
Expenses excluding waivers and/or reimbursements 1.94% 2.07% 2.38%(a)
Net investment income 4.31% 4.51% 4.96%(a)
Portfolio turnover rate 120% 119% 104%
Net assets end of year (thousands) $ 1,521 $ 1,535 $ 624
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
December 30, 1997
(Commencement of
Class Operations)
through
March 31, 1998
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 6.40
==========
Income from investment operations
Net investment income 0.07
Net realized and unrealized loss on investments ( 0.02)
----------
Total from investment operations 0.05
----------
Less distributions from net investment income ( 0.07)
----------
Net asset value end of period $ 6.38
==========
Total return (b) 0.77%
Ratios/supplemental data
Ratios to average net assets
Total expenses 0.86%(a)
Total expenses excluding indirectly paid expenses 0.85%(a)
Total expenses excluding waivers and/or reimbursement 1.13%(a)
Net investment income 4.38%(a)
Portfolio turnover rate 17%
Net assets end of period (thousands) $ 146
</TABLE>
<TABLE>
<CAPTION>
January 9, 1998
(Commencement of
Class Operations)
through
March 31, 1998
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 6.44
==========
Income from investment operations
Net investment income 0.05
Net realized and unrealized loss on investments ( 0.06)
----------
Total from investment operations ( 0.01)
----------
Less distributions from net investment income ( 0.05)
----------
Net asset value end of period $ 6.38
==========
Total return (b) ( 0.21%)
Ratios/supplemental data
Ratios to average net assets
Total expenses 1.61%(a)
Total expenses excluding indirectly paid expenses 1.60%(a)
Total expenses excluding waivers and/or reimbursement 1.89%(a)
Net investment income 3.36%(a)
Portfolio turnover rate 17%
Net assets end of period (thousands) $ 331
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
November 24, 1997
(Commencement of
Class Operations)
through
March 31, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 6.32
==========
Income from investment operations
Net investment income 0.10
Net realized and unrealized gain on investments 0.05
----------
Total from investment operations 0.15
----------
Less distributions from net investment income ( 0.10)
----------
Net asset value end of period $ 6.37
==========
Total return 2.39%
Ratios/supplemental data
Ratios to average net assets
Total expenses 0.61%(a)
Total expenses excluding indirectly paid expenses 0.60%(a)
Total expenses excluding waivers and/or reimbursement 0.88%(a)
Net investment income 4.50%(a)
Portfolio turnover rate 17%
Net assets end of period (thousands) $ 67,675
</TABLE>
(a) Annualized.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.23 $ 9.29 $ 9.19 $ 9.17 $ 10.00
======== ======== ======== ======== ==========
Income from investment operations
Net investment income 0.45 0.47 0.51 0.53 0.08
Net realized and unrealized gain (loss) on
investments and futures contracts 0.50 ( 0.03) 0.09 0.02 ( 0.82)
-------- --------- -------- -------- ----------
Total from investment operations 0.95 0.44 0.60 0.55 ( 0.74)
-------- --------- -------- -------- ----------
Less distributions from
Net investment income ( 0.42) ( 0.47) ( 0.48) ( 0.53) ( 0.08)
In excess of net investment income 0 ( 0.03) ( 0.02) 0 ( 0.01)
--------- --------- --------- --------- ----------
Total distributions ( 0.42) ( 0.50) ( 0.50) ( 0.53) ( 0.09)
--------- --------- --------- --------- ----------
Net asset value end of year $ 9.76 $ 9.23 $ 9.29 $ 9.19 $ 9.17
========= ========= ========= ========= ==========
Total return (b) 10.50% 4.92% 6.64% 6.23% ( 7.40%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.77% 0.76% 0.75% 0.46% 0.35%(a)
Expenses excluding indirectly paid expenses 0.77% 0.75% 0.74% - -
Expenses excluding waivers and/or
reimbursements 1.26% 1.58% 1.59% 1.93% 3.22%(a)
Net investment income 4.64% 5.19% 5.36% 5.90% 5.07%(a)
Portfolio turnover rate 97% 110% 165% 77% 7%
Net assets end of year (thousands) $ 2,076 $ 2,063 $ 1,786 $ 1,974 $ 1,472
</TABLE>
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.17 $ 9.22 $ 9.15 $ 9.19 $ 10.00
======== ======== ======== ======== ==========
Income from investment operations
Net investment income 0.36 0.41 0.43 0.48 0.08
Net realized and unrealized gain (loss) on
investments and futures contracts 0.51 ( 0.03) 0.09 ( 0.01) ( 0.80)
-------- --------- -------- --------- ----------
Total from investment operations 0.87 0.38 0.52 0.47 ( 0.72)
-------- --------- -------- --------- ----------
Less distributions from
Net investment income ( 0.35) ( 0.41) ( 0.43) ( 0.47) ( 0.07)
In excess of net investment income 0 ( 0.02) ( 0.02) ( 0.04) ( 0.02)
--------- --------- --------- --------- ----------
Total distributions ( 0.35) ( 0.43) ( 0.45) ( 0.51) ( 0.09)
--------- --------- --------- --------- ----------
Net asset value end of year $ 9.69 $ 9.17 $ 9.22 $ 9.15 $ 9.19
========= ========= ========= ========= ==========
Total return (b) 9.60% 4.25% 5.77% 5.41% ( 7.20%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51% 1.49% 1.24% 1.10%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50% 1.48% - -
Expenses excluding waivers and/or
reimbursements 2.01% 2.35% 2.38% 2.68% 4.60%(a)
Net investment income 3.89% 4.45% 4.60% 5.15% 3.23%(a)
Portfolio turnover rate 97% 110% 165% 77% 7%
Net assets end of year (thousands) $ 6,384 $ 7,803 $ 7,274 $ 6,169 $ 1,817
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.16 $ 9.22 $ 9.14 $ 9.19 $ 10.00
======== ======== ======== ======== ==========
Income from investment operations
Net investment income 0.36 0.41 0.43 0.48 0.08
Net realized and unrealized gain (loss) on
investments and futures contracts 0.51 ( 0.04) 0.10 ( 0.02) ( 0.80)
-------- --------- -------- --------- ----------
Total from investment operations 0.87 0.37 0.53 0.46 ( 0.72)
-------- --------- -------- --------- ----------
Less distributions from
Net investment income ( 0.35) ( 0.41) ( 0.43) ( 0.47) ( 0.07)
In excess of net investment income 0 ( 0.02) ( 0.02) ( 0.04) ( 0.02)
--------- --------- --------- --------- ----------
Total distributions ( 0.35) ( 0.43) ( 0.45) ( 0.51) ( 0.09)
--------- --------- --------- --------- ----------
Net asset value end of year $ 9.68 $ 9.16 $ 9.22 $ 9.14 $ 9.19
========= ========= ========= ========= ==========
Total return (b) 9.62% 4.14% 5.89% 5.20% ( 7.21%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.54% 1.51% 1.49% 1.23% 1.10%(a)
Expenses excluding indirectly paid expenses 1.53% 1.50% 1.48% - -
Expenses excluding waivers and/or
reimbursements 2.02% 2.36% 2.39% 2.68% 4.91%(a)
Net investment income 3.94% 4.46% 4.60% 5.11% 4.28%(a)
Portfolio turnover rate 97% 110% 165% 77% 7%
Net assets end of year (thousands) $ 1,639 $ 2,066 $ 2,303 $ 1,971 $ 369
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.64 $ 9.86
======== ==========
Income from investment operations
Net investment income 0.46 0.16
Net realized and unrealized gain (loss) on investments
and futures contracts 0.58 ( 0.22)
-------- ----------
Total from investment operations 1.04 ( 0.06)
-------- ----------
Less distributions from
Net investment income ( 0.47) ( 0.16)
In excess of net investment income 0 0(c)
--------- ----------
Total distributions ( 0.47) ( 0.16)
--------- ----------
Net asset value end of year $ 10.21 $ 9.64
========= ==========
Total return (b) 11.01% ( 0.57%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.78% 0.76%(a)
Expenses excluding indirectly paid expenses 0.78% 0.75%(a)
Expenses excluding waivers and/or reimbursements 1.16% 1.31%(a)
Net investment income 4.83% 5.05%(a)
Portfolio turnover rate 42% 12%
Net assets end of year (thousands) $ 4,897 $ 2,627
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.91 $ 8.72 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.50 0.50 0.44
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.06) 1.19 ( 1.28)
-------- ------- -----------
Total from investment operations 0.44 1.69 ( 0.84)
-------- ------- -----------
Less distributions from
Net investment income ( 0.47) ( 0.47) ( 0.44)
In excess of net investment income ( 0.02) ( 0.03) 0(c)
-------- -------- -----------
Total distributions ( 0.49) ( 0.50) ( 0.44)
-------- -------- -----------
Net asset value end of year $ 9.86 $ 9.91 $ 8.72
======== ======== ===========
Total return (b) 4.66% 19.86% ( 8.55%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.76% 0.72% 0.43%(a)
Expenses excluding indirectly paid expenses 0.75% 0.69% -
Expenses excluding waivers and/or reimbursements 1.22% 1.32% 1.54%(a)
Net investment income 4.93% 5.26% 5.38%(a)
Portfolio turnover rate 126% 74% 25%
Net assets end of year (thousands) $ 2,610 $ 4,848 $ 3,581
</TABLE>
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.52 $ 9.74
======== ==========
Income from investment operations
Net investment income 0.40 0.13
Net realized and unrealized gain (loss) on investments
and futures contracts 0.56 ( 0.21)
-------- ----------
Total from investment operations 0.96 ( 0.08)
-------- ----------
Less distributions from
Net investment income ( 0.39) ( 0.14)
In excess of net investment income 0 0(c)
--------- ----------
Total distributions ( 0.39) ( 0.14)
--------- ----------
Net asset value end of year $ 10.09 $ 9.52
========= ==========
Total return (b) 10.26% ( 0.83%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.53% 1.51%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50%(a)
Expenses excluding waivers and/or reimbursements 1.90% 2.06%(a)
Net investment income 4.12% 4.31%(a)
Portfolio turnover rate 42% 12%
Net assets end of year (thousands) $ 19,552 $ 20,127
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.80 $ 8.67 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.40 0.44 0.40
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.04) 1.15 ( 1.29)
------- ------- -----------
Total from investment operations 0.36 1.59 ( 0.89)
------- ------- -----------
Less distributions from
Net investment income ( 0.40) ( 0.43) ( 0.40)
In excess of net investment income ( 0.02) ( 0.03) ( 0.04)
------- ------- -----------
Total distributions ( 0.42) ( 0.46) ( 0.44)
------- ------- -----------
Net asset value end of year $ 9.74 $ 9.80 $ 8.67
======= ======= ===========
Total return (b) 3.83% 18.79% ( 9.06%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.47% 1.16%(a)
Expenses excluding indirectly paid expenses 1.50% 1.44% -
Expenses excluding waivers and/or reimbursements 2.00% 2.08% 2.49%(a)
Net investment income 4.20% 4.56% 4.70%(a)
Portfolio turnover rate 126% 74% 25%
Net assets end of year (thousands) $21,925 $21,231 $ 12,906
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Amount represents less than $0.01 per share.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Four Months
Ended Ended
March 31, 1998 March 31, 1997*
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.52 $ 9.73
======== ==========
Income from investment operations
Net investment income 0.38 0.13
Net realized and unrealized gain (loss) on investments
and futures contracts 0.57 ( 0.20)
-------- ----------
Total from investment operations 0.95 ( 0.07)
-------- ----------
Less distributions from
Net investment income ( 0.39) ( 0.14)
In excess of net investment income 0 0(c)
--------- ----------
Total distributions ( 0.39) ( 0.14)
--------- ----------
Net asset value end of year $ 10.08 $ 9.52
========= ==========
Total return (b) 10.15% ( 0.73%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51%(a)
Expenses excluding indirectly paid expenses 1.51% 1.50%(a)
Expenses excluding waivers and/or reimbursements 1.90% 2.06%(a)
Net investment income 4.10% 4.30%(a)
Portfolio turnover rate 42% 12%
Net assets end of year (thousands) $ 990 $ 1,306
<CAPTION>
February 1, 1994
Year Ended November 30, (Commencement of
----------------------- Class Operations) to
1996 1995 November 30, 1994
<S> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.79 $ 8.66 $ 10.00
======= ======= ===========
Income from investment operations
Net investment income 0.39 0.43 0.39
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.03) 1.16 ( 1.29)
-------- ------- -----------
Total from investment operations 0.36 1.59 ( 0.90)
-------- ------- -----------
Less distributions from
Net investment income ( 0.40) ( 0.43) ( 0.39)
In excess of net investment income ( 0.02) ( 0.03) ( 0.05)
-------- -------- -----------
Total distributions ( 0.42) ( 0.46) ( 0.44)
-------- -------- -----------
Net asset value end of year $ 9.73 $ 9.79 $ 8.66
======== ======== ===========
Total return (b) 3.83% 18.78% ( 9.25%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.46% 1.15%(a)
Expenses excluding indirectly paid expenses 1.50% 1.44% -
Expenses excluding waivers and/or reimbursements 1.99% 2.07% 2.60%(a)
Net investment income 4.18% 4.56% 4.72%(a)
Portfolio turnover rate 126% 74% 25%
Net assets end of year (thousands) $ 1,387 $ 1,788 $ 1,045
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Amount represents less than $0.01 per share.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Seven Months Six Months Year
Year Ended Ended Ended Ended
March 31, 1998 March 31, 1997** August 31, 1996* February 29, 1996
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 10.74 $ 10.75 $ 11.01 $ 10.53
========= =========== =========== =========
Income from investment operations
Net investment income 0.53 0.31 0.28 0.56
Net realized and unrealized gain (loss) on investments 0.46 ( 0.01) ( 0.26) 0.48
---------- ----------- ----------- ---------
Total from investment operations 0.99 0.30 0.02 1.04
---------- ----------- ----------- ---------
Less distributions from
Net investment income ( 0.53) ( 0.31) ( 0.28) ( 0.56)
Net realized gain on investments (0.09) 0 0 0
---------- ----------- ----------- ----------
Total distributions (0.62) ( 0.31) ( 0.28) ( 0.56)
---------- ----------- ----------- ----------
Net asset value end of year $ 11.11 $ 10.74 $ 10.75 $ 11.01
========== =========== =========== ==========
Total return (b) 9.34% 2.83% 0.19% 10.08%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.50% 0.44%(a) 0.34%(a) 0.36%
Expenses excluding indirectly paid expenses 0.50% 0.44%(a) - -
Expenses excluding waivers and/or reimbursements 1.01% 1.13%(a) 1.11%(a) 1.03%
Net investment income 4.77% 5.02%(a) 5.08%(a) 5.15%
Portfolio turnover rate 37% 15% 0% 4%
Net assets end of year (thousands) $ 31,614 $ 31,434 $ 32,377 $ 41,762
</TABLE>
<TABLE>
<CAPTION>
July 16, 1991
Year Ended February 28, (Commencement of
----------------------------------------- Class Operations) to
1995 1994 1993 February 29, 1992
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 10.99 $ 11.01 $ 10.22 $ 10.00
========= ========= ========= ==========
Income from investment operations
Net investment income 0.57 0.60 0.63 0.38
Net realized and unrealized gain (loss) on investments ( 0.46) ( 0.02) 0.79 0.22
---------- ---------- --------- ----------
Total from investment operations 0.11 0.58 1.42 0.60
---------- ---------- --------- ----------
Less distributions from net investment income ( 0.57) ( 0.60) ( 0.63) ( 0.38)
---------- ---------- ---------- ----------
Net asset value end of year $ 10.53 $ 10.99 $ 11.01 $ 10.22
========== ========== ========== ==========
Total return (b) 1.41% 5.30% 14.39% 6.03%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.25% 0.14% 0.00% 0.01%(a)
Expenses excluding indirectly paid expenses - - - -
Expenses excluding waivers and/or reimbursements 1.04% 1.05% 1.16% 1.20%(a)
Net investment income 5.52% 5.31% 5.97% 5.89%(a)
Portfolio turnover rate 8% 2% 5% 5%
Net assets end of year (thousands) $ 34,852 $ 42,783 $ 30,863 $ 13,129
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from February 28 to August 31.
** The Fund changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Seven Months
Year Ended Ended
March 31, 1998 March 31, 1997**
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 10.74 $ 10.75
========= ===========
Income from investment operations
Net investment income 0.43 0.25
Net realized and unrealized gain (loss) on investments 0.46 0
--------- -----------
Total from investment operations 0.89 0.25
--------- -----------
Less distributions from
Net investment income ( 0.43) ( 0.26)
Net realized gain on investments ( 0.09) 0
---------- -----------
Total distributions ( 0.52) ( 0.26)
---------- -----------
Net asset value end of year $ 11.11 $ 10.74
========== ===========
Total return (b) 8.35% 2.29%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.41% 1.36%(a)
Expenses excluding indirectly paid expenses 1.41% 1.36%(a)
Expenses excluding waivers and/or reimbursements 1.76% 1.88%(a)
Net investment income 3.85% 4.07%(a)
Portfolio turnover rate 37% 15%
Net assets end of year (thousands) $ 13,645 $ 7,847
<CAPTION>
January 30, 1996
Six Months (Commencement of
Ended Class Operations) to
August 31, 1996* February 29, 1996
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 11.01 $ 11.08
=========== ===========
Income from investment operations
Net investment income 0.24 0.05
Net realized and unrealized gain (loss) on investments ( 0.26) ( 0.07)
----------- -----------
Total from investment operations ( 0.02) ( 0.02)
----------- -----------
Less distributions from
Net investment income ( 0.24) ( 0.05)
Net realized gain on investments 0 0
----------- -----------
Total distributions ( 0.24) ( 0.05)
----------- -----------
Net asset value end of year $ 10.75 $ 11.01
=========== ===========
Total return (b) ( 0.20%) ( 0.22%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.28%(a) 0.31%(a)
Expenses excluding indirectly paid expenses - -
Expenses excluding waivers and/or reimbursements 1.85%(a) 1.66%(a)
Net investment income 4.14%(a) 5.23%(a)
Portfolio turnover rate 0% 4%
Net assets end of year (thousands) $ 2,709 $ 186
</TABLE>
<TABLE>
<CAPTION>
Seven Months
Year Ended Ended
March 31, 1998 March 31, 1997**
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 10.74 $ 10.75
========= ===========
Income from investment operations
Net investment income 0.54 0.32
Net realized and unrealized gain (loss) on investments 0.46 ( 0.01)
--------- -----------
Total from investment operations 1.00 0.31
--------- -----------
Less distributions from
Net investment income ( 0.54) ( 0.32)
Net realized gain on investments ( 0.09) 0
---------- -----------
Total distributions ( 0.63) ( 0.32)
---------- -----------
Net asset value end of year $ 11.11 $ 10.74
========== ===========
Total return 9.44% 2.88%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.41% 0.36%(a)
Expenses excluding indirectly paid expenses 0.41% 0.36%(a)
Expenses excluding waivers and/or reimbursements 0.76% 0.88%(a)
Net investment income 4.79% 5.08%(a)
Portfolio turnover rate 37% 15%
Net assets end of year (thousands) $ 105,331 $ 9,436
<CAPTION>
February 8, 1996
Six Months (Commencement of
Ended Class Operations) to
August 31, 1996* February 29, 1996
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 11.01 $ 11.14
=========== ===========
Income from investment operations
Net investment income 0.28 0.03
Net realized and unrealized gain (loss) on investments ( 0.26) ( 0.13)
----------- -----------
Total from investment operations 0.02 ( 0.10)
----------- -----------
Less distributions from
Net investment income ( 0.28) ( 0.03)
Net realized gain on investments 0 0
----------- -----------
Total distributions ( 0.28) ( 0.03)
----------- -----------
Net asset value end of year $ 10.75 $ 11.01
=========== ===========
Total return 0.20% ( 0.87%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.31%(a) 0.31%(a)
Expenses excluding indirectly paid expenses - -
Expenses excluding waivers and/or reimbursements 0.87%(a) 0.88%(a)
Net investment income 5.12%(a) 5.28%(a)
Portfolio turnover rate 0% 4%
Net assets end of year (thousands) $ 9,076 $ 18
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from February 28 to August 31.
** The Fund changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
New York Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
Year Ended March 31, (Commencement of
--------------------------------------------------- Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 9.64 $ 9.67 $ 9.44 $ 9.32 $ 10.00
======== ======== ======== ======== ===========
Income from investment operations
Net investment income 0.48 0.49 0.48 0.52 0.09
Net realized and unrealized gain (loss) on investments
and futures contracts 0.52 ( 0.03) 0.24 0.12 ( 0.68)
-------- --------- -------- -------- -----------
Total from investment operations 1.00 0.46 0.72 0.64 ( 0.59)
-------- --------- -------- -------- -----------
Less distributions from
Net investment income ( 0.46) ( 0.48) ( 0.47) ( 0.52) ( 0.08)
In excess of net investment income 0 ( 0.01) ( 0.02) 0 ( 0.01)
Net realized gain on investments ( 0.06) 0 0 0 0
--------- --------- --------- --------- -----------
Total distributions ( 0.52) ( 0.49) ( 0.49) ( 0.52) ( 0.09)
--------- --------- --------- --------- -----------
Net asset value end of year $ 10.12 $ 9.64 $ 9.67 $ 9.44 $ 9.32
========= ========= ========= ========= ===========
Total return (b) 10.56% 4.87% 7.73% 7.08% ( 5.91%)
Ratios/supplemental data
Ratios to average net assets
Expenses 0.77% 0.76% 0.75% 0.50% 0.35%(a)
Expenses excluding indirectly paid expenses 0.77% 0.75% 0.74% - -
Expenses excluding waivers and/or reimbursements 1.01% 1.19% 1.31% 1.59% 4.44%(a)
Net investment income 4.78% 5.00% 4.95% 5.48% 3.85%(a)
Portfolio turnover rate 41% 62% 53% 77% 14%
Net assets end of year (thousands) $ 3,559 $ 3,693 $ 3,947 $ 3,323 $ 680
</TABLE>
<TABLE>
<CAPTION>
February 4, 1994
Year Ended March 31, (Commencement of
--------------------------------------------------- Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.55 $ 9.59 $ 9.38 $ 9.32 $ 10.00
======== ======== ======== ======== ===========
Income from investment operations
Net investment income 0.40 0.41 0.41 0.47 0.08
Net realized and unrealized gain (loss) on investments
and futures contracts 0.52 ( 0.03) 0.24 0.09 ( 0.67)
-------- --------- -------- -------- -----------
Total from investment operations 0.92 0.38 0.65 0.56 ( 0.59)
-------- --------- -------- -------- -----------
Less distributions from
Net investment income ( 0.38) ( 0.41) ( 0.42) ( 0.45) ( 0.06)
In excess of net investment income 0 ( 0.01) ( 0.02) ( 0.05) ( 0.03)
Net realized gain on investments ( 0.06) 0 0 0 0
--------- --------- --------- --------- -----------
Total distributions ( 0.44) ( 0.42) ( 0.44) ( 0.50) ( 0.09)
--------- --------- --------- --------- -----------
Net asset value end of year $ 10.03 $ 9.55 $ 9.59 $ 9.38 $ 9.32
========= ========= ========= ========= ===========
Total return (b) 9.80% 4.03% 7.02% 6.28% ( 5.91%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51% 1.50% 1.25% 1.10%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50% 1.49% - -
Expenses excluding waivers and/or reimbursements 1.76% 1.94% 2.05% 2.35% 5.60%(a)
Net investment income 4.04% 4.25% 4.19% 4.78% 3.01%(a)
Portfolio turnover rate 41% 62% 53% 77% 14%
Net assets end of year (thousands) $ 17,245 $ 19,064 $ 17,151 $ 11,907 $ 2,276
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
New York Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
Year Ended March 31, (Commencement of
--------------------------------------------------- Class Operations) to
1998 1997 1996 1995 March 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.55 $ 9.58 $ 9.37 $ 9.31 $ 10.00
======== ======== ======== ======== ===========
Income from investment operations
Net investment income 0.39 0.40 0.41 0.48 0.07
Net realized and unrealized gain (loss) on investments
and futures contracts 0.52 ( 0.01) 0.24 0.07 ( 0.67)
-------- --------- -------- -------- -----------
Total from investment operations 0.91 0.39 0.65 0.55 ( 0.60)
-------- --------- -------- -------- -----------
Less distributions from
Net investment income ( 0.38) ( 0.41) ( 0.42) ( 0.46) ( 0.07)
In excess of net investment income 0 ( 0.01) ( 0.02) ( 0.03) ( 0.02)
Net realized gain on investments ( 0.06) 0 0 0 0
--------- --------- --------- --------- -----------
Total distributions ( 0.44) ( 0.42) ( 0.44) ( 0.49) ( 0.09)
--------- --------- --------- --------- -----------
Net asset value end of year $ 10.02 $ 9.55 $ 9.58 $ 9.37 $ 9.31
========= ========= ========= ========= ===========
Total return (b) 9.69% 4.14% 7.02% 6.18% ( 6.02%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51% 1.50% 1.26% 1.10%(a)
Expenses excluding indirectly paid expenses 1.52% 1.50% 1.48% - -
Expenses excluding waivers and/or reimbursements 1.77% 1.93% 2.07% 2.32% 5.13%(a)
Net investment income 4.05% 4.25% 4.24% 4.88% 3.71%(a)
Portfolio turnover rate 41% 62% 53% 77% 14%
Net assets end of year (thousands) $ 1,465 $ 1,871 $ 2,296 $ 2,890 $ 255
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
27
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 11.14 $ 11.15 $ 10.91 $ 11.01
========= ========= ========= =========
Income from investment operations
Net investment income 0.55 0.59 0.60 0.61
Net realized and unrealized gain (loss) on investments
and futures contracts 0.55 ( 0.01) 0.23 ( 0.09)
--------- ---------- --------- ----------
Total from investment operations 1.10 0.58 0.83 0.52
--------- ---------- --------- ----------
Less distributions from
Net investment income ( 0.54) ( 0.59) ( 0.57) ( 0.61)
In excess of net investment income 0 0 ( 0.02) ( 0.01)
---------- ---------- ---------- ----------
Total distributions ( 0.54) ( 0.59) ( 0.59) ( 0.62)
---------- ---------- ---------- ----------
Net asset value end of year $ 11.70 $ 11.14 $ 11.15 $ 10.91
========== ========== ========== ==========
Total return (b) 10.02% 5.30% 7.66% 4.91%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.76% 0.76% 0.76% 0.75%
Expenses excluding indirectly paid expenses 0.76% 0.75% 0.75% -
Expenses excluding waivers and/or reimbursements 0.96% 0.99% 0.99% 1.05%
Net investment income 4.79% 5.26% 5.29% 5.65%
Portfolio turnover rate 54% 84% 55% 97%
Net assets end of year (thousands) $ 24,119 $ 24,535 $ 28,710 $ 30,450
</TABLE>
<TABLE>
<CAPTION>
December 27, 1990
Year Ended March 31, (Commencement of
----------------------------------------- Class Operations) to
1994 1993 1992 March 31, 1991
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 11.42 $ 10.71 $ 10.25 $ 10.00
========= ========= ========= ===========
Income from investment operations
Net investment income 0.62 0.63 0.74 0.18
Net realized and unrealized gain (loss) on investments
and futures contracts ( 0.30) 0.75 0.46 0.25
---------- --------- --------- -----------
Total from investment operations 0.32 1.38 1.20 0.43
---------- --------- --------- -----------
Less distributions from
Net investment income ( 0.62) ( 0.63) ( 0.74) ( 0.18)
In excess of net investment income ( 0.04) ( 0.02) 0 0
Net realized gain on investments ( 0.06) ( 0.02) 0 0
In excess of net realized gain on investments ( 0.01) 0 0 0
---------- ---------- ---------- -----------
Total distributions ( 0.73) ( 0.67) ( 0.74) ( 0.18)
---------- ---------- ---------- -----------
Net asset value end of year $ 11.01 $ 11.42 $ 10.71 $ 10.25
========== ========== ========== ===========
Total return (b) 2.58% 13.30% 12.07% 4.37%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.75% 0.68% 0.65% 0.65%(a)
Expenses excluding indirectly paid expenses - - - -
Expenses excluding waivers and/or reimbursements 1.06% 1.16% 1.68% 3.19%(a)
Net investment income 5.27% 5.66% 6.92% 6.84%(a)
Portfolio turnover rate 37% 20% 13% 8%
Net assets end of year (thousands) $ 30,560 $ 35,502 $ 12,914 $ 2,979
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
28
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 10.99 $ 11.00 $ 10.81 $ 10.98 $ 11.42
======== ======== ======== ======== ========
Income from investment operations
Net investment income 0.46 0.49 0.51 0.54 0.56
Net realized and unrealized gain (loss) on
investments and futures contracts 0.54 ( 0.01) 0.22 ( 0.10) ( 0.34)
-------- --------- -------- --------- ---------
Total from investment operations 1.00 0.48 0.73 0.44 0.22
-------- --------- -------- --------- ---------
Less distributions from
Net investment income ( 0.44) ( 0.49) ( 0.52) ( 0.53) ( 0.52)
In excess of net investment income 0 0 ( 0.02) ( 0.08) ( 0.07)
Net realized gain on investments 0 0 0 0 ( 0.03)
In excess of net realized gain on investments 0 0 0 0 ( 0.04)
--------- --------- --------- --------- ---------
Total distributions ( 0.44) ( 0.49) ( 0.54) ( 0.61) ( 0.66)
--------- --------- --------- --------- ---------
Net asset value end of year $ 11.55 $ 10.99 $ 11.00 $ 10.81 $ 10.98
========= ========= ========= ========= =========
Total return (b) 9.27% 4.50% 6.84% 4.15% 1.70%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51% 1.48% 1.50% 1.50%
Expenses excluding indirectly paid expenses 1.51% 1.50% 1.47% - -
Expenses excluding waivers and/or
reimbursements 1.71% 1.74% 1.74% 1.80% 1.81%
Net investment income 4.04% 4.50% 4.55% 4.89% 4.32%
Portfolio turnover rate 54% 84% 55% 97% 37%
Net assets end of year (thousands) $ 37,036 $ 37,215 $ 37,719 $ 30,657 $ 21,958
<CAPTION>
February 1, 1993
(Commencement of
Class Operations) to
March 31, 1993
<S> <C>
CLASS B SHARES
Net asset value beginning of year $ 11.20
============
Income from investment operations
Net investment income 0.08
Net realized and unrealized gain (loss) on
investments and futures contracts 0.24
------------
Total from investment operations 0.32
------------
Less distributions from
Net investment income ( 0.08)
In excess of net investment income ( 0.02)
Net realized gain on investments 0
In excess of net realized gain on investments 0
------------
Total distributions ( 0.10)
------------
Net asset value end of year $ 11.42
============
Total return (b) 2.82%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.50%(a)
Expenses excluding indirectly paid expenses -
Expenses excluding waivers and/or
reimbursements 1.69%(a)
Net investment income 3.44%(a)
Portfolio turnover rate 20%
Net assets end of year (thousands) $ 2,543
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 11.02 $ 11.03 $ 10.83 $ 11.00 $ 11.42
========= ========= ========= ========= =========
Income from investment operations
Net investment income 0.45 0.47 0.51 0.53 0.54
Net realized and unrealized gain (loss) on
investments and futures contracts 0.57 0.01 0.23 ( 0.10) ( 0.32)
--------- --------- --------- ---------- ----------
Total from investment operations 1.02 0.48 0.74 0.43 0.22
--------- --------- --------- ---------- ----------
Less distributions from
Net investment income ( 0.45) ( 0.49) ( 0.52) ( 0.53) ( 0.52)
In excess of net investment income 0 0 ( 0.02) ( 0.07) ( 0.05)
Net realized gain on investments 0 0 0 0 ( 0.03)
In excess of net realized gain on investments 0 0 0 0 ( 0.04)
---------- ---------- ---------- ---------- ----------
Total distributions ( 0.45) ( 0.49) ( 0.54) ( 0.60) ( 0.64)
---------- ---------- ---------- ---------- ----------
Net asset value end of year $ 11.59 $ 11.02 $ 11.03 $ 10.83 $ 11.00
========== ========== ========== ========== ==========
Total return (b) 9.34% 4.49% 6.92% 4.05% 1.78%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.52% 1.51% 1.48% 1.50% 1.50%
Expenses excluding indirectly paid expenses 1.51% 1.50% 1.47% - -
Expenses excluding waivers and/or
reimbursements 1.71% 1.74% 1.74% 1.80% 1.90%
Net investment income 4.05% 4.52% 4.57% 4.90% 4.33%
Portfolio turnover rate 54% 84% 55% 97% 37%
Net assets end of year (thousands) $ 6,414 $ 6,830 $ 9,675 $ 9,559 $ 9,385
<CAPTION>
February 1, 1993
(Commencement of
Class Operations) to
March 31, 1993
<S> <C>
CLASS C SHARES
Net asset value beginning of year $ 11.20
============
Income from investment operations
Net investment income 0.07
Net realized and unrealized gain (loss) on
investments and futures contracts 0.24
------------
Total from investment operations 0.31
------------
Less distributions from
Net investment income ( 0.07)
In excess of net investment income ( 0.02)
Net realized gain on investments 0
In excess of net realized gain on investments 0
------------
Total distributions ( 0.09)
------------
Net asset value end of year $ 11.42
============
Total return (b) 2.81%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.50%(a)
Expenses excluding indirectly paid expenses -
Expenses excluding waivers and/or
reimbursements 1.60%(a)
Net investment income 2.50%(a)
Portfolio turnover rate 20%
Net assets end of year (thousands) $ 952
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
29
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Financial Highlights
(For a share outstanding through the period)
<TABLE>
<CAPTION>
November 24, 1997
(Commencement of
Class Operations) to
March 31, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 11.60
============
Income from investment operations
Net investment income 0.19
Net realized and unrealized gain on investments and futures contracts 0.10
------------
Total from investment operations 0.29
------------
Less distributions from net investment income ( 0.19)
------------
Net asset value end of period $ 11.70
============
Total return 2.54%
Ratios/supplemental data
Ratios to average net assets
Expenses 0.59%(a)
Expenses excluding indirectly paid expenses 0.58%(a)
Expenses excluding waivers and/or reimbursements 0.66%(a)
Net investment income 4.75%(a)
Portfolio turnover rate 54%
Net assets end of period (thousands) $ 152,960
</TABLE>
(a) Annualized.
See Combined Notes to Financial Statements.
30
<PAGE>
EVERGREEN
California Tax Free Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 96.0%
California - 87.4%
$ 500,000 Anaheim, California,
Public Finance Authority, Lease
Revenue, Public Improvements
Project, Series C
6.00%, 9/1/16, (FSA) .............. $ 559,060
500,000 Bakersfield, California,
Certificates of Participation,
Convention Center Expansion Project
5.80%, 4/1/17, (MBIA) ............. 530,535
1,000,000 California State Health Facilities
Finance Authority, Revenue, Series A
5.75%, 7/1/15, (AMBAC) ............ 1,057,430
1,000,000 California State Health Facilities
Finance Authority, Cedars Sinai
Center, Series A
5.13%, 8/1/17, (MBIA) ............. 989,600
California State Housing Finance
Agency Revenue:
1,000,000 Multi-Family Housing, Series B
6.05%, 8/1/16, (AMBAC/FHA) ........ 1,055,660
1,000,000 Single Family Mortgage,
Series A-1, Class III
5.70%, 8/1/11, (MBIA) ............. 1,049,420
California State Housing Finance
Agency Revenue, Home Mortgage:
1,000,000 Series A
5.05%, 8/1/17, (AMBAC/FHA/VA) ..... 988,650
500,000 Series L
6.40%, 8/1/27, (MBIA)(c) .......... 536,655
500,000 California State Pollution Control
Financing Authority and Solid Waste
Disposal Revenue, Browning Ferris
Industries Inc., Series A
5.80%, 12/1/16 .................... 521,150
California State Public Works Board,
Lease Revenue, California State
University Project:
Series A:
1,000,000 5.35%, 12/1/15, (AMBAC) .......... 1,024,870
400,000 5.38%, 10/1/17, (AMBAC) .......... 408,676
350,000 Series B
5.50%, 6/1/19 ..................... 357,004
500,000 California Statewide
Communities Development
Authority, Special Facilities, United
Air Lines Inc.,
5.63%, 10/1/34 .................... 501,680
500,000 Elk Grove, California,
Unified School District, Special Tax
Refunding Community Facilities,
District No. 1
6.50%, 12/1/24, (AMBAC) ........... 600,740
1,000,000 Los Angeles County,
California, Community Facilities
District No. 3 Special Tax,
Refunding, Series A
5.50%, 9/1/14, (FSA) .............. 1,055,150
700,000 Los Angeles County,
California, Metropolitan
Transportation Authority, Sales Tax
Revenue First Tier, Series A
5.25%, 7/1/13, (MBIA) ............. 718,613
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
California - continued
$ 500,000 Los Angeles, California,
Community Redevelopment
Agency, Refunding Revenue, Tax
Allocation, Bunker Hill, Series H
6.50%, 12/1/16, (FSA) ............. $ 552,620
1,000,000 Los Angeles, California,
Convention and Exhibition Center
Authority, Lease Refunding, Series A
6.00%, 8/15/10, (MBIA) ............ 1,127,580
400,000 MSR Public Power Agency,
California, San Juan Project,
Series E
6.75%, 7/1/11, (MBIA) ............. 435,040
1,000,000 Rio Linda, California,
Unified School District, Series A
7.40%, 8/1/10, (AMBAC) ............ 1,146,340
1,000,000 Sacramento County,
California, Airport System
Revenue, Series A
6.00%, 7/1/11 ..................... 1,093,100
San Francisco, California,
State Building Authority,
Lease Revenue, San Francisco
Civic Center Complex, Series A:
1,300,000 5.25%, 12/1/16, (AMBAC) .......... 1,308,840
500,000 6.00%, 12/1/09, (AMBAC) .......... 563,415
1,100,000 San Jose, California,
Redevelopment Tax Allocation,
Merged Area Redevelopment
Project
6.00%, 8/1/15, (MBIA) ............. 1,231,857
100,000 San Mateo, Foster City,
California, School District,
Capital Appreciation, Series C
(Eff. Yield 5.60%) (b)
0.00%, 9/1/03, (FGIC) ............. 79,522
300,000 Santa Ana, California,
Financing Authority, Lease
Revenue, Police Administration and
Holding Facility, Series A
6.25%, 7/1/15, (MBIA) ............. 344,478
1,000,000 South Orange County,
California, Public Finance Authority,
Special Tax Revenue, Senior Lien,
Series A
7.00%, 9/1/09, (MBIA) ............. 1,209,920
1,000,000 Southern California Public
Power Authority, Mead Adelanto
Project Revenue, Series A
5.00%, 7/1/17, (AMBAC) ............ 980,490
1,000,000 Southern California Public
Power Authority, Transmission
Project, Revenue Refunding,
Southern Transmission
(Eff. Yield 7.30%) (b)
0.00%, 7/1/14, (FGIC) ............. 444,940
625,000 Vista, California, Community
Development, Community Tax
Allocation Revenue, Vista
Redevelopment Project Area
6.00%, 9/1/10, (MBIA) ............. 708,131
500,000 Watsonville, California,
Solid Waste Revenue
5.50%, 5/15/16, (MBIA) ............ 519,005
==========
23,700,171
==========
</TABLE>
31
<PAGE>
EVERGREEN
California Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Puerto Rico - 8.6%
$ 2,700,000 Commonwealth of Puerto Rico,
Capital Appreciation, General
Obligation,
(Eff. Yield 4.85%)(b)
0.00%, 7/1/14, (MBIA/IBC) ........ $ 1,218,645
Commonwealth of Puerto Rico
Industrial, Tourist, Educational,
Medical & Environmental Control
Facilities, Hospital Auxilio
Mutuo Obligation Group,
Series A:
650,000 5.50%, 7/1/17, (MBIA) ........... 674,557
400,000 6.25%, 7/1/24, (MBIA) ........... 438,352
-----------
2,331,554
-----------
Total Municipal Obligations
(cost $24,735,496) .............. 26,031,725
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 1.1% (cost $310,000)
California - 1.1%
$ 310,000 Irvine Ranch, California,
Water District Revenue,
Consolidated Bonds
(LOC: Landesbank Hessen)
3.80%, 10/1/10, (a) .............. $ 310,000
-----------
Total Investments -
(cost $25,045,496) ..... 97.1% 26,341,725
Other Assets and
Liabilities - net ...... 2.9 780,051
----- -----------
Net Assets - ........... 100.0% $27,121,776
===== ===========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) At March 31, 1998, $200,000 principal amount of this security was pledged
to cover margin requirements for open futures contracts.
Legend of Portfolio Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FHA Insured by Federal Housing Authority
FSA Insured by Financial Security Assurance Corporation
IBC Insured Bond Certification
LOC Line of Credit
MBIA Insured by Municipal Bond Investors Assurance Corporation
VA Guaranteed by Veteran's Authority
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Initial Contract Value at Unrealized
Expiration of Contracts Amount March 31, 1998 Appreciation
- ------------ -------------- ---------------- -------------- ------------
June '98 6 Municipal Bond Index $ 735,501 $ 736,001 $ 500
June '98 17 U.S. Treasury Bond Index 2,046,613 2,048,976 2,363
</TABLE>
See Combined Notes to Financial Statements.
32
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
LONG-TERM INVESTMENTS - 93.2%
Connecticut - 78.2%
Bristol, Connecticut, General Obligation:
$ 130,000 5.00%, 6/15/05 ....................... $ 136,071
355,000 5.25%, 6/15/08 ....................... 378,970
275,000 Cheshire, Connecticut, General Obligation
5.75%, 8/15/09 ........................ 298,147
245,000 Connecticut Regional School
District #14, General Obligation
5.70%, 12/15/99 ....................... 252,938
290,000 Connecticut Regional School
District #14, General Obligation,
Woodbury and Bethlehem School
Improvements
5.70%, 12/15/98 ....................... 294,330
1,450,000 Connecticut State Clean Water
Fund Revenue
6.00%, 3/1/08 ......................... 1,624,855
500,000 Connecticut State Development
Authority Revenue, Series A
5.00%, 11/15/05 ....................... 516,585
Connecticut State Development
Authority Revenue, Church
Homes, Inc. Project:
710,000 4.80%, 4/1/01 ........................ 716,908
425,000 4.90%, 4/1/02 ........................ 430,538
1,000,000 5.80%, 4/1/21 ........................ 1,028,260
890,000 Connecticut State Development
Authority Revenue, Special
Revenue, State General Fund,
Series A
5.50%, 5/1/08, (FGIC) ................. 957,729
Connecticut State, General Obligation:
Series A:
1,000,000 5.65%, 3/15/12 ....................... 1,055,180
1,000,000 6.00%, 3/1/06 ........................ 1,106,650
3,000,000 6.25%, 5/15/06 ....................... 3,377,610
500,000 Series B
6.00%, 11/15/02 ...................... 540,040
Series C:
400,000 5.70%, 11/15/99 ...................... 412,548
200,000 5.88%, 8/15/09 ....................... 218,908
170,000 Connecticut State Health &
Educational Facilities Revenue:
6.00%, 7/1/99 ......................... 174,806
225,000 Choate Rosemary Hall, Series A
6.50%, 7/1/09 ......................... 253,584
300,000 Connecticut College, Issue E
5.88%, 7/1/99 ......................... 307,620
500,000 Greenwich Hospital Assn., Series A
5.40%, 7/1/09 ......................... 530,260
1,000,000 Hospital for Special Care, Series B
5.13%, 7/1/07 ......................... 1,009,830
1,000,000 Hospital of St. Raphael, Series H
5.00%, 7/1/06, (AMBAC) ................ 1,038,260
1,000,000 Kent School Corp., Series B
5.50%, 7/1/15 ......................... 1,036,590
625,000 Lawrence & Memorial Hospital,
Series D
4.88%, 7/1/07 ......................... 638,544
190,000 Mansfield Nursing Center, Series C
4.40%, 11/1/98 ........................ 190,686
2,000,000 Middlesex Health Services, Series I
5.13%, 7/1/27 ......................... 1,959,740
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
LONG-TERM INVESTMENTS - continued
Connecticut - continued
Connecticut State Health &
Educational Facilities Revenue (cont.):
$ 250,000 New Britain General Hospital,
Series B
5.88%, 7/1/08, (AMBAC) ................ $ 272,670
Newington Childrens' Hospital:
Series A:
1,000,000 5.90%, 7/1/08, (MBIA) ................ 1,092,210
250,000 6.05%, 7/1/10, (MBIA) ................ 272,097
1,345,000 St. Mary's Hospital Corp., Series E
6.00%, 7/1/08 ......................... 1,474,349
1,000,000 Stamford Hospital, Series F
5.25%, 7/1/11 ......................... 1,023,810
1,500,000 Suffield Academy, Series A
5.40%, 7/1/27 ......................... 1,527,735
Veterans Memorial Medical Center:
Series A:
1,000,000 5.38%, 7/1/14 ........................ 1,016,860
2,000,000 5.50%, 7/1/26 ........................ 2,055,040
250,000 Waterbury Hospital, Series B
6.40%, 7/1/98 ......................... 251,655
1,500,000 Westminster School, Series A
5.50%, 7/1/16 ......................... 1,557,015
1,000,000 Yale New Haven Hospital
5.63%, 7/1/16 ......................... 1,038,990
335,000 Connecticut State Higher Education
Loan Authority Revenue, Series A
7.00%, 11/15/00 ....................... 346,765
Connecticut State Housing Finance
Authority Revenue, Housing
Mortgage Finance Project:
Series A:
860,000 7.20%, 11/15/98 ...................... 870,965
985,000 7.40%, 11/15/99 ...................... 1,005,675
Subseries C-1
100,000 5.75%, 5/15/05 ....................... 105,359
1,000,000 Connecticut State Special
Assessment Unemployment
Compensation Refunding, Series A
5.50%, 5/15/01 ........................ 1,043,570
500,000 Connecticut State Special Tax
Obligation, Series A
7.13%, 6/1/07 ......................... 549,100
Connecticut State Special Tax
Obligation, Transportation
Infrastructure Project:
1,000,000 Series A
6.00%, 6/1/06, (FGIC) ................. 1,105,810
2,000,000 Series B
5.38%, 10/1/09, (MBIA) ................ 2,114,380
260,000 East Lyme, Connecticut,
General Obligation
4.60%, 8/1/98 ......................... 260,848
1,000,000 Fairfield, Connecticut,
General Obligation
4.70%, 1/1/11 ......................... 994,430
525,000 Guilford, Connecticut,
General Obligation
5.00%, 11/15/07 ....................... 543,512
Hamdem, Connecticut,
General Obligation:
1,000,000 5.38%, 8/15/10, (MBIA) ............... 1,053,000
1,275,000 5.40%, 8/15/11, (MBIA) ............... 1,337,883
</TABLE>
33
<PAGE>
EVERGREEN
Connecticut Municipal Bond Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
LONG-TERM INVESTMENTS - continued
Connecticut - continued
$ 170,000 Hartford County, Connecticut,
Metropolitan District,
General Obligation
5.40%, 11/15/99 ......................... $ 174,537
Middletown, Connecticut,
General Obligation:
445,000 5.60%, 4/15/00 ......................... 460,450
1,000,000 6.00%, 4/15/07 ......................... 1,115,090
500,000 Milford, Connecticut,
General Obligation
5.20%, 1/15/13 .......................... 519,890
Montville, Connecticut, General Obligation:
250,000 5.15%, 12/1/07 ......................... 265,022
300,000 5.25%, 12/1/08 ......................... 320,712
250,000 Naugatuck, Connecticut,
General Obligation
5.40%, 3/15/08 .......................... 265,470
335,000 New Fairfield, Connecticut,
General Obligation
4.40%, 3/15/99, (MBIA) .................. 337,623
500,000 New Haven, Connecticut,
General Obligation
6.50%, 8/1/00, (FSA) .................... 527,775
1,100,000 Newtown, Connecticut,
General Obligation
5.13%, 6/15/15, (MBIA) .................. 1,101,914
100,000 Pomfret, Connecticut,
General Obligation
6.50%, 8/1/99 ........................... 103,613
385,000 Putnam, Connecticut,
General Obligation
5.60%, 11/15/00, (MBIA) ................. 401,466
100,000 South Windsor, Connecticut,
General Obligation
6.60%, 12/15/99 ......................... 104,747
185,000 Stamford, Connecticut,
General Obligation
6.25%, 1/15/00 .......................... 192,781
University of Connecticut Revenue:
Series A:
1,350,000 5.00%, 2/1/14, (FGIC) .................. 1,344,060
500,000 5.00%, 2/1/15, (FGIC) .................. 494,920
1,090,000 Student Fee Program, Series A
5.13%, 11/15/14, (MBIA) ................. 1,097,597
Wallingford, Connecticut,
General Obligation:
295,000 4.40%, 6/1/98 .......................... 295,380
Lot B:
170,000 5.50%, 6/15/08 ......................... 182,818
170,000 5.60%, 6/15/09 ......................... 182,764
150,000 Wilton, Connecticut, General Obligation
5.60%, 9/1/99 ........................... 154,046
250,000 Woodstock, Connecticut,
General Obligation
6.00%, 2/15/10, (FGIC) .................. 272,593
-----------
53,315,183
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
LONG-TERM INVESTMENTS - continued
Guam - 0.4%
$ 250,000 Guam Power Authority
Revenue, Series A
5.90%, 10/1/08, (AMBAC) ................. $ 273,935
-----------
U. S. Virgin Islands - 1.6%
1,000,000 Virgin Islands, Public Finance Authority
Revenue
7.00%, 10/1/99 .......................... 1,047,570
-----------
Puerto Rico - 13.0%
Commonwealth of Puerto Rico,
General Obligation:
550,000 5.00%, 7/1/98 .......................... 551,848
1,000,000 5.38%, 7/1/25 .......................... 1,008,250
2,255,000 5.38%, 7/1/25, (MBIA) .................. 2,296,763
1,250,000 5.40%, 7/1/25 .......................... 1,265,600
205,000 5.50%, 7/1/08, (MBIA) .................. 222,021
1,000,000 6.50%, 7/1/14, (MBIA) .................. 1,182,710
1,000,000 Commonwealth of Puerto Rico,
General Obligation, Aqueduct
Sewer Project
5.20%, 7/1/08, (MBIA) ................... 1,058,590
250,000 Puerto Rico Electric Power
Authority Revenue, Series V
5.60%, 7/1/03, (FSA) .................... 266,805
25,000 Puerto Rico Housing Finance
Authority Revenue, Single
Family Housing Revenue
5.80%, 10/15/00 ......................... 25,698
1,000,000 Puerto Rico Public Buildings
Authority Revenue, Government
Facilities, Series B
5.00%, 7/1/15, (MBIA) ................... 996,490
-----------
8,874,775
-----------
Total Long-Term Investments
(cost $61,563,715) ..................... 63,511,463
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
MUTUAL FUND SHARES - 5.7%
1,917,772 Federated Connecticut
Municipal Cash Trust ............. 1,917,772
2,000,000 Federated Tax-Free Obligation Fund . 2,000,000
---------
Total Mutual Fund Shares
(cost $3,917,772) ................ 3,917,772
---------
Total Investments -
(cost $65,481,487) ..... 98.9% 67,429,235
Other Assets and
Liabilities - net ...... 1.1 723,006
----- ----------
Net Assets - ............ 100.0% $68,152,241
===== ===========
</TABLE>
Legend of Portfolio Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - 98.0%
Massachusetts - 86.7%
$ 300,000 Lawrence, Massachusetts,
School Improvements
6.25%, 2/15/09, (AMBAC) ................ $ 330,051
250,000 Lowell, Massachusetts,
School Improvements
5.50%, 12/15/15, (AMBAC) ............... 259,508
Massachusetts Bay Transportation
Authority, General Transportation
Systems, Series A:
100,000 6.25%, 3/1/12 ......................... 114,133
750,000 7.00%, 3/1/11, (MBIA) ................. 911,302
270,000 Massachusetts Education Loan
Authority, Issue E, Series B
6.00%, 1/1/12, (AMBAC) ................. 283,970
250,000 Massachusetts State, General
Obligation, Series A
5.25%, 2/1/08 .......................... 259,843
500,000 Massachusetts State College,
Building Authority Project,
Series A
7.50%, 5/1/08 .......................... 617,520
Massachusetts State Health
and Education Facility Authority:
300,000 Brigham & Women's Hospital
6.75%, 7/1/24, (MBIA) .................. 329,154
400,000 McLean Hospital, Series C
6.50%, 7/1/10, (FGIC) .................. 437,660
100,000 Milton Hospital, Series B
7.25%, 7/1/05 .......................... 108,370
500,000 North Adams Regional
Hospital, Series C
6.75%, 7/1/09 .......................... 544,325
300,000 Partners Healthcare Systems,
Series A
5.38%, 7/1/24 .......................... 301,992
Massachusetts State
Industrial Finance Agency:
300,000 Single Family Housing, Series 52
6.00%, 6/1/14, (MBIA) (d) .............. 317,739
300,000 WGBH Educational Foundation
5.20%, 3/1/18 .......................... 300,138
400,000 Massachusetts State Port
Authority Revenue, Special
Facilities, Boston Fuel Project
5.30%, 7/1/08 .......................... 418,804
300,000 Massachusetts State Turnpike
Authority Revenue, Series A
5.55%, 1/1/17 .......................... 304,107
375,000 Massachusetts State Water
Pollution, Series 2
6.13%, 2/1/08 .......................... 430,185
Massachusetts State Water
Pollution, Abatement Trust:
400,000 New Bedford Loan Program,
Series A
5.70%, 2/1/12 .......................... 426,840
125,000 South Essex, Sewer District
Loan Program, Series A
6.38%, 2/1/15 .......................... 136,701
275,000 Massachusetts State Water
Resources Authority, Series B
5.25%, 3/1/13 .......................... 279,744
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
$ 500,000 Methuen, Massachusetts,
General Obligation
5.63%, 11/15/15, (FSA) ................. $ 525,265
400,000 North Attleborough, Massachusetts,
General Obligation
5.25%, 3/1/14 .......................... 409,844
400,000 Springfield, Massachusetts,
Municipal Purpose Loan
5.00%, 9/1/12 .......................... 400,516
300,000 Worcester, Massachusetts,
Municipal Purpose Loan, Series A
5.25%, 8/1/12, (AMBAC) ................. 309,261
-----------
8,756,972
-----------
Puerto Rico - 11.3%
800,000 Commonwealth of Puerto Rico,
Capital Appreciation,
General Obligation
(Eff. Yield 4.85%) (b)
0.00%, 7/1/14, (MBIA) .................. 361,080
170,000 Commonwealth of Puerto Rico,
Highway and Transportation
Authority
5.50%, 7/1/15 .......................... 180,125
200,000 Commonwealth of Puerto Rico,
Linked Bond Payment Obligation
7.00%, 7/1/10, (MBIA) (c) .............. 245,306
100,000 Commonwealth of Puerto Rico,
Public Improvement
5.50%, 7/1/11 .......................... 107,177
250,000 Puerto Rico Public Buildings
Authority Revenue, Government
Facilities, Series B
5.00%, 7/1/12 .......................... 252,455
-----------
1,146,143
-----------
Total Municipal Obligations
(cost $9,445,261) ..................... 9,903,115
===========
SHORT-TERM MUNICIPAL SECURITIES - 1.1% (cost $110,000)
Massachusetts - 1.1%
110,000 Massachusetts State Health
and Education Facility,
Capital Assets Program, Series D
3.80%, 1/1/35 (a) ...................... 110,000
-----------
Total Investments -
(cost $9,555,261) .......... 99.1% 10,013,115
Other Assets and
Liabilities - net .......... 0.9 85,992
----- -----------
Net Assets - ................ 100.0% $10,099,107
===== ===========
</TABLE>
35
<PAGE>
EVERGREEN
Massachusetts Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered
derivative securities.
(d) At March 31, 1998, $100,000 principal amount of this security was pledged
to cover margin requirements for open futures contracts.
Legend of Portfolio Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
MBIA Insured by Municipal Bond Investors Assurance Corporation
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Initial Contract Value at Unrealized
Expiration of Contracts Amount March 31, 1998 Appreciation
- ------------ -------------- -------- ---------------- ---
June '98 2 Municipal Bond Index $245,167 $245,334 $ 167
June '98 4 U.S. Treasury Bond Index 461,556 462,111 555
</TABLE>
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 98.2%
Missouri - 80.0%
$ 1,105,000 Butler County, Missouri,
Public Facilities Authority,
Butler County Jail Project
6.50%, 12/1/14, (FGIC) ............ $1,219,478
830,000 Chesterfield, Missouri,
General Obligation
6.30%, 2/15/13 .................... 908,111
1,000,000 Clay County, Missouri,
Public Building Authority
7.00%, 5/15/14, (FGIC) ............ 1,138,510
200,000 Joplin, Missouri
Industrial Development Authority
Revenue, Catholic Health Facilities
Initiatives, Series A
5.13%, 12/1/15 .................... 198,472
1,000,000 Mehlville, Missouri,
School District Number R9, General
Obligation
5.13%, 2/15/11 .................... 1,019,760
1,000,000 Missouri Higher Education
Loan Authority, Student Loan,
Series F
6.75%, 2/15/09 .................... 1,074,120
500,000 Missouri State Certificates of
Participation, Rehabilitation Center
Project, Series A
6.00%, 11/1/15 .................... 535,780
Missouri State Environmental
Improvement and Energy Resource
Authority, Water Pollution Control,
State Revolving Fund:
1,000,000 Series A
5.75%, 1/1/16 ..................... 1,058,440
600,000 Series B
7.20%, 7/1/16 ..................... 693,834
Missouri State Health and
Educational Facilities Authority:
825,000 Barnes Jewish, Inc., Series A
5.15%, 5/15/10 .................... 858,693
1,000,000 Bethesda Health Group,
Project A
7.50%, 8/15/12 .................... 1,094,550
500,000 BJC Health Systems, Series A
6.50%, 5/15/20 .................... 561,915
250,000 Jefferson Memorial Hospital
Obligation Group
6.80%, 5/15/25 .................... 272,610
300,000 Lake of Ozarks General Hospital
6.50%, 2/15/21 .................... 324,267
500,000 Maryville University of St. Louis
Project
5.75%, 6/15/17 .................... 518,150
1,500,000 SSM Health Care, Series AA
6.25%, 6/1/16, (MBIA) ............. 1,616,190
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Missouri - continued
Missouri State Housing Development
Commission, Single Family:
$ 250,000 Series A
7.13%, 12/1/14, (GNMA) ............ $ 276,270
Series B:
470,000 6.25%, 9/1/15, (GNMA) ............ 500,296
1,170,000 6.45%, 9/1/27, (GNMA) (d) ........ 1,254,217
Sikeston, Missouri, Electric Revenue:
500,000 5.00%, 6/1/22, (MBIA) ............ 488,360
950,000 6.00%, 6/1/13, (MBIA) ............ 1,069,434
500,000 6.00%, 6/1/15, (MBIA) ............ 562,050
495,000 St. Louis, Missouri,
Industrial Development Authority,
Health Facilities Revenue Mother of
Perpetual Help
6.40%, 8/1/35, (GNMA) ............. 545,990
700,000 St. Louis, Missouri, Land
Clearance Redevelopment
Authority Revenue, Refunding
Revenue, Kiel Site Lease, Series B
5.13%, 7/1/13, (MBIA) ............. 707,728
950,000 St. Louis, Missouri,
Municipal Finance Corp.,
Leasehold Revenue
Improvement, City Justice
Center, Series A
5.75%, 2/15/11, (AMBAC) ........... 1,024,442
300,000 Wentzville, Missouri,
School District, Series A
5.60%, 3/1/11, (FSA) .............. 317,073
500,000 West Plains, Missouri,
Industrial Development Authority,
Hospital Revenue, Ozarks Medical
Center
5.65%, 11/15/22 ................... 499,760
----------
20,338,500
----------
Puerto Rico - 18.2%
1,000,000 Commonwealth of Puerto Rico,
Aqueduct & Sewer Authority
Revenue
6.25%, 7/1/12 ..................... 1,135,910
1,800,000 Commonwealth of Puerto Rico,
Capital Appreciation,
General Obligation
(Eff. Yield 4.85%) (b)
0.00%, 7/1/14, (MBIA/IBC) ......... 812,430
500,000 Commonwealth of Puerto Rico,
General Obligation
6.45%, 7/1/17 ..................... 568,450
1,000,000 Commonwealth of Puerto Rico,
Highway and Transportation
Authority Revenue, Series Y
6.25%, 7/1/14 ..................... 1,142,600
</TABLE>
37
<PAGE>
EVERGREEN
Missouri Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Puerto Rico - continued
$ 800,000 Commonwealth of Puerto Rico,
Linked Bond Payment Obligation
7.00%, 7/1/10, (MBIA/IBC) (c) .... $ 981,224
-----------
4,640,614
-----------
Total Municipal Obligations
(cost $23,273,568) .............. 24,979,114
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 1.0% (cost $255,000)
Missouri - 1.0%
$ 255,000 Kansas City, Missouri, Industrial
Development Hospital Revenue,
Insured Research Health Services
Systems
3.90%, 12/1/19, (MBIA) (a) ....... $ 255,000
-----------
Total Investments -
(cost $23,528,568) ..... 99.2% 25,234,114
Other Assets and
Liabilities - net ...... 0.8 205,084
----- -----------
Net Assets - ........... 100.0% $25,439,198
===== ===========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered
derivative securities.
(d) At March 31, 1998, $100,000 principal amount of this security was pledged
to cover margin requirements for open futures contracts.
Legend of Portfolio Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
IBC Insured Bond Certification
MBIA Insured by Municipal Bond Investors Assurance Corporation
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Initial Contract Value at Unrealized
Expiration of Contracts Amount March 31, 1998 Appreciation
- ------------ -------------- --------- ---------------- ----
June '98 4 Municipal Bond Index $ 490,334 $ 490,668 $ 334
June '98 11 U.S. Treasury Bond Index 1,324,279 1,325,808 1,529
</TABLE>
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 98.3%
Delaware - 2.7%
Delaware River and Bay
Authority Revenue:
$ 2,000,000 4.80%, 1/1/07 .................. $2,040,080
1,000,000 5.00%, 1/1/17, (MBIA) .......... 977,320
1,000,000 5.40%, 1/1/16, (FGIC) .......... 1,027,070
----------
4,044,470
----------
New Jersey - 77.5%
500,000 Atlantic City, New Jersey,
Improvement Authority, Luxury
Tax Revenue
6.90%, 7/1/00 ................... 531,615
1,000,000 Bergen County, New Jersey,
General Obligation
5.25%, 10/1/10 .................. 1,048,790
Bergen County, New Jersey,
Utilities Authority, Water
Pollution Control Revenue:
1,000,000 Series A
5.50%, 12/15/06, (FGIC) ......... 1,077,270
500,000 Series B
5.63%, 12/15/04, (FGIC) ......... 539,110
400,000 Bridgewater Township, New Jersey,
General Obligation
6.40%, 7/15/01 .................. 428,604
500,000 Brigantine, New Jersey,
General Obligation
6.35%, 8/1/04, (MBIA) ........... 544,670
Burlington County, New Jersey,
Bridge Commission
Systems Revenue:
1,000,000 5.20%, 10/1/06 ................. 1,043,650
500,000 5.30%, 10/1/13 ................. 513,255
1,270,000 Camden County, New Jersey,
Improvement Authority, Lease
Revenue, Series A
5.00%, 12/1/08 .................. 1,318,882
500,000 Camden County, New Jersey,
Lease Authority Revenue
5.63%, 10/1/15, (MBIA) .......... 525,720
1,500,000 Camden County, New Jersey,
Municipal Utilities Authority
5.50%, 7/15/08 .................. 1,617,210
2,500,000 Camden County, New Jersey,
Municipal Utilities
Authority, Sewer Revenue
5.13%, 7/15/17, (FGIC) .......... 2,489,500
500,000 Camden County, New Jersey,
Property and Equipment Program
5.60%, 12/1/04 .................. 533,035
500,000 Cape May County, New Jersey,
Improvement Authority
5.85%, 4/15/02 .................. 531,835
500,000 Cape May County, New Jersey,
Municipal Utilities Authority,
Sewer Revenue, Series A
5.75%, 1/1/16, (MBIA) ........... 523,840
500,000 Cherry Hill Township, New Jersey,
General Obligation
6.00%, 6/1/06 ................... 540,850
1,500,000 Egg Harbor Township, New Jersey,
School District
4.75%, 2/15/11, (FSA) ........... 1,487,100
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
$ 325,000 Essex County, New Jersey,
General Obligation, Lease Revenue
6.65%, 12/1/00, (AMBAC) ......... $ 347,405
500,000 Essex County, New Jersey,
Improvement Authority
Revenue, Series A
5.80%, 11/1/07 .................. 548,900
Essex County, New Jersey,
Utilities Authority, Solid
Waste Revenue, Series A:
250,000 5.50%, 4/1/11, (FSA) ........... 263,973
250,000 5.60%, 4/1/16, (FSA) ........... 262,133
500,000 Franklin Township, Somerset
County, New Jersey, School District
6.20%, 4/1/05 ................... 555,310
500,000 Gloucester County, New Jersey,
General Obligation
6.25%, 2/1/08, (MBIA) ........... 545,555
1,600,000 Gloucester County, New Jersey,
Solid Waste Revenue,
Series A
6.20%, 9/1/07 ................... 1,722,368
Gloucester County, New Jersey,
Utilities Authority,
Sewer Revenue:
1,300,000 5.45%, 1/1/24, (MBIA) .......... 1,324,336
500,000 6.50%, 1/1/21 .................. 536,015
Gloucester Township, New Jersey,
General Obligation:
500,000 5.45%, 7/15/07, (AMBAC) ........ 537,670
500,000 6.38%, 9/15/04, (AMBAC) ........ 543,125
1,000,000 Gloucester Township, New Jersey,
Municipal Utilities
Authority
5.55%, 3/1/09, (AMBAC) .......... 1,079,880
1,000,000 Hamilton Township, Atlantic
County, New Jersey, School District
5.88%, 12/15/06, (FGIC) ......... 1,078,300
500,000 Hunterdon County, New Jersey,
General Obligation
5.50%, 12/1/02 .................. 529,210
1,500,000 Jersey City, New Jersey,
School District
5.50%, 3/15/16, (MBIA) .......... 1,557,510
225,000 Kearny, New Jersey,
General Obligation
6.30%, 2/1/02 ................... 242,521
3,000,000 Lacey, New Jersey Municipal
Utility Authority, Water Revenue
5.10%, 12/1/21 .................. 2,955,180
400,000 Lakewood Township, New Jersey,
School District
6.25%, 2/15/12, (AMBAC) ......... 459,544
500,000 Mercer County, New Jersey,
School District, Series A
5.40%, 12/15/03 ................. 530,390
</TABLE>
39
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
Middlesex County, New Jersey,
Utilites Authority, Sewer
Revenue, Series A:
$ 975,000 5.00%, 12/1/12, (FGIC) ........... $ 981,796
1,150,000 5.38%, 9/15/15, (FGIC) ........... 1,178,669
500,000 Monmouth County, New Jersey,
General Obligation
5.10%, 7/1/03 ..................... 518,300
Monmouth County, New Jersey
Improvement Authority,
General Obligation:
1,000,000 6.40%, 8/1/07 .................... 1,088,710
800,000 6.40%, 8/1/08 .................... 870,968
200,000 6.40%, 8/1/09 .................... 217,742
1,000,000 Morris County, New Jersey,
General Obligation
6.00%, 7/15/04 .................... 1,099,670
320,000 New Brunswick, New Jersey,
Parking Authority Revenue
6.65%, 9/1/99, (FGIC) ............. 332,541
New Jersey Economic
Development Authority Revenue:
530,000 5.20%, 1/1/09 .................... 531,691
2,000,000 5.50%, 1/1/18 .................... 1,998,860
585,000 5.30%, 1/1/10 .................... 586,983
785,000 6.00%, 10/1/22 ................... 807,671
4,000,000 Series A,
(Eff. Yield 5.63%) (a)
0.00%, 7/1/25 .................... 990,880
2,000,000 New Jersey Economic
Development Authority
Revenue, Liberty State
Parking Project
6.80%, 3/15/22 .................... 2,225,940
500,000 New Jersey Economic
Development Authority
Revenue, New Jersey
Performing Arts Center Project
5.50%, 6/15/13, (AMBAC) ........... 524,235
1,000,000 New Jersey Economic
Development Authority
Revenue, Public Schools Small
Project Loan Program
5.40%, 8/15/13 .................... 1,026,210
New Jersey Health Care Facilities,
Financing Authority Revenue:
2,375,000 AHS Hospital Corporation, Series A
5.00%, 7/1/27 ..................... 2,296,886
1,690,000 Berkeley Heights Convalescent
5.00%, 7/1/26, (AMBAC) ............ 1,637,678
750,000 Hackensack Medical Center
6.63%, 7/1/17, (FGIC) ............. 810,600
1,950,000 Holy Name Hospital
5.25%, 7/1/20, (AMBAC) ............ 1,947,289
500,000 Shore Memorial Hospital
Health Care Systems
5.00%, 7/1/12, (MBIA) ............. 501,640
500,000 New Jersey State Building
Authority Revenue
5.00%, 6/15/18 .................... 489,995
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
New Jersey State Economic
Development Authority Revenue:
$3,100,000 First Mortgage, Franciscan
Oaks Project
5.75%, 10/1/23 .................... $3,133,480
1,000,000 First Mortgage, Keswick Pines
5.70%, 1/1/18 ..................... 999,430
300,000 Series A
6.60%, 8/1/21 ..................... 322,704
New Jersey State Educational
Facilities Authority Revenue:
2,000,000 Higher Education Facilities
Trust Fund, Series A
5.13%, 9/1/10 ..................... 2,062,460
500,000 Princeton University, Series A
6.40%, 7/1/98 ..................... 503,325
1,500,000 Series C
6.38%, 7/1/22 ..................... 1,654,515
500,000 Series D
6.20%, 7/1/17, (AMBAC) ............ 542,405
Trenton State College, Series A
1,575,000 5.10%, 7/1/21, (MBIA) ............ 1,549,595
Union County College, Series B
200,000 6.90%, 7/1/99 .................... 207,702
New Jersey State General Obligation:
3,000,000 5.13%, 7/15/08 ................... 3,147,180
500,000 6.25%, 8/1/06 .................... 545,610
1,000,000 Series D
5.75%, 2/15/06 .................... 1,091,730
New Jersey State Health Care
Facilities Financing Authority
Revenue:
1,345,000 AHS Hospital Corporation,
Series A
6.00%, 7/1/11, (AMBAC) ............ 1,505,997
1,000,000 Community Medical Center
4.75%, 7/1/19 ..................... 946,150
200,000 Medical Center Princeton,
Series D
6.60%, 7/1/99 ..................... 206,832
1,000,000 St. Joseph's Hospital and
Medical Center, Series D
5.70%, 7/1/11 ..................... 1,062,280
1,000,000 New Jersey State Higher
Education Student Loan,
Series A
5.80%, 6/1/16 ..................... 1,035,680
1,500,000 New Jersey State Highway
Authority Revenue
6.25%, 1/1/14 ..................... 1,623,585
New Jersey State Sports and
Exposition Authority Revenue,
Series A:
1,000,000 5.38%, 9/1/15 .................... 1,019,230
1,000,000 6.00%, 3/1/21 .................... 1,051,810
300,000 New Jersey State Transit Corporation,
Certificates of Partnership
6.50%, 10/1/16, (FSA) ............. 340,998
</TABLE>
40
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
New Jersey State
Transportation Trust Fund
Authority Revenue:
Series A:
$ 1,000,000 4.75%, 12/15/16 ................... $ 956,890
3,000,000 5.25%, 6/15/08 .................... 3,172,230
1,000,000 6.00%, 6/15/02 .................... 1,069,450
Series B:
3,175,000 5.00%, 6/15/04 .................... 3,296,475
2,750,000 5.25%, 6/15/15 .................... 2,787,015
1,000,000 6.50%, 6/15/10, (MBIA) ............ 1,170,740
2,000,000 New Jersey State Wastewater
Treatment, Trust Loan Revenue
6.00%, 7/1/11 ...................... 2,122,960
New Jersey University of
Medicine and Dentistry Revenue:
Series C
300,000 6.90%, 12/1/99 .................... 314,856
Series E:
400,000 5.75%, 12/1/21 .................... 421,952
500,000 6.50%, 12/1/18 .................... 548,690
1,000,000 North Bergen Township, New Jersey,
Municipal Utility Authority,
Sewer Revenue
5.38%, 12/15/12, (FGIC) ............ 1,030,100
1,000,000 North Brunswick Township,
New Jersey,
New Jersey Board of Education
5.00%, 2/1/15, (FGIC) .............. 989,840
1,000,000 North Hudson, New Jersey,
Sewage Authority, Sewer Revenue
5.50%, 8/1/06, (FGIC) .............. 1,073,820
350,000 North Jersey District Water
Supply Revenue, Wanaque North
Project, Series B
6.25%, 11/15/17, (MBIA) ............ 378,032
1,000,000 Northwest Bergen County, New Jersey,
Utility Authority Systems Revenue
6.00%, 7/15/09, (MBIA) ............. 1,096,050
500,000 Ocean City, New Jersey,
General Obligation
5.90%, 3/15/03, (MBIA) ............. 537,660
500,000 Ocean County, New Jersey,
Utilities Authority, General
Obligation, Series A
5.75%, 1/1/18 ...................... 520,775
300,000 Ocean Township, New Jersey,
Municipal Utilities Authority Revenue
5.20%, 8/1/05, (MBIA) .............. 313,122
Old Bridge Township, New Jersey,
Municipal Utilities Authority Revenue:
285,000 5.75%, 11/1/00, (FGIC) ............ 297,899
500,000 6.25%, 11/1/16, (FGIC) ............ 545,750
500,000 Orange Township, New Jersey,
General Obligation
6.60%, 2/1/07, (FSA) ............... 550,255
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
Passaic County, New Jersey,
General Obligation:
$ 500,000 5.40%, 12/1/02, (MBIA) ............ $ 527,105
Series A
1,295,000 6.00%, 9/1/07 ..................... 1,447,991
500,000 Passiac Valley, New Jersey,
Sewage Commissioners Revenue,
Series D
5.75%, 12/1/13, (AMBAC) ............ 531,085
500,000 Patterson, New Jersey,
General Obligation
6.20%, 2/15/02, (FSA) .............. 536,380
500,000 Princeton, New Jersey,
Regional School District
6.05%, 4/15/07 ..................... 563,355
500,000 Randolph Township, New Jersey,
School District
6.30%, 3/15/06, (FSA) .............. 563,175
500,000 Rutgers State University,
College and University Revenue,
Series 1
5.25%, 5/1/12 ...................... 510,645
785,000 Somerset County, New Jersey,
General Obligation
5.90%, 8/1/99 ...................... 807,027
1,100,000 Sparta Township, New Jersey,
General Obligation
5.80%, 9/1/23, (MBIA) .............. 1,154,945
Stafford, New Jersey,
Municipal Utilities Authority:
500,000 6.20%, 6/1/07 ..................... 546,106
375,000 6.25%, 6/1/14 ..................... 406,631
240,000 Sewer Revenue
7.10%, 6/1/99, (MBIA) ............. 246,132
500,000 Stony Brook, New Jersey,
Regional Sewage Authority
Revenue, Series B
5.45%, 12/1/12 ..................... 534,450
1,000,000 Sussex County, New Jersey
Municipal Utilities Authority,
Solid Waste Revenue,
Series B
5.50%, 12/1/13, (MBIA) ............. 1,023,850
1,095,000 Toms River, New Jersey, Board
of Education, School Bond
Reserve Act
5.75%, 7/15/19, (FGIC) ............. 1,156,167
500,000 Trenton, New Jersey,
General Obligation
6.55%, 8/15/09, (MBIA) ............. 556,070
395,000 West Caldwell Township, New Jersey,
General Obligation
6.10%, 3/1/00 ...................... 411,278
200,000 West Morris, New Jersey,
Regional High School District
5.88%, 1/15/01 ..................... 210,070
3,655,000 West New York and New Jersey,
Municipal Utilities Authority,
Capital Appreciation Refunding,
(Eff. Yield 6.85%) (a)
0.00%, 12/15/19, (FGIC) ............ 1,225,046
</TABLE>
41
<PAGE>
EVERGREEN
New Jersey Tax Free Income Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
$ 1,000,000 West Windsor, New Jersey,
General Obligation
5.50%, 12/1/10, (FGIC) ......... $ 1,063,910
500,000 Willingboro, New Jersey,
Municipal Utilities Authority,
Water and Sewer Revenue
6.30%, 1/1/06, (FGIC) .......... 509,305
500,000 Winslow Township, New Jersey,
General Obligation
6.50%, 10/1/18, (FGIC) ......... 556,315
285,000 Woodbridge Township, New Jersey,
Sewer Utility Revenue
6.75%, 8/1/99 .................. 295,904
------------
116,709,416
------------
New York - 6.6%
Port Authority of New York and
New Jersey, Port Airport
and Marine Revenue:
Series 104:
1,525,000 4.75%, 1/15/26 ................ 1,424,609
1,500,000 5.00%, 7/15/11, (AMBAC) ....... 1,519,605
1,000,000 5.20%, 7/15/15, (AMBAC) ....... 1,007,400
2,000,000 5.20%, 7/15/17, (AMBAC) ....... 2,009,900
Series 111
3,000,000 5.00%, 10/1/27 ................ 2,914,410
1,000,000 Port Authority of New York and
New Jersey, Special Obligation,
JFK International Airport Terminal
5.75%, 12/1/25 ................. 1,045,160
------------
9,921,084
------------
Pennsylvania - 4.1%
475,000 Delaware River, Joint Toll Bridge,
Commission Revenue
6.25%, 7/1/12 .................. 508,687
Delaware River, Port Authority of
Pennsylvania and New Jersey
Revenue:
2,500,000 5.40%, 1/1/15, (FGIC) ......... 2,569,625
2,000,000 5.50%, 1/1/26 ................. 2,059,140
Series 1995
1,000,000 5.40%, 1/1/16, (FGIC) ......... 1,021,810
------------
6,159,262
------------
Puerto Rico - 7.4%
1,000,000 Commonwealth of Puerto Rico,
Capital Guaranty Certificates
6.50%, 7/1/23 .................. 1,135,590
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Puerto Rico - continued
$ 500,000 Commonwealth of Puerto Rico,
Electric Power Authority Revenue,
Series P
7.00%, 7/1/21 .................. $ 553,070
Commonwealth of Puerto Rico,
General Obligation:
500,000 5.50%, 7/1/13 ................. 511,650
1,115,000 6.50%, 7/1/08, (MBIA) ......... 1,297,403
1,000,000 6.50%, 7/1/14 ................. 1,182,710
4,520,000 Commonwealth of Puerto Rico,
Highway and Transportation
Authority, Highway Revenue,
Series A,
(Eff. Yield 4.50%) (a)
0.00%, 7/1/18 .................. 1,835,346
2,000,000 Commonwealth of Puerto Rico,
Highway and Transportation
Authority, Series Y
5.00%, 7/1/36 .................. 1,936,940
250,000 Commonwealth of Puerto Rico,
Public Buildings Authority,
Guaranted Revenue
6.25%, 7/1/09, (AMBAC) ......... 286,840
2,500,000 Commonwealth of Puerto Rico,
Public Imporovement Revenue
5.38%, 7/1/25 .................. 2,520,625
------------
11,260,174
------------
Total Municipal Obligations
(cost $142,565,084) ........... 148,094,406
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
MUTUAL FUND SHARES - 1.0%
101,178 Dreyfus Municipal Money
Market Fund ...................... 101,178
1,379,790 Federated Municipal Cash Trust ... 1,379,790
---------
Total Mutual Fund Shares
(cost $1,480,968) ............... 1,480,968
---------
Total Investments -
(cost $144,046,052)..... 99.3% 149,575,374
Other Assets and
Liabilities - net ...... 0.7 1,014,357
----- -----------
Net Assets - ............ 100.0% $150,589,731
===== ============
</TABLE>
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
Legend of Portfolio Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
New York Tax Free Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 97.9%
New York - 80.7%
$ 400,000 Albany County, New York,
Public Improvements, Series B
5.60%, 3/15/14, (FGIC) ......... $ 418,000
465,000 Buffalo, New York,
General Obligation, Series E
6.50%, 12/1/22 ................. 532,137
500,000 Buffalo, New York, Municipal
Water Finance Authority, Series B
5.00%, 7/1/18 .................. 487,515
770,000 Erie County, New York, Water
Authority, Fourth Resolution,
(Eff. Yield 7.30%) (b)
0.00%, 12/1/17, (AMBAC) ........ 188,042
550,000 Hempstead Town, New York,
General Obligation, Series B
5.63%, 2/1/15, (FGIC) .......... 577,010
100,000 Islip, New York, Resources
Recovery Agency, Electric
Light & Power Improvements,
Series B
7.25%, 7/1/11, (AMBAC) ......... 122,895
695,000 Nassau County, New York,
Combined Sewer District, Series B
6.00%, 5/1/14, (FGIC) .......... 770,262
600,000 New Rochelle, New York,
General Obligation, Series B
6.15%, 8/15/17 ................. 649,650
100,000 New York City, New York,
Industrial Development Agency,
Japan Airlines
6.00%, 11/1/15 ................. 107,388
New York City, New York,
Municipal Water Finance
Authority, Water and Sewer
Systems Revenue, Series A:
600,000 7.00%, 6/15/15, (FGIC) (d) .... 656,904
400,000 7.00%, 6/15/15 ................ 432,800
250,000 New York City, New York,
Unrefunded Balance, Series A
7.75%, 8/15/15 ................. 278,410
New York State Dormitory
Authority Revenue:
City University Systems:
500,000 7.00%, 7/1/09, (FGIC) ......... 603,270
450,000 Series 2
6.25%, 7/1/19, (MBIA) .......... 480,987
250,000 State University Educational
Facilities
5.88%, 5/15/11, (AMBAC) ........ 277,152
250,000 New York State Environmental
Facilities Revenue, Riverbank
State Park
5.50%, 4/1/16 .................. 260,160
875,000 New York State Housing
Finance Agency Revenue,
Multifamily Mortgage, Series B
6.25%, 8/15/14, (AMBAC) ........ 933,205
New York State Medical Care
Facilities Finance Agency
Revenue:
250,000 Health Center Projects
6.38%, 11/15/19 ................ 274,320
1,000,000 Mental Health Services
6.38%, 8/15/14, (FGIC) ......... 1,108,890
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New York - continued
New York State Medical Care
Facilities Finance Agency
Revenue (cont.):
New York Hospital:
$ 400,000 6.75%, 8/15/14 ................ $ 463,680
300,000 6.80%, 8/15/24 ................ 348,642
700,000 New York State Thruway
Authority, Service Contract,
Local Highway and Bridge Revenue
5.75%, 4/1/16 .................. 731,052
New York State Urban Development
Corporation, Correctional Capital
Facilities Revenue:
500,000 (Eff. Yield 5.63%) (b)
0.00%, 1/1/10, (AMBAC) ......... 286,140
500,000 7.50%, 4/1/11 ................. 556,300
600,000 Series A;
6.50%, 1/1/09 .................. 680,256
1,000,000 6.50%, 1/1/10, (FSA) .......... 1,167,890
500,000 New York State Urban
Development Corporation,
Higher Education Technology Grants
6.00%, 4/1/10, (MBIA) .......... 544,025
100,000 Niagara Falls, New York,
Frontier Transportation
Authority, Greater Buffalo
International Airport
6.13%, 4/1/14, (AMBAC) ......... 107,343
Niagara Falls, New York,
Public Improvements:
500,000 7.50%, 3/1/14, (MBIA) ......... 640,540
750,000 7.50%, 3/1/16, (MBIA) ......... 969,172
250,000 St. Lawrence County, New York,
Industrial Development
Civic Facilities Revenue, St.
Lawrence University Project,
Series A
5.63%, 7/1/13, (MBIA) .......... 261,308
1,000,000 Suffolk County, New York,
Industrial Development
Agency, Southwest Sewer
Systems Revenue
6.00%, 2/1/08, (FGIC) .......... 1,118,440
805,000 Triborough Bridge and Tunnel
Authority, New York, General
Purpose Revenue, Series X
6.63%, 1/1/12 .................. 946,938
----------
17,980,723
----------
Puerto Rico - 17.2%
2,000,000 Commonwealth of Puerto Rico,
Capital Appreciation,
General Obligation
(Eff. Yield 4.85%) (b)
0.00%, 7/1/14, (MBIA) .......... 902,700
1,550,000 Commonwealth of Puerto Rico,
Industrial, Tourist,
Educational, Medical &
Environmental Control Facilities,
Hospital Auxilio Mutuo Obligation
Group, Series A,
6.25%, 7/1/24 (MBIA) ........... 1,698,614
</TABLE>
43
<PAGE>
EVERGREEN
New York Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Puerto Rico - continued
$ 1,000,000 Commonwealth of Puerto Rico,
Linked Bond Payment Obligation
7.00%, 7/1/10, (MBIA) (c) ....... $ 1,226,530
-----------
3,827,844
-----------
Total Municipal Obligations
(cost $20,260,387) .............. 21,808,567
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 1.0% (cost $220,000)
$ 220,000 New York City, New York,
Municipal Water Finance
Authority, Water and Sewer
Systems Revenue, Series G
3.85%, 6/15/24 (a) .............. $ 220,000
-----------
Total Investments -
(cost $20,480,387)..... 98.9% 22,028,567
Other Assets and
Liabilities - net ..... 1.1 240,041
----- -----------
Net Assets ............. 100.0% $22,268,608
===== ===========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered
derivative securities.
(d) At March 31, 1998, $100,000 principal amount of this security was pledged
to cover margin requirements for open futures contracts.
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Company
MBIA Insured by Municipal Bond Investors Assurance Corporation
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
Number Initial Contract Value at Unrealized
Expiration of Contracts Amount March 31, 1998 Appreciation
- ------------ -------------- --------- ---------------- -------------
June '98 4 Municipal Bond Index $ 490,334 $ 490,668 $ 334
June '98 10 U.S. Treasury Bond Index 1,203,890 1,205,279 1,389
</TABLE>
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - 97.2%
Pennsylvania - 88.0%
$ 2,000,000 Albert Gallatin, Pennsylvania,
Area School District
5.30%, 9/1/17 ................... $2,031,480
Allegheny County, Pennsylvania:
955,000 Finance Authority, Single
Family Mortgage, Series Y
6.60%, 11/1/14 .................. 1,033,176
2,000,000 Industrial Development
Authority, USX Corporation,
Series A
6.70%, 12/1/20 .................. 2,176,240
Allegheny County, Pennsylvania,
Hospital Development:
1,000,000 Children's Hospital of Pittsburgh,
5.38%, 7/1/17 ................... 1,014,810
1,000,000 Health Center, University of
Pittsburgh
6.00%, 4/1/05 ................... 1,086,650
2,000,000 Pittsburgh Mercy Health Systems
5.63%, 8/15/18 .................. 2,170,140
1,000,000 South Hills Health System
5.13%, 5/1/23 ................... 970,460
Allegheny County, Pennsylvania,
Hospital Development, University of
Pittsburgh Medical Center:
3,000,000 5.13%, 7/1/22 .................. 2,940,870
1,000,000 5.30%, 12/1/12 ................. 1,019,900
1,250,000 Beaver County, Pennsylvania,
Industrial Development Authority,
Pollution Control, Ohio Edison Co.
Project, Series A
7.75%, 9/1/24 ................... 1,316,337
Bradford, Pennsylvania,
Area School District:
1,525,000 5.50%, 10/1/14 ................. 1,592,252
2,000,000 5.75%, 10/1/15 ................. 2,177,420
Bucks County, Pennsylvania,
General Obligation:
1,000,000 5.50%, 5/1/07 .................. 1,066,240
2,095,000 5.50%, 12/1/10 ................. 2,207,858
1,000,000 Bucks County, Pennsylvania, Water
and Sewer Revenue
6.20%, 12/1/03 .................. 1,062,960
4,485,000 Cambria County, Pennsylvania,
General Obligation, Series A
6.63%, 8/15/12 .................. 4,989,832
1,000,000 Central Bucks, Pennsylvania,
School District, Series A
6.90%, 11/15/13 ................. 1,145,180
1,000,000 Central Dauphin, Pennsylvania,
School District
5.90%, 6/1/00 ................... 1,039,740
1,000,000 Council Rock, Pennsylvania,
School District
6.50%, 3/1/02 ................... 1,062,640
1,500,000 Crawford Central, Pennsylvania,
School District
5.55%, 2/15/08 .................. 1,581,120
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 1,600,000 Dauphin County, Pennsylvania,
General Obligation
5.40%, 8/1/06 ................... $1,665,424
1,000,000 Dauphin County, Pennsylvania,
General Authority Health System,
Pinnacle Health System Project
5.50%, 5/15/17 .................. 1,028,030
1,350,000 Delaware County, Pennsylvania,
Industrial Development Authority,
Pollution Control, Philadelphia
Electric Co., Series A
7.38%, 4/1/21 ................... 1,468,516
1,500,000 Delaware County, Pennsylvania,
General Obligation
5.50%, 10/1/15 .................. 1,547,355
Delaware River Port Authority,
Pennsylvania and New Jersey:
1,000,000 5.30%, 1/1/10 .................. 1,041,170
1,400,000 5.45%, 1/1/12 .................. 1,462,748
1,000,000 Delaware State, River and Bay
Authority Revenue
5.40%, 1/1/16 (FGIC) ............ 1,026,890
2,140,000 East Stroudsburg, Pennsylvania,
Area School District
5.00%, 11/15/09 ................. 2,189,755
1,485,000 Elizabeth Forward, Pennsylvania,
Area School District,
(Eff. Yield 6.70%)(a)
0.00%, 9/1/15 ................... 619,200
500,000 Erie County, Pennsylvania,
Industrial Development Authority,
Environmental Improvement,
International Paper Co. Project,
Series A
7.63%, 11/1/18 .................. 583,680
1,000,000 Fox Chapel, Pennsylvania,
Area School District
5.50%, 8/15/09 .................. 1,043,960
3,030,000 Fox Chapel, Pennsylvania, Authority
Waterworks Revenue
5.13%, 5/15/28 .................. 2,955,583
Greene County, Pennsylvania,
Industrial Development Authority:
3,000,000 Monongahela Power Co., Series B
4.75%, 2/1/07 ................... 2,989,620
1,500,000 West Pennsylvania Power Co.
5.10%, 2/1/12 ................... 1,493,595
5,205,000 Harrisburg, Pennsylvania,
General Obligation,
(Eff. Yield 5.35%) (a)
0.00%, 3/15/13 .................. 2,448,641
1,000,000 Harrisburg, Pennsylvania,
Authority Lease Revenue,
Green County Prison Project
6.25%, 6/1/01 ................... 1,065,810
2,000,000 Hempfield, Pennsylvania,
Area School District
5.30%, 10/15/14 ................. 2,038,360
2,500,000 Indiana County, Pennsylvania,
Industrial Development Authority,
Pennsylvania Electric Co. Project
5.35%, 11/1/10 .................. 2,647,325
</TABLE>
45
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
Lehigh County, Pennsylvania,
General Purpose Authority:
$ 1,000,000 Good Shepherd Rehabilitation
Hospital
7.50%, 11/15/21 ................. $1,126,800
1,250,000 Lehigh Valley Hospital, Series A
7.00%, 7/1/16 ................... 1,528,175
1,000,000 Lower Merion Township,
Pennsylvania, General Obligation
5.75%, 8/1/09 ................... 1,046,930
1,780,000 Mars, Pennsylvania,
Area School District,
(Eff. Yield 6.60%) (a)
0.00%, 9/1/26 ................... 414,064
4,000,000 McKeesport, Pennsylvania,
Area School District
6.00%, 10/1/25 .................. 4,449,520
1,305,000 Mon Valley, Pennsylvania,
Sewer Revenue
6.55%, 11/1/19 (MBIA) ........... 1,443,213
Montgomery County, Pennsylvania:
1,340,000 General Obligation
5.35%, 10/15/16 ................. 1,385,600
3,000,000 Industrial Development
Revenue, Hill School Project
5.35%, 8/15/27 .................. 3,033,510
950,000 Industrial Development,
Pollution Control,
Philadelphia Electric Co.
7.60%, 4/1/21 ................... 1,039,291
Montgomery County, Pennsylvania,
Education and Health, Abington
Memorial Hospital:
2,000,000 5.13%, 6/1/14 .................. 1,998,000
1,000,000 6.40%, 6/1/02 .................. 1,059,860
1,025,000 Montgomery County, Pennsylvania,
Higher Education and Health, County
Community College Project
6.75%, 11/1/02 .................. 1,089,462
500,000 Mount Pleasant, Pennsylvania,
Business Authority, Frick Hospital
5.75%, 12/1/27 .................. 504,410
1,510,000 New Wilmington, Pennsylvania,
Municipal Authority, Westminster
College
5.05%, 3/1/12 ................... 1,497,603
1,280,000 North Pennsylvania, School District
5.50%, 3/1/05 ................... 1,364,608
1,000,000 North Pennsylvania, Water Authority
6.00%, 11/1/07 .................. 1,070,010
4,890,000 North Wales, Pennsylvania,
Water Authority
5.00%, 11/1/13 .................. 4,867,946
4,000,000 Northampton County, Pennsylvania,
Higher Education Authority,
Lafayette College Project
5.00%, 11/1/27 .................. 3,833,880
2,035,000 Northampton County, Pennsylvania,
Industrial Development, Citizen
Utility Co. Project
4.75%, 8/1/15, VRDN (d) ......... 2,035,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 3,000,000 Northeastern Pennsylvania, Hospital
and Education Authority, Wyoming
Valley Health Care
5.25%, 1/1/26 ................... $2,995,980
2,000,000 Owen J. Roberts School District,
Pennsylvania
5.38%, 5/15/18 .................. 2,029,780
1,325,000 Parkland, Pennsylvania,
School District
5.75%, 9/1/14 ................... 1,407,110
1,000,000 Penn Hills, Pennsylvania,
General Obligation
5.60%, 12/1/05 .................. 1,058,640
1,000,000 Pennridge, Pennsylvania,
School District
6.15%, 2/15/03 .................. 1,065,920
Pennsylvania Convention Center,
Authority Revenue, Capital
Appreciation:
1,000,000 6.60%, 9/1/00 .................. 1,057,970
2,000,000 (Eff. Yield 9.58%) (a)
0.00%, 9/1/08 ................... 1,229,280
1,000,000 Series A
6.75%, 9/1/19 ................... 1,134,830
Pennsylvania Housing Finance
Agency, Single Family Mortgage:
790,000 Series 33
6.90%, 4/1/17 ................... 850,743
2,000,000 Series 34A
6.85%, 4/1/16 ................... 2,125,620
750,000 Series 40
6.80%, 10/1/15 .................. 811,380
1,840,000 Series 50A
6.00%, 10/1/13 .................. 1,957,852
1,650,000 Pennsylvania Intragovernmental
Cooperation Authority, Special Tax,
Philadelphia Funding Program
6.75%, 6/15/21 (FGIC) ........... 1,897,896
Pennsylvania State University:
1,000,000 6.25%, 3/1/11 .................. 1,065,490
1,000,000 6.60%, 7/1/02 .................. 1,089,480
1,080,000 Pennsylvania State, Certificates of
Participation
5.90%, 5/1/99 ................... 1,103,684
5,000,000 Pennsylvania State, Finance
Authority Revenue
6.60%, 11/1/09 .................. 5,469,500
2,000,000 Pennsylvania State, Higher
Education Facility, University of
Pennsylvania
5.40%, 9/1/07 ................... 2,114,940
1,000,000 Pennsylvania State, Higher
Educational Facility, University of
Pennsylvania and Presbyterian
Medical Center of Pennsylvania
6.00%, 1/1/07 ................... 1,107,770
Pennsylvania State, Higher
Educational Revenue:
2,025,000 5.00%, 12/15/09 ................ 2,071,089
2,950,000 5.25%, 6/15/17 ................. 2,984,722
485,000 6.63%, 8/15/09 ................. 534,625
</TABLE>
46
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
Pennsylvania State, Higher
Educational Revenue, Thomas
Jefferson University:
$ 1,000,000 5.15%, 11/1/10 ..................... $ 1,046,648
2,000,000 5.80%, 8/15/99 ..................... 2,051,722
1,115,000 6.63%, 8/15/09 ..................... 1,238,007
Pennsylvania State, Industrial
Development Authority:
2,000,000 6.00%, 7/1/06 ...................... 2,206,420
2,000,000 7.00%, 1/1/06 ...................... 2,318,380
1,000,000 7.00%, 7/1/06 ...................... 1,167,760
875,000 Series 1994
6.00%, 1/1/12 ....................... 945,761
Pennsylvania State, Turnpike
Commission Revenue:
1,000,000 6.45%, 6/1/03 ...................... 1,079,700
3,000,000 6.50%, 12/1/13 ..................... 3,256,500
4,000,000 Philadelphia, Pennsylvania, Water
and Waste Revenue
6.25%, 8/1/12 (MBIA) ................ 4,595,080
1,000,000 Philadelphia, Pennsylvania, Airport
Parking Authority Revenue
5.75%, 9/1/08 ....................... 1,095,590
Philadelphia, Pennsylvania,
Hospital and Higher Education
Facilities Authority:
500,000 Albert Einstein Medical Center,
7.63%, 4/1/11 ....................... 524,995
280,000 Community College, Series B
6.50%, 5/1/07 ....................... 318,307
500,000 Temple University Hospital
5.50%, 11/15/15 ..................... 505,355
3,000,000 Pittsburgh, Pennsylvania, Water and
Sewer Systems Revenue
5.00%, 9/1/21 ....................... 2,899,620
1,000,000 Pleasant Valley, Pennsylvania,
School District
5.60%, 11/15/14 ..................... 1,035,660
1,000,000 Pocono Mountain, Pennsylvania,
School District
6.10%, 10/1/03 ...................... 1,066,170
6,460,000 Radnor Township, Pennsylvania,
School District
5.00%, 3/15/26 ...................... 6,262,389
2,865,000 Solanco, Pennsylvania, School
District
5.20%, 2/15/14 ...................... 2,895,713
1,500,000 Southeastern Pennsylvania,
Transportation Authority
5.63%, 3/1/07 ....................... 1,606,515
2,000,000 Titusville, Pennsylvania,
Area School District
5.25%, 7/1/17 ....................... 2,019,220
1,000,000 Tredyffrin Township, Pennsylvania,
General Obligation
5.45%, 11/15/13 ..................... 1,029,880
1,000,000 Unionville-Chadds Ford,
Pennsylvania, School District
5.80%, 6/1/13 ....................... 1,068,700
University of Pittsburgh, Pennsylvania:
1,000,000 5.00%, 6/1/17 ...................... 987,740
1,000,000 5.90%, 6/1/03 ...................... 1,078,375
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 3,060,000 Upper Dublin, Pennsylvania,
School District
5.00%, 11/15/08 ..................... $ 3,143,079
Upper Merion, Pennsylvania,
Municipal Utilities Authority:
1,000,000 6.00%, 8/15/12 ..................... 1,053,890
2,325,000 6.00%, 8/15/16 ..................... 2,436,856
1,000,000 Wallenpaupack, Pennsylvania,
Area School District
6.00%, 9/1/03 ....................... 1,039,190
1,000,000 West Mifflin, Pennsylvania, Sewer
Municipal Authority, Sewer Revenue
5.70%, 8/1/15 ....................... 1,045,870
1,000,000 York County, Pennsylvania,
General Obligation,
6.00%, 10/1/04 ...................... 1,060,270
York County, Pennsylvania, Hospital
Authority Revenue, York Hospital:
3,000,000 5.25%, 7/1/23 ...................... 2,991,810
2,000,000 5.25%, 7/1/17 ...................... 2,007,440
-----------
194,031,762
-----------
Puerto Rico - 9.2%
Commonwealth of Puerto Rico,
Highway and Transportation
Authority, Highway Revenue:
9,000,000 Series A,
(Eff. Yield 5.50%)(a)
0.00%, 7/1/16 ....................... 3,579,660
1,000,000 Series W
5.50%, 7/1/13 ....................... 1,069,250
100,000 Series Y
5.25%, 7/1/15 ....................... 101,691
3,250,000 Commonwealth of Puerto Rico
Industrial, Tourist, Educational,
Medical & Environmental Control
Facilities, Hospital Auxilio Mutuo
Obligation Group, Series A
6.25%, 7/1/24 (MBIA) ................ 3,561,610
3,950,000 Commonwealth of Puerto Rico,
Linked Bond Payment Obligation,
7.00%, 7/1/10 (MBIA)(b) ............. 4,844,794
1,000,000 Commonwealth of Puerto Rico,
Municipal Finance Agency, Series A
6.00%, 7/1/11 ....................... 1,125,760
2,900,000 Commonwealth of Puerto Rico, Public
Buildings Authority, Guaranteed
Government Facilities, Series B
5.25%, 7/1/21 ....................... 2,899,768
1,800,000 Commonwealth of Puerto Rico, Public
Buildings Authority, Guaranteed
Public Education and Health
Facilities, Series M
5.70%, 7/1/09 ....................... 1,969,920
1,000,000 University of Puerto Rico,
University Revenue, Series N
6.25%, 6/1/07 ....................... 1,140,170
-----------
20,292,623
-----------
Total Municipal Obligations
(cost $206,219,952) ................. 214,324,385
-----------
</TABLE>
47
<PAGE>
EVERGREEN
Pennsylvania Tax Free Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES - 0.9% (cost $2,140,000)
Pennsylvania - 0.9%
$ 2,140,000 Philadelphia, Pennsylvania,
Hospital and Higher Educational
Facilities Authority Revenue,
Children's Hospital of
Philadelphia, Series B,
(SPA: Morgan Guaranty)
3.75%, 3/1/27 (c) ........... $2,140,000
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
MUTUAL FUND SHARES - 1.4%
3,000,000 Federated Tax Free O bligation .... $ 3,000,000
59,738 Pennsylvania Municip al Cash Trust,
Institutional Service Shares ...... 59,738
------------
Total Mutual Fund Shares
(cost $3,059,738) ................. 3,059,738
------------
Total Investments -
(cost $211,419,690) ..... 99.5% 219,524,123
Other Assets and
Liabilities - net ....... 0.5 1,004,208
----- ------------
Net Assets - ............ 100.0% $220,528,331
===== ============
</TABLE>
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(b) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered
derivative securities.
(c) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(d) Variable Rate Demand Notes are payable on demand on no more than seven
calendar days notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily, weekly, or monthly depending upon the terms of the security.
Interest rates presented for these securities are those in effect at March
31, 1998.
Legend of Portfolio Abbreviations:
FGIC Insured by Federal Guaranty Insurance Company
MBIA Insured by Municipal Bond Investors Assurance Corporation
SPA Security Purchase Agreement
VRDN Variable Rate Demand Notes
See Combined Notes to Financial Statements.
48
<PAGE>
EVERGREEN
Municipal Bond Funds
Statements of Assets and Liabilities
March 31, 1998
<TABLE>
<CAPTION>
California Connecticut Massachusetts
Fund Fund Fund
--------------- ---------------- ----------------
<S> <C> <C> <C>
Assets
Investments at market value
(identified cost-$25,045,496,
$65,481,487, $9,555,261,
$23,528,568, $144,046,052
$20,480,387 and $211,419,690,
respectively) ............................ $26,341,725 $ 67,429,235 $10,013,115
Cash ...................................... 3,188 0 549
Receivable for Fund shares sold ........... 680,808 5,000 0
Interest receivable ....................... 307,233 1,020,789 113,018
Receivable for investments sold ........... 0 0 0
Prepaid expenses and other assets ......... 20,934 8,952 5,364
- -------------------------------------------- ----------- ------------ -----------
Total assets ............................. 27,353,888 68,463,976 10,132,046
- -------------------------------------------- ----------- ------------ -----------
Liabilities
Payable for Fund shares redeemed .......... 122,430 0 5,667
Dividends payable ......................... 52,551 248,596 6,541
Due to related parties .................... 28,880 36,603 4,774
Payable for daily variation margin on
open futures contracts ................... 10,594 0 2,750
Distribution fee payable .................. 9,765 264 6,096
Accrued Trustees' fees and expenses ....... 404 198 298
Accrued registration and filing fees ...... 23 20,760 0
Payable for investments purchased ......... 0 0 0
Accrued expenses and other liabilities..... 7,465 5,314 6,813
- -------------------------------------------- ----------- ------------ -----------
Total liabilities ........................ 232,112 311,735 32,939
- -------------------------------------------- ----------- ------------ -----------
Net assets ................................. $27,121,776 $ 68,152,241 $10,099,107
============================================ =========== ============ ===========
Net assets represented by
Paid-in capital ........................... $25,744,776 $ 65,779,367 $ 9,594,520
Undistributed net investment income
(accumulated distributions in excess
of net investment income) ................ (52,878) 0 (6,750)
Accumulated net realized gain on
investments and closed futures
contracts ................................ 130,786 425,126 52,761
Net unrealized appreciation on
investments and open futures
contracts ................................ 1,299,092 1,947,748 458,576
- -------------------------------------------- ----------- ------------ -----------
Total net assets ......................... $27,121,776 $ 68,152,241 $10,099,107
============================================ =========== ============ ===========
Net assets consist of
Class A ................................... $ 6,419,855 $ 146,151 $ 2,076,481
Class B ................................... 18,966,876 331,130 6,383,946
Class C ................................... 1,735,045 0 1,638,680
Class Y ................................... 0 67,674,960 0
- -------------------------------------------- ----------- ------------ -----------
$27,121,776 $ 68,152,241 $10,099,107
=========== ============ ===========
Shares outstanding
Class A ................................... 643,160 22,925 212,751
Class B ................................... 1,908,772 51,933 658,769
Class C ................................... 174,887 0 169,219
Class Y ................................... 0 10,616,012 0
- -------------------------------------------- ----------- ------------ -----------
Net asset value per share
Class A ................................... $ 9.98 $ 6.38 $ 9.76
============================================ =========== ============ ===========
Class A - Offering price (based on
sales charge of 4.75%) ................... $ 10.48 $ 6.70 $ 10.25
============================================ =========== ============ ===========
Class B ................................... $ 9.94 $ 6.38 $ 9.69
============================================ =========== ============ ===========
Class C ................................... $ 9.92 - $ 9.68
============================================ =========== ============ ===========
Class Y ................................... - $ 6.37 -
============================================ =========== ============ ===========
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund Fund Fund Fund
-------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments at market value
(identified cost-$25,045,496,
$65,481,487, $9,555,261,
$23,528,568, $144,046,052
$20,480,387 and $211,419,690,
respectively) ............................ $25,234,114 $ 149,575,374 $22,028,567 $219,524,123
Cash ...................................... 3,194 0 1,584 19
Receivable for Fund shares sold ........... 565 55,636 460 714,105
Interest receivable ....................... 337,653 1,914,117 283,996 3,017,170
Receivable for investments sold ........... 0 2,834,063 0 0
Prepaid expenses and other assets ......... 36,820 4,873 5,071 3,937
- --------------------------------------------- ----------- ------------- ----------- ------------
Total assets ............................. 25,612,346 154,384,063 22,319,678 223,259,354
- --------------------------------------------- ----------- ------------- ----------- ------------
Liabilities
Payable for Fund shares redeemed .......... 12,074 130,978 0 225,254
Dividends payable ......................... 55,421 457,457 28,837 1,382,787
Due to related parties .................... 53,214 28,504 1,320 49,380
Payable for daily variation margin on
open futures contracts ................... 6,906 0 6,438 0
Distribution fee payable .................. 12,994 947 11,106 31,615
Accrued Trustees' fees and expenses ....... 370 6,612 257 0
Accrued registration and filing fees ...... 1,429 14,895 15 44,474
Payable for investments purchased ......... 0 3,122,960 0 972,453
Accrued expenses and other liabilities..... 30,740 31,979 3,097 25,060
- --------------------------------------------- ----------- ------------- ----------- ------------
Total liabilities ........................ 173,148 3,794,332 51,070 2,731,023
- --------------------------------------------- ----------- ------------- ----------- ------------
Net assets ................................. $25,439,198 $ 150,589,731 $22,268,608 $220,528,331
============================================= =========== ============= =========== ============
Net assets represented by
Paid-in capital ........................... $23,667,371 $ 144,667,683 $20,553,591 $211,180,842
Undistributed net investment income
(accumulated distributions in excess
of net investment income) ................ (46,006) 1,977 (14,383) (106,253)
Accumulated net realized gain on
investments and closed futures
contracts ................................ 110,424 390,749 179,497 1,349,309
Net unrealized appreciation on
investments and open futures
contracts ................................ 1,707,409 5,529,322 1,549,903 8,104,433
- --------------------------------------------- ----------- ------------- ----------- ------------
Total net assets ......................... $25,439,198 $ 150,589,731 $22,268,608 $220,528,331
============================================= =========== ============= =========== ============
Net assets consist of
Class A ................................... $ 4,897,029 $ 31,614,432 $ 3,559,242 $ 24,118,585
Class B ................................... 19,552,404 13,644,760 17,244,821 37,035,655
Class C ................................... 989,765 0 1,464,545 6,414,002
Class Y ................................... 0 105,330,539 0 152,960,089
- --------------------------------------------- ----------- ------------- ----------- ------------
$25,439,198 $ 150,589,731 $22,268,608 $220,528,331
=========== ============= =========== ============
Shares outstanding
Class A ................................... 479,612 2,844,866 351,689 2,060,980
Class B ................................... 1,938,595 1,227,877 1,720,078 3,205,942
Class C ................................... 98,157 0 146,106 553,629
Class Y ................................... 0 9,478,550 0 13,072,063
- --------------------------------------------- ----------- ------------- ----------- ------------
Net asset value per share
Class A ................................... $ 10.21 $ 11.11 $ 10.12 $ 11.70
============================================= =========== ============= =========== ============
Class A - Offering price (based on
sales charge of 4.75%) ................... $ 10.72 $ 11.66 $ 10.62 $ 12.28
============================================= =========== ============= =========== ============
Class B ................................... $ 10.09 $ 11.11 $ 10.03 $ 11.55
============================================= =========== ============= =========== ============
Class C ................................... $ 10.08 - $ 10.02 $ 11.59
============================================= =========== ============= =========== ============
Class Y ................................... - $ 11.11 - $ 11.70
============================================= =========== ============= =========== ============
</TABLE>
See Combined Notes to Financial Statements.
49
<PAGE>
EVERGREEN
Municipal Bond Funds
Statements of Operations
Year Ended March 31, 1998
<TABLE>
<CAPTION>
California Connecticut Massachusetts
Fund Fund* Fund
------------- -------------- ----------------
<S> <C> <C> <C>
Investment income
Interest ................................ $1,471,400 $1,197,743 $ 611,380
- ------------------------------------------ ---------- ---------- ----------
Expenses
Distribution Plan expenses .............. 216,952 466 87,863
Management fee .......................... 150,177 141,059 62,171
Transfer agent fees ..................... 22,765 138 11,610
Professional fees ....................... 19,859 16,017 17,372
Shareholder reports expense ............. 19,605 8,546 15,585
Custodian fees .......................... 9,628 8,053 3,882
Registration and filing fees ............ 4,412 23,632 6,697
Administrative services fees ............ 1,621 7,220 2,145
Trustees' fees and expenses ............. 1,363 545 750
Other ................................... 2,504 1,768 2,527
Fee waivers ............................. (67,381) (64,322) (54,590)
- ------------------------------------------ ---------- ---------- ----------
Total expenses ......................... 381,505 143,122 156,012
Less: Indirectly paid expenses .......... (724) (1,595) (299)
- ------------------------------------------ ---------- ---------- ----------
Net expenses ........................... 380,781 141,527 155,713
- ------------------------------------------ ---------- ---------- ----------
Net investment income ................... 1,090,619 1,056,216 455,667
- ------------------------------------------ ---------- ---------- ----------
Net realized and unrealized gain on
investments and futures contracts
Net realized gain (loss) on:
Investments ............................ 364,453 425,126 389,235
Closed futures contracts ............... (128,095) 0 (19,681)
- ------------------------------------------ ---------- ---------- ----------
Net realized gain on investments and
closed futures contracts ............... 236,358 425,126 369,554
Net change in unrealized appreciation
(depreciation) on investments and
open futures contracts ................. 1,295,323 55,361 258,124
- ------------------------------------------ ---------- ---------- ----------
Net realized and unrealized gain on
investments and futures contracts ...... 1,531,681 480,487 627,678
- ------------------------------------------ ---------- ---------- ----------
Net increase in net assets resulting
from operations ........................ $2,622,300 $1,536,703 $1,083,345
========================================== ========== ========== ==========
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund Fund Fund Fund
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Investment income
Interest ................................ $1,416,417 $4,501,640 $1,336,801 $ 6,642,239
- ------------------------------------------- ---------- ---------- ---------- -----------
Expenses
Distribution Plan expenses .............. 201,944 188,017 194,402 453,804
Management fee .......................... 138,262 429,995 132,245 610,824
Transfer agent fees ..................... 27,177 35,990 23,201 79,966
Professional fees ....................... 18,094 23,810 16,561 20,069
Shareholder reports expense ............. 42,956 63,236 12,837 53,279
Custodian fees .......................... 7,623 31,179 8,340 43,161
Registration and filing fees ............ 2,080 22,039 421 47,640
Administrative services fees ............ 4,811 27,450 3,109 25,291
Trustees' fees and expenses ............. 1,252 4,687 1,066 3,359
Other ................................... 4,270 12,280 5,278 10,728
Fee waivers ............................. (94,233) (347,511) (58,744) (174,928)
- ------------------------------------------- ---------- ---------- ---------- -----------
Total expenses ......................... 354,236 491,172 338,716 1,173,193
Less: Indirectly paid expenses .......... (1,449) (1,640) (739) (2,649)
- ------------------------------------------- ---------- ---------- ---------- -----------
Net expenses ........................... 352,787 489,532 337,977 1,170,544
- ------------------------------------------- ---------- ---------- ---------- -----------
Net investment income ................... 1,063,630 4,012,108 998,824 5,471,695
- ------------------------------------------- ---------- ---------- ---------- -----------
Net realized and unrealized gain on
investments and futures contracts
Net realized gain (loss) on:
Investments ............................ 322,259 1,015,421 518,579 3,540,109
Closed futures contracts ............... (86,830) 0 (29,466) (132,120)
- ------------------------------------------- ---------- ---------- ---------- -----------
Net realized gain on investments and
closed futures contracts ............... 235,429 1,015,421 489,113 3,407,989
Net change in unrealized appreciation
(depreciation) on investments and
open futures contracts ................. 1,157,948 1,915,701 822,112 1,218,774
- ------------------------------------------- ---------- ---------- ---------- -----------
Net realized and unrealized gain on
investments and futures contracts ...... 1,393,377 2,931,122 1,311,225 4,626,763
- ------------------------------------------- ---------- ---------- ---------- -----------
Net increase in net assets resulting
from operations ........................ $2,457,007 $6,943,230 $2,310,049 $10,098,458
=========================================== ========== ========== ========== ===========
</TABLE>
* The Fund commenced operations on November 24, 1997.
See Combined Notes to Financial Statements.
50
<PAGE>
EVERGREEN
Municipal Bond Funds
Statements of Changes in Net Assets
Year Ended March 31, 1998
<TABLE>
<CAPTION>
California Connecticut Massachusetts
Fund Fund* Fund
--------------- -------------- ----------------
<S> <C> <C> <C>
Operations
Net investment income ............... $ 1,090,619 $ 1,056,216 $ 455,667
Net realized gain on investments
and closed futures contracts ....... 236,358 425,126 369,554
Net change in unrealized
appreciation (depreciation) on
investments and open futures
contracts .......................... 1,295,323 55,361 258,124
- -------------------------------------- ------------ ------------ ------------
Net increase in net assets
resulting from operations ......... 2,622,300 1,536,703 1,083,345
- -------------------------------------- ------------ ------------ ------------
Distributions to shareholders from
Net investment income
Class A ............................ (205,595) (953) (93,495)
Class B ............................ (781,308) (1,377) (270,195)
Class C ............................ (68,869) 0 (68,044)
Class Y ............................ 0 (1,053,886) 0
Net realized gains on investments
Class A ............................ 0 0 0
Class B ............................ 0 0 0
Class C ............................ 0 0 0
Class Y ............................ 0 0 0
- -------------------------------------- ------------ ------------ ------------
Total distributions to
shareholders ...................... (1,055,772) (1,056,216) (431,734)
- -------------------------------------- ------------ ------------ ------------
Capital share transactions
Proceeds from shares sold ........... 4,372,062 6,576,391 1,120,126
Proceeds from shares issued in
connection with the acquisition
of Common Trust funds .............. 0 65,325,420 0
Proceeds from reinvestment of
distributions ...................... 475,762 2,057 281,994
Payment for shares redeemed ......... (7,127,357) (4,232,114) (3,887,027)
- -------------------------------------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions ................ (2,279,533) 67,671,754 (2,484,907)
- -------------------------------------- ------------ ------------ ------------
Total increase (decrease) in
net assets ....................... (713,005) 68,152,241 (1,833,296)
Net assets
Beginning of year ................... 27,834,781 0 11,932,403
- -------------------------------------- ------------ ------------ ------------
End of year ......................... $ 27,121,776 $ 68,152,241 $ 10,099,107
====================================== ============ ============ ============
Undistributed net investment
income (accumulated
distributions in excess of net
investment income) .................. $ (52,878) $ 0 $ (6,750)
====================================== ============ ============ ============
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund Fund Fund Fund
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Operations
Net investment income ............... $ 1,063,630 $ 4,012,108 $ 998,824 $ 5,471,695
Net realized gain on investments
and closed futures contracts ....... 235,429 1,015,421 489,113 3,407,989
Net change in unrealized
appreciation (depreciation) on
investments and open futures
contracts .......................... 1,157,948 1,915,701 822,112 1,218,774
- --------------------------------------- ------------ ------------- ------------ -------------
Net increase in net assets
resulting from operations ......... 2,457,007 6,943,230 2,310,049 10,098,458
- --------------------------------------- ------------ ------------- ------------ -------------
Distributions to shareholders from
Net investment income
Class A ............................ (185,708) (1,518,372) (163,491) (1,141,904)
Class B ............................ (792,663) (419,808) (725,698) (1,487,712)
Class C ............................ (47,861) 0 (60,327) (258,914)
Class Y ............................ 0 (2,083,453) 0 (2,490,364)
Net realized gains on investments
Class A ............................ 0 (240,378) (21,835) 0
Class B ............................ 0 (86,039) (118,363) 0
Class C ............................ 0 0 (9,455) 0
Class Y ............................ 0 (81,674) 0 0
- --------------------------------------- ------------ ------------- ------------ -------------
Total distributions to
shareholders ...................... (1,026,232) (4,429,724) (1,099,169) (5,378,894)
- --------------------------------------- ------------ ------------- ------------ -------------
Capital share transactions
Proceeds from shares sold ........... 6,597,008 16,729,270 2,516,417 17,158,377
Proceeds from shares issued in
connection with the acquisition
of Common Trust funds .............. 0 93,692,061 0 147,227,043
Proceeds from reinvestment of
distributions ...................... 456,051 1,561,654 691,411 1,719,493
Payment for shares redeemed ......... (7,105,076) (12,623,869) (6,778,220) (18,876,225)
- --------------------------------------- ------------ ------------- ------------ -------------
Net increase (decrease) in net
assets resulting from capital
share transactions ................ (52,017) 99,359,116 (3,570,392) 147,228,688
- --------------------------------------- ------------ ------------- ------------ -------------
Total increase (decrease) in
net assets ....................... 1,378,758 101,872,622 (2,359,512) 151,948,252
Net assets
Beginning of year ................... 24,060,440 48,717,109 24,628,120 68,580,079
- --------------------------------------- ------------ ------------- ------------ -------------
End of year ......................... $ 25,439,198 $ 150,589,731 $ 22,268,608 $ 220,528,331
======================================= ============ ============= ============ =============
Undistributed net investment
income (accumulated
distributions in excess of net
investment income) .................. $ (46,006) $ 1,977 $ (14,383) $ (106,253)
======================================= ============ ============= ============ =============
</TABLE>
* The Fund commenced operations on November 24, 1997.
See Combined Notes to Financial Statements.
51
<PAGE>
EVERGREEN
Municipal Bond Funds
Statements of Changes in Net Assets
Year Ended March 31, 1997
<TABLE>
<CAPTION>
California Massachusetts
Fund* Fund
--------------- ----------------
<S> <C> <C>
Operations
Net investment income ......................... $ 401,538 $ 530,147
Net realized gain (loss) on investments and
closed futures contracts ..................... 86,025 (193,010)
Net change in unrealized appreciation
(depreciation) on investments ................ (917,121) 153,528
- ------------------------------------------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ................... (429,558) 490,665
- ------------------------------------------------ ------------ ------------
Distributions to shareholders from
Net investment income
Class A ...................................... (72,534) (99,998)
Class B ...................................... (305,849) (333,403)
Class C ...................................... (22,898) (96,745)
Class Y ...................................... 0 0
In excess of net investment income
Class A ...................................... (6,198) (5,743)
Class B ...................................... (26,136) (19,147)
Class C ...................................... (1,957) (5,556)
- ------------------------------------------------ ------------ ------------
Total distributions to shareholders .......... (435,572) (560,592)
- ------------------------------------------------ ------------ ------------
Capital share transactions
Proceeds from shares sold ..................... 2,275,677 1,800,934
Proceeds from reinvestment of
distributions ................................ 180,206 326,680
Payment for shares redeemed ................... (2,755,667) (1,488,605)
- ------------------------------------------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital share
transactions ................................ (299,784) 639,009
- ------------------------------------------------ ------------ ------------
Total increase (decrease) in net assets...... (1,164,914) 569,082
Net assets
Beginning of period ........................... 28,999,695 11,363,321
- ------------------------------------------------ ------------ ------------
End of period ................................. $ 27,834,781 $ 11,932,403
================================================ ============ ============
Undistributed net investment income
(accumulated distributions in excess of net
investment income) ............................ $ (104,425) $ (33,200)
================================================ ============ ============
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund* Fund** Fund Fund
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Operations
Net investment income ......................... $ 370,919 $ 1,334,734 $ 1,078,808 $ 3,503,269
Net realized gain (loss) on investments and
closed futures contracts ..................... 178,889 186,579 (61,528) 292,860
Net change in unrealized appreciation
(depreciation) on investments ................ (736,014) (302,716) 15,124 (321,053)
- ------------------------------------------------- ------------ ------------ ------------ --------------
Net increase (decrease) in net assets
resulting from operations ................... (186,206) 1,218,597 1,032,404 3,475,076
- ------------------------------------------------- ------------ ------------ ------------ --------------
Distributions to shareholders from
Net investment income
Class A ...................................... (43,242) (951,954) (194,146) (1,419,449)
Class B ...................................... (308,467) (106,102) (790,549) (1,723,506)
Class C ...................................... (18,770) 0 (94,113) (359,246)
Class Y ...................................... 0 (282,668) 0 0
In excess of net investment income
Class A ...................................... (1,048) 0 (5,112) 0
Class B ...................................... (7,475) 0 (20,815) 0
Class C ...................................... (455) 0 (2,478) 0
- ------------------------------------------------- ------------ ------------ ------------ --------------
Total distributions to shareholders .......... (379,457) (1,340,724) (1,107,213) (3,502,201)
- ------------------------------------------------- ------------ ------------ ------------ --------------
Capital share transactions
Proceeds from shares sold ..................... 1,090,088 7,756,737 5,762,104 8,865,701
Proceeds from reinvestment of
distributions ................................ 187,633 667,765 686,200 1,992,715
Payment for shares redeemed ................... (2,572,965) (3,747,637) (5,139,895) (18,355,282)
- ------------------------------------------------- ------------ ------------ ------------ --------------
Net increase (decrease) in net assets
resulting from capital share
transactions ................................ (1,295,244) 4,676,865 1,308,409 (7,496,866)
- ------------------------------------------------- ------------ ------------ ------------ --------------
Total increase (decrease) in net assets...... (1,860,907) 4,554,738 1,233,600 (7,523,991)
Net assets
Beginning of period ........................... 25,921,347 44,162,371 23,394,520 76,104,070
- ------------------------------------------------- ------------ ------------ ------------ --------------
End of period ................................. $ 24,060,440 $ 48,717,109 $ 24,628,120 $ 68,580,079
================================================= ============ ============ ============ ==============
Undistributed net investment income
(accumulated distributions in excess of net
investment income) ............................ $ (87,930) $ 9,525 $ (64,926) $ (218,513)
================================================= ============ ============ ============ ==============
</TABLE>
* Four months ended March 31, 1997. During the period, the California Fund and
the Missouri Fund changed their fiscal year end from November 30 to March
31.
** Seven months ended March 31, 1997. During the period, the New Jersey Fund
changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
52
<PAGE>
EVERGREEN
Municipal Bond Funds
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
California
Fund*
---------------
<S> <C>
Operations
Net investment income ................................................................... $ 1,311,162
Net realized gain on investments and closed futures contracts ........................... 250,535
Net change in unrealized appreciation (depreciation) on investments ..................... (615,669)
- ------------------------------------------------------------------------------------------ ------------
Net increase in net assets resulting from operations ................................... 946,028
- ------------------------------------------------------------------------------------------ ------------
Distributions to shareholders from
Net investment income
Class A ................................................................................ (235,059)
Class B ................................................................................ (1,007,294)
Class C ................................................................................ (68,809)
Class Y ................................................................................ 0
In excess of net investment income
Class A ............................................................................... (10,964)
Class B ................................................................................ (46,983)
Class C ................................................................................ (3,209)
- ------------------------------------------------------------------------------------------ ------------
Total distributions to shareholders ................................................... (1,372,318)
- ------------------------------------------------------------------------------------------ ------------
Capital share transactions
Proceeds from shares sold ............................................................... 7,461,155
Proceeds from reinvestment of distributions ............................................. 527,147
Payment for shares redeemed ............................................................. (7,394,896)
- ------------------------------------------------------------------------------------------ ------------
Net increase (decrease) in net assets resulting from capital share transactions ........ 593,406
- ------------------------------------------------------------------------------------------ ------------
Total increase (decrease) in net assets ............................................... 167,116
Net assets
Beginning of period ..................................................................... 28,832,579
- ------------------------------------------------------------------------------------------ ------------
End of period ........................................................................... $ 28,999,695
========================================================================================== ============
Undistributed net investment income (accumulated distributions in excess of net investment
income) ................................................................................. $ (84,575)
========================================================================================== ============
<CAPTION>
Missouri New Jersey
Fund* Fund**
--------------- ----------------
<S> <C> <C>
Operations
Net investment income ................................................................... $ 1,144,334 $ 1,079,916
Net realized gain on investments and closed futures contracts .......................... 408,522 56
Net change in unrealized appreciation (depreciation) on investments ..................... (559,081) (955,855)
- ------------------------------------------------------------------------------------------- ------------ --------------
Net increase in net assets resulting from operations ................................... 993,775 124,117
- ------------------------------------------------------------------------------------------- ------------ --------------
Distributions to shareholders from
Net investment income
Class A ................................................................................ (180,167) (862,288)
Class B ................................................................................ (901,652) (32,289)
Class C ................................................................................ (62,515) 0
Class Y ............................................................................... 0 (185,339)
In excess of net investment income
Class A ................................................................................ (7,679) 0
Class B ................................................................................ (38,432) 0
Class C ............................................................................... (2,665) 0
- ------------------------------------------------------------------------------------------- ------------ --------------
Total distributions to shareholders .................................................... (1,193,110) (1,079,916)
- ------------------------------------------------------------------------------------------- ------------ --------------
Capital share transactions
Proceeds from shares sold ............................................................... 4,860,517 13,167,830
Proceeds from reinvestment of distributions ............................................. 610,269 522,912
Payment for shares redeemed ............................................................. (7,217,824) (10,539,031)
- ------------------------------------------------------------------------------------------- ------------ --------------
Net increase (decrease) in net assets resulting from capital share transactions ........ (1,747,038) 3,151,711
- ------------------------------------------------------------------------------------------- ------------ --------------
Total increase (decrease) in net assets ............................................... (1,946,373) 2,195,912
Net assets
Beginning of period .................................................................... 27,867,720 41,966,459
- ------------------------------------------------------------------------------------------- ------------ --------------
End of period ........................................................................... $ 25,921,347 $ 44,162,371
=========================================================================================== ============ ==============
Undistributed net investment income (accumulated distributions in excess of net investment
income) ................................................................................. $ (78,953) $ 15,515
=========================================================================================== ============ ==============
</TABLE>
* Year ended November 30, 1996.
** Six months ended August 31, 1996. The Fund changed its fiscal year end from
February 29 to August 31.
See Combined Notes to Financial Statements.
53
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Municipal Bond Funds consist of Evergreen California Tax Free
Fund ("California Fund"), Evergreen Connecticut Municipal Bond Fund
("Connecticut Fund"), Evergreen Massachusetts Tax Free Fund ("Massachusetts
Fund"), Evergreen Missouri Tax Free Fund ("Missouri Fund"), Evergreen New
Jersey Tax Free Income Fund ("New Jersey Fund"), Evergreen New York Tax Free
Fund ("New York Fund") and Evergreen Pennsylvania Tax Free Fund ("Pennsylvania
Fund"), (collectively, the "Funds"). Each Fund is a non-diversified series of
Evergreen Municipal Trust (the "Trust"), a Delaware business trust organized on
September 17, 1997. The Trust is an open end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. For each Fund, except the Connecticut
Fund and New Jersey Fund, Class B shares purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares of
these Funds purchased prior to January 1, 1997 retain their existing conversion
rights. For the Connecticut Fund and New Jersey Fund, all Class B shares will
automatically convert to Class A shares after seven years. Class C shares are
sold subject to a contingent deferred sales charge payable on shares redeemed
within one year after the month of purchase. Class Y shares are sold at net
asset value and are not subject to contingent deferred sales charges or
distribution fees. Class Y shares are sold only to investment advisory clients
of First Union Corporation ("First Union") and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other
funds managed by First Union and its affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
An independent pricing service values 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. Securities for which
valuations are not available from an independent pricing service, including
restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
D. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal tax liability since they
are expected to distribute all of their
54
<PAGE>
Combined Notes to Financial Statements (continued)
net investment company taxable income, net tax-exempt income and net capital
gains, if any, to their shareholders. The Funds also intend to avoid any excise
tax liability by making the required distributions under the Code. Accordingly,
no provision for federal taxes is required. To the extent that realized capital
gains can be offset by capital loss carryforwards, it is each Fund's policy not
to distribute such gains.
E. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing treatment
of market discount on securities.
F. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
3. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions
in shares of the Funds were as follows:
- --------------------------------------------------------------------------------
CALIFORNIA FUND
<TABLE>
<CAPTION>
Four Months
Year Ended Ended
March 31, 1998 March 31, 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ....................................... 271,096 $ 2,691,837 44,393 $ 425,634
Shares issued in reinvestment of distributions .... 7,540 73,883 2,798 26,973
Shares redeemed ................................... (79,526) (784,304) (92,045) (882,895)
- --------------------------------------------------- ---------- ------------- ---------- --------------
Net increase (decrease) ........................... 199,110 $ 1,981,416 (44,854) $ (430,288)
- --------------------------------------------------- ---------- ------------- ---------- --------------
Class B
Shares sold ....................................... 153,832 $ 1,498,219 141,390 $ 1,345,990
Shares issued in reinvestment of distributions .... 38,537 374,672 14,653 140,579
Shares redeemed ................................... (603,156) (5,920,355) (181,037) (1,731,633)
- --------------------------------------------------- ---------- ------------- ---------- --------------
Net increase (decrease) ........................... (410,787) $ (4,047,464) (24,994) $ (245,064)
- --------------------------------------------------- ---------- ------------- ---------- --------------
Class C
Shares sold ....................................... 18,602 $ 182,006 53,270 $ 504,053
Shares issued in reinvestment of distributions .... 2,804 27,207 1,321 12,654
Shares redeemed ................................... (43,562) (422,698) (14,740) (141,139)
- --------------------------------------------------- ---------- ------------- ---------- --------------
Net increase (decrease) ........................... (22,156) $ (213,485) 39,851 $ 375,568
=================================================== ========== ============= ========== ==============
<CAPTION>
Year Ended
November 30, 1996
-----------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Class A
Shares sold ....................................... 140,002 $ 1,349,960
Shares issued in reinvestment of distributions .... 8,643 83,004
Shares redeemed ................................... (121,799) (1,165,388)
- --------------------------------------------------------------- --------------
Net increase (decrease) ........................... 26,846 $ 267,576
- --------------------------------------------------------------- --------------
Class B
Shares sold ....................................... 597,313 $ 5,739,529
Shares issued in reinvestment of distributions .... 42,516 406,441
Shares redeemed ................................... (612,458) (5,834,556)
- --------------------------------------------------------------- --------------
Net increase (decrease) ........................... 27,371 $ 311,414
- --------------------------------------------------------------- --------------
Class C
Shares sold ....................................... 38,530 $ 371,666
Shares issued in reinvestment of distributions .... 3,949 37,702
Shares redeemed ................................... (41,822) (394,952)
- --------------------------------------------------------------- --------------
Net increase (decrease) ........................... 657 $ 14,416
=============================================================== ==============
</TABLE>
55
<PAGE>
Combined Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
CONNECTICUT FUND
<TABLE>
<CAPTION>
December 30, 1998
(Commencement
of Class Operations)
through March 31,
1998
--------------------
Shares Amount
-------- -----------
<S> <C> <C>
Class A
Shares sold ................................... 22,857 $145,836
Shares issued in reinvestment of distributions 68 433
Shares redeemed ............................... 0 0
- ----------------------------------------------- ------- ---------
Net increase .................................. 22,925 $146,269
=============================================== ======= =========
</TABLE>
<TABLE>
<CAPTION>
January 9, 1998
(Commencement
of Class Operations)
through March 31,
1998
--------------------
Shares Amount
-------- -----------
<S> <C> <C>
Class B
Shares sold ................................... 51,780 $331,966
Shares issued in reinvestment of distributions 153 980
Shares redeemed ............................... 0 0
- ----------------------------------------------- ------- ---------
Net increase .................................. 51,933 $332,946
=============================================== ======= =========
</TABLE>
<TABLE>
<CAPTION>
November 24, 1997
(Commencement
of Class Operations)
through March 31, 1998
-----------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Class Y
Shares sold .......................................................... 948,480 $ 6,098,589
Shares issued in connection with the acquisition of common trust fund 10,328,861 65,325,420
Shares issued in reinvestment of distributions ....................... 101 644
Shares redeemed ...................................................... (661,430) (4,232,114)
- ---------------------------------------------------------------------- ----------- -------------
Net increase ......................................................... 10,616,012 $ 67,192,539
====================================================================== =========== =============
</TABLE>
- --------------------------------------------------------------------------------
MASSACHUSETTS FUND
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1998 March 31, 1997
---------------------------- --------------------------
Shares Amount Shares Amount
------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
Class A
Shares sold ................................... 48,781 $ 474,420 90,822 $ 839,815
Shares issued in reinvestment of distributions 5,660 53,489 5,823 53,822
Shares redeemed ............................... (65,265) (628,762) (65,408) (609,383)
- ----------------------------------------------- ---------- ------------- ---------- -----------
Net increase (decrease) ....................... (10,824) $ (100,853) 31,237 $ 284,254
- ----------------------------------------------- ---------- ------------- ---------- -----------
Class B
Shares sold ................................... 64,229 $ 606,090 100,024 $ 918,193
Shares issued in reinvestment of distributions 19,310 182,827 23,389 214,508
Shares redeemed ............................... (276,117) (2,637,724) (60,790) (556,450)
- ----------------------------------------------- ---------- ------------- ---------- -----------
Net increase (decrease) ....................... (192,578) $ (1,848,807) 62,623 $ 576,251
- ----------------------------------------------- ---------- ------------- ---------- -----------
Class C
Shares sold ................................... 4,224 $ 39,616 4,630 $ 42,926
Shares issued in reinvestment of distributions 4,814 45,678 6,372 58,350
Shares redeemed ............................... (65,364) (620,541) (35,362) (322,772)
- ----------------------------------------------- ---------- ------------- ---------- -----------
Net decrease .................................. (56,326) $ (535,247) (24,360) $ (221,496)
=============================================== ========== ============= ========== ===========
</TABLE>
56
<PAGE>
Combined Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
MISSOURI FUND
<TABLE>
<CAPTION>
Year Ended Four Months Ended
March 31, 1998 March 31, 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................ 262,047 $ 2,625,674 30,205 $ 296,198
Shares issued in reinvestment of distributions ..... 6,523 65,281 2,110 20,672
Shares redeemed .................................... (61,382) (621,096) (24,613) (240,124)
- ---------------------------------------------------- ---------- ------------- ---------- -------------
Net increase (decrease) ............................ 207,188 $ 2,069,859 7,702 $ 76,746
- ---------------------------------------------------- ---------- ------------- ---------- -------------
Class B
Shares sold ........................................ 366,631 $ 3,635,733 78,288 $ 754,590
Shares issued in reinvestment of distributions ..... 36,382 359,093 15,900 153,879
Shares redeemed .................................... (577,779) (5,726,750) (231,593) (2,229,437)
- ---------------------------------------------------- ---------- ------------- ---------- -------------
Net increase (decrease) ............................ (174,766) $ (1,731,924) (137,405) $ (1,320,968)
- ---------------------------------------------------- ---------- ------------- ---------- -------------
Class C
Shares sold ........................................ 33,594 $ 335,601 4,028 $ 39,300
Shares issued in reinvestment of distributions ..... 3,210 31,677 1,352 13,082
Shares redeemed .................................... (75,805) (757,230) (10,736) (103,404)
- ---------------------------------------------------- ---------- ------------- ---------- -------------
Net decrease ....................................... (39,001) $ (389,952) (5,356) $ (51,022)
==================================================== ========== ============= ========== =============
<CAPTION>
Year Ended
November 30, 1996
-----------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Class A
Shares sold ........................................ 156,363 $ 1,540,859
Shares issued in reinvestment of distributions ..... 12,216 119,315
Shares redeemed .................................... (392,880) (3,827,386)
- ---------------------------------------------------------------- -------------
Net increase (decrease) ............................ (224,301) $ (2,167,212)
- ---------------------------------------------------------------- -------------
Class B
Shares sold ........................................ 330,193 $ 3,156,266
Shares issued in reinvestment of distributions ..... 46,792 448,603
Shares redeemed .................................... (292,558) (2,803,559)
- ---------------------------------------------------------------- -------------
Net increase (decrease) ............................ 84,427 $ 801,310
- ---------------------------------------------------------------- -------------
Class C
Shares sold ........................................ 17,038 $ 163,392
Shares issued in reinvestment of distributions ..... 4,411 42,351
Shares redeemed .................................... (61,550) (586,879)
- ---------------------------------------------------------------- -------------
Net decrease ....................................... (40,101) $ (381,136)
================================================================ =============
</TABLE>
- --------------------------------------------------------------------------------
NEW JERSEY FUND
<TABLE>
<CAPTION>
Year Ended Seven Months Ended
March 31, 1998 March 31, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................ 252,683 $ 2,784,238 152,942 $ 1,664,228
Shares issued in reinvestment of distributions ..... 96,743 1,066,743 50,115 545,271
Shares redeemed .................................... (431,044) (4,741,631) (287,177) (3,122,729)
- ---------------------------------------------------- ----------- ------------- ----------- --------------
Net decrease ....................................... (81,618) $ (890,650) (84,120) $ (913,230)
- ---------------------------------------------------- ----------- ------------- ----------- --------------
Class B
Shares sold ........................................ 559,918 $ 6,159,394 488,639 $ 5,322,261
Shares issued in reinvestment of distributions ..... 35,078 387,261 7,360 79,993
Shares redeemed .................................... (97,634) (1,079,382) (17,415) (190,302)
- ---------------------------------------------------- ----------- ------------- ----------- --------------
Net increase ....................................... 497,362 $ 5,467,273 478,584 $ 5,211,952
- ---------------------------------------------------- ----------- ------------- ----------- --------------
Class Y
Shares sold ........................................ 700,533 $ 7,785,638 70,718 $ 770,248
Shares issued in connection with the acquisition of
common trust fund ................................. 8,501,660 93,692,061 0 0
Shares issued in reinvestment of distributions ..... 9,734 107,650 3,909 42,501
Shares redeemed .................................... (611,893) (6,802,856) (40,043) (434,606)
- ---------------------------------------------------- ----------- ------------- ----------- --------------
Net increase ....................................... 8,600,034 $ 94,782,493 34,584 $ 378,143
==================================================== =========== ============= =========== ==============
<CAPTION>
Six Months Ended
August 31, 1996
------------------------------
Shares Amount
------------- ----------------
<S> <C> <C>
Class A
Shares sold ........................................ 124,249 $ 1,339,667
Shares issued in reinvestment of distributions ..... 42,586 457,685
Shares redeemed .................................... (949,514) (10,244,991)
- ---------------------------------------------------------------- --------------
Net decrease ....................................... (782,679) $ (8,447,639)
- ---------------------------------------------------------------- --------------
Class B
Shares sold ........................................ 234,035 $ 2,509,436
Shares issued in reinvestment of distributions ..... 2,234 24,017
Shares redeemed .................................... (1,239) (13,260)
- ---------------------------------------------------------------- --------------
Net increase ....................................... 235,030 $ 2,520,193
- ---------------------------------------------------------------- --------------
Class Y
Shares sold ........................................ 864,470 $ 9,318,727
Shares issued in connection with the acquisition of
common trust fund ................................. 0 0
Shares issued in reinvestment of distributions ..... 3,838 41,210
Shares redeemed .................................... (26,045) (280,780)
- ---------------------------------------------------------------- --------------
Net increase ....................................... 842,263 $ 9,079,157
================================================================ ==============
</TABLE>
57
<PAGE>
Combined Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
NEW YORK FUND
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
March 31, 1998 March 31, 1997
----------------------------- ------------------------------
Shares Amount Shares Amount
-------- ------- -------- -------
Class A
Shares sold ................................... 101,515 $ 1,028,467 66,697 $ 643,405
Shares issued in reinvestment of distributions 10,952 109,667 11,528 111,722
Shares redeemed ............................... (143,942) (1,442,196) (103,151) (998,464)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (31,475) $ (304,062) (24,926) $ (243,337)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Class B
Shares sold ................................... 139,740 $ 1,373,251 514,292 $ 4,923,516
Shares issued in reinvestment of distributions 53,507 527,679 52,129 500,919
Shares redeemed ............................... (469,593) (4,681,031) (359,121) (3,452,277)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net increase (decrease) ....................... (276,346) $ (2,780,101) 207,300 $ 1,972,158
- ----------------------------------------------- ----------- ------------- ----------- -------------
Class C
Shares sold ................................... 11,612 $ 114,699 20,357 $ 195,183
Shares issued in reinvestment of distributions 5,472 54,065 7,661 73,559
Shares redeemed ............................... (66,958) (654,993) (71,587) (689,154)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (49,874) $ (486,229) (43,569) $ (420,412)
=============================================== =========== ============= =========== =============
</TABLE>
- --------------------------------------------------------------------------------
PENNSYLVANIA FUND
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1998 March 31, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ................................... 216,700 $ 2,503,060 185,067 $ 2,073,195
Shares issued in reinvestment of distributions 52,116 598,085 65,422 730,217
Shares redeemed ............................... (410,639) (4,743,895) (622,861) (6,962,533)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (141,823) $ (1,642,750) (372,372) $ (4,159,121)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Class B
Shares sold ................................... 365,986 $ 4,145,693 542,771 $ 5,968,801
Shares issued in reinvestment of distributions 82,460 937,245 91,329 1,006,535
Shares redeemed ............................... (627,854) (7,165,289) (677,087) (7,472,808)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (179,408) $ (2,082,351) (42,987) $ (497,472)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Class C
Shares sold ................................... 47,797 $ 554,828 75,398 $ 823,705
Shares issued in reinvestment of distributions 16,198 184,137 23,192 255,963
Shares redeemed ............................... (129,911) (1,487,976) (356,046) (3,919,941)
- ----------------------------------------------- ----------- ------------- ----------- -------------
Net decrease .................................. (65,916) $ (749,011) (257,456) $ (2,840,273)
=============================================== =========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
November 24, 1997
(Commencement of
Class Operations)
through March 31, 1998
-----------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Class Y
Shares sold .......................................................... 848,662 $ 9,954,796
Shares issued in connection with the acquisition of common trust fund 12,689,439 147,227,043
Shares issued in reinvestment of distributions ....................... 2 26
Shares redeemed ...................................................... (466,040) (5,479,065)
- ---------------------------------------------------------------------- ----------- -------------
Net increase ......................................................... 13,072,063 $151,702,800
====================================================================== =========== =============
</TABLE>
58
<PAGE>
Combined Notes to Financial Statements (continued)
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended March 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------- --------------
<S> <C> <C>
California Fund ............ $19,670,099 $22,773,422
Connecticut Fund* .......... 11,001,095 11,008,931
Massachusetts Fund ......... 10,714,519 13,119,082
Missouri Fund .............. 10,375,883 10,640,912
New Jersey Fund ............ 42,822,951 31,570,484
New York Fund .............. 9,588,890 13,314,020
Pennsylvania Fund .......... 67,028,825 74,607,429
</TABLE>
* For the period from November 24, 1997 through March 31, 1998.
On March 31, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
California Fund ........... $ 25,050,371 $1,303,301 $ (11,947) $1,291,354
Connecticut Fund .......... 65,481,487 2,109,627 (161,879) 1,947,748
Massachusetts Fund ........ 9,557,776 456,609 (1,270) 455,339
Missouri Fund ............. 23,541,609 1,702,071 (9,566) 1,692,505
New Jersey Fund ........... 144,046,052 5,636,907 (107,585) 5,529,322
New York Fund ............. 20,500,136 1,546,770 (18,339) 1,528,431
Pennsylvania Fund ......... 211,419,690 8,467,294 (362,861) 8,104,433
</TABLE>
As of March 31, 1998, the Funds had no capital loss carryovers for federal
income tax purposes.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI") (formerly, Evergreen Keystone Distributor,
Inc.), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), serves as
principal underwriter to each of the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the class. Class B and Class C also pay distribution
fees equal to 0.75% of the average daily net assets of the class. Distribution
Plan expenses are calculated daily and paid monthly.
Prior to January 1, 1997, for the California Fund, Massachusetts Fund, Missouri
Fund, New York Fund and Pennsylvania Fund, the Class A Distribution Plan
provided for expenditures, which were limited to 0.15% annually of the average
daily net assets of the Class A shares, to pay expenses related to the
distribution of Class A shares. The Class B and Class C Distribution Plans for
these Funds paid a distribution fee which did not exceed 0.90% annually of the
average daily net assets of Class B and Class C shares, respectively. Of that
amount, 0.75% was used to pay distribution expenses and 0.15% was used to pay
service fees.
59
<PAGE>
Combined Notes to Financial Statements (continued)
During the year ended March 31, 1998, amounts paid or accrued to EDI pursuant
to each Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Distribution
Distribution fees accrued fees waived
------------------------------- -------------
Class A Class B Class C Class A
--------- ----------- --------- -------------
<S> <C> <C> <C> <C>
California Fund ............ $ 8,075 $191,945 $16,932 -
Connecticut Fund ........... 51 415 N/A -
Massachusetts Fund ......... 3,513 67,467 16,883 -
Missouri Fund .............. 7,025 183,796 11,123 -
New Jersey Fund ............ 79,247 108,770 N/A $50,718
New York Fund .............. 6,072 173,914 14,416 -
Pennsylvania Fund .......... 41,755 351,011 61,038 0
</TABLE>
With respect to Class B and Class C shares of the California, Massachusetts,
Missouri, New York and Pennsylvania Funds, the principal underwriter may pay
12b-1 fees greater than the allowable annual amounts the Fund is permitted to
pay. The Fund may reimburse the principal underwriter for such excess amounts
in later years with annual interest at the prime rate plus 1.00%. For these
Funds, EDI intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Funds. EDI intends to seek
full payment of such distribution costs from each Fund at such time in the
future as, and to the extent that, payment thereof by the Class B or Class C
shares would be within permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, for each Fund except the Connecticut Fund and
New Jersey Fund, after the termination of any Distribution Plan and subject to
the discretion of the Independent Trustees, payments to EDI may continue as
compensation for services which had been provided while the Distribution Plan
was in effect.
6. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone Investment Management Company ("Keystone"), a subsidiary of First
Union, is the investment adviser for the California Fund, Massachusetts Fund,
Missouri Fund, New York Fund and Pennsylvania Fund. In return for providing
investment management and administrative services, the Funds pay Keystone a
management fee that is calculated daily and paid monthly. The management fee is
calculated by applying percentage rates, which start at 0.55% and decline to
0.25% per annum as net assets increase, to the average daily net asset value of
each Fund.
The Capital Management Group ("CMG") of First Union National Bank of North
Carolina, a subsidiary of First Union, serves as the investment adviser to the
Connecticut Fund and New Jersey Fund and is paid a management fee that is
computed daily and paid monthly. The Connecticut Fund pays CMG an annual fee
for its services equal to 0.60% of the average daily net assets of the Fund.
CMG has voluntarily agreed to limit the Connecticut Fund's management fee to
0.50% of the average daily net assets of the Fund. The New Jersey Fund pays CMG
a fee for its services which is calculated by applying percentage rates, which
start at 0.50% and decline to 0.35% per annum as net assets increase, to the
average daily net assets of the Fund.
Currently, the investment manager of each Fund has voluntarily limited the
expenses of each class of shares, excluding indirectly paid expenses, to the
following percentage of the average daily net assets of the respective class.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
California Fund ............ 0.85% 1.60% 1.60% -
Connecticut Fund ........... 0.85% 1.60% 1.60% 0.60%
Massachusetts Fund ......... 0.85% 1.60% 1.60% -
Missouri Fund .............. 0.85% 1.60% 1.60% -
New Jersey Fund ............ 0.50% 1.41% - 0.41%
New York Fund .............. 0.85% 1.60% 1.60% -
Pennsylvania Fund .......... 0.85% 1.60% 1.60% -
</TABLE>
Prior to January 1, 1998, the investment adviser for these Funds had
voluntarily limited the expenses of Class A, excluding indirectly paid
expenses, to 0.75% of their average daily net assets and the expenses of Class
B and C, excluding indirectly paid expenses, to 1.50% of the average daily net
assets of each respective class.
60
<PAGE>
Combined Notes to Financial Statements (continued)
For the year ended March 31, 1998, the investment adviser waived its fee for
the Funds as follows:
<TABLE>
<CAPTION>
Fees
Waived
----------
<S> <C>
California Fund ............ $ 67,381
Connecticut Fund ........... 64,322
Massachusetts Fund ......... 54,590
Missouri Fund .............. 94,233
New Jersey Fund ............ 296,793
New York Fund .............. 58,744
Pennsylvania Fund .......... 174,928
</TABLE>
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a
subsidiary of First Union, is the administrator and BISYS serves as the
sub-administrator for each Fund.
As administrator for the Connecticut Fund and the New Jersey Fund, EIS is
entitled to an annual fee based on the average daily net assets of the funds
administered by EIS for which First Union or its investment advisory
subsidiaries are also the investment advisers. The administration fee for the
Connecticut Fund and the New Jersey Fund is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets
increase, to the average daily net asset value of the Fund. As administrator
for the California Fund, Massachusetts Fund, Missouri Fund, New York Fund and
Pennsylvania Fund, EIS also provides facilities, equipment and personnel on
behalf of the Fund's investment adviser and is reimbursed by the Fund for its
services.
The sub-administration fee for each Fund is calculated by applying percentage
rates, which start at 0.01% and decline to .004% as net assets increase, to the
average daily net asset value of the Fund. For the California Fund,
Massachusetts Fund, Missouri Fund, New York Fund and Pennsylvania Fund, the
sub-administration fee is paid by the investment manager and is not a fund
expense.
During the year ended March 31, 1998, the Funds paid or accrued to EIS the
following amounts for certain administrative services:
<TABLE>
<S> <C>
California Fund ............ $ 1,621
Connecticut Fund ........... 5,776
Massachusetts Fund ......... 2,145
Missouri Fund .............. 4,811
New Jersey Fund ............ 22,519
New York Fund .............. 3,109
Pennsylvania Fund .......... 25,291
</TABLE>
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company), a wholly-owned subsidiary of Keystone, serves as the transfer and
dividend disbursing agent for each Fund. Prior to May 5, 1997, State Street
Bank and Trust Company ("State Street") served as the transfer and dividend
disbursing agent for the New Jersey Fund. As of March 31, 1998, the New Jersey
Fund accrued or paid to ESC $30,968 for these services.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. BISYS as sub-administrator provides the officers of the Funds.
7. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
8. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
61
<PAGE>
Combined Notes to Financial Statements (continued)
9. ACQUISITIONS
On November 24, 1997, the Connecticut Fund commenced operations of its Class Y
shares as a result of the conversion of common trust funds managed by First
Union National Bank, a subsidiary of First Union. Also, as a result of this
conversion, the New Jersey Fund and Pennsylvania Fund each acquired
substantially all of the net assets of comparable common trusts in exchange for
Class Y shares of the respective Funds.
These conversions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of net assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each fund
immediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Acquiring Fund Acquired Common Trust Fund
- --------------------- -----------------------------------------------------
<S> <C>
Connecticut Fund Common Trust Fund-Connecticut Tax Exempt Bond Fund
New Jersey Fund Common Trust Fund-New Jersey Tax Exempt Bond Fund
Pennsylvania Fund Common Trust Fund-Pennsylvania Tax Exempt Bond Fund
<CAPTION>
Value of Net Number of Unrealized Net Assets
Acquiring Fund Assets Acquired Shares Issued Appreciation After Acquisition
- --------------------- ----------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
Connecticut Fund $ 65,325,420 10,328,861 $1,892,387 $ 65,325,420
New Jersey Fund 93,692,061 8,501,660 2,874,242 147,179,376
Pennsylvania Fund 147,227,043 12,689,439 4,980,000 216,012,549
</TABLE>
10. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street and a group of banks (collectively, the "Banks") became
effective . Under this agreement, the Banks provided an unsecured credit
facility in the aggregate amount of $225 million ($112.5 million committed and
$112.5 million uncommitted) allocated evenly among the Banks. Borrowings under
this facility bore interest at 0.75% per annum above the Federal Funds rate. A
commitment fee of 0.10% per annum was incurred on the unused portion of the
committed facility, which was allocated to all participating funds. State
Street served as agent for the Banks, and as agent was entitled to a fee of
$15,000 which was allocated to all of the participating Funds. This agreement
was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400
million ($275 million committed and $125 million uncommitted). The credit
facility is allocated, under the terms of the financing agreement, among the
Banks. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.50% per annum above the
Federal Funds rate. A commitment fee of 0.065% per annum will be incurred on
the unused portion of the committed facility, which will be allocated to all
Funds. For its assistance in arranging this financing agreement, the Capital
Market Group of First Union was paid a one-time arrangement fee of $27,500.
State Street serves as administrative agent for the Banks, and as
administrative agent is entitled to a fee of $20,000 per annum which is
allocated to all of the Funds.
During the year ended March 31, 1998, the Funds had no borrowings under these
agreements.
11. CONCENTRATION OF CREDIT RISK
Each Fund invests a substantial portion of its assets in issuers located in a
single state, therefore, it may be more affected by economic and political
developments in a specific state or region than would be a comparable general
tax-exempt mutual fund.
62
<PAGE>
Independent Auditors' Report
The Trustees and Shareholders
Evergreen Municipal Trust
We have audited the accompanying statements of assets and liabilities,
including schedules of investments, of the Evergreen California Tax Free Fund,
Evergreen Connecticut Municipal Bond Fund, Evergreen Massachusetts Tax Free
Fund, Evergreen Missouri Tax Free Fund, Evergreen New Jersey Tax Free Income
Fund, Evergreen New York Tax Free Fund and Evergreen Pennsylvania Tax Free Fund
of the Evergreen Municipal Trust listed below as of March 31, 1998, and the
related statements of operations, statements of changes in net assets, and
financial highlights for each of the years or periods presented below:
Evergreen California Tax Free Fund - statement of operations for the year
ended March 31, 1998, statements of changes in net assets for the year
ended March 31, 1998, the four months ended March 31, 1997 and the year
ended November 30, 1996, and the financial highlights for the periods
presented on pages 16 and 17.
Evergreen Connecticut Municipal Bond Fund - statement of operations for the
period from November 24, 1997 (commencement of operations) to March 31,
1998, statement of changes in net assets for the period from November 24,
1997 (commencement of operations) to March 31, 1998 and the financial
highlights for the periods presented on pages 18 and 19.
Evergreen Massachusetts Tax Free Fund - statement of operations for the
year ended March 31, 1998, statements of changes in net assets for each of
the years in the two-year period ended March 31, 1998, and the financial
highlights for the periods presented on pages 20 and 21.
Evergreen Missouri Tax Free Fund - statement of operations for the year
ended March 31, 1998, statements of changes in net assets for the year
ended March 31, 1998, the four months ended March 31, 1997, and the year
ended November 30, 1996, and the financial highlights for the periods
presented on pages 22 and 23.
Evergreen New Jersey Tax Free Income Fund - statement of operations for the
year ended March 31, 1998, statements of changes in net assets for the year
ended March 31, 1998, the seven months ended March 31, 1997, and the six
months ended August 31, 1996, and the financial highlights for the periods
presented on pages 24 and 25.
Evergreen New York Tax Free Fund - statement of operations for the year
ended March 31, 1998, statements of changes in net assets for each of the
years in the two-year period ended March 31, 1998, and the financial
highlights for the periods presented on pages 26 and 27.
Evergreen Pennsylvania Tax Free Fund - statement of operations for the year
ended March 31, 1998, statements of changes in net assets for each of the
years in the two-year period ended March 31, 1998, and the financial
highlights for the periods presented on pages 28, 29 and 30.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial highlights are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of March 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen California Tax Free Fund, Evergreen Connecticut Municipal Bond Fund,
Evergreen Massachusetts Tax Free Fund, Evergreen Missouri Tax Free Fund,
Evergreen New Jersey Tax Free Income Fund, Evergreen New York Tax Free Fund and
Evergreen Pennsylvania Tax Free Fund as of March 31, 1998, the results of their
operations, changes in their net assets, and financial highlights for each of
the years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 1, 1998
63
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On December 15, 1997, a special meeting of shareholders for the Funds was held
to consider a number of proposals with the following number of shares
represented at the meeting. On October 16, 1997, the record date for the
meeting, the Funds had the following shares outstanding with the following
number of shares represented at the meeting:
<TABLE>
<CAPTION>
California Massachusetts
Fund Fund
------------ ---------------
<S> <C> <C>
Record Date Shares Outstanding ................................... 2,725,854 1,162,735
Shares represented at meeting .................................... 1,669,919 659,204
Percentage of record date shares represented at meeting .......... 61.26% 56.69%
Proposal 1 - The proposed reorganization of the Fund
as a series of the Evergreen Municipal Trust, a
Delaware business trust:
Shares voted "For" ......................................... 1,436,739 638,568
Shares voted "Against" ..................................... 29,607 5,280
Shares voted "Abstain" ..................................... 203,573 15,356
Proposal 2 - Reclassification as non-fundamental
investment objective of this Fund whose
investment objective is currently classified as
fundamental:
Shares voted "For" ......................................... 1,443,782 634,466
Shares voted "Against" ..................................... 14,315 8,287
Shares voted "Abstain" ..................................... 211,822 16,451
Proposal 3 - Changes to fundamental investment
restrictions:
To amend the fundamental restriction concerning
diversification of investments:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning
concentration of a Fund's assets in a particular
industry:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning the
issuance of senior securities:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning
borrowing:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning
underwriting:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning
investments in Real Estate:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning
commodities:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
To amend the fundamental restriction concerning lending:
Shares voted "For" ......................................... 1,437,849 630,876
Shares voted "Against" ..................................... 6,701 5,527
Shares voted "Abstain" ..................................... 225,369 22,801
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund Fund Fund Fund
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Record Date Shares Outstanding ................................... 2,662,041 4,750,550 2,405,964 6,015,030
Shares represented at meeting .................................... 1,511,261 3,612,044 1,477,585 3,531,532
Percentage of record date shares represented at meeting .......... 56.77% 76.03% 61.41% 58.71%
Proposal 1 - The proposed reorganization of the Fund
as a series of the Evergreen Municipal Trust, a
Delaware business trust:
Shares voted "For" ......................................... 1,331,497 3,324,309 1,337,045 3,265,059
Shares voted "Against" ..................................... 67,555 90,049 25,766 105,186
Shares voted "Abstain" ..................................... 112,209 197,686 114,774 161,287
Proposal 2 - Reclassification as non-fundamental
investment objective of this Fund whose
investment objective is currently classified as
fundamental:
Shares voted "For" ......................................... 1,312,757 3,302,663 1,329,138 3,208,155
Shares voted "Against" ..................................... 79,833 111,295 32,956 148,116
Shares voted "Abstain" ..................................... 118,671 198,086 115,491 175,261
Proposal 3 - Changes to fundamental investment
restrictions:
To amend the fundamental restriction concerning
diversification of investments:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,324,832 3,190,900
Shares voted "Against" ..................................... 75,182 99,760 37,261 108,621
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning
concentration of a Fund's assets in a particular
industry:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,324,832 3,191,933
Shares voted "Against" ..................................... 75,182 99,760 37,261 107,588
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning the
issuance of senior securities:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,324,832 3,191,933
Shares voted "Against" ..................................... 75,182 99,760 37,261 107,588
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning
borrowing:
Shares voted "For" ......................................... 1,295,088 3,305,441 1,324,832 3,178,556
Shares voted "Against" ..................................... 75,182 104,822 37,261 120,965
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning
underwriting:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,327,265 3,180,299
Shares voted "Against" ..................................... 75,182 99,760 34,828 119,222
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning
investments in Real Estate:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,327,265 3,180,754
Shares voted "Against" ..................................... 75,182 99,760 34,828 118,767
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning
commodities:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,324,832 3,180,754
Shares voted "Against" ..................................... 75,182 99,760 37,261 118,767
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning lending:
Shares voted "For" ......................................... 1,295,088 3,310,503 1,324,832 3,191,933
Shares voted "Against" ..................................... 75,182 99,760 37,261 107,588
Shares voted "Abstain" ..................................... 140,991 201,781 115,492 232,011
</TABLE>
64
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<CAPTION>
California Massachusetts
Fund Fund
------------ ---------------
<S> <C> <C>
To amend the fundamental restriction concerning
investment in federally tax exempt securities:
Shares voted "For" .......................................... 1,437,849 630,876
Shares voted "Against" ...................................... 6,701 5,527
Shares voted "Abstain" ...................................... 225,369 22,801
To amend the fundamental restriction concerning control
or management:
Shares voted "For" .......................................... 1,437,849 630,876
Shares voted "Against" ...................................... 6,701 5,527
Shares voted "Abstain" ...................................... 225,369 22,801
To amend the fundamental restriction concerning margin
purchases:
Shares voted "For" .......................................... 1,437,849 630,876
Shares voted "Against" ...................................... 6,701 5,527
Shares voted "Abstain" ...................................... 225,369 22,801
To amend the fundamental restriction concerning oil, gas
or other mineral exploration or development program:
Shares voted "For" .......................................... 1,437,849 630,876
Shares voted "Against" ...................................... 6,701 5,527
Shares voted "Abstain" ...................................... 225,369 22,801
To amend the fundamental restriction concerning state tax
exempt securities:
Shares voted "For" .......................................... 1,451,039 630,876
Shares voted "Against" ...................................... 6,701 5,527
Shares voted "Abstain" ...................................... 212,179 22,801
To amend the fundamental restriction concerning other
investment companies:
Shares voted "For" .......................................... N/A N/A
Shares voted "Against" ...................................... N/A N/A
Shares voted "Abstain" ...................................... N/A N/A
To amend the fundamental restriction concerning illiquid
securities:
Shares voted "For" .......................................... N/A N/A
Shares voted "Against" ...................................... N/A N/A
Shares voted "Abstain" ...................................... N/A N/A
To amend the fundamental restriction concerning options:
Shares voted "For" .......................................... N/A N/A
Shares voted "Against" ...................................... N/A N/A
Shares voted "Abstain" ...................................... N/A N/A
To amend the fundamental restriction concerning
investment in equity securities:
Shares voted "For" .......................................... N/A N/A
Shares voted "Against" ...................................... N/A N/A
Shares voted "Abstain" ...................................... N/A N/A
To amend the fundamental restriction concerning
investment in restricted securities:
Shares voted "For" .......................................... N/A N/A
Shares voted "Against" ...................................... N/A N/A
Shares voted "Abstain" ...................................... N/A N/A
<CAPTION>
Missouri New Jersey New York Pennsylvania
Fund Fund Fund Fund
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
To amend the fundamental restriction concerning
investment in federally tax exempt securities:
Shares voted "For" .......................................... 1,295,088 3,310,503 1,324,832 3,191,933
Shares voted "Against" ...................................... 75,182 99,760 37,261 107,588
Shares voted "Abstain" ...................................... 140,991 201,781 115,492 232,011
To amend the fundamental restriction concerning control
or management:
Shares voted "For" .......................................... 1,295,572 3,310,503 1,327,265 N/A
Shares voted "Against" ...................................... 74,697 99,760 34,828 N/A
Shares voted "Abstain" ...................................... 140,992 201,781 115,495 N/A
To amend the fundamental restriction concerning margin
purchases:
Shares voted "For" .......................................... 1,295,572 3,310,503 1,327,265 3,181,407
Shares voted "Against" ...................................... 74,697 99,760 34,828 118,114
Shares voted "Abstain" ...................................... 140,992 201,781 115,495 232,011
To amend the fundamental restriction concerning oil, gas
or other mineral exploration or development program:
Shares voted "For" .......................................... 1,295,572 N/A 1,327,265 N/A
Shares voted "Against" ...................................... 74,697 N/A 34,828 N/A
Shares voted "Abstain" ...................................... 140,992 N/A 115,495 N/A
To amend the fundamental restriction concerning state tax
exempt securities:
Shares voted "For" .......................................... 1,296,077 N/A 1,327,265 3,192,641
Shares voted "Against" ...................................... 74,697 N/A 34,828 117,114
Shares voted "Abstain" ...................................... 140,487 N/A 115,495 221,777
To amend the fundamental restriction concerning other
investment companies:
Shares voted "For" .......................................... N/A N/A N/A 3,181,407
Shares voted "Against" ...................................... N/A N/A N/A 118,114
Shares voted "Abstain" ...................................... N/A N/A N/A 232,011
To amend the fundamental restriction concerning illiquid
securities:
Shares voted "For" .......................................... N/A N/A N/A 3,181,407
Shares voted "Against" ...................................... N/A N/A N/A 118,114
Shares voted "Abstain" ...................................... N/A N/A N/A 232,011
To amend the fundamental restriction concerning options:
Shares voted "For" .......................................... N/A 3,310,503 N/A N/A
Shares voted "Against" ...................................... N/A 99,760 N/A N/A
Shares voted "Abstain" ...................................... N/A 201,781 N/A N/A
To amend the fundamental restriction concerning
investment in equity securities:
Shares voted "For" .......................................... N/A 3,310,503 N/A N/A
Shares voted "Against" ...................................... N/A 99,760 N/A N/A
Shares voted "Abstain" ...................................... N/A 201,781 N/A N/A
To amend the fundamental restriction concerning
investment in restricted securities:
Shares voted "For" .......................................... N/A 3,310,503 N/A N/A
Shares voted "Against" ...................................... N/A 99,760 N/A N/A
Shares voted "Abstain" ...................................... N/A 201,781 N/A N/A
</TABLE>
65
<PAGE>
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Funds have designated
the following per share amounts as long-term 28% capital
gain distributions and long-term 20% capital gain distributions for the fiscal
year ended March 31, 1998:
<TABLE>
<CAPTION>
Per Share Aggregate
28% 20% 28% 20%
----------- ----------- ----- -----------
<S> <C> <C> <C> <C>
New Jersey Fund ......... $ 0.000 $ 0.085 $0 $408,091
New York Fund ........... 0.000 0.062 0 149,653
</TABLE>
For the fiscal year ended March 31, 1998, the following percentages represent
the portion of dividends from net investment income which
are exempt from federal income tax, other than alternative minimum tax:
<TABLE>
<S> <C>
California Fund ............ 98.23%
Connecticut Fund ........... 99.90%
Massachusetts Fund ......... 98.96%
Missouri Fund .............. 99.77%
New Jersey Fund ............ 99.95%
New York Fund .............. 99.94%
Pennsylvania Fund .......... 99.66%
</TABLE>
66
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Evergreen Fund
Omega Fund
Small Company Growth Fund
Strategic Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
International Equity Fund
Global Opportunities Fund
Natural Resources Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800-346-3858
Investor Services
800-343-2898
Retirement Plan Services
800-247-4075
www.evergreenfunds.com
543688 RV0 5/98
BULK RATE
U.S. POSTAGE
PAID
CHARLOTTE, NC
PERMIT NO. 136
[Logo]
Evergreen Funds
201 South College St.
Charlotte, NC 28288
Evergreen
Balanced
Funds
March 31, 1998
Annual Report
<PAGE>
EVERGREEN FUNDS
EVERGREEN INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116-5034
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, D.C.
Attn: File Room
Re: Evergreen State Municipal Bond Funds
File No. 811-08367
CIK # 0001046399
CCC # t8pfun*i
Commissioners:
Please be advised that the Annual Report for the above referenced Fund(s) were
submitted to your office on May 22, 1998, via electronic transmission (EDGAR).
Any questions or comments about this document should be directed to the
undersigned at (617) 210-3258.
Very Truly Yours,
/s/ Laura Yong
Laura Yong
Assistant Vice President
<PAGE>
Evergreen
State Municipal
Bond Funds
September 30, 1998
Semiannual Report
[ARTWORK APPEARS HERE]
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders .................................................... 1
Evergreen California Tax Free Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Connecticut Municipal
Bond Fund
Fund at a Glance ....................................................... 4
Portfolio Manager Interview ............................................ 5
Evergreen Massachusetts Tax Free Fund
Fund at a Glance ....................................................... 6
Portfolio Manager Interview ............................................ 7
Evergreen Missouri Tax Free Fund
Fund at a Glance ....................................................... 8
Portfolio Manager Interview ............................................ 9
Evergreen New Jersey Tax Free
Income Fund
Fund at a Glance ....................................................... 10
Portfolio Manager Interview ............................................ 11
Evergreen New York Tax Free Fund
Fund at a Glance ....................................................... 12
Portfolio Manager Interview ............................................ 13
Evergreen Pennsylvania Tax Free Fund
Fund at a Glance ....................................................... 14
Portfolio Manager Interview ............................................ 15
Financial Highlights
Evergreen California Tax Free Fund ..................................... 16
Evergreen Connecticut Municipal Bond Fund .............................. 18
Evergreen Massachusetts Tax Free Fund .................................. 20
Evergreen Missouri Tax Free Fund ....................................... 22
Evergreen New Jersey Tax Free Income Fund .............................. 24
Evergreen New York Tax Free Fund ....................................... 27
Evergreen Pennsylvania Tax Free Fund ................................... 29
Schedule of Investments
Evergreen California Tax Free Fund ..................................... 31
Evergreen Connecticut Municipal Bond Fund .............................. 33
Evergreen Massachusetts Tax Free Fund .................................. 36
Evergreen Missouri Tax Free Fund ....................................... 37
Evergreen New Jersey Tax Free Income Fund .............................. 39
Evergreen New York Tax Free Fund ....................................... 44
Evergreen Pennsylvania Tax Free Fund ................................... 46
Statements of Assets and Liabilities ...................................... 52
Statements of Operations .................................................. 53
Statements of Changes in Net Assets ....................................... 54
Combined Notes to Financial
Statements ................................................................ 56
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
--------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
--------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
November 1998
[PHOTO WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
We are pleased to provide you the Evergreen State Municipal Bond Funds
semiannual report covering the six-month period ended September 30, 1998.
Market Volatility
The financial markets have certainly experienced volatility in the past few
months. After a five-year period of unprecedented growth, the stock market
peaked on July 17, 1998, when prices were at historic highs relative to
benchmarks such as corporate profits and dividends. Since that point, fears of
foreign currency devaluations, political turbulence and instability abroad have
produced an uncertain market. Through September, the market all but lost its
year-to-date gains, and then in October was on the rise, nearing the levels of
July's peak. We encourage you to take this opportunity to review your investment
time horizon and ensure you are on track with your goals. We also encourage you
to consider an invaluable strategy of investing during uncertain times: Dollar
Cost Averaging./1/ By investing a little at a time in regular intervals, you can
remain focused on your investment goals while not worrying about predicting
market trends. Contact your investment representative or call us at 800.343.2898
to start your Systematic Investment Plan today.
Year 2000/2/
The year 2000 is nearly upon us, and unlike some we are looking forward to it.
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. We believe that for Evergreen shareholders, the
transition into the next millennium should be seamless, with virtually no impact
---------
on the products and services you receive from us.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
/1/ This type of plan does not assure a profit or protect against loss in a
-----------------------------------------------------------------------
declining market.
----------------
/2/ The information above constitutes Year 2000 readiness disclosure.
----------------------------------------------------------------
/3/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
Some portion of the funds' income may be subject to the Federal Alternative
- ---------------------------------------------------------------------------
Minimum Tax
- -----------
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax Free Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $26,779,917
..............................................................................
Average Credit Quality AAA
..............................................................................
Average Maturity 17.8 years
..............................................................................
Average Duration 8.4 years
..............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
The Lehman Brothers California Municipal Bond Index includes investment-grade
California Municipal bonds.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI and LBCAMBI are unmanaged indices. These indices
do not include transaction costs associated with buying and selling securities
or any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 2/1/94 2/1/94 2/1/94
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -0.06% -0.45% 3.66%
................................................................................
6 months w/o sales charge 4.93% 4.55% 4.66%
................................................................................
1 year with sales charge 3.88% 3.38% 7.39%
................................................................................
1 year w/o sales charge 9.06% 8.38% 8.39%
................................................................................
3 years 6.19% 6.28% 7.16%
................................................................................
Since Inception 4.68% 4.76% 5.08%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 3.83% 3.28% 3.28%
................................................................................
Taxable Equivalent Yield* 6.34% 5.43% 5.43%
................................................................................
6-month distributions per share $0.21 $0.18 $0.18
................................................................................
Lipper Ranking out of 26 California Insured #7 #15 #14
Municipal Debt Funds/1/
(for the 1 year period ending 9/30/98)
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/ Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect of
a sales charge. Past performance is no guarantee of future results.
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
CPI LBMBI Class A LBCAMBI
Feb 3, 94 10,000 10,000 9,525 10,000
Sep 30, 94 10,219 9,512 9,089 9,424
Sep 30, 95 10,479 10,576 9,847 10,514
Sep 30, 96 10,793 11,215 10,475 11,228
Sep 30, 97 11,026 12,226 11,350 12,274
Sep 30, 98 11,190 13,217 12,377 14,245
Comparison of a $10,000 investment in Evergreen California Tax Free Fund Class
A, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), the Lehman Brothers California Municipal Bond Index (LBCAMBI), and the
Consumer Price Index (CPI).
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
-------------------------------------------
[PHOTO OF GEORGE KIMBALL, CFA APPEARS HERE]
George Kimball, CFA
Tenure: January 1996
Your Fund's Class A shares produced a total return of 4.93%, unadjusted for
sales charge, for the six months ended September 30, 1998. This performance
outpaced the average return of 4.68% generated by the California insured
municipal funds followed by Lipper Analytical Services, Inc./1/
The market for California municipal bonds remained positive over the past six
months. Citing the state's well established, broad based economy and continued
improvement in California's fiscal health, Moody's Investors' Services upgraded
the ratings on over $20 billion in the state's municipal bonds, shortly after
the close of the reporting period. Of particular note, the state's general
obligation bonds were upgraded from Aa3 to Aa1.
In this environment, we focused the Fund's investment strategies on increasing
the potential for both total return and yield. We kept the Fund's duration
somewhat longer than that of its competitive group, emphasizing bonds in the
20-year maturity range. A longer duration made the Fund more sensitive to
changes in interest rates, a benefit as interest rates fell and bond prices
rose. As of September 30, 1998, your Fund's average maturity stood at 17.8 years
and its duration was 8.4 years.
To increase yield, we reduced the Fund's AAA-rated position and raised its
investment in uninsured holdings. We primarily selected bonds rated A and some
non-rated bonds. Although bonds may not be rated by one of the major rating
agencies, the securities undergo a rigorous research process by our analysts
prior to investment and are closely monitored once they are positioned in the
portfolio. We also maintained an emphasis on securities that are subject to the
alternative minimum tax (AMT), which provided an attractive yield advantage to
non-AMT bonds.
Going forward, our outlook for California municipal bonds is positive. As of the
end of the Fund's fiscal period, municipal bonds were extremely "cheap" compared
to U.S. Treasuries and, in our opinion, represented very attractive relative
value. Additionally, we expect both a favorable interest rate environment at the
national level, and solid economic and fiscal conditions in California to help
create solid returns for municipal bond investors in the coming months.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
Lease Rental Bonds/Municipal Leases - 21.8%
Housing - 17.5%
Special Feature Revenue - 16.5%
Hospitals/Healthcare - 12.5%
Other investments and other assets and liabilities, net - 9.5%
General Obligation Notes/Bonds - 7.9%
Airport - 4.3%
Industrial Development/Pollution Control - 3.9%
Utility 3.8%
Education - 2.3%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA - 86.2%
A - 6.8%
Not rated - 5.0%
BBB - 2.0%
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Municipal Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $ 71,672,914
................................................................................
Average Credit Quality AA
................................................................................
Average Maturity 12.7 years
................................................................................
Average Duration 7.7 years
................................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class Y performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was January 31, 1981.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. The return of Class Y since its commencement of class
operations was 8.83%. The common trust fund was not registered under the
Investment Company Act of 1940 (the "1940 Act") or subject to certain investment
restrictions that are imposed by the 1940 Act. If the common trust fund had been
registered under the 1940 Act, its performance may have been adversely affected.
The LBMBI is an unmanaged index and does not include transaction costs
associated with buying and selling securities or any management fees. The CPI is
a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Inception Date 1/31/81
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge n/a
................................................................................
6 months w/o sales charge 4.96%
...............................................................................
1 year with sales charge n/a
................................................................................
1 year w/o sales charge 8.10%
................................................................................
5 years 5.28%
...............................................................................
10 years 6.24%
................................................................................
Since Inception 7.28%
................................................................................
Maximum Sales Charge n/a
................................................................................
30-day SEC Yield 3.98%
................................................................................
Taxable Equivalent* 6.59%
................................................................................
6-month distribution per share $0.14
...............................................................................
* Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
Note: No annual performance data is available for Class A and Class B shares;
their inception dates were 12/30/97 and 1/9/98, respectively.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI LBMBI Class Y
---- --- ----- -------
9/30/88 $10,000 $10,000 $10,000
9/30/89 $10,434 $10,868 $10,634
9/30/90 $11,077 $11,609 $11,182
9/30/91 $11,452 $13,139 $12,339
9/30/92 $11,795 $14,513 $13,301
9/30/93 $12,112 $16,362 $14,167
9/30/94 $12,471 $15,963 $14,050
9/30/95 $12,788 $17,748 $15,168
9/30/96 $13,172 $18,820 $15,804
9/30/97 $13,456 $20,517 $16,953
9/30/98 $13,656 $22,029 $18,326
Comparison of a $10,000 investment in Evergreen Connecticut Municipal Bond Fund
Class Y, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), and the Consumer Price Index (CPI).
Class Y shares represent an Institutional class of shares which has a lower
expense ratio than Class A and Class B shares. Returns in Class A and B shares
would be lower.
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
--------------------------------------
[PHOTO OF JOCELYN TURNER APPEARS HERE]
Jocelyn Turner
Tenure: November 1997
&
Joseph R. Baxter
Tenure: November 1998*
Despite a volatile period for fixed income investors, the Evergreen Connecticut
Municipal Bond Fund's Class A, B, and Y shares returned 4.83%, 4.44%, and 4.96%,
respectively, unadjusted for sales charges, for the six months ended September
30, 1998. Strong performance was fueled by adjustments made in early 1998 when
we structured the portfolio to emphasize non-callable securities. As interest
rates steadily declined during the year, prompting many issuers to "call" their
bonds and reissue to take advantage of lower rates, our portfolio remained
safeguarded due to our heavy exposure to bonds with non-callable features. Also
adding to performance was the decision to keep duration neutral to modestly
long, relative to our benchmark. Looking ahead, we anticipate maintaining an
emphasis on non-callable issues and will continue to monitor the market for
opportunities which will increase the Fund's current yield and enhance total
return.
* Effective November 1998, Joseph R. Baxter (not pictured) is co-managing the
Fund. Mr. Baxter has 14 years of institutional investment experience and has
been with Evergreen Funds since April 1998. Prior to that he was Head of the Tax
Advantaged Unit at Corestates Investment Advisers from 1990-1998.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
General Obligation Notes/Bonds -- 39.9%
Hospitals/Healthcare -- 22.7%
Other investments and other assets and liabilities, net -- 12.9%
Transportation -- 4.9%
Water & Sewer -- 4.8%
Education -- 3.9%
Escrow -- 2.9%
Housing -- 2.8%
Lease Rental Bonds/Municipal Leases -- 2.8%
Industrial Development/Pollution Control -- 2.4%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 60.8%
AA -- 19.1%
A -- 12.6%
BBB -- 6.0%
Not rated -- 1.5%
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $ 9,684,171
...............................................................................
Average Credit Quality AA
................................................................................
Average Maturity 21.1 years
................................................................................
Average Duration 8.6 years
...............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
The Lehman Brothers Massachusetts Municipal Bond Index includes investment-grade
Massachusetts Municipal bonds.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI and the LBMMBI are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities or any management fees. The CPI is a commonly used measure of
inflation and does not represent an investment return. It is not possible to
invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 2/4/94 2/4/94 2/4/94
................................................................................
Average Annual Returns
6 months with sales charge -0.93% -1.16% 2.95%
...............................................................................
6 months w/o sales charge 4.01% 3.84% 3.95%
................................................................................
1 year with sales charge 2.84% 2.41% 6.41%
................................................................................
1 year w/o sales charge 7.97% 7.41% 7.41%
................................................................................
3 years 5.58% 5.64% 6.57%
................................................................................
Since Inception 4.11% 4.16% 4.50%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 3.97% 3.43% 3.43%
................................................................................
Taxable Equivalent** 6.57% 5.68% 5.68%
................................................................................
6-month distributions per share $0.22 $0.18 $0.18
................................................................................
Lipper Ranking out of 57 #33 #44 #43
Massachusetts Municipal Debt Funds/1/
(for the 1 year period ending 9/30/98)
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/ Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect
of a sales charge. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBMBI Class A LBMAMBI
2/3/94 10,000 10,000 9,525 10,000
9/30/94 10,219 9,512 8,903 9,520
9/30/95 10,479 10,576 9,764 10,647
9/30/96 10,793 11,215 10,174 11,243
9/30/97 11,026 12,226 11,174 12,247
9/30/98 11,190 13,217 12,051 13,334
Comparison of a $10,000 investment in Evergreen Massachusetts Tax Free Fund
Class A, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), the Lehman Brothers Massachusetts Municipal Bond Index (LBMAMBI), and
the Consumer Price Index (CPI).
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
MASSACHUSETTS TAX FREE FUND
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
-------------------------------------------
[PHOTO OF GEORGE KIMBALL, CFA APPEARS HERE]
George Kimball, CFA
Tenure: January 1996
Your Fund's Class A shares produced a total return of 4.01%, unadjusted for
sales charges, for the six months ended September 30, 1998. This performance
slightly lagged the average total return of 4.24% generated by the Massachusetts
municipal debt category followed by Lipper Analytical Services, Inc., an
independent monitor of mutual fund performance.
We attribute this modest underperformance to the fact that the Fund had been
positioned to be less sensitive to interest rate changes at the beginning of the
reporting period. At that time, the Fund would have benefited from a greater
sensitivity because interest rates had just begun to fall and bond prices began
to rise. We increased the Fund's sensitivity to changes in interest rates
shortly thereafter, improving both total return and relative performance as the
reporting period progressed.
Massachusetts municipal bondholders continued to benefit from the state's strong
economy, sound financial conditions and manageable supply of tax-exempt bonds
over the past six months. The state's unemployment rate also remained lower than
the national average.
We centered our investment strategies on enhancing total return and maintaining
yield as interest rates declined. We increased total return potential by keeping
the Fund's duration somewhat longer than that of its competitive group.
Expressed in years, duration measures a fund's sensitivity to changes in
interest rates. The longer a fund's duration, the greater its sensitivity to
interest rate changes. We primarily invested in higher quality bonds in the
twenty-year maturity range to reach our targeted duration. As of September 30,
1998, the Fund's duration stood at 8.6 years and its average maturity was 21.1
years.
To help insulate the Fund's yield from declining rates, we sold some
lower-yielding, AAA-rated positions and reinvested assets in higher yielding
bonds rated A and BBB. We also increased higher quality holdings in the Higher
Education sector and reduced the Fund's position in lower quality Hospital
bonds. The Fund's average credit quality was AA, as of the end of the reporting
period.
Our outlook for Massachusetts municipal bonds is favorable. We expect minimal
inflation and slower economic growth to keep interest rates low at the national
level. In Massachusetts, we anticipate continued positive trends in both the
state economy and fiscal operations, as well as an abundant supply of bonds.
Further, as of September 30, 1998, municipal bonds were exceptionally "cheap"
compared to U.S. Treasuries, based on historical levels. In our opinion, the
combination of attractive relative value, abundant supply and positive economic
and fiscal conditions bodes well for total return potential.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
General Obligation Notes/Bonds -- 45.5%
Industrial Development/Pollution Control -- 20.0%
Education -- 12.0%
Hospitals/Healthcare -- 8.8%
Water & Sewer -- 6.0%
Housing -- 3.4%
Utility -- 2.3%
Transportation -- 1.9%
Other Investments and other assets and liabilities, net -- 0.1%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 64.2%
BBB -- 14.1%
AA -- 13.9%
Not Rated -- 7.8%
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $25,249,295
..............................................................................
Average Credit Quality AA
..............................................................................
Average Maturity 18.7 years
..............................................................................
Average Duration 7.5 years
..............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives and
certificates of participation are excluded.
The Lehman Brothers Missouri Municipal Bond Index includes investment-grade
Missouri Municipal bonds.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI and the LBMMBI are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities or any management fees. The CPI is a commonly used measure of
inflation and does not represent an investment return. It is not possible to
invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 2/1/94 2/1/94 2/1/94
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -1.16% -1.30% 2.80%
................................................................................
6 months w/o sales charge 3.77% 3.70% 3.80%
................................................................................
1 year with sales charge 2.63% 2.30% 6.29%
................................................................................
1 year w/o sales charge 7.75% 7.30% 7.29%
................................................................................
3 years 5.85% 6.05% 6.96%
...............................................................................
Since Inception 4.93% 4.93% 5.26%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 4.25% 3.72% 3.72%
................................................................................
Taxable Equivalent** 7.04% 6.16% 6.16%
................................................................................
6-month distributions per share $0.24 $0.20 $0.20
................................................................................
Lipper Ranking out of 23 #11 #18 #18
Missouri Municipal Debt Funds/1/
+(for the 1 year period ending 9/30/98)
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/ Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect of
a sales charge. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBMBI Class A LBMOMBI
2/3/94 10,000 10,000 9,525 10,000
9/30/94 10,219 9,512 9,179 9,476
9/30/95 10,479 10,576 10,050 10,538
9/30/96 10,793 11,215 10,606 11,178
9/30/97 11,026 12,226 11,615 12,122
9/30/98 11,190 13,217 12,515 13,099
Comparison of a $10,000 investment in Evergreen Missouri Tax Free Fund Class A
shares, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), the Lehman Brothers Missouri Municipal Bond Index (LBMOMBI), and the
Consumer Price Index (CPI).
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
-------------------------------------------
[PHOTO OF GEORGE KIMBALL, CFA APPEARS HERE]
George Kimball, CFA
Tenure: January 1996
Your Fund's Class A shares produced a total return of 3.77%, unadjusted for
sales charge, for the six months ended September 30, 1998. This performance
slightly lagged the average return of 3.98% generated by the Missouri municipal
funds followed by Lipper Analytical Services, Inc., an independent monitor of
mutual fund performance.
We attribute this modest underperformance to the fact that the Fund had been
positioned to be less sensitive to interest rate changes at the beginning of the
reporting period. At that time, the Fund would have benefited from a greater
sensitivity to changes in interest rates, because interest rates had just begun
to fall and bond prices began to rise. We increased the Fund's sensitivity to
changes in interest rates shortly thereafter, improving total return as the
reporting period progressed.
Missouri municipal bondholders continued to benefit from the state's sound,
diversified economy, strong fiscal management and favorable supply and demand
factors. Missouri's growth in employment and personal income outpaced its
national counterparts over the past six months. There was some weakness in the
state's manufacturing sector; however, it was largely offset by strength in
trade and services. Missouri also continued to exhibit considerable fiscal
strength. In addition to the state maintaining low per capita debt, residents
benefited from tax reductions during the reporting period.
We structured the Fund to build total return potential and maintain yield, in
light of the declining interest rate environment. We kept the Fund's duration
slightly longer than that of its competitive group by investing in bonds in the
20-year maturity range. Expressed in years, duration measures a portfolio's
sensitivity to changes in interest rates. The longer a fund's duration, the more
sensitive it is to interest rate changes. This strategy benefited the Fund when
interest rates fell and bond prices rose. As of September 30, 1998, the Fund's
duration was 7.5 years and its average maturity was 18.7 years.
We helped protect yield from falling interest rates by reducing the Fund's lower
yielding AA-rated positions and increasing holdings in both BBB-rated bonds and
in securities that were non-rated. The Fund also maintained a heavy weighting in
the Health and Hospitals sector, which typically provides more generous yields.
The Fund's average quality stood at AA, as of September 30, 1998.
Looking ahead, we anticipate a favorable interest rate climate at the national
level and expect many of the positive trends we have witnessed in the Missouri
municipal bond market to continue. We believe the state's limited supply of
tax-exempt bonds, combined with steady demand, will support prices in the coming
months.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
Hospitals/Healthcare -- 24.4%
Lease Rental Bonds/Municipal Leases -- 21.1%
Housing -- 13.2%
Water & Sewer -- 11.9%
Utility -- 10.2%
Education -- 9.1%
Transportation -- 4.7%
General Obligation Notes/Bonds -- 4.4%
Other investments and other assets and liabilities, net -- 1.0%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 54.3%
A -- 15.5%
AA -- 13.4%
BBB -- 9.5%
Not rated -- 7.3%
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEEN
New Jersey Tax Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $169,805,709
..............................................................................
Average Credit Quality AA
..............................................................................
Average Maturity 24.7 years
..............................................................................
Average Duration 8.9 years
..............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives and
certificates of participation are excluded.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI is an unmanaged index. The index does not include
transaction costs associated with buying and selling securities or any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
Inception Date 7/16/91 1/30/96 2/8/96
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge 0.16% (0.32%) n/a
................................................................................
6 months w/o sales charge 5.15% 4.68% 5.20%
................................................................................
1 year with sales charge 3.87% 3.07% n/a
................................................................................
1 year w/o sales charge 9.05% 8.07% 9.15%
...............................................................................
5 years 4.65% -- --
................................................................................
Since Inception 6.79% 4.52% 6.33%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
30-day SEC Yield 4.08% 3.38% 4.38%
................................................................................
Taxable Equivalent** 6.75% 5.60% 7.25%
................................................................................
6-month distributions per share $0.25 $0.20 $0.26
................................................................................
Lipper Ranking out of 58 New Jersey #8 #30 #6
Municipal Debt Funds/1/
(for the 1 year period ending 9/30/98)
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect of
a sales charge. For the 5-year period ended 9/30/98, the Fund's Class A shares
ranked 8 out of the 26 New Jersey Municipal Debt Funds tracked by Lipper. Past
performance is no guarantee of future results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBMBI Class A
7/31/91 10,000 10,000 9,525
9/30/92 10,374 11,337 10,713
9/30/93 10,653 12,781 12,161
9/30/94 10,969 12,469 11,782
9/30/95 11,248 13,864 12,972
9/30/96 11,586 14,702 13,697
9/30/97 11,836 16,027 14,696
9/30/98 12,012 17,208 16,026
Comparison of a $10,000 investment in Evergreen New Jersey Tax Free Income Fund,
Class A shares, versus a similar investment in the Lehman Brothers Municipal
Bond Index (LBMBI) and the Consumer Price Index (CPI).
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
--------------------------------------
[PHOTO OF JOCELYN TURNER APPEARS HERE]
Jocelyn Turner
Tenure: November 1992
&
Joseph R. Baxter
Tenure: November 1998*
For the first half of the fiscal year, the Fund's Class A shares posted a 5.15%
total return, unadjusted for sales charge. During the past 12 months, the Fund's
Class Y shares ranked 6 out of 58 New Jersey municipal debt funds tracked by
Lipper Analytical Services./1/ Strong relative performance can be attributed to
a favorable duration stance that was increased from 8.6 years to 8.9 years
during the six months. From a security selection standpoint, we are emphasizing
issues with non-callable features, a move that will serve to reduce the Fund's
exposure to prepayment risk. The portfolio's average quality was kept at
relatively high levels due to increasingly narrow spreads, which have reduced
the attractiveness of lower quality issues. Also noteworthy is the fact that the
Fund underwent a merger with the CoreFund New Jersey Municipal Bond Fund during
the six months; a transition which was seamless and increased net assets by over
$20 million.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
General Obligation Notes/Bonds -- 23.4%
Other investments and other assets and liabilities, net -- 22.8%
Transportation -- 16.2%
Hospitals/Healthcare -- 13.4%
Water & Sewer -- 12.9%
Education -- 4.3%
Escrow -- 2.9%
Industrial Development/Pollution Control -- 2.8%
Lease Rental Bonds/Municipal Leases -- 1.3%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 63.7%
AA -- 22.3%
BBB -- 5.3%
A -- 4.6%
Not rated -- 4.1%
* Effective November 1998, Joseph R. Baxter (not pictured) is co-managing the
Fund. Mr. Baxter has 14 years of institutional investment experience and has
been with Evergreen Funds since April 1998. Prior to that he was Head of the Tax
Advantaged Unit at Corestates Investment Advisers from 1990-1998.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $21,292,308
..............................................................................
Average Credit Quality AAA
..............................................................................
Average Maturity 20.3 years
..............................................................................
Average Duration 8.2 years
..............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE /1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990 and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
The Lehman Brothers New York Municipal Bond Index includes investment-grade New
York Municipal bonds.
Past performance is not guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost, The LBMBI and the LBNYMBI are unmanaged indices. These
indices do not include transaction costs associated with buying and selling
securities or any management fees. The CPI is a commonly used measure of
inflation and does not represent an investment return. It is not possible to
invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 2/4/94 2/4/94 2/4/94
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -0.26% -0.66% 3.44%
................................................................................
6 months w/o sales charge 4.71% 4.34% 4.44%
................................................................................
1 year with sales charge 3.11% 2.59% 6.59%
...............................................................................
1 year w/o sales charge 8.25% 7.59% 7.59%
................................................................................
3 years 5.98% 6.06% 6.94%
................................................................................
Since Inception 5.00% 5.00% 5.34%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 3.98% 3.44% 3.44%
................................................................................
Taxable Equivalent** 6.59% 5.70% 5.70%
................................................................................
6-month distributions per share $0.23 $0.19 $0.19
................................................................................
Lipper Ranking out of 15 New York #3 #7 #7
Insured Funds/1/
(for the 1 year period ending 9/30/98)
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect of
a sales charge. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBMBI Class A LBNYMBI
2/1/94 10,000 10,000 9,525 10,000
9/30/94 10,219 9,512 9,096 9,551
9/30/95 10,479 10,576 10,043 10,565
9/30/96 10,793 11,215 10,617 11,253
9/30/97 11,026 12,226 11,596 12,333
9/30/98 11,190 13,217 12,554 13,458
Comparison of a $10,000 investment in Evergreen New York Tax Free Fund Class A,
versus a similar investment in the Lehman Brothers Municipal Bond Index (LBMBI),
the Lehman Brothers New York Municipal Bond Index (LBNYMBI), and the Consumer
Price Index (CPI).
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
-------------------------------------------
[PHOTO OF GEORGE KIMBALL, CFA APPEARS HERE]
George Kimball, CFA
Tenure: January 1996
For the six months ended September 30, 1998, your Fund's Class A shares produced
a total return of 4.71%, unadjusted for sales charge. This performance surpassed
the 4.25% average return generated by the insured New York municipal funds
followed by Lipper Analytical Services Inc.
The market for New York municipal bonds remained favorable during the reporting
period. The state's employment rate outpaced that of the nation and fiscal
operations continued to improve. New York's healthy financial conditions
prompted tax cuts for its residents. There was good news in New York City, as
well. New York City posted a budget surplus, benefiting from rising tax revenues
largely generated by Wall Street activity.
Supply in New York municipal bonds continued to be plentiful. The Long Island
Power Authority (LIPA) brought $6.5 billion in bonds to market during the
reporting period, the biggest transaction ever to occur in either the taxable or
tax-exempt sector. The deal's large size caused it to be priced attractively.
The Fund's LIPA holdings - which amounted to approximately 5% of net assets -
became some of the best performing bonds in the portfolio over the past six
months.
In this environment, our investment strategies focused on building yield and
total return potential, while maintaining an average quality rating of AAA. We
increased yield by selling some of the Fund's lower yielding, AAA-rated
positions and maximizing the Fund's holdings in uninsured securities. We
primarily selected bonds rated AA and A. We boosted the potential for total
return by focusing on securities with maturities in the 20-year range, which
benefited the Fund when interest rates declined. As of September 30, 1998, your
Fund's average maturity stood at 20.3 years.
Going forward, we will closely monitor fiscal conditions in New York - and
particularly New York City - in light of recent fluctuations in the stock
market. We also expect New York municipal bonds to provide attractive relative
value. As of the close of the Fund's reporting period, municipal bonds were
exceptionally "cheap" compared to U.S. Treasuries, based on historical
relationships. Further, we anticipate an abundant supply of New York municipal
bonds over the next six months. In our opinion, this combination should create a
broad selection of attractively priced bonds.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
General Obligation Notes/Bonds -- 26.5%
Water & Sewer -- 14.9%
Hospitals/Healthcare -- 13.5%
Housing -- 11.5%
Transportation -- 10.6%
Other investments and other assets and liabilities, net -- 9.0%
Education -- 5.2%
Utility -- 4.8%
Airport -- 2.8%
Lease Rental Bonds/Municipal Leases -- 1.2%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 59.3%
AA -- 16.0%
A -- 13.4%
BBB -- 10.2%
BB -- 0.8%
B -- 0.3%
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Portfolio
Characteristics
---------------
Total Net Assets $248,740,410
..............................................................................
Average Credit Quality AA
..............................................................................
Average Maturity 15.6 years
..............................................................................
Average Duration 8.9 years
..............................................................................
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BBB, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI is an unmanaged index. The index does not include
transaction costs associated with buying and selling securities or any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 12/27/90 2/1/93 2/1/93 11/24/97
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -0.49% -0.81% -3.10% n/a
...............................................................................
6 months w/o sales charge 4.47% 4.19% 4.10% 4.60%
................................................................................
1 year with sales charge 2.82% 2.27% 6.26% n/a
................................................................................
1 year w/o sales charge 7.95% 7.27% 7.26% -
................................................................................
5 years 4.32% 4.25% 4.58% -
................................................................................
Since Inception 7.63% 5.77% 5.91% 8.57%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
...............................................................................
30-day SEC Yield 4.10% 3.56% 3.56% 4.55%
................................................................................
Taxable Equivalent** 6.79% 5.89% 5.89% 7.53%
................................................................................
6-month distributions per share $0.26 $0.21 $0.21 $0.27
...............................................................................
Lipper Ranking out of 60 Pennsylvania #28 #45 #46 n/a
Municipal Debt Funds/1/
(for the 1 year period ending 9/30/98)
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
/1/Source: Lipper Analytical Services, Inc., an independent mutual fund rating
company. The rankings are based on total return and do not include the effect of
a sales charge. For the 5-year period ended 9/30/98, Class A, B, and C shares
ranked 23, 34, and 35 out of 37 Pennsylvania Municipal Debt Funds. Past
performance is no guarantee of future results.
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Evergreen Pennsylvania
Consumer Lehman Brothers Tax Free Fund
Price Index Municipal Bond Index Class A Shares
----------- -------------------- ----------------------
12/31/90 10,000 10,000 9,525
9/30/91 10,254 10,850 10,651
9/30/92 10,561 11,985 11,849
9/30/93 10,845 13,512 13,645
9/30/94 11,166 13,182 13,078
9/30/95 11,450 14,656 14,229
9/30/96 11,794 15,542 15,033
9/30/97 12,048 16,943 16,399
9/30/98 12,227 18,192 17,703
Comparison of a $10,000 investment in Evergreen Pennsylvania Tax Free Fund Class
A, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI) and the Consumer Price Index (CPI).
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Portfolio
Management
--------------------------------------
[PHOTO OF JOCELYN TURNER APPEARS HERE]
Jocelyn Turner
Tenure: November 1992
&
Joseph R. Baxter
Tenure: November 1998*
Municipal bond investors enjoyed a solid rally over the past six months buoyed
by favorable interest rates and strong cash inflows. Within this environment the
Fund's Class Y shares posted a six-month return of 4.60%. Class A, B, and C
shares returned 4.47%, 4.19%, and 4.10%, respectively, unadjusted for sales
charges. Underlying this solid performance, the portfolio continued to maintain
an emphasis on high quality municipal bonds despite the fact that spreads - or
the difference between yields - between high and lower quality bonds became more
narrow. The decision to keep the Fund's duration, currently at 8.9 years,
neutral to modestly long relative to our benchmark, had a positive impact on
performance. Also noteworthy is the fact that the Fund merged with the CoreFund
Pennsylvania Municipal Bond Fund during the period, a move which increased net
assets by roughly $17 million. In anticipation of the combination, we modestly
extended duration so that, following the merger, the Fund's duration would be at
pre- merger levels. The transition was seamless.
* Effective November 1998, Joseph R. Baxter (not pictured) is co-managing the
Fund. Mr. Baxter has 14 years of institutional investment experience and has
been with Evergreen Funds since April 1998. Prior to that he was Head of the Tax
Advantaged Unit at Corestates Investment Advisers from 1990-1998.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
General Obligation Notes/Bonds -- 19.3%
Other investments and other assets and liabilities, net -- 18.5%
Hospitals/Healthcare -- 15.8%
Escrow -- 10.3%
Transportation -- 9.6%
Industrial Development/Pollution Control -- 8.8%
Education -- 7.7%
Water & Sewer -- 5.6%
Housing -- 2.9%
Airport -- 1.5%
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 9/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 68.7%
AA -- 12.7%
Not Rated -- 9.2%
BBB -- 5.3%
A -- 4.1%
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended February 1, 1994
Ended Year Four Months November 30, (Commencement of
September 30, 1998 Ended Ended -------------- Class Operations) to
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995 November 30, 1994
- -----------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.98 $ 9.44 $ 9.73 $ 9.86 $ 8.70 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.45 0.16 0.48 0.49 0.44
Net gains or losses on
securities (both
realized and
unrealized) 0.27 0.53 (0.28) (0.11) 1.17 (1.30)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.48 0.98 (0.12) 0.37 1.66 (0.86)
------ ------ ------ ------ ------ ------
LESS DIVIDENDS (FROM NET
INVESTMENT INCOME) (0.21) (0.44) (0.17) (0.50) (0.50) (0.44)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $10.25 $ 9.98 $ 9.44 $ 9.73 $ 9.86 $ 8.70
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.93% 10.55% (1.29%) 3.99% 19.63% (8.78%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $6,899 $6,420 $4,192 $4,759 $4,555 $3,006
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.93%(a) 0.78% 0.77%(a) 0.77% 0.72% 0.41%(a)
Expenses, excluding
indirectly paid
expenses 0.92%(a) 0.78% 0.75%(a) 0.75% 0.69% --
Expenses, excluding
waivers and
reimbursements 0.93%(a) 1.03% 1.24%(a) 1.19% 1.31% 1.66%(a)
Net investment income 4.29%(a) 4.60% 4.91%(a) 5.06% 5.37% 5.53%(a)
PORTFOLIO TURNOVER RATE 26% 74% 39% 120% 119% 104%
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended February 1, 1994
Ended Four Months November 30, (Commencement of
September 30, 1998 Year Ended Ended ---------------- Class Operations) to
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995 November 30, 1994
- ------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.94 $ 9.40 $ 9.69 $ 9.82 $ 8.68 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.18 0.37 0.13 0.41 0.44 0.40
Net gains or losses on
securities (both
realized and
unrealized) 0.27 0.53 (0.28) (0.11) 1.17 (1.28)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.45 0.90 (0.15) 0.30 1.61 (0.88)
------- ------- ------- ------- ------- -------
LESS DIVIDENDS (FROM NET
INVESTMENT INCOME) (0.18) (0.36) (0.14) (0.43) (0.47) (0.44)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 10.21 $ 9.94 $ 9.40 $ 9.69 $ 9.82 $ 8.68
------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 4.55% 9.75% (1.54%) 3.23% 18.95% (9.00%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $18,674 $18,967 $21,794 $22,719 $22,743 $11,415
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.67%(a) 1.52% 1.52%(a) 1.52% 1.48% 1.16%(a)
Expenses, excluding
indirectly paid
expenses 1.67%(a) 1.52% 1.50%(a) 1.50% 1.45% --
Expenses, excluding
waivers and
reimbursements 1.68%(a) 1.77% 1.99%(a) 1.94% 2.07% 2.36%(a)
Net investment income 3.54%(a) 3.87% 4.16%(a) 4.31% 4.57% 4.83%(a)
PORTFOLIO TURNOVER RATE 26% 74% 39% 120% 119% 104%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended
Ended Four Months November 30,
September 30, 1998 Year Ended Ended --------------
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.92 $ 9.38 $ 9.68 $ 9.80 $ 8.68
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.18 0.37 0.14 0.41 0.43
Net gains or losses on securities (both realized
and unrealized) 0.28 0.53 (0.30) (0.10) 1.15
------ ------ ------ ------ ------
Total from investment operations 0.46 0.90 (0.16) 0.31 1.58
------ ------ ------ ------ ------
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.18) (0.36) (0.14) (0.43)
(0.46)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.20 $ 9.92 $ 9.38 $ 9.68 $ 9.80
------ ------ ------ ------ ------
TOTAL RETURN (B) 4.66% 9.77% (1.64%) 3.34%
18.69%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $1,207 $1,735 $1,849 $1,521 $1,535
RATIOS TO AVERAGE NET ASSETS
Expenses 1.67%(a) 1.52% 1.52%(a) 1.52%
1.49%
Expenses, excluding indirectly paid
expenses 1.67%(a) 1.52% 1.50%(a) 1.50%
1.46%
Expenses, excluding waivers and
reimbursements 1.68%(a) 1.77% 1.99%(a) 1.94%
2.07%
Net investment income 3.55%(a) 3.87% 4.16%(a) 4.31%
4.51%
PORTFOLIO TURNOVER RATE 26% 74% 39% 120%
119%
<CAPTION>
February 1, 1994
(Commencement of
Class Operations) to
November 30, 1994
- ----------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.39
Net gains or losses on securities (both realized
and unrealized) (1.29)
--------------------
Total from investment operations (0.90)
--------------------
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.42)
--------------------
NET ASSET VALUE, END OF PERIOD $ 8.68
--------------------
TOTAL RETURN (B) (9.08%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $ 624
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16%(a)
Expenses, excluding indirectly paid
expenses --
Expenses, excluding waivers and
reimbursements 2.38%(a)
Net investment income 4.96%(a)
PORTFOLIO TURNOVER RATE 104%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Municipal Bond Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months December 30, 1997
Ended (Commencement of
September 30, 1998 Class Operations) to
(Unaudited) March 31, 1998
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.38 $6.40
----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.13 0.07
Net gains or losses on securities
(both realized and unrealized) 0.16 (0.02)
----- -----
Total from investment operations 0.29 0.05
----- -----
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.13) (0.07)
----- -----
NET ASSET VALUE, END OF PERIOD $6.54 $6.38
----- -----
TOTAL RETURN (B) 4.83% 0.77%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $ 314 $ 146
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%(a) 0.86%(a)
Expenses, excluding indirectly paid
expenses 0.80%(a) 0.85%(a)
Expenses, excluding waivers and
reimbursements 0.92%(a) 1.13%(a)
Net investment income 4.14%(a) 4.38%(a)
PORTFOLIO TURNOVER RATE 26% 17%
</TABLE>
<TABLE>
<CAPTION>
Six Months January 9, 1998
Ended (Commencement of
September 30, 1998 Class Operations) to
(Unaudited) March 31, 1998
- --------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.38 $6.44
------ -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11 0.05
Net gains or losses on securities
(both realized and unrealized) 0.16 (0.06)
------ -----
Total from investment operations 0.27 (0.01)
------ -----
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.11) (0.05)
------ -----
NET ASSET VALUE, END OF PERIOD $ 6.54 $6.38
------ -----
TOTAL RETURN (B) 4.44% (0.21%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $ 435 $ 331
RATIOS TO AVERAGE NET ASSETS
Expenses 1.55%(a) 1.61%(a)
Expenses, excluding indirectly paid
expenses 1.54%(a) 1.60%(a)
Expenses, excluding waivers and
reimbursements 1.66%(a) 1.89%(a)
Net investment income 3.42%(a) 3.36%(a)
PORTFOLIO TURNOVER RATE 26% 17%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Municipal Bond Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months November 24, 1997
Ended (Commencement of
September 30, 1998 Class Operations) to
(Unaudited) March 31, 1998
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.37 $ 6.32
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.14 0.10
Net gains or losses on securities
(both realized and unrealized) 0.17 0.05
------- -------
Total from investment operations 0.31 0.15
------- -------
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.14) (0.10)
------- -------
NET ASSET VALUE, END OF PERIOD $ 6.54 $ 6.37
------- -------
TOTAL RETURN 4.96% 2.39%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $70,923 $67,675
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55%(a) 0.61%(a)
Expenses, excluding indirectly paid
expenses 0.55%(a) 0.60%(a)
Expenses, excluding waivers and
reimbursements 0.66%(a) 0.88%(a)
Net investment income 4.43%(a) 4.50%(a)
PORTFOLIO TURNOVER RATE 26% 17%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ------------------------------ Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- -------------------------------------------------------------------------------------------------
CLASS A SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.76 $ 9.23 $ 9.29 $ 9.19 $ 9.17 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.22 0.45 0.47 0.51 0.53 0.08
Net gains or losses on
securities
(both realized and
unrealized) 0.18 0.50 (0.03) 0.09 0.02 (0.82)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.40 0.95 0.44 0.60 0.55 (0.74)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.22) (0.42) (0.47) (0.48) (0.53) (0.08)
Distributions (from
capital gains) 0 0 (0.03) (0.02) 0 (0.01)
------ ------ ------ ------ ------ ------
Total distributions (0.22) (0.42) (0.50) (0.50) (0.53) (0.09)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.94 $ 9.76 $ 9.23 $ 9.29 $ 9.19 $ 9.17
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.01% 10.50% 4.92% 6.64% 6.23% (7.40%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $2,153 $2,076 $2,063 $1,786 $1,974 $1,472
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.85%(a) 0.77% 0.76% 0.75% 0.46% 0.35%(a)
Expenses, excluding
indirectly paid
expenses 0.85%(a) 0.77% 0.75% 0.74% -- --
Expenses, excluding
waivers and
reimbursements 1.31%(a) 1.26% 1.58% 1.59% 1.93% 3.22%(a)
Net investment income 4.41%(a) 4.64% 5.19% 5.36% 5.90% 5.07%(a)
PORTFOLIO TURNOVER RATE 55% 97% 110% 165% 77% 7%
</TABLE>
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ------------------------------ Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- -------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $ 9.17 $ 9.22 $ 9.15 $ 9.19 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.18 0.36 0.41 0.43 0.48 0.08
Net gains or losses on
securities
(both realized and
unrealized) 0.20 0.51 (0.03) 0.09 (0.01) (0.80)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.38 0.87 0.38 0.52 0.47 (0.72)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.18) (0.35) (0.41) (0.43) (0.47) (0.07)
Distributions (from
capital gains) 0 0 (0.02) (0.02) (0.04) (0.02)
------ ------ ------ ------ ------ ------
Total distributions (0.18) (0.35) (0.43) (0.45) (0.51) (0.09)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $ 9.69 $ 9.17 $ 9.22 $ 9.15 $ 9.19
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 3.84% 9.60% 4.25% 5.77% 5.41% (7.20%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $5,918 $6,384 $7,803 $7,274 $6,169 $1,817
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.60%(a) 1.52% 1.51% 1.49% 1.24% 1.10%(a)
Expenses, excluding
indirectly paid
expenses 1.60%(a) 1.52% 1.50% 1.48% -- --
Expenses, excluding
waivers and
reimbursements 2.04%(a) 2.01% 2.35% 2.38% 2.68% 4.60%(a)
Net investment income 3.66%(a) 3.89% 4.45% 4.60% 5.15% 3.23%(a)
PORTFOLIO TURNOVER RATE 55% 97% 110% 165% 77% 7%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ------------------------------ Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- -------------------------------------------------------------------------------------------------
CLASS C SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.68 $ 9.16 $ 9.22 $ 9.14 $ 9.19 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.18 0.36 0.41 0.43 0.48 0.08
Net gains or losses on
securities
(both realized and
unrealized) 0.21 0.52 (0.04) 0.10 (0.02) (0.80)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.39 0.87 0.37 0.53 0.46 (0.72)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.18) (0.35) (0.41) (0.43) (0.47) (0.07)
Distributions (from
capital gains) 0 0 (0.02) (0.02) (0.04) (0.02)
------ ------ ------ ------ ------ ------
Total distributions (0.18) (0.35) (0.43) (0.45) (0.51) (0.09)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $ 9.68 $ 9.16 $ 9.22 $ 9.14 $ 9.19
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 3.95% 9.62% 4.14% 5.89% 5.20% (7.21%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $1,614 $1,639 $2,066 $2,303 $1,971 $ 369
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.60%(a) 1.54% 1.51% 1.49% 1.23% 1.10%(a)
Expenses, excluding
indirectly paid
expenses 1.60%(a) 1.53% 1.50% 1.48% -- --
Expenses, excluding
waivers and
reimbursements 2.05%(a) 2.02% 2.36% 2.39% 2.68% 4.91%(a)
Net investment income 3.66%(a) 3.94% 4.46% 4.60% 5.11% 4.28%(a)
PORTFOLIO TURNOVER RATE 55% 97% 110% 165% 77% 7%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended February 1, 1994
Ended Year Four Months November 30, (Commencement of
September 30, 1998 Ended Ended -------------- Class Operations) to
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995 November 30, 1994
- ----------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.21 $ 9.64 $ 9.86 $ 9.91 $ 8.72 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.24 (c) 0.46 0.16 0.50 0.50 0.44
Net gains or losses on
securities
(both realized and
unrealized) 0.14 0.58 (0.22) (0.06) 1.19 (1.28)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.38 1.04 (0.06) 0.44 1.69 (0.84)
------ ------ ------ ------ ------ ------
LESS DIVIDENDS (FROM NET
INVESTMENT INCOME) (0.24) (0.47) (0.16) (0.49) (0.50) (0.44)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $10.35 $10.21 $ 9.64 $ 9.86 $ 9.91 $ 8.72
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 3.77% 11.01% (0.57%) 4.66% 19.86% (8.55%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $5,214 $4,897 $2,627 $2,610 $4,848 $3,581
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.86%(a) 0.78% 0.76%(a) 0.76% 0.72% 0.43%(a)
Expenses, excluding
indirectly paid
expenses 0.85%(a) 0.78% 0.75%(a) 0.75% 0.69% --
Expenses, excluding
waivers and
reimbursements 1.17%(a) 1.16% 1.31%(a) 1.22% 1.32% 1.54%(a)
Net investment income 4.67%(a) 4.83% 5.05%(a) 4.93% 5.26% 5.38%(a)
PORTFOLIO TURNOVER RATE 36% 42% 12% 126% 74% 25%
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended February 1, 1994
Ended Four Months November 30, (Commencement of
September 30, 1998 Year Ended Ended ---------------- Class Operations) to
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995 November 30, 1994
- ------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.09 $ 9.52 $ 9.74 $ 9.80 $ 8.67 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.20 (c) 0.40 0.13 0.40 0.44 0.40
Net gains or losses on
securities
(both realized and
unrealized) 0.17 0.56 (0.21) (0.04) 1.15 (1.29)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.37 0.96 (0.08) 0.36 1.59 (0.89)
------- ------- ------- ------- ------- -------
LESS DIVIDENDS (FROM NET
INVESTMENT INCOME) (0.20) (0.39) (0.14) (0.42) (0.46) (0.44)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 10.26 $ 10.09 $ 9.52 $ 9.74 $ 9.80 $ 8.67
------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 3.70% 10.26% (0.83%) 3.83% 18.79% (9.06%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $19,243 $19,552 $20,127 $21,925 $21,231 $12,906
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.61%(a) 1.53% 1.51%(a) 1.52% 1.47% 1.16%(a)
Expenses, excluding
indirectly paid
expenses 1.60%(a) 1.52% 1.50%(a) 1.50% 1.44% --
Expenses, excluding
waivers and
reimbursements 1.92%(a) 1.90% 2.06%(a) 2.00% 2.08% 2.49%(a)
Net investment income 3.93%(a) 4.12% 4.31%(a) 4.20% 4.56% 4.70%(a)
PORTFOLIO TURNOVER RATE 36% 42% 12% 126% 74% 25%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended February 1, 1994
Ended Four Months November 30, (Commencement of
September 30, 1998 Year Ended Ended -------------- Class Operations) to
(Unaudited) March 31, 1998 March 31, 1997* 1996 1995 November 30, 1994
- ----------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.08 $ 9.52 $ 9.73 $ 9.79 $ 8.66 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.20 (c) 0.38 0.13 0.39 0.43 0.39
Net gains or losses on
securities
(both realized and
unrealized) 0.18 0.57 (0.20) (0.03) 1.16 (1.29)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.38 0.95 (0.07) 0.36 1.59 (0.90)
------ ------ ------ ------ ------ ------
LESS DIVIDENDS (FROM NET
INVESTMENT INCOME) (0.20) (0.39) (0.14) (0.42) (0.46) (0.44)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD 10.26 $10.08 $ 9.52 $ 9.73 $ 9.79 $ 8.66
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 3.80% 10.15% (0.73%) 3.83% 18.78% (9.25%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $ 793 $ 990 $1,306 $1,387 $1,788 $1,045
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.61%(a) 1.52% 1.51%(a) 1.52% 1.46% 1.15%(a)
Expenses, excluding
indirectly paid
expenses 1.60%(a) 1.51% 1.50%(a) 1.50% 1.44% --
Expenses, excluding
waivers and
reimbursements 1.93%(a) 1.90% 2.06%(a) 1.99% 2.07% 2.60%(a)
Net investment income 3.95%(a) 4.10% 4.30%(a) 4.18% 4.56% 4.72%(a)
PORTFOLIO TURNOVER RATE 36% 42% 12% 126% 74% 25%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
* The Fund changed its fiscal year end from November 30 to March 31.
See Combined Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Seven Months Six Months Year
September 30, 1998 Year Ended Ended Ended
Ended
(Unaudited) March 31, 1998 March 31, 1997** August 31, 1996* February
29, 1996
- -------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 11.11 $ 10.74 $ 10.75 $ 11.01 $
10.53
------- ------- ------- -------
- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.25 0.53 0.31 0.28
0.56
Net gains or losses on securities
(both realized and
unrealized) 0.31 0.46 (0.01) (0.26)
0.48
------- ------- ------- -------
- -------
Total from
investment
operations 0.56 0.99 0.30 0.02
1.04
------- ------- ------- -------
- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.25) (0.53) (0.31) (0.28)
(0.56)
Distributions (from
capital gains) 0 (0.09) 0
0 0
------- ------- ------- -------
- -------
Total distributions (0.25) (0.62) (0.31) (0.28)
(0.56)
------- ------- ------- -------
- -------
NET ASSET VALUE,
END OF PERIOD $ 11.42 $ 11.11 $ 10.74 $ 10.75 $
11.01
------- ------- ------- -------
- -------
TOTAL RETURN (B) 5.15% 9.34% 2.83% 0.19%
10.08%
RATIOS/SUPPLEMENTAL
DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $33,259 $31,614 $31,434 $32,377
$41,762
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.50%(a) 0.50% 0.44%(a) 0.34%(a)
0.36%
Expenses,
excluding
indirectly paid
expenses 0.50%(a) 0.50% 0.44%(a) --
- --
Expenses,
excluding waivers
and
reimbursements 0.90%(a) 1.01% 1.13%(a) 1.11%(a)
1.03%
Net investment
income 4.56%(a) 4.77% 5.02%(a) 5.08%(a)
5.15%
PORTFOLIO TURNOVER
RATE 23% 37% 15%
0% 4%
<CAPTION>
Year Ended
February 28,
-----------------
1995 1994
- -----------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 10.99 $ 11.01
-------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.57 0.60
Net gains or losses on securities
(both realized and
unrealized) (0.46) (0.02)
-------- --------
Total from
investment
operations 0.11 0.58
-------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.57) (0.60)
Distributions (from
capital gains) 0 0
-------- --------
Total distributions (0.57) (0.60)
-------- --------
NET ASSET VALUE,
END OF PERIOD $ 10.53 $ 10.99
-------- --------
TOTAL RETURN (B) 1.41% 5.30%
RATIOS/SUPPLEMENTAL
DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $34,852 $42,783
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.25% 0.14%
Expenses,
excluding
indirectly paid
expenses -- --
Expenses,
excluding waivers
and
reimbursements 1.04% 1.05%
Net investment
income 5.52% 5.31%
PORTFOLIO TURNOVER
RATE 8% 2%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from February 28 to August 31.
** The Fund changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months January 30, 1996
Ended Seven Months Six Months (Commencement of
September 30, 1998 Year Ended Ended Ended Class Operations)
to
(Unaudited) March 31, 1998 March 31, 1997** August 31, 1996* February 29, 1996
- -------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.11 $ 10.74 $10.75 $11.01 $11.08
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.20 0.43 0.25 0.24 0.05
Net gains or losses on
securities
(both realized and
unrealized) 0.31 0.46 0 (0.26) (0.07)
------- ------- ------ ------ ------
Total from investment
operations 0.51 0.89 0.25 (0.02) (0.02)
------- ------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.20) (0.43) (0.26) (0.24) (0.05)
Distributions (from
capital gains) 0 (0.09) 0 0 0
------- ------- ------ ------ ------
Total distributions (0.20) (0.52) (0.26) (0.24) (0.05)
------- ------- ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.42 $ 11.11 $10.74 $10.75 $11.01
------- ------- ------ ------ ------
TOTAL RETURN (B) 4.68% 8.35% 2.29% (0.20%) (0.22%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $17,068 $13,645 $7,847 $2,709 $ 186
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.41%(a) 1.41% 1.36%(a) 1.28%(a) 0.31%(a)
Expenses, excluding
indirectly paid
expenses 1.41%(a) 1.41% 1.36%(a) -- --
Expenses, excluding
waivers and
reimbursements 1.64%(a) 1.76% 1.88%(a) 1.85%(a) 1.66%(a)
Net investment income 3.62%(a) 3.85% 4.07%(a) 4.14%(a) 5.23%(a)
PORTFOLIO TURNOVER RATE 23% 37% 15% 0% 4%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
* The Fund changed its fiscal year end from February 28 to August 31.
** The Fund changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 8, 1996
Ended Seven Months Six Months (Commencement of
September 30, 1998 Year Ended Ended Ended Class Operations)
to
(Unaudited) March 31, 1998 March 31, 1997** August 31, 1996* February 29, 1996
- -------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.11 $ 10.74 $10.75 $11.01 $11.14
-------- -------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.26 0.54 0.32 0.28 0.03
Net gains or losses on
securities
(both realized and
unrealized) 0.31 0.46 (0.01) (0.26) (0.13)
-------- -------- ------ ------ ------
Total from investment
operations 0.57 1.00 0.31 0.02 (0.10)
-------- -------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.26) (0.54) (0.32) (0.28) (0.03)
Distributions (from
capital gains) 0 (0.09) 0 0 0
-------- -------- ------ ------ ------
Total distributions (0.26) (0.63) (0.32) (0.28) (0.03)
-------- -------- ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 11.42 $ 11.11 $10.74 $10.75 $11.01
-------- -------- ------ ------ ------
TOTAL RETURN 5.20% 9.44% 2.88% 0.20% (0.87%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $119,479 $105,331 $9,436 $9,076 $ 18
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.41%(a) 0.41% 0.36%(a) 0.31%(a) 0.31%(a)
Expenses, excluding
indirectly paid
expenses 0.41%(a) 0.41% 0.36%(a) -- --
Expenses, excluding
waivers and
reimbursements 0.65%(a) 0.76% 0.88%(a) 0.87%(a) 0.88%(a)
Net investment income 4.65%(a) 4.79% 5.08%(a) 5.12%(a) 5.28%(a)
PORTFOLIO TURNOVER RATE 23% 37% 15% 0% 4%
</TABLE>
(a) Annualized.
* The Fund changed its fiscal year end from February 28 to August 31.
** The Fund changed its fiscal year end from August 31 to March 31.
See Combined Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ---------------------------------- Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- ------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.12 $ 9.64 $ 9.67 $ 9.44 $ 9.32 $10.00
------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.23 0.48 0.49 0.48 0.52 0.09
Net gains or losses on
securities
(both realized and
unrealized) 0.24 0.52 (0.03) 0.24 0.12 (0.68)
------- ------- ------- ------- ------- ------
Total from investment
operations 0.47 1.00 0.46 0.72 0.64 (0.59)
------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.23) (0.46) (0.49) (0.49) (0.52) (0.09)
Distributions (from
capital gains) 0 (0.06) 0 0 0 0
------- ------- ------- ------- ------- ------
Total distributions (0.23) (0.52) (0.49) (0.49) (0.52) (0.09)
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD $ 10.36 $ 10.12 $ 9.64 $ 9.67 $ 9.44 $ 9.32
------- ------- ------- ------- ------- ------
TOTAL RETURN (B) 4.71% 10.56% 4.87% 7.73% 7.08% (5.91%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $ 3,622 $ 3,559 $ 3,693 $ 3,947 $ 3,323 $ 680
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.84%(a) 0.77% 0.76% 0.75% 0.50% 0.35%(a)
Expenses, excluding
indirectly paid
expenses 0.84%(a) 0.77% 0.75% 0.74% -- --
Expenses, excluding
waivers and
reimbursements 1.22%(a) 1.01% 1.19% 1.31% 1.59% 4.44%(a)
Net investment income 4.52%(a) 4.78% 5.00% 4.95% 5.48% 3.85%(a)
PORTFOLIO TURNOVER RATE 40% 41% 62% 53% 77% 14%
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ---------------------------------- Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- ------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.03 $ 9.55 $ 9.59 $ 9.38 $ 9.32 $10.00
------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.19 0.40 0.41 0.41 0.47 0.08
Net gains or losses on
securities
(both realized and
unrealized) 0.24 0.52 (0.03) 0.24 0.09 (0.67)
------- ------- ------- ------- ------- ------
Total from investment
operations 0.43 0.92 0.38 0.65 0.56 (0.59)
------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.19) (0.38) (0.42) (0.44) (0.50) (0.09)
Distributions (from
capital gains) 0 (0.06) 0 0 0 0
------- ------- ------- ------- ------- ------
Total distributions (0.19) (0.44) (0.42) (0.44) (0.50) (0.09)
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD $ 10.27 $ 10.03 $ 9.55 $ 9.59 $ 9.38 $ 9.32
------- ------- ------- ------- ------- ------
TOTAL RETURN (B) 4.34% 9.80% 4.03% 7.02% 6.28% (5.91%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $16,249 $17,245 $19,064 $17,151 $11,907 $2,276
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.59%(a) 1.52% 1.51% 1.50% 1.25% 1.10%(a)
Expenses, excluding
indirectly paid
expenses 1.59%(a) 1.52% 1.50% 1.49% -- --
Expenses, excluding
waivers and
reimbursements 1.97%(a) 1.76% 1.94% 2.05% 2.35% 5.60%(a)
Net investment income 3.77%(a) 4.04% 4.25% 4.19% 4.78% 3.01%(a)
PORTFOLIO TURNOVER RATE 40% 41% 62% 53% 77% 14%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended Year Ended March 31, (Commencement of
September 30, 1998 ------------------------------ Class Operations) to
(Unaudited) 1998 1997 1996 1995 March 31, 1994
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.02 $ 9.55 $ 9.58 $ 9.37 $ 9.31 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.19 0.39 0.40 0.41 0.48 0.07
Net gains or losses on
securities
(both realized and unrealized) 0.25 0.52 (0.01) 0.24 0.07 (0.67)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.44 0.91 0.39 0.65 0.55 (0.60)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment
income) (0.19) (0.38) (0.42) (0.44) (0.49) (0.09)
Distributions (from capital
gains) 0 (0.06) 0 0 0 0
------ ------ ------ ------ ------ ------
Total distributions (0.19) (0.44) (0.42) (0.44) (0.49) (0.09)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.27 $10.02 $ 9.55 $ 9.58 $ 9.37 $ 9.31
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.44% 9.69% 4.14% 7.02% 6.18% (6.02%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD
(THOUSANDS) $1,421 $1,465 $1,871 $2,296 $2,890 $ 255
RATIOS TO AVERAGE NET ASSETS
Expenses 1.60%(a) 1.52% 1.51% 1.50% 1.26% 1.10%(a)
Expenses, excluding
indirectly paid expenses 1.59%(a) 1.52% 1.50% 1.48% -- --
Expenses, excluding waivers
and reimbursements 1.97%(a) 1.77% 1.93% 2.07% 2.32% 5.13%(a)
Net investment income 3.78%(a) 4.05% 4.25% 4.24% 4.88% 3.71%(a)
PORTFOLIO TURNOVER RATE 40% 41% 62% 53% 77% 14%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended March 31,
September 30, 1998 -------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.70 $ 11.14 $ 11.15 $ 10.91 $ 11.01 $ 11.42
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.55 0.59 0.60 0.61 0.62
Net gains or losses on
securities
(both realized and
unrealized) 0.27 0.55 (0.01) 0.23 (0.09) (0.30)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.52 1.10 0.58 0.83 0.52 0.32
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions (from
capital gains) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- -------
Dividends (from net
investment income) (0.26) (0.54) (0.59) (0.59) (0.62) (0.66)
Total distributions (0.26) (0.54) (0.59) (0.59) (0.62) (0.73)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 11.96 $ 11.70 $ 11.14 $ 11.15 $ 10.91 $ 11.01
------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 4.47% 10.02% 5.30% 7.66% 4.91% 2.58%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $29,268 $24,119 $24,535 $28,710 $30,450 $30,560
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.83%(a) 0.76% 0.76% 0.76% 0.75% 0.75%
Expenses, excluding
indirectly paid
expenses 0.83%(a) 0.76% 0.75% 0.75% -- --
Expenses, excluding
waivers and
reimbursements 0.86%(a) 0.96% 0.99% 0.99% 1.05% 1.06%
Net investment income 4.36%(a) 4.79% 5.26% 5.29% 5.65% 5.27%
PORTFOLIO TURNOVER RATE 34% 54% 84% 55% 97% 37%
<CAPTION>
Six Months
Ended Year Ended March 31,
September 30, 1998 -------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
CLASS B SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.55 $ 10.99 $ 11.00 $ 10.81 $ 10.98 $ 11.42
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.46 0.49 0.51 0.54 0.56
Net gains or losses on
securities
(both realized and
unrealized) 0.27 0.54 (0.01) 0.22 (0.10) (0.34)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.48 1.00 0.48 0.73 0.44 0.22
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.21) (0.44) (0.49) (0.54) (0.61) (0.59)
Distributions (from
capital gains) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- -------
Total distributions (0.21) (0.44) (0.49) (0.54) (0.61) (0.66)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 11.82 $ 11.55 $ 10.99 $ 11.00 $ 10.81 $ 10.98
------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 4.19% 9.27% 4.50% 6.84% 4.15% 1.70%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $37,430 $37,036 $37,215 $37,719 $30,657 $21,958
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.58%(a) 1.52% 1.51% 1.48% 1.50% 1.50%
Expenses, excluding
indirectly paid
expenses 1.58%(a) 1.51% 1.50% 1.47% -- --
Expenses, excluding
waivers and
reimbursements 1.61%(a) 1.71% 1.74% 1.74% 1.80% 1.81%
Net investment income 3.60%(a) 4.04% 4.50% 4.55% 4.89% 4.32%
PORTFOLIO TURNOVER RATE 34% 54% 84% 55% 97% 37%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended March 31,
September 30, 1998 --------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.59 $11.02 $11.03 $10.83 $11.00 $11.42
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.45 0.47 0.51 0.53 0.54
Net gains or losses on
securities
(both realized and
unrealized) 0.26 0.57 0.01 0.23 (0.10) (0.32)
------ ------ ------ ------ ------ ------
Total from investment
operations 0.47 1.02 0.48 0.74 0.43 0.22
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions (from
capital gains) 0 0 0 0 0 (0.07)
------ ------ ------ ------ ------ ------
Dividends (from net
investment income) (0.21) (0.45) (0.49) (0.54) (0.60) (0.57)
Total distributions (0.21) (0.45) (0.49) (0.54) (0.60) (0.64)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $11.85 $11.59 $11.02 $11.03 $10.83 $11.00
------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.10% 9.34% 4.49% 6.92% 4.05% 1.78%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF
PERIOD (THOUSANDS) $6,448 $6,414 $6,830 $9,675 $9,559 $9,385
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.58%(a) 1.52% 1.51% 1.48% 1.50% 1.50%
Expenses, excluding
indirectly paid
expenses 1.58%(a) 1.51% 1.50% 1.47% -- --
Expenses, excluding
waivers and
reimbursements 1.61%(a) 1.71% 1.74% 1.74% 1.80% 1.90%
Net investment income 3.60%(a) 4.05% 4.52% 4.57% 4.90% 4.33%
PORTFOLIO TURNOVER RATE 34% 54% 84% 55% 97% 37%
</TABLE>
<TABLE>
<CAPTION>
Six Months November 24, 1997
Ended (Commencement of
September 30, 1998 Class Operations) to
(Unaudited) March 31, 1998
- -------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.70 $ 11.60
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.19
Net gains or losses on securities
(both realized and unrealized) 0.26 0.10
-------- --------
Total from investment operations 0.53 0.29
-------- --------
LESS DIVIDENDS (FROM NET INVESTMENT
INCOME) (0.27) (0.19)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 11.96 $ 11.70
-------- --------
TOTAL RETURN 4.60% 2.82%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (THOUSANDS) $175,594 $152,960
RATIOS TO AVERAGE NET ASSETS
Expenses 0.58%(a) 0.59%(a)
Expenses, excluding indirectly paid
expenses 0.58%(a) 0.58%(a)
Expenses, excluding waivers and
reimbursements 0.61%(a) 0.66%(a)
Net investment income 4.60%(a) 4.75%(a)
PORTFOLIO TURNOVER RATE 34% 54%
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Combined Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 98.0%
CALIFORNIA - 94.4%
$ 500,000 Abag, California,
Finance Authority for Non-Profit Corporations,
Rhoda Haas Goldman Plaza
5.125%, 5/15/15....................................... $ 507,005
1,000,000 Alameda, California,
Multifamily Housing Authority Revenue,
Series A
5.35%, 2/20/31, (GNMA)................................ 1,018,610
500,000 Bakersfield, California,
Certificates of Participation,
Convention Center Expansion Project
5.80%, 4/1/17, (MBIA)................................. 550,100
California State Health
Facilities Finance Authority Revenue:
1,000,000 Catholic Health Systems, Series A
5.75%, 7/1/15, (AMBAC)................................ 1,088,520
1,000,000 Cedars Sinai Center, Series A
5.125%, 8/1/17, (MBIA)................................ 1,021,620
500,000 Enloe Health Systems, Series A
5.00%, 11/15/18, (FSA)................................ 501,605
California State Housing
Finance Agency Revenue:
1,000,000 Home Mortgage, Series A
5.05%, 8/1/17, (AMBAC/FHA/VA)......................... 1,006,880
500,000 Home Mortgage, Series L
6.40%, 8/1/27, (MBIA)................................. 541,870
1,000,000 Multifamily Housing, Series B
6.05%, 8/1/16, (AMBAC/FHA)............................ 1,075,710
1,000,000 Single Family Mortgage,
Series A-1, Class III
5.70%, 8/1/11, (MBIA)................................. 1,066,650
500,000 California State Pollution Control
Financing Authority, Solid Waste
Disposal Revenue,
Browning Ferris Industries Inc.,
Series A
5.80%, 12/1/16........................................ 536,245
California State Public Works Board, Lease Revenue:
California State University Project:
1,000,000 Series A
5.35%, 12/1/15, (AMBAC)............................... 1,059,080
350,000 Series B
5.50%, 6/1/19......................................... 365,179
350,000 Trustees of California State University, Series A
5.25%, 10/1/16........................................ 363,790
California Statewide Communities Development Authority
Revenue:
700,000 Certificates of Participation,
John Muir, Mt. Diablo Health Systems
5.125%, 8/15/17, (MBIA)............................... 715,191
500,000 United Air Lines Inc., Los Angeles
5.625%, 10/1/34....................................... 516,990
500,000 Elk Grove, California,
Special Tax, Unified School District, Community
Facilities, District No. 1
6.50%, 12/1/24, (AMBAC)............................... 625,205
1,000,000 Los Angeles County, California,
Special Tax, Community Facilities District No. 3,
Series A
5.50%, 9/1/14, (FSA)................................. 1,085,050
500,000 Los Angeles, California,
Community Redevelopment Agency, Tax Allocation,
Bunker Hill, Series H
6.50%, 12/1/16, (FSA)................................ 562,710
1,000,000 Los Angeles, California,
Convention & Exhibition Center Authority, Lease
Revenue, Series A
6.00%, 8/15/10, (MBIA/IBC)........................... 1,166,510
500,000 Orange County, California,
Irvine Coast Assessment
Improvement Board, Act 1915,
District 88-1, Series A
5.50%, 9/2/16........................................ 505,575
500,000 Paramount, California,
Unified School District, Series A
5.125%, 9/1/19, (FSA)................................ 511,225
750,000 Poway, California,
Special Tax, Community Facilities District, Parkway
Business Center,
No. 88-1
6.75%, 8/15/15....................................... 830,228
1,000,000 Sacramento County, California,
Airport System Revenue, Series A
6.00%, 7/1/11, (MBIA)................................ 1,138,910
San Francisco, California,
State Building Authority, Lease Revenue, San
Francisco Civic Center Complex, Series A:
1,300,000 5.25%, 12/1/16, (AMBAC).............................. 1,355,510
500,000 6.00%, 12/1/09, (AMBAC).............................. 581,760
1,100,000 San Jose, California,
Redevelopment Tax Allocation Agency, Merged Area
Redevelopment Project
6.00%, 8/1/15, (MBIA)................................ 1,281,786
100,000 San Mateo, California,
Foster City School District,
Capital Appreciation, Series C
(Eff. Yield 5.60%) (b)
0.00%, 9/1/03, (FGIC)................................ 83,094
300,000 Santa Ana, California,
Financing Authority, Lease Revenue, Police
Administration & Holding Facility, Series A
6.25%, 7/1/15, (MBIA)................................ 358,119
1,000,000 South Orange County, California,
Special Tax Revenue,
Public Finance Authority,
Senior Lien, Series A
7.00%, 9/1/09, (MBIA)................................ 1,245,660
Southern California Public Power Authority:
1,000,000 Mead Adelanto Project Revenue,
Series A
5.00%, 7/1/17, (AMBAC)............................... 1,011,480
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
California Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - CONTINUED
CALIFORNIA - CONTINUED
Southern California Public Power Authority -
continued:
$1,000,000 Transmission Project Revenue,
Southern Transmission
(Eff. Yield 7.30%)(b)
0.00%, 7/1/14, (FGIC)................................ $ 480,840
500,000 Watsonville, California, Solid Waste Revenue
5.50%, 5/15/16, (MBIA).............................. 533,990
-----------
25,292,697
-----------
PUERTO RICO - 3.6%
2,000,000 Commonwealth of Puerto Rico,
General Obligation, Capital Appreciation,
(Eff. Yield 4.85%)(b)
0.00%, 7/1/14, (MBIA/IBC)............................ 961,680
-----------
Total Municipal Obligations
(cost $24,442,991).................................. 26,254,377
-----------
SHORT-TERM MUNICIPAL SECURITIES - 1.0% (COST $255,000)
CALIFORNIA - 1.0%
255,000 Irvine Ranch, California,
Water District Revenue,
Consolidated Bonds
(LOC: Landesbank Hessen)
3.80%, 10/1/10 (a)..................................... 255,000
-----------
TOTAL INVESTMENTS -
(COST $24,697,991)............................. 99.0% 26,509,377
OTHER ASSETS AND
LIABILITIES - NET.............................. 1.0 270,540
----- -----------
NET ASSETS - ................................... 100.0% $26,779,917
===== ===========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FHA Insured by Federal Housing Administration
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
IBC Insured Bond Certification
LOC Letter of Credit
MBIA Insured by Municipal Bond Investors Assurance Corporation
VA Guaranteed by Veteran's Authority
See Combined Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Minicipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 95.8%
CONNECTICUT - 70.4%
$1,000,000 Bridgeport, Connecticut,
General Obligation,
Bond Anticipation Notes
4.25%, 3/18/99...................................... $ 1,003,190
Bristol, Connecticut,
General Obligation:
130,000 5.00%, 6/15/05....................................... 138,995
355,000 5.25%, 6/15/08....................................... 390,990
275,000 Cheshire, Connecticut,
General Obligation,
5.75%, 8/15/09....................................... 303,556
1,450,000 Connecticut State, Clean Water
Fund Revenue,
6.00%, 3/1/08........................................ 1,675,692
Connecticut State, Development
Authority Revenue:
Church Homes, Inc. Project:
710,000 4.80%, 4/1/01........................................ 723,064
425,000 4.90%, 4/1/02........................................ 436,126
1,000,000 5.80%, 4/1/21........................................ 1,042,330
890,000 Special Revenue,
State General Fund, Series A
5.50%, 5/1/08, (FGIC)................................ 987,713
1,000,000 Water Facilities Revenue,
Bridgeport Hydraulic Co.
6.15%, 4/1/35........................................ 1,103,750
Connecticut State, Health & Educational Facilities
Revenue:
225,000 Choate Rosemary Hall, Series A
6.50%, 7/1/09........................................ 257,171
300,000 Connecticut College, Issue B
5.875%, 7/1/99....................................... 305,724
500,000 Greenwich Hospital Assn., Series A
5.40%, 7/1/09........................................ 548,730
1,000,000 Hospital for Special Care, Series B
5.125%, 7/1/07....................................... 1,053,610
1,000,000 Hospital of St. Raphael, Series H
5.00%, 7/1/06, (AMBAC)............................... 1,070,160
1,000,000 Kent School Corp., Series B
5.50%, 7/1/15........................................ 1,066,810
625,000 Lawrence & Memorial Hospital,
Series D
4.875%, 7/1/07, (MBIA)............................... 655,912
190,000 Mansfield Nursing Center, Series C
4.40%, 11/1/98....................................... 190,154
250,000 New Britain General Hospital,
Series B
5.875%, 7/1/08, (AMBAC).............................. 277,157
Newington Childrens'
Hospital, Series A:
1,000,000 5.90%, 7/1/08, (MBIA)................................ 1,109,900
250,000 6.05%, 7/1/10, (MBIA)................................ 276,658
1,345,000 St. Mary's Hospital Corp., Series E
6.00%, 7/1/08........................................ 1,517,469
1,000,000 Stamford Hospital, Series F
5.25%, 7/1/11........................................ 1,058,610
1,500,000 Suffield Academy, Series A
5.40%, 7/1/27........................................ 1,576,080
Connecticut State, Health & Educational Facilities
Revenue - continued
100,000 Trinity College, Series F
5.00%, 7/1/15, (MBIA)................................. 103,226
Veterans Memorial Medical
Center, Series A:
1,000,000 5.375%, 7/1/14........................................ 1,056,250
2,000,000 5.50%, 7/1/26......................................... 2,104,680
1,500,000 Westminster School, Series A
5.50%, 7/1/16......................................... 1,606,755
1,000,000 Yale New Haven Hospital
5.625%, 7/1/16........................................ 1,074,050
325,000 Connecticut State, Higher Education Loan Authority
Revenue, Series A
7.00%, 11/15/00....................................... 332,696
Connecticut State, Housing Finance Authority Revenue,
Housing Mortgage Finance Project:
Series A:
860,000 7.20%, 11/15/98....................................... 862,382
985,000 7.40%, 11/15/99....................................... 1,003,311
100,000 Series C-1
5.75%, 5/15/05........................................ 106,380
290,000 Connecticut State, Regional School
District #14, General Obligation,
5.70%, 12/15/98....................................... 291,433
Connecticut State, Special Tax Obligation:
Transportation Infrastructure, Series A:
3,000,000 5.50%, 10/1/12, (FGIC)................................ 3,348,930
1,000,000 6.00%, 6/1/06, (FGIC)................................. 1,137,280
500,000 7.125%, 6/1/07........................................ 548,785
1,000,000 Transportation Infrastructure, Series C
6.00%, 10/1/09........................................ 1,160,170
Connecticut State, General Obligation:
Series A:
1,000,000 6.00%, 3/1/06......................................... 1,134,130
3,000,000 6.25%, 5/15/06........................................ 3,456,720
Series B:
1,000,000 5.30%, 9/15/07........................................ 1,099,420
500,000 6.00%, 11/15/02....................................... 544,195
Series C:
400,000 5.70%, 11/15/09....................................... 410,716
200,000 5.875%, 8/15/09....................................... 222,926
1,000,000 Fairfield, Connecticut,
General Obligation,
4.70%, 1/1/11......................................... 1,037,500
525,000 Guilford, Connecticut,
General Obligation,
5.00%, 11/15/07....................................... 555,739
Hamden, Connecticut,
General Obligation:
1,000,000 5.375%, 8/15/10, (MBIA)............................... 1,087,360
1,275,000 5.40%, 8/15/11, (MBIA)................................ 1,384,382
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Minicipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - CONTINUED
CONNECTICUT - CONTINUED
Middletown, Connecticut,
General Obligation:
$ 445,000 5.60%, 4/15/00........................................ $ 458,897
1,000,000 6.00%, 4/15/07........................................ 1,147,380
500,000 Milford, Connecticut,
General Obligation,
5.20%, 1/15/13........................................ 541,515
Montville, Connecticut,
General Obligation:
250,000 5.15%, 12/1/07........................................ 273,480
300,000 5.25%, 12/1/08........................................ 331,326
250,000 Naugatuck, Connecticut,
General Obligation,
5.40%, 3/15/08........................................ 271,033
500,000 New Haven, Connecticut,
General Obligation,
6.50%, 8/1/00, (FSA).................................. 525,125
1,100,000 Newtown, Connecticut,
General Obligation,
5.125%, 6/15/15, (MBIA)............................... 1,142,020
100,000 Pomfret, Connecticut,
General Obligation,
6.50%, 8/1/99......................................... 102,573
385,000 Putnam, Connecticut,
General Obligation,
5.60%, 11/15/00, (MBIA)............................... 401,105
185,000 Stamford, Connecticut,
General Obligation,
6.25%, 1/15/00........................................ 191,490
Wallingford, Connecticut,
General Obligation, Lot B:
170,000 5.50%, 6/15/08........................................ 187,682
170,000 5.60%, 6/15/09........................................ 187,930
250,000 Woodstock, Connecticut,
General Obligation,
6.00%, 2/15/10, (FGIC)................................ 276,712
----------
50,477,235
----------
GUAM - 0.4%
250,000 Guam Power Authority
Revenue, Series A
5.90%, 10/1/08, (AMBAC)............................... 279,353
----------
PUERTO RICO - 23.6%
Commonwealth of Puerto Rico, Aqueduct & Sewer
Authority Revenue:
1,000,000 5.20%, 7/1/08, (MBIA)................................. 1,094,370
1,000,000 6.25%, 7/1/12, (MBIA)................................. 1,196,170
1,000,000 Commonwealth of Puerto Rico,
Electric Power Authority Revenue, Series DD
5.00%, 7/1/28......................................... 999,920
Commonwealth of Puerto Rico,
Highway & Transportation Authority:
1,000,000 Series W
5.50%, 7/1/13, (FSA).................................. 1,120,690
2,000,000 Series Z
6.00%, 7/1/18, (FSA).................................. 2,349,140
15,000 Commonwealth of Puerto Rico,
Housing Finance Authority Revenue, Single Family
Housing Revenue
5.80%, 10/15/00....................................... 15,408
1,000,000 Commonwealth of Puerto Rico,
Municipal Finance Agency
5.00%, 7/1/99......................................... 1,011,810
1,800,000 Commonwealth of Puerto Rico,
Public Buildings Authority
Revenue, Series L
5.50%, 7/1/21......................................... 1,981,080
1,000,000 Commonwealth of Puerto Rico,
Public Buildings Authority
Revenue, Public Education &
Health Facilities, Series M
5.70%, 7/1/09, (AMBAC)................................ 1,137,000
2,000,000 Commonwealth of Puerto Rico,
Public Finance Corp.,
Commonwealth Appropriation,
Series A
5.375%, 6/1/19, (AMBAC)............................... 2,191,100
Commonwealth of Puerto Rico,
General Obligation:
1,000,000 5.375%, 7/1/25........................................ 1,037,730
1,250,000 5.40%, 7/1/25......................................... 1,303,813
205,000 5.50%, 7/1/08, (MBIA)................................. 229,442
1,000,000 6.50%, 7/1/14, (MBIA)................................. 1,229,000
----------
16,896,673
----------
U.S. VIRGIN ISLANDS - 1.4%
1,000,000 Virgin Islands, Public Finance Authority Revenue,
7.00%, 10/1/99........................................ 1,035,750
----------
Total Municipal Obligations
(cost $65,186,791)................................... 68,689,011
----------
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Connecticut Municipal Bond Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
MUTUAL FUND SHARES - 3.0%
1,232,185 Federated Connecticut
Municipal Cash Trust................................ $ 1,232,185
921,645 Federated Tax Free Obligations Fund.................. 921,645
-----------
Total Mutual Fund Shares
(cost $2,153,830)................................... 2,153,830
-----------
TOTAL INVESTMENTS -
(COST $67,340,621)........................... 98.8% 70,842,841
OTHER ASSETS AND
LIABILITIES - NET............................ 1.2 830,073
----- -----------
NET ASSETS - ................................. 100.0% $71,672,914
===== ===========
</TABLE>
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance, Incorporated
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Massachusetts Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 99.6%
MASSACHUSETTS - 91.6%
$ 305,000 Gloucester, Massachusetts,
General Obligation
5.25%, 7/15/15, (MBIA)................................. $ 318,511
250,000 Lowell, Massachusetts,
General Obligation, School Improvements
5.50%, 12/15/15, (AMBAC)............................... 266,348
500,000 Massachusetts State College,
Building Authority Project, Series A
7.50%, 5/1/08.......................................... 634,195
260,000 Massachusetts State Education
Loan Authority, Issue E, Series B
6.00%, 1/1/12, (AMBAC)................................. 274,630
Massachusetts State Health & Education Facilities
Authority Revenue:
300,000 Boston College Issue, Series L
5.00%, 6/1/26........................................... 300,342
250,000 Cape Cod Healthcare, Series B
5.45%, 11/15/23......................................... 253,440
295,000 Caregroup Issue, Series A
5.00%, 7/1/18........................................... 296,434
200,000 Jordan Hospital, Series D
5.25%, 10/1/23.......................................... 197,826
100,000 Milford Whitinsville Regional, Series C
5.25%, 7/15/18.......................................... 100,035
300,000 Partners Healthcare Systems, Series A
5.375%, 7/1/24.......................................... 309,870
300,000 Massachusetts State Housing
Finance Agency Revenue,
Single Family Housing, Series 52
6.00%, 6/1/14, (MBIA).................................. 321,981
Massachusetts State Industrial Finance Agency Revenue:
1,100,000 Avon Associates LLC, Series A
5.375%, 4/1/20, (MBIA).................................. 1,121,846
300,000 Belmont Hill School
5.625%, 9/1/20.......................................... 315,234
250,000 Ogden Haverhill Project, Series A
5.60%, 12/1/19.......................................... 251,747
250,000 Wentworth Institute Technology
5.55%, 10/1/13.......................................... 262,435
400,000 Massachusetts State Municipal
Wholesale Electric Company,
Power Supply Systems Revenue,
Series A, INFLOs
7.02%, 7/1/18.......................................... 435,656
400,000 Massachusetts State Port Authority Revenue, Special
Facilities, Boston Fuel Project
5.30%, 7/1/08.......................................... 428,064
Massachusetts State Water Pollution, Abatement Trust:
400,000 New Bedford Loan Program, Series A
5.70%, 2/1/12......................................... 435,944
125,000 South Essex, Sewer District Revenue, Series A
6.375%, 2/1/15........................................ 138,041
250,000 Massachusetts State, General Obligation, Series A
5.25%, 2/1/08........................................ 264,843
500,000 Methuen, Massachusetts,
General Obligation
5.625%, 11/15/15, (FSA).............................. 539,575
250,000 North Andover, Massachusetts,
General Obligation
5.00%, 8/15/18....................................... 251,453
400,000 North Attleborough, Massachusetts, General Obligation
5.25%, 3/1/14........................................ 420,196
400,000 Springfield, Massachusetts,
Municipal Purpose Loan
5.00%, 9/1/12........................................ 414,824
300,000 Worcester, Massachusetts,
Municipal Purpose Loan, Series A
5.25%, 8/1/12, (AMBAC)............................... 316,014
----------
8,869,484
----------
PUERTO RICO - 8.0%
Commonwealth of Puerto Rico:
1,000,000 Capital Appreciation
(Eff. Yield 4.85%)(b)
0.00%, 7/1/14, (MBIA)................................. 480,840
170,000 Highway & Transportation Authority
5.50%, 7/1/15......................................... 184,793
100,000 Public Improvement
5.50%, 7/1/11......................................... 108,874
----------
774,507
----------
Total Municipal Obligations
(cost $9,168,389).................................... 9,643,991
----------
SHORT-TERM MUNICIPAL SECURITIES - 1.0% (COST $95,000)
MASSACHUSETTS - 1.0%
95,000 Massachusetts State Health & Education Facilities
Authority Revenue, Capital Assets Program, Series D
3.90%, 1/1/35 (a).................................... 95,000
----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $9,263,389).............................. 100.6% 9,738,991
OTHER ASSETS AND
LIABILITIES - NET.............................. (0.6) (54,820)
----- ----------
NET ASSETS - ................................... 100.0% $9,684,171
===== ==========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FSA Insured by Financial Security Assurance, Incorporated
INFLOs Inverse Floating Rate Securities
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 100.4%
MISSOURI - 88.1%
$ 750,000 Bridge, Missouri,
Industrial Development Authority,
Senior Housing Revenue, The Sarah Community Project
5.80%, 5/1/18.......................................... $ 748,673
1,105,000 Butler County, Missouri,
Public Facilities Authority, Leasehold Revenue, Butler
County Jail Project
6.50%, 12/1/14, (FGIC)................................. 1,231,898
1,000,000 Clay County, Missouri,
Public Building Authority,
Leasehold Revenue
7.00%, 5/15/14, (FGIC)................................. 1,160,280
500,000 Missouri State,
Certificates of Participation, Rehabilitation Center
Project, Series A
6.00%, 11/1/15......................................... 545,620
Missouri State Environmental Improvement & Energy
Resource Authority, Water Pollution Control,
State Revolving Fund:
1,000,000 Series A
5.75%, 1/1/16.......................................... 1,078,560
600,000 Series B
7.20%, 7/1/16.......................................... 699,264
Missouri State Health & Educational Facilities
Authority Revenue:
825,000 Barnes Jewish, Inc., Series A
5.15%, 5/15/10, (AMBAC/TCRS)........................... 884,375
1,000,000 Bethesda Health Group Inc. Project,
Series A
7.50%, 8/15/12......................................... 1,096,200
BJC Health Systems:
Series A
500,000 6.50%, 5/15/20......................................... 494,010
500,000 5.00%, 5/15/28......................................... 574,340
500,000 Children's Mercy Hospital
5.25%, 5/15/18......................................... 507,170
250,000 Jefferson Memorial Hospital
Obligation Group
6.80%, 5/15/25......................................... 275,663
300,000 Lake of Ozarks General Hospital
6.50%, 2/15/21......................................... 331,203
750,000 Maryville University of St. Louis Project
5.75%, 6/15/17......................................... 786,112
1,000,000 Missouri State Higher Education,
Loan Authority, Student Loan Revenue, Series F
6.75%, 2/15/09......................................... 1,073,390
Missouri State Housing Development Commission, Mortgage
Revenue,
Single Family:
235,000 Series A
7.125%, 12/1/14, (GNMA)................................ 262,046
Series B:
455,000 6.25%, 9/1/15, (GNMA/FNMA)............................. 490,458
900,000 6.45%, 9/1/27, (GNMA/FNMA)............................. 974,520
1,000,000 Series B-2
5.50%, 3/1/25, (GNMA/FNMA)............................. 1,020,680
500,000 Series D-2
6.50%, 9/1/29, (GNMA/FNMA)............................. 549,905
Sikeston, Missouri, Electric Revenue:
1,000,000 5.00%, 6/1/22, (MBIA).................................. 1,007,080
800,000 6.00%, 6/1/13, (MBIA).................................. 922,968
500,000 6.00%, 6/1/15, (MBIA).................................. 578,895
400,000 Southeast, Missouri,
State University Systems Facilities
5.00%, 4/1/28.......................................... 400,996
350,000 St. Louis, Missouri,
Airport Revenue, Lambert St. Louis
International Airport, Series B
5.25%, 7/1/27.......................................... 356,738
495,000 St. Louis, Missouri,
Industrial Development Authority,
Health Facilities Revenue,
Mother of Perpetual Help
6.40%, 8/1/35, (GNMA).................................. 552,732
700,000 St. Louis, Missouri,
Land Clearance Redevelopment Authority Revenue, Kiel
Site Lease, Series B
5.125%, 7/1/13, (MBIA)................................. 725,130
950,000 St. Louis, Missouri,
Municipal Finance Corp., Leasehold Revenue
Improvement,
City Justice Center,
Series A
5.75%, 2/15/11, (AMBAC)................................ 1,046,244
500,000 St. Louis, Missouri,
Public Library Building Corp.
4.50%, 9/15/09......................................... 505,240
300,000 Wentzville, Missouri,
School District, Series A
5.60%, 3/1/11, (FSA)................................... 324,915
1,000,000 West Plains, Missouri,
Industrial Development Authority, Hospital Revenue,
Ozarks Medical Center
5.65%, 11/15/22........................................ 1,022,730
----------
22,228,035
----------
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Missouri Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - CONTINUED
PUERTO RICO - 12.3%
$1,000,000 Commonwealth of Puerto Rico,
Aqueduct & Sewer Authority Revenue
6.25%, 7/1/12........................................ $ 1,174,290
1,600,000 Commonwealth of Puerto Rico,
Capital Appreciation, General Obligation (Eff. Yield
4.85%)(b)
0.00%, 7/1/14, (MBIA/IBC)............................ 769,344
1,000,000 Commonwealth of Puerto Rico,
Highway & Transportation
Authority Revenue,
Series Y
6.25%, 7/1/14........................................ 1,168,480
-----------
3,112,114
-----------
Total Municipal Obligations
(cost $23,558,524).................................. 25,340,149
SHORT-TERM MUNICIPAL SECURITIES - 0.7%
MISSOURI - 0.7%
Kansas City, Missouri,
Industrial Development Hospital Revenue, Insured
Research Health Services Systems:
165,000 4.10%, 4/15/15, (MBIA)(a)............................. 165,000
20,000 4.10%, 12/1/19, (MBIA)(a)............................. 20,000
-----------
185,000
-----------
Total Short-Term Municipal Securities
(cost $185,000)...................................... 185,000
-----------
(COST $23,743,524).................................. 101.1% 25,525,149
OTHER ASSETS AND
LIABILITIES - NET................................... (1.1) (275,854)
----- -----------
NET ASSETS - ........................................ 100.0% $25,249,295
===== ===========
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FNMA Insured by Federal National Mortgage Association
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
IBC Insured Bond Certification
MBIA Insured by Municipal Bond Investors Assurance Corporation
TCRS Trust Credit Receipts
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 98.5%
DELAWARE - 2.5%
Delaware State, River & Bay
Authority Revenue:
$2,000,000 4.80%, 1/1/07....................................... $ 2,090,780
1,000,000 5.00%, 1/1/17, (MBIA)............................... 1,012,670
1,000,000 5.40%, 1/1/16, (FGIC)............................... 1,062,600
------------
4,166,050
------------
NEW JERSEY - 70.9%
2,000,000 Atlantic City, New Jersey,
Board of Education
5.875%, 12/1/11.................................... 2,305,360
150,000 Bayonne, New Jersey,
General Obligation
5.90%, 5/1/08...................................... 164,329
1,000,000 Bergen County, New Jersey,
General Obligation
5.25%, 10/1/10..................................... 1,079,350
Bergen County, New Jersey,
Utilities Authority, Water Pollution Control
Revenue:
1,000,000 Series A
5.50%, 12/15/06, (FGIC)............................. 1,106,220
500,000 Series B
5.625%, 12/15/04, (FGIC)............................ 548,855
400,000 Bridgewater Township, New Jersey,
General Obligation
6.40%, 7/15/01..................................... 428,688
500,000 Brigantine, New Jersey,
General Obligation
6.35%, 8/1/04, (MBIA).............................. 546,935
Burlington County, New Jersey,
Bridge Commission Systems Revenue:
1,000,000 5.20%, 10/1/06...................................... 1,063,060
500,000 5.30%, 10/1/13...................................... 523,780
80,000 Burlington County, New Jersey,
General Obligation
5.20%, 10/1/05..................................... 84,444
1,270,000 Camden County, New Jersey,
Improvement Authority, Lease Revenue, Series A
5.00%, 12/1/08..................................... 1,355,484
500,000 Camden County, New Jersey,
Lease Authority Revenue
5.625%, 10/1/15, (MBIA)............................ 539,850
1,500,000 Camden County, New Jersey,
Municipal Utilities Authority
5.50%, 7/15/08..................................... 1,664,025
500,000 Camden County, New Jersey,
Property & Equipment Program
5.60%, 12/1/04..................................... 539,090
500,000 Cape May County, New Jersey,
Improvement Authority
5.85%, 4/15/02..................................... 534,685
500,000 Cape May County, New Jersey,
Municipal Utilities Authority,
Sewer Revenue, Series A
5.75%, 1/1/16, (MBIA).............................. 532,385
MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
Cherry Hill Township, New Jersey,
General Obligation:
50,000 5.90%, 6/1/05........................................ 54,289
500,000 6.00%, 6/1/06........................................ 543,685
325,000 Essex County, New Jersey,
General Obligation, Lease Revenue
6.65%, 12/1/00, (AMBAC)............................. 345,117
Essex County, New Jersey,
Improvement Authority Revenue:
2,705,000 6.00%, 7/1/18........................................ 3,049,374
500,000 Series A
5.80%, 11/1/07....................................... 561,900
Essex County, New Jersey,
Utilities Authority, Solid Waste:
Series A:
250,000 5.50%, 4/1/11, (FSA)................................. 273,035
250,000 5.60%, 4/1/16, (FSA)................................. 270,528
50,000 Flemington Raritan, New Jersey,
School District, General Obligation
5.70%, 5/1/06....................................... 55,283
500,000 Franklin Township, Somerset County, New Jersey,
School District,
General Obligation
6.20%, 4/1/05....................................... 567,335
500,000 Gloucester County, New Jersey,
General Obligation
6.25%, 2/1/08, (MBIA)............................... 547,990
1,600,000 Gloucester County, New Jersey,
Solid Waste Revenue, Series A
6.20%, 9/1/07....................................... 1,730,496
Gloucester County, New Jersey,
Utilities Authority, Sewer Revenue:
1,300,000 5.45%, 1/1/24, (MBIA)................................ 1,359,618
500,000 6.50%, 1/1/21........................................ 535,235
Gloucester Township, New Jersey,
General Obligation:
500,000 5.45%, 7/15/07, (AMBAC).............................. 552,870
500,000 6.375%, 9/15/04, (AMBAC)............................. 546,315
1,000,000 Gloucester Township, New Jersey,
Municipal Utilities Authority
5.55%, 3/1/09, (AMBAC).............................. 1,113,840
1,000,000 Hamilton Township,
Atlantic County, New Jersey,
School District, General Obligation
5.875%, 12/15/06, (FGIC)............................ 1,093,350
500,000 Hunterdon County, New Jersey,
General Obligation
5.50%, 12/1/02...................................... 536,050
1,500,000 Jersey City, New Jersey,
School District, General Obligation
5.50%, 3/15/16, (MBIA).............................. 1,613,625
225,000 Kearny, New Jersey,
General Obligation
6.30%, 2/1/02....................................... 243,027
400,000 Lakewood Township, New Jersey,
School District, General Obligation
6.25%, 2/15/12, (AMBAC)............................. 481,412
</TABLE>
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
$ 80,000 Manalapan Township, New Jersey,
Fire District No. 1
5.30%, 12/15/99.................................... $ 81,770
40,000 Marlboro Township, New Jersey,
Board of Education
5.50%, 7/15/09..................................... 43,190
500,000 Mercer County, New Jersey,
School District, General Obligation, Series A
5.40%, 12/15/03.................................... 538,185
Middlesex County, New Jersey,
Utilities Authority, Sewer Revenue:
1,150,000 Series A
5.375%, 9/15/15, (FGIC)............................. 1,220,874
70,000 5.125%, 12/1/16..................................... 72,700
Monmouth County, New Jersey, Improvement Authority,
General Obligation:
200,000 6.40%, 8/1/09....................................... 218,328
800,000 6.40%, 8/1/08....................................... 873,312
40,000 Monmouth County, New Jersey,
Improvement Authority Revenue
6.625%, 12/1/05.................................... 42,244
1,000,000 Morris County, New Jersey,
General Obligation
6.00%, 7/15/04..................................... 1,113,890
New Jersey State, Economic Development Authority
Revenue:
50,000 5.40%, 2/1/06....................................... 53,108
785,000 6.00%, 10/1/22...................................... 828,552
55,000 6.125%, 7/1/24...................................... 60,925
7,445,000 (Eff. Yield 5.63%) (a)
0.00%, 7/1/24....................................... 2,181,385
First Mortgage Fellowship Village,
Series A:
530,000 5.20%, 1/1/09....................................... 548,100
585,000 5.30%, 1/1/10....................................... 606,651
2,000,000 5.50%, 1/1/18....................................... 2,018,700
4,500,000 First Mortgage, Franciscan
Oaks Project
5.75%, 10/1/23...................................... 4,541,445
2,300,000 First Mortgage, Keswick Pines
5.70%, 1/1/18....................................... 2,328,359
2,000,000 Liberty State Parking Project
6.80%, 3/15/22...................................... 2,232,520
500,000 New Jersey Performing Arts
Center Project
5.50%, 6/15/13, (AMBAC)............................. 540,955
1,000,000 Public Schools Small Project
Loan Program
5.40%, 8/15/13...................................... 1,055,560
Series A:
300,000 6.60%, 8/1/21....................................... 324,372
4,000,000 (Eff. Yield 5.63%) (a)
0.00%, 7/1/25....................................... 1,116,280
2,605,000 Trenton Office Complex
5.25%, 6/15/12...................................... 2,828,144
MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
New Jersey State, Educational Facilities
Authority Revenue:
200,000 4.35%, 7/1/04....................................... 202,734
150,000 4.60%, 7/1/08....................................... 152,946
200,000 5.00%, 7/1/09....................................... 209,480
100,000 5.50%, 7/1/04....................................... 108,704
2,000,000 Higher Education Facilities Trust
Fund, Series A
5.125%, 9/1/10...................................... 2,127,340
1,500,000 Series C
6.375%, 7/1/22...................................... 1,663,755
500,000 Series D
6.20%, 7/1/17, (AMBAC).............................. 546,380
60,000 University of Medicine & Dentistry
5.25%, 12/1/13, (AMBAC)............................ 63,277
New Jersey State, General Obligation:
5,000,000 4.50%, 3/1/18....................................... 4,842,400
110,000 4.75%, 3/1/15....................................... 110,494
500,000 6.25%, 8/1/06....................................... 548,920
3,000,000 Series D
5.75%, 2/15/06...................................... 3,348,510
New Jersey State, Health Care Facilities Financing
Authority Revenue:
50,000 6.00%, 7/1/12....................................... 57,055
500,000 4.00%, 7/1/00....................................... 502,925
50,000 6.00%, 7/1/13....................................... 56,976
AHS Hospital Corporation,
Series A:
2,375,000 5.00%, 7/1/27....................................... 2,390,532
1,345,000 6.00%, 7/1/11, (AMBAC).............................. 1,550,368
1,000,000 Community Medical Center
4.75%, 7/1/19....................................... 990,810
750,000 Hackensack Medical Center
6.625%, 7/1/17, (FGIC).............................. 821,460
500,000 Shore Memorial Hospital
Health Care Systems
5.00%, 7/1/12, (MBIA)............................... 516,175
1,000,000 St. Joseph's Hospital & Medical Center, Series D
5.70%, 7/1/11....................................... 1,095,350
1,000,000 New Jersey State, Higher Education
Student Loan, Series A
5.80%, 6/1/16....................................... 1,100,530
1,500,000 New Jersey State, Highway Authority Revenue
6.25%, 1/1/14....................................... 1,627,770
New Jersey State, Sports &
Exposition Authority Revenue
Series A:
1,000,000 5.375%, 9/1/15...................................... 1,043,970
1,000,000 6.00%, 3/1/21....................................... 1,063,290
300,000 New Jersey State, Transit Corporation, Certificates
of Partnership
6.50%, 10/1/16, (FSA)............................... 349,611
</TABLE>
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
New Jersey State, Transportation Trust Fund
Authority Revenue:
Series A:
$1,000,000 4.75%, 12/15/16..................................... $ 997,520
100,000 5.00%, 6/15/15, (MBIA).............................. 102,260
3,000,000 5.25%, 6/15/08...................................... 3,256,320
1,000,000 6.00%, 6/15/02...................................... 1,077,510
Series B:
3,175,000 5.00%, 6/15/04...................................... 3,352,006
2,750,000 5.25%, 6/15/15...................................... 2,897,235
1,000,000 6.50%, 6/15/10, (MBIA).............................. 1,204,740
New Jersey State, University of
Medicine & Dentistry Revenue:
Series E:
400,000 5.75%, 12/1/21...................................... 424,696
500,000 6.50%, 12/1/18...................................... 550,900
New Jersey State, Wastewater Treatment, Trust Loan
Prerefunded, Series A:
1,970,000 6.00%, 7/1/11....................................... 2,125,748
30,000 Unrefunded Balance
6.00%, 7/1/11....................................... 32,037
75,000 North Bergen Township, New Jersey,
General Obligation
5.00%, 8/15/09...................................... 79,930
1,000,000 North Bergen Township, New Jersey,
Municipal Utility Authority,
Sewer Revenue
5.375%, 12/15/12, (FGIC)............................ 1,060,870
North Brunswick Township, New Jersey, Board of
Education:
100,000 5.00%, 2/1/12....................................... 103,926
150,000 6.30%, 2/1/12....................................... 169,669
24,000 North Brunswick Township, New Jersey,
General Obligation
6.125%, 5/15/04..................................... 26,342
1,000,000 North Hudson, New Jersey,
Sewage Authority, Sewer Revenue
5.50%, 8/1/06, (FGIC)............................... 1,100,700
North Jersey District Water Supply Revenue:
90,000 5.05%, 11/15/11..................................... 94,945
350,000 Wanaque North Project, Series B
6.25%, 11/15/17, (MBIA)............................. 380,054
1,000,000 Northwest Bergen County, New Jersey, Utilities
Authority Systems Revenue
6.00%, 7/15/09, (MBIA).............................. 1,105,210
500,000 Ocean City, New Jersey,
General Obligation
5.90%, 3/15/03, (MBIA).............................. 542,895
75,000 Ocean County, New Jersey,
General Obligation
5.65%, 7/1/03....................................... 81,112
Ocean County, New Jersey,
Utilities Authority:
500,000 Series A
5.75%, 1/1/18....................................... 529,205
Ocean County, New Jersey,
Utilities Authority - continued:
75,000 Wastewater Revenue,
5.125%, 1/1/11...................................... 79,711
300,000 Ocean Township, New Jersey, Municipal Utilities
Authority Revenue
5.20%, 8/1/05, (MBIA)............................... 319,785
Old Bridge Township, New Jersey, Municipal Utilities
Authority Revenue:
285,000 5.75%, 11/1/00, (FGIC).............................. 297,181
500,000 6.25%, 11/1/16, (FGIC).............................. 550,305
500,000 Orange Township, New Jersey, General Obligation
6.60%, 2/1/07, (FSA)................................ 553,430
Passaic County, New Jersey,
General Obligation:
500,000 5.40%, 12/1/02, (MBIA).............................. 532,140
1,295,000 Series A
6.00%, 9/1/07....................................... 1,488,693
500,000 Passaic Valley, New Jersey,
Sewage Commissioners Revenue,
Series D
5.75%, 12/1/13, (AMBAC)............................. 539,335
500,000 Patterson, New Jersey,
General Obligation
6.20%, 2/15/02, (FSA)............................... 537,520
Pleasantville, New Jersey,
School District:
1,050,000 4.75%, 2/15/07...................................... 1,103,245
550,000 5.00%, 2/15/10...................................... 579,854
500,000 Princeton, New Jersey,
Regional School District
6.05%, 4/15/07...................................... 577,055
500,000 Randolph Township, New Jersey,
School District, General Obligation
6.30%, 3/15/06, (FSA)............................... 574,560
500,000 Rutgers State University, College & University
Revenue, Series 1
5.25%, 5/1/12....................................... 524,050
60,000 Secaucus, New Jersey,
Municipal Utilities Authority,
Sewer Revenue,
6.10%, 12/1/10...................................... 67,238
785,000 Somerset County, New Jersey,
General Obligation
5.90%, 8/1/99....................................... 801,870
100,000 South Brunswick Township, New Jersey,
Fire District No. 2
5.95%, 8/1/14....................................... 110,954
50,000 South Monmouth, New Jersey, Regional Sewage
Authority,
5.55%, 1/15/06...................................... 54,572
1,100,000 Sparta Township, New Jersey,
General Obligation
5.80%, 9/1/23, (MBIA)............................... 1,183,941
Stafford, New Jersey,
Municipal Utilities Authority:
500,000 6.20%, 6/1/07....................................... 548,677
375,000 6.25%, 6/1/14....................................... 410,261
41
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
$ 500,000 Stony Brook, New Jersey,
Regional Sewage Authority Revenue,
Series B
5.45%, 12/1/12...................................... $ 554,330
1,000,000 Sussex County, New Jersey,
Municipal Utilities Authority,
Solid Waste Revenue,
Series B
5.50%, 12/1/13, (MBIA).............................. 1,041,420
1,095,000 Toms River, New Jersey,
Board of Education, School Bond Reserve Act
5.75%, 7/15/19, (FGIC).............................. 1,185,129
500,000 Trenton, New Jersey,
General Obligation
6.55%, 8/15/09, (MBIA).............................. 559,035
200,000 West Morris, New Jersey,
Regional High School District, General Obligation
5.875%, 1/15/01..................................... 209,820
3,655,000 West New York and New Jersey, Municipal Utilities
Authority,
Capital Appreciation Refunding,
(Eff. Yield 6.85%) (a)
0.00%, 12/15/19, (FGIC)............................. 1,339,375
50,000 West Windsor Township, New Jersey,
Parking Authority Revenue,
6.10%, 12/1/12...................................... 55,626
500,000 Willingboro, New Jersey,
Municipal Utilities Authority,
Water & Sewer Revenue
6.30%, 1/1/06, (FGIC)............................... 503,480
500,000 Winslow Township, New Jersey,
General Obligation
6.50%, 10/1/18, (FGIC).............................. 559,585
------------
120,390,232
------------
NEW YORK - 3.9%
Port Authority of New York and New Jersey Revenue:
50,000 5.70%, 8/1/07....................................... 53,562
1,525,000 Consolidated 104 Series
4.75%, 1/15/26...................................... 1,494,042
Port Authority of New York
and New Jersey, Port Airport &
Marine Revenue:
1,000,000 Series 104
5.20%, 7/15/15, (AMBAC)............................. 1,042,850
3,000,000 Series 111
5.00%, 10/1/27...................................... 3,010,080
1,000,000 Port Authority of New York
and New Jersey, Special Obligation,
JFK International Airport Terminal
5.75%, 12/1/25...................................... 1,074,330
------------
6,674,864
------------
PENNSYLVANIA - 3.8%
100,000 Allegheny County, Pennsylvania,
Hospital Development Revenue
4.05%, 3/1/18, VRDN (b)............................. 100,000
475,000 Delaware River, Pennsylvania
Joint Toll Bridge, Commission Revenue
6.25%, 7/1/12....................................... 511,694
2,000,000 Delaware River, Pennsylvania
Port Authority of Pennsylvania and New Jersey
Revenue
5.50%, 1/1/26....................................... 2,121,860
Delaware River, Port Authority of
Pennsylvania and New Jersey Revenue:
2,500,000 5.40%, 1/1/15, (FGIC)............................... 2,656,900
1,000,000 Series 1995
5.40%, 1/1/16, (FGIC)............................... 1,060,430
------------
6,450,884
------------
PUERTO RICO - 15.5%
1,000,000 Commonwealth of Puerto Rico,
Capital Guaranty Certificates
6.50%, 7/1/23....................................... 1,151,470
Commonwealth of Puerto Rico,
Electric Power Authority Revenue:
2,500,000 Series DD
5.00%, 7/1/28....................................... 2,499,800
500,000 Series P
7.00%, 7/1/21....................................... 553,900
Commonwealth of Puerto Rico,
General Obligation:
500,000 5.50%, 7/1/13....................................... 525,020
1,115,000 6.50%, 7/1/08, (MBIA)............................... 1,335,201
1,000,000 6.50%, 7/1/14....................................... 1,229,000
Commonwealth of Puerto Rico, Highway &
Transportation Authority:
4,520,000 Highway Revenue, Series A,
(Eff. Yield 4.50%) (a)
0.00%, 7/1/16....................................... 1,988,258
Series Y:
2,000,000 5.00%, 7/1/36....................................... 2,049,700
1,425,000 6.25%, 7/1/14, (MBIA)............................... 1,711,325
Series Z:
3,000,000 6.00%, 7/1/18, (FSA)................................ 3,523,710
1,000,000 6.25%, 7/1/14, (MBIA)............................... 1,200,930
2,500,000 Commonwealth of Puerto Rico, Industrial Tourist
Educational Facilities, International
American University,
Series A
5.00%, 10/1/11...................................... 2,665,150
3,000,000 Commonwealth of Puerto Rico,
Public Finance Corporation,
Commonwealth Appropriations,
Series A
5.375%, 6/1/19...................................... 3,286,650
250,000 Commonwealth of Puerto Rico,
Public Buildings Authority,
Guaranteed Revenue
6.25%, 7/1/09, (AMBAC).............................. 296,103
2,000,000 Commonwealth of Puerto Rico,
Public Improvement
6.00%, 7/1/16, (MBIA)............................... 2,342,380
------------
26,358,597
------------
42
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
U. S. VIRGIN ISLANDS - 1.9%
$3,000,000 Virgin Islands,
Public Finance Authority, Senior Lien, Series A
5.50%, 10/1/13........................................ $ 3,152,190
------------
Total Municipal Obligations
(cost $157,637,130).................................. 167,192,817
------------
MUTUAL FUND SHARES - 0.6%
57,694 Dreyfus Municipal Money
Market Fund............................................. $ 57,694
882,405 Federated Municipal Cash Trust........................... 882,405
61,252 Federated Tax Free Obligations Fund...................... 61,252
------------
Total Mutual Fund Shares
(cost $1,001,351)....................................... 1,001,351
------------
TOTAL INVESTMENTS -
(COST $158,638,481)............................. 99.1% 168,194,168
OTHER ASSETS AND
LIABILITIES - NET............................... 0.9 1,611,541
----- ------------
NET ASSETS - .................................... 100.0% $169,805,709
===== ============
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(b) Variable Rate Demand Notes are payable on demand on no more than seven
calendar days notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily, weekly, or monthly depending upon the terms of the security.
Interest rates presented for these securities are those in effect at
September 30, 1998.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
MBIA Insured by Municipal Bond Investors Assurance Corporation
VRDN Variable Rate Demand Notes
See Combined Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - 98.2%
NEW YORK - 90.9%
$ 400,000 Albany County, New York, Public Improvements,
General Obligation, Series B
5.60%, 3/15/14, (FGIC)............................... $ 430,028
465,000 Buffalo, New York, General Obligation, Series E
6.50%, 12/1/22, (AMBAC).............................. 539,288
500,000 Buffalo, New York,
Municipal Water Finance Authority, Water Systems
Revenue, Series B
5.00%, 7/1/18, (FGIC)................................ 504,205
500,000 Cattaraugus County, New York, Industrial Development
Agency, Civic Facilities Revenue, Olean
General Hospital Project, Series A
5.25%, 8/1/23........................................ 504,605
770,000 Erie County, New York, Water Authority Revenue,
Fourth Resolution,
(Eff. Yield 7.30%) (a)
0.00%, 12/1/17, (AMBAC).............................. 194,956
550,000 Hempstead Town, New York, General Obligation, Series
B
5.625%, 2/1/15, (FGIC)............................... 593,296
100,000 Islip, New York,
Resources Recovery Agency Revenue, Series B
7.25%, 7/1/11, (AMBAC)............................... 126,869
Long Island Power Authority, New York, Electric
Systems Revenue, Series A:
500,000 5.00%, 12/1/18, (FSA)................................ 503,745
500,000 5.125%, 12/1/16, (FSA)............................... 510,135
400,000 Metropolitan Transportation Authority, New York,
Service Contractor Revenue, Transportation
Facilities, Series 7
5.625%, 7/1/16....................................... 415,476
695,000 Nassau County, New York, Combined Sewer District,
General Obligation, Series B
6.00%, 5/1/14, (FGIC)................................ 803,976
600,000 New Rochelle, New York, General Obligation, Series B
6.15%, 8/15/17, (MBIA)............................... 660,924
New York City, New York:
100,000 City Industrial Development Agency Revenue, Japan
Airlines
6.00%, 11/1/15....................................... 109,627
400,000 City Municipal Water Finance Authority, Water & Sewer
Systems Revenue, Series A
7.00%, 6/15/15, (FGIC)............................... 432,648
New York State Dormitory Authority Revenue:
500,000 Buena Vida Nursing Home
5.25%, 7/1/28........................................ 506,340
250,000 State University Educational Facilities, Series A
5.875%, 5/15/11, (AMBAC)............................. 286,380
250,000 New York State Environmental Facilities Corporation,
Special Obligation Revenue, Riverbank State Park
5.50%, 4/1/16, (AMBAC)............................... 265,248
875,000 New York State Housing Finance Agency Revenue,
Multifamily Mortgage, Series B
6.25%, 8/15/14, (AMBAC).............................. 951,755
1,000,000 New York State Medical Care Facilities, Finance
Agency Revenue,
Mental Health Services, Series E
6.375%, 8/15/14, (FGIC).............................. 1,124,660
New York State Mortgage Agency Revenue, Homeowner
Mortgage:
1,000,000 Series 71
5.35%, 10/1/18....................................... 1,014,870
525,000 Series 73A
5.30%, 10/1/28....................................... 528,276
700,000 New York State Thruway Authority, Service Contract,
Local Highway & Bridge Revenue
5.75%, 4/1/16........................................ 748,783
New York State Urban Development Corporation Revenue:
Correctional Facilities:
500,000 (Eff. Yield 5.63%) (a)
0.00%, 1/1/10, (AMBAC)............................... 305,950
1,000,000 Series A
6.50%, 1/1/10, (FSA)................................. 1,193,120
500,000 Higher Education Technology Grants
6.00%, 4/1/10, (MBIA)................................ 554,645
Niagara, New York,
Frontier Authority, Airport Revenue,
Greater Buffalo International Airport:
500,000 5.00%, 4/1/28, (FGIC)................................ 497,080
100,000 Series A
6.125%, 4/1/14, (AMBAC).............................. 108,960
Niagara Falls, New York,
Public Improvements, General Obligation:
500,000 7.50%, 3/1/14, (MBIA)................................ 664,740
750,000 7.50%, 3/1/16, (MBIA)................................ 1,001,085
250,000 St. Lawrence County, New York, Industrial
Development,
Civic Facilities Revenue,
St. Lawrence University Project, Series A
5.625%, 7/1/13, (MBIA)............................... 268,808
1,000,000 Suffolk County, New York,
Industrial Development Agency,
Southwest Sewer Systems Revenue
6.00%, 2/1/08, (FGIC)................................ 1,140,500
1,770,000 Triborough Bridge and Tunnel Authority, New York,
Special Obligation, Series A
5.25%, 1/1/14, (FGIC)................................ 1,859,615
-----------
19,350,593
-----------
44
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
New York Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
PUERTO RICO - 7.3%
$1,100,000 Commonwealth of Puerto Rico,
Capital Appreciation, General Obligation,
(Eff. Yield 4.85%) (a)
0.00%, 7/1/14, (MBIA).................................. $ 528,924
700,000 Commonwealth of Puerto Rico,
Industrial, Tourist, Educational, Medical &
Environmental Control Facilities, Hospital Auxilio
Mutuo Obligation Group, Series A
6.25%, 7/1/24, (MBIA).................................. 778,911
250,000 Commonwealth of Puerto Rico,
Public Buildings Authority Revenue, Government
Facilities, Series B
5.00%, 7/1/12, (MBIA).................................. 260,872
---------
1,568,707
---------
TOTAL INVESTMENTS -
(COST $19,388,873)............................. 98.2% 20,919,300
OTHER ASSETS AND
LIABILITIES - NET.............................. 1.8 373,008
----- -----------
NET ASSETS - ................................... 100.0% $21,292,308
===== ===========
(a) Effective yield (calculated at date of purchase) is the annual yield
at which the bond accretes until its maturity date.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FSA Insured by Financial Security Assurance Corporation
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
45
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - 97.8%
DELAWARE - 0.4%
$ 1,000,000 Delaware State, River & Bay Authority Revenue
5.40%, 1/1/16, (FGIC).............................. $ 1,059,110
------------
GEORGIA - 0.0%
100,000 Hapeville, Georgia,
Industrial Development Authority Revenue,
Hapeville Hotel Ltd., Series 1985
(LOC: Deutsche Bank A.G.)
4.10%, 11/1/15, VRDN (d)........................... 100,000
------------
PENNSYLVANIA - 83.5%
280,000 Abington, Pennsylvania, School District, General
Obligation
4.85%, 5/15/18, (FGIC)............................. 279,636
2,000,000 Albert Gallatin, Pennsylvania, Area School
District, General Obligation
5.30%, 9/1/17, (MBIA).............................. 2,067,720
955,000 Allegheny County, Pennsylvania, Finance Authority
Revenue Bond, Single Family Mortgage, Series Y
6.60%, 11/1/14, (GNMA)............................. 1,043,786
60,000 Allegheny County, Pennsylvania, General Obligation
5.875%, 9/15/10, (MBIA)............................ 64,932
2,000,000 Allegheny County, Pennsylvania, Industrial
Development Authority Revenue Bond, USX Corp.,
Series A
6.70%, 12/1/20..................................... 2,214,200
10,000 Allegheny County, Pennsylvania, Redevelopment
Authority Revenue
5.70%, 2/1/07, (FHA)............................... 10,493
130,000 Allegheny County, Pennsylvania, Sanitation
Authority, Sewer Revenue
7.45%, 12/1/09..................................... 133,505
Allegheny County, Pennsylvania, Higher Education
Building Authority Revenue, Duquesne University
Project:
3,350,000 5.50%, 3/1/16, (AMBAC)............................. 3,682,889
1,750,000 5.50%, 3/1/20, (AMBAC)............................. 1,917,913
Allegheny County, Pennsylvania, Hospital
Development Authority Revenue:
1,000,000 Children's Hospital of Pittsburgh
5.375%, 7/1/17, (MBIA)............................. 1,038,250
200,000 Mercy Hospital of Pittsburgh
6.45%, 4/1/01...................................... 212,962
110,000 Montefiore Hospital Association of Western
Pennsylvania
5.80%, 10/1/03..................................... 116,087
2,000,000 Pittsburgh Mercy Health Systems
5.625%, 8/15/18, (AMBAC)........................... 2,224,340
1,000,000 South Hills Health Systems
5.125%, 5/1/23..................................... 996,630
Allegheny County, Pennsylvania, Hospital
Development Authority Revenue:
500,000 Presbyterian University Hospital,
(LOC: PNC Bank, N.A.)
4.05%, 3/1/18...................................... 500,000
University of Pittsburgh Medical Center Health
Systems:
2,500,000 5.25%, 11/1/14, (MBIA)............................. 2,668,200
1,000,000 5.30%, 12/1/12, (MBIA)............................. 1,048,220
1,000,000 6.00%, 4/1/05, (MBIA).............................. 1,110,250
25,000 6.00%, 11/1/12, (MBIA)............................. 27,029
4,325,000 6.00%, 7/1/27, (MBIA).............................. 5,063,494
65,000 Berks County, Pennsylvania,
Municipal Authority Hospital
Revenue, Reading Hospital & Medical Center Project
5.60%, 10/1/06..................................... 70,960
Bradford, Pennsylvania,
Area School District, General Obligation:
1,525,000 5.50%, 10/1/14, (FGIC)............................. 1,639,817
2,000,000 5.75%, 10/1/15, (FGIC)............................. 2,217,980
2,095,000 Bucks County, Pennsylvania,
General Obligation
5.50%, 12/1/10..................................... 2,272,614
1,000,000 Bucks County, Pennsylvania,
Water & Sewer Authority Revenue
6.20%, 12/1/03, (FGIC)............................. 1,068,530
4,485,000 Cambria County, Pennsylvania,
General Obligation, Series A
6.625%, 8/15/12, (FGIC)............................ 5,142,142
60,000 Center City District, Pennsylvania,
Business Improvement Special Assessment
5.60%, 12/1/08, (AMBAC)............................ 65,997
Central Bucks, Pennsylvania,
School District, General Obligation:
175,000 6.60%, 2/1/03...................................... 186,424
1,000,000 Series A
6.90%, 11/15/13.................................... 1,158,730
1,000,000 Central Dauphin, Pennsylvania,
School District, General Obligation
5.90%, 6/1/00...................................... 1,035,610
1,000,000 Council Rock, Pennsylvania,
School District, General Obligation
6.50%, 3/1/02, (FGIC).............................. 1,062,410
Crawford, Pennsylvania,
Central School District,
General Obligation:
1,500,000 5.55%, 2/15/08, (FGIC)............................. 1,617,000
100,000 7.00%, 2/15/05, (FGIC)............................. 116,877
Dauphin County, Pennsylvania,
General Authority Revenue:
15,000,000 Forum Place Office & Parking, Series A
6.00%, 1/15/25..................................... 15,033,600
46
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - CONTINUED
Dauphin County, Pennsylvania, General
Authority Revenue - continued
$ 6,300,000 Hyatt Regency Hotel & Conference Center
6.00%, 1/1/10..................................... $ 6,381,333
1,000,000 Pinnacle Health Systems Project
5.50%, 5/15/17, (MBIA)............................ 1,051,350
Delaware County, Pennsylvania,
General Obligation:
1,575,000 5.50%, 10/1/15.................................... 1,667,547
170,000 7.10%, 12/1/98.................................... 170,430
6,750,000 Delaware County, Pennsylvania,
Hospital Authority Revenue
5.50%, 1/1/22..................................... 7,046,257
1,350,000 Delaware County, Pennsylvania,
Industrial Development Authority,
Pollution Control Revenue Bond,
Philadelphia Electric Co., Series A
7.375%, 4/1/21.................................... 1,464,588
200,000 Delaware County, Pennsylvania,
University Revenue,
Villanova University
5.40%, 8/1/08..................................... 216,982
Delaware River Port Authority,
Pennsylvania & New Jersey Revenue:
1,000,000 5.30%, 1/1/10, (FGIC)............................. 1,066,400
1,400,000 5.45%, 1/1/12, (FGIC)............................. 1,509,774
15,000 Dover Township, Pennsylvania,
Sewer Authority Revenue
6.25%, 5/1/12..................................... 16,638
500,000 Easton, Pennsylvania,
Area Joint Sewer Authority
5.00%, 12/1/14................................... 511,350
1,485,000 Elizabeth Forward, Pennsylvania,
School District, General Obligation, Series B,
(Eff. Yield 6.70%) (a)
0.00%, 9/1/15, (MBIA)............................ 671,888
500,000 Erie County, Pennsylvania,
Industrial Development Authority, Environmental
Improvement Revenue Bond, International Paper Co.
Project, Series A
7.625%, 11/1/18.................................. 588,030
1,000,000 Fox Chapel, Pennsylvania,
Area School District, General Obligation
5.50%, 8/15/09................................... 1,059,380
1,000,000 Gettysburg, Pennsylvania,
Municipal Authority College Revenue, Gettysburg
College
5.375%, 8/15/13, (MBIA).......................... 1,088,230
1,500,000 Greene County, Pennsylvania,
Industrial Development Authority Revenue,
Monongahela Power Co., Series B
5.10%, 2/1/12.................................... 1,536,975
85,000 Hampden Township, Pennsylvania,
Sewer Authority, Special Obligation Bond
5.35%, 4/1/03.................................... 87,780
Harrisburg, Pennsylvania,
General Obligation:
2,700,000 Series D, (Eff. Yield 5.35%) (a)
0.00%, 3/15/13, (AMBAC).............................. 1,384,614
2,505,000 Series F, (Eff. Yield 5.35%) (a)
0.00%, 3/15/13, (AMBAC).............................. 1,284,614
1,000,000 Harrisburg, Pennsylvania,
Lease Revenue
6.25%, 6/1/01, (FSA)................................ 1,063,090
2,000,000 Hempfield, Pennsylvania,
School District, General Obligation
5.30%, 10/15/14, (FGIC)............................. 2,065,120
2,500,000 Indiana County, Pennsylvania,
Industrial Development Authority, Pollution Control
Revenue, Pennsylvania Electric Co. Project
5.35%, 11/1/10, (MBIA).............................. 2,732,125
500,000 Keystone Oaks, Pennsylvania,
School District, General Obligation
5.00%, 9/1/11....................................... 522,415
435,000 Lancaster, Pennsylvania,
Higher Education Authority, College Revenue,
Franklin & Marshall College (SPA: Chase Manhattan
Bank)
4.10%, 4/15/27, VRDN (d) ........................... 435,000
2,635,000 Latrobe, Pennsylvania,
Industrial Development Authority, College Revenue,
St. Vincent College Project
5.375%, 5/1/18...................................... 2,666,725
Lehigh County, Pennsylvania,
General Purpose Revenue:
1,000,000 Good Shepherd Rehabilitation Hospital
7.50%, 11/15/21...................................... 1,125,340
1,250,000 Lehigh Valley Hospital, Series A
7.00%, 7/1/16, (MBIA)................................ 1,582,937
Lower Merion Township, Pennsylvania,
General Obligation:
100,000 5.625%, 8/1/05....................................... 105,882
1,000,000 5.75%, 8/1/09........................................ 1,058,490
500,000 Lower Merion Township, Pennsylvania,
School District, General Obligation
4.75%, 5/15/01...................................... 513,815
100,000 Manheim, Pennsylvania,
Central School District, General Obligation
6.10%, 5/15/14, (FGIC).............................. 108,759
1,780,000 Mars, Pennsylvania,
Area School District, General Obligation,
(Eff. Yield 6.60%) (a)
0.00%, 9/1/26, (FGIC)............................... 450,109
McKeesport, Pennsylvania,
Area School District, General Obligation, Capital
Appreciation, Series B:
1,200,000 (Eff. Yield 6.30%) (a)
0.00%, 10/1/17, (FSA)................................ 485,136
1,440,000 (Eff. Yield 6.30%) (a)
0.00%, 10/1/18, (FSA)................................ 551,808
47
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - CONTINUED
$ 4,000,000 McKeesport, Pennsylvania,
Area School District, General Obligation, Series A
6.00%, 10/1/25, (FSA)............................. $ 4,527,840
150,000 Millcreek Township, Pennsylvania,
Sewer Authority Revenue
6.00%, 11/1/06.................................... 154,229
1,305,000 Mon Valley, Pennsylvania,
Sewer Authority Revenue
6.55%, 11/1/19, (MBIA)............................ 1,464,706
1,340,000 Montgomery County, Pennsylvania,
General Obligation, Series B
5.35%, 10/15/16................................... 1,405,124
Montgomery County, Pennsylvania,
Higher Education & Health Authority:
Abington Memorial Hospital, Series A:
2,000,000 5.125%, 6/1/14, (AMBAC)............................ 2,051,500
1,000,000 6.40%, 6/1/02, (AMBAC)............................. 1,067,630
1,025,000 College Revenue, County Community College Project
6.75%, 11/1/02..................................... 1,086,777
950,000 Montgomery County, Pennsylvania,
Industrial Development Authority, Pollution Control
Revenue Bond, Philadelphia Electric Co.
7.60%, 4/1/21..................................... 1,035,614
500,000 Mount Pleasant, Pennsylvania,
Business District Authority, Hospital Revenue, Frick
Hospital
5.75%, 12/1/27.................................... 515,975
500,000 Neshaminy, Pennsylvania,
School District, General Obligation
5.25%, 2/15/07, (FGIC)............................ 541,545
1,280,000 North Penn, Pennsylvania,
School District, General Obligation
5.50%, 3/1/05..................................... 1,390,426
1,000,000 North Penn, Pennsylvania,
Water Authority Revenue
6.00%, 11/1/07, (FGIC)............................ 1,078,570
100,000 North Wales, Pennsylvania,
Water Authority Revenue
6.75%, 11/1/10, (FGIC)............................ 115,566
2,000,000 Owen J. Roberts School District, Pennsylvania,
General Obligation, Series A
5.375%, 5/15/18, (MBIA)........................... 2,070,580
Parkland, Pennsylvania,
School District, General Obligation:
4,110,000 5.375%, 9/1/14..................................... 4,485,572
1,325,000 5.75%, 9/1/14, (MBIA).............................. 1,430,947
1,000,000 Penn Hills, Pennsylvania,
General Obligation
5.60%, 12/1/05, (AMBAC)........................... 1,068,540
1,000,000 Pennridge, Pennsylvania,
School District, General Obligation
6.15%, 2/15/03, (AMBAC)........................... 1,072,790
Pennsylvania State, Convention Center Authority
Revenue, Series A:
1,050,000 6.00%, 9/1/19, (FGIC).............................. 1,194,186
1,000,000 6.60%, 9/1/00, (FGIC).............................. 1,053,790
75,000 6.70%, 9/1/16, (FGIC).............................. 91,625
1,000,000 6.75%, 9/1/19, (MBIA).............................. 1,145,360
2,000,000 (Eff. Yield 6.95%) (a)
0.00%, 9/1/08, (FGIC).............................. 1,319,940
5,000,000 Pennsylvania State, Finance Authority Revenue,
Municipal Capital Imports Program
6.60%, 11/1/09.................................... 5,537,550
Pennsylvania State, General Obligation:
350,000 5.00%, 9/1/12...................................... 360,377
25,000 6.00%, 7/1/05...................................... 28,005
60,000 6.25%, 7/1/11...................................... 71,044
Pennsylvania State, Higher Education Facilities
Authority Revenue:
500,000 5.00%, 12/15/16.................................... 508,570
2,200,000 Drexel University
5.375%, 5/1/16, (MBIA)............................. 2,300,210
1,095,000 Lasalle University
5.25%, 5/1/13, (MBIA).............................. 1,175,811
485,000 Series A
6.625%, 8/15/09, (MBIA)............................ 536,585
Thomas Jefferson University:
285,000 5.15%, 11/1/10, (MBIA)............................. 293,484
1,115,000 6.625%, 8/15/09.................................... 1,244,206
150,000 Series A
6.00%, 7/1/19, (MBIA).............................. 154,364
100,000 Pennsylvania State, Higher Education Facilities
Authority, College & University Revenue,
University of Pennsylvania, Series B
5.85%, 9/1/13..................................... 109,171
Pennsylvania State, Higher Education Facilities
Authority, Health Services Revenue:
400,000 Allegheny Delaware Valley Obligation
5.50%, 11/15/08.................................... 411,964
University of Pennsylvania:
1,000,000 6.00%, 1/1/07...................................... 1,120,760
100,000 Series A
6.00%, 1/1/10...................................... 109,366
Series B:
500,000 5.25%, 1/1/07...................................... 535,520
150,000 5.70%, 1/1/11...................................... 161,904
Pennsylvania State, Housing Finance Authority
Revenue, Single Family Mortgage:
300,000 6.40%, 7/1/12, (FNMA).............................. 321,567
750,000 Series 33
6.90%, 4/1/17...................................... 807,975
2,000,000 Series 34A
6.85%, 4/1/16, (FHA)............................... 2,132,200
48
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - CONTINUED
Pennsylvania State, Housing Finance Authority
Revenue, Single Family Mortgage - continued
$ 750,000 Series 40
6.80%, 10/1/15....................................... $ 815,348
1,840,000 Series 50A
6.00%, 10/1/13....................................... 1,982,986
Pennsylvania State, Industrial Development Authority
Revenue:
250,000 5.80%, 7/1/09........................................ 282,803
2,000,000 6.00%, 7/1/06........................................ 2,250,000
600,000 6.00%, 7/1/08........................................ 683,772
305,000 6.00%, 7/1/09........................................ 348,252
2,000,000 7.00%, 1/1/06........................................ 2,360,200
1,000,000 7.00%, 7/1/06........................................ 1,190,780
975,000 Series 1994
6.00%, 1/1/12........................................ 1,064,875
400,000 Pennsylvania State, Infrastructure Revenue
6.00%, 9/1/04....................................... 443,188
1,650,000 Pennsylvania State, Intergovernmental Cooperation
Authority, Special Tax Revenue, Philadelphia Funding
Program
6.75%, 6/15/21, (FGIC).............................. 1,924,593
Pennsylvania State, Turnpike Commission Revenue:
6,750,000 4.75%, 12/1/27....................................... 6,574,635
1,000,000 Series L
6.45%, 6/1/03, (AMBAC)............................... 1,082,520
3,000,000 Series M
6.50%, 12/1/13, (FGIC)............................... 3,282,420
Series P:
150,000 5.10%, 12/1/99....................................... 153,115
75,000 5.80%, 12/1/06....................................... 80,846
Pennsylvania State, University Revenue:
185,000 6.15%, 3/1/05........................................ 201,019
1,000,000 6.25%, 3/1/11........................................ 1,076,430
1,000,000 6.60%, 7/1/02........................................ 1,090,150
Philadelphia, Pennsylvania,
Airport Parking Authority Revenue:
400,000 5.75%, 9/1/07........................................ 448,944
1,000,000 5.75%, 9/1/08, (AMBAC)............................... 1,124,120
Philadelphia, Pennsylvania,
Hospital & Higher Education Facilities Authority,
Hospital Revenue:
500,000 Albert Einstein Medical Center
7.625%, 4/1/11....................................... 520,240
500,000 Temple University Hospital
5.50%, 11/15/15...................................... 514,595
500,000 Philadelphia, Pennsylvania,
Industrial Development Authority, Industrial &
Commercial Revenue, Girard Estate Coal Mining
Project
5.25%, 11/15/09..................................... 528,080
$ 4,000,000 Philadelphia, Pennsylvania,
Water & Wastewater Revenue
6.25%, 8/1/12, (MBIA)............................... 4,732,080
25,000 Pittsburgh, Pennsylvania,
General Obligation, Series D
6.125%, 9/1/17, (AMBAC)............................. 27,522
1,000,000 Pleasant Valley, Pennsylvania,
School District, General Obligation
5.60%, 11/15/14, (FGIC)............................. 1,068,140
1,000,000 Pocono Mountain, Pennsylvania,
School District, General Obligation, Series AA
6.10%, 10/1/03, (AMBAC)............................. 1,073,810
Scranton-Lackwanna, Pennsylvania,
Health & Welfare Authority Revenue:
250,000 Mercy Health Project, Series B
5.00%, 1/1/06, (MBIA)................................ 263,962
150,000 University of Scranton Project, Series A
6.15%, 3/1/03........................................ 162,084
Seneca Valley, Pennsylvania,
School District, General Obligation:
105,000 5.85%, 2/15/15, (FGIC)............................... 116,882
100,000 Series A
4.65%, 7/1/09, (FGIC)................................ 103,032
4,000,000 South Fork, Pennsylvania,
Municipal Hospital Authority Revenue, Conemaugh
Valley Memorial Hospital, Series B
5.375%, 7/1/22, (MBIA).............................. 4,148,280
1,500,000 Southeastern Pennsylvania,
Transportation Authority, Special Revenue, Series A
5.625%, 3/1/07, (FGIC).............................. 1,639,125
1,000,000 Tredyffrin Township, Pennsylvania,
General Obligation
5.45%, 11/15/13..................................... 1,059,870
1,000,000 Unionville-Chadds Ford, Pennsylvania,
School District, General Obligation
5.80%, 6/1/13....................................... 1,080,120
University of Pittsburgh, Pennsylvania,
University Revenue:
40,000 Series A
6.125%, 6/1/21, (MBIA)............................... 43,043
5,000 Series B
5.90%, 6/1/03, (MBIA)................................ 5,428
540,000 Upper Merion, Pennsylvania,
Area School District, General Obligation
5.00%, 7/15/12...................................... 556,141
Upper Merion, Pennsylvania,
Municipal Utilities Authority, Sewer Revenue:
1,000,000 6.00%, 8/15/12....................................... 1,067,120
2,325,000 6.00%, 8/15/16....................................... 2,461,245
1,000,000 Wallenpaupack, Pennsylvania,
Area School District, General Obligation, Series B
6.00%, 9/1/03, (FGIC)............................... 1,040,590
49
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - CONTINUED
$ 1,000,000 West Mifflin, Pennsylvania,
Sewer Municipal Authority Revenue, Sewer Revenue
5.70%, 8/1/15, (FGIC)............................. $ 1,109,610
1,000,000 York County, Pennsylvania,
General Obligation
6.00%, 10/1/04, (FGIC)............................ 1,067,210
2,000,000 York County, Pennsylvania,
Hospital Authority Revenue, York Hospital
5.25%, 7/1/17, (AMBAC)............................ 2,062,000
75,000 York, Pennsylvania,
City School District, General Obligation
5.60%, 3/1/07, (FGIC)............................. 79,644
------------
207,660,452
------------
PUERTO RICO - 11.8%
Commonwealth of Puerto Rico, Highway &
Transportation Authority Revenue:
9,000,000 Series A (Eff. Yield 5.00%) (a)
0.00%, 7/1/16, (AMBAC)............................. 3,943,350
1,000,000 Series W
5.50%, 7/1/13, (MBIA).............................. 1,113,590
100,000 Series Y
5.25%, 7/1/15, (FSA)............................... 105,326
5,000,000 Series Z
6.00%, 7/1/18, (FSA)............................... 5,909,400
3,250,000 Commonwealth of Puerto Rico,
Industrial, Tourist, Educational, Medical &
Environmental Control Facilities
6.25%, 7/1/24, (MBIA)............................. 3,616,373
3,950,000 Commonwealth of Puerto Rico,
Linked Bond Payment Obligation,
Series D
7.00%, 7/1/10, (MBIA)(c) ......................... 4,969,100
1,000,000 Commonwealth of Puerto Rico,
Municipal Finance Agency Revenue, Series A
6.00%, 7/1/11, (FSA).............................. 1,157,680
$ 1,800,000 Commonwealth of Puerto
Rico, Public Buildings Authority Revenue,
Guaranteed Public Education & Health Facilities,
Series M 5.70%, 7/1/09............................ 1,994,544
5,000,000 Commonwealth of Puerto
Rico, Public Finance Corp. Revenue, Series A
5.375%, 6/1/19, (AMBAC)........................... 5,485,400
1,000,000 University of Puerto Rico, University Revenue,
Series N 6.25%, 6/1/07, (MBIA).................... 1,165,120
------------
29,459,883
------------
U. S. VIRGIN ISLANDS - 2.1%
5,000,000 Virgin Islands, Public
Finance Authority Revenue, Series A
5.50%, 10/1/18.................................... 5,121,800
------------
Total Municipal Obligations
(cost $230,923,557)............................... 243,401,245
------------
SHORT-TERM MUNICIPAL SECURITIES - 0.9%
PENNSYLVANIA - 0.9%
2,140,000 Philadelphia, Pennsylvania, Hospital & Higher
Education Facilities Authority, Hospital
Revenue, Children's Hospital of
Philadelphia (SPA: Morgan Guaranty)
4.15%, 3/1/27 (b)................................. 2,140,000
------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES - 0.5%
351,437 Federated Tax Free Obligations Fund.............. 351,437
841,236 Pennsylvania Municipal Cash Trust,
Institutional Service Shares.................... 841,236
-----------
Total Mutual Fund Shares
(cost $1,192,673)............................... 1,192,673
-----------
TOTAL INVESTMENTS -
(COST $234,256,230)............................. 99.2% 246,733,918
OTHER ASSETS AND
LIABILITIES - NET............................... 0.8 2,006,492
----- ------------
NET ASSETS - .................................... 100.0% $248,740,410
===== ============
50
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Pennsylvania Tax Free Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(b) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued in-
terest upon surrendering the security to the issuing agent.
(c) At the discretion of the portfolio manager, these securities may be sepa-
rated into securities with interest or principal payments that are linked
to another rate or index and therefore would be considered derivative secu-
rities.
(d) Variable Rate Demand Notes are payable on demand on no more than seven cal-
endar days notice given by the Fund to the issuer or other parties not af-
filiated with the issuer. Interest rates are determined and reset by the
issuer daily, weekly, or monthly depending upon the terms of the security.
Interest rates presented for these securities are those in effect at Sep-
tember 30, 1998.
SUMMARY OF ABBREVIATIONS:
AMBAC Insured by American Municipal Bond Assurance Corporation
FGIC Insured by Federal Guaranty Insurance Company
FHA Insured by Federal Housing Authority
FNMA Federal National Mortgage Association
FSA Insured by Financial Security Assurance, Incorporated
GNMA Insured by Government National Mortgage Association
LOC Letter of Credit
MBIA Insured by Municipal Bond Investors Assurance Corporation
SPA Security Purchase Agreement
VRDN Variable Rate Demand Notes
See Combined Notes to Financial Statements.
51
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
State Municipal Bond Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
CALIFORNIA CONNECTICUT MASSACHUSETTS MISSOURI NEW JERSEY NEW YORK
PENNSYLVANIA
FUND FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at market
value (identified
cost - $24,697,991,
$67,340,621,
$9,263,389,
$23,743,524,
$158,638,481,
$19,388,873 and
$234,256,230,
respectively)......... $26,509,377 $70,842,841 $9,738,991 $25,525,149 $168,194,168 $20,919,300
$246,733,918
Cash................... 1,645 0 4,551 3,030 0
177,662 3
Receivable for
investments sold...... 750,574 0 558,428 0 0
0 0
Interest receivable.... 310,170 1,062,407 127,675 328,156 2,199,485 253,914
3,458,110
Receivable for Fund
shares sold........... 0 0 5,888 8,002 74,933 1,523
77,126
Prepaid expenses and
other assets.......... 8,567 35,491 3,819 4,602 5,394 2,706
45,112
- ---------------------------------------------------------------------------------------------------------------------
Total assets........... 27,580,333 71,940,739 10,439,352 25,868,939 170,473,980 21,355,105
250,314,269
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased............. 721,040 0 735,683 487,165 0
0 0
Dividends payable...... 52,692 254,361 7,395 58,260 534,660 27,986
880,129
Due to related
parties............... 12,396 6,723 130 6,760 44,990 9,840
106,835
Distribution fee
payable............... 9,889 102 2,537 7,606 4,117 6,958
18,521
Payable for Fund shares
redeemed.............. 1,000 0 1,341 0 33,926 0
537,903
Accrued Trustees' fees
and expenses.......... 664 132 607 301 5,782 246
1,815
Accrued expenses and
other liabilities..... 2,735 6,507 7,488 59,552 44,796 17,767
28,656
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities...... 800,416 267,825 755,181 619,644 668,271 62,797
1,573,859
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS.............. $26,779,917 $71,672,914 $9,684,171 $25,249,295 $169,805,709 $21,292,308
$248,740,410
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital........ $24,690,760 $67,513,472 $8,993,266 $23,047,535 $159,322,556 $19,071,122
$233,667,613
Undistributed net
investment income..... (52,878) 0 (6,750) (46,006) 1,870 (14,383)
(106,787)
Accumulated net
realized gains and
losses on investments
and futures
contracts............. 330,649 657,222 222,053 466,141 925,596 705,142
2,701,896
Net unrealized gains
and losses on
investments .......... 1,811,386 3,502,220 475,602 1,781,625 9,555,687 1,530,427
12,477,688
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS....... $26,779,917 $71,672,914 $9,684,171 $25,249,295 $169,805,709 $21,292,308
$248,740,410
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Class A................ $ 6,899,128 $ 314,466 $2,152,596 $ 5,214,117 $ 33,258,665 $ 3,622,250 $
29,268,068
Class B................ 18,673,581 435,064 5,917,889 19,242,661 17,067,734 16,249,094
37,430,158
Class C................ 1,207,208 0 1,613,686 792,517 0 1,420,964
6,448,239
Class Y................ 0 70,923,384 0 0 119,479,310 0
175,593,945
- ---------------------------------------------------------------------------------------------------------------------
$26,779,917 $71,672,914 $9,684,171 $25,249,295 $169,805,709 $21,292,308
$248,740,410
- ---------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................ 673,220 48,092 216,585 503,716 2,913,294 349,667
2,447,994
Class B................ 1,829,373 66,539 598,482 1,875,380 1,495,072 1,582,481
3,167,966
Class C................ 118,385 0 163,192 77,238 0 138,386
544,369
Class Y................ 0 10,846,398 0 0 10,465,934 0
14,686,761
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................ $ 10.25 $ 6.54 $ 9.94 $ 10.35 $ 11.42 $ 10.36 $
11.96
- ---------------------------------------------------------------------------------------------------------------------
Class A -- Offering
price (based on sales
charge of 4.75%)...... $ 10.76 $ 6.87 $ 10.44 $ 10.87 $ 11.99 $ 10.88 $
12.56
- ---------------------------------------------------------------------------------------------------------------------
Class B................ $ 10.21 $ 6.54 $ 9.89 $ 10.26 $ 11.42 $ 10.27 $
11.82
- ---------------------------------------------------------------------------------------------------------------------
Class C................ $ 10.20 -- $ 9.89 $ 10.26 -- $ 10.27 $
11.85
- ---------------------------------------------------------------------------------------------------------------------
Class Y................ -- $ 6.54 -- -- $ 11.42 -- $
11.96
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
52
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
State Municipal Bond Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Six Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
CALIFORNIA CONNECTICUT MASSACHUSETTS MISSOURI NEW JERSEY NEW YORK PENNSYLVANIA
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest............... $ 697,552 $1,718,629 $253,188 $695,682 $4,006,143 $577,163 $ 5,974,655
- -------------------------------------------------------------------------------------------------------------
EXPENSES
Distribution Plan
expenses.............. 108,913 2,146 40,353 106,775 116,471 93,905 249,396
Management fee......... 73,596 207,287 26,459 69,199 396,254 59,135 548,923
Professional fees...... 8,645 9,534 9,237 10,702 14,211 8,123 10,282
Transfer agent fees.... 4,194 382 4,206 9,891 10,871 9,517 34,793
Administrative services
fees.................. 1,941 9,329 632 1,492 21,723 1,523 16,742
Shareholder reports
expense............... 505 888 4,377 4,556 29,666 19,917 24,687
Trustees' fees and
expenses.............. 260 306 309 301 863 260 3,329
Custodian fees......... 237 1,197 1,436 4,377 24,455 3,262 36,790
Other.................. 1,903 709 3,567 15,440 16,291 2,810 26,091
Fee waivers............ (1,170) (40,631) (21,321) (39,707) (214,726) (40,585) (28,776)
- -------------------------------------------------------------------------------------------------------------
Total expenses......... 199,024 191,147 69,255 183,026 416,079 157,867 922,257
Less: Indirectly paid
expenses.............. (76) (548) (38) (761) (471) (38) (4,145)
- -------------------------------------------------------------------------------------------------------------
Net expenses........... 198,948 190,599 69,217 182,265 415,608 157,829 918,112
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME... 498,604 1,528,030 183,971 513,417 3,590,535 419,334 5,056,543
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS AND FUTURES
CONTRACTS
Net realized gain
(loss) on:
Investments............ 257,378 232,096 182,883 389,479 534,847 560,101 1,352,587
Closed futures
contracts............. (57,515) 0 (13,591) (33,762) 0 (34,456) 0
- -------------------------------------------------------------------------------------------------------------
Net realized gain on
investments and closed
futures contracts..... 199,863 232,096 169,292 355,717 534,847 525,645 1,352,587
Net change in
unrealized gains and
losses on investments
and futures
contracts............. 512,294 1,554,472 17,026 74,216 3,922,033 (19,476) 3,930,142
- -------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain on
investments and
futures contracts..... 712,157 1,786,568 186,318 429,933 4,456,880 506,169 5,282,729
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............ $1,210,761 $3,314,598 $370,289 $943,350 $8,047,415 $925,503 $10,339,272
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
53
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
State Municipal Bond Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
CALIFORNIA CONNECTICUT MASSACHUSETTS MISSOURI NEW JERSEY NEW YORK
PENNSYLVANIA
FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income.. $ 498,604 $ 1,528,030 $ 183,971 $ 513,417 $ 3,590,535 $ 419,334 $
5,056,543
Net realized gain on
investments and closed
futures contracts..... 199,863 232,096 169,292 355,717 534,847 525,645
1,352,587
Net change in
unrealized gains and
losses on investments
and futures
contracts............. 512,294 1,554,472 17,026 74,216 3,922,033 (19,476)
3,930,142
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 1,210,761 3,314,598 370,289 943,350 8,047,415 925,503
10,339,272
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (142,547) (5,001) (45,609) (118,678) (740,829) (82,125)
(556,836)
Class B................ (328,255) (6,297) (108,528) (376,850) (274,659) (310,555)
(668,141)
Class C................ (27,802) 0 (29,834) (17,889) 0 (26,654)
(114,334)
Class Y................ 0 (1,516,732) 0 0 (2,575,154) 0
(3,717,766)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (498,604) (1,528,030) (183,971) (513,417) (3,590,642) (419,334)
(5,057,077)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold.................. 1,534,425 7,071,011 665,553 1,005,696 22,900,687 1,437,645
21,462,655
Shares issued in
connection with the
acquisition of:
CoreFund New Jersey
Municipal Bond Fund... 0 0 0 0 2,289,826
0 0
CoreFund Pennsylvania
Municipal Bond Fund... 0 0 0 0 0 0
19,628,667
Proceeds from
reinvestment of
distributions......... 195,734 8,748 106,983 186,566 723,892 261,870
802,739
Payment for shares
redeemed.............. (2,784,175) (5,345,654) (1,373,790) (1,812,098) (11,155,200) (3,181,984)
(18,964,177)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (1,054,016) 1,734,105 (601,254) (619,836) 14,759,205 (1,482,469)
22,929,884
- -----------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (341,859) 3,520,673 (414,936) (189,903) 19,215,978 (976,300)
28,212,079
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period.... 27,121,776 68,152,241 10,099,107 25,439,198 150,589,731 22,268,608
220,528,331
- -----------------------------------------------------------------------------------------------------------------------
END OF PERIOD.......... $26,779,917 $71,672,914 $ 9,684,171 $25,249,295 $169,805,709 $21,292,308
$248,740,410
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ (52,878) $ 0 $ (6,750) $ (46,006) $ 1,870 $ (14,383) $
(106,787)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
54
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
State Municipal Bond Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended March 31, 1998
<TABLE>
<CAPTION>
CALIFORNIA CONNECTICUT MASSACHUSETTS MISSOURI NEW JERSEY NEW YORK
PENNSYLVANIA
FUND FUND* FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income.. $ 1,090,619 $ 1,056,216 $ 455,667 $ 1,063,630 $ 4,012,108 $ 998,824 $
5,471,695
Net realized gain on
investments and closed
futures contracts..... 236,358 425,126 369,554 235,429 1,015,421 489,113
3,407,989
Net change in
unrealized gains and
losses on investments
and futures
contracts............. 1,295,323 55,361 258,124 1,157,948 1,915,701 822,112
1,218,774
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 2,622,300 1,536,703 1,083,345 2,457,007 6,943,230 2,310,049
10,098,458
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (205,595) (953) (93,495) (185,708) (1,518,372) (163,491)
(1,141,904)
Class B................ (781,308) (1,377) (270,195) (792,663) (419,808) (725,698)
(1,487,712)
Class C................ (68,869) 0 (68,044) (47,861) 0 (60,327)
(258,914)
Class Y................ 0 (1,053,886) 0 0 (2,083,453) 0
(2,490,364)
Realized capital gains
Class A................ 0 0 0 0 (240,378)
(21,835) 0
Class B................ 0 0 0 0 (86,039)
(118,363) 0
Class C................ 0 0 0 0 0
(9,455) 0
Class Y................ 0 0 0 0 (81,674)
0 0
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (1,055,772) (1,056,216) (431,734) (1,026,232) (4,429,724) (1,099,169)
(5,378,894)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold.................. 4,372,062 6,576,391 1,120,126 6,597,008 16,729,270 2,516,417
17,158,377
Shares issued in
connection with the
acquisition of Common
trust funds........... 0 65,325,420 0 0 93,692,061 0
147,227,043
Proceeds from
reinvestment of
distributions......... 475,762 2,057 281,994 456,051 1,561,654 691,411
1,719,493
Payment for shares
redeemed.............. (7,127,357) (4,232,114) (3,887,027) (7,105,076) (12,623,869) (6,778,220)
(18,876,225)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (2,279,533) 67,671,754 (2,484,907) (52,017) 99,359,116 (3,570,392)
147,228,688
- -----------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (713,005) 68,152,241 (1,833,296) 1,378,758 101,872,622 (2,359,512)
151,948,252
NET ASSETS
Beginning of year...... 27,834,781 0 11,932,403 24,060,440 48,717,109 24,628,120
68,580,079
- -----------------------------------------------------------------------------------------------------------------------
END OF YEAR............ $27,121,776 $68,152,241 $10,099,107 $25,439,198 $150,589,731 $22,268,608
$220,528,331
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net
investment income ..... $ (52,878) $ 0 $ (6,750) $ (46,006) $ 1,977 $ (14,383) $
(106,253)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Fund commenced operations on November 24, 1997.
See Combined Notes to Financial Statements.
55
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited)
1. ORGANIZATION
The Evergreen Municipal Bond Funds consist of Evergreen California Tax Free
Fund ("California Fund"), Evergreen Connecticut Municipal Bond Fund ("Connecti-
cut Fund"), Evergreen Massachusetts Tax Free Fund ("Massachusetts Fund"), Ever-
green Missouri Tax Free Fund ("Missouri Fund"), Evergreen New Jersey Tax Free
Income Fund ("New Jersey Fund"), Evergreen New York Tax Free Fund ("New York
Fund") and Evergreen Pennsylvania Tax Free Fund ("Pennsylvania Fund"), (collec-
tively, the "Funds"). Each Fund is a non-diversified series of Evergreen Munic-
ipal Trust (the "Trust"), a Delaware business trust organized on September 18,
1997. The Trust is an open end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. For each Fund, except the Connecticut Fund
and New Jersey Fund, Class B shares purchased after January 1, 1997 will auto-
matically convert to Class A shares after seven years. Class B shares of these
Funds purchased prior to January 1, 1997 retain their existing conversion
rights. For the Connecticut Fund and New Jersey Fund, all Class B shares will
automatically convert to Class A shares after seven years. Class C shares are
sold subject to a contingent deferred sales charge payable on shares redeemed
within one year after the month of purchase. Class Y shares are sold at net as-
set value and are not subject to contingent deferred sales charges or distribu-
tion fees. Class Y shares are sold only to investment advisory clients of First
Union Corporation ("First Union") and its affiliates, certain institutional in-
vestors or Class Y shareholders of record of certain other funds managed by
First Union and its affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
An independent pricing service values 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. Securities for which
valuations are not available from an independent pricing service, including re-
stricted securities, are valued at fair value as determined in good faith ac-
cording to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
56
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
D. FEDERAL TAXES
The Funds have qualified and intend to continue to qualify as regulated invest-
ment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal tax liability since they
are expected to distribute all of their net investment company taxable income,
net tax-exempt income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid any excise tax liability by making the required dis-
tributions under the Code. Accordingly, no provision for federal taxes is re-
quired. To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
E. DISTRIBUTIONS
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment of market dis-
count on securities.
F. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
3. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest authorized
with $0.001 par value. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C or Class Y. Transactions in shares of
the Funds were as follows:
- --------------------------------------------------------------------------------
California Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
--------------------- ---------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold..................... 72,089 $ 713,797 271,096 $ 2,691,837
Shares issued in reinvestment of
distributions.................. 3,891 39,001 7,540 73,883
Shares redeemed................. (45,920) (458,065) (79,526) (784,304)
- -------------------------------------------------------------------------------
Net increase.................... 30,060 $ 294,733 199,110 $ 1,981,416
- -------------------------------------------------------------------------------
CLASS B
Shares sold..................... 82,025 $ 817,469 153,832 $ 1,498,219
Shares issued in reinvestment of
distributions.................. 14,594 145,593 38,537 374,672
Shares redeemed................. (176,018) (1,752,317) (603,156) (5,920,355)
- -------------------------------------------------------------------------------
Net decrease.................... (79,399) $ (789,255) (410,787) $(4,047,464)
- -------------------------------------------------------------------------------
CLASS C
Shares sold..................... 229 $ 3,159 18,602 $ 182,006
Shares issued in reinvestment of
distributions.................. 1,117 11,140 2,804 27,207
Shares redeemed................. (57,848) (573,793) (43,562) (422,698)
- -------------------------------------------------------------------------------
Net decrease.................... (56,502) $ (559,494) (22,156) $ (213,485)
- -------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
Connecticut Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 30, 1998
(Commencement of Class
Six Months Ended Operations) to
September 30, 1998 March 31, 1998
------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold....................... 51,889 $ 331,067 22,857 $ 145,836
Shares issued in reinvestment of
distributions.................... 525 3,379 68 433
Shares redeemed................... (27,247) (174,108) 0 0
- ------------------------------------------------------------------------------
Net increase...................... 25,167 $ 160,338 22,925 $ 146,269
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
January 9, 1998
(Commencement of Class
Six Months Ended Operations) to
September 30, 1998 March 31, 1998
------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B
Shares sold........................ 14,160 $ 91,172 51,780 $ 331,966
Shares issued in reinvestment of
distributions..................... 446 2,860 153 980
Shares redeemed.................... 0 0 0 0
- ------------------------------------------------------------------------------
Net increase....................... 14,606 $ 94,032 51,933 $ 332,946
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
November 24, 1997
(Commencement of Class
Six Months Ended Operations) to
September 30, 1998 March 31, 1998
----------------------- ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y
Shares sold................ 1,040,483 $ 6,648,772 948,480 $ 6,098,589
Shares issued in connection
with the acquisition of
common trust fund......... 0 0 10,328,861 65,325,420
Shares issued in
reinvestment of
distributions............. 391 2,509 101 644
Shares redeemed............ (810,488) (5,171,546) (661,430) (4,232,114)
- -------------------------------------------------------------------------------
Net increase............... 230,386 $ 1,479,735 10,616,012 $67,192,539
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Massachusetts Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
-------------------- ---------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................... 39,599 $ 382,371 48,781 $ 474,420
Shares issued in reinvestment of
distributions................... 2,592 25,297 5,660 53,489
Shares redeemed.................. (38,357) (372,756) (65,265) (628,762)
- ------------------------------------------------------------------------------
Net increase (decrease).......... 3,834 $ 34,912 (10,824) $ (100,853)
- ------------------------------------------------------------------------------
CLASS B
Shares sold...................... 14,473 $ 140,934 64,229 $ 606,090
Shares issued in reinvestment of
distributions................... 6,547 63,519 19,310 182,827
Shares redeemed.................. (81,307) (782,581) (276,117) (2,637,724)
- ------------------------------------------------------------------------------
Net decrease..................... (60,287) $ (578,128) (192,578) $(1,848,807)
- ------------------------------------------------------------------------------
CLASS C
Shares sold...................... 14,660 $ 142,248 4,224 $ 39,616
Shares issued in reinvestment of
distributions................... 1,872 18,167 4,814 45,678
Shares redeemed.................. (22,559) (218,453) (65,364) (620,541)
- ------------------------------------------------------------------------------
Net decrease..................... (6,027) $ (58,038) (56,326) $ (535,247)
- ------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
- --------------------------------------------------------------------------------
Missouri Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
---------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold................... 52,711 $ 518,327 262,047 $ 2,625,674
Shares issued in reinvestment
of distributions............. 2,979 30,404 6,523 65,281
Shares redeemed............... (31,586) (321,375) (61,382) (621,096)
- ------------------------------------------------------------------------------
Net increase.................. 24,104 $ 227,356 207,188 $ 2,069,859
- ------------------------------------------------------------------------------
CLASS B
Shares sold................... 47,957 $ 483,209 366,631 $ 3,635,733
Shares issued in reinvestment
of distributions............. 14,278 144,274 36,382 359,093
Shares redeemed............... (125,450) (1,264,526) (577,779) (5,726,750)
- ------------------------------------------------------------------------------
Net decrease.................. (63,215) $ (637,043) (174,766) $(1,731,924)
- ------------------------------------------------------------------------------
CLASS C
Shares sold................... 398 $ 4,160 33,594 $ 335,601
Shares issued in reinvestment
of distributions............. 1,178 11,888 3,210 31,677
Shares redeemed............... (22,495) (226,197) (75,805) (757,230)
- ------------------------------------------------------------------------------
Net decrease.................. (20,919) $ (210,149) (39,001) $ (389,952)
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
New Jersey Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
---------------------- ----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................... 178,468 $ 1,983,179 252,683 $ 2,784,238
Shares issued in connection
with the acquisition of
CoreFund New Jersey Municipal
Bond Fund..................... 74,926 834,005 0 0
Shares issued in reinvestment
of distributions.............. 39,256 438,988 96,743 1,066,743
Shares redeemed................ (224,222) (2,509,361) (431,044) (4,741,631)
- -------------------------------------------------------------------------------
Net increase (decrease)........ 68,428 $ 746,811 (81,618) $ (890,650)
- -------------------------------------------------------------------------------
CLASS B
Shares sold.................... 359,665 $ 4,010,822 559,918 $ 6,159,394
Shares issued in reinvestment
of distributions.............. 18,275 204,448 35,078 387,261
Shares redeemed................ (110,745) (1,231,496) (97,634) (1,079,382)
- -------------------------------------------------------------------------------
Net increase................... 267,195 $ 2,983,774 497,362 $ 5,467,273
- -------------------------------------------------------------------------------
CLASS Y
Shares sold.................... 1,514,325 $16,906,686 700,533 $ 7,785,638
Shares issued in connection
with the acquisition of:
Common trust fund............. 0 0 8,501,660 93,692,061
CoreFund New Jersey Municipal
Bond Fund.................... 130,888 1,455,821 0 0
Shares issued in reinvestment
of distributions.............. 7,187 80,456 9,734 107,650
Shares redeemed................ (665,016) (7,414,343) (611,893) (6,802,856)
- -------------------------------------------------------------------------------
Net increase................... 987,384 $11,028,620 8,600,034 $94,782,493
- -------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
- --------------------------------------------------------------------------------
New York Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
--------------------- ---------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold..................... 98,526 $ 993,986 101,515 $ 1,028,467
Shares issued in reinvestment of
distributions.................. 5,114 51,944 10,952 109,667
Shares redeemed................. (105,662) (1,069,294) (143,942) (1,442,196)
- -------------------------------------------------------------------------------
Net decrease.................... (2,022) $ (23,364) (31,475) $ (304,062)
- -------------------------------------------------------------------------------
CLASS B
Shares sold..................... 41,821 $ 419,853 139,740 $ 1,373,251
Shares issued in reinvestment of
distributions.................. 18,704 188,232 53,507 527,679
Shares redeemed................. (198,122) (1,989,986) (469,593) (4,681,031)
- -------------------------------------------------------------------------------
Net decrease.................... (137,597) $(1,381,901) (276,346) $(2,780,101)
- -------------------------------------------------------------------------------
CLASS C
Shares sold..................... 2,323 $ 23,806 11,612 $ 114,699
Shares issued in reinvestment of
distributions.................. 2,156 21,694 5,472 54,065
Shares redeemed................. (12,199) (122,704) (66,958) (654,993)
- -------------------------------------------------------------------------------
Net decrease.................... (7,720) $ (77,204) (49,874) $ (486,229)
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Pennsylvania Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
--------------------- ---------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................... 164,049 $ 1,922,277 216,700 $ 2,503,060
Shares issued in connection with
the acquisition of CoreFund
Pennsylvania Municipal Bond
Fund............................ 517,010 6,054,216 0 0
Shares issued in reinvestment of
distributions................... 24,190 284,861 52,116 598,085
Shares redeemed.................. (318,235) (3,729,442) (410,639) (4,743,895)
- -------------------------------------------------------------------------------
Net increase (decrease).......... 387,014 $ 4,531,912 (141,823) $(1,642,750)
- -------------------------------------------------------------------------------
CLASS B
Shares sold...................... 193,053 $ 2,273,410 365,986 $ 4,145,693
Shares issued in reinvestment of
distributions................... 32,408 376,649 82,460 937,245
Shares redeemed.................. (263,437) (3,054,098) (627,854) (7,165,289)
- -------------------------------------------------------------------------------
Net decrease..................... (37,976) $ (404,039) (179,408) $(2,082,351)
- -------------------------------------------------------------------------------
CLASS C
Shares sold...................... 19,813 $ 233,574 47,797 $ 554,828
Shares issued in reinvestment of
distributions................... 6,621 77,137 16,198 184,137
Shares redeemed.................. (35,694) (412,924) (129,911) (1,487,976)
- -------------------------------------------------------------------------------
Net decrease..................... (9,260) $ (102,213) (65,916) $ (749,011)
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
November 24, 1997
(Commencement of
Six Months Ended Class Operations) to
September 30, 1998 March 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y
Shares sold............... 1,452,091 $ 17,033,394 848,662 $ 9,954,796
Shares issued in
connection with the
acquisition of:
Common trust fund........ 0 0 12,689,439 147,227,043
CoreFund Pennsylvania
Municipal Bond Fund..... 1,159,236 13,574,451 0 0
Shares issued in
reinvestment of
distributions............ 5,425 64,092 2 26
Shares redeemed........... (1,002,054) (11,767,713) (466,040) (5,479,065)
- ------------------------------------------------------------------------------
Net increase.............. 1,614,698 $ 18,904,224 13,072,063 $151,702,800
- ------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended September 30,
1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
-----------------------
California Fund......................... $ 6,887,305 $ 7,462,785
Connecticut Fund........................ 20,188,604 16,737,352
Massachusetts Fund...................... 5,299,684 5,765,589
Missouri Fund........................... 9,059,904 9,172,141
New Jersey Fund......................... 47,171,687 34,794,268
New York Fund........................... 8,395,816 9,841,548
Pennsylvania Fund....................... 81,507,353 76,866,026
</TABLE>
As of March 31, 1998, the Funds had no capital loss carryovers for federal
income tax purposes.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to an annual rate of
0.25% of the average daily net assets of the class. Class B and Class C also
pay distribution fees equal to an annual rate of 0.75% of the average daily net
assets of the class. Distribution Plan expenses are calculated daily and paid
monthly.
During the six months ended September 30, 1998, amounts paid or accrued to EDI
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
Distribution
Distribution fees accrued fees waived
--------------------------- ------------
Class A Class B Class C Class A
<S> <C> <C> <C> <C>
----------------------------------------
California Fund........................ $ 8,300 $ 92,790 $ 7,823 0
Connecticut Fund....................... 302 1,844 0 0
Massachusetts Fund..................... 2,585 29,623 8,145 0
Missouri Fund.......................... 6,347 95,900 4,528 0
New Jersey Fund........................ 40,657 75,814 0 $26,021
New York Fund.......................... 4,537 82,310 7,058 0
Pennsylvania Fund...................... 31,967 185,678 31,751 0
</TABLE>
With respect to Class B and Class C shares of the California, Massachusetts,
Missouri, New York and Pennsylvania Funds, the principal underwriter may pay
distribution fees greater than the allowable annual amounts the Funds are
permitted to pay. The Funds may reimburse the principal underwriter for such
excess amounts in later years with annual interest at the prime rate plus 1.00%.
For these Funds, EDI intends, but is not obligated, to continue to pay
distribution costs that exceed the current annual payments from the Funds. EDI
intends to seek full payment of such distribution costs from each Fund at such
time in the future as, and to the extent that, payment thereof by the Class B or
Class C shares would be within permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, for each Fund except the Connecticut Fund and
New Jersey Fund, after the termination of any Distribution Plan and subject to
the discretion of the Independent Trustees, payments to EDI may continue as
compensation for services which had been provided while the Distribution Plan
was in effect.
61
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
6. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Evergreen Investment Management Company ("EIMC"), a subsidiary of First Union,
is the investment advisor for the California Fund, Massachusetts Fund, Missouri
Fund, New York Fund and Pennsylvania Fund. In return for providing investment
management and administrative services, the Funds pay EIMC a management fee
that is calculated daily and paid monthly. The management fee is calculated by
applying percentage rates, which start at 0.55% and decline to 0.25% per annum
as net assets increase, to the average daily net asset value of each Fund.
The Capital Management Group ("CMG") of First Union National Bank of North
Carolina, a subsidiary of First Union, serves as the investment advisor to the
Connecticut Fund and New Jersey Fund and is paid a management fee that is
computed daily and paid monthly. The Connecticut Fund pays CMG an annual fee for
its services equal to 0.60% of the average daily net assets of the Fund. The New
Jersey Fund pays CMG a fee for its services which is calculated by applying
percentage rates, which start at 0.50% and decline to 0.35% per annum as net
assets increase, to the average daily net assets of the Fund.
For the six months ended September 30, 1998, the investment advisor waived its
fee as follows:
<TABLE>
<CAPTION>
Fees
Waived
--------
<S> <C>
California Fund.......................... $ 1,170
Connecticut Fund......................... 40,631
Massachusetts Fund....................... 21,321
Missouri Fund............................ 39,707
New Jersey Fund.......................... 188,705
New York Fund............................ 40,585
Pennsylvania Fund........................ 28,776
</TABLE>
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidiary
of First Union, is the administrator and BISYS serves as the subadministrator
for each Fund.
As administrator for the Connecticut Fund and the New Jersey Fund, EIS is
entitled to an annual fee based on the average daily net assets of the funds
administered by EIS for which First Union or its investment advisory
subsidiaries are also the investment advisors. The administration fee for the
Connecticut Fund and the New Jersey Fund is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets
increase, to the average daily net asset value of the Fund. As administrator for
the California Fund, Massachusetts Fund, Missouri Fund, New York Fund and
Pennsylvania Fund, EIS also provides facilities, equipment and personnel on
behalf of the Fund's investment advisor and is reimbursed by the Fund for its
services.
The sub-administration fee for each Fund is calculated by applying percentage
rates, which start at 0.01% and decline to 0.004% as net assets increase, to the
average daily net asset value of the Fund. For the California Fund,
Massachusetts Fund, Missouri Fund, New York Fund and Pennsylvania Fund, the
sub-administration fee is paid by the investment manager and is not a fund
expense.
During the six months ended September 30, 1998, the Funds paid or accrued to
EIS the following amounts for certain administrative services:
<TABLE>
<S> <C>
California Fund........................... $ 1,941
Connecticut Fund.......................... 7,583
Massachusetts Fund........................ 632
Missouri Fund............................. 1,492
New Jersey Fund........................... 17,390
New York Fund............................. 1,523
Pennsylvania Fund......................... 16,742
</TABLE>
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds.
62
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. BISYS as sub-administrator provides the officers of the Funds.
7. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
8. DEFERRED TRUSTEES' FEES
Each Independent Trustee of each Fund may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
9. ACQUISITIONS
On November 24, 1997, the Connecticut Fund commenced operations of its Class Y
shares as a result of the conversion of common trust funds managed by First
Union National Bank, a subsidiary of First Union. Also, as a result of this
conversion, the New Jersey Fund and Pennsylvania Fund each acquired
substantially all of the net assets of comparable common trusts in exchange for
Class Y shares of the respective Funds.
On July 27, 1998, the New Jersey Fund acquired substantially all of the assets
and assumed certain liabilities of CoreFund New Jersey Municipal Bond Fund in
an exchange for Class A and Class Y shares of New Jersey Fund. Also, the
Pennsylvania Fund acquired substantially all of the assets and assumed certain
liabilities of CoreFund Pennsylvania Municipal Bond Fund in an exchange for
Class A and Class Y shares of Pennsylvania Fund.
These conversions and acquisitions were accomplished by a tax-free exchange of
the respective shares of each Fund. The value of net assets acquired, number of
shares issued, unrealized appreciation acquired and the aggregate net assets of
each fund immediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Connecticut
Fund........... Common Trust Fund -- Connecticut Tax Exempt Bond Fund $ 65,325,420 10,328,861 $1,892,387
New Jersey
Fund........... Common Trust Fund -- New Jersey Tax Exempt Bond Fund 93,692,061 8,501,660 2,874,242
New Jersey
Fund........... CoreFund New Jersey Municipal Bond Fund 2,289,826 205,814 104,332
Pennsylvania
Fund........... Common Trust Fund -- Pennsylvania Tax Exempt Bond Fund 147,227,043 12,689,439 4,980,000
Pennsylvania
Fund........... CoreFund Pennsylvania Municipal Bond Fund 19,628,667 1,676,246 443,113
<CAPTION>
Net Assets
Acquiring Fund After Acquisition
- ----------------------------------
<S> <C>
Connecticut
Fund........... $ 65,325,420
New Jersey
Fund........... 147,179,376
New Jersey
Fund........... 160,691,863
Pennsylvania
Fund........... 216,012,549
Pennsylvania
Fund........... 242,223,339
</TABLE>
10. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank and Trust Company ("State Street") and a group of banks
(collectively, the "Banks") became effective. Under this agreement, the Banks
provide an unsecured credit facility in the aggregate amount of $400 million
($275 million committed and $125 million uncommitted). The credit facility is
allocated, under the terms of the financing agreement, among the Banks. The
credit facility is to be accessed by the Funds for temporary or emergency
purposes only and is subject to each Fund's borrowing restrictions. Borrowings
under this facility bear interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum will be incurred on the unused
portion of the committed facility, which will be allocated to all Funds. For its
assistance in arranging this financing agreement, the Capital Market Group of
First Union was paid a one-time arrangement fee of $27,500. State Street serves
as administrative agent for the Banks, and as administrative agent is entitled
to a fee of $20,000 per annum which is allocated to all of the Funds.
63
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
During the six months ended September 30, 1998, the Funds had no borrowings
under these agreements.
11. CONCENTRATION OF CREDIT RISK
Each Fund invests a substantial portion of its assets in issuers located in a
single state, therefore, it may be more affected by economic and political
developments in a specific state or region than would be a comparable general
tax-exempt mutual fund.
12. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps to
address this potential year 2000 problem with respect to the computer systems
that they use and to obtain satisfactory 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 from this problem.
64
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.343.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
---------------
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE] BULK RATE
200 Berkeley Street U.S. POSTAGE
Boston, MA 02116 PAID
PERMIT NO. 19
HUDSON, MA
---------------
<PAGE>
Evergreen
National
Municipal
May 31, 1998
Bond Funds
Annual Report
[LOGO OF EVERGREEN FUNDS(SM)
APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders ............................................... 1
Evergreen High Grade Tax Free Fund
Fund at a Glance ................................................ 2
Portfolio Manager Interview ..................................... 3
Evergreen Short Intermediate
Municipal Fund
Fund at a Glance ................................................ 6
Portfolio Manager Interview ..................................... 7
Evergreen Tax Free Fund
Fund at a Glance ................................................ 9
Portfolio Manager Interview ..................................... 10
Financial Highlights
Evergreen High Grade Tax Free Fund .............................. 13
Evergreen Short Intermediate Municipal
Fund .......................................................... 15
Evergreen Tax Free Fund ......................................... 17
Schedule of Investments
Evergreen High Grade Tax Free Fund .............................. 20
Evergreen Short Intermediate
Municipal Fund ................................................ 24
Evergreen Tax Free Fund ......................................... 27
Statements of Assets and Liabilities ................................. 39
Statements of Operations ............................................. 40
Statements of Changes in Net Assets --
Year ended May 31, 1998 ......................................... 42
Statements of Changes in Net Assets --
Prior Periods ................................................... 43
Combined Notes to Financial
Statements ........................................................... 44
Report of Independent Accountants .................................... 52
Independent Auditors' Report ......................................... 53
Additional Information ............................................... 54
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
more than $47 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
-----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
July 1998
[PHOTO OF WILLIAM M. ENNIS
MANAGING DIRECTOR APPEARS HERE]
Dear Shareholders:
Tax-advantaged investing can make a real difference, as witnessed by the
performance of the Evergreen National Municipal Bond Funds during
the 12-month period that ended on May 31, 1998.
The three Evergreen National Municipal Bond Funds, whose performance we review
in this report, each delivered generous returns on an absolute basis./1/ When
one considers the after-tax returns for investors in federal income tax brackets
of 31% or higher, however, the real returns are even more impressive, especially
in an environment in which inflation is held to approximately 2% per year.
Excellent Value
Even after such strong returns, the municipal bond market is offering excellent
relative value. At the close of the fiscal period on May 31, for example,
municipal bonds were paying yields equal to approximately 90% of equivalent
quality taxable bonds./2/ On a net, after-tax basis, the income from the
municipal bonds actually exceeded that of comparable taxable bonds. Typically,
municipal bonds are considered an excellent value when they pay 85% of the
income of taxable bonds.
When you consider these yield relationships and the relatively high valuations
in the domestic stock markets, municipal bonds represent one of the best values
in the capital markets today.
Diversification Strategy
Municipal bonds also represent an excellent way to increase the diversification
of one's total investment portfolio, particularly for those investors in the
higher income tax brackets. For those individuals who are concerned about
volatility in the stock market, but who want to avoid the tax consequences of
bond funds, municipal bond funds offer a prudent way to diversify and help
reduce one's overall investment risk. The municipal bond market, which has been
able to absorb a high volume of new bond issues during the past 12 months, also
has demonstrated that it is a strong, vital and mature part of the capital
markets.
Long-term View
While our near-term outlook for the municipal bond market is optimistic, we
encourage shareholders to be mindful that the investment environment is changing
continually. In particular, the economic and currency crisis in Asia could slow
down the growth of the U.S. economy, which could have an impact on municipal
finances. We do not see this possibility as cause for alarm. We do think it is
important, however, to remind shareholders of these possibilities and to remind
them that the most successful investors are those who adhere to a consistent
long-term strategy through changing economic conditions.
At Evergreen Funds, we are committed to providing a strong array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances over the long run.
We can also help by providing the information you require about Evergreen Funds.
If you have any questions about the Evergreen National Municipal Bond Funds or
other Evergreen mutual funds, we encourage you to consult your financial advisor
or call us at 800-343-2898.
Thank you for your continued investment in Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/ Some portion of the Funds' income maybe subject to certain state and local
taxes and, depending on your tax status, the federal alternative minimum
tax.
/2/ Source: Bond Buyer's Index.
1
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Fund at a Glance as of May 31, 1998
It was a favorable period for municipal bond investing. The insured municipal
bonds, which this Fund emphasizes, continued to increase in presence and
importance in the overall market.
Portfolio
Management
------------------------------------------
[PHOTO OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: February 1992
----------------------------
CURRENT INVESTMENT STYLE
----------------------------
[GRAPH APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns
- --------------------------------------------------------------------------------
Class A Class B Class Y
Inception Date 2/21/92 1/11/93 2/28/94
................................................................................
Average Annual Returns*
................................................................................
One year with sales charge 3.71% 3.07% N/A
................................................................................
One year w/o sales charge 8.88% 8.07% 9.15%
................................................................................
3 years 4.80% 4.82% 6.78%
................................................................................
5 years 5.04% 5.02% --
................................................................................
Since Inception 6.45% 5.84% 6.05%
...............................................................................
Maximum Sales Charge 4.75% 5.00% N/A
Front End CDSC
................................................................................
30-day SEC yield 4.01% 3.47% 4.46%
................................................................................
Taxable equivalent yield** 6.64% 5.75% 7.38%
................................................................................
12-month dividends per share $0.48 $0.40 $0.51
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Evergreen High Grade
Consumer Lehman Brothers Tax Free Fund
Date Price Index Insured Bond Index Class A Shares
- -------- ------------ ------------------ --------------------
2/92 10,000 10,000 9,525
5/92 10,079 10,206 9,738
5/93 10,404 11,540 10,964
5/94 10,642 11,781 11,090
5/95 10,981 12,909 12,182
5/96 11,290 13,474 12,638
5/97 11,551 14,429 13,522
5/98 11,746 15,849 14,723
Comparison of a $10,000 investment in Evergreen High Grade Tax Free Fund,
Class A shares, versus a similar investment in the Lehman Brothers Insured Bond
Index (LBIBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The Lehman Brothers Insured Bond Index is an unmanaged index
and does not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
2
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
How did the Fund perform during the year?
The Fund had strong performance. For the 12 months that ended May 31, 1998, the
Fund's Class A shares had a total return of 8.88%, while Class B and Y shares
had returns of 8.07% and 9.15%, respectively. These returns are unadjusted for
any applicable sales charges. The returns were very competitive, compared to the
average return of 8.78% for the 52 funds in the Lipper Insured Municipal Bond
Fund category for the same period. Lipper Analytical Services is an independent
mutual fund rating company.
Portfolio
Characteristics
---------------
Total Net Assets $122,324,143
................................................................................
Average Credit Quality AAA
................................................................................
Average Maturity 20.0 years
................................................................................
Average Duration 8.2 years
................................................................................
What was the investment environment like during the 12 months?
It was a favorable period for municipal bond investing. The insured municipal
bonds, which this Fund emphasizes, continued to increase in presence and
importance in the overall market.
The U.S. economy had strong growth that was accompanied by low inflation.
Beginning in late 1997, the overall bond market was aided by the effects of the
economic slowdown in Asia, which helped keep inflation and interest rates low.
During the 12 months, the yield on the 30-year Treasury Bond declined by more
than a full percentage point, from 6.90% to 5.80%. As a general rule, bond
prices tend to increase as interest rates decrease.
The municipal bond market also had a good year, although it did not perform as
well as the Treasury market. The yield on 30-year AAA-rated municipal bonds, as
reflected by the Bond Buyers 40 Index, fell from 5.65% to 5.20%. A major factor
in the underperformance was the large supply of new bond issues and the
anticipated impact of the largest new municipal bond issuance in history in
mid-May, a $3.5 billion offering for the Long Island Power Authority, which
created some short-term volatility. Municipal bond market investors were
concerned that this issuance might cause an over-supply of bonds and hurt bond
prices. In fact, the Long Island Power offering went well, and municipal bonds
recovered smartly in late May. Supply clearly was the story for much of 1997,
which saw the second-largest issuance of new municipal bond debt of this decade.
This large new supply was created both by the need to fund new public projects
and by refinancing by public agencies that are refunding their older debt with
lower-interest-rate bonds.
While the municipal bond market did not perform as well as the overall bond
market during the year, the result now is that there is excellent investment
value in municipal bonds. For example, AAA-rated municipal bonds on May 31 were
offering about 90% of the yield of a 30-year Treasury, but with after-tax
advantages that the taxable bonds do not offer.
- --------------------------------------------------------------------------------
Portfolio Quality
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
AAA - 82.6%
AA - 11.8%
A - 5.6%
3
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
At the close of the fiscal year on May 31, 1998, 87% of Fund assets were
invested in insured municipal bonds. What was the environment like for insured
bonds, in which the Fund principally invests?
Due to increased issuance during the year, yields on insured municipal bonds
have risen in relation to the yields on uninsured bonds. As a result, insured
municipal bonds now are relatively cheaper in price because they have
underperformed general, uninsured municipal bonds. Shareholders of this Fund now
receive a comparably better yield in relation to a general municipal bond fund
than they did a year ago.
To understand how this happened, it is important to note how insured bonds have
come to occupy a larger presence in the municipal bond market. Five years ago,
approximately 25% of outstanding municipal bonds were insured, which means they
receive the equivalent of an AAA rating when their issuers purchase the added
insurance. Currently, approximately 50% of the bonds are insured. The primary
cause of this growth is the intense competition of municipal bond insurers,
which has driven down the cost of insurance and made it increasingly attractive
for bond issuers to pay the insurance premium and receive the benefits of lower
debt service costs.
As a consequence, insured bonds now are extremely liquid because owners
understand they can easily sell their securities whenever they want or need to,
knowing there always will be a buyer at a good price for an insured bond
carrying the equivalent of an AAA rating. This liquidity also means that the
price of insured bonds has become more volatile.
The trend of insured bonds taking a greater presence in the market has been
going on for some time and is likely to continue. At least part of all the very
large new issuances, including that of the Long Island Power Authority, have
offered insured bonds.
What were your principal strategies during the year in terms of interest rate
sensitivity?
The High Grade Tax Free Fund, throughout the year, has had a somewhat longer
duration, or interest rate sensitivity, than the average duration of competing
funds. This is consistent with our view that with no inflationary pressures in
sight, the long-term trend was toward declining interest rates. That proved to
be true during the year. Until January, we had a duration approximately
half-a-year longer than the Fund's peer group. After interest rates hit their
low point in January, we pulled back a little to reduce volatility. The Fund
still is long, but only slightly longer than its peer group average.
As of May 31, 1998, the Fund's duration was 8.15 years, compared to 8.45 years
in June 1997. Average weighted maturity, on May 31, 1998, was 20 years.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Industrial Development/Pollution Control - 15.4%
Hospitals - 14.1%
Water & Sewer - 14.0%
Transportation - 11.2%
Electric Power - 10.5%
Housing - 8.7%
Other Investments and other assets and liabilities, net - 7.4%
General Obligation - Local - 6.9%
General Obligation - State - 6.1%
Airports - 5.7%
4
<PAGE>
EVERGREEN
High Grade Tax Free Fund
Portfolio Manager Interview
What strategies did you follow in terms of sector selection for the 12 months?
We looked for opportunities to add incremental yield through sector selection.
This led us to buy housing bonds, some of which may be subject to the
alternative minimum tax, and to invest in the transportation and utilities
sectors. The market provided a number of opportunities both because of the start
of many new public construction projects and programs and because of the
continued deregulation of utilities. Consolidation and deregulation in the
utilities industry has resulted in some price volatility because of uncertainty
about the future of utilities. Confusion presents opportunity.
As of May 31, 1998, water and sewer, transportation, and electric power projects
represented more than 35% of portfolio assets.
What is your outlook?
Our outlook is favorable for the municipal bond market and the Evergreen High
Grade Tax Free Fund. While we do not intend to make short-term interest rate
plays, we still believe the long-term trend of interest rates is to decline, so
the Fund will be slightly longer in duration than its peer group.
The equity markets suffered quite a shock in the fourth quarter of 1997 because
of the Asian crisis. Interest rates came down as investors fled to the quality
of fixed income securities. We don't think we're out of the woods with Asia, and
problems may still appear in Japan, Indonesia and other Asian markets. If this
were to happen, the equity markets could have difficulty and the fixed income
markets could benefit. Demand from Asia still represents enough of a stimulus to
the U.S. economy so that inflationary pressures in the U.S. would decline if
demand from Asia were to decrease. This would take away any fear by the Federal
Reserve of a build-up of inflationary pressures and decrease the temptation to
raise short-term rates in the United States.
The sustained flow of new issues in the municipal bond market is likely to mean
that this market will under-perform the U.S. Treasury market. This will mean,
however, that municipal bonds will continue to offer yields on an after-tax
basis that will be very attractive when compared to Treasuries.
You have managed the Evergreen High Grade Tax Free Fund since 1992. Recently you
became co-manager of the Evergreen Tax Free Fund. What are the differences
between the two funds?
The main difference is in absolute quality. The Evergreen High Grade Tax Free
Fund will always have 65% or more of its assets in insured municipal bonds, and
it always will have an average credit quality of AAA. As of May 31, almost 83%
of assets of the Evergreen High Grade Tax Free Fund were rated AAA, compared to
about 56% of assets rated AAA in the Evergreen Tax Free Fund.
The Evergreen Tax Free Fund is a diversified, longer-maturity fund whose purpose
is to create higher returns and higher yields. It still will emphasize quality
investments, as illustrated by its average credit quality of AA on May 31.
Without sacrificing quality, we will try to find additional yield for
shareholders by selecting bonds from different sectors and quality ratings. Over
the years, there will be times when one fund will have better performance than
the other, depending upon market conditions. Typically, however, one would
expect the Evergreen Tax Free Fund to pay somewhat higher yields than the
Evergreen High Grade Tax Free Fund.
5
<PAGE>
EVERGREEN
Short Intermediate Municipal Fund
Fund at a Glance as of May 31, 1998
Two factors bode particularly well for the municipal market going forward: a
favorable supply/demand backdrop and the fact that yields on municipals are at
their most attractive levels in quite some time.
Portfolio
Management
--------------------------------------------------------
[PHOTO OF RICHARD K. MARRONE APPEARS HERE]
Tenure: December 1, 1997
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
PERFORMANCE AND RETURNS
Class A Class B Class Y
Inception Date 1/5/95 1/5/95 7/17/91
................................................................................
Average Annual Returns*
................................................................................
One year with sales charge 1.69% (0.93%) N/A
................................................................................
One year w/o sales charge 5.11% 4.07% 5.11%
...............................................................................
3 years 3.17% 2.47% 4.42%
................................................................................
5 years -- -- 3.88%
................................................................................
Since Inception 3.89% 3.16% 4.92%
................................................................................
Maximum Sales Charge 3.25% 5.00% N/A
Front End CDSC
................................................................................
30-day SEC yield 3.51% 2.74% 3.73%
................................................................................
Taxable equivalent yield** 5.81% 4.54% 6.18%
................................................................................
12-month dividends per share $0.41 $0.32 $0.42
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
LONG TERM GROWTH
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers 3 Year Evergreen Short Intermediate
Date Consumer Price Index Municipal Bond Index Municipal Fund Class A Shares
- ---- -------------------- -------------------- -----------------------------
<S> <C> <C> <C>
1/95 10,000 10,000 9,675
5/95 10,126 10,387 9,960
11/95 10,216 10,753 10,256
5/96 10,412 10,881 10,309
11/96 10,552 11,271 10,661
5/97 10,652 11,463 10,754
11/97 10,745 11,814 11,052
5/98 10,832 12,112 11,304
</TABLE>
Comparison of a $10,000 investment in Evergreen Short Intermediate Municipal
Fund, Class A shares, versus a similar investment in the Lehman Brothers 3 Year
Municipal Bond Index (LB3YMBI), and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The Lehman Brothers 3 Year Municipal Bond Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index is a
commonly used measure of inflation and does not represent an investment return.
It is not possible to invest directly in an index.
6
<PAGE>
EVERGREEN
Short Intermediate Municipal Fund
Portfolio Manager Interview
How did the Fund perform during the fiscal period?
The Evergreen Short Intermediate Municipal Bond Fund Class A shares posted a
total return of 5.11% for the 12 months ended May 31, 1998, unadjusted for
sales charges. This performance modestly underperformed the 5.26% average return
for the 31 short intermediate municipal debt funds tracked by Lipper Analytical
Services.
Portfolio
Characteristics
---------------
Total Net Assets $180,263,640
...............................................................................
Average Credit Quality AA+
................................................................................
Average Maturity 4.6 years
................................................................................
Average Duration 3.5 years
................................................................................
What was the environment like for bonds during this period?
The U.S. economy provided a favorable backdrop for fixed income investors during
the fiscal year. Strong economic growth, low unemployment and benign inflation
resonated throughout the U.S., propelling the Consumer Confidence Index to soar
to its highest level in 25 years.
The only threat to U.S. investors was the overseas financial crisis which
originated in Southeast Asia before spreading throughout foreign markets.
Investors feared that devalued foreign currencies and major defaults would
negatively impact earnings of U.S. companies operating in that region.
The net result to U.S. markets, however, was generally positive as devalued
Asian currencies and declining prices on U.S. imports prompted falling interest
rates which boosted bond prices. During the 12 months, the yield on the
benchmark 30-year Treasury bond declined steadily from 6.90% to 5.80%.
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Other investments and other assets and liabilities, net -- 23.9%
Escrow -- 12.1%
Hospitals -- 9.5%
Industrial Development -- 8.2%
General Obligation - Local -- 8.2%
General Obligation - State -- 8.0%
Education -- 7.5%
Transportation -- 6.3%
Sales -- 6.0%
Utility -- 6.0%
Housing -- 4.3%
What was your investment strategy within this environment?
The Fund underwent a merger in November 1997 which dramatically increased net
assets, from $46 million to $195 million. Following the merger, our primary
strategy has been to increase the Fund's current yield.
Consistent with this strategy, high grade bonds were sold and replaced with
bonds with higher yields -- due primarily to their structure, i.e., calls and
housing bonds. By pursuing a higher coupon structure, we feel the portfolio will
be better able to provide a stable stream of income as well as a degree of
stability amid a potentially volatile market environment.
7
<PAGE>
EVERGREEN
Short Intermediate Municipal Fund
Portfolio Manager Interview
In addition, we added securities -- such as zero coupon bonds -- which are more
sensitive to interest rate movements. An increased weighting in such securities
will allow the Fund to more fully participate in a municipal market rally.
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 47.1%
A -- 16.9%
Not Rated -- 13.4%
AA -- 11.9%
BBB -- 10.7%
What is your outlook going forward?
Technically speaking, we feel municipal bonds remain solid. Two factors bode
particularly well for the municipal market going forward: a favorable
supply/demand backdrop and the fact that yields on municipals are at their most
attractive levels in quite some time. These two factors have created a buying
opportunity which should allow municipal bonds to outperform in the coming
months.
Looking ahead, we anticipate interest rates to remain relatively stable as a
result of slower domestic growth, the after-effects of the Asian crisis and
benign inflation. Although the effects until now have been generally positive,
we recognize that the fallout from the Asian crisis can still cause problems and
create volatility in the market. We will be mindful of potential pitfalls and
continue to monitor the market for hidden value and potential opportunities,
while adhering to our income-oriented strategy.
8
<PAGE>
EVERGREEN
Tax Free Fund
Fund at a Glance as of May 31, 1998
We intend to reduce the volatility or fluctuations of returns by keeping
interest rate sensitivity or duration closer to the benchmark index and our peer
group of mutual funds.
Portfolio
Management
-------------------------------------------------------
PHOTO OF JAMES T. COLBY III APPEARS HERE]
Tenure: April 1998
[PHOTO OF GEORGE J. KIMBALL APPEARS HERE]
Tenure: April 1998
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
PERFORMANCE AND RETURNS
Class B
Inception Date 1/19/78
................................................................................
Average Annual Returns*
................................................................................
One year with sales charge 2.72%
................................................................................
One year w/o sales charge 7.72%
................................................................................
3 years 5.18%
...............................................................................
5 years 4.91%
................................................................................
10 years 7.25%
................................................................................
Since Inception 7.04%
................................................................................
Maximum Sales Charge 5.00%
CDSC
................................................................................
30-day SEC Yield 3.73%
................................................................................
Taxable equivalent yield** 6.18%
...............................................................................
12-month distributions per share $0.46
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
Note: Class A and C shares were introduced in January 1998, and do not have
historical performance as of this reporting.
LONG TERM GROWTH
[LINE GRAPH APPEARS HERE]
Lehman Brothers Evergreen High Grade
Consumer Municipal Tax Free Fund
Date Price Index Bond Index Class B Shares
- -------- ------------ ------------------ --------------------
5/88 10,000 10,000 10,000
5/89 10,536 11,151 11,181
5/90 10,996 11,968 11,864
5/91 11,540 13,174 12,933
5/92 11,889 14,468 14,113
5/93 12,272 16,199 15,613
5/94 12,553 16,599 15,630
5/95 12,953 18,111 16,869
5/96 13,318 18,939 17,462
5/97 13,626 20,508 18,693
5/98 13,855 22,430 20,136
Comparison of a $10,000 investment in Evergreen Tax Free Fund, Class B shares,
versus a similar investment in the Lehman Brothers Municipal Bond Index (LBMBI),
and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The Lehman Brothers Municipal Bond Index is an unmanaged
index and does not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform for the fiscal year?
The Evergreen Tax Free Fund, Class B, had a total return of 7.72% for the
12-month period ending May 31, 1998, unadjusted for deferred sales charge.
Portfolio
Characteristics
Total Net Assets $1,375,699,148
................................................................................
Average Credit Quality AA
................................................................................
Average Maturity 19.5 years
................................................................................
Average Duration 7.8 years
................................................................................
What was the investment environment like during the 12 months?
It was a favorable period for municipal bond investing. The U.S. economy had
strong growth that was accompanied by low inflation. Beginning in late 1997, the
overall bond market was aided by the effects of the economic slowdown in Asia,
which helped keep inflation and interest rates low. During the 12 months, the
yield on the 30-year Treasury Bond declined by more than a full percentage
point, from 6.90% to 5.80%. As a general rule, bond prices tend to increase as
interest rates decrease.
The municipal bond market also had a good year, although it did not perform as
well as the Treasury market. The yield on 30-year AAA-rated municipal bonds, as
reflected by the Bond Buyers 40 Index, fell from 5.65% to 5.20%. In addition,
interest rates in the municipal bond market tended to fluctuate more than in the
Treasury market toward the end of the fiscal year. A major factor was the
anticipated impact of the largest new municipal bond issuance in history in
mid-May, a $3.5 billion offering for the Long Island Power Authority, which
created some short-term volatility. Municipal bond market investors were
concerned that this issuance might cause an over-supply of bonds and hurt bond
prices. In fact, the Long Island Power offering went well, and municipal bonds
recovered somewhat in late May. Supply also was a factor in much of 1997, which
saw the second-largest issuance of new municipal bond debt of this decade. This
large supply of new bonds was created both by the need to fund new public
projects and by refinancing by public agencies that were refunding their older
debt with lower-interest-rate bonds
While the municipal bond market did not perform as well as the overall bond
market during the year, the effect now is that there is excellent investment
value in municipal bonds. For example, AAA-rated municipal bonds on May 31 were
offering about 90% of the yield of a 30-year Treasury, but with after-tax
advantages that the taxable bonds do not offer.
- --------------------------------------------------------------------------------
AVERAGE CREDIT QUALITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 55.8%
A -- 16.7%
AA -- 14.0%
BBB -- 11.7%
Not Rated -- 1.1%
BB -- 0.7%
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
You became co-managers of the Evergreen Tax Free Fund on April 1, 1998. What
have been your principal strategies since taking over the Fund?
Prior to our taking over management, the Fund tended to hold longer-maturity
bonds than many other national municipal bond funds. It also emphasized fairly
high credit quality, typically with 60% or more of net assets invested in
AAA-rated bonds. The Fund maintained an emphasis on non-callable bonds, which
can't be called back by their issuers for a specified period of time, and had a
relatively large position in pre-refunded bonds, or bonds issued to refinance
the debt of older bonds with higher interest rates. Non-callable bonds and
pre-refunded bonds, because they offer income protection, often pay lower yields
than other bonds of comparable quality and maturity.
Since we have assumed management of the Fund, we have tried to position the Fund
for consistent, less volatile performance and we have sought to add incremental
returns through credit quality selection and sector selection. We have, for
example, sold some pre-refunded bonds to gain additional yield for the Fund.
We are not trying to sacrifice the quality of the portfolio, but we have tried
to add incremental yield by moving out of some sectors such as non-callable and
pre-refunded bonds. We believe that with two managers, we are able to canvas all
sectors of the municipal bond market, keep an eye on the Fund holdings, and
respond quickly to changes in the market.
While the Fund's average credit quality on May 31 was AA, the same as it was on
December 31, 1997, we have reduced the AAA-rated position somewhat from 58% of
net assets to about 56%. We have bought some AA-, A-, and BBB-rated bonds, and
occasionally some non-rated securities we think are of comparable quality to
other bonds in the portfolio. By doing this, we have picked up additional yield.
We have emphasized the hospital and transportation sectors for the yield
advantage they tend to offer, while adding to our position in housing bonds,
some of which may be subject to the alternative minimum tax. Again, the purpose
was to gain some additional yield for shareholders.
We have reduced the Fund's interest rate risk somewhat, with duration moving
from 8.5 years on December 31 to 7.8 years on May 31. This is more in line with
the duration of other funds in the same Lipper category of national tax-free
funds.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Other investments and other assets and liabilites, net -- 18.5%
Hospitals -- 14.5%
Transportation -- 11.0%
Electric Power -- 10.7%
Industrial Development/Pollution Control -- 9.8%
Housing -- 9.4%
General Obligation - Local -- 8.0%
Water & Sewer -- 6.7%
General Obligation - State -- 5.8%
Pre-refunded -- 5.6%
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Free Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How would you describe your investment style?
We do not try to make interest rate bets by trying to anticipate the short-term
movement of rates. We intend to reduce the volatility or fluctuations of returns
by keeping interest rate sensitivity or duration closer to the benchmark index
and our peer group of mutual funds. We are value-oriented and
opportunity-oriented, trying to derive incremental returns from analysis of
credits, of sectors, and of the relationship of the relative yields of longer
and shorter-maturity bonds. We believe we can be more successful in providing
good returns for shareholders with this investment style than by trying to guess
the direction of short-term changes in interest rates. You are very likely to be
wrong when you are managing a large portfolio such as that of the Evergreen Tax
Free Fund and you are attempting to anticipate short-term movements in interest
rates. Until we see macro-economic changes taking place, we think the prudent
thing to do is to be neutral in the Fund's interest rate sensitivity and look
for value in credit and sector selection.
What is your outlook?
We still have a favorable view of interest rates, as we expect continued low
inflation in the domestic economy, which should keep rates down. We are,
however, somewhat nervous about the possibility that the Federal Reserve Board
may raise short-term rates to cool down the high growth in gross domestic
product that we have had. Overall, however, our outlook is positive for the
municipal market.
As a result of the relatively strong performance of Treasuries to municipals
during the past year, municipal bonds are now providing approximately 90% of the
yield of a comparable taxable bond. That means that on an after-tax basis, most
individual investors will retain more income from municipal bonds than they
would from government bonds. Historically, any time municipal bonds offered a
yield of between 87% and 90% of Treasuries, it was considered a "buy
opportunity." We have that right now. Municipal bonds offer very good value for
shareholders.
12
<PAGE>
[LOGO OF EVERGREEN HIGH GRADE TAX FREE FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 21, 1992
Year Ended (Commencement of
Nine Months Eight Months December 31, Class Operations)
Year Ended Ended Year Ended Ended ------------------ through
May 31, 1998 May 31, 1997 (a) August 31, 1996 August 31, 1995 (d) 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value
beginning of year $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42 $ 10.00
------- ------- ------- ------- ------- -------- -------
.........................................................................
Income from
investment
operations
.........................................................................
Net investment
income 0.47 0.37 0.52 0.34 0.52 0.54 0.51
.........................................................................
Net realized and
unrealized gain
(loss) on
investments 0.48 0.17 0.03 0.90 (1.37) 0.81 0.42
------- ------- ------- ------- ------- -------- -------
.........................................................................
Total from
investment
operations 0.95 0.54 0.55 1.24 (0.85) 1.35 0.93
------- ------- ------- ------- ------- -------- -------
.........................................................................
Less distributions
from
.........................................................................
Net investment
income (0.48) (0.37) (0.52) (0.34) (0.52) (0.54) (0.51)
........................................................................
Net realized gain on
investments 0 0 0 0 0 (0.07) 0
------- ------- ------- ------- ------- -------- -------
.........................................................................
Total distributions (0.48) (0.37) (0.52) (0.34) (0.52) (0.61) (0.51)
------- ------- ------- ------- ------- -------- -------
.........................................................................
Net asset value end
of year $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42
------- ------- ------- ------- ------- -------- -------
.........................................................................
Total return (c) 8.88% 5.13% 5.21% 12.83% (7.71%) 13.25% 9.48%
.........................................................................
Ratios/supplemental
data
Ratios to average
net assets
Expenses 1.09% 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85% 0.49%(b)
........................................................................
Expenses excluding
indirectly paid
expenses 1.09% 1.03%(b) -- -- -- -- --
.........................................................................
Expenses excluding
waivers and/or
reimbursements 1.09% 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07% 1.11%(b)
.........................................................................
Net investment
income 4.25% 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99% 5.79%(b)
.........................................................................
Portfolio turnover
rate 127% 114% 65% 27% 53% 14% 7%
.........................................................................
Net assets end of
year (thousands) $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.
See Combined Notes to Financial Statements.
13
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 11, 1993
(Commencement of
Nine Months Eight Months Class Operations)
Year Ended Ended Year Ended Ended Year Ended through
May 31, 1998 May 31, 1997 (a) August 31, 1996 August 31, 1995 (d) December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42
------- ------- ------- ------- ------- -------
............................................................................................................................
INCOME FROM
INVESTMENT
OPERATIONS
...........................................................................................................................
Net investment
income 0.39 0.31 0.44 0.29 0.46 0.47
............................................................................................................................
Net realized and
unrealized gain
(loss)
on investments 0.48 0.17 0.03 0.90 (1.37) 0.81
------- ------- ------- ------- ------- -------
............................................................................................................................
Total from
investment
operations 0.87 0.48 0.47 1.19 (0.91) 1.28
------- ------- ------- ------- ------- -------
...........................................................................................................................
LESS DISTRIBUTIONS
FROM
............................................................................................................................
Net investment
income (0.40) (0.31) (0.44) (0.29) (0.46) (0.47)
...........................................................................................................................
Net realized gain on
investments 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- -------
............................................................................................................................
Total distributions (0.40) (0.31) (0.44) (0.29) (0.46) (0.54)
------- ------- ------- ------- ------- -------
............................................................................................................................
NET ASSET VALUE END
OF YEAR $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16
------- ------- ------- ------- ------- -------
............................................................................................................................
TOTAL RETURN (C) 8.07% 4.55% 4.42% 12.27% (8.24%) 12.52%
............................................................................................................................
RATIOS/SUPPLEMENTAL
DATA
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.84% 1.78%(b) 1.64% 1.81%(b) 1.58% 1.35%(b)
............................................................................................................................
Expenses excluding
indirectly paid
expenses 1.84% 1.78%(b) -- -- -- --
............................................................................................................................
Expenses excluding
waivers and/or
reimbursements 1.84% 1.86%(b) 1.84% 1.84%(b) 1.59% 1.57%(b)
............................................................................................................................
Net investment
income 3.51% 3.85%(b) 4.03% 4.18%(b) 4.47% 4.44%(b)
...........................................................................................................................
PORTFOLIO TURNOVER
RATE 127% 114% 65% 27% 53% 14%
............................................................................................................................
NET ASSETS END OF
YEAR (THOUSANDS) $32,822 $31,874 $32,221 $34,206 $32,435 $41,030
............................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
February 28, 1994
(Commencement of
Nine Months Eight Months Class Operations)
Year Ended Ended Year Ended Ended through
May 31, 1998 May 31, 1997 (a) August 31, 1996 August 31, 1995 (d) December 31, 1994
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 10.89 $ 10.72 $ 10.69 $ 9.79 $10.93
------- ------- ------- ------- ------
..............................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..............................................................................................................
Net investment income 0.51 0.39 0.55 0.36 0.46
..............................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.47 0.17 0.03 0.90 (1.14)
------- ------- ------- ------- ------
..............................................................................................................
Total from investment
operations 0.98 0.56 0.58 1.26 (0.68)
------- ------- ------- ------- ------
..............................................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.51) (0.39) (0.55) (0.36) (0.46)
------- ------- ------- ------- ------
..............................................................................................................
NET ASSET VALUE END OF
YEAR $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79
------- ------- ------- ------- ------
..............................................................................................................
TOTAL RETURN 9.15% 5.32% 5.47% 13.02% (6.29%)
..............................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.84% 0.78%(b) 0.64% 0.81%(b) 0.76%(b)
..............................................................................................................
Expenses excluding
indirectly paid
expenses 0.84% 0.78%(b) -- -- --
..............................................................................................................
Expenses excluding
waivers and/or
reimbursements 0.84% 0.86%(b) 0.84% 0.84%(b) 0.77%(b)
..............................................................................................................
Net investment income 4.51% 4.85%(b) 5.03% 5.18%(b) 5.46%(b)
..............................................................................................................
PORTFOLIO TURNOVER RATE 127% 114% 65% 27% 53%
..............................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $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) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
See Combined Notes to Financial Statements.
14
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 5, 1995
(Commencement of
Nine Months Class Operations)
Year Ended Ended Year Ended through
May 31, 1998 May 31, 1997 (a) August 31, 1996 August 31, 1995
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $10.09 $10.08 $ 10.17 $ 9.97
------ ------ ------- ------
............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
............................................................................................
Net investment income 0.41 0.30 0.43 0.30
............................................................................................
Net realized and
unrealized gain (loss)
on investments 0.10 0.01 (0.09) 0.20
------ ------ ------- ------
............................................................................................
Total from investment
operations 0.51 0.31 0.34 0.50
------ ------ ------- ------
............................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.41) (0.30) (0.43) (0.30)
------ ------ ------- ------
............................................................................................
NET ASSET VALUE END OF
YEAR $10.19 $10.09 $ 10.08 $10.17
------ ------ ------- ------
............................................................................................
TOTAL RETURN (C) 5.11% 3.08% 3.37% 5.09%
............................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.81% 0.84%(b) 0.80% 0.70%(b)
............................................................................................
Expenses excluding
indirectly paid
expenses 0.81% 0.83%(b) -- --
............................................................................................
Expenses excluding
waivers and/or
reimbursements 0.85% 0.96%(b) 1.11% 1.14%(b)
............................................................................................
Net investment income 4.01% 3.94%(b) 4.05% 4.32%(b)
............................................................................................
PORTFOLIO TURNOVER RATE 78% 34% 29% 80%
...........................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $6,569 $6,072 $27,722 $6,820
............................................................................................
</TABLE>
<TABLE>
<CAPTION>
January 5, 1995
(Commencement of
Nine Months Class Operations)
Year Ended Ended Year Ended through
May 31, 1998 May 31, 1997 (a) August 31, 1996 August 31, 1995
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $10.10 $10.08 $10.17 $ 9.97
------ ------ ------ ------
...........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
............................................................................................
Net investment income 0.32 0.23 0.34 0.24
............................................................................................
Net realized and
unrealized gain (loss)
on investments 0.09 0.02 (0.09) 0.20
------ ------ ------ ------
............................................................................................
Total from investment
operations 0.41 0.25 0.25 0.44
------ ------ ------ ------
............................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.32) (0.23) (0.34) (0.24)
------ ------ ------ ------
............................................................................................
NET ASSET VALUE END OF
YEAR $10.19 $10.10 $10.08 $10.17
------ ------ ------ ------
............................................................................................
TOTAL RETURN (C) 4.07% 2.49% 2.44% 4.50%
............................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.71% 1.73%(b) 1.67% 1.58%(b)
...........................................................................................
Expenses excluding
indirectly paid
expenses 1.71% 1.73%(b) -- --
............................................................................................
Expenses excluding
waivers and/or
reimbursements 1.74% 1.86%(b) 2.07% 2.26%(b)
............................................................................................
Net investment income 3.11% 3.04%(b) 3.28% 3.50%(b)
............................................................................................
PORTFOLIO TURNOVER RATE 78% 34% 29% 80%
............................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $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.
See Combined Notes to Financial Statements.
15
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
July 17, 1991
(Commencement of
Nine Months Year Ended August 31, Class Operations)
Year Ended Ended -------------------------------------------- through
May 31, 1998 May 31, 1997 (a) 1996 1995 1994 1993 1992 (c) August 31, 1991 (c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33 $ 10.00 $10.00
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................................................................
Net investment income 0.42 0.30 0.43 0.46 0.47 0.49 0.51 0.06
........................................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.09 0.03 (0.10) (0.04) (0.32) 0.25 0.33 0
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
Total from investment
operations 0.51 0.33 0.33 0.42 0.15 0.74 0.84 0.06
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
LESS DISTRIBUTIONS FROM
........................................................................................................................
Net investment income (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 (0.03) 0 0 0
........................................................................................................................
Net realized gain on
investments 0 0 0 0 (0.02) 0 0 0
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
Total distributions (0.42) (0.30) (0.43) (0.46) (0.52) (0.49) (0.51) (0.06)
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
NET ASSET VALUE END OF
YEAR $ 10.19 $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33 $10.00
-------- ------- ------- ------- ------- ------- ------- ------
.........................................................................................................................
TOTAL RETURN 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 0.66% 0.74%(b) 0.70% 0.74% 0.58% 0.40% 0.17% 0.00%(b)
.........................................................................................................................
Expenses excluding
indirectly paid
expenses 0.66% 0.73%(b) -- -- -- -- -- --
.........................................................................................................................
Expenses excluding
waivers and/or
reimbursements 0.70% 0.86%(b) 0.90% 0.86% 0.83% 0.81% 0.86% 1.40%(b)
.........................................................................................................................
Net investment income 4.18% 4.04%(b) 4.27% 4.52% 4.54% 4.73% 4.85% 4.93%(b)
........................................................................................................................
PORTFOLIO TURNOVER RATE 78% 34% 29% 80% 32% 37% 57% --
.........................................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $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 out-
standing 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.
See Combined Notes to Financial Statements.
16
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement
of Class Operations)
through
May 31, 1998
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD $ 7.91
----------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.13 (c)
.........................................................................
Net realized and unrealized loss on investments (0.13)
----------
.........................................................................
Total from investment operations 0
----------
.........................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME (0.13)
----------
........................................................................
NET ASSET VALUE END OF PERIOD $ 7.78
----------
.........................................................................
TOTAL RETURN (B) 0.04%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 0.93%(a)
.........................................................................
Expenses excluding indirectly paid expenses 0.93%(a)
.........................................................................
Net investment income 4.69%(a)
.........................................................................
PORTFOLIO TURNOVER RATE 77%
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $1,243,327
.........................................................................
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
See Combined Notes to Financial Statements.
17
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Five Months Year Ended December 31,
Ended ----------------------------------------------
May 31, 1998 (a) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF PERIOD $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12
-------- ---------- ---------- ---------- ----------
...........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...........................................................................................
Net investment income 0.12 (d) 0.38 0.41 0.41 0.37
...........................................................................................
Net realized and
unrealized gain (loss)
on investments
and futures contracts (0.03) 0.23 (0.17) 0.74 (0.96)
-------- ---------- ---------- ---------- ----------
..........................................................................................
Total from investment
operations 0.09 0.61 0.24 1.15 (0.59)
-------- ---------- ---------- ---------- ----------
..........................................................................................
LESS DISTRIBUTIONS FROM
..........................................................................................
Net investment income (0.13) (0.40) (0.39) (0.39) (0.37)
..........................................................................................
In excess of net
investment income 0 0 0 0 (0.06)
..........................................................................................
In excess of net
realized gain on
investments 0 0 0 0 0
-------- ---------- ---------- ---------- ----------
..........................................................................................
Net realized gain on
investments 0 (0.10) 0 0 0
..........................................................................................
Total distributions (0.13) (0.50) (0.39) (0.39) (0.43)
-------- ---------- ---------- ---------- ----------
..........................................................................................
NET ASSET VALUE END OF
PERIOD $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10
-------- ---------- ---------- ---------- ----------
.........................................................................................
TOTAL RETURN (C) 1.15% 8.15% 3.15% 16.61% (7.34%)
..........................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.26%(b) 0.96% 0.87% 0.95% 1.55%
..........................................................................................
Expenses excluding
indirectly paid
expenses 1.25%(b) 0.96% 0.86% 0.94% --
..........................................................................................
Net investment income 4.32%(b) 4.97% 5.34% 5.41% 4.92%
..........................................................................................
PORTFOLIO TURNOVER RATE 77% 126% 69% 56% 84%
.........................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $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>
CLASS B SHARES
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
.................................................................................................
In excess of net
realized gain on
investments (0.01) 0 0 0 0 0
---------- ---------- ---------- ---------- -------- --------
.................................................................................................
Net realized gain on
investments (0.33) (0.11) (0.12) (0.12) (0.24) (0.13)
................................................................................................
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.
See Combined Notes to Financial Statements.
18
<PAGE>
[LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 26, 1998
(Commencement
of Class Operations)
through
May 31, 1998
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD $ 7.85
------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.11 (c)
........................................................................
Net realized and unrealized loss on investments (0.07)
------
.........................................................................
Total from investment operations 0.04
------
.........................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME (0.11)
.........................................................................
------
NET ASSET VALUE END OF PERIOD $ 7.78
------
.........................................................................
TOTAL RETURN (B) 0.46%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 1.68%(a)
.........................................................................
Expenses excluding indirectly paid expenses 1.68%(a)
.........................................................................
Net investment income 3.94%(a)
........................................................................
PORTFOLIO TURNOVER RATE 77%
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $7,708
.........................................................................
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
See Combined Notes to Financial Statements.
19
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 98.9%
ALABAMA - 2.8%
Jefferson County, Alabama,
Sewer Revenue, Series D:
$2,000,000 5.75%, 2/1/22, (FGIC)............................... $ 2,115,940
1,215,000 5.75%, 2/1/27....................................... 1,285,434
------------
3,401,374
------------
ALASKA - 1.7%
1,000,000 Alaska Housing Finance Corp. Revenue Bond, Series A
1
5.30%, 12/1/12, (MBIA)............................. 1,022,490
1,000,000 Valdez, Alaska,
Marine Terminal Revenue Refunding, Pipeline
Incorporated Project, Series B
5.50%, 10/1/28..................................... 1,011,350
------------
2,033,840
------------
ARIZONA - 0.9%
1,000,000 Creighton, Arizona,
Elementary School District No. 14 of Maricopa
County, School Improvements (Project of 1990),
Series C 1991
6.50%, 7/1/07, (FGIC)............................... 1,153,450
------------
CALIFORNIA - 5.5%
1,000,000 California State, Department of Water Resources,
Central Valley Project Water Systems, Series Q
5.375%, 12/1/27, (MBIA)............................. 1,016,640
1,000,000 California State, Public Works Lease, California
State University Project, Series A
5.375%, 10/1/17, (AMBAC)............................ 1,024,240
1,000,000 Orange County, California,
Public Finance Authority
5.75%, 12/1/10, (AMBAC)............................. 1,086,590
2,000,000 San Francisco, California,
City & County International Airport, Revenue Bond,
Second Series Issue 10 A
5.70%, 5/1/26, (MBIA)............................... 2,087,700
500,000 San Mateo County, California,
Joint Powers Finance Authority, Lease Revenue,
Capital Projects Program, 1993 Series A
6.50%, 7/1/16, (MBIA)............................... 591,555
1,000,000 Southern California, Public Power Authority, Mead
Adelanto Project, Series A
5.00%, 7/1/17, (AMBAC).............................. 987,840
------------
6,794,565
------------
COLORADO - 1.8%
1,000,000 Arapahoe County, Colorado,
Public Highway Authority, Capital Improvements
Trust Fund Revenue, (E-470 Project)
6.15%, 8/31/26, (MBIA).............................. 1,111,550
1,000,000 Colorado, Public Highway Authority,
(E-470 Project), Senior Series A
5.75%, 9/1/14....................................... 1,101,520
------------
2,213,070
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
DISTRICT OF COLUMBIA - 1.7%
$2,000,000 District of Columbia, Housing Revenue,
Carnegie Endowment for International Peace
5.75%, 11/15/26..................................... $ 2,075,800
------------
FLORIDA - 2.8%
1,000,000 Florida State, Board of Education Capital Outlay,
Series A
5.00%, 6/1/27....................................... 979,010
1,250,000 Florida State, Housing Finance Corporation Revenue,
Homeowner Mortgage, Series 2
5.35%, 1/1/21, (MBIA)............................... 1,252,062
1,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare Systems, Series 1996C
6.25%, 10/1/16, (MBIA).............................. 1,155,020
------------
3,386,092
------------
GEORGIA - 2.7%
1,000,000 Cherokee County, Georgia,
Water & Sewer Revenue, Franciscan Health
Partnership
5.00%, 8/1/27, (FGIC)............................... 974,460
2,000,000 Georgia State, Municipal Electric Authority, Power
Revenue, Special Obligation Bond, Series Y
6.50%, 1/1/17, (MBIA)............................... 2,364,340
------------
3,338,800
------------
HAWAII - 0.9%
1,000,000 Hawaii State, Airport System Revenue, Second Series
of 1990
7.50%, 7/1/20, (FGIC)............................... 1,077,970
------------
IDAHO - 0.6%
760,000 Idaho State, Housing Agency, Single Family Mortgage,
Mezzanine,
Series C-1
6.30%, 7/1/11....................................... 806,862
------------
ILLINOIS - 15.0%
2,150,000 City of Chicago, Illinois,
General Obligation, Series 1995
6.125%, 1/1/16, (AMBAC)............................. 2,360,163
3,005,000 City of Chicago, Illinois,
Water Refunding Revenue,
Series 1993
6.50%, 11/1/15, (FGIC).............................. 3,559,993
Illinois State, Development Finance Authority
Pollution Control Refunding Revenue, (Commonwealth
Edison Co. Project):
2,000,000 Series 1991
7.25%, 6/1/11, (MBIA)............................... 2,186,820
3,000,000 Series 1994D
6.75%, 3/1/15, (AMBAC).............................. 3,382,950
1,500,000 Illinois State, Health Facilities Authority Revenue,
Loyola University Health Systems, Series A
6.00%, 7/1/13, (MBIA)............................... 1,679,580
</TABLE>
20
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
ILLINOIS - CONTINUED
$1,750,000 Illinois State, Health Facilities Authority, Health
Facilities Refunding Revenue, Series 1992AA
6.50%, 6/1/12, (MBIA)............................... $ 2,048,865
1,000,000 Illinois State, Regional Transportation Authority
Revenue
6.00%, 6/1/15....................................... 1,124,690
1,000,000 Illinois State, Sales Tax Revenue
5.50%, 6/15/20...................................... 1,016,400
1,000,000 Illinois State, Metropolitan Pier & Exposition
Authority, Dedicated State Tax Revenue, McCormick
Plantation Expansion, Series A
5.25%, 6/15/27...................................... 994,070
------------
18,353,531
------------
INDIANA - 3.4%
1,500,000 Indiana State, Middle School Building Corp.,
Lawrence Township of Marion County, First Mortgage
Bond
6.875%, 7/5/11, (MBIA).............................. 1,820,475
1,000,000 Indiana State, Municipal Power Agency, Power Supply
System, 1993 Series B
6.00%, 1/1/13, (MBIA)............................... 1,127,050
1,000,000 Indiana State, Transportation Finance Authority,
Highway Revenue,
Series 1992A
6.80%, 12/1/16, (MBIA).............................. 1,213,190
------------
4,160,715
------------
MAINE - 1.0%
1,000,000 Maine State, Turnpike Authority, Turnpike Revenue,
Series 1994
7.125%, 7/1/08, (MBIA).............................. 1,205,250
------------
MASSACHUSETTS - 5.9%
1,000,000 Massachusetts State, General Obligation, Series A
6.50%, 11/1/14, (AMBAC)............................. 1,187,800
500,000 Massachusetts State, Housing Finance Agency, Housing
Project Revenue, Series A
6.15%, 10/1/15, (AMBAC)............................. 527,000
1,000,000 Massachusetts State, Industrial Finance Agency,
Parking Facilities, Avon Associates LLC, Series A
5.375%, 4/1/20, (MBIA).............................. 1,007,030
Massachusetts State, Port Authority Revenue, Series
A:
2,000,000 5.00%, 7/1/27....................................... 1,937,340
500,000 5.75%, 7/1/12....................................... 550,910
2,000,000 University of Massachusetts, Building Authority
Revenue, Series A
5.50%, 5/1/15, (MBIA)............................... 2,077,020
------------
7,287,100
------------
MICHIGAN - 3.1%
2,500,000 Detroit, Michigan,
Water Supply Systems Revenue, Senior Lien, Series A
6.00%, 7/1/14, (MBIA)............................... 2,815,475
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
MICHIGAN - CONTINUED
$1,000,000 Michigan State, Hospital Finance Authority Revenue,
Henry Ford Health, Series A
5.25%, 11/15/25..................................... $ 995,650
------------
3,811,125
------------
MINNESOTA - 0.4%
475,000 Minnesota, Housing Finance Agency, Single Family
Mortgage, Series H
6.70%, 1/1/18....................................... 509,328
------------
MISSOURI - 1.0%
1,100,000 Sikeston, Missouri,
Electricity Revenue
6.00%, 6/1/13, (MBIA)............................... 1,245,090
------------
NEBRASKA - 1.6%
2,000,000 Nebraska, Investment Finance Authority, Single
Family Housing Revenue, Series F
5.60%, 9/1/20, (GNMA)............................... 2,004,620
------------
NEVADA - 0.8%
1,000,000 Clark County, Nevada,
School District, Building and Renovations, Series B
5.25%, 6/15/17, (FGIC).............................. 1,010,080
------------
NEW MEXICO - 2.3%
500,000 City of Albuquerque, New Mexico,
Airport Revenue, Series 1995 A
6.35%, 7/1/07, (AMBAC).............................. 542,590
2,100,000 Farmington, New Mexico,
Pollution Control Revenue, Public Service Company
of San Juan,
Series C
5.70%, 12/1/16, (AMBAC)............................. 2,225,349
------------
2,767,939
------------
NEW YORK - 10.4%
Long Island, New York,
Power Authority, Electric Systems Revenue, Series
A:
1,000,000 5.50%, 12/1/29...................................... 1,010,050
2,500,000 5.75%, 12/1/24...................................... 2,621,175
New York & New Jersey,
Port Authority:
500,000 97th Series
6.50%, 7/15/19, (FGIC).............................. 544,260
1,000,000 104th Series
5.20%, 7/15/21, (AMBAC)............................. 995,940
New York City, Municipal Water Finance Authority,
Series B:
1,000,000 5.50%, 6/15/27, (MBIA).............................. 1,031,110
2,000,000 5.75%, 6/15/29, (MBIA).............................. 2,093,140
700,000 New York City, Municipal Water Finance Authority,
Water & Sewer Systems Revenue
5.75%, 6/15/26, (MBIA).............................. 737,282
1,500,000 New York State, Housing Finance Agency Revenue,
Series 1994 B
6.35%, 8/15/23, (AMBAC)............................. 1,618,875
</TABLE>
21
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
NEW YORK - CONTINUED
$1,000,000 New York State, Local Government Assistance
Corporation
5.50%, 4/1/21....................................... $ 1,018,160
1,000,000 New York State, Mortgage Agency Revenue, Homeowner
Mortgage, Series 70
5.375%, 10/1/17..................................... 1,005,540
------------
12,675,532
------------
NORTH DAKOTA - 2.7%
3,000,000 Mercer County, North Dakota,
Pollution Control Revenue, (Basin Electric Power,
Cooperative-Antelope Valley) Second Series
6.05%, 1/1/19, (AMBAC).............................. 3,253,440
------------
OHIO - 1.5%
1,000,000 Ohio State, Board of Education, Kings Local School
District, City of Warren, School Improvements,
Series 1995
7.50%, 12/1/16, (FGIC).............................. 1,306,000
455,000 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue, 1995 Series A-2
6.625%, 3/1/26, (GNMA).............................. 487,856
------------
1,793,856
------------
PENNSYLVANIA - 0.9%
1,000,000 York County, Pennsylvania,
Solid Waste And Refuse Authority, Solid Waste
Systems Revenue
5.50%, 12/1/12, (FGIC).............................. 1,079,070
------------
SOUTH CAROLINA - 3.9%
2,300,000 Greenville, South Carolina,
Hospital Systems, Hospital Facilities Revenue,
Series A
5.75%, 5/1/14....................................... 2,418,841
2,150,000 South Carolina State, Port Authority Revenue, Series
1991
6.625%, 7/1/11, (AMBAC)............................. 2,317,098
------------
4,735,939
------------
TENNESSEE - 2.7%
1,200,000 Bristol, Tennessee,
Health & Educational Facility, Bristol Memorial
Hospital, Series 1993
6.75%, 9/1/07, (FGIC)............................... 1,398,492
1,700,000 Knox County, Tennessee,
Health, Educational & Housing Facility Board,
Hospital Facility Revenue, (Fort Sanders Alliance),
Series 1993
6.25%, 1/1/13, (MBIA)............................... 1,954,439
------------
3,352,931
------------
TEXAS - 3.7%
1,500,000 City of Austin, Texas,
Airport System Revenue, Prior Lien, Series 1995A
6.125%, 11/15/25, (MBIA)............................ 1,616,565
1,000,000 City of Houston, Texas,
Water Conveyance System Contract, COP, Series 1993
H
7.50%, 12/15/14, (AMBAC)............................ 1,296,390
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
TEXAS - CONTINUED
$1,500,000 Hays, Texas,
Consolidated Independent School District
5.875%, 8/15/22..................................... $ 1,611,285
------------
4,524,240
------------
UTAH - 0.9%
1,000,000 Salt Lake City, Utah,
Salt Lake County Airport Revenue, Series 1993A
6.00%, 12/1/12, (FGIC).............................. 1,076,890
------------
VIRGINIA - 1.9%
2,000,000 Hanover County, Virginia,
Industrial Development Authority, Memorial Regional
Medical Center Project, Series 1995
6.375%, 8/15/18, (MBIA)............................. 2,345,960
------------
WASHINGTON - 3.1%
2,500,000 City of Tacoma, Washington,
Electric Systems Refunding Revenue, Series 1994
6.25%, 1/1/15, (FGIC)............................... 2,737,325
1,000,000 Seattle, Washington,
Port Revenue, Series A
5.50%, 10/1/22, (FGIC).............................. 1,031,760
------------
3,769,085
------------
WEST VIRGINIA - 0.4%
500,000 West Virginia State, Housing Development, Series A
6.05%, 5/1/27....................................... 530,120
------------
WISCONSIN - 9.0%
4,500,000 City of Superior, Wisconsin,
Limited Obligation Refunding Revenue, Midwest
Energy Resource Co. Project, Series E-1991
6.90%, 8/1/21, (FGIC)............................... 5,594,085
1,000,000 Wisconsin State, Health and Educational Facilities,
Children's Hospital of Wisconsin Incorporated
5.00%, 2/15/18, (AMBAC)............................. 974,240
1,000,000 Wisconsin State, Transportation Revenue, Series B
5.50%, 7/1/22....................................... 1,009,770
2,000,000 Wisconsin, Health & Educational Facilities Authority
Revenue, Wausau Hospitals Inc., Series 1991B
6.625%, 8/15/11, (AMBAC)............................ 2,167,240
1,250,000 Wisconsin, Housing Economic Development, Series B
5.60%, 3/1/28....................................... 1,263,137
------------
11,008,472
------------
PUERTO RICO - 1.9%
1,000,000 Commonwealth of Puerto Rico,
General Obligation
6.50%, 7/1/10, (MBIA)............................... 1,180,760
500,000 Puerto Rico, Electic Power Authority, Power
Refunding Revenue, Series Y
6.50%, 7/1/06, (MBIA)............................... 572,990
</TABLE>
22
<PAGE>
Schedule of Investments(continued)
May 31, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Puerto Rico - continued
$ 495,000 Puerto Rico, Housing, Bank & Finance Agency, Single
Family Mortgage Revenue
6.10%, 10/1/15,
(GNMA, FNMA & FHLMC)................................ $ 521,547
------------
2,275,297
------------
Total Long-Term Municipal Obligations (cost
$114,223,657)...................................... 121,057,433
------------
</TABLE>
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
COP Certificate of Participation
FGIC Insured by Federal Guaranty Insurance Company
FHLMC Insured by Federal Home Loan Mortgage Corporation
FNMA Insured by Federal National Mortgage Association
GNMA Insured by Government National Mortgage Association
MBIA Insured by Municipal Bond Investors Assurance
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
MUTUAL FUND SHARES - 0.1% (cost $80,229)
80,229 Federated Municipal Obligations Fund................. $ 80,229
------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments -
(cost $114,303,886).. 99.0% 121,137,662
Other Assets and
Liabilities - net.... 1.0 1,186,481
----- ------------
Net Assets - ......... 100.0% $122,324,143
===== ============
</TABLE>
23
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 94.7%
ALABAMA - 3.9%
$ 7,000,000 Huntsville, Alabama,
Warrants, Series A
4.50%, 12/1/00 (a)................................. $ 7,006,580
------------
ARIZONA - 4.8%
2,000,000 Arizona State, Transportation Board, Excise Tax
Revenue,
Maricopa County Regional Area Road Fund,
Subordinated Lien
6.80%, 7/1/98, (MBIA).............................. 2,005,100
5,000,000 Arizona State, Transportation Board, Highway
Revenue
6.70%, 7/1/98...................................... 5,012,450
1,600,000 Pima County, Arizona,
General Obligation, Series 1992
6.55%, 7/1/01...................................... 1,717,376
------------
8,734,926
------------
CALIFORNIA - 7.2%
California State, General Obligation:
5,000,000 6.35%, 11/1/04, (FGIC)............................. 5,608,400
900,000 7.00%, 8/1/02, (FGIC).............................. 999,090
5,080,000 Sacramento, California,
School Insurance Authority Revenue, Liability
Program,
Series D
5.70%, 6/1/03...................................... 5,272,481
1,025,000 Stockton, California,
Health Facilities Revenue, Series A
5.00%, 12/1/01..................................... 1,047,345
------------
12,927,316
------------
COLORADO - 6.1%
16,520,000 Arapahoe County, Colorado,
Capital Improvement Highway,
(Eff. Yield 4.69%) (b)
0.00%, 8/31/11..................................... 7,933,069
140,000 Colorado State, Student Obligation Board Authority,
Student Loan Revenue, Series B
6.125%, 12/1/98.................................... 141,334
1,500,000 Denver, Colorado,
City and County Airport Revenue, Series C
6.35%, 11/15/01.................................... 1,597,875
1,300,000 Weld County, Colorado,
Industrial Development Revenue, Monfort Inc.
6.75%, 12/15/01.................................... 1,395,693
------------
11,067,971
------------
DISTRICT OF COLUMBIA - 3.5%
6,000,000 District of Columbia,
General Obligation, Series A
5.75%, 6/1/03, (MBIA).............................. 6,374,160
------------
FLORIDA - 19.8%
3,700,000 Broward County, Florida
Resource Recovery Revenue, Wheelabrator
Technologies,
7.95%, 12/1/08..................................... 3,983,642
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
FLORIDA - CONTINUED
$ 1,000,000 Dade County, Florida,
School District
7.00%, 7/1/98...................................... $ 1,002,700
Florida Health Care Facilities Revenue, Halifax
Hospital Medical Center,
Series A:
1,080,000 4.40%, 4/1/04...................................... 1,074,017
1,240,000 4.50%, 4/1/05...................................... 1,232,721
1,300,000 4.50%, 4/1/06...................................... 1,283,035
Florida State, Board of Education, Capital Outlay:
3,000,000 6.75%, 6/1/00...................................... 3,165,780
4,000,000 Public Education, Series B
5.30%, 6/1/98...................................... 4,000,320
1,000,000 Florida State, Board of Regents, University Systems
Improvements Revenue
5.90%, 7/1/98, (AMBAC)............................. 1,001,770
3,000,000 Florida State, Turnpike Authority, Turnpike
Revenue, Series A
9.50%, 7/1/98, (AMBAC)............................. 3,014,670
4,600,000 Jacksonville, Florida,
Industrial Development Revenue Refunding, TTX
Company Project
5.40%, 3/1/01...................................... 4,755,572
Leon County, Florida,
Educational Facilities Authority, Southgate, ETM:
680,000 9.00%, 9/1/99...................................... 723,228
740,000 9.00%, 9/1/00...................................... 820,201
810,000 9.00%, 9/1/01...................................... 931,856
880,000 9.00%, 9/1/02...................................... 1,046,725
960,000 9.00%, 9/1/03...................................... 1,177,728
3,675,000 Orange County, Florida,
Health Facilities Authority Revenue, Series 3
5.20%, 10/1/04..................................... 3,875,361
1,550,000 Palm Beach County, Florida,
Solid Waste Authority Revenue, Refunding and
Improvements
5.50%, 12/1/02, (MBIA)............................. 1,641,714
1,000,000 Sarasota, Florida, General Obligation
6.85%, 8/1/00...................................... 1,059,690
------------
35,790,730
------------
ILLINOIS - 3.8%
1,000,000 Central Lake County, Illinois,
Joint Action Water Agency, Interim Water Revenue,
Series A
7.00%, 5/1/19, (AMBAC)............................. 1,074,630
Illinois State, Development Finance Authority
Revenue:
2,765,000 5.00%, 7/1/06...................................... 2,744,926
1,000,000 Refunding Community Rehab Providers, Series A
5.35%, 7/1/00...................................... 1,023,330
2,000,000 Illinois State, Sales Tax Revenue, Series I
6.95%, 6/15/98..................................... 2,002,640
------------
6,845,526
------------
</TABLE>
24
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
MAINE - 1.7%
$ 3,000,000 Baileyville, Maine,
Pollution Control Revenue, Georgia-Pacific
Corporation Project
4.75%, 6/1/05...................................... $ 3,017,760
------------
MASSACHUSETTS - 2.8%
1,000,000 Massachusetts State, Health and Educational
Facilities Revenue
4.55%, 1/1/21...................................... 1,012,340
Massachusetts State, Industrial Development
Revenue:
420,000 Series 1986G
5.30%, 12/1/06..................................... 426,812
520,000 Series 1986I
5.30%, 12/1/06..................................... 528,435
910,000 Series 1996A
5.35%, 11/1/07..................................... 946,591
1,085,000 Series 1996B
5.35%, 11/1/07..................................... 1,128,628
1,000,000 New England Education Loan Marketing Corp., Student
Loan Revenue, Series 1993B
5.40%, 6/1/00...................................... 1,021,690
------------
5,064,496
------------
MINNESOTA - 0.6%
1,015,000 City of Minneapolis, Minnesota, Housing and
Redevelopment Authority of the City of St. Paul,
Single Family Mortgage,
Series 1996A
5.125%, 6/1/32..................................... 1,017,659
------------
MISSOURI - 0.4%
710,000 North Kansas City, Missouri,
School District, General Obligation, Direct
Deposit Program, Series 1996
6.70%, 3/1/00...................................... 742,994
------------
NEBRASKA - 0.6%
1,000,000 Nebraska Higher Education Loan Program, Student
Loan Revenue, Senior Subordinated Lien, Series A
6.65%, 6/1/08 (MBIA)............................... 1,123,630
------------
NEW JERSEY - 6.7%
New Jersey State Economic Development Authority:
First Mortgage, Franciscan Oaks Project:
1,545,000 5.20%, 10/1/04..................................... 1,580,025
825,000 5.40%, 10/1/06..................................... 848,356
1,075,000 5.50%, 10/1/07..................................... 1,112,206
Refunding First Mortgage,
Keswick Pines:
100,000 4.50%, 1/1/99...................................... 100,174
480,000 4.70%, 1/1/00...................................... 481,363
175,000 4.85%, 1/1/01...................................... 175,922
805,000 5.00%, 1/1/02...................................... 811,271
845,000 5.10%, 1/1/03...................................... 854,253
465,000 5.15%, 1/1/04...................................... 471,054
500,000 5.25%, 1/1/05...................................... 507,480
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
New Jersey State Economic Development Authority -
continued:
Refunding First Mortgage,
Keswick Pines - continued:
$ 975,000 5.35%, 1/1/06...................................... $ 991,360
925,000 5.45%, 1/1/07...................................... 945,304
3,000,000 New Jersey State Turnpike Authority, Turnpike
Revenue, Series C
6.50%, 1/1/06...................................... 3,191,850
------------
12,070,618
------------
NEW MEXICO - 3.8%
6,680,000 Alamogordo, New Mexico,
Hospital Revenue, Gerald Champion Memorial
Hospital Project
5.00%, 1/1/08...................................... 6,771,182
------------
NEW YORK - 3.2%
New York, New York:
145,000 Prerefunded, ETM, Series L
5.25%, 8/1/00...................................... 148,992
855,000 Unrefunded Balance, Series L
5.25%, 8/1/00...................................... 874,827
1,450,000 New York, New York,
General Obligation, Series L
5.00%, 8/1/01...................................... 1,483,162
2,000,000 New York, New York,
Industrial Development Agency, Special Facility,
Terminal One Group Association Project
6.00%, 1/1/07...................................... 2,162,380
New York State, Power Authority Revenue, General
Purpose Bonds:
80,000 Prerefunded, ETM, Series Z
5.85%, 1/1/00...................................... 82,366
920,000 Unrefunded Balance, Series Z
5.85%, 1/1/00...................................... 947,204
------------
5,698,931
------------
OHIO - 0.5%
940,000 Cincinnati, Ohio,
The Student Loan Funding Corp., Student Loan
Revenue,
Series 1993A
5.50%, 12/1/01..................................... 975,720
------------
OKLAHOMA - 2.5%
4,450,000 Oklahoma State, Housing Development Authority
Revenue, Lease Purchase Program, Series A
4.75%, 12/1/02..................................... 4,455,340
------------
PENNSYLVANIA - 2.1%
1,000,000 Lancaster County, Pennsylvania,
Hospital Authority Revenue (The Lancaster General
Hospital Project), Series 1992
5.60%, 7/1/00, (AMBAC)............................. 1,032,330
1,950,000 Philadelphia, Pennsylvania,
Water and Sewer Revenue,
16th Series
7.50%, 8/1/10...................................... 2,183,201
</TABLE>
25
<PAGE>
Schedule of Investments(continued)
May 31, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 500,000 State of Pennsylvania,
General Obligation, Series 1971
6.00%, 12/15/98...................................... $ 502,080
-----------
3,717,611
-----------
South Dakota - 0.6%
1,000,000 South Dakota State, Housing Development,
Homeownership Mortgage, Series J
4.60%, 5/1/02, (FNMA)................................ 1,008,970
-----------
Texas - 4.1%
1,000,000 Austin, Texas,
Utility Systems Revenue, Series A
9.50%, 5/15/15....................................... 1,103,620
2,500,000 Houston, Texas,
Airport Systems Revenue, Subordinated Lien, Series A
6.75%, 7/1/08........................................ 2,707,750
1,315,000 North Texas, Health Facilities Development Corp.,
Limited Regional Health Care Systems Incorporated
Project
4.40%, 9/1/01........................................ 1,326,835
1,185,000 Texas State, Department of Housing and Community
Affairs, Single Family Mortgage Revenue,
Series 1996E
4.45%, 3/1/99, (MBIA)................................ 1,189,408
1,000,000 Victoria County, Texas,
Hospital Revenue, Citizens
Medical Center
5.50%, 1/1/01........................................ 1,034,260
-----------
7,361,873
-----------
Utah - 6.3%
3,000,000 Utah State, Board of Regents, Student Loan, Series F
7.05%, 11/1/03....................................... 3,220,110
Utah State, Intermountain Power Agency:
2,500,000 Power Supply, Series C
6.00%, 7/1/00, (MBIA)................................ 2,600,150
5,000,000 Special Obligation, Series B
6.50%, 7/1/04, (MBIA)................................ 5,592,050
-----------
11,412,310
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Vermont - 2.7%
$ 4,385,000 Vermont State, General Obligation
6.00%, 12/1/06, (AMBAC)............................ $ 4,891,511
------------
Washington - 2.5%
2,950,000 Washington State, General Obligation Revenue, Motor
Vehicle Fuel Tax, Series R-92D
5.60%, 9/1/01...................................... 3,090,715
1,360,000 Washington State, Public Power Supply, Series B
5.00%, 7/1/01...................................... 1,390,369
------------
4,481,084
------------
West Virginia - 1.9%
3,500,000 Pleasants County, West Virginia, Pollution Control
Revenue, County Commission Monongahela Power,
Series D
4.70%, 11/1/07..................................... 3,511,515
------------
Wisconsin - 0.6%
1,000,000 Milwaukee, Wisconsin,
Metropolitan Sewage District General Obligation,
Series 1989A
7.00%, 9/1/01...................................... 1,089,050
------------
U.S. Virgin Islands - 2.0%
3,500,000 Virgin Islands, Public Finance Authority, Series C
5.00%, 10/1/03..................................... 3,572,030
------------
Total Long-Term Municipal Obligations (cost
$167,688,783)..................................... 170,731,493
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
MUTUAL FUND SHARES - 0.9% (cost $1,595,000)
1,595,000 Federated Municipal Obligations Fund ............... 1,595,000
------------
Total Investments -
(cost $169,283,783)......................... 95.6% 172,326,493
Other Assets and Liabilities - net........... 4.4 7,937,147
----- ------------
Net Assets - ................................ 100.0% $180,263,640
===== ============
</TABLE>
(a) Securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(b) Effective yield (calculated at date of purchase) is the annual yield
at which the bond accretes until its maturity date.
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
ETM Escrowed to Maturity
FGIC Insured by Federal Guaranty Insurance Company
FNMA Insured by Federal National Mortgage Association
MBIA Insured by Municipal Bond Investors Assurance Corporation
26
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 100.8%
ALABAMA - 2.3%
$ 2,035,000 Alabama State Agricultural
and Mechanic University
6.50%, 11/1/25, (MBIA).......................... $ 2,299,143
Alabama State Housing Finance Authority:
215,000 Single Family Revenue
10.75%, 6/1/13................................... 231,469
2,035,000 Collateralized Home Mortgage,
Series D1
6.00%, 10/1/16................................... 2,165,057
655,000 Birmingham, Alabama,
Airport Authority, Airport Revenue
5.625%, 7/1/26, (MBIA)........................... 680,984
3,895,000 Jefferson County, Alabama,
Board of Education, Capital Outlay, Series A
5.80%, 2/15/20, (FSA)............................ 4,132,283
20,000,000 Jefferson County, Alabama,
Sewer Revenue, Series D
5.75%, 2/1/27, (FGIC)............................ 21,176,800
1,700,000 Mobile, Alabama,
Industrial Development Board, Solid Waste
Disposal Revenue, Mobile Energy Service Company
Project
6.95%, 1/1/20.................................... 1,105,000
--------------
31,790,736
--------------
ALASKA - 2.4%
15,000,000 Alaska State Energy Authority, Utilities Revenue,
Linked Bulls/Bears Floaters
6.60%, 7/1/15, (FGIC) (c)........................ 17,544,300
Alaska State Housing Finance Corporation,
Collateralized Home Mortgage:
95,000 8.75%, 12/1/16................................... 97,602
130,000 Series A
8.00%, 12/1/13................................... 130,000
15,000,000 Valdez, Alaska,
Marine Terminal Revenue, Pipeline Incorporated
Project,
Series C
5.65%, 12/1/28................................... 15,367,650
--------------
33,139,552
--------------
ARIZONA - 1.3%
850,000 Chandler, Arizona,
Water and Sewer Revenue
6.75%, 7/1/06, (FGIC)............................ 915,833
Maricopa County, Arizona, Elementary School
District:
2,000,000 #008, Osborn Refunding
7.50%, 7/1/07, (MBIA)............................ 2,445,520
3,750,000 #068, Series A
6.75%, 7/1/14, (AMBAC)........................... 4,263,863
6,000,000 #069
8.125%, 1/1/10................................... 7,899,720
370,000 Pima County, Arizona,
Industrial Development Authority, Health Care
Corporation Revenue
8.00%, 7/1/13, (MBIA)............................ 378,606
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
ARIZONA - CONTINUED
$ 2,030,000 Pima County, Arizona,
Unified School District #001, Tuscon Refunding
7.50%, 7/1/03, (FGIC)............................ $ 2,328,836
--------------
18,232,378
--------------
ARKANSAS - 0.1%
1,535,000 Arkansas State Development Finance Authority,
Single Family Mortgage Revenue
8.00%, 8/15/11................................... 1,653,594
--------------
CALIFORNIA - 6.2%
600,000 Anaheim, California,
Public Financing Authority, Lease Revenue,
Public Improvements Project, Series C
6.00%, 9/1/16, (FSA)............................. 675,858
California State Housing
Finance Agency Revenue:
1,990,000 Home Mortgage, Series H
6.25%, 8/1/27.................................... 2,133,519
7,000,000 Multifamily Housing, Series B
5.40%, 8/1/18, (MBIA)............................ 7,024,710
California State Public Works Board, Lease
Revenue:
California State University
Projects, Series A:
8,775,000 5.50%, 10/1/14................................... 9,128,282
10,000,000 5.50%, 10/1/15................................... 10,361,700
5,000,000 California State University Trustees,
Series A
5.25%, 10/1/16................................... 5,070,500
9,195,000 Community College Projects,
Series B
5.625%, 3/1/16, (AMBAC).......................... 9,643,440
3,700,000 Correctional State Prison,
Series E
5.50%, 6/1/15.................................... 3,914,230
2,500,000 California State, General Obligation, Series BH
5.50%, 12/1/18.................................. 2,537,625
4,000,000 California Statewide Communities Development
Authority Revenue, Irvine Apartments
5.25%, 5/15/25.................................. 3,996,800
200,000 Los Angeles County, California,
Public Works Financing Authority, Lease Revenue,
Multiple Capital Facilities Project, Series B
5.125%, 12/1/17, (AMBAC)........................ 200,698
1,090,000 Lucia Mar, California,
Unified School District, Capital Appreciation,
Series A
(Eff. Yield 5.35%) (b)
0.00%, 8/1/10, (FGIC)........................... 614,498
2,750,000 Palm Desert, California,
Financing Authority, Tax
Allocation Revenue,
Project Area #1
5.625%, 4/1/23, (MBIA).......................... 2,856,040
</TABLE>
27
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
CALIFORNIA - CONTINUED
$ 550,000 Poway, California,
Community Facilities District, Special Tax,
Parkway Business Center
6.75%, 8/15/15.................................. $ 599,528
Riverside County, California,
Asset Leasing Corporation,
Leasehold Revenue, Riverside
County Hospital Project:
1,750,000 (Eff. Yield 5.80%) (b)
0.00%, 6/1/15, (MBIA)............................ 732,848
1,395,000 (Eff. Yield 5.85%) (b)
0.00%, 6/1/16, (MBIA)............................ 550,160
3,765,000 San Francisco, California,
International Airport Revenue, Series Issue 10-A
5.70%, 5/1/26................................... 3,907,392
5,700,000 San Joaquin Hills, California,
Transportation Authority, Toll Revenue, Capital
Appreciation, Series A (Eff. Yield 5.43%) (b)
0.00%, 1/15/15.................................. 2,453,451
4,555,000 San Mateo County, California,
Transportation District, Series A 5.75%, 6/1/18,
(MBIA).......................................... 4,977,977
1,295,000 Santa Maria, California,
Water and Waste Water Revenue, Capital
Appreciation, Subordinated Series A (Eff. Yield
5.45%) (b)
0.00%, 8/1/12................................... 644,547
Southern California Public
Power Authority:
3,000,000 Power Project Revenue, Mead Adelanto Project,
Series A
5.00%, 7/1/17, (AMBAC).......................... 2,970,630
10,000,000 Transmission Project Revenue,
(Eff. Yield 5.93%) (b)
0.00%, 7/1/15, (FGIC)............................ 4,304,300
Victor Valley, California,
Joint Unified High School District, Capital
Appreciation:
2,635,000 (Eff. Yield 6.20%) (b)
0.00%, 9/1/10, (MBIA)............................ 1,479,711
3,780,000 (Eff. Yield 6.25%) (b)
0.00%, 9/1/11, (MBIA)............................ 1,999,015
4,450,000 (Eff. Yield 6.35%) (b)
0.00%, 9/1/13, (MBIA)............................ 2,081,131
--------------
84,858,590
--------------
COLORADO - 6.6%
4,000,000 Araphoe County, Colorado,
Single Family Mortgage Revenue, Capital
Appreciation, Series A
(Eff. Yield 6.00%) (b)
0.00%, 9/1/10.................................... 2,205,920
1,880,000 Colorado State Health
Facilities Authority Revenue, Sisters Charity
Health Care,
Series A
6.25%, 5/15/09, (MBIA)........................... 2,142,091
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
COLORADO - CONTINUED
$ 2,275,000 Colorado State Housing
Finance Authority Revenue,
Series A-2
6.60%, 5/1/28.................................... $ 2,528,207
Colorado State, East 470
Public Highway Authority Revenue, Capital
Appreciation:
2,000,000 Senior Series A
5.75%, 9/1/14.................................... 2,202,820
4,000,000 Senior Series B:
(Eff. Yield 5.35%) (b)
0.00%, 9/1/14.................................... 1,754,520
5,000,000 (Eff. Yield 5.40%) (b)
0.00%, 9/1/15.................................... 2,067,200
9,795,000 (Eff. Yield 5.30%) (b)
0.00%, 9/1/13.................................... 4,553,598
Denver, Colorado,
City and County Airport Revenue:
8,200,000 Series D
7.75%, 11/15/13.................................. 10,381,118
Prerefunded Balance:
140,000 Series A
8.00%, 11/15/25.................................. 157,154
865,000 Series B
7.25%, 11/15/12.................................. 983,523
Unrefunded Balance:
Series A:
720,000 7.25%, 11/15/25.................................. 823,399
5,480,000 7.50%, 11/15/23.................................. 6,293,451
1,300,000 8.00%, 11/15/25.................................. 1,429,998
7,080,000 8.50%, 11/15/23.................................. 7,844,498
18,060,000 8.75%, 11/15/23.................................. 20,752,566
3,385,000 Series B
7.25%, 11/15/12.................................. 3,767,099
9,700,000 Series D
7.75%, 11/15/21.................................. 10,820,059
El Paso County, Colorado,
School District #11, Colorado Springs:
2,310,000 6.50%, 12/1/12................................... 2,754,097
2,000,000 7.10%, 12/1/13................................... 2,516,480
1,000,000 7.10%, 12/1/16................................... 1,268,580
2,250,000 Larimer County, Colorado,
School District
7.00%, 12/15/16, (MBIA).......................... 3,003,885
--------------
90,250,263
--------------
CONNECTICUT - 0.3%
2,000,000 Connecticut State Housing
Finance Authority Revenue
5.375%, 11/15/18................................. 2,004,560
1,600,000 Connecticut State Special Tax Obligation, Series
B
6.50%, 10/1/12................................... 1,892,000
--------------
3,896,560
--------------
DELAWARE - 0.1%
1,600,000 Delaware State Health
Facilities Authority Revenue, Medical Center of
Delaware
7.00%, 10/1/15, (MBIA)........................... 1,686,352
--------------
</TABLE>
28
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
DISTRICT OF COLUMBIA - 1.0%
$ 3,765,000 District of Columbia Hospital
Revenue, Medatlantic
Healthcare Group, Series A
6.00%, 8/15/11, (MBIA)........................... $ 4,174,557
1,500,000 District of Columbia Revenue,
American Association for the
Advancement of Science
5.25%, 1/1/16, (AMBAC)........................... 1,520,160
8,000,000 District of Columbia,
Housing Revenue,
Carnegie Endowment for
International Peace
5.75%, 11/15/26.................................. 8,446,800
--------------
14,141,517
--------------
FLORIDA - 3.0%
10,000,000 Florida State Board of Education,
Capital Outlay, Public Education, Series B
5.75%, 6/1/17.................................... 10,564,400
Gainesville, Florida,
Utilities Systems Revenue,
Series B:
1,000,000 5.50%, 10/1/13................................... 1,044,000
435,000 7.50%, 10/1/08................................... 538,821
695,000 7.50%, 10/1/09................................... 872,573
490,000 Hillsborough County, Florida,
Housing Finance Agency, Single Family Mortgage
Revenue,
Series A
7.30%, 4/1/22.................................... 513,010
3,580,000 Jacksonville, Florida,
Transportation Authority Revenue
9.20%, 1/1/15.................................... 5,079,304
300,000 Lee County, Florida,
Solid Waste Systems Revenue, Series B
7.00%, 10/1/11................................... 332,718
8,000,000 Miami-Dade County, Florida,
Special Obligation, Subordinated Series A
(Eff. Yield 5.50%) (b)
0.00%, 10/1/16................................... 3,113,120
2,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare, Series A
6.25%, 10/1/18, (MBIA)........................... 2,322,520
495,000 Orange County, Florida,
Housing Finance Authority Revenue, Single Family
Mortgage, Series B
6.85%, 10/1/27, (GNMA/FNMA)...................... 536,872
Orlando-Orange County, Florida, Expressway
Authority:
3,000,000 8.25%, 7/1/14.................................... 4,109,370
2,960,000 8.25%, 7/1/15, (FGIC)............................ 4,077,519
Palm Beach County, Florida,
Health Facilities Authority Revenue:
2,910,000 John F. Kennedy Hospital
9.50%, 8/1/13.................................... 3,868,670
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
FLORIDA - CONTINUED
Palm Beach County, Florida,
Health Facilities Authority Revenue - continued:
$ 1,250,000 Waterford Project
5.50%, 10/1/15................................... $ 1,254,325
1,000,000 Sarasota County, Florida,
Utililities Systems Revenue
6.50%, 10/1/22................................... 1,144,950
Sunrise, Florida,
Utilities Systems Revenue, Capital Appreciation,
Series A:
1,000,000 (Eff. Yield 5.65%) (b)
0.00%, 10/1/09................................... 592,190
1,000,000 (Eff. Yield 5.75%) (b)
0.00%, 10/1/10................................... 560,030
500,000 Tampa, Florida,
Allegheny Health Systems Revenue
6.50%, 12/1/23................................... 572,405
500,000 Tarpon Springs, Florida,
Health Facilities Authority, Hospital Revenue,
Tarpon Springs Hospital
8.75%, 5/1/12.................................... 511,500
--------------
41,608,297
--------------
GEORGIA - 4.1%
3,000,000 Forsyth County, Georgia,
School District, General Obligation
6.75%, 7/1/16.................................... 3,616,080
5,000,000 Fulton County, Georgia,
Development Authority Special Facilities
Revenue, Delta Airlines Incorporated Project
5.45%, 5/1/23.................................... 5,002,150
Georgia State Municipal Electric
Authority, Power Revenue, Series B:
3,000,000 6.25%, 1/1/17, (FGIC)............................ 3,426,720
9,800,000 6.375%, 1/1/16................................... 11,490,304
Georgia State, General Obligation:
10,000,000 Series B
6.80%, 3/1/11.................................... 11,982,900
10,700,000 Series C
5.25%, 4/1/11.................................... 11,247,947
1,500,000 Series D
6.70%, 8/1/10.................................... 1,787,355
4,255,000 Metropolitan Atlanta Rapid
Transit Authority, Georgia, Sales Tax Revenue,
Series P
6.25%, 7/1/11, (AMBAC)........................... 4,906,440
2,370,000 Private Colleges and University Facilities
Authority Revenue, Georgia, Mercer University
Project
6.40%, 11/1/11, (MBIA)........................... 2,774,725
--------------
56,234,621
--------------
</TABLE>
29
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
HAWAII - 0.9%
Hawaii State Department of
Budget and Finance, Hawaiian Electric Company,
Incorporated:
Series A:
$ 2,000,000 4.95%, 4/1/12.................................... $ 2,003,320
2,000,000 5.65%, 10/1/27, (MBIA)........................... 2,080,840
8,000,000 Series C
7.375%, 12/1/20, (MBIA).......................... 8,696,000
--------------
12,780,160
--------------
IDAHO - 0.1%
905,000 Idaho State Housing Finance
Authority, Single Family Mortgage Bonds, Series
D-1
8.00%, 1/1/20.................................... 1,019,066
--------------
ILLINOIS - 3.8%
5,000,000 Chicago, Illinois,
Public Building Commerce, Building Revenue,
Series A
5.75%, 12/1/18, (MBIA)........................... 5,244,850
2,000,000 Chicago, Illinois,
Single Family Mortgage Revenue, Series B
6.95%, 9/1/28.................................... 2,248,020
4,000,000 Illinois State Development
Finance Authority, Pollution Control Revenue,
Commonwealth Edison Company Project, Series D
6.75%, 3/1/15, (AMBAC)........................... 4,524,840
3,000,000 Illinois State Educational
Facilities Authority Revenue
5.25%, 9/1/24.................................... 2,904,570
9,000,000 Illinois State, Sales Tax,
Series P
6.50%, 6/15/22................................... 10,750,770
2,965,000 Kankakee, Illinois,
Sewer Revenue
6.875%, 5/1/11, (FGIC)........................... 3,335,595
3,000,000 Metropolitan Fair and Exposition Authority,
Illinois, Series A
5.00%, 6/1/15.................................... 2,959,050
10,000,000 Northern Illinois University Revenues, Auxiliary
Facilities Systems
5.75%, 4/1/22, (FGIC)............................ 10,589,900
4,950,000 Quincy, Illinois,
Blessing Hospital Revenue
6.00%, 11/15/18.................................. 5,176,314
4,485,000 Regional Transportation Authority, Illinois,
Transportation Revenue
6.00%, 6/1/18, (FGIC)............................ 5,036,117
--------------
52,770,026
--------------
INDIANA - 0.6%
6,800,000 Indiana State Housing Finance Authority, Single
Family Mortgage Revenue, Series A3
5.375%, 1/1/23, (FNMA/GNMA)..................... 6,763,348
1,640,000 St. Joseph County, Indiana, Educational
Facilities Revenue, University of Notre Dame
6.50%, 3/1/26.................................... 1,996,274
--------------
8,759,622
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
KANSAS - 1.0%
$ 2,000,000 Burlington, Kansas,
Pollution Control Revenue, Kansas Gas and
Electric Company Project
7.00%, 6/1/31, (MBIA)............................ $ 2,190,160
10,500,000 Kansas State Department of Transportation,
Highway Revenue, Series A
5.375%, 3/1/12................................... 10,824,240
--------------
13,014,400
--------------
KENTUCKY - 1.6%
8,000,000 Carroll County, Kentucky,
Pollution Control Revenue, Kentucky Utility
Company,
Series A
7.45%, 9/15/16................................... 9,102,240
6,000,000 Jefferson County, Kentucky,
Hospital Revenue, Linked ACEs/INFLOs
6.436%, 10/1/14, (MBIA) (c)...................... 6,543,120
3,455,000 Kentucky State Housing Corporation, Housing
Revenue, Series C
7.90%, 1/1/21.................................... 3,621,635
2,725,000 Trimble County, Kentucky,
Pollution Control Revenue, Louisville Gas and
Electric Company
7.625%, 11/1/20.................................. 2,978,125
--------------
22,245,120
--------------
LOUISIANA - 1.0%
1,395,000 Louisiana State Public Facilities Authority,
Health and Education Revenue, Series D
7.90%, 12/1/15................................... 1,448,582
New Orleans, Louisiana,
Capital Appreciation:
6,960,000 (Eff. Yield 6.05%) (b)
0.00%, 9/1/14, (AMBAC)........................... 3,057,667
2,800,000 (Eff. Yield 7.10%) (b)
0.00%, 9/1/15, (AMBAC)........................... 1,165,472
3,755,000 (Eff. Yield 7.15%) (b)
0.00%, 9/1/17, (AMBAC)........................... 1,396,071
5,175,000 Orleans Parish, Louisiana,
School Board Revenue
9.05%, 2/1/10, (MBIA)............................ 7,188,334
--------------
14,256,126
--------------
MAINE - 0.3%
4,000,000 Maine State Housing Authority, Mortgage Purchase,
Series C2
6.05%, 11/15/28.................................. 4,172,360
--------------
MARYLAND - 0.0%
115,000 Maryland State Community Development
Administration, Multifamily Housing Revenue
8.75%, 5/15/12................................... 115,431
--------------
MASSACHUSETTS - 6.7%
450,000 Lawrence, Massachusetts,
General Obligation
6.25%, 2/15/09, (AMBAC).......................... 494,631
</TABLE>
30
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
MASSACHUSETTS - CONTINUED
Massachusetts Bay Transportation Authority,
General Transportation Systems:
Series A:
$ 7,950,000 6.25%, 3/1/12..................................... $ 9,132,960
7,710,000 7.00%, 3/1/11, (MBIA)............................. 9,427,094
1,950,000 7.00%, 3/1/21, (MBIA)............................. 2,400,333
2,125,000 Series B
6.20%, 3/1/16..................................... 2,436,142
Massachusetts State Health and Educational
Facilities Authority:
9,000,000 Jordan Hospital, Series D
5.25%, 10/1/23.................................... 8,718,300
600,000 McLeans Hospital Issue, Series C
6.50%, 7/1/10..................................... 654,894
3,000,000 Milford Whitinsville Regional Hospital, Series C
5.25%, 7/15/18.................................... 2,912,580
600,000 Milton Hospital, Series B
7.25%, 7/1/05..................................... 645,276
Massachusetts State Housing Finance Agency
Revenue, Series A:
10,470,000 Housing Development
5.375%, 6/1/16, (MBIA)............................ 10,551,666
1,490,000 Residential Housing
8.40%, 8/1/21..................................... 1,525,507
Massachusetts State Industrial Finance Agency:
1,500,000 Parking Facilities Revenue, Avon Associates LLC,
Series A
5.375%, 4/1/20, (MBIA)............................ 1,508,640
8,500,000 Solid Waste Disposal Revenue, Senior Lien,
Massachusetts Recycling Association
9.00%, 8/1/16 (d)................................. 3,187,500
14,000,000 Massachusetts State Municipal Wholesale Electric
Company, Linked PARs/INFLOs
5.45%, 7/1/18 (c)................................. 14,194,740
2,000,000 Massachusetts State Special Obligation Revenue,
Consolidated Loan, Series A
5.50%, 6/1/12..................................... 2,143,200
10,000,000 Massachusetts State Turnpike Authority,
Metropolitan Highway Systems Revenue, Senior
Series A
5.00%, 1/1/37, (MBIA)............................. 9,671,700
610,000 Massachusetts State Water Pollution Abatement
Trust, Pool Loan Program, Series 2
6.125%, 2/1/08.................................... 689,739
11,140,000 Massachusetts State, General Obligation,
Consolidated Loan, Series C
5.625%, 8/1/13.................................... 11,783,781
-------------
92,078,683
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - CONTINUED
MICHIGAN - 3.7%
Michigan State Building Authority Revenue,
Facilities Program, Series II:
$ 1,000,000 (Eff. Yield 5.20%) (b)
0.00%, 10/15/10, (AMBAC).......................... $ 558,340
1,000,000 (Eff. Yield 5.25%) (b)
0.00%, 10/15/11, (AMBAC).......................... 525,750
1,000,000 (Eff. Yield 5.30%) (b)
0.00%, 10/15/12, (AMBAC).......................... 489,950
Michigan State Hospital Finance Authority Revenue:
Genesys Regional Medical Center, Series A:
2,000,000 5.375%, 10/1/13................................... 2,001,540
4,250,000 5.50%, 10/1/18.................................... 4,237,590
11,970,000 Henry Ford Health Systems,
Series A
5.25%, 11/15/20................................... 11,963,776
7,500,000 Oakwood Hospital Obligation Group, Series A
5.625%, 11/1/18................................... 7,721,325
10,000,000 Monroe County, Michigan,
Economic Development Corporation,
Detroit Edison Company
6.95%, 9/1/22, (FGIC)............................. 12,825,700
11,000,000 Royal Oak, Michigan,
Hospital Finance Authority Revenue
5.25%, 1/1/20..................................... 10,859,640
-------------
51,183,611
-------------
MINNESOTA - 0.1%
Minnesota State Housing Finance Agency, Single
Family Mortgage:
595,000 Series A
8.20%, 8/1/19..................................... 608,054
1,280,000 Series D
8.00%, 1/1/23..................................... 1,339,661
-------------
1,947,715
-------------
MISSISSIPI - 0.1%
1,000,000 Harrison County, Mississippi, Wastewater Treatment
Management District Revenue
8.50%, 2/1/13..................................... 1,409,890
-------------
MISSOURI - 0.7%
4,650,000 Bridgeton, Missouri,
Industrial Development Authority Revenue, Senior
Housing Revenue, The Sarah Community Project
5.80%, 5/1/18..................................... 4,605,546
1,500,000 Joplin, Missouri,
Industrial Development Authority Revenue,
Catholic Health Initiatives, Series A
5.125%, 12/1/15................................... 1,495,530
</TABLE>
31
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
MISSOURI - CONTINUED
$ 940,000 Missouri State Housing Development Commission,
Mortgage Revenue, Single Family, Series B
6.45%, 9/1/27.................................... $ 1,012,126
Sikeston, Missouri,
Electric Revenue:
300,000 6.00%, 6/1/13, (MBIA)............................ 336,765
200,000 6.00%, 6/1/14, (MBIA)............................ 224,422
1,250,000 West Plains, Missouri,
Industrial Development Authority, Ozarks Medical
Center
5.65%, 11/15/22.................................. 1,252,575
--------------
8,926,964
--------------
MONTANA - 0.9%
11,000,000 Forsyth, Montana,
Pollution Control Revenue, Montana Power
Company,
Series A
6.125%, 5/1/23, (AMBAC).......................... 11,836,110
--------------
NEBRASKA - 1.1%
15,000,000 Nebraska State Investment Finance Authority,
Single Family Housing Revenue, Series F
5.60%, 9/1/20,
(GNMA/FNMA/FHLMC)................................ 15,108,150
--------------
NEVADA - 1.9%
4,905,000 Clark County, Nevada,
Airport Revenue, Series A
5.50%, 7/1/15, (MBIA)............................ 5,060,489
6,000,000 Clark County, Nevada,
General Obligation, Series A
7.50%, 6/1/09, (AMBAC)........................... 7,504,500
10,000,000 Clark County, Nevada,
Passenger Facilities Revenue, Las Vegas McCarran
International Airport, Series A
6.00%, 7/1/22, (AMBAC)........................... 10,856,200
3,000,000 Clark County, Nevada,
School District, Series A
6.75%, 3/1/07, (MBIA)............................ 3,218,820
--------------
26,640,009
--------------
NEW HAMPSHIRE - 1.8%
3,155,000 New Hampshire State Higher Education and Health
Facilities Authority, Frisbie Memorial Hospital
Revenue
6.125%, 10/1/13.................................. 3,293,505
20,615,000 New Hampshire State Turnpike Systems Revenue
5.75%, 4/1/20.................................... 21,487,839
--------------
24,781,344
--------------
NEW JERSEY - 0.6%
1,000,000 Gloucester County, New Jersey,
Improvement Authority, Gloucester Company LP,
Series A
8.125%, 7/1/10................................... 1,004,240
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
NEW JERSEY - CONTINUED
$ 1,000,000 New Jersey State Health Care Facilities Financing
Authority, Jersey Shore Medical Center
6.125%, 7/1/12, (AMBAC).......................... $ 1,088,920
5,000,000 New Jersey State Transportation Trust Fund
Authority, Transportation Systems Revenue,
Series A
5.50%, 6/15/13................................... 5,232,800
1,055,000 Salem County, New Jersey,
Pollution Control Finance Authority, Waste
Disposal Revenue
6.50%, 11/15/21.................................. 1,133,123
--------------
8,459,083
--------------
NEW MEXICO - 1.5%
1,500,000 Albuquerque, New Mexico,
Hospital System Revenue,
Series A
6.375%, 8/1/07, (MBIA)........................... 1,632,165
2,950,000 Albuquerque, New Mexico,
Joint Water and Sewer System Revenue, Series A,
(Eff. Yield 6.90%) (b)
0.00%, 7/1/08, (FGIC)............................ 1,850,712
Farmington, New Mexico,
Pollution Control Revenue:
10,000,000 Public Service Company of San Juan, Series C
5.70%, 12/1/16, (AMBAC).......................... 10,570,400
5,000,000 Southern California Edison Company, Series A
5.875%, 6/1/23, (MBIA)........................... 5,327,200
1,000,000 University of New Mexico, University Revenues,
Series A
6.00%, 6/1/21.................................... 1,127,100
--------------
20,507,577
--------------
NEW YORK - 13.3%
7,000,000 Housing, New York,
Corporate Revenue, Series A,
(Eff. Yield 6.17%) (b)
0.00%, 11/1/10................................... 6,474,370
Long Island Power Authority, New York, Electric
Systems Revenue, Series A:
5,000,000 5.25%, 12/1/26................................... 4,935,400
7,450,000 5.50%, 12/1/29................................... 7,518,912
10,000,000 5.75%, 12/1/24................................... 10,479,800
Metropolitan Transportation Authority, New York,
Transportation Facilities Revenue:
10,000,000 Series A
5.70%, 7/1/17, (MBIA)............................ 10,594,400
11,600,000 Service Contract:
Series 7
5.625%, 7/1/16................................... 11,922,132
5,000,000 Series R
5.50%, 7/1/17.................................... 5,077,400
</TABLE>
32
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
NEW YORK - CONTINUED
New York City, New York,
General Obligation:
Capital Appreciation:
$ 8,000,000 (Eff. Yield 4.83%) (b)
0.00%, 8/1/09, (MBIA)............................. $ 4,784,560
Series G:
4,750,000 5.00%, 8/1/14..................................... 4,676,423
4,760,000 (Eff. Yield 4.75%) (b)
0.00%, 8/1/08, (MBIA)............................. 2,998,562
Refunded Balance:
400,000 5.75%, 8/1/10, (FGIC)............................. 421,520
2,500,000 Series G
6.75%, 2/1/09, (FGIC)............................. 2,917,975
Unrefunded Balance, Series A:
615,000 7.75%, 8/15/08.................................... 684,224
335,000 7.75%, 8/15/14.................................... 372,496
520,000 7.75%, 8/15/15.................................... 576,883
New York City, New York, Municipal Water Finance
Authority, Water and Sewer Systems Revenue,
Series B:
7,300,000 5.75%, 6/15/26, (MBIA)............................ 7,780,770
30,000,000 5.75%, 6/15/29.................................... 31,768,500
New York State Dormitory Authority Revenue:
4,480,000 City University Educational Facilities
7.00%, 7/1/09, (FGIC)............................. 5,434,061
5,000,000 Mental Health Services Facilities, Series A
5.75%, 8/15/22.................................... 5,246,150
Series C:
2,400,000 7.375%, 5/15/10................................... 2,946,552
10,500,000 7.50%, 5/15/11.................................... 13,150,620
New York State Dormitory Authority Revenue,
Secured Hospital:
Interfaith Medical Center, Series D:
2,500,000 5.25%, 2/15/16.................................... 2,479,575
4,695,000 5.30%, 2/15/19.................................... 4,619,129
2,000,000 Wyckoff Heights, Series H
5.30%, 8/15/21.................................... 1,971,040
545,000 New York State Environmental Facilities
Corporation, Pollution Control Revenue, State
Water Revolving Fund, Unrefunded Balance,
Series E 6.875%, 6/15/10......................... 596,693
5,000,000 New York State Local Government Assistance
Revenue, Series D
5.375%, 4/1/14.................................... 5,081,200
New York State Medical Care Facilities, Finance
Agency Revenue:
2,900,000 6.375%, 8/15/14, (FGIC)........................... 3,219,783
2,255,000 6.375%, 11/15/19, (AMBAC)......................... 2,496,533
1,250,000 Health Center Projects, Series A
6.375%, 11/15/19.................................. 1,372,325
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
NEW YORK - CONTINUED
New York State Mortgage Agency Revenue, Homeowner
Mortgage:
$ 4,500,000 Series 27
6.90%, 4/1/15.................................... $ 4,899,510
6,400,000 Series 69
5.50%, 10/1/28................................... 6,432,960
1,125,000 New York State Power Authority Revenue, General
Purpose Revenue
7.00%, 1/1/18.................................... 1,360,418
6,000,000 New York State Thruway Authority, Service
Contract, Local Highway and Bridge Revenue
5.20%, 4/1/09.................................... 6,177,540
575,000 New York State Urban Development Corporation
Revenue, Correctional Facilities, Series A
6.50%, 1/1/09.................................... 652,545
500,000 Niagara Falls, New York,
Public Improvement
7.50%, 3/1/14, (MBIA)............................ 643,395
--------------
182,764,356
--------------
NORTH DAKOTA - 0.4%
5,000,000 North Dakota State Housing Financial Agency
Revenue, Series C
5.55%, 7/1/29.................................... 5,026,200
--------------
OHIO - 2.3%
2,000,000 Adams County, Ohio,
Valley Local School District
7.00%, 12/1/15................................... 2,489,840
2,000,000 Butler County, Ohio,
Transportation Improvement District Revenue,
Series A
6.00%, 4/1/12, (FSA)............................. 2,198,760
10,100,000 Cleveland, Ohio,
Airport Special Revenue, Continental Airlines
Incorporated Project
5.375%, 9/15/27.................................. 9,762,660
Cleveland, Ohio,
Public Power Systems Revenue, First Mortgage,
Series A:
7,000,000 7.00%, 11/15/16, (MBIA).......................... 8,100,540
1,000,000 7.00%, 11/15/24, (MBIA).......................... 1,172,040
1,285,000 Columbus, Ohio,
General Obligation
12.375%, 2/15/06................................. 1,942,059
2,500,000 Montgomery County, Ohio,
Hospital Revenue, Kettering Medical Center
6.25%, 4/1/20, (MBIA)............................ 2,920,000
1,000,000 Ohio State Higher Educational Facility Commission
6.125%, 11/15/17, (MBIA)......................... 1,085,030
2,000,000 Ohio State Solid Waste Disposal Revenue, USG
Corporation Project
5.65%, 3/1/33.................................... 2,017,820
--------------
31,688,749
--------------
</TABLE>
33
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - 6.1%
$ 2,500,000 Allegheny County, Pennsylvania,
Sewer Revenue,
(Eff. Yield 6.10%) (b)
0.00%, 6/1/15, (FGIC)............................ $ 1,052,150
4,000,000 Beaver County, Pennsylvania,
Pollution Control Revenue, Ohio Edison Company,
Series A
7.00%, 6/1/21, (FGIC)............................ 4,369,640
2,000,000 Lebanon County, Pennsylvania,
Good Samaritan Hospital Authority, Project
Revenue
6.00%, 11/15/18.................................. 2,080,720
2,000,000 McKeesport, Pennsylvania,
Area School District, Capital Appreciation,
Series B
(Eff. Yield 6.25%) (b)
0.00%, 10/1/15, (FSA)............................ 831,780
2,060,000 Millcreek Township, Pennsylvania,
School District, Capital Appreciation, Series A
(Eff. Yield 6.38%) (b)
0.00%, 9/15/09, (FGIC)........................... 1,218,366
900,000 Montgomery County, Pennsylvania, Industrial
Development and Pollution Control, Philadelphia
Electric Company
7.60%, 4/1/21.................................... 982,044
7,500,000 Northumberland County, Pennsylvania, Commonwealth
Lease Revenue, Capital Appreciation
(Eff. Yield 7.10%) (b)
0.00%, 10/15/10, (MBIA).......................... 4,212,975
2,650,000 Penn Hills Township, Pennsylvania, General
Obligation, Series B
(Eff. Yield 6.79%) (b)
0.00%, 6/1/13, (AMBAC)........................... 1,253,026
Pennsylvania State Higher Educational Facilities
Authority Revenue:
Allegheny General Hospital:
4,000,000 Series A
7.125%, 9/1/07................................... 4,354,600
7,000,000 Series I
5.70%, 6/15/15................................... 7,311,150
Pennsylvania State Housing Finance Agency:
5,545,000 Residential Development,
Section 8, Series A
7.60%, 7/1/13.................................... 5,964,479
4,000,000 Single Family Mortgage, Series T
7.75%, 10/1/09................................... 4,160,960
1,750,000 Pennsylvania State Industrial Development
Authority Revenue, Economic Development
6.00%, 1/1/12, (AMBAC)........................... 1,893,308
Philadelphia, Pennsylvania,
Hospital and Higher Education Facilities
Authority Revenue:
3,000,000 Albert Einstein Medical Center
7.00%, 10/1/21................................... 3,233,430
1,000,000 Community College, Series B
6.50%, 5/1/07, (MBIA)............................ 1,137,100
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
PENNSYLVANIA - CONTINUED
Philadelphia, Pennsylvania,
Hospital and Higher Education Facilities
Authority
Revenue - continued:
$ 2,500,000 Temple University Hospital
5.50%, 11/15/15.................................. $ 2,534,500
7,360,000 Philadelphia, Pennsylvania,
Municipal Authority Revenue, Municipal Services
Building Lease, Capital Appreciation
(Eff. Yield 7.50%) (b)
0.00%, 3/15/14, (FSA)............................ 3,309,792
Philadelphia, Pennsylvania,
Water and Wastewater Revenue:
10,600,000 5.00%, 6/15/16, (FSA)............................ 10,511,808
4,610,000 5.50%, 8/1/14, (MBIA)............................ 4,768,215
5,000,000 5.60%, 8/1/18, (MBIA)............................ 5,181,900
4,000,000 Pittsburgh, Pennsylvania,
School District, General Obligation, Capital
Appreciation, Series C
(Eff. Yield 7.00%) (b)
0.00%, 8/1/09, (AMBAC)........................... 2,379,240
6,350,000 Sayre, Pennsylvania,
Health Care Facilities Authority, Guthrie
Healthcare, Series A
7.10%, 3/1/17.................................... 6,859,524
Shaler, Pennsylvania,
Area School District, Capital Appreciation,
Series A:
2,000,000 (Eff. Yield 5.55%) (b)
0.00%, 11/15/17, (FGIC).......................... 735,760
2,000,000 (Eff. Yield 5.60%) (b)
0.00%, 11/15/18, (FGIC).......................... 697,500
2,000,000 (Eff. Yield 5.60%) (b)
0.00%, 11/15/19, (FGIC).......................... 658,320
2,550,000 Washington County, Pennsylvania, Hospital
Authority Revenue, Shadyside Hospital Project
5.75%, 12/15/14, (AMBAC)......................... 2,666,688
--------------
84,358,975
--------------
RHODE ISLAND - 0.4%
5,710,000 Rhode Island State Health and Educational
Building Corporation, Hospital Financing
Revenue, Roger Williams General Hospital
9.50%, 7/1/16.................................... 5,734,325
--------------
SOUTH CAROLINA - 0.7%
1,610,000 South Carolina State Housing Finance and
Development Authority, Homeownership Mortgage
Purchase, Series B
7.90%, 7/1/32, (FHA)............................. 1,686,652
7,500,000 York County, South Carolina,
Industrial Development Revenue, Exempt
Facilities, Hoechst Celanese Corporation
5.70%, 1/1/24.................................... 7,684,875
--------------
9,371,527
--------------
</TABLE>
34
<PAGE>
Schedule of Investments(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Tennessee - 3.0%
$ 7,465,000 Bristol, Tennessee,
Health and Educational Facilities Authority,
Bristol Memorial Hospital
6.75%, 9/1/10, (FGIC)............................ $ 8,882,827
Knox County, Tennessee,
Health and Educational Facilities Authority,
Fort Sanders Alliance:
9,000,000 Series B
7.25%, 1/1/10.................................... 11,037,690
4,500,000 Series C
5.25%, 1/1/15.................................... 4,630,185
10,000,000 Metro Government, Nashville
and Davidson Counties, Tennessee, Step Bond,
(Eff. Yield 4.92%) (b)
0.00%, 1/1/12, (FGIC)............................ 12,330,800
3,855,000 Tennessee State Housing Development Authority,
Home Ownership Program, Issue H
7.825%, 7/1/15................................... 3,972,809
--------------
40,854,311
--------------
Texas - 10.1%
10,000,000 Alliance, Texas,
Airport Authority, Texas Special Facilities
Revenue, Federal Express Corporation Project
6.375%, 4/1/21................................... 10,814,200
Austin, Texas,
Utility Systems Revenue:
5,000,000 5.75%, 5/15/24, (FGIC)........................... 5,195,350
500,000 (Eff. Yield 6.80%) (b)
0.00%, 11/15/11.................................. 258,740
2,000,000 Series B
5.70%, 11/15/21, (MBIA).......................... 2,109,880
Bexar, Texas,
Metropolitan Water District Waterworks Systems
Revenue:
2,000,000 5.875%, 5/1/22................................... 2,113,140
25,000 Unrefunded Balance
6.625%, 5/1/14, (AMBAC).......................... 27,154
30,000 Brazos County, Texas,
Health Facilities Development Revenue,
Franciscan Service Corporation, Series B
5.375%, 1/1/22, (MBIA)........................... 30,298
3,425,000 Brazos County, Texas,
Housing Finance Corporation, Single Family
Mortgage Revenue
5.80%, 9/1/25, (GNMA/FNMA)....................... 3,544,978
2,400,000 Brownsville, Texas,
Utilities Systems Revenue
6.25%, 9/1/14, (MBIA)............................ 2,810,112
Fort Bend County, Texas,
Levee Improvement, District #011:
1,245,000 6.90%, 9/1/18, (MBIA)............................ 1,424,168
1,000,000 6.90%, 9/1/19, (MBIA)............................ 1,143,910
1,165,000 6.90%, 9/1/20, (MBIA)............................ 1,332,655
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Texas - continued
$10,000,000 Gulf Coast, Texas,
Industrial Development Authority, Waste Disposal
Revenue, Valero Refining Project
5.60%, 12/1/31................................... $ 10,022,100
7,000,000 Harris County, Texas,
Flood Control District, Series B
(Eff. Yield 7.20%) (b)
0.00%, 10/1/06................................... 4,173,120
3,270,000 Harris County, Texas,
General Obligation, Permanent Improvement
5.75%, 10/1/13................................... 3,592,520
Harris County, Texas,
Health Facilities Development Corporation
Revenue, School Health Care Systems, Series B:
5,000,000 5.75%, 7/1/27.................................... 5,231,450
10,000,000 5.75%, 7/1/27, (MBIA)............................ 10,566,700
Harris County, Texas,
Health Facilities Development Corporation,
Hospital Revenue:
5,000,000 6.60%, 6/1/14.................................... 5,679,450
2,480,000 Hermann Hospital Project
6.375%, 10/1/17.................................. 2,788,537
Memorial Hospital Systems Project:
2,525,000 7.125%, 6/1/15................................... 2,818,935
Series A:
3,215,000 6.00%, 6/1/09.................................... 3,581,253
1,990,000 6.00%, 6/1/12.................................... 2,215,905
4,000,000 Harris County, Texas,
Senior Lien, Series A
6.375%, 8/15/24.................................. 4,520,320
4,000,000 Harris County, Texas,
Toll Road, Subordinate Lien, Series A
7.00%, 8/15/10................................... 4,908,640
4,565,000 Houston, Texas,
Airport Systems Revenue, Senior Lien
8.20%, 7/1/17.................................... 4,694,007
Houston, Texas,
Water and Sewer Systems Revenue:
2,700,000 Junior Lien, Series C
(Eff. Yield 6.85%) (b)
0.00%, 12/1/10................................... 1,482,057
3,000,000 Series C
(Eff. Yield 6.90%) (b)
0.00%, 12/1/11................................... 1,549,080
Keller, Texas,
Independent School District, Capital
Appreciation:
2,675,000 (Eff. Yield 4.55%) (b)
0.00%, 8/15/07................................... 1,752,312
3,300,000 (Eff. Yield 4.60%) (b)
0.00%, 8/15/08................................... 2,054,547
3,590,000 (Eff. Yield 4.70%) (b)
0.00%, 8/15/09................................... 2,122,157
</TABLE>
35
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
TEXAS - CONTINUED
$ 1,090,000 Montgomery County, Texas,
General Obligation, Capital Appreciation,
(Eff. Yield 5.30%) (b)
0.00%, 3/1/10, (MBIA)............................. $ 620,929
2,000,000 Port Arthur, Texas,
Navigation District Revenue, Capital
Appreciation,
(Eff. Yield 4.90%) (b)
0.00%, 3/1/09, (AMBAC)............................ 1,207,760
2,000,000 Port Corpus Christi, Texas,
Industrial Development Revenue, Valero Energy
Corporation
5.125%, 4/1/09.................................... 1,996,520
1,085,000 Rio Grande Valley, Texas,
Health Facilities Corporation, Hospital Revenue,
Baptist Medical Project
8.00%, 8/1/17..................................... 1,113,319
5,315,000 Socorro, Texas,
Independent School District, General Obligation
5.75%, 2/15/26.................................... 5,797,070
2,565,000 Tarrant County, Texas,
Health Facilities Development Revenue, Texas
Health Resources Systems, Series A
5.75%, 2/15/15, (MBIA)............................ 2,792,900
6,415,000 Tarrant County, Texas,
Housing Finance Corporation Revenue, Single
Family Mortgage, Series A,
(Eff. Yield 11.00%) (b)
0.00%, 9/15/16, (MBIA)............................ 2,518,337
5,000,000 Texas State, General Obligation,
Linked RIBs/SAVRs
6.20%, 9/30/11 (c)................................ 5,781,800
Texas State, Municipal Power Agency Revenue:
175,000 5.25%, 9/1/12, (MBIA)............................. 176,682
130,000 6.10%, 9/1/09..................................... 147,654
1,125,000 Capital Appreciation
(Eff. Yield 7.35%) (b)
0.00%, 9/1/08, (AMBAC)............................ 698,265
9,000,000 Titus County, Texas,
Water District #1, Southwest Electric Power
8.20%, 8/1/11..................................... 10,163,610
1,475,000 University of Texas, University Revenues,
Unrefunded Balance, Series B
6.75%, 8/15/13.................................... 1,602,941
-------------
139,175,462
-------------
UTAH - 0.4%
3,500,000 Utah State Building Ownership Authority, Lease
Revenue, State Facilities Master Lease Program,
Series A
5.75%, 5/15/18, (AMBAC)........................... 3,665,970
175,000 Utah State Housing Finance Agency, Single Family
Mortgage, Series C2
7.95%, 7/1/10..................................... 184,233
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
UTAH - CONTINUED
Utah State Intermountain Power Agency Revenue:
$ 750,000 Series A (Eff. Yield 8.43%) (b)
0.00%, 7/1/07...................................... $ 493,620
6,500,000 Series C (Eff. Yield 6.80%) (b)
0.00%, 7/1/20...................................... 1,126,840
-------------
5,470,663
-------------
VERMONT - 0.4%
3,000,000 Vermont State Educational and Health Building
Financing Agency Revenue, Middlebury College
Project
6.00%, 11/1/22..................................... 3,204,840
1,485,000 Vermont State Housing Finance Agency, Single
Family, Series 1
8.15%, 5/1/25...................................... 1,546,420
-------------
4,751,260
-------------
VIRGINIA - 2.2%
8,500,000 Loudoun County, Virginia,
Industrial Development Authority, Residential Care
Facility Revenue, Falcons Landing Project, Series
A
8.75%, 11/1/04..................................... 10,821,095
Virginia State Housing Development Authority,
Multifamily Housing:
3,245,000 Series E
5.60%, 11/1/17..................................... 3,334,335
10,000,000 Subseries B
5.50%, 1/1/22...................................... 10,085,500
Winchester, Virginia,
Industrial Development, Hospital Revenue,
Winchester Medical Center:
2,300,000 6.15%, 1/1/15, (AMBAC)............................. 2,335,926
3,200,000 6.30%, 1/1/15, (AMBAC)............................. 3,246,592
-------------
29,823,448
-------------
WASHINGTON - 1.3%
Chelan County, Washington,
Public Utility District #1, Capital Appreciation,
Series A:
3,000,000 (Eff. Yield 5.55%) (b)
0.00%, 6/1/09...................................... 1,784,790
12,685,000 (Eff. Yield 5.80%) (b)
0.00%, 6/1/14...................................... 5,617,425
2,000,000 King County, Washington,
School District #415, General Obligation
5.875%, 6/1/16, (FSA).............................. 2,134,740
1,000,000 Tacoma, Washington,
Electric Systems Revenue
6.25%, 1/1/15, (FGIC).............................. 1,082,220
1,300,000 Washington State Health Care Facilities Authority,
Multi-Care Medical Center of Tacoma
7.875%, 8/15/11, (FGIC)............................ 1,336,218
Washington State Public Power Supply System:
3,000,000 Nuclear Project #2, Series A
5.00%, 7/1/12, (FSA)............................... 3,009,630
</TABLE>
36
<PAGE>
[LOGO APPEARS HERE]
SCHEDULE OF INVESTMENTS (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - CONTINUED
WASHINGTON - CONTINUED
Washington State Public Power Supply System -
continued:
$ 4,000,000 Nuclear Project #3
(Eff. Yield 10.09%) (b)
0.00%, 7/1/12.................................... $ 1,960,880
1,000,000 Washington State, General Obligation, Series A
6.75%, 2/1/15.................................... 1,212,810
--------------
18,138,713
--------------
WISCONSIN - 0.1%
585,000 Wisconsin State Housing and Economic Development
Authority, Home Ownership
8.00%, 3/1/21.................................... 613,296
--------------
PUERTO RICO - 4.3%
Commonwealth of Puerto Rico,
Electric Power Authority Revenue:
3,400,000 Series DD
5.25%, 7/1/14, (FSA)............................. 3,515,668
2,795,000 Series EE
5.25%, 7/1/14, (MBIA)............................ 2,890,086
Commonwealth of Puerto Rico, General Obligation:
3,000,000 6.45%, 7/1/17.................................... 3,410,910
2,000,000 Capital Appreciation
(Eff. Yield 5.53%) (b)
0.00%, 7/1/14, (MBIA)............................ 908,680
Linked BPO:
12,300,000 7.00%, 7/1/10, (MBIA) (c)........................ 15,174,756
5,000,000 7.00%, 7/1/10, (AMBAC) (c)....................... 6,168,600
Commonwealth of Puerto Rico, Highway and
Transportation Authority Revenue:
10,000,000 Series A (Eff. Yield 4.95%) (b)
0.00%, 7/1/15, (AMBAC)........................... 4,333,200
Series Y:
400,000 5.25%, 7/1/15, (FSA)............................. 411,796
7,200,000 5.50%, 7/1/26.................................... 7,375,464
5,000,000 Series Z
6.00%, 7/1/18, (FSA)............................. 5,684,350
2,080,000 Commonwealth of Puerto Rico, Industrial, Tourist,
Educational, Medical, Environmental Control
Facilities, Finance Authority
6.25%, 7/1/24.................................... 2,287,314
Commonwealth of Puerto Rico, Public Buildings
Authority Revenue:
250,000 Government Facilities
5.00%, 7/1/12, (MBIA)............................ 255,445
6,250,000 Guaranteed Public Education and Health
Facilities, Step Bond,
Series M
(Eff. Yield 5.74%) (b)
3.75%, 7/1/16.................................... 6,258,500
--------------
58,674,769
--------------
Total Long-Term Municipal Obligations (cost
$1,323,750,072)................................. 1,385,949,961
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS - 0.4%
CALIFORNIA - 0.1%
$ 290,000 California State Health Facilities Financing
Revenue, Variable Rate Refunding, St. Joseph
Health, Series A
3.65%, 6/1/13 (a)............................... $ 290,000
920,000 Irvine Ranch, California,
Water District Revenue, Consolidated Bonds
3.70%, 10/1/10 (a).............................. 920,000
59,000 Tustin, California,
Improvement Bond Act 1915
3.70%, 9/2/13 (a)............................... 59,000
---------------
1,269,000
---------------
FLORIDA - 0.0%
55,000 Dade County, Florida,
Health Facilities Authority, Hospital Revenue,
Miami Childrens Hospital Project
4.00%, 9/1/20 (a)............................... 55,000
40,000 Dade County, Florida,
Water and Sewer Systems Revenue
3.90%, 10/5/22 (a).............................. 40,000
---------------
95,000
---------------
MASSACHUSETTS - 0.0%
Massachusetts State Health and Educational
Facilities Authority, Capital Assets Program,
Series D:
325,000 3.70%, 1/1/35 (a)............................... 325,000
10,000 3.70%, 5/1/35 (a)............................... 10,000
---------------
335,000
---------------
MISSOURI - 0.1%
Kansas City, Missouri,
Industrial Development Authority, Hospital
Revenue:
200,000 3.95%, 10/15/15 (a)............................. 200,000
575,000 Insured Research Health Services Systems
3.95%, 4/15/15 (a).............................. 575,000
50,000 Missouri State Health and Educational Facilities
Authority Revenue
3.85%, 12/1/19 (a).............................. 50,000
---------------
825,000
---------------
NEW YORK - 0.2%
2,000,000 Long Island Power Authority, New York, Electric
Systems Revenue, Series 5
3.95%, 5/1/33 (a)............................... 2,000,000
410,000 New York City, New York, Municipal Water Finance
Authority Revenue
3.95%, 6/15/24 (a).............................. 410,000
---------------
2,410,000
---------------
TEXAS - 0.0%
355,000 Coastal Bend, Texas,
Health Facilities Development, Incarnate World
Health Systems Revenue
3.85%, 8/15/27 (a).............................. 355,000
---------------
</TABLE>
37
<PAGE>
Schedule of Investments(continued)
May 31, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS - continued
Wyoming - 0.0%
$300,000 Uinta County, Wyoming, Pollution Control Revenue
3.95%, 4/1/10 (a).................................. $ 300,000
--------------
Total Short-Term Municipal Obligations (cost
$5,589,000)....................................... 5,589,000
--------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments -
(cost $1,329,339,072)........ 101.2% 1,391,538,961
Other Assets and Liabilities -
net.......................... (1.2) (15,839,813)
----- --------------
Net Assets - ................. 100.0% $1,375,699,148
===== ==============
</TABLE>
(a) Security is a variable or floating rate instrument with periodic
demand features. The Fund is entitled to full payment of principal
and accrued interest upon surrendering the security to the issuing
agent.
(b) Effective yield (calculated at date of purchase) is the annual yield
at which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that
are linked to another rate or index and therefore would be considered
derivative securities.
(d) Security which has defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on that so identified.
Summary of Abbreviations:
ACEs Auction Rate Securities
AMBAC Insured by American Municipal Bond Assurance Corporation
BPO Bond Payment Obligation
FGIC Insured by Federal Guaranty Insurance Company
FHA Insured by Federal Housing Authority
FHLMC Insured by Federal Home Loan Mortgage Corporation
FNMA Insured by Federal National Mortgage Association
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
INFLOs Inverse Floating Rate Securities
MBIA Insured by Municipal Bond Investors Assurance Corporation
PARs Periodic Auction Reset Securities
RIBs Residual Interest Bonds
SAVRs Select Auction Variable Rate Securities
38
<PAGE>
[LOGO APPEARS HERE]
STATEMENTS OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
HIGH GRADE SHORT INTERMEDIATE TAX FREE
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at market value
(identified cost -
$114,303,886, $169,283,783
and $1,329,339,072,
respectively)................. $121,137,662 $172,326,493 $1,391,538,961
Cash........................... 0 533 53,980
Receivable for investments
sold.......................... 2,682,622 5,241,448 45,176,072
Interest receivable............ 2,185,583 3,301,404 20,498,029
Receivable for Fund shares
sold.......................... 2,129 20,989 43,404
Prepaid expenses and other
assets........................ 8,195 44,257 233,185
- --------------------------------------------------------------------------------
Total assets................. 126,016,191 180,935,124 1,457,543,631
- --------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased..................... 2,959,339 0 75,878,996
Payable for Fund shares
redeemed...................... 351,743 3,900 1,988,982
Dividends payable.............. 176,595 503,899 2,650,481
Distribution fee payable....... 63,591 7,178 669,150
Due to related parties......... 54,771 71,796 517,909
Accrued Trustees' fees and
expenses...................... 6,747 14,268 46,201
Accrued expenses and other
liabilities................... 79,262 70,443 92,764
- --------------------------------------------------------------------------------
Total liabilities............ 3,692,048 671,484 81,844,483
- --------------------------------------------------------------------------------
NET ASSETS..................... $122,324,143 $180,263,640 $1,375,699,148
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital................ $113,676,120 $176,749,878 $1,292,764,058
Undistributed net investment
income........................ 98,606 0 385,382
Accumulated net realized gain
on investments and futures
contracts..................... 1,715,641 471,052 20,349,819
Net unrealized appreciation on
investments................... 6,833,776 3,042,710 62,199,889
- --------------------------------------------------------------------------------
TOTAL NET ASSETS............. $122,324,143 $180,263,640 $1,375,699,148
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Class A........................ $ 64,526,357 $ 6,568,707 $1,243,327,218
Class B........................ 32,821,501 5,790,267 124,663,980
Class C........................ 0 0 7,707,950
Class Y........................ 24,976,285 167,904,666 0
- --------------------------------------------------------------------------------
$122,324,143 $180,263,640 $1,375,699,148
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A........................ 5,678,221 644,684 159,872,745
Class B........................ 2,888,261 568,072 16,030,234
Class C........................ 0 0 991,117
Class Y........................ 2,197,899 16,472,867 0
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A........................ $ 11.36 $ 10.19 $ 7.78
- --------------------------------------------------------------------------------
Class A -- Offering price
(based on sales charge of
4.75%, 3.25% and 4.75%,
respectively)................. $ 11.93 $ 10.53 $ 8.17
- --------------------------------------------------------------------------------
Class B........................ $ 11.36 $ 10.19 $ 7.78
- --------------------------------------------------------------------------------
Class C........................ -- -- $ 7.78
- --------------------------------------------------------------------------------
Class Y........................ $ 11.36 $ 10.19 --
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
[LOGO APPEARS HERE]
STATEMENTS OF OPERATIONS
Year Ended May 31, 1998
<TABLE>
<CAPTION>
HIGH GRADE SHORT INTERMEDIATE TAX FREE
FUND FUND FUND*
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest......................... $5,803,319 $6,033,898 $ 32,763,015
- ---------------------------------------------------------------------------------
EXPENSES
Management fee................... 542,365 622,594 2,410,469
Distribution Plan expenses....... 453,025 69,129 1,890,260
Transfer agent fees.............. 113,941 63,449 609,383
Registration and filing fees..... 68,469 83,299 22,517
Custodian fees................... 53,943 43,379 197,886
Shareholder reports expense...... 51,945 21,253 321,516
Administrative services fees..... 34,207 0 109,569
Professional fees................ 23,428 26,408 38,723
Trustees' fees and expenses...... 3,867 9,605 39,437
Other............................ 21,602 8,024 214,504
Fee waivers and/or expense
reimbursements.................. 0 (45,432) 0
- ---------------------------------------------------------------------------------
Total expenses.................. 1,366,792 901,708 5,854,264
Less: Indirectly paid expenses... (200) (850) (34,699)
- ---------------------------------------------------------------------------------
Net expenses.................... 1,366,592 900,858 5,819,565
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME............ 4,436,727 5,133,040 26,943,450
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND CLOSED
FUTURES CONTRACTS
Net realized gain (loss) on:
Investments..................... 3,360,972 1,471,537 17,108,116
Closed futures contracts........ 0 0 (731,997)
- ---------------------------------------------------------------------------------
Net realized gain on investments
and closed futures contracts.... 3,360,972 1,471,537 16,376,119
Net change in unrealized
appreciation (depreciation) on
investments..................... 1,019,154 (795,050) (25,411,876)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts............... 4,380,126 676,487 (9,035,757)
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $8,816,853 $5,809,527 $ 17,907,693
- ---------------------------------------------------------------------------------
</TABLE>
*Five months ended May 31, 1998. During the period, Tax Free Fund changed its
fiscal year end from December 31 to May 31.
See Combined Notes to Financial Statements.
40
<PAGE>
[LOGO APPEARS HERE]
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
TAX FREE
FUND
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest........................................................ $ 84,530,908
- --------------------------------------------------------------------------------
EXPENSES
Management fee.................................................. 6,029,348
Distribution Plan expenses...................................... 5,338,174
Transfer agent fees............................................. 1,342,638
Custodian fees.................................................. 453,948
Administrative services fees.................................... 215,018
Trustees' fees and expenses..................................... 124,253
Other........................................................... 193,385
- --------------------------------------------------------------------------------
Total expenses................................................. 13,696,764
Less: Indirectly paid expenses.................................. (20,193)
- --------------------------------------------------------------------------------
Net expenses................................................... 13,676,571
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME........................................... 70,854,337
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
CLOSED FUTURES CONTRACTS
Realized gain (loss) on:
Investments.................................................... 44,775,459
Closed futures contracts....................................... (7,678,397)
- --------------------------------------------------------------------------------
Net realized gain on investments and closed futures contracts... 37,097,062
Net change in unrealized appreciation (depreciation) on
investments.................................................... 2,027,467
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments and closed
futures contracts.............................................. 39,124,529
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $109,978,866
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
[LOGO APPEARS HERE]
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended May 31, 1998
<TABLE>
<CAPTION>
HIGH GRADE SHORT INTERMEDIATE TAX FREE
FUND FUND FUND*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income....... $ 4,436,727 $ 5,133,040 $ 26,943,450
Net realized gain on
investments and closed
futures contracts.......... 3,360,972 1,471,537 16,376,119
Net change in unrealized
appreciation
(depreciation) on
investments................ 1,019,154 (795,050) (25,411,876)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ 8,816,853 5,809,527 17,907,693
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A.................... (2,198,256) (225,168) (21,756,580)
Class B.................... (1,156,701) (197,697) (5,153,488)
Class C.................... 0 0 (109,908)
Class Y.................... (1,132,786) (4,710,175) 0
- -------------------------------------------------------------------------------
Total distributions to
shareholders.............. (4,487,743) (5,133,040) (27,019,976)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold... 14,810,240 22,513,095 21,942,896
Proceeds from shares issued
in connection with the
acquisition of:
Blanchard Flexible Tax-
Free Bond Fund............ 22,403,925 0 0
Common Trust Fund -
Intermediate Tax Exempt
Bond Fund................. 0 148,714,787 0
Evergreen Short
Intermediate Municipal
Fund - California......... 0 14,473,407 0
Evergreen Tax Free Income
Fund...................... 0 0 100,118,341
Proceeds from reinvestment
of distributions........... 2,594,120 1,482,137 12,966,083
Payment for shares
redeemed................... (23,942,474) (52,702,874) (125,945,502)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ 15,865,811 134,480,552 9,081,818
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ 20,194,921 135,157,039 (30,465)
NET ASSETS
Beginning of year........... 102,129,222 45,106,601 1,375,729,613
- -------------------------------------------------------------------------------
END OF YEAR................. $122,324,143 $180,263,640 $1,375,699,148
- -------------------------------------------------------------------------------
Undistributed net investment
income..................... $ 98,606 $ 0 $ 385,382
- -------------------------------------------------------------------------------
</TABLE>
*Five months ended May 31, 1998. During the period, Tax Free Fund changed its
fiscal year end from December 31 to May 31.
See Combined Notes to Financial Statements.
42
<PAGE>
[LOGO APPEARS HERE]
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
HIGH GRADE FUND SHORT INTERMEDIATE FUND TAX FREE FUND
------------------------------ ------------------------------
- ------------------------------
Nine Months Nine Months Year Ended December
31,
Ended Year Ended Ended Year Ended
- ------------------------------
May 31, 1997* August 31, 1996 May 31, 1997* August 31, 1996 1997
1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ 3,542,168 $ 5,304,418 $ 1,936,277 $ 2,353,029 $ 70,854,337 $
84,167,379
Net realized gain on
investments and closed
futures contracts...... 640,025 1,622,360 18,940 161,202 37,097,062
15,476,735
Net change in unrealized
appreciation
(depreciation) on
investments............ 982,691 (1,135,792) 139,624 (564,810) 2,027,467
(48,955,108)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 5,164,884 5,790,986 2,094,841 1,949,421 109,978,866
50,689,006
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (1,696,428) (2,655,984) (755,942) (541,615)
0 0
Class B................ (934,247) (1,385,989) (159,979) (229,080) (73,811,844)
(79,617,449)
Class Y................ (929,415) (1,262,445) (1,020,356) (1,582,334)
0 0
In excess of net
investment income
Class B................ 0 0 0 0
(160,951) 0
Net realized gain on
investments
Class B................ 0 0 0 0
(17,063,591) 0
- -------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (3,560,090) (5,304,418) (1,936,277) (2,353,029) (91,036,386)
(79,617,449)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 9,286,983 16,695,647 9,393,392 37,737,994 39,118,274
107,614,922
Proceeds from shares
issued in connection
with the acquisition of
Keystone Tax Exempt
Trust.................. 0 0 0 0 0
658,278,376
Proceeds from
reinvestment of
distributions.......... 2,003,093 3,093,850 973,716 1,651,747 53,790,716
41,011,255
Payment for shares
redeemed............... (18,667,515) (30,410,409) (35,446,549) (22,410,625) (294,007,649)
(424,558,360)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (7,377,439) (10,620,912) (25,079,441) 16,979,116 (201,098,659)
382,346,193
- -------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (5,772,645) (10,134,344) (24,920,877) 16,575,508 (182,156,179)
353,417,750
NET ASSETS
Beginning of period..... 107,901,867 118,036,211 70,027,478 53,451,970 1,557,885,792
1,204,468,042
- -------------------------------------------------------------------------------------------------------------------------
END OF PERIOD........... $102,129,222 $107,901,867 $ 45,106,601 $ 70,027,478 $1,375,729,613
$1,557,885,792
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment income ..... $ 124,532 $ 115,656 $ 0 $ 0 $ 467,027 $
2,957,507
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the period, the Fund changed its fiscal year end from August 31 to May
31.
See Combined Notes to Financial Statements.
43
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Evergreen National Municipal Bond Funds consist of Evergreen High Grade Tax
Free Fund ("High Grade Fund"), Evergreen Short Intermediate Municipal Fund
("Short Intermediate Fund") and Evergreen Tax Free Fund ("Tax Free Fund"),
(collectively, the "Funds"). Each Fund is a diversified series of Evergreen Mu-
nicipal Trust (the "Trust"), a Delaware business trust organized on September
17, 1997. The Trust is an open end management investment company registered un-
der the Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C or Class Y shares. Class A shares are
sold with a maximum front-end sales charge of 4.75% for both the High Grade
Fund and Tax Free Fund and a maximum front-end sales charge of 3.25% for the
Short Intermediate Fund. Class B and Class C shares are sold without a front-
end sales charge, but pay a higher ongoing distribution fee than Class A. Class
B shares are sold subject to a contingent deferred sales charge that is payable
upon redemption and decreases depending on how long the shares have been held.
Class B shares of Tax Free Fund purchased after January 1, 1997 will automati-
cally convert to Class A shares after seven years. Class B shares of Tax Free
Fund purchased prior to January 1, 1997 retain their existing conversion
rights. For the High Grade Fund and Short Intermediate Fund, all Class B shares
will automatically convert to Class A shares after seven years. Class C shares
are sold subject to a contingent deferred sales charge payable on shares re-
deemed within one year after the month of purchase. Class Y shares are sold at
net asset value and are not subject to contingent deferred sales charges or
distribution fees. Class Y shares are sold only to investment advisory clients
of First Union Corporation ("First Union") and its affiliates, certain institu-
tional investors or Class Y shareholders of record of certain other funds man-
aged by First Union and its affiliates as of December 30, 1994.
Effective January 9, 1998, the Tax Free Fund added two classes of shares desig-
nated as Class A and Class C and designated the existing class of shares as
Class B. Shareholders of this Fund who, at the close of business on January 16,
1998, held Class B shares purchased before January 1, 1995 and certain other
non-commissionable Class B shares had such shares converted to Class A shares
having an aggregate value equal to that of the shareholder's Class B shares
prior to the conversion.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
An independent pricing service values 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. Securities for which
valuations are not available from an independent pricing service, including re-
stricted securities, are valued at fair value as determined in good faith ac-
cording to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Tax Free Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
44
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
C. DERIVATIVE SECURITIES
The Tax Free Fund may invest in derivative securities. A derivative security is
any investment that derives its value from an underlying security, asset or
market index. Greater market fluctuations may result if these securities are
leveraged. The Fund invests in these types of securities when it is consistent
with its investment objectives.
D. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
E. FEDERAL TAXES
The Funds have qualified and intend to continue to qualify as regulated invest-
ment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal tax liability since they
are expected to distribute all of their net investment company taxable income,
net tax-exempt income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid any excise tax liability by making the required dis-
tributions under the Code. Accordingly, no provision for federal taxes is re-
quired. To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
F. DISTRIBUTIONS
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment of market dis-
count on securities.
G. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
45
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
3. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C or Class Y. Transactions in
shares of the Funds were as follows:
High Grade Fund
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
May 31, 1998 May 31, 1997 August 31, 1996
----------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 352,430 $ 3,971,088 138,267 $ 1,503,579 728,801 $ 7,875,800
Shares issued in
acquisition of:
Blanchard Flexible Tax-
Free Bond Fund........ 1,966,629 22,403,925 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 122,837 1,383,168 91,672 998,917 144,023 1,571,241
Shares redeemed......... (971,142) (10,944,155) (737,802) (8,010,676) (1,652,697) (17,891,048)
- ----------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 1,470,754 $ 16,814,026 (507,863) $ (5,508,180) (779,873) $ (8,444,007)
- ----------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 414,162 $ 4,656,253 418,834 $ 4,553,869 420,508 $ 4,595,803
Shares issued in
reinvestment of
distributions.......... 61,515 692,436 50,410 549,306 75,686 825,507
Shares redeemed......... (514,611) (5,780,674) (546,605) (5,937,166) (691,236) (7,495,373)
- ----------------------------------------------------------------------------------------------------
Net decrease............ (38,934) $ (431,985) (77,361) $ (833,991) (195,042) $ (2,074,063)
- ----------------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 548,341 $ 6,182,899 296,083 $ 3,229,535 387,417 $ 4,224,044
Shares issued in
reinvestment of
distributions.......... 46,065 518,516 41,755 454,870 63,909 697,102
Shares redeemed......... (641,096) (7,217,645) (434,833) (4,719,673) (455,583) (5,023,988)
- ----------------------------------------------------------------------------------------------------
Net decrease............ (46,690) $ (516,230) (96,995) $ (1,035,268) (4,257) $ (102,842)
- ----------------------------------------------------------------------------------------------------
</TABLE>
Short Intermediate Fund
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
May 31, 1998 May 31, 1997 August 31, 1996
------------------------ ------------------------ -----------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 383,419 $ 3,907,614 182,673 $ 1,860,992 2,806,176 $28,333,550
Shares issued in
acquisition of:
Evergreen Short
Intermediate Municipal
Fund -California...... 736 7,495 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 15,389 156,458 17,182 174,056 24,978 253,579
Shares redeemed......... (356,623) (3,624,581) (2,348,922) (23,711,903) (750,660) (7,689,314)
- -----------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 42,921 $ 446,986 (2,149,067) $(21,676,855) 2,080,494 $20,897,815
- -----------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 107,260 $ 1,092,900 144,261 $ 1,461,443 291,382 $ 2,967,713
Shares issued in
acquisition of:
Evergreen Short
Intermediate Municipal
Fund -California...... 6,897 70,307 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 14,126 143,788 11,819 119,733 16,079 163,265
Shares redeemed......... (227,503) (2,313,782) (224,553) (2,272,638) (166,441) (1,686,967)
- -----------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (99,220) $ (1,006,787) (68,473) $ (691,462) 141,020 $ 1,444,011
- -----------------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 1,719,348 $ 17,512,581 600,756 $ 6,070,957 635,204 $ 6,436,731
Shares issued in
acquisition of:
Common Trust Fund -
Intermediate Tax
Exempt Bond Fund...... 14,616,570 148,714,787 0 0 0 0
Evergreen Short
Intermediate Municipal
Fund -California...... 1,412,138 14,395,605 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 116,093 1,181,891 67,156 679,927 121,645 1,234,903
Shares redeemed......... (4,588,604) (46,764,511) (934,601) (9,462,008) (1,283,965) (13,034,344)
- -----------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 13,275,545 $135,040,353 (266,689) $ (2,711,124) (527,116) $(5,362,710)
- -----------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Tax Free Fund
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of Class
Operations) through
May 31, 1998
---------------------------
Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C>
CLASS A
Shares sold...................................... 404,689 $ 3,409,126
Shares issued in connection with the acquisition
of Evergreen Tax Free Income Fund............... 8,443,496 66,261,386
Automatic conversion of Class B shares........... 162,305,257 1,285,292,084
Shares issued in reinvestment of distributions... 1,526,223 11,889,303
Shares redeemed.................................. (12,806,920) (100,036,093)
- ------------------------------------------------------------------------------
Net increase..................................... 159,872,745 $1,266,815,806
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Five Months Ended Year Ended Year Ended
May 31, 1998 December 31, 1997 December 31, 1996
----------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Shares sold............. 2,346,134 $ 18,452,022 5,057,416 $ 39,118,274 14,063,760 $ 107,614,922
Shares issued in
connection with the
acquisition of:
Evergreen Tax Free
Income Fund........... 3,247,599 25,484,520 0 0 0 0
Keystone Tax Exempt
Trust................. 0 0 0 0 84,656,452 658,278,376
Automatic conversion of
shares to
Class A shares......... (162,305,257) (1,285,292,084) 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 130,151 1,014,991 6,963,866 53,790,716 5,361,695 41,011,255
Shares redeemed......... (3,205,499) (25,180,245) (38,141,778) (294,007,649) (55,439,349) (424,558,360)
- ---------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (159,786,872) $(1,265,520,796) (26,120,496) $(201,098,659) 48,642,558 $ 382,346,193
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
January 26, 1998
(Commencement of Class
Operations) through
May 31, 1998
-----------------------
Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C>
CLASS C
Shares sold.......................................... 10,499 $ 81,748
Shares issued in connection with the acquisition of
Evergreen Tax Free Income Fund...................... 1,066,879 8,372,435
Shares issued in reinvestment of distributions....... 7,950 61,789
Shares redeemed...................................... (94,211) (729,164)
- ------------------------------------------------------------------------------
Net increase......................................... 991,117 $ 7,786,808
- ------------------------------------------------------------------------------
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended May 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-----------------------------
<S> <C> <C>
High Grade Fund................... $ 132,695,487 $ 137,499,692
Short Intermediate Fund........... 96,219,310 128,542,087
Tax Free Fund*.................... 1,094,397,210 1,069,097,913
</TABLE>
-------
* For the five months ended May 31, 1998.
47
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
On May 31, 1998, the composition of unrealized appreciation and depreciation of
investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
-----------------------------------------------------
<S> <C> <C> <C> <C>
High Grade
Fund.......... $ 114,303,886 $ 6,840,040 $ (6,264) $ 6,833,776
Short
Intermediate
Fund.......... 169,283,783 3,097,271 (54,561) 3,042,710
Tax Free Fund.. 1,329,387,025 70,695,360 (8,543,424) 62,151,936
</TABLE>
As of May 31, 1998, the High Grade Fund had a capital loss carryover for fed-
eral income tax purposes of approximately $57,000 which expires as follows:
$56,000 - 2001 and $1,000 - 2005.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the aver-
age daily net assets of the class. These expenses are currently limited to
0.25% annually of the average daily net assets of the Class A shares of the
High Grade and Tax Free Funds and limited to 0.10% annually of the average
daily net assets of the Class A shares of Short Intermediate Fund. In addition,
Class B and Class C also pay distribution fees equal to 0.75% of the average
daily net assets of the class. Distribution Plan expenses are calculated daily
and paid monthly.
During the year ended May 31, 1998, amounts paid or accrued to EDI pursuant to
each Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Distribution fees accrued
---------------------------
Class A Class B Class C
---------------------------
<S> <C> <C> <C>
High Grade Fund.................... $ 127,730 $325,295 $ --
Short Intermediate Fund............ 5,615 63,514 --
Tax Free Fund*..................... 1,157,033 705,348 27,879
</TABLE>
-------
* For the five months ended May 31, 1998.
The principal underwriter may pay distribution fees greater than the allowable
annual amounts the Funds are permitted to pay under the Distribution Plans. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at the prime rate plus 1.00%. With respect to Class
B and Class C shares of Tax Free Fund, EDI intends but is not obligated to con-
tinue to pay distribution costs that exceed the current annual payments from
the Fund. EDI intends to seek full payment of such distribution costs from the
Fund at such time in the future as, and to theextent that, payment thereof by
the Class B and Class C shares would be within permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class. However, for the Tax Free Fund, after the termination of
any Distribution Plan and subject to the discretion of the Independent Trust-
ees, payments to EDI may continue as compensation for services which had been
provided while the Distribution Plan was in effect.
48
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
6. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
The Capital Management Group ("CMG") of First Union National Bank of North Car-
olina ("FUNB"), a subsidiary of First Union, serves as the investment adviser
to the High Grade Fund and is paid a management fee that is computed daily and
paid monthly. The Fund pays CMG an annual fee for its services equal to 0.50%
of the average daily net assets of the Fund.
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary
of First Union, is the investment adviser for the Short Intermediate Fund and
is paid a management fee that is computed daily and paid monthly at an annual
rate of 0.50% of the Fund's average daily net assets. Out of its fee, Evergreen
Asset pays EIS for its services as administrator, BISYS for its services as
sub-administrator and Lieber & Company, an affiliate of First Union, for its
services as sub-adviser.
During the year ended May 31, 1998, the investment adviser for the Short Inter-
mediate Fund waived its management fees in the amount of $45,432.
Keystone Investment Management Company ("Keystone"), a subsidiary of First
Union, is the investment adviser for the Tax Free Fund and is paid a management
fee that is calculated daily and paid monthly. The management fee is calculated
at an annual rate of 2.00% of Tax Free Fund's gross investment income plus an
amount determined by applying percentage rates, starting at 0.50% and declining
to 0.25% per annum as net assets increase, to the average daily net assets of
the Fund.
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidi-
ary of First Union, is the administrator and BISYS serves as the sub-adminis-
trator for each Fund. As sub-administrator to the Funds, BISYS provides the of-
ficers of the Funds. Officers of the Funds and affiliated Trustees receive no
compensation directly from the Funds.
The administrator and sub-administrator for the High Grade Fund is entitled to
an annual fee based on the average daily net assets of the funds administered
by EIS for which First Union or its investment advisory subsidiaries are also
the investment advisers. The administration fee is calculated by applying per-
centage rates, which start at 0.05% and decline to 0.01% per annum as net as-
sets increase, to the average daily net asset value of the Fund. The sub-admin-
istration fee is calculated by applying percentage rates, which start at 0.01%
and decline to 0.004% per annum as net assets increase, to the average daily
net assets of the Fund.
As administrator for Tax Free Fund, EIS also provides facilities, equipment and
personnel on behalf of the investment adviser and is reimbursed by the Fund for
its services. For the Tax Free Fund, the sub-administration fee is paid by Key-
stone and is not a fund expense.
During the year ended May 31, 1998, High Grade Fund and Tax Free Fund paid or
accrued to EIS $28,013 and $109,569, respectively, for certain administrative
services.
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone,
serves as the transfer and dividend disbursing agent for each Fund.
At May 31, 1998, FUNB owned directly or beneficially 75% of the outstanding
shares of the Short Intermediate Fund.
7. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
49
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS (continued)
8. ACQUISITIONS
On February 29, 1996, Tax Free Fund acquired substantially all the assets and
assumed certain liabilities of Keystone Tax Exempt Trust in exchange for shares
of Tax Free Fund.
On July 31, 1997, Short Intermediate Fund acquired substantially all the assets
and assumed certain liabilities of Evergreen Short Intermediate Municipal
Fund - California in exchange for Class A, Class B and Class Y shares of Short
Intermediate Fund.
On November 21, 1997, Short Intermediate Fund acquired substantially all the
assets and assumed certain liabilities of Common Trust Fund - Intermediate Tax
Exempt Bond Fund in exchange for Class Y shares of Short Intermediate Fund.
Effective on the close of business on January 23, 1998, Tax Free Fund acquired
substantially all the assets and assumed certain liabilities of Evergreen Tax
Free Income Fund in an exchange for Class A, Class B and Class C shares of Tax
Free Fund.
Also, effective on February 28, 1998, High Grade Fund acquired substantially
all of the assets and assumed certain liabilities of Blanchard Flexible Tax-
Free Bond Fund in an exchange for Class A shares of High Grade Fund.
These acquisitions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of net assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each Fund im-
mediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Unrealized
Value of Net Number of Appreciation Net
Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued (Depreciation) After
Acquisition
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Grade Fund........ Blanchard Flexible Tax-Free Bond Fund $ 22,403,925 1,966,629 $ 1,611,908 $
127,402,909
Short Intermediate Evergreen Short Intermediate $ 14,473,407 1,419,771 $ 203,594 $
59,045,106
Fund.................. Municipal Fund - California
Short Intermediate Common Trust Fund - Intermediate $148,714,787 14,616,570 $ 3,195,888 $
194,719,999
Fund.................. Tax Exempt Bond Fund
Tax Free Fund.......... Evergreen Tax Free Income Fund $100,118,341 12,757,974 $ 6,341,257
$1,467,541,556
Tax Free Fund.......... Keystone Tax Exempt Trust $658,278,376 84,656,452 $40,609,975
$1,800,970,092
</TABLE>
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
10. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank and Trust ("State Street") and a group of banks (col-
lectively, the "Banks") became effective. Under this agreement, the Banks pro-
vided an unsecured credit facility in the aggregate amount of $225 million
($112.5 million committed and $112.5 million uncommitted) allocated evenly
among the Banks. Borrowings under this facility bore interest at 0.75% per an-
num above the Federal Funds rate. A commitment fee of 0.10% per annum was in-
curred on the unused portion of the committed facility, which was allocated to
all participating funds. State Street served as agent for the Banks, and as
agent was entitled to a fee of $15,000 which was allocated to all of the par-
ticipating Funds. This agreement was terminated on October 31, 1997.
50
<PAGE>
[LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS (continued)
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union pro-
vided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated, under the terms of the financing agreement, among the Banks. The
credit facility is to be accessed by the Funds for temporary or emergency pur-
poses only and is subject to each Fund's borrowing restrictions. Borrowings un-
der this facility bear interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum will be incurred on the unused por-
tion of the committed facility, which will be allocated to all Funds. For its
assistance in arranging this financing agreement, the Capital Market Group of
First Union was paid a one-time arrangement fee of $27,500. State Street serves
as administrative agent for the Banks, and as administrative agent is entitled
to a fee of $20,000 per annum which is allocated to all of the Funds.
During the year ended May 31, 1998, the Funds had no borrowings under these
agreements.
51
<PAGE>
[LOGO APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF EVERGREEN HIGH GRADE TAX FREE FUND
AND EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Evergreen High Grade Tax Free Fund
and Evergreen Short Intermediate Municipal Fund (the "Funds"), two of the funds
of Evergreen Municipal Trust, at May 31, 1998, the results of each of their op-
erations for the year then ended, the changes in each of their net assets for
the year then ended, and for the nine months ended May 31, 1997, and for Ever-
green Short Intermediate Municipal Fund the year ended August 31, 1996, and the
financial highlights for each of the periods indicated for Evergreen Short In-
termediate Municipal Fund, and for the year then ended, and for the nine months
ended May 31, 1997 for Evergreen High Grade Tax Free Fund, in conformity with
generally accepted accounting principles. These financial statements and finan-
cial highlights (hereafter referred to as "financial statements") are the re-
sponsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our au-
dits of these financial statements in accordance with generally accepted audit-
ing standards which require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the account-
ing principles used and significant estimates made by management, and evaluat-
ing the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at May 31, 1998 by correspondence
with the custodian and the application of alternative auditing procedures where
securities purchased had not been received, provide a reasonable basis for the
opinion expressed above. The financial statements of Evergreen High Grade Tax
Free Fund for the year ended, and indicated periods prior to, August 31, 1996
were audited by other independent accountants whose report dated October 16,
1996 expressed an unqualified opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
July 6, 1998
52
<PAGE>
[LOGO APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders Evergreen Municipal Trust
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Evergreen Tax Free Fund (the "Fund") of the Ev-
ergreen Municipal Trust as of May 31, 1998, and the related statements of oper-
ations for the five months ended May 31, 1998 and for the year ended December
31, 1997, statements of changes in net assets for the five months ended May 31,
1998 and for each of the years in the two-year period ended December 31, 1997
and the financial highlights for the five months ended May 31, 1998 and for
each of the years in the ten-year period ended December 31, 1997. These finan-
cial statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Tax Free Fund, as of May 31, 1998, the results of its operations,
changes in its net assets, and financial highlights for each of the years or
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 3, 1998
53
<PAGE>
[LOGO APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED)
On December 15, 1997, a special meeting of shareholders for the High Grade Fund
and Short Intermediate Fund was held to consider a number of proposals with the
following number of shares represented at the meeting. On October 16, 1997, the
record date for the meeting, the Funds had the following shares outstanding:
<TABLE>
<CAPTION>
High Grade Short Intermediate
Fund Fund
------------------------------
<S> <C> <C>
Record Date Shares Outstanding................... 9,192,809 5,647,015
Shares represented at meeting.................... 5,326,815 3,676,372
Percentage of record date shares represented at
meeting......................................... 57.95% 65.10%
PROPOSAL 1 - THE PROPOSED REORGANIZATION OF
THE FUND AS A SERIES OF THE EVERGREEN
MUNICIPAL TRUST, A DELAWARE BUSINESS TRUST:
Shares voted "For".......................... 5,014,531 3,347,370
Shares voted "Against"...................... 60,035 164,400
Shares voted "Abstain"...................... 252,249 164,602
PROPOSAL 2 - RECLASSIFICATION AS NON-
FUNDAMENTAL INVESTMENT OBJECTIVE OF THIS
FUND WHOSE INVESTMENT OBJECTIVE IS
CURRENTLY CLASSIFIED AS FUNDAMENTAL:
Shares voted "For".......................... 4,953,494 3,221,627
Shares voted "Against"...................... 112,250 293,131
Shares voted "Abstain"...................... 261,071 161,614
PROPOSAL 3 - CHANGES TO FUNDAMENTAL
INVESTMENT RESTRICTIONS:
To amend the Fundamental restriction
concerning diversification of investments:
Shares voted "For".......................... 4,954,447 3,235,144
Shares voted "Against"...................... 96,913 258,827
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning concentration of a Fund's assets
in a particular industry:
Shares voted "For".......................... 4,954,447 3,235,144
Shares voted "Against"...................... 96,913 258,827
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning the issuance of senior
securities:
Shares voted "For".......................... 4,949,301 3,235,007
Shares voted "Against"...................... 102,059 258,964
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning borrowing:
Shares voted "For".......................... 4,954,447 3,235,007
Shares voted "Against"...................... 96,913 258,964
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning underwriting:
Shares voted "For".......................... 4,954,447 3,235,144
Shares voted "Against"...................... 96,913 258,827
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning investments in real estate:
Shares voted "For".......................... 4,949,301 3,235,007
Shares voted "Against"...................... 102,059 258,964
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning commodities:
Shares voted "For".......................... 4,949,301 3,235,007
Shares voted "Against"...................... 102,059 258,964
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning lending:
Shares voted "For".......................... 4,954,447 3,235,007
Shares voted "Against"...................... 96,913 258,964
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning investment in federally tax
exempt securities:
Shares voted "For".......................... 4,954,447 3,235,144
Shares voted "Against"...................... 96,913 258,827
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning unseasoned issuers:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
To amend the Fundamental restriction
concerning control or management:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
</TABLE>
54
<PAGE>
[LOGO APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED) (continued)
<TABLE>
<CAPTION>
High Grade Short Intermediate
Fund Fund
-----------------------------
<S> <C> <C>
To amend the Fundamental restriction
concerning short sales:
Shares voted "For".......................... 4,954,447 3,238,335
Shares voted "Against"...................... 96,913 255,636
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning other investment companies:
Shares voted "For".......................... 4,954,447 N/A
Shares voted "Against"...................... 96,913 N/A
Shares voted "Abstain"...................... 275,455 N/A
To amend the Fundamental restriction
concerning other investment companies:
Shares voted "For".......................... 4,954,447 N/A
Shares voted "Against"...................... 96,913 N/A
Shares voted "Abstain"...................... 275,455 N/A
To amend the Fundamental restriction
concerning oil, gas or other mineral
exploration or development program:
Shares voted "For".......................... 4,954,447 3,237,053
Shares voted "Against"...................... 96,913 256,918
Shares voted "Abstain"...................... 275,455 182,401
To amend the Fundamental restriction
concerning restricted securities:
Shares voted "For".......................... 4,954,447 N/A
Shares voted "Against"...................... 96,913 N/A
Shares voted "Abstain"...................... 275,455 N/A
To amend the Fundamental restriction
concerning investment in taxable
securities:
Shares voted "For".......................... 4,954,447 N/A
Shares voted "Against"...................... 96,913 N/A
Shares voted "Abstain"...................... 275,455 N/A
To amend the Fundamental restriction
concerning margin purchases:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
To amend the Fundamental restriction
concerning officers' and directors'
ownership of shares:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
To amend the Fundamental restriction
concerning warrants:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
To amend the Fundamental restriction
concerning options:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
To amend the Fundamental restriction
concerning investment in municipal
securities:
Shares voted "For".......................... N/A 3,238,335
Shares voted "Against"...................... N/A 255,636
Shares voted "Abstain"...................... N/A 182,401
</TABLE>
55
<PAGE>
[LOGO APPEARS HERE]
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
For the fiscal period ended May 31, 1998, the following percentages
represent the portion of dividends from net investment income which
are exempt from federal income tax, other than alternative minimum
tax:
<TABLE>
<S> <C>
High Grade Fund........................................... 99.11%
Short Intermediate Fund................................... 99.62%
Tax Free Fund............................................. 99.66%
</TABLE>
56
<PAGE>
Evergreen Funds
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Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
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Massachusetts Tax Free Fund
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Pennsylvania Tax Free Fund
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Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
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Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
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Domestic Growth
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Strategic Growth Fund
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Express Line
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www.evergreenfunds.com
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[LOGO OF EVERGREEN FUNDS(SM) Bulk Third Class
APPEARS HERE] U.S. POSTAGE
PAID
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<PAGE>
Evergreen
National
Municipal
Bond Funds
November 30, 1998
Semiannual Report
[ARTWORK APPEARS HERE]
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders .................................................... 1
For Your Information ...................................................... 2
Evergreen High Grade Municipal
Bond Fund
Fund at a Glance .......................................................... 3
Portfolio Manager Interview ............................................... 4
Evergreen Municipal Bond Fund
Fund at a Glance .......................................................... 6
Portfolio Manager Interview ............................................... 7
Evergreen Short Intermediate
Municipal Fund
Fund at a Glance .......................................................... 9
Portfolio Manager Interview ............................................... 10
Financial Highlights
Evergreen High Grade Municipal Bond Fund .................................. 12
Evergreen Municipal Bond Fund ............................................. 14
Evergreen Short Intermediate Municipal Fund ............................... 16
Schedule of Investments
Evergreen High Grade Municipal Bond Fund .................................. 18
Evergreen Municipal Bond Fund ............................................. 23
Evergreen Short Intermediate Municipal Fund ............................... 35
Statements of Assets and Liabilities ...................................... 39
Statements of Operations .................................................. 40
Statements of Changes in Net Assets ....................................... 41
Combined Notes to Financial
Statements ................................................................ 44
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
over $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
-----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
January 1999
[PICTURE OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
We are pleased to provide you the Evergreen National Municipal Bond Funds
semiannual report covering the six months ended November 30, 1998. Municipal
bond funds continue to do their job and provide good returns with relatively
less volatility than some other asset classes, as well as provide strong after-
tax returns./1/
Increased Market Volatility in 1998
During the year, interest rates declined while inflation was low and investors
became concerned about a possible slowdown in economic growth. Despite the
volatility which started in July, the market ended on a positive note, as
indicated by the Dow Jones Industrial Average posting a 16.1% gain and the S & P
500 returning 26.7% for the year ended December 31, 1998. The financial markets
have certainly experienced increased volatility compared to the smoother ride
experienced in the past few years, and we expect volatility to continue. We
encourage you to take this opportunity to talk to your financial representative
and review your investment time horizon and ensure you are on track with your
goals.
Introduction of the Euro
On January 1, 1999, eleven European countries adopted the euro as their
currency. Currently, the wholesale markets and government and financial sectors
have converted to the euro, and new securities will be issued in euro
denomination only. Full conversion to the new currency will not be completed
until 2002.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
Municipal Bond Funds' Name Change
Effective January 5, 1999, the investment policy of the Evergreen High Grade Tax
Free Fund and the Evergreen Tax Free Fund changed with respect to municipal
bonds subject to the federal Alternative Minimum Tax ("AMT"). Formerly, the
Funds could not invest more than 20% of their assets in municipal bonds subject
to AMT. Although it is unlikely that the Funds would fully invest in AMT bonds,
the policy change allows the Funds to invest up to 100% of their assets in this
type of security. We believe this change will allow us more flexibility in
managing the Funds, enabling us to seek higher yields without lowering overall
credit quality. We have changed the Fund's names accordingly to Evergreen High
Grade Municipal Bond Fund and Evergreen Municipal Bond Fund.
If you have any questions about the funds in this report or any other Evergreen
Funds, please contact your financial representative or call us at 800.343.2898,
and we will be happy to assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/Some portion of the Funds' income may be subject to certain state
and local taxes and, depending on your tax status, the federal
alternative minimum tax. 1
<PAGE>
For Your Information
--------------------
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
Year 2000/2/
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. Although Evergreen Funds is striving to identify and
correct every issue under our control related to the Year 2000, it would be
impossible to guarantee a problem-free transition into the next millennium. Our
goal, however, is that our shareholders experience virtually no impact on the
products and services we deliver.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
New Evergreen Funds
Evergreen introduces three new funds:
Evergreen Tax Strategic Equity Fund: seeks to maximize the after-tax total
return on its portfolio of investments by using a combination of stock selection
strategies and trading techniques.
Evergreen Select Equity Index Fund: seeks investment results that achieve price
and yield performance similar to the S&P 500 Index.
Evergreen Masters Fund: blends growth and value, large- and mid-cap stocks into
one convenient portfolio. Diversification is taken one step further by employing
four management teams, Evergreen, MFS, Oppenheimer, and Putnam.
Talk to your financial representative or call us at 800.343.2898 for a
prospectus and more information.
/2/The information above constitutes Year 2000 Readiness Disclosure, as defined
in the Year 2000 Information and Readiness Disclosure Act.
/3/If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Grade Municipal Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of November 30, 1998
We had a favorable environment, and we made some modifications to the Fund's
strategy in an effort to add to yield and to reduce volatility or fluctuations
in the Fund's net asset value (NAV).
Portfolio
Management
----------
[PICTURE OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: February 1992
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes B and
Y, prior to their respective inception dates of January 11, 1993 and February
28, 1994, reflects that of Class A, the original class offered, and includes
appropriate 12b-1 fees for Class A. If appropriate fees were reflected for Class
B, returns would have been lower. For Class Y, if 12b-1 fees were not reflected,
returns would have been higher. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index is a commonly used measure of
inflation and does not represent an investment return. It is not possible to
invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -1.19% -1.60% n/a
................................................................................
6 months w/o sales charge 3.74% 3.35% 3.87%
................................................................................
1 year with sales charge 2.28% 1.59% n/a
................................................................................
1 year w/o sales charge 7.39% 6.59% 7.66%
................................................................................
3 years 4.03% 4.04% 6.00%
................................................................................
5 years 4.85% 4.80% 6.13%
................................................................................
Since Inception 6.54% 6.68% 7.50%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
SEC Yield 4.08% 3.52% 4.54%
................................................................................
Taxable Equivalent Yield** 7.09% 5.83% 7.52%
................................................................................
6 months distributions per share $0.52 $0.47 $0.53
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class A Shares LBMBI CPI
2/28/95 9,526 10,000 10,000
11/30/95 10,539 10,991 10,175
11/30/96 10,999 11,637 10,510
11/30/97 11,603 12,471 10,703
11/30/98 12,460 13,439 10,882
Comparison of a $10,000 investment in Evergreen High Grade Municipal Bond Fund
Class A, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI) and the Consumer Price Index (CPI).
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Grade Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was performance like during the six-month period?
The Evergreen High Grade Municipal Bond Fund continued to have very strong
performance during the six months ended November 30, 1998. The Fund's Class A
Shares had a total return of 3.7%, Class B Shares had a total return of 3.4% and
Class Y Shares had a total return of 3.9%. These returns are unadjusted for any
applicable sales charges. During the same six-month period, the average insured
municipal bond fund had a total return of 3.4%, according to Lipper Inc., an
independent monitor of mutual fund performance. The Fund has consistently been
in the first or second quartile of its Lipper category during the past five
years.(1)
Portfolio
Characteristics
---------------
................................................................................
Total Net Assets: $127,328,522
................................................................................
Average Credit Quality: AAA
................................................................................
Average Maturity: 21 years
................................................................................
Average Duration: 8.2 years
...............................................................................
What factors contributed to the performance?
We had a favorable environment, and we made some modifications to the Fund's
strategy in an effort to add to yield and to reduce volatility or fluctuations
in the Fund's net asset value (NAV). One of the steps we took was to reduce the
Fund's emphasis on premium and non-callable bonds. Non-callable bonds are bonds
that cannot be called back by their issuers before maturity, while premium bonds
are those selling above their par value. In their place, we bought more current-
coupon bonds, or bonds that were selling closer to their par value. These bonds
tend not to fluctuate in price as much as premium and non-callable bonds, while
delivering more yield to the Fund.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 11/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 77.4%
AA -- 15.8%
A -- 6.0%
NR -- 0.8%
While we kept the Fund's emphasis on insured bonds, we lowered the weighting of
these bonds from 87% on May 31 to about 71% on November 30, as these tend to
exhibit more price volatility than un-insured bonds. Average credit quality of
the Fund remains the highest, at AAA.
We kept the Fund's duration and average maturity, which reflect the Fund's
sensitivity to changes in interest rates, slightly longer than the Lipper fund
group average. In general, bond portfolios with longer durations or average
maturities have higher yields than portfolios with shorter durations or average
maturities, but their prices also are more likely to change faster as interest
rates change. On November 30, the Fund's effective duration was 8.2 years and
average maturity was about 21 years. During a period of declining interest
rates, as we witnessed during the six months of the fiscal period, a longer
duration or average maturity tended to help performance.
(1) Source: Lipper, Inc. For the 1- and 5-year periods ended November 30, 1998,
the Fund's Class A shares ranked 8 out of 47 and 9 out of 30, respectively,
in the insured municipal bond funds category tracked by Lipper, Inc. The
rankings are based on total return and do not include the effect of a sales
charge. Past performance is no guarantee of future results.
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Grade Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the investment environment like during the period?
Interest rates declined during a period of very low inflation and deepening
concerns about the possibility of a slowdown in economic growth. Municipal bonds
performed well, although not as well as U.S. Treasury securities, which
benefited from a global flight-to-quality as investors sought out the safest
possible securities in a time of volatility and uncertainty.
During the six months, the yield on the 30-year Treasury Bond declined from
5.82% to 5.06%. At one point, it reached a low of 4.72%. The declines in yields
of municipal bonds were not as dramatic. One factor was that many Treasury bond
buyers, such as foreign investors, have no reason to invest in municipal bonds
for their tax benefits. A second factor was that there was a strong flow of new
municipal bonds issued in the market, keeping municipal bond yields somewhat
higher than they might otherwise have been. Through November 30, new municipal
bond issuance had risen almost 30% over 1997, and 1998 was well on its way to
having the second highest issuance of new municipal bonds in history. In
addition, demand for bonds has been muted because so many individual investors
have been attracted by the strong performance of the equity markets over the
past three years.
As a result, by November 30, the yield on a 30-year AAA-rated municipal bond was
about 98% of the yield on a 30-year Treasury. With the tax advantages of
municipal bonds, municipal bond investors were receiving greater income on an
after-tax basis than they could receive in government securities. In fact, we
believe municipal bonds are as attractively priced as they have been for the
past 20 years, and represent a significant investment opportunity for investors
of virtually all income tax brackets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 11/30/98 net assets)
[PIE CHART APPEARS HERE]
Other investments and other assets and liabilities, net -- 16.4%
Industrial Development/Pollution Control -- 13.6%
Housing -- 13.6%
Hospitals -- 11.2%
Electric Power -- 11.1%
General Obligation-Local -- 9.6%
Water & Sewer -- 9.3%
Airports -- 8.4%
Transportation -- 4.0%
General Obligation-State -- 2.8%
What is your outlook?
The outlook is positive for municipal bonds in general, and especially for
insured municipal bonds. We believe high grade municipal bonds represent an
unusually attractive investment opportunity for several reasons.
First, conditions in the high grade bond market are favorable, because we have
a continued forecast for low inflation and slow economic growth. Interest rates
are likely to remain low. We would not be surprised if the Federal Reserve Board
lowers short-term interest rates once or twice more during the first six months
of 1999. This is good for the bond market.
Second, the municipal bond market is priced extremely attractively relative to
the U.S. Treasury market. At a time when U.S. Treasury Bonds are yielding about
5%, the after-tax yield of AAA-rated municipal bonds is about 7%.
Third, insured municipal bonds also offer additional potential. While insured
bonds presently comprise about 52% of new issuance in the municipal bond market,
there is some speculation that this percentage may decrease, as insurers become
less aggressive in seeking business. If this were to occur, the relative value
of insured bonds would be even more attractive, and opportunities for improved
performance would increase. We believe the Fund is very well positioned to take
advantage of opportunities in the market.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Municipal Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of November 30, 1998
Our portfolio re-structuring was designed to strive for more consistent
performance by concentrating on enhancing the portfolio's yield and emphasizing
sector and security selection.
Portfolio
Management
----------
[PHOTO OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: April 1998
[PHOTO OF GEORGE J. KIMBALL APPEARS HERE]
George J. Kimball
Tenure: April 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes A and
C, prior to their respective inception dates of January 20, 1998 and January 26,
1998, reflects that of Class B, the original class offered, and have been
adjusted for appropriate 12b-1 fees for each class. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The LBMBI is an unmanaged index and
does not include transaction costs associated with buying and selling securities
nor any management fees. The CPI is a commonly used measure of inflation and
does not represent an investment return. It is not possible to invest directly
in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -1.65% -2.03% 1.89%
................................................................................
6 months w/o sales charge 3.26% 2.87% 2.87%
................................................................................
1 year with sales charge 1.37% 0.79% 4.65%
................................................................................
1 year w/o sales charge 6.42% 5.72% 5.65%
...............................................................................
3 years 4.07% 4.58% 4.99%
................................................................................
5 years 4.44% 4.76% 4.67%
................................................................................
10 years 6.96% 6.96% 6.54%
................................................................................
Since Inception 7.28% 7.02% 6.78%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
SEC Yield 4.29% 3.75% 3.74%
...............................................................................
Taxable Equivalent Yield** 7.45% 6.21% 6.19%
................................................................................
6 months distributions per share $0.29 $0.26 $0.26
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class B Shares LBMBI CPI
11/30/88 10,000 10,000 10,000
11/30/89 11,008 11,101 10,465
11/30/90 11,747 11,957 11,122
11/30/91 12,760 13,184 11,455
11/30/92 13,911 14,506 11,804
11/30/93 15,303 16,114 12,120
11/30/94 14,181 15,268 12,444
11/30/95 16,709 18,153 12,764
11/30/96 17,526 19,220 13,184
11/30/97 18,541 20,598 13,425
11/30/98 19,599 22,197 13,649
Comparison of a $10,000 investment in Evergreen Municipal Bond Fund Class B,
versus a similar investment in the Lehman Brothers Municipal Bond Index (LBMBI)
and the Consumer Price Index (CPI).
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Municipal Bond Fund's performance showed substantial improvement
during the six-month period ended November 30, 1998, as changes in the Fund's
investment strategy took effect. For the period, the Fund's Class A shares had a
total return of 3.3%, while both Class B Shares and Class C Shares had a return
of 2.9%. These returns are unadjusted for any applicable sales charges. During
the period, the average performance of general municipal bond funds was 3.2%, as
measured by Lipper Inc., an independent monitor of mutual fund performance.
Portfolio
Characteristics
---------------
Total Net Assets: $1,288,484,389
................................................................................
Average Credit Quality: AA
................................................................................
Average Maturity: 20 years
................................................................................
Average Duration: 8.3 years
................................................................................
What contributed to the improved performance?
We believe our portfolio re-structuring, implemented in April 1998 when we took
over the fund, had a positive effect. This re-structuring, which we outlined in
the May 31, 1998 Annual Report, was designed to strive for more consistent
performance by concentrating on enhancing the portfolio's yield and emphasizing
sector and security selection. We reduced the Fund's emphasis on pre-refunded
bonds, which are older bonds issued at higher interest rates, from about 12% of
net assets to less than 3%. We also lowered the emphasis on non-callable bonds,
which can't be called back by their issuers before maturity. These two types of
bonds typically pay lower yields than other bonds of comparable quality and
maturity. While we continued to emphasize better quality holdings, we were more
flexible in individual selection.
We sold the three types of bonds--pre-refunded, non-callable and AAA-rated--to
pick up incremental yield in other bonds we think represented more attractive
values. We believe this more yield-sensitive strategy will not only result in
higher current income, but in more consistent, less volatile performance. During
the six months, the yield generated by the Fund's portfolio actually increased
despite an environment of falling interest rates.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 11/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA: 61.2%
AA: 15.9%
A: 12.0%
BBB: 9.0%
NR: 1.1%
BB: 0.5%
B: 0.3%
What was the environment like during the June 1-November 30 period?
In general, it was a period of declining interest rates and rising bond
prices--especially for U.S. Treasuries, which benefited from a flight-to-quality
during a time of volatility and uncertainty in many markets throughout the
world. During the period, the yield on the 30-year Treasury Bond declined from
5.82% to 5.06%. At one point, it reached a low of 4.72%. Municipal bonds also
experienced declining rates and rising prices, but not nearly as significantly
as did Treasury securities. One factor was that many Treasury bond buyers, such
as foreign investors, have no reason to invest in municipal bonds for their tax
benefits. A second factor was that there was a strong
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
flow of new municipal bonds issued in the market, keeping municipal bond yields
somewhat higher than they might otherwise have been. Through November 30, new
municipal bond issuance had risen almost 30% over 1997, and 1998 was well on its
way to having the second highest issuance of new municipal bonds in history. In
addition, demand for bonds has been muted because so many individual investors
have been attracted by the strong performance of the equity markets over the
past three years.
As a result, by November 30, the yield on a 30-year AAA-rated municipal bond was
about 98% of the yield on a 30-year Treasury. With the tax advantages of
municipal bonds, municipal bond investors were receiving greater income, on an
after-tax basis, than they could receive in government securities. In fact, we
believe municipal bonds are as attractively priced as they have been for the
past 20 years, and represent a significant investment opportunity for investors
of virtually all income tax brackets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 11/30/98 net assets)
[PIE CHART APPEARS HERE]
Other investments and other
assets and liabilities, net 31.5%
Housing 14.4%
Hospitals 13.8%
Electric Power 10.1%
Transportation 7.4%
Industrial Development/Pollution Control 6.8%
Water & Sewer 5.7%
General Obligation - Local 5.3%
General Obligation - State 5.0%
In this environment, what were your principal strategies?
We continued to implement the strategy we discussed in the last report,
replacing pre-refunded and non-callable bonds, and adding bonds from the
housing, healthcare and industrial revenue sectors, where we had the opportunity
to pick up additional yield. While we lowered the quality somewhat, the
portfolio remained very high quality, with average credit quality of AA.
The Fund had a marginally longer duration or average maturity than the average
fund in its Lipper category. On November 30, effective duration was 8.3% and
average maturity was 20 years. Duration and maturity are two different measures
of interest-rate sensitivity. Bonds with longer durations or maturities tend to
experience greater price changes when interest rates change than bonds with
shorter durations or maturities. During a period of declining interest rates,
the slightly longer duration and average maturity of the Fund tended to help
performance.
What is your outlook?
We believe municipal bonds represent an extraordinary opportunity for investors.
The general outlook for bonds, including municipal bonds, is favorable. We have
a continued forecast for low inflation and slow economic growth. In this
environment, interest rates are likely to remain low. We would not be surprised
if the Federal Reserve Board lowers short-term interest rates once or twice more
during the first six months of 1999. This is good for the bond market.
Second, the municipal bond market is priced extremely attractively relative to
the U.S. Treasury market. At a time when U.S. Treasury Bonds are yielding about
5%, the after-tax yield of AAA-rated municipal bonds is about 7%.
In this environment, while we are positive about the outlook for municipal
bonds, we also will be watchful for any sign that weakness in the economy could
undermine credit quality and affect the ability of bond issuers to pay interest
that is due. For example, we will be very careful about adding any additional
industrial revenue bonds, but we believe municipal bonds offer very attractive
value to investors.
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of November 30, 1998
A favorable duration strategy and strong security selection contributed to
strong performance, allowing the Fund to perform well against its peer group.
Portfolio Management
- --------------------
[PHOTO OF RICHARD K. MARRONE APPEARS HERE]
Richard K. Marrone
Tenure: December 1, 1997
- ------------------------
CURRENT INVESTMENT STYLE
- ------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Class A and B,
prior to their January 5, 1995 inception date, reflects that of Class Y, the
original class offered, and does not include 12b-1 fees. If such fees were
reflected, returns would have been lower. The investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost. The LB3YMBI is an unmanaged index and does not
include transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
................................................................................
Average Annual Returns
................................................................................
6 mos. with sales charge -0.55% -2.67% n/a
................................................................................
6 mos. w/o sales charge 2.79% 2.33% 2.87%
................................................................................
1 year with sales charge 1.73% -0.91% n/a
................................................................................
1 year w/o sales charge 5.13% 4.09% 5.13%
................................................................................
3 years 3.11% 2.37% 4.38%
................................................................................
5 years 3.19% 2.83% 3.95%
................................................................................
Since Inception 4.43% 4.43% 4.99%
................................................................................
Maximum Sales Charge 3.25% 5.00% n/a
Front End CDSC
................................................................................
30-day SEC Yield 3.68% 2.92% 3.92%
................................................................................
Taxable Equivalent Yield** 6.29% 4.83% 6.49%
................................................................................
6 months distributions per share $0.28 $0.24 $0.29
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Class A Shares LB3YMBI CPI
1/31/95 9,671 10,000 10,000
11/30/95 10,252 10,753 10,216
11/30/96 10,656 11,271 10,552
11/30/97 11,047 11,814 10,745
11/30/98 11,614 12,484 10,925
Comparison of a $10,000 investment in Evergreen Short Intermediate Municipal
Fund Class A, versus a similar investment in the Lehman Brothers 3 Year
Municipal Bond Index (LB3YMBI) and the Consumer Price Index (CPI).
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did your Fund perform during the six months?
The Evergreen Short-Intermediate Municipal Bond Fund Class Y posted a total
return of 2.9% for the six months ended November 30; while Class A and B
returned 2.8% and 2.3%, respectively, unadjusted for applicable sales charges.
For the last six months, the Fund's Class A and Y shares outpaced the 2.7%
average return of 30 short-intermediate municipal bond funds tracked by Lipper,
Inc., an independent monitor of mutual fund performance.
Portfolio Characteristics
- -------------------------
Total Net Assets: $171,602,068
.....................................
Average Credit Quality AA+
.....................................
Average Maturity 5.0 years
.....................................
Average Duration 3.8 years
.....................................
What was the investing environment like during this period?
The primary component affecting both the fixed income and equity markets during
the past six months was the continued volatility in foreign financial markets.
In the U.S. fixed income markets, global economic turmoil prompted a flight-to-
quality that fueled a strong performance by U.S. Treasuries while municipal
bonds lagged modestly.
Despite modest underperformance versus Treasuries, declining interest rates
boosted municipal bond prices and contributed to record new issuance for the
year. In fact, the yield on the bellwether 30-year Treasury Bond fell from 5.82%
to a low of nearly 4.72%, before rebounding to 5.06% on November 30.
How did your investment strategy impact performance?
A favorable duration strategy and strong security selection contributed to
strong performance, allowing the Fund to perform well against its peer group.
In anticipation of lower interest rates we actively pursued zero-coupon bonds, a
security that enjoys significant price appreciation in periods of declining
rates. We strategically purchased a number of these securities over the past
several months before they became scarce, and benefited from their subsequent
strong performance.
Another contributor to total return was the portfolio's long duration stance,
which helped performance within the declining interest rate environment.
Duration was increased from 3.5 years to 3.8 years (nearly 8%) during the six
months, and fueled the Fund's total return as interest rates declined.
- ------------------------
PORTFOLIO CREDIT QUALITY
- ------------------------
(based on 11/30/98 portfolio assets)
AAA -- 36.1%
A -- 20.3%
[PIE CHART APPEARS HERE] BBB -- 16.6%
AA -- 14.1%
NR -- 12.9%
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Porrtfolio Manager Interview
What is your outlook going forward?
From a historical perspective, valuation levels of municipal bonds, relative to
Treasuries, are currently very attractive. In our opinion, this has created a
buying opportunity that we expect to capitalize upon in the coming quarters.
From an economic perspective, we believe current fundamentals suggest a low
inflationary environment, which should support range-bound interest rates
through the next couple of quarters.
In addition, we anticipate some volatility in the municipal markets as the
global economic crisis continues to filter back to U.S. markets. Therefore, we
will maintain a cautionary stance and continue to emphasize the portfolio's
income orientation to contribute to performance.
11
<PAGE>
[LOGO HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended
Ended May 31, August 31, December 31,
November 30, 1998 ----------------- ----------------- ------------------
(Unaudited) 1998 1997 (a) 1996 1995 (b) 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
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 0.25 0.47 0.37 0.52 0.34 0.52 0.54
...........................................................................................................
Net realized and
unrealized gains or
losses on securities 0.17 0.48 0.17 0.03 0.90 (1.37) 0.81
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total from investment
operations 0.42 0.95 0.54 0.55 1.24 (0.85) 1.35
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Less distributions
...........................................................................................................
From net investment
income (0.25) (0.48) (0.37) (0.52) (0.34) (0.52) (0.54)
From capital gains (0.27) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total distributions (0.52) (0.48) (0.37) (0.52) (0.34) (0.52) (0.61)
------- ------- ------- ------- ------- ------- --------
..........................................................................................................
Net asset value, end of
period $ 11.26 $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total return+ 3.74% 8.88% 5.13% 5.21% 12.83% (7.71%) 13.25%
...........................................................................................................
Ratios/supplemental data
...........................................................................................................
Net assets, end of
period (thousands) $67,659 $64,526 $45,814 $50,569 $58,751 $57,676 $101,352
...........................................................................................................
Ratios to average net
assets
...........................................................................................................
Expenses 0.95%++ 1.09% 1.03%++ 0.89% 1.06%++ 1.01% 0.85%
...........................................................................................................
Expenses, after fee
credits 0.95%++ 1.09% 1.03%++ -- -- -- --
...........................................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.95%++ 1.09% 1.11%++ 1.09% 1.09%++ 1.02% 1.07%
...........................................................................................................
Net investment income 4.27%++ 4.25% 4.60%++ 4.78% 4.93%++ 5.04% 4.99%
...........................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53% 14%
...........................................................................................................
<CAPTION>
Six Months Year Ended Year Ended Year Ended
Ended May 31, August 31, December 31,
November 30, 1998 ----------------- ----------------- ------------------
(Unaudited) 1998 1997 (a) 1996 1995 (b) 1994 1993 (c)
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
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 gains or
losses on securities 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)
From capital gains (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+ 3.35% 8.07% 4.55% 4.42% 12.27% (8.24%) 12.52%
...........................................................................................................
Ratios/supplemental data
...........................................................................................................
Net assets, end of
period (thousands) $32,614 $32,822 $31,874 $32,221 $34,206 $32,435 $ 41,030
...........................................................................................................
Ratios to average net
assets
...........................................................................................................
Expenses 1.70%++ 1.84% 1.78%++ 1.64% 1.81%++ 1.58% 1.35%++
...........................................................................................................
Expenses, after fee
credits 1.70%++ 1.84% 1.78%++ -- -- -- --
...........................................................................................................
Expenses excluding
waivers and expense
reimbursements 1.70%++ 1.84% 1.86%++ 1.84% 1.84%++ 1.59% 1.57%++
...........................................................................................................
Net investment income 3.53%++ 3.51% 3.85%++ 4.03% 4.18%++ 4.47% 4.44%++
...........................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53% 14%
..........................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the eight months ended August 31, 1995. The Fund changed its fiscal
year end from December 31 to August 31, effective August 31, 1995.
(c) For the period from January 11, 1993 (commencement of class operations) to
December 31, 1993.
See Combined Notes to Financial Statements.
12
<PAGE>
[LOGO HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ----------------- ----------------- Period Ended
(Unaudited) 1998 1997 (a) 1996 1995 (b) December 31, 1994 (c)
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
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 gains or
losses on securities 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)
From capital gains (0.27) 0 0 0 0 0
------- ------- ------- ------- ------- ------
..............................................................................................................
Total distributions (0.53) (0.51) (0.39) (0.55) (0.36) (0.46)
------- ------- ------- ------- ------- ------
..............................................................................................................
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
..............................................................................................................
Net assets, end of
period (thousands) $27,055 $24,976 $24,441 $25,112 $25,079 $4,318
..............................................................................................................
Ratios to average net
assets
..............................................................................................................
Expenses 0.70%++ 0.84% 0.78%++ 0.64% 0.81%++ 0.76%++
..............................................................................................................
Expenses, after fee
credits 0.70%++ 0.84% 0.78%++ -- -- --
..............................................................................................................
Expenses excluding
waivers and expense
reimbursements 0.70%++ 0.84% 0.86%++ 0.84% 0.84%++ 0.77%++
.............................................................................................................
Net investment income 4.53%++ 4.51% 4.85%++ 5.03% 5.18%++ 5.46%++
..............................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53%
..............................................................................................................
</TABLE>
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the eight months ended August 31, 1995. The Fund changed its fiscal
year end from December 31 to August 31, effective August 31, 1995.
(c) For the period from February 28, 1994 (commencement of class operations) to
December 31, 1994.
See Combined Notes to Financial Statements.
13
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998 (b)
<S> <C> <C>
CLASS A SHARES
Net asset value, beginning of period $ 7.78 $ 7.91
---------- ----------
............................................................................
Income from investment operations
............................................................................
Net investment income 0.18 0.13+++
............................................................................
Net realized and unrealized gains or
losses on securities and futures
contracts (0.05) (0.13)
---------- ----------
............................................................................
Total from investment operations 0.13 0
---------- ----------
............................................................................
Less distributions
............................................................................
From net investment income (0.18) (0.13)
............................................................................
From capital gains (0.11) 0
---------- ----------
............................................................................
Total distributions (0.29) (0.13)
---------- ----------
............................................................................
Net asset value, end of period $ 7.62 $ 7.78
---------- ----------
............................................................................
Total return+ 3.26% 0.04%
............................................................................
Ratios/supplemental data
............................................................................
Net assets, end of period (thousands) $1,163,997 $1,243,327
............................................................................
Ratios to average net assets
............................................................................
Expenses 0.85%++ 0.93%++
............................................................................
Expenses, after fee credits 0.85%++ 0.93%++
............................................................................
Net investment income 4.53%++ 4.69%++
............................................................................
Portfolio turnover rate 53% 77%
............................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
November 30, 1998 Year Ended
- -----------------------------------------------------------
(Unaudited) May 31, 1998 (a) 1997 1996 1995 1994
1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12
$ 8.04
-------- -------- ---------- ---------- ---------- ----------
- ----------
.............................................................................................................................
Income from investment
operations
.............................................................................................................................
Net investment income 0.15 0.12+++ 0.38 0.41 0.41
0.37 0.39
.............................................................................................................................
Net realized and
unrealized gains or
losses on securities
and future contracts (0.05) (0.03) 0.23 (0.17) 0.74
(0.96) 0.48
-------- -------- ---------- ---------- ---------- ----------
- ----------
.............................................................................................................................
Total from investment
operations 0.10 0.09 0.61 0.24 1.15
(0.59) 0.87
-------- -------- ---------- ---------- ---------- ----------
- ----------
............................................................................................................................
Less distributions
.............................................................................................................................
From net investment
income (0.15) (0.13) (0.50) (0.39) (0.39)
(0.43) (0.45)
.............................................................................................................................
From capital gains (0.11) 0 0 0 0
0 (0.34)
-------- -------- ---------- ---------- ---------- ----------
- ----------
.............................................................................................................................
Total distributions (0.26) (0.13) (0.50) (0.39) (0.39)
(0.43) (0.79)
-------- -------- ---------- ---------- ---------- ----------
- ----------
.............................................................................................................................
Net asset value, end of
period $ 7.62 $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10
$ 8.12
-------- -------- ---------- ---------- ---------- ----------
- ----------
.............................................................................................................................
Total return+ 2.87% 1.15% 8.15% 3.15% 16.61%
(7.34%) 11.15%
.............................................................................................................................
Ratios/supplemental data
.............................................................................................................................
Net assets, end of
period (thousands) $117,135 $124,664 $1,375,730 $1,557,886 $1,204,468 $1,197,727
$1,548,503
.............................................................................................................................
Ratios to average net
assets
............................................................................................................................
Expenses 1.60%++ 1.26%++ 0.96% 0.87% 0.95%
1.55% 1.66%
.............................................................................................................................
Expenses, after fee
credits 1.60%++ 1.25%++ 0.96% 0.86% 0.94%
- -- --
.............................................................................................................................
Net investment income 3.79%++ 4.32%++ 4.97% 5.34% 5.41%
4.92% 4.72%
.............................................................................................................................
Portfolio turnover rate 53% 77% 126% 69% 56%
84% 76%
.............................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the five months ended May 31, 1998. The Fund changed its fiscal year
end from December 31 to May 31, effective May 31, 1998.
(b) For the period from January 20, 1998 (commencement of class operations) to
May 31, 1998.
See Combined Notes to Financial Statements.
14
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998 (a)
<S> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $ 7.78 $ 7.85
------ ------
................................................................................
Income from investment operations
................................................................................
Net investment income 0.15 0.11+++
................................................................................
Net realized and unrealized gains or
losses on securities and future contracts (0.05) (0.07)
------ ------
................................................................................
Total from investment operations 0.10 0.04
------ ------
................................................................................
Less distributions
................................................................................
From net investment income (0.15) (0.11)
...............................................................................
From capital gains (0.11) 0
------ ------
................................................................................
Total distributions (0.26) (0.11)
------ ------
................................................................................
Net asset value, end of period $ 7.62 $ 7.78
------ ------
................................................................................
Total return+ 2.87% 0.46%
................................................................................
Ratios/supplemental data
................................................................................
Net assets, end of period (thousands) $7,352 $7,708
................................................................................
Ratios to average net assets
................................................................................
Expenses 1.60%++ 1.68%++
................................................................................
Expenses, after fee credits 1.60%++ 1.68%++
................................................................................
Net investment income 3.78%++ 3.94%++
................................................................................
Portfolio turnover rate 53% 77%
................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from January 26, 1998 (commencement of class operations) to
May 31, 1998.
See Combined Notes to Financial Statements.
15
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ---------------- -----------------
(Unaudited) 1998 1997 (a) 1996 1995 (b)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
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 gains or
losses on securities 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)
.....................................................................................
From capital gains (0.08) 0 0 0 0
------ ------ ------ ------- ------
.....................................................................................
Total distributions (0.28) (0.41) (0.30) (0.43) (0.30)
------ ------ ------ ------- ------
.....................................................................................
Net asset value, end of
period $10.19 $10.19 $10.09 $ 10.08 $10.17
------ ------ ------ ------- ------
.....................................................................................
Total return+ 2.79% 5.11% 3.08% 3.37% 5.09%
.....................................................................................
Ratios/supplemental data
....................................................................................
Net assets, end of
period (thousands) $7,663 $6,569 $6,072 $27,722 $6,820
.....................................................................................
Ratios to average net
assets
.....................................................................................
Expenses 0.75%++ 0.81% 0.84%++ 0.80% 0.70%++
....................................................................................
Expenses, after fee
credits 0.74%++ 0.81% 0.83%++ -- --
.....................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.76%++ 0.85% 0.96%++ 1.11% 1.14%++
.....................................................................................
Net investment income 4.00%++ 4.01% 3.94%++ 4.05% 4.32%++
.....................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80%
.....................................................................................
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ---------------- -----------------
(Unaudited) 1998 1997 (a) 1996 1995 (b)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
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 gains or
losses on securities 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)
.....................................................................................
From capital gains (0.08) 0 0 0 0
------ ------ ------ ------- ------
...................................................................................
Total distributions (0.24) (0.32) (0.23) (0.34) (0.24)
------ ------ ------ ------- ------
.....................................................................................
Net asset value, end of
period $10.19 $10.19 $10.10 $ 10.08 $10.17
------ ------ ------ ------- ------
.....................................................................................
Total return+ 2.33% 4.07% 2.49% 2.44% 4.50%
.....................................................................................
Ratios/supplemental data
.....................................................................................
Net assets, end of
period (thousands) $6,179 $5,790 $6,742 $ 7,413 $6,050
.....................................................................................
Ratios to average net
assets
.....................................................................................
Expenses 1.65%++ 1.71% 1.73%++ 1.67% 1.58%++
.....................................................................................
Expenses, after fee
credits 1.64%++ 1.71% 1.73%++ -- --
....................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 1.66%++ 1.74% 1.86%++ 2.07% 2.26%++
.....................................................................................
Net investment income 3.09%++ 3.11% 3.04%++ 3.28% 3.50%++
.....................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80%
.....................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the period from January 5, 1995 (commencement of class operations) to
August 31, 1995.
See Combined Notes to Financial Statements.
16
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended May 31, Year Ended August 31,
November 30, 1998 ---------------------- -------------------------
(Unaudited) 1998 1997 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 10.19 $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58
-------- --------- -------- ------- ------- -------
.................................................................................................
Income from investment
operations
.................................................................................................
Net investment income 0.21 0.42 0.30 0.43 0.46 0.47
.................................................................................................
Net realized and
unrealized gains or
losses on securities 0.08 0.09 0.03 (0.10) (0.04) (0.32)
-------- --------- -------- ------- ------- -------
.................................................................................................
Total from investment
operations 0.29 0.51 0.33 0.33 0.42 0.15
-------- --------- -------- ------- ------- -------
................................................................................................
Less distributions
.................................................................................................
From capital gains (0.08) 0 0 0 0 (0.02)
-------- --------- -------- ------- ------- -------
.................................................................................................
From net investment
income (0.21) (0.42) (0.30) (0.43) (0.46) (0.50)
.................................................................................................
Total distributions (0.29) (0.42) (0.30) (0.43) (0.46) (0.52)
-------- --------- -------- ------- ------- -------
.................................................................................................
Net asset value, end of
period $ 10.19 $ 10.19 $ 10.10 $ 10.07 $ 10.17 $ 10.21
-------- --------- -------- ------- ------- -------
.................................................................................................
Total return 2.87% 5.11% 3.36% 3.30% 4.20% 1.40%
................................................................................................
Ratios/supplemental data
.................................................................................................
Net assets, end of
period (thousands) $157,760 $ 167,905 $ 32,293 $34,893 $40,581 $53,417
.................................................................................................
Ratios to average net
assets
.................................................................................................
Expenses 0.65%++ 0.66% 0.74%++ 0.70% 0.74% 0.58%
.................................................................................................
Expenses, after fee
credits 0.64%++ 0.66% 0.73%++ -- -- --
.................................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.66%++ 0.70% 0.86%++ 0.90% 0.86% 0.83%
.................................................................................................
Net investment income 4.09%++ 4.18% 4.04%++ 4.27% 4.52% 4.54%
.................................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80% 32%
.................................................................................................
</TABLE>
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
See Combined Notes to Financial Statements.
17
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 97.1%
Alabama - 1.0%
$1,215,000 Jefferson County, Alabama,
Sewer Revenue, Series D
5.75%, 2/1/27...................................... $ 1,309,114
------------
Alaska - 3.1%
Alaska, Industrial Development & Export Authority
Power Revenue, Snettisham Hydroelectric, Series 1:
2,000,000 5.00%, 1/1/27, (AMBAC).............................. 1,932,580
1,000,000 5.25%, 1/1/22, (AMBAC).............................. 1,000,840
1,000,000 Valdez, Alaska,
Marine Terminal Revenue Refunding, Pipeline Inc.
Project, Series B
5.50%, 10/1/28..................................... 1,013,730
------------
3,947,150
------------
Arizona - 0.9%
1,000,000 Creighton, Arizona,
Elementary School District No. 14 of Maricopa
County, School Improvements (Project of 1990),
Series C 1991
6.50%, 7/1/07, (FGIC).............................. 1,169,820
------------
California - 5.5%
1,000,000 California State, Department of Water Resources,
Central Valley Project Water Systems, Series Q
5.375%, 12/1/27, (MBIA)............................ 1,040,370
1,000,000 California State, Public Works Lease, California
State University Project, Series A
5.375%, 10/1/17, (AMBAC)........................... 1,053,410
1,000,000 Orange County, California,
Public Finance Authority
5.75%, 12/1/10, (AMBAC)............................ 1,116,920
2,000,000 San Francisco, California,
City & County International Airport Revenue, Second
Series, Issue 10-A
5.70%, 5/1/26, (MBIA).............................. 2,113,300
500,000 San Mateo County, California,
Joint Powers Finance Authority, Lease Revenue,
Capital Projects Program, 1993 Series A
6.50%, 7/1/16, (MBIA).............................. 604,845
1,000,000 Southern California, Public Power Authority, Mead
Adelanto Project, Series A
5.00%, 7/1/17, (AMBAC)............................. 1,010,650
------------
6,939,495
------------
Colorado - 3.0%
1,500,000 Arapahoe County, Colorado,
Public Highway Authority, Capital Improvements
Trust Fund Revenue, (E-470 Project)
6.15%, 8/31/26, (MBIA)............................. 1,692,840
1,000,000 Colorado State, Public Highway Authority, (E-470
Project), Senior Series A
5.75%, 9/1/14...................................... 1,117,040
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Colorado - continued
$1,000,000 Denver, Colorado,
City & County Airport Revenue, Airport Systems
Revenue
5.00%, 11/15/25, (FSA)............................. $ 976,820
------------
3,786,700
------------
District of Columbia - 1.6%
2,000,000 District of Columbia, Revenue, Carnegie Endowment
5.75%, 11/15/26.................................... 2,098,680
------------
Florida - 3.3%
1,000,000 Florida State, Board of Education Capital Outlay,
General Obligation, Series A
5.00%, 6/1/27...................................... 995,780
2,000,000 Florida State, Housing Finance Corp. Revenue,
Homeowner Mortgage, Series 2
5.35%, 1/1/21, (MBIA).............................. 2,033,760
50,000 Jacksonville, Florida,
Electric Authority Revenue,
Series 3-A
5.20%, 10/1/02..................................... 52,529
1,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare Systems, Series 1996C
6.25%, 10/1/16, (MBIA)............................. 1,175,020
------------
4,257,089
------------
Georgia - 1.0%
50,000 De Kalb County, Georgia,
Health Facilities, General Obligation
5.30%, 1/1/03...................................... 52,851
1,000,000 Georgia State, Municipal Electric Authority, Power
Revenue, Special Obligation Bond, Series Y
6.50%, 1/1/17, (MBIA).............................. 1,194,460
------------
1,247,311
------------
Hawaii - 0.0%
50,000 Hawaii State, General Obligation, Series CE
5.20%, 6/1/04...................................... 52,742
------------
Idaho - 0.6%
720,000 Idaho State, Housing Agency, Single Family Mortgage
Revenue,
Series C-1
6.30%, 7/1/11...................................... 770,191
------------
Illinois - 9.2%
85,000 Bloomingdale, Illinois,
General Obligation
5.45%, 1/1/09...................................... 90,183
2,150,000 Chicago, Illinois,
General Obligation, Series 1995
6.125%, 1/1/16, (AMBAC)............................ 2,389,639
</TABLE>
18
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Illinois - continued
$3,000,000 Illinois State, Development Finance Authority
Pollution Control Refunding Revenue, (Commonwealth
Edison Co. Project), Series 1994D
6.75%, 3/1/15, (AMBAC)............................. $ 3,409,500
1,500,000 Illinois State, Health Facilities Authority Revenue,
Loyola University Health Systems, Series A
6.00%, 7/1/13, (MBIA).............................. 1,692,240
1,750,000 Illinois State, Health Facilities Authority, Health
Facilities Refunding Revenue, Series 1992AA
6.50%, 6/1/12, (MBIA).............................. 2,070,022
Illinois State, Sales Tax Revenue:
60,000 4.90%, 6/15/07...................................... 63,208
1,000,000 5.50%, 6/15/20...................................... 1,032,630
1,000,000 Illinois State, Metropolitan Pier & Exposition
Authority, Dedicated State Tax Revenue, McCormick
Plantation Expansion, Series A
5.25%, 6/15/27..................................... 1,011,950
------------
11,759,372
------------
Indiana - 2.4%
1,500,000 Indiana State, Middle School Building Corp.,
Lawrence Township of Marion County, First Mortgage
Revenue
6.875%, 7/5/11, (MBIA)............................. 1,841,265
1,000,000 Indiana State, Transportation Finance Authority,
Highway Revenue,
Series 1992A
6.80%, 12/1/16, (MBIA)............................. 1,225,550
------------
3,066,815
------------
Massachusetts - 3.0%
50,000 Massachusetts State, Bay Transportation Authority,
General Transportation Systems Revenue, Series A
5.30%, 3/1/05...................................... 53,504
1,000,000 Massachusetts State, General Obligation, Series A
6.50%, 11/1/14, (AMBAC)............................ 1,205,150
1,000,000 Massachusetts State, Industrial Finance Agency
Revenue, Parking Facilities, Avon Associates LLC,
Series A
5.375%, 4/1/20, (MBIA)............................. 1,023,350
Massachusetts State, Port Authority Revenue, Series
A:
1,000,000 5.00%, 7/1/27....................................... 980,570
500,000 5.75%, 7/1/12....................................... 559,205
------------
3,821,779
------------
Michigan - 3.9%
2,500,000 Detroit, Michigan,
Water Supply Systems Revenue, Senior Lien, Series A
6.00%, 7/1/14, (MBIA).............................. 2,844,225
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Michigan - continued
$1,000,000 Detroit, Michigan,
City School District Refunding, Series C
5.25%, 5/1/13, (FGIC).............................. $ 1,062,490
1,000,000 Michigan State, Hospital Finance Authority Revenue,
Henry Ford Health, Series A
5.25%, 11/15/25.................................... 1,004,410
------------
4,911,125
------------
Minnesota - 0.4%
450,000 Minnesota State, Housing Finance Agency, Single
Family Mortgage Revenue, Series H
6.70%, 1/1/18...................................... 484,637
------------
Mississippi - 0.9%
1,000,000 Mississippi State, Home Corp., Single Family
Revenue, Class 7, Series B
5.25%, 6/1/30, (FNMA & GNMA)....................... 1,083,560
------------
Nebraska - 1.6%
2,000,000 Nebraska State, Investment Finance Authority, Single
Family Housing Revenue, Series F
5.60%, 9/1/20, (GNMA).............................. 2,034,140
------------
Nevada - 0.8%
1,000,000 Clark County, Nevada,
School District, Building & Renovations, General
Obligation, Series B
5.25%, 6/15/17, (FGIC)............................. 1,031,010
------------
New Jersey - 0.1%
65,000 Medford Township, New Jersey,
Board of Education, General Obligation
5.95%, 2/1/03, (FGIC).............................. 70,405
------------
New Mexico - 2.2%
500,000 Albuquerque, New Mexico,
Airport Revenue, Series 1995 A
6.35%, 7/1/07, (AMBAC)............................. 542,650
2,100,000 Farmington, New Mexico,
Pollution Control Revenue, Public Service Company
of San Juan, Series C
5.70%, 12/1/16, (AMBAC)............................ 2,268,504
------------
2,811,154
------------
New York - 11.8%
Long Island, New York,
Power Authority, Electric Systems Revenue, Series
A:
1,750,000 5.50%, 12/1/29...................................... 1,809,622
2,250,000 5.75%, 12/1/24...................................... 2,416,995
1,000,000 New York & New Jersey
Port Authority, 104th Series
5.20%, 7/15/21, (AMBAC)............................ 1,017,390
500,000 New York & New Jersey,
Port Authority, 97th Series
6.50%, 7/15/19, (FGIC)............................. 558,495
</TABLE>
19
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York City, New York,
Municipal Water Finance Authority, Series B:
$1,000,000 5.50%, 6/15/27, (MBIA).............................. $ 1,055,410
2,000,000 5.75%, 6/15/29, (MBIA).............................. 2,159,740
700,000 New York City, New York,
Municipal Water Finance Authority, Water & Sewer
Systems Revenue
5.75%, 6/15/26, (MBIA)............................. 752,150
1,600,000 New York State, Mortgage Agency Revenue Series 73-A
5.30%, 10/1/28..................................... 1,612,400
1,500,000 New York State, Housing Finance Agency Revenue,
Series 1994 B
6.35%, 8/15/23, (AMBAC)............................ 1,626,660
1,000,000 New York State, Local Government Assistance Corp.
5.50%, 4/1/21...................................... 1,030,620
1,000,000 New York State, Mortgage Agency Revenue, Homeowner
Mortgage, Series 70
5.375%, 10/1/17.................................... 1,023,240
------------
15,062,722
------------
North Dakota - 2.6%
3,000,000 Mercer County, North Dakota,
Pollution Control Revenue, (Basin Electric Power,
Cooperative-Antelope Valley), Second Series
6.05%, 1/1/19, (AMBAC)............................. 3,290,790
------------
Ohio - 3.0%
2,000,000 Hamilton County, Ohio,
Sales Tax Revenue, Hamilton County Football,
Project B
5.00%, 12/1/18, (MBIA)............................. 2,004,860
1,000,000 Ohio State, Board of Education, Kings Local School
District, City of Warren, General Obligation,
Series 1995
7.50%, 12/1/16, (FGIC)............................. 1,325,920
455,000 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue, 1995 Series A-2
6.625%, 3/1/26, (GNMA)............................. 491,223
------------
3,822,003
------------
Pennsylvania - 2.2%
100,000 Delaware County, Pennsylvania, Villanova University
Revenue,
Series A
4.625%, 12/1/07, (MBIA)............................ 103,538
110,000 Lehigh County, Pennsylvania,
General Obligation
5.125%, 11/15/08, (FGIC)........................... 115,076
100,000 Pennsylvania State, Industrial Development Authority
Revenue, Economic Development
5.00%, 7/1/04, (AMBAC)............................. 104,551
50,000 Pennsylvania State, State Turnpike Commission,
Turnpike Revenue, Series F
7.25%, 12/1/17, (AMBAC)............................ 52,977
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$1,000,000 Pittsburgh, Pennsylvania,
General Obligation, Series D
5.00%, 9/1/19, (FGIC).............................. $ 998,640
100,000 Pittsburgh, Pennsylvania,
School District, General Obligation, Series A
4.85%, 9/1/03...................................... 104,371
50,000 Scranton, Lackawanna,
Pennsylvania, Health & Welfare Authority Revenue
5.00%, 1/1/06, (MBIA).............................. 52,522
100,000 Tunkhannock, Pennsylvania,
Area School District, General Obligation
4.55%, 7/15/08, (AMBAC)............................ 102,321
90,000 University of Pittsburgh, Pennsylvania, The
Commonwealth System of Higher Education, University
Capital Projects Revenue
5.05%, 6/1/10, (FGIC).............................. 94,801
1,000,000 York County, Pennsylvania,
Solid Waste & Refuse Authority, Solid Waste Systems
Revenue
5.50%, 12/1/12, (FGIC)............................. 1,094,330
------------
2,823,127
------------
South Carolina - 3.8%
2,300,000 Greenville, South Carolina,
Hospital Systems, Hospital Facilities Revenue,
Series A
5.75%, 5/1/14...................................... 2,458,516
South Carolina State, Port Authority Revenue:
1,075,000 Refunded, 6.625%, 7/1/11............................ 1,163,870
1,075,000 Series 1991, 6.625%, 7/1/11, (AMBAC)................ 1,163,032
------------
4,785,418
------------
Tennessee - 1.5%
1,700,000 Knox County, Tennessee,
Health, Educational & Housing Facility Board,
Hospital Facility Revenue, (Fort Sanders Alliance),
Series 1993
6.25%, 1/1/13, (MBIA).............................. 1,971,065
------------
Texas - 5.2%
1,500,000 Austin, Texas,
Airport System Revenue, Prior Lien, Series 1995A
6.125%, 11/15/25, (MBIA)........................... 1,649,175
1,000,000 Dallas, Texas,
Special Tax Revenue, Series A
5.25%, 8/15/16, (AMBAC)............................ 1,037,150
1,500,000 Hays, Texas,
Consolidated Independent School District, General
Obligation
5.875%, 8/15/22.................................... 1,633,560
1,000,000 Houston, Texas,
Water Conveyance System Contract, COP, Series 1993
H
7.50%, 12/15/14, (AMBAC)........................... 1,302,950
</TABLE>
20
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Texas - continued
$1,000,000 Texas State, Department of Housing & Community
Affairs, Residential Mortgage Revenue, Series A
5.25%, 7/1/18, (GNMA & FNMA)...................... $ 1,007,080
------------
6,629,915
------------
Utah - 0.9%
1,000,000 Salt Lake City, Utah,
Salt Lake County Airport Revenue, Series 1993A
6.00%, 12/1/12, (FGIC)............................ 1,089,590
------------
Virginia - 3.9%
2,000,000 Hanover County, Virginia,
Industrial Development Authority Revenue, Memorial
Regional Medical Center Project, Series 1995
6.375%, 8/15/18, (MBIA)........................... 2,381,280
1,000,000 Loudoun County, Virginia,
Sanitation Authority Water & Sewer Revenue
4.75%, 1/1/21, (MBIA)............................. 969,360
1,545,000 Virginia State, Housing Development Authority,
Commonwealth Mortgage Revenue, Series D
5.40%, 7/1/21..................................... 1,564,853
------------
4,915,493
------------
Washington - 5.7%
1,000,000 Chelan County, Washington,
Public Utility District, Consolidated Revenue,
Series A
5.25%, 7/1/33, (FSA).............................. 996,970
2,500,000 City of Tacoma, Washington,
Electric Systems Refunding Revenue, Series 1994
6.25%, 1/1/15, (FGIC)............................. 2,760,750
2,500,000 Port Seattle, Washington,
Passenger Facility Charge Revenue, Series A
5.00%, 12/1/23, (MBIA)............................ 2,468,375
1,000,000 Seattle, Washington,
Port Revenue, Series A
5.50%, 10/1/22, (FGIC)............................ 1,055,100
------------
7,281,195
------------
West Virginia - 0.4%
500,000 West Virginia State, Housing Development Funding
Revenue, Series A
6.05%, 5/1/27..................................... 536,595
------------
Wisconsin - 9.1%
4,500,000 Superior, Wisconsin,
Limited Obligation Refunding Revenue, Midwest
Energy Resource Co. Project, Series E-1991
6.90%, 8/1/21, (FGIC)............................. 5,679,990
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Wisconsin - continued
$1,000,000 Wisconsin State, Health & Educational Facilities
Authority Revenue, Childrens Hospital of Wisconsin
Inc.
5.00%, 2/15/18, (AMBAC)............................ $ 996,260
Wisconsin State, Housing & Economic Development
Authority, Home Ownership Revenue:
1,250,000 Series B, 5.60%, 3/1/28............................. 1,283,475
2,500,000 Series H, 5.75%, 9/1/28............................. 2,584,875
80,000 Wisconsin State, Transportation Revenue,
Prerefunded, Series B
5.50%, 7/1/22...................................... 84,654
920,000 Wisconsin State, Transportation Revenue, Unrefunded
Balance, Series B, 5.50%, 7/1/22................... 939,725
------------
11,568,979
------------
Puerto Rico - 2.5%
1,000,000 Commonwealth of Puerto Rico, General Obligation
6.50%, 7/1/10, (MBIA).............................. 1,200,070
500,000 Puerto Rico, Electric Power Authority, Power
Refunding Revenue, Series Y
6.50%, 7/1/06, (MBIA).............................. 579,655
335,000 Puerto Rico, Housing, Bank & Finance Agency, Single
Family Mortgage Revenue, 6.10%, 10/1/15,
(GNMA, FNMA & FHLMC)............................... 356,554
1,000,000 Puerto Rico, Public Finance Corp., Commonwealth
Appropriated Revenue, Series A
5.375%, 6/1/16, (AMBAC)............................ 1,079,920
------------
3,216,199
------------
Total Long-Term Municipal Obligations
(cost $116,513,880)................................ 123,645,380
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
MUTUAL FUND SHARES - 1.7%
2,137,054 Federated Municipal Obligations Fund (cost
$2,137,054)........................................ 2,137,054
------------
Total Investments -
(cost $118,650,934)......................... 98.8% 125,782,434
Other Assets and
Liabilities - net........................... 1.2 1,546,088
----- ------------
Net Assets - ................................ 100.0% $127,328,522
===== ============
</TABLE>
21
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
The Fund invests primarily in debt securities issued by municipalities.
The ability of the issuers of debt securities to meet their obligations
may be affected by economic developments in a specific industry or munic-
ipality. In order to reduce risk associated with such economic develop-
ments, securities may possess municipal bond insurance from various fi-
nancial institutions and financial guaranty assurance agencies. Therefore
the Funds may be more affected by developments in the insurance industry
or a specific municipal bond insurer. At November 30, 1998, 71.2% of the
securities, as a percentage of net assets, are backed by bond insurance
of various financial institutions and financial guaranty assurance agen-
cies. At November 30, 1998, the Fund had securities backed by bond insur-
ance of the following financial institutions representing more than 5% of
net assets:
AMBAC 21.8%
FGIC 14.2%
MBIA 29.8%
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
COP Certificate of Participation
FGIC Insured by Federal Guaranty Insurance Company
FHLMC Insured by Federal Home Loan Mortgage Corporation
FNMA Insured by Federal National Mortgage Association
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
22
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 97.4%
Alabama - 1.6%
Alabama State, Housing Finance Authority, Single
Family Revenue:
$ 2,005,000 Collateralized Home Mortgage,
Series D-1 6.00%, 10/1/16........................ $ 2,126,323
35,000 Series A-2 10.75%, 6/1/13........................ 37,476
2,000,000 Alabama State, Water Pollution Control Authority,
Revolving Fund Loan, Series B
5.50%, 8/15/16.................................. 2,087,900
655,000 Birmingham, Alabama,
Airport Authority, Airport Revenue
5.625%, 7/1/26, (MBIA).......................... 696,291
3,895,000 Jefferson County, Alabama,
Board of Education, Capital Outlay, School
Warrants, Series A
5.80%, 2/15/20, (FSA)........................... 4,240,175
9,900,000 Jefferson County, Alabama,
Sewer Revenue, Series A54
7.92%, 2/1/27 (d)............................... 11,385,495
--------------
20,573,660
--------------
Alaska - 3.8%
15,000,000 Alaska State, Energy Authority, Utilities
Revenue, Linked Bulls/Bears Floaters
6.60%, 7/1/15, (FGIC) (c)....................... 17,947,650
15,580,000 Alaska State, Housing Finance Corp., General
Obligation, Series A-2, 5.75%, 6/1/24........... 16,132,623
Alaska State, Industrial Development and Export
Authority:
5,000,000 Refunding, Revolving Fund, Series A
5.20%, 4/1/18.................................... 5,018,900
5,000,000 Snettisham Hydroelec, Series 1
5.25%, 1/1/22................................... 5,069,550
5,000,000 Valdez, Alaska,
Marine Terminal Revenue, Pipeline, Inc. Project,
Series C
5.65%, 12/1/28.................................. 5,103,700
--------------
49,272,423
--------------
Arizona - 1.4%
850,000 Chandler, Arizona,
Water & Sewer Revenue
6.75%, 7/1/06, (FGIC)........................... 912,620
Maricopa County, Arizona, Elementary School
District:
2,000,000 No. 008, Osborn Refunding
7.50%, 7/1/07, (MBIA)............................ 2,480,080
3,750,000 No. 068, Series A
6.75%, 7/1/14, (AMBAC)........................... 4,297,987
6,000,000 No. 069
8.125%, 1/1/10, (MBIA)........................... 7,979,040
2,030,000 Pima County, Arizona,
Unified School District No. 001, General
Obligation
7.50%, 7/1/03, (FGIC)........................... 2,335,637
--------------
18,005,364
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
California - 7.9%
$ 1,500,000 Abag, California,
Rhoda Haas Goldman Plaza Finance Authority for
Non Profit Corps., COP
5.125%, 5/15/15, (California Mortgage Insured)... $ 1,509,075
1,000,000 Anaheim, California,
Public Financing Authority, Lease Revenue, Public
Improvements Project, Series C
6.00%, 9/1/16, (FSA)............................. 1,155,280
7,750,000 California State, Educational Facilities Authority
Revenue, Stanford University, Series N
5.20%, 12/1/27................................... 7,922,282
2,500,000 California State, General Obligation, Series BH,
AMT
5.50%, 12/1/18................................... 2,569,725
California State Housing Finance Agency Revenue:
12,000,000 Home Mortgage, Series D
5.85%, 8/1/17..................................... 12,702,120
1,980,000 Home Mortgage, Series H
6.25%, 8/1/27..................................... 2,107,948
7,000,000 Multifamily Housing, Series B
5.40%, 8/1/18, (MBIA)............................. 7,103,250
California State, Public Works Board, Lease
Revenue:
California State University Projects, Series A:
8,775,000 5.50%, 10/1/14.................................... 9,375,034
9,000,000 5.50%, 10/1/15.................................... 9,542,340
5,150,000 5.25%, 10/1/16.................................... 5,322,268
9,195,000 Community College Projects, Series B, 5.625%,
3/1/16, (AMBAC).................................. 9,878,832
3,700,000 Correctional State Prison, Series E
5.50%, 6/1/15.................................... 4,028,005
200,000 Los Angeles County, California, Public Works
Financing Authority, Lease Revenue, Multiple
Capital Facilities Project, Series B
5.125%, 12/1/17, (AMBAC)......................... 203,880
2,750,000 Palm Desert, California,
Financing Authority, Tax Allocation Revenue,
Project Area No.1, 5.625%, 4/1/23, (MBIA)........ 2,929,410
550,000 Poway, California,
Community Facilities District, Special Tax,
Parkway Business Center
6.75%, 8/15/15................................... 601,667
3,765,000 San Francisco, California, International Airport
Revenue, Series Issue 10-A, AMT
5.70%, 5/1/26.................................... 3,999,635
</TABLE>
23
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
California - continued
$11,915,000 San Joaquin Hills, California,
Toll Road Revenue, Senior Lien,
(Eff. Yield 7.748%)
0.00%, 1/1/19 (b)............................... $ 4,371,137
3,000,000 San Jose, California, Redevelopment Agency, Tax
Allocation, Merged Area Redevelopment Project,
Series B
5.75%, 8/1/11................................... 3,224,580
400,000 San Juan, California,
MSR Public Power Agency Revenue, Series B
6.75%, 7/1/11................................... 436,272
Southern California State, Public Power
Authority:
3,000,000 Power Project Revenue, Mead Adelanto Project,
Series A
5.00%, 7/1/17, (AMBAC)........................... 3,018,720
10,000,000 Transmission Project Revenue, (Eff. Yield 5.93%)
0.00%, 7/1/15, (FGIC)(b)......................... 4,484,000
Victor Valley, California,
Joint Unified High School District, General
Obligation:
3,780,000 (Eff. Yield 6.25%)
0.00%, 9/1/11, (MBIA)(b)........................ 2,131,088
4,450,000 (Eff. Yield 6.35%)
0.00%, 9/1/13, (MBIA)(b)......................... 2,228,026
625,000 Vista, California,
Community Development Commission Tax Allocation
Revenue, Vista Redevelopment Project
6.00%, 9/1/10................................... 724,475
--------------
101,569,049
--------------
Colorado - 6.2%
4,000,000 Araphoe County, Colorado,
Single Family Mortgage Revenue, Series A,
(Eff. Yield 6.00%)
0.00%, 9/1/10 (b)............................... 2,310,000
5,000,000 Colorado Springs, Colorado, Company Utilities
Revenue, Series A 5.375%, 11/15/26.............. 5,149,400
Colorado State, East 470 Public Highway Authority
Revenue, Senior Series B:
9,795,000 (Eff. Yield 5.30%)
0.00%, 9/1/13 (b)................................ 4,840,885
4,000,000 (Eff. Yield 5.35%)
0.00%, 9/1/14 (b)................................ 1,855,880
5,000,000 (Eff. Yield 5.449%)
0.00%, 9/1/17 (b)................................ 1,957,000
1,880,000 Colorado State, Health Facilities Authority
Revenue, Sisters Charity Health Care, Series A
6.25%, 5/15/09, (MBIA)........................... 2,173,280
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Colorado - continued
Colorado State, Housing Finance Authority
Revenue, Single Family Mortgage:
$ 2,275,000 Series A-2, AMT 6.60%, 5/1/28.................... $ 2,513,989
3,000,000 Series B- 2, 6.40%, 11/1/24...................... 3,270,120
Denver, Colorado,
City & County Airport Revenue:
140,000 Prerefunded Balance, Series A
8.00%, 11/15/25.................................. 156,467
865,000 Prerefunded Balance, Series B
7.25%, 11/15/12.................................. 986,671
3,000,000 Series A, AMT
5.00%, 11/15/25, (FSA)........................... 2,926,710
8,200,000 Series D, 7.75%, 11/15/13........................ 10,493,458
Unrefunded Balance:
3,385,000 Series B, 7.25%, 11/15/12........................ 3,743,945
720,000 Series A, 7.25%, 11/15/25........................ 825,574
5,480,000 Series A, 7.50%, 11/15/23........................ 6,360,033
9,700,000 Series D, 7.75%, 11/15/21........................ 10,714,620
915,000 Series A, 8.00%, 11/15/25........................ 993,589
385,000 Series A, 8.00%, 11/15/25........................ 421,825
8,060,000 Series A, 8.75%, 11/15/23........................ 9,137,542
El Paso County, Colorado,
School District No. 11, Colorado Springs:
2,310,000 6.50%, 12/1/12................................... 2,812,725
2,000,000 7.10%, 12/1/13................................... 2,570,320
1,000,000 7.10%, 12/1/16................................... 1,290,910
2,250,000 Larimer County, Colorado,
School District
7.00%, 12/15/16, (MBIA).......................... 2,891,115
--------------
80,396,058
--------------
Connecticut - 0.2%
2,000,000 Connecticut State, Housing Finance Authority
Revenue, AMT
5.375%, 11/15/18................................. 2,023,120
--------------
Delaware - 0.1%
1,600,000 Delaware State, Health Facilities Authority
Revenue, Medical Center of Delaware
7.00%, 10/1/15, (MBIA).......................... 1,836,416
--------------
District of Columbia - 1.5%
1,500,000 District of Columbia Revenue, American
Association for the Advancement of Science
5.25%, 1/1/16, (AMBAC).......................... 1,549,020
3,765,000 District of Columbia, Hospital Revenue,
Medatlantic Healthcare Group, Series A
6.00% 8/15/11, (MBIA)........................... 4,278,320
</TABLE>
24
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
District of Columbia - continued
$ 8,000,000 District of Columbia, Housing Revenue, Carnegie
Endowment for International Peace
5.75%, 11/15/26................................. $ 8,442,720
5,705,000 Washington, District of Columbia, Convention
Center Authority, Dedicated Tax Revenue,
Senior Lien
5.00%, 10/1/21, (AMBAC)......................... 5,621,023
--------------
19,891,083
--------------
Florida - 2.6%
10,000,000 Florida State, Board of Education, Capital
Outlay, General Obligation, Public Education,
Series B
5.75%, 6/1/17................................... 10,666,400
Gainesville, Florida,
Utilities Systems Revenue, Series B:
1,000,000 5.50%, 10/1/13................................... 1,059,320
435,000 7.50%, 10/1/08................................... 549,435
695,000 7.50%, 10/1/09................................... 888,474
420,000 Hillsborough County, Florida, Housing Finance
Agency, Single Family Mortgage Revenue, Series A
7.30%, 4/1/22................................... 437,758
3,580,000 Jacksonville, Florida,
Transportation Authority Revenue
9.20%, 1/1/15................................... 5,185,630
300,000 Lee County, Florida,
Solid Waste Systems Revenue, Series B
7.00%, 10/1/11.................................. 331,479
8,000,000 Miami-Dade County, Florida,
Special Obligation, Series A,
(Eff. Yield 5.50%)
0.00%, 10/1/16 (b).............................. 3,293,200
2,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare, Series A
6.25%, 10/1/18, (MBIA).......................... 2,348,600
495,000 Orange County, Florida,
Housing Finance Authority Revenue, Single Family
Mortgage, Series B
6.85%, 10/1/27,
(GNMA/FNMA)..................................... 532,318
2,960,000 Orlando-Orange County, Florida,
Expressway Authority Revenue
8.25%, 7/1/15, (FGIC)........................... 4,173,926
1,250,000 Palm Beach County, Florida,
Health Facilities Authority Revenue, Waterford
Project
5.50%, 10/1/15.................................. 1,254,437
1,000,000 Sarasota County, Florida,
Utilities Systems Revenue
6.50%, 10/1/22.................................. 1,153,110
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Florida - continued
$ 500,000 Tampa, Florida,
Allegheny Health Systems Revenue
6.50%, 12/1/23.................................. $ 576,825
500,000 Tarpon Springs, Florida,
Health Facilities Authority, Hospital Revenue,
Tarpon Springs Hospital
8.75%, 5/1/12................................... 511,470
--------------
32,962,382
--------------
Georgia - 3.2%
4,255,000 Atlanta, Georgia,
Metropolitan Rapid Transit Authority, Sales Tax
Revenue, Series P
6.25%, 7/1/11, (AMBAC).......................... 5,008,177
3,000,000 Forsyth County, Georgia,
School District, General Obligation
6.75%, 7/1/16................................... 3,681,360
6,500,000 Fulton County, Georgia, Development Authority
Special Facilities Revenue, Delta Airlines Inc.
Project
5.45%, 5/1/23................................... 6,430,905
9,800,000 Georgia State, Municipal Electric Authority,
Power Revenue, Series B
6.375%, 1/1/16.................................. 11,534,502
10,700,000 Georgia State, General Obligation, Series C
5.25%, 4/1/11................................... 11,608,002
2,620,000 Private Colleges & University Facilities
Authority Revenue, Georgia, Mercer University
Project
6.40%, 11/1/11, (MBIA).......................... 3,108,578
--------------
41,371,524
--------------
Hawaii - 0.6%
Hawaii State, Department of Budget and Finance,
Special Purpose Revenue, Hawaiian Electric Co.,
Inc., Series A:
2,000,000 4.95%, 4/1/12.................................... 2,048,480
2,000,000 5.65%, 10/1/27, (MBIA)........................... 2,167,360
4,060,000 Hawaii State, Housing Finance & Development Corp.
Revenue, Series C, AMT
5.35%, 7/1/20................................... 4,084,563
--------------
8,300,403
--------------
Idaho - 0.1%
715,000 Idaho State, Housing Finance Authority Revenue,
Single Family Mortgage Bonds, Series D-1
8.00%, 1/1/20................................... 797,282
--------------
</TABLE>
25
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Illinois - 4.4%
$ 5,000,000 Chicago, Illinois,
Public Building Commerce, Building Revenue,
Series A
5.75%, 12/1/18, (MBIA).......................... $ 5,329,700
1,890,000 Chicago, Illinois,
Single Family Mortgage Revenue, Series B, 6.95%,
9/1/28.......................................... 2,109,826
4,000,000 Illinois State, Development Finance Authority,
Pollution Control Revenue, Commonwealth Edison
Company Project, Series D
6.75%, 3/1/15, (AMBAC) ......................... 4,587,680
3,000,000 Illinois State, Educational Facilities Authority
Revenue, Centegra Health Systems
5.25%, 9/1/24................................... 2,950,200
2,000,000 Illinois State, General Obligation
5.70%, 4/1/10................................... 2,143,440
9,000,000 Illinois State, Sales Tax Revenue, Series P
6.50%, 6/15/22.................................. 10,773,630
2,965,000 Kankakee, Illinois,
Sewer Revenue
6.875%, 5/1/11, (FGIC).......................... 3,331,978
Metropolitan Fair & Exposition Authority Revenue,
Illinois:
14,000,000 (Eff. Yield 6.75%)
0.00%, 6/15/16 (b)............................... 5,861,940
3,000,000 Series A 5.00%, 6/1/15........................... 2,993,310
10,000,000 Northern Illinois State, University Revenues,
Auxiliary Facilities Systems
5.75%, 4/1/22, (FGIC)........................... 10,825,300
4,950,000 Quincy, Illinois,
Blessing Hospital Revenue
6.00%, 11/15/18................................. 5,195,718
--------------
56,102,722
--------------
Indiana - 1.3%
3,000,000 Goshen, Indiana,
Revenue, Greencroft Obligation Group
5.75%, 8/15/28.................................. 2,909,040
6,800,000 Indiana State, Housing Finance Authority, Single
Family Mortgage Revenue, Series A3, AMT
5.375%, 1/1/23,
(FNMA/GNMA)..................................... 6,847,736
5,000,000 Indianapolis, Indiana,
Gas Utility Revenue, Refunding Distribution
Systems, Series A
5.00%, 8/15/24.................................. 4,901,150
1,640,000 St. Joseph County, Indiana, Educational
Facilities Revenue, University of Notre Dame
6.50%, 3/1/26................................... 2,024,350
--------------
16,682,276
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Kansas - 0.2%
$ 2,000,000 Burlington, Kansas,
Pollution Control Revenue, Kansas Gas & Electric
Co. Project
7.00%, 6/1/31, (MBIA)........................... $ 2,184,340
--------------
Kentucky - 1.8%
8,000,000 Carroll County, Kentucky,
Pollution Control Revenue, Kentucky Utility Co.,
Series A
7.45%, 9/15/16.................................. 9,036,720
6,000,000 Jefferson County, Kentucky, Hospital Revenue,
Linked ACEs/INFLOs
6.436%, 10/1/14, (MBIA) (c)..................... 6,560,880
4,000,000 Kentucky State, Housing Corp. Housing Revenue,
Series B
5.30%, 7/1/18................................... 4,041,680
2,725,000 Trimble County, Kentucky,
Pollution Control Revenue, Louisville Gas &
Electric Co.
7.625%, 11/1/20................................. 2,945,916
--------------
22,585,196
--------------
Louisiana - 1.5%
3,000,000 Louisiana State, Offshore Term Refunding, Loop
LLC Project
5.20%, 10/1/18.................................. 2,981,340
1,395,000 Louisiana State, Public Facilities Authority,
Health & Education Revenue, Series D
7.90%, 12/1/15.................................. 1,422,900
Louisiana State, Public Facilities Authority,
Hospital Revenue, Franciscan Missionaries:
5,000,000 Series A, 5.50%, 7/1/10.......................... 5,445,650
4,345,000 Series C, 5.375%, 7/1/13......................... 4,553,604
New Orleans, Louisiana, General Obligation:
6,960,000 (Eff. Yield 6.05%)
0.00%, 9/1/14, (AMBAC) (b)....................... 3,239,184
2,800,000 (Eff. Yield 7.10%)
0.00%, 9/1/15, (AMBAC) (b)....................... 1,241,380
--------------
18,884,058
--------------
Maine - 0.3%
4,000,000 Maine State, Housing Authority Revenue, Mortgage
Purchase, Series C2, AMT
6.05%, 11/15/28................................. 4,172,680
--------------
Massachusetts - 6.2%
Massachusetts Bay Transportation Authority
Revenue:
3,000,000 Coupon Transportation Systems, Series B
5.00%, 3/1/28.................................... 2,946,210
7,950,000 General Transportation Systems: Series A
6.25%, 3/1/12.................................... 9,298,797
</TABLE>
26
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
Massachusetts Bay Transportation Authority Revenue:
$ 1,950,000 Series A
7.00%, 3/1/21, (MBIA).............................. $ 2,415,816
2,125,000 Series B, 6.20%, 3/1/16............................ 2,488,481
Massachusetts State, Development Finance Agency
Revenue:
700,000 New England Center for Children
5.875%, 11/1/18.................................... 710,640
1,000,000 Regis College
5.25%, 10/1/18..................................... 981,750
2,000,000 Massachusetts State, General Obligation,
Consolidated Loan, Series C
5.25%, 8/1/16..................................... 2,082,480
Massachusetts State, Health & Educational
Facilities Authority Revenue:
5,450,000 Boston Medical Center, Series A
5.25%, 7/1/14...................................... 5,653,939
1,900,000 Cape Cod Healthcare, Series B
5.45%, 11/15/23.................................... 1,902,527
12,245,000 Caregroup Issue, Series A
5.00%, 7/1/18...................................... 12,138,591
5,000,000 Jordan Hospital, Series D
5.25%, 10/1/23..................................... 4,878,100
2,900,000 Milford Whitinsville Regional Hospital, Series C
5.25%, 7/15/18..................................... 2,854,296
700,000 Milton Hospital, Series B
7.25%, 7/1/05...................................... 746,900
500,000 North Adams Regional Hospital, Series C, 6.75%,
7/1/09............................................. 543,985
4,250,000 Massachusetts State, Housing Finance Agency
Revenue, Housing Development,
Series D, AMT
5.40%, 6/1/20..................................... 4,297,515
Massachusetts State, Industrial Finance Agency
Revenue:
2,600,000 College of Holy Cross
5.00%, 9/1/23...................................... 2,574,676
1,000,000 Parking Facilities Revenue, Avon Associate, Series
A
5.375%, 4/1/20, (MBIA)............................. 1,012,850
4,750,000 Refunding, Ogden Haverhill Project, Series A
5.60%, 12/1/19..................................... 4,754,180
8,500,000 Massachusetts State, Industrial Finance Agency
Solid Waste Disposal Revenue, Senior Lien,
Massachusetts Recycling Association,
9.00%, 8/1/16 (e)................................. 2,824,975
6,800,000 Massachusetts State, Municipal Wholesale Electric
Co., Power Supply Systems Revenue, Series A
7.02%, 7/1/18..................................... 7,223,368
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
$20,000,000 Massachusetts State, Turnpike Authority,
Metropolitan Highway Systems Revenue, Senior
Series C,
(Eff. Yield 5.549%)
0.00%, 1/1/22 (b)............................... $ 6,287,400
610,000 Massachusetts State, Water Pollution Abatement
Trust Revenue, Pool Loan Program, Series 2
6.125%, 2/1/08.................................. 700,231
--------------
79,317,707
--------------
Michigan - 2.9%
1,000,000 Michigan State, Building Authority Revenue,
Facilities Program, Series II,
(Eff. Yield 5.25%)
0.00%, 10/15/11, (AMBAC)(b)..................... 558,570
2,860,000 Michigan State, Higher Education Student Loan,
Series XVII-B
5.40%, 6/1/18, (AMBAC).......................... 2,822,477
Michigan State, Hospital Finance Authority
Revenue:
6,970,000 Henry Ford Health Systems, Series A
5.25%, 11/15/20.................................. 7,007,498
7,500,000 Oakwood Hospital Obligation Group, Series A
5.625%, 11/1/18.................................. 7,841,550
10,000,000 Monroe County, Michigan, Economic Development
Corp., Limited Obligation Revenue, Detroit
Edison Co.
6.95%, 9/1/22, (FGIC)........................... 12,962,400
Wayne Charter County, Michigan, Airport Revenue,
Detroit Metropolitan Wayne County Airport:
3,500,000 Series A, AMT
5.25%, 12/1/18, (MBIA)........................... 3,561,180
3,000,000 Series B
5.25%, 12/1/17, (MBIA)........................... 3,082,380
--------------
37,836,055
--------------
Minnesota - 1.1%
Minneapolis & St. Paul, Minnesota, Metropolitan
Airports Common Airport Revenue, Series B, AMT:
5,000,000 5.25%, 1/1/14, (AMBAC)........................... 5,198,200
9,150,000 5.25%, 1/1/15, (AMBAC)........................... 9,472,812
--------------
14,671,012
--------------
Mississippi - 0.3%
1,000,000 Harrison County, Mississippi, Wastewater
Treatment Management District Revenue
8.50%, 2/1/13................................... 1,423,400
2,000,000 Mississippi State, Home Corp., Single Family
Revenue Mortgage, Series B, Class 7
5.25%, 6/1/99, (FNMA/GNMA)...................... 2,138,660
--------------
3,562,060
--------------
</TABLE>
27
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Missouri - 1.3%
$ 4,900,000 Bridgeton, Missouri,
Industrial Development Authority Revenue, Senior
Housing Revenue, The Sarah Community Project
5.80%, 5/1/18................................... $ 4,842,425
500,000 Joplin, Missouri,
Industrial Development Authority Revenue,
Catholic Health Initiatives, Series A
5.125%, 12/1/15................................. 505,030
4,200,000 Kansas City, Missouri, Municipal Assistance Corp.
Revenue, Refunding Leasehold, Series A
5.125%, 4/15/15, (MBIA) 4,274,298
2,040,000 Missouri State, Housing Development Commission,
Single Family Mortgage Revenue, Series B
6.45%, 9/1/27................................... 2,179,373
Sikeston, Missouri,
Electric Revenue:
450,000 6.00%, 6/1/13, (MBIA)............................ 513,491
200,000 6.00%, 6/1/14, (MBIA)............................ 228,374
3,200,000 St. Louis, Missouri, Airport Revenue, Lambert
St. Louis International Airport, Series B, AMT
5.25%, 7/1/27, (FGIC)........................... 3,239,968
1,250,000 West Plains, Missouri, Industrial Development
Authority, Hospital Revenue, Ozarks Medical
Center
5.65%, 11/15/22................................. 1,263,662
--------------
17,046,621
--------------
Nebraska - 1.2%
15,000,000 Nebraska State, Investment Finance Authority,
Single Family Housing Revenue, Series F
5.60%, 9/1/20,
(GNMA/FNMA/FHLMC)............................... 15,208,950
--------------
Nevada - 1.4%
Clark County, Nevada:
4,905,000 Airport Revenue, Series A
5.50%, 7/1/15, (MBIA)........................... 5,222,108
6,000,000 General Obligation, Series A
7.50%, 6/1/09, (AMBAC)........................... 7,600,440
5,000,000 Nevada State, Municipal Bond Bank Projects 66 &
67, General Obligation, Series A
5.00%, 5/15/28, (FGIC)........................... 4,917,800
--------------
17,740,348
--------------
New Hampshire - 1.9%
3,155,000 New Hampshire State, Higher Education & Health
Facilities Authority, Frisbie Memorial Hospital
Revenue
6.125%, 10/1/13.................................. 3,305,620
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New Hampshire - continued
$20,615,000 New Hampshire State, Turnpike Systems Revenue
5.75%, 4/1/20.................................... $ 21,449,701
--------------
24,755,321
--------------
New Jersey - 0.2%
1,000,000 Gloucester County, New Jersey, Improvement
Authority, Solid Waste Resource Recovery
Revenue, SES Gloucester Company LP Project,
Series A
8.125%, 7/1/10,
(LOC: Fuji Bank Ltd.)............................ 1,003,880
1,000,000 New Jersey State, Health Care Facilities
Financing Authority Revenue, Jersey Shore
Medical Center
6.125%, 7/1/12, (AMBAC).......................... 1,109,940
1,055,000 Salem County, New Jersey, Pollution Control
Finance Authority, Waste Disposal Revenue
6.50%, 11/15/21.................................. 1,128,734
--------------
3,242,554
--------------
New Mexico - 1.5%
1,500,000 Albuquerque, New Mexico, Hospital System Revenue,
Series A
6.375%, 8/1/07, (MBIA)........................... 1,633,710
Farmington, New Mexico, Pollution Control
Revenue:
10,000,000 Public Service Co. of San Juan, Series C
5.70%, 12/1/16, (AMBAC).......................... 10,819,200
5,000,000 Southern California Edison Co., Series A
5.875%, 6/1/23, (MBIA)........................... 5,382,250
1,000,000 University of New Mexico, New Mexico, University
Revenues, Series A
6.00%, 6/1/21.................................... 1,137,300
--------------
18,972,460
--------------
New York - 10.8%
Long Island Power Authority, New York, Electric
Systems Revenue:
5,000,000 5.00%, 4/1/13, (MBIA)............................ 5,115,200
12,750,000 Series A, 5.75%, 12/1/24......................... 13,619,423
Metropolitan Transportation Authority, New York,
Transportation Facilities Revenue:
10,000,000 Series A 5.70%, 7/1/17, (MBIA)................... 10,794,400
11,600,000 Service Contract, Series 7
5.625%, 7/1/16................................... 12,000,316
5,000,000 Service Contract, Series R
5.50%, 7/1/17.................................... 5,224,700
</TABLE>
28
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York City, New York:
Prerefunded Balance, Series A:
$ 85,000 5.75%, 8/1/10, (FGIC).............................. $ 91,873
365,000 7.75%, 8/15/08..................................... 408,585
195,000 7.75%, 8/15/14..................................... 218,285
315,000 Unrefunded Balance, Series A
5.75%, 8/1/10, (FGIC).............................. 334,895
New York City, New York, Municipal Water Finance
Authority, Water & Sewer Systems Revenue:
14,900,000 Series A65
7.77%, 6/15/29 (a)................................. 17,169,568
Series B:
5,000,000 5.125%, 6/15/17, (FSA)............................. 5,070,900
1,300,000 5.75%, 6/15/26, (MBIA)............................. 1,396,694
6,000,000 5.75%, 6/15/26, (MBIA/IBC)......................... 6,489,060
New York City, New York, General Obligation:
300,000 Prerefunded Balance, Series A
7.75%, 8/15/15..................................... 335,823
2,500,000 Refunded Balance, Series G
6.75%, 2/1/09, (FGIC).............................. 2,978,425
Unrefunded Balance, Series A:
250,000 7.75%, 8/15/08..................................... 276,912
140,000 7.75%, 8/15/14..................................... 154,577
220,000 7.75%, 8/15/15..................................... 242,966
New York State, Dormitory Authority Revenue:
4,200,000 Buena Vida Nursing Home, Series A
5.25%, 7/1/28, (Sonyma)............................ 4,175,808
3,980,000 City University Educational Facilities, Series D
7.00%, 7/1/09, (FGIC/TCRS)......................... 4,741,971
5,000,000 Mental Health Services Facilities, Series A
5.75%, 8/15/22..................................... 5,261,500
4,700,000 Refunding Secured, Brookdale Hospital Medical
Center
5.10%, 2/15/12, (ACA/CBI/FSA)...................... 4,977,018
2,500,000 Secured Hospital, Interfaith Medical Center, Series
A
5.25%, 2/15/16..................................... 2,515,625
545,000 New York State, Environmental Facilities Corp.,
Pollution Control Revenue, State Water Revolving
Fund, Unrefunded Balance, Series E
6.875%, 6/15/10................................... 594,737
7,000,000 New York State, Housing Corp. Revenue, Series A,
(Eff. Yield 6.17%)
0.00%, 11/1/10 (b)................................ 6,675,620
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York State, Medical Care Facilities, Finance
Agency Revenue:
$ 2,900,000 6.375%, 8/15/14, (FGIC).......................... $ 3,257,135
2,140,000 6.375%, 11/15/19, (AMBAC)........................ 2,403,134
1,435,000 Health Center Projects, Series A
6.375%, 11/15/19................................. 1,578,859
New York State, Mortgage Agency Revenue,
Homeowener Mortgage:
4,500,000 Series 27
6.90%, 4/1/15.................................... 4,855,230
6,400,000 Series 69
5.50%, 10/1/28................................... 6,496,256
6,000,000 Series 73-A, AMT
5.30%, 10/1/28 (c)............................... 6,000,120
1,125,000 New York State, Power Authority Revenue, General
Purpose Revenue
7.00%, 1/1/18................................... 1,362,386
1,175,000 New York State, Urban Development Corp. Revenue,
Correctional Facilities, Series A
6.50%, 1/1/09................................... 1,362,201
500,000 Niagara Falls, New York, Public Improvement,
General Obligation
7.50%, 3/1/14, (MBIA)........................... 657,605
470,000 Triborough Bridge & Tunnel Authority, New York,
Special Obligation, Refunding, Series A
5.25%, 1/1/14, (FGIC)........................... 489,453
--------------
139,327,260
--------------
North Dakota - 1.6%
North Dakota State, Housing Finance Agency
Revenue:
Housing Finance Program, Home Mortgage Finance,
Series C:
15,000,000 5.50%, 7/1/29, (MBIA)............................ 15,205,950
5,000,000 5.55%, 7/1/29.................................... 5,063,700
--------------
20,269,650
--------------
Ohio - 2.8%
2,000,000 Adams County, Ohio, Valley Local School District,
General Obligation
7.00%, 12/1/15.................................. 2,531,800
2,000,000 Butler County, Ohio, Transportation Improvement
District Revenue, Series A
6.00%, 4/1/12, (FSA)............................ 2,248,600
7,000,000 Cleveland, Ohio, Public Power Systems Revenue,
First Mortgage, Series A
7.00%, 11/15/16, (MBIA)......................... 8,191,610
12,000,000 Hamilton County, Ohio,
Sales Tax Revenue, Hamilton County Football
Project, Series B
5.00%, 12/1/18, (MBIA).......................... 12,014,160
</TABLE>
29
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Ohio - continued
$ 2,500,000 Montgomery County, Ohio, Hospital Revenue,
Kettering Medical Center
6.25%, 4/1/20, (MBIA)........................... $ 2,958,625
1,000,000 Ohio State, Higher Educational Facility
Commission Revenue
6.125%, 11/15/17, (MBIA)........................ 1,101,940
6,500,000 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue, Series B, AMT
5.40%, 9/1/29, (GNMA)........................... 6,520,800
--------------
35,567,535
--------------
Pennsylvania - 4.4%
2,500,000 Allegheny County, Pennsylvania, Sewer Revenue
(Eff. Yield 6.10%)
0.00%, 6/1/15, (FGIC)(b)........................ 1,112,875
2,000,000 Lebanon County, Pennsylvania, Good Samaritan
Hospital Authority, Project Revenue
6.00%, 11/15/18................................. 2,090,200
2,000,000 McKeesport, Pennsylvania, Area School District,
General Obligation, Series B,
(Eff. Yield 6.25%)
0.00%, 10/1/15, (FSA)(b)........................ 886,020
900,000 Montgomery County, Pennsylvania, Industrial
Development & Pollution Control, Philadelphia
Electric Co.
7.60%, 4/1/21................................... 974,232
2,650,000 Penn Hills Township, Pennsylvania, General
Obligation, Series B,
(Eff. Yield 6.79%)
0.00%, 6/1/13, (AMBAC) (b)...................... 1,338,648
4,000,000 Pennsylvania State, Higher Educational Facilities
Authority Revenue, Allegheny General Hospital,
Series A
7.125%, 9/1/07.................................. 3,575,200
5,545,000 Pennsylvania State, Housing Finance Agency
Revenue, Residential Development,
Section 8, Series A
7.60%, 7/1/13................................... 5,916,903
1,750,000 Pennsylvania State, Industrial Development
Authority Revenue,
6.00%, 1/1/12, (AMBAC).......................... 1,905,330
Philadelphia, Pennsylvania,
Hospital & Higher Education Facilities Authority
Revenue:
3,000,000 Albert Einstein Medical Center
7.00%, 10/1/21................................... 3,317,370
1,000,000 Community College, Series B
6.50%, 5/1/07, (MBIA)............................ 1,156,430
7,360,000 Philadelphia, Pennsylvania, Municipal Authority
Revenue, Municipal Services Building Lease,
(Eff. Yield 7.50%)
0.00%, 3/15/14, (FSA) (b)....................... 3,502,845
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
Philadelphia, Pennsylvania,
Water & Wastewater Revenue:
$ 9,600,000 5.00%, 6/15/16, (FSA)............................ $ 9,607,104
4,610,000 5.50%, 8/1/14, (MBIA)............................ 4,847,092
5,000,000 5.60%, 8/1/18, (MBIA)............................ 5,248,800
6,350,000 Sayre, Pennsylvania,
Health Care Facilities Authority Revenue,
Guthrie Healthcare, Series A
7.10%, 3/1/17................................... 6,865,620
2,000,000 Shaler, Pennsylvania,
Area School District, General Obligation, Series
A,
(Eff. Yield 5.55%)
0.00%, 11/15/17, (FGIC) (b)..................... 784,920
Shaler, Pennsylvania,
Area School District, Series A:
2,000,000 (Eff. Yield 5.60%)
0.00%, 11/15/18, (FGIC) (b)...................... 739,860
2,000,000 (Eff. Yield 5.60%)
0.00%, 11/15/19, (FGIC) (b)...................... 701,000
2,550,000 Washington County, Pennsylvania, Hospital
Authority Revenue, Shadyside Hospital Project
5.75%, 12/15/14, (AMBAC)........................ 2,732,197
--------------
57,302,646
--------------
South Carolina - 1.2%
South Carolina State, Ports Authority Revenue:
4,880,000 5.00%, 7/1/16, (FSA)............................. 4,828,662
3,095,000 5.375%, 7/1/15, (FSA)............................ 3,211,403
7,500,000 York County, South Carolina, Industrial
Development Revenue, Exempt Facilities, Hoechst
Celanese Corp.
5.70%, 1/1/24................................... 7,625,550
--------------
15,665,615
--------------
South Dakota - 0.5%
6,620,000 South Dakota State, Housing Development Authority
Revenue, Homeownership Mortgage, Series F
5.80%, 5/1/28................................... 6,849,251
--------------
Tennessee - 3.2%
7,465,000 Bristol, Tennessee,
Health & Educational Facilities Authority
Revenue, Bristol Memorial Hospital
6.75%, 9/1/10, (FGIC)........................... 9,019,960
Knox County, Tennessee,
Health & Educational Facilities Authority
Revenue, Fort Sanders Alliance:
9,000,000 Series B, 7.25%, 1/1/10.......................... 11,137,770
4,500,000 Series C, 5.25%, 1/1/15.......................... 4,698,675
10,000,000 Metro Government, Nashville & Davidson Counties,
Tennessee, Step Bond,
(Eff. Yield 4.92%)
0.00%, 1/1/12, (FGIC) (b)....................... 12,846,700
</TABLE>
30
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Tennessee - continued
$ 4,000,000 Tennessee State, Housing Development Authority
Revenue, Homeownership Program,
Issue 2, AMT
5.35%, 7/1/23................................... $ 4,017,080
--------------
41,720,185
--------------
Texas - 7.3%
10,000,000 Alliance, Texas,
Airport Authority, Inc., Texas Special
Facilities Revenue, Federal Express Corp.
Project
6.375%, 4/1/21.................................. 10,754,500
Austin, Texas,
Utility Systems Revenue:
5,000,000 5.75%, 5/15/24, (FGIC)........................... 5,276,650
2,000,000 Series B
5.70%, 11/15/21, (MBIA).......................... 2,146,680
Bexar, Texas,
Metropolitan Water District Waterworks Systems
Revenue:
840,000 Prerefunded
5.875%, 5/1/22, (MBIA)........................... 941,296
Unrefunded Balance:
1,160,000 5.875%, 5/1/22, (MBIA)........................... 1,253,774
25,000 6.625%, 5/1/14, (AMBAC).......................... 27,274
30,000 Brazos County, Texas,
Health Facilities Development Revenue,
Franciscan Service Corp., Series B
5.375%, 1/1/22, (MBIA).......................... 30,802
60,000 Brazos County, Texas,
Housing Finance Corp., Single Family Mortgage
Revenue
5.80%, 9/1/25, (GNMA/FNMA)...................... 62,237
2,400,000 Brownsville, Texas,
Utilities Systems Revenue
6.25%, 9/1/14, (MBIA)........................... 2,839,944
5,000,000 Gulf Coast, Texas,
Industrial Development Authority, Waste Disposal
Revenue, Valero Refining Project
5.60%, 12/1/31.................................. 4,963,950
Harris County, Texas,
Health Facilities Development Corp., Hospital
Revenue:
5,000,000 6.60%, 6/1/14.................................... 5,716,000
2,480,000 Hermann Hospital Project
6.375%, 10/1/17.................................. 2,809,915
2,525,000 Memorial Hospital Systems Project:
7.125%, 6/1/15................................... 2,799,417
Series A:
3,215,000 6.00%, 6/1/09.................................... 3,633,850
1,990,000 6.00%, 6/1/12.................................... 2,250,272
School Health Care Systems, Series B:
5,000,000 5.75%, 7/1/27.................................... 5,269,250
10,000,000 5.75%, 7/1/27, (MBIA)............................ 10,854,400
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Texas - continued
$ 4,000,000 Harris County, Texas,
Toll Road Revenue, Subordinate Lien, Series A
7.00%, 8/15/10.................................. $ 4,937,800
Houston, Texas,
Airport Systems Revenue:
5,000,000 Special Facilities Continental Airlines, Series B
6.125%, 7/15/27.................................. 5,137,100
2,500,000 Subordinated Lien, Series B, AMT
5.00%, 7/1/25, (FGIC)............................ 2,435,725
Houston, Texas,
Water & Sewer Systems Revenue:
2,700,000 Junior Lien, Series C
(Eff. Yield 6.85%)
0.00%, 12/1/10 (b)............................... 1,566,945
3,000,000 Series C, (Eff. Yield 6.90%)
0.00%, 12/1/11 (b)............................... 1,638,720
1,090,000 Montgomery County, Texas, General Obligation,
(Eff. Yield 5.30%)
0.00%, 3/1/10, (MBIA) (b)....................... 657,325
2,000,000 Port Arthur, Texas,
Navigation District, General Obligation,
(Eff. Yield 4.90%)
0.00%, 3/1/09, (AMBAC) (b)...................... 1,278,040
2,000,000 Port Corpus Christi, Texas,
Industrial Development Revenue, Valero Energy
Corp. AMT
5.125%, 4/1/09.................................. 2,015,720
1,085,000 Rio Grande Valley, Texas,
Health Facilities Corp., Hospital Revenue,
Baptist Medical Project
8.00%, 8/1/17................................... 1,109,412
2,565,000 Tarrant County, Texas,
Health Facilities Development Revenue, Texas
Health Resources Systems, Series A
5.75%, 2/15/15, (MBIA).......................... 2,827,707
6,415,000 Tarrant County, Texas,
Housing Finance Corp. Revenue, Single Family
Mortgage, Series A,
(Eff. Yield 11.00%)
0.00%, 9/15/16, (MBIA) (b)...................... 2,628,803
2,500,000 Texas State, General Obligation, RIBS, Series B
8.516%, 9/30/11 (a)............................. 3,351,825
Texas State, Municipal Power Agency Revenue:
175,000 5.25%, 9/1/12, (MBIA)............................ 178,595
130,000 6.10%, 9/1/09.................................... 148,948
1,125,000 (Eff. Yield 7.35%)
0.00%, 9/1/08, (AMBAC) (b)....................... 736,852
1,475,000 University of Texas, Texas, University Revenues,
Unrefunded Balance, Series B
6.75%, 8/15/13.................................. 1,595,124
--------------
93,874,852
--------------
</TABLE>
31
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Utah - 0.9%
$ 120,000 Utah State, Housing Finance Agency, Single Family
Mortgage Revenue, Series C2
7.95%, 7/1/10................................... $ 125,392
Utah State, Intermountain Power Agency Revenue:
10,000,000 Series A
5.25%, 7/1/15, (MBIA)............................ 10,273,300
6,500,000 Series C,
(Eff. Yield 6.80%)
0.00%, 7/1/20 (b)................................ 1,167,400
--------------
11,566,092
--------------
Vermont - 0.4%
3,000,000 Vermont State, Educational & Health Building
Financing Agency Revenue, Middlebury College
Project
6.00%, 11/1/22.................................. 3,230,970
1,485,000 Vermont State, Housing Finance Agency Revenue,
Single Family, Series 1
8.15%, 5/1/25................................... 1,502,315
--------------
4,733,285
--------------
Virginia - 1.9%
3,290,000 Virginia State, Housing Development Authority,
General Obligation, Series D, Subseries D-2
5.40%, 7/1/21................................... 3,315,497
Virginia State, Housing Development Authority,
Multifamily Housing Revenue:
3,245,000 Series E, AMT
5.60%, 11/1/17................................... 3,347,769
11,640,000 Subseries B, AMT
5.50%, 1/1/22.................................... 11,813,320
Winchester, Virginia,
Industrial Development, Hospital Revenue,
Winchester Medical Center:
5,500,000 5.50%, 1/1/15, (AMBAC)........................... 5,768,730
--------------
24,245,316
--------------
Washington - 2.2%
3,675,000 Chelan County, Washington,
Public Utility, District #001, Conservation
Revenue Chelan Hydro Division II, Series A, AMT
5.25%, 7/1/33, (FSA)............................ 3,695,617
King County, Washington,
General Obligation:
4,400,000 Refunding, Renton School District No. 403
5.25%, 6/1/12................................... 4,593,908
2,000,000 School District No. 415
5.875%, 6/1/16, (FSA)............................ 2,152,360
1,000,000 Tacoma, Washington,
Electric Systems Revenue
6.25%, 1/1/15, (FGIC)........................... 1,095,230
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Washington - continued
Washington State, General Obligation:
$ 1,000,000 Series A, 6.75%, 2/1/15.......................... $ 1,216,170
5,000,000 Series C, 5.00%, 1/1/22, (FGIC).................. 4,959,700
3,650,000 Washington State, Housing Finance Commission
Revenue, Single Family Program, Series 4-A, AMT
5.40%, 12/1/24, (FNMA/GNMA)..................... 3,675,805
Washington State, Public Power Supply System:
4,000,000 Nuclear Project No. 3,
(Eff. Yield 10.09%)
0.00%, 7/1/12 (b)................................ 2,059,800
4,780,000 Nuclear Project No. 3, Series 1993-B
5.60%, 7/1/15, (MBIA)............................ 4,943,715
--------------
28,392,305
--------------
Wisconsin - 0.4%
5,000,000 Wisconsin State, Housing & Economic Development
Authority, General Obligation, Series D
5.40%, 9/1/18................................... 5,043,050
--------------
Wyoming - 0.8%
10,170,000 Wyoming State, Community Development Authority,
Housing Revenue, Series 4
5.85%, 6/1/28................................... 10,603,344
--------------
Puerto Rico - 2.3%
Commonwealth of Puerto Rico, General Obligation:
3,000,000 6.45%, 7/1/17................................... 3,424,440
2,600,000 (Eff. Yield 5.53%)
0.00%, 7/1/14, (MBIA)(b)......................... 1,248,104
Commonwealth of Puerto Rico, Highway &
Transportation Authority Revenue:
10,000,000 Series A,
(Eff. Yield 4.95%)
0.00%, 7/1/15, (AMBAC)(b)........................ 4,527,900
9,590,000 Series Y, 5.50%, 7/1/26.......................... 10,005,822
3,330,000 Commonwealth of Puerto Rico, Industrial, Tourist,
Educational, Medical, Environmental Control
Facilities, Finance Authority Revenue
6.25%, 7/1/24................................... 3,704,126
6,250,000 Commonwealth of Puerto Rico, Public Buildings
Authority, General Obligation, Guaranteed Public
Education & Health Facilities, Step Bond, Series
M, (Eff. Yield 5.74%)
5.70%, 7/1/16 (b) .............................. 6,540,937
--------------
29,451,329
--------------
Total Long-Term Municipal Obligations
(cost $1,199,466,210) .......................... 1,254,574,839
--------------
</TABLE>
32
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES - 0.8% (a)
California - 0.0%
$ 715,000 Irvine Ranch, California,
Water District Revenue, Consolidated Bonds
3.25%, 10/01/10,
(LOC: Landesbank Hessen) ....................... $ 715,000
59,000 Tustin, California,
Improvement Bond Act 1915, Reassessment District
No. 95-2, Special Assessment, Series A
3.25%, 9/13/02,
(LOC: Kredietbank N.V.) ........................ 59,000
--------------
774,000
--------------
Florida - 0.0%
55,000 Dade County, Florida,
Health Facilities Authority, Hospital Revenue,
Miami Children's Hospital Project
3.30%, 9/01/20,
(LOC: Barnett Bank of South Florida) ........... 55,000
40,000 Dade County, Florida,
Water & Sewer Systems Revenue
3.00%, 10/22/05,
(SPA: Commerzbank & Ins.
by FGIC) ....................................... 40,000
--------------
95,000
--------------
Massachusetts - 0.1%
875,000 Massachusetts State, Health & Educational
Facilities Authority Revenue, Capital Assets
Program, Series D
2.95%, 1/01/35,
(SPA: Credit Suisse & Ins.
by MBIA) ....................................... 875,000
--------------
Missouri - 0.1%
795,000 Kansas City, Missouri,
Industrial Development Authority, Hospital
Revenue, Insured
Research Health Services Systems
3.25%, 4/15/15,
(SPA: Bank of America, Illinois & Ins. by MBIA)
................................................ 795,000
50,000 Missouri State, Health & Educational Facilities
Authority Revenue, Christian Health Services,
Series A
3.05%, 12/19/01,
(LOC: Morgan Guaranty Trust) ................... 50,000
--------------
845,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES - continued
New Mexico - 0.1%
$ 1,200,000 Farmington, New Mexico,
Pollution Control Revenue,
Public Service Company of
Arizona, Series B
3.25%, 9/24/01,
(LOC: Barclays Bank PLC) ....................... $ 1,200,000
--------------
New York - 0.3%
3,700,000 Long Island Power Authority,
New York, Electric Systems Revenue, Series 5
3.25%, 5/1/33,
(LOC: ABN Amro Bank N.V. & Morgan Guaranty
Trust).......................................... 3,700,000
New York City, New York,
Municipal Water Finance Authority, Water & Sewer
Systems Revenue:
10,000 3.30%, 6/15/24,
(FGIC & SPA: FGIC)............................... 10,000
350,000 Series G, 3.25%, 6/15/24,
(SPA: FGIC & Ins. by FGIC)....................... 350,000
--------------
4,060,000
--------------
Texas - 0.0%
355,000 Coastal Bend, Texas,
Health Facilities Development, Incarnate World
Health
Systems Revenue
3.20%, 8/27/15,
(LOC: First National
Bank of Chicago)................................ 355,000
--------------
Wyoming - 0.2%
Uinta County, Wyoming,
Pollution Control Revenue, Refunding, Chevron
USA, Inc. Project:
2,100,000 3.25%, 12/22/01.................................. 2,100,000
150,000 3.25%, 8/20/15................................... 150,000
--------------
2,250,000
--------------
Total Short-Term Municipal Securities
(cost $10,454,000).............................. 10,454,000
--------------
</TABLE>
Shares
<TABLE>
<S> <C> <C> <C>
MUTUAL FUND SHARES - 1.1%
14,443,470 Federated Municipal Obligations Fund
(cost $14,443,470)...................................... 14,443,470
----------
Total Investments -
(cost $1,224,363,680)..................... 99.3% 1,279,472,309
Other Assets and Liabilities - net......... 0.7 9,012,080
----- --------------
Net Assets -............................... 100.0% $1,288,484,389
===== ==============
</TABLE>
33
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be af-
fected by economic developments in a specific industry or municipality. In or-
der to reduce risk associated with such economic developments, securities may
possess municipal bond insurance from various financial institutions and finan-
cial guaranty assurance agencies. Therefore the Funds may be more affected by
developments in the insurance industry or a specific municipal bond insurer. At
November 30, 1998, 38.2% of the securities, as a percentage of net assets, are
backed by bond insurance of various financial institutions and financial guar-
anty assurance agencies. At November 30, 1998, the Fund had securities backed
by bond insurance of the following financial institutions representing more
than 5% of net assets:
MBIA 15.0%
FGIC 9.0%
AMBAC 7.5%
(a) Securities are variable or floating rate instruments with periodic
demand features. The Fund is entitled to full payment of principal
and accrued interest upon surrendering the security to the issuing
agent.
(b) Effective yield (calculated at date of purchase) is the annual yield
at which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that
are linked to another rate or index and therefore would be considered
derivative securities.
(d) Securities that may be resold to "qualified institutional buyers" un-
der rule 144a or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been deter-
mined to be liquid under the guidelines established by the Board of
Trustees.
(e)Security which has defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on that so identified.
Summary of Abbreviations:
ACA American Capital Access
ACEs Auction Rate Securities
AMBAC Insured by American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax
COP Certificate of Participation
FGIC Insured by Federal Guaranty Insurance Co.
FHLMC Insured by Federal Home Loan Mortgage Corp.
FNMA Insured by Federal National Mortgage Assn.
FSA Insured by Financial Security Assurance Corp.
GNMA Insured by Government National Mortgage Assn.
IBC Insured Bond Certification
INFLOs Inverse Floating Rate Securities
LOC Letter of Credit
MBIA Insured by Municipal Bond Investors Assurance Corp.
RIBs Residual Interest Bonds
SPA Special Purchase Agreement
TCRS Transferable Custody Receipts
See Combined Notes to Financial Statements.
34
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 98.0%
Alabama - 4.1%
$ 7,000,000 Huntsville, Alabama,
Warrants, Series A
4.50%, 12/1/00 (a)................................ $ 7,010,710
------------
Arizona - 2.4%
3,040,000 Maricopa County, Arizona,
Unified School District Number 41, Refunding
Bonds,
(Eff. Yield 5.07%)
0.00%, 7/1/04, (FGIC) (b)......................... 2,429,963
1,600,000 Pima County, Arizona,
General Obligation, Series 1992
6.55%, 7/1/01..................................... 1,715,088
------------
4,145,051
------------
California - 3.8%
900,000 California State, General Obligation
7.00%, 8/1/02, (FGIC)............................. 1,003,590
5,000,000 San Joaquin Hills, California,
Transportation Corridor Agency, Toll Road Revenue,
Series A
(Eff. Yield 4.60%)
0.00%, 1/15/02 (b)................................ 4,412,500
1,025,000 Stockton, California,
Health Facilities Revenue, Series A
5.00%, 12/1/01.................................... 1,049,559
------------
6,465,649
------------
Colorado - 7.3%
16,520,000 Arapahoe County, Colorado,
Capital Improvement Highway Revenue,
(Eff. Yield 4.75%)
0.00%, 8/31/05 (b)................................ 8,306,917
140,000 Colorado State, Student Obligation Board Authority,
Student Loan Revenue, Series B
6.125%, 12/1/98................................... 140,007
1,500,000 Denver, Colorado,
City & County Airport Revenue, Series C
6.35%, 11/15/01................................... 1,589,235
1,085,000 Denver, Colorado,
Health & Hospital Revenue,
Series A
5.00%, 12/1/03.................................... 1,113,948
1,300,000 Weld County, Colorado,
Industrial Development Revenue, Monfort Inc.
6.75%, 12/15/01................................... 1,383,395
------------
12,533,502
------------
Florida - 14.2%
3,700,000 Broward County, Florida,
Resource Recovery Revenue, Wheelabrator
Technologies,
7.95%, 12/1/08.................................... 3,944,644
3,000,000 Florida State, Board of Education, Capital Outlay,
General Obligation
6.75%, 6/1/00..................................... 3,145,440
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Florida - continued
Florida State, Health Care Facilities Revenue,
Halifax Hospital Medical Center Series A:
$ 1,080,000 4.40%, 4/1/04...................................... $ 1,094,299
1,300,000 4.50%, 4/1/06...................................... 1,315,327
4,905,000 Jacksonville, Florida,
Industrial Development Revenue Refunding, TTX
Company Project
5.40%, 3/1/01..................................... 5,086,240
Leon County, Florida,
Educational Facilities Authority, COP, Southgate:
680,000 9.00%, 9/1/99, (ETM)............................... 709,723
740,000 9.00%, 9/1/00, (ETM)............................... 809,508
810,000 9.00%, 9/1/01, (ETM)............................... 923,052
880,000 9.00%, 9/1/02, (ETM)............................... 1,040,917
960,000 9.00%, 9/1/03, (ETM)............................... 1,174,166
1,550,000 Palm Beach County, Florida,
Solid Waste Authority Revenue, Refunding &
Improvements
5.50%, 12/1/02, (MBIA)............................ 1,652,920
Pinellas County, Florida,
Educational Facilities Authority Revenue:
330,000 4.10%, 10/1/99..................................... 332,040
375,000 4.55%, 10/1/02..................................... 379,931
390,000 4.60%, 10/1/03..................................... 395,413
410,000 4.65%, 10/1/04..................................... 415,580
470,000 4.90%, 10/1/07..................................... 477,722
320,000 4.95%, 10/1/08..................................... 325,213
1,000,000 Sarasota, Florida,
General Obligation
6.85%, 8/1/00..................................... 1,053,470
------------
24,275,605
------------
Illinois - 2.2%
Illinois State, Development Finance Authority
Revenue:
2,765,000 5.00%, 7/1/06...................................... 2,803,212
1,000,000 Refunding Community Rehabilitation Providers,
Series A
5.35%, 7/1/00...................................... 1,017,980
------------
3,821,192
------------
Iowa - 1.3%
2,000,000 Iowa State, Loan Liquidity Corp., Student Loan
Revenue, Series B
6.65%, 3/1/03..................................... 2,167,760
------------
Maine - 1.8%
3,000,000 Baileyville, Maine,
Pollution Control Revenue, Georgia- Pacific Corp.
Project
4.75%, 6/1/05..................................... 3,052,020
------------
Massachusetts - 2.8%
1,000,000 Massachusetts State, Health & Educational
Facilities Revenue
4.55%, 1/1/21 (c)................................. 1,015,980
</TABLE>
35
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
Massachusetts State, Industrial Development
Revenue:
$ 420,000 Series 1986G 5.30%, 12/1/06........................ $ 420,000
520,000 Series 1986I 5.30%, 12/1/06........................ 520,000
835,000 Series 1996A 5.35%, 11/1/07 (c).................... 868,709
995,000 Series 1996B 5.35%, 11/1/07 (c).................... 1,035,168
1,000,000 New England Education Loan Marketing Corp., Student
Loan Revenue, Series 1993B
5.40%, 6/1/00..................................... 1,023,940
------------
4,883,797
------------
Michigan - 1.5%
2,500,000 Wayne Charter County, Michigan,
Airport Revenue
5.25%, 12/1/04.................................... 2,652,975
------------
Minnesota - 0.6%
1,015,000 City of Minneapolis & St. Paul,
Minnesota, Housing & Redevelopment Authority
Revenue, Single Family Mortgage, Series 1996A
5.125%, 6/1/00, (FGIC) (c)........................ 1,018,147
------------
Missouri - 0.4%
710,000 North Kansas City, Missouri,
School District, General Obligation, Direct
Deposit Program, Series 1996
6.70%, 3/1/00..................................... 738,563
------------
Nebraska - 0.6%
1,000,000 Nebraska State, Higher Education Loan Program,
Student Loan Revenue, Senior Subordinated Lien,
Series A
6.65%, 6/1/08..................................... 1,000,100
------------
New Jersey - 9.4%
New Jersey State, Economic Development Authority
Revenue: First Mortgage, Franciscan Oaks Project:
1,545,000 5.20%, 10/1/04..................................... 1,571,543
825,000 5.40%, 10/1/06..................................... 853,199
1,075,000 5.50%, 10/1/07..................................... 1,119,247
Refunding First Mortgage, Keswick Pines:
100,000 4.50%, 1/1/99...................................... 100,087
480,000 4.70%, 1/1/00...................................... 482,674
695,000 4.85%, 1/1/01...................................... 701,762
805,000 5.00%, 1/1/02...................................... 814,547
845,000 5.10%, 1/1/03...................................... 857,962
465,000 5.15%, 1/1/04...................................... 472,626
500,000 5.25%, 1/1/05...................................... 509,565
975,000 5.35%, 1/1/06...................................... 996,216
925,000 5.45%, 1/1/07...................................... 950,447
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
$ 3,365,000 New Jersey State, Health Care Facilities Financing
Authority Revenue, Atlantic City Medical Center,
Series C
6.30%, 7/1/01...................................... $ 3,564,948
3,000,000 New Jersey State, Turnpike Authority, Turnpike
Revenue, Series C
6.50%, 1/1/06...................................... 3,175,080
------------
16,169,903
------------
New Mexico - 4.5%
6,680,000 Alamogordo, New Mexico,
Hospital Revenue, Gerald Champion Memorial
Hospital Project
5.00%, 1/1/08...................................... 6,916,472
795,000 New Mexico State, Educational Assistance
Foundation, Student Loan Revenue, Series A
6.70%, 4/1/02, (AMBAC)............................. 851,763
------------
7,768,235
------------
New York - 2.7%
New York City, New York,
General Obligation:
Prerefunded Bonds, Series L:
305,000 5.00%, 8/1/01, (ETM)............................... 313,802
145,000 5.25%, 8/1/00, (ETM)............................... 149,256
Unrefunded Balance, Series L:
1,145,000 5.00%, 8/1/01...................................... 1,178,045
855,000 5.25%, 8/1/00...................................... 877,409
2,000,000 New York City, New York,
Industrial Development Agency, Special Facility
Revenue, Terminal One Group Association Project
6.00%, 1/1/07...................................... 2,173,520
------------
4,692,032
------------
Ohio - 0.6%
940,000 Cincinnati, Ohio,
The Student Loan Funding Corp., Student Loan
Revenue, Series 1993A
5.50%, 12/1/01..................................... 966,658
------------
Oklahoma - 6.1%
4,450,000 Oklahoma State, Housing Development Authority
Revenue, Lease Purchase Program, Series A
4.75%, 12/1/02..................................... 4,485,466
5,500,000 Oklahoma State, Housing
Finance Agency,
Single Family Revenue, Mortgage Homeownership
Loan D-2
6.25%, 9/1/29...................................... 5,908,925
------------
10,394,391
------------
Pennsylvania - 7.7%
4,835,000 Dauphin County, Pennsylvania, General Authority
Revenue,
Series A
5.125%, 1/15/03.................................... 4,868,071
</TABLE>
36
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 500,000 Pennsylvania State, General Obligation, Series 1971
6.00%, 12/15/98.................................... $ 500,550
5,000,000 Pennsylvania State, Higher Educational Facilities
Authority, Health Services Revenue, University of
Pennsylvania, Series A
7.00%, 1/1/08...................................... 5,713,400
1,950,000 Philadelphia, Pennsylvania,
Water & Sewer Revenue,
16th Series
7.50%, 8/1/01...................................... 2,175,011
------------
13,257,032
------------
South Dakota - 0.6%
1,000,000 South Dakota State, Housing Development Authority
Revenue, Homeownership Mortgage,
Series J
4.60%, 5/1/02, (FNMA).............................. 1,014,560
------------
Texas - 3.7%
1,000,000 Austin, Texas,
Utility Systems Revenue, Series A
9.50%, 6/15/00..................................... 1,085,300
2,500,000 Houston, Texas,
Airport Systems Revenue, Subordinated Lien, Series
A
6.75%, 7/1/08...................................... 2,707,825
1,315,000 North Texas State, Health Facilities Development
Corp., Hospital Revenue, Limited Regional Health
Care Systems Inc. Project
4.40%, 9/1/01...................................... 1,337,776
1,155,000 Texas State, Department of Housing and Community
Affairs, Single Family Mortgage Revenue,
Series 1996E
4.45%, 3/1/99, (MBIA).............................. 1,156,848
------------
6,287,749
------------
Utah - 10.3%
5,000,000 Utah State, General Obligation,
Series A
5.00%, 7/1/03...................................... 5,258,800
3,000,000 Utah State, Board of Regents, Student Loan Revenue,
Series F
7.05%, 11/1/03, (AMBAC)............................ 3,215,220
Utah State, Intermountain Power Agency, Power
Supply Revenue:
1,000,000 1985 Series D
(Eff. Yield 9.70%)
0.00%, 7/1/00 (b).................................. 943,660
5,000,000 Series B
6.50%, 7/1/04, (MBIA).............................. 5,614,700
1,760,000 Series B
(Eff. Yield 7.00%)
0.00%, 7/1/00 (b).................................. 1,660,842
1,000,000 Series B
(Eff. Yield 7.50%)
0.00%, 7/1/00 (b).................................. 943,660
------------
17,636,882
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Vermont - 2.9%
$ 4,385,000 Vermont State, General Obligation
6.00%, 12/1/06, (AMBAC)............................ $ 4,945,359
------------
Washington - 2.6%
2,950,000 Washington State, General Obligation, Motor Vehicle
Fuel Tax,
Series R-92D
5.60%, 9/1/01...................................... 3,099,978
1,360,000 Washington State, Public Power Supply Revenue,
Series B
5.00%, 7/1/01...................................... 1,400,474
------------
4,500,452
------------
Wisconsin - 0.6%
1,000,000 Milwaukee, Wisconsin,
Metropolitan Sewage District, General Obligation,
Series 1989A
7.00%, 9/1/01...................................... 1,085,540
------------
U. S. Virgin Islands - 3.3%
3,500,000 Virgin Islands, Public Finance Authority Revenue,
Senior Lien, Series C
5.00%, 10/1/03..................................... 3,607,275
2,000,000 Virgin Islands, Water & Power Authority, Electric
Systems Revenue
5.125%, 7/1/03..................................... 2,077,380
------------
5,684,655
------------
Total Long-Term Municipal Obligations
(cost $165,285,492)............................... 168,168,519
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
Mutual Fund Shares - 0.5%
852,000 Federated Municipal Obligations Fund
(cost $852,000)............................. 852,000
------------
Total Investments -
(cost $166,137,492).................. 98.5% 169,020,519
Other Assets and Liabilities - net.... 1.5 2,581,549
----- ------------
Net Assets - ......................... 100.0% $171,602,068
===== ============
</TABLE>
37
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guide-lines established by the Board of Trustees.
(b) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued in-
terest upon surrendering the security to the issuing agent.
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be af-
fected by economic developments in a specific industry or municipality. In or-
der to reduce risk associated with such economic developments, securities may
possess municipal bond insurance from various financial institutions and finan-
cial guaranty assurance agencies. Therefore the Funds may be more affected by
developments in the insurance industry or a specific municipal bond insurer. At
November 30, 1998, 16.3% of the securities, as a percentage of net assets, are
backed by bond insurance of various financial institutions and financial guar-
anty assurance agencies. At November 30, 1998, the Fund had securities backed
by bond insurance of the following financial institutions representing more
than 5% of net assets:
AMBAC 5.3%
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
COP Certficate of Participation
ETM Escrowed to Maturity
FGIC Insured by Federal Guaranty Insurance Corporation
FNMA Insured by Federal National Mortgage Association
MBIA Insured by Municipal Bond Insurance Association
See Combined Notes to Financial Statements.
38
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Assets and Liabilities
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Short Intermediate
Fund Municipal Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Identified cost of
securities.................... $118,650,934 $1,224,363,680 $166,137,492
Net unrealized gain or loss on
securities.................... 7,131,500 55,108,629 2,883,027
- --------------------------------------------------------------------------------
Investments at market value.... $125,782,434 $1,279,472,309 $169,020,519
Cash........................... 0 0 140
Receivable for investments
sold.......................... 3,399,363 13,504,954 0
Receivable for Fund shares
sold.......................... 191,003 163,707 82,450
Interest receivable............ 2,287,419 20,191,601 2,995,976
Prepaid expenses and other
assets........................ 24,891 239,112 42,544
- --------------------------------------------------------------------------------
Total assets................. 131,685,110 1,313,571,683 172,141,629
- --------------------------------------------------------------------------------
Liabilities
Distributions payable.......... 183,009 2,433,713 393,267
Payable for investments
purchased..................... 3,991,345 20,134,861 0
Payable for Fund shares
redeemed...................... 12,021 1,240,255 5,488
Advisory fees payable.......... 52,175 447,429 72,750
Distribution fees payable...... 48,273 571,804 4,495
Due to other related parties... 2,758 24,955 0
Due to custodian............... 1,703 6,264 0
Accrued expenses and other
liabilities................... 65,304 228,013 63,561
- --------------------------------------------------------------------------------
Total liabilities............ 4,356,588 25,087,294 539,561
- --------------------------------------------------------------------------------
Net assets..................... $127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital................ $119,776,964 $1,232,283,270 $168,150,401
Undistributed net investment
income........................ 98,606 397,681 0
Accumulated net realized gain
on securities and futures
contracts..................... 321,452 694,809 568,640
Net unrealized gain on
securities.................... 7,131,500 55,108,629 2,883,027
- --------------------------------------------------------------------------------
Total net assets............. $127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Net assets consists of
Class A........................ $ 67,659,059 $1,163,997,367 $ 7,663,072
Class B........................ 32,614,187 117,135,258 6,178,950
Class C........................ 0 7,351,764 0
Class Y........................ 27,055,276 0 157,760,046
- --------------------------------------------------------------------------------
$127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Shares outstanding
Class A........................ 6,010,779 152,805,972 752,180
Class B........................ 2,897,452 15,377,480 606,512
Class C........................ 0 965,148 0
Class Y........................ 2,403,599 0 15,484,743
- --------------------------------------------------------------------------------
Net asset value per share
Class A........................ $ 11.26 $ 7.62 $ 10.19
- --------------------------------------------------------------------------------
Class A -- Offering price
(based on sales charge of
4.75%, 4.75% and 3.25%,
respectively)................. $ 11.82 $ 8.00 $ 10.53
- --------------------------------------------------------------------------------
Class B........................ $ 11.26 $ 7.62 $ 10.19
- --------------------------------------------------------------------------------
Class C........................ N/A $ 7.62 N/A
- --------------------------------------------------------------------------------
Class Y........................ $ 11.26 N/A $ 10.19
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Operations
Six Months Ended November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest......................... $3,324,323 $35,864,745 $4,140,653
- -------------------------------------------------------------------------------
Expenses
Advisory fee..................... 317,707 2,766,121 437,372
Distribution Plan expenses....... 248,927 2,151,596 33,307
Transfer agent fees.............. 57,096 763,962 19,471
Administrative services fees..... 17,197 103,214 0
Trustees' fees and expenses...... 1,274 22,546 426
Custodian fees................... 18,886 235,483 45,446
Registration and filing fees..... 12,896 40,236 40,972
Professional fees................ 10,903 15,862 13,265
Shareholder reports expense...... 9,831 33,900 18,839
Other............................ 581 41,459 1,388
- -------------------------------------------------------------------------------
Total expenses.................. 695,298 6,174,379 610,486
Less: Fee credits.............. (623) (18,712) (10,299)
Fee waivers and expense
reimbursements............... 0 0 (7,043)
- -------------------------------------------------------------------------------
Net expenses.................... 694,675 6,155,667 593,144
- -------------------------------------------------------------------------------
Net investment income............ 2,629,648 29,709,078 3,547,509
- -------------------------------------------------------------------------------
Net realized and unrealized gain
or loss on securities and
futures contracts
Realized gain or loss on:
Securities...................... 1,645,033 19,772,356 1,383,709
Futures contracts............... 0 (316,197) 0
- -------------------------------------------------------------------------------
Net realized gain on securities
and future contracts............ 1,645,033 19,456,159 1,383,709
Net change in unrealized gain or
loss on securities.............. 297,724 (7,091,260) (159,683)
- -------------------------------------------------------------------------------
Net realized and unrealized gain
on securities and futures
contracts....................... 1,942,757 12,364,899 1,224,026
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations....... $4,572,405 $42,073,977 $4,771,535
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Six Months Ended November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income....... $ 2,629,648 $ 29,709,078 $ 3,547,509
Net realized gain or loss
on securities and futures
contracts.................. 1,645,033 19,456,159 1,383,709
Net change in unrealized
gain or loss on
securities................. 297,724 (7,091,260) (159,683)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ 4,572,405 42,073,977 4,771,535
- -------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A.................... (1,444,217) (27,239,666) (135,938)
Class B.................... (581,281) (2,314,415) (92,396)
Class C.................... 0 (142,698) 0
Class Y.................... (604,150) 0 (3,319,175)
Net realized gains on
investments
Class A.................... (1,616,602) (35,326,188) (56,521)
Class B.................... (780,637) (3,564,826) (44,004)
Class C.................... 0 (220,155) 0
Class Y.................... (641,983) 0 (1,185,596)
- -------------------------------------------------------------------------------
Total distributions to
shareholders............. (5,668,870) (68,807,948) (4,833,630)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 12,797,507 18,736,333 16,239,951
Proceeds from reinvestment
of distributions........... 3,841,715 40,034,284 1,564,353
Payment for shares
redeemed................... (12,484,096) (119,251,405) (26,403,781)
Proceeds from shares issued
in connection with the
acquisition of:
CoreFund Intermediate
Municipal Bond Fund....... 1,945,718 0 0
- -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
capital share
transactions.............. 6,100,844 (60,480,788) (8,599,477)
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ 5,004,379 (87,214,759) (8,661,572)
Net assets
Beginning of period......... 122,324,143 1,375,699,148 180,263,640
- -------------------------------------------------------------------------------
End of period............... $127,328,522 $1,288,484,389 $171,602,068
- -------------------------------------------------------------------------------
Undistributed net investment
income..................... $ 98,606 $ 397,681 $ 0
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Year Ended May 31, 1998
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund* Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income....... $ 4,436,727 $ 26,943,450 $ 5,133,040
Net realized gain on
securities and futures
contracts.................. 3,360,972 16,376,119 1,471,537
Net change in unrealized
gain or loss on
securities................. 1,019,154 (25,411,876) (795,050)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ 8,816,853 17,907,693 5,809,527
- -------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A.................... (2,198,256) (21,756,580) (225,168)
Class B.................... (1,156,701) (5,153,488) (197,697)
Class C.................... 0 (109,908) 0
Class Y.................... (1,132,786) 0 (4,710,175)
- -------------------------------------------------------------------------------
Total distributions to
shareholders.............. (4,487,743) (27,019,976) (5,133,040)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 14,810,240 21,942,896 22,513,095
Proceeds from reinvestment
of distributions........... 2,594,120 12,966,083 1,482,137
Payment for shares
redeemed................... (23,942,474) (125,945,502) (52,702,874)
Proceeds from shares issued
in connection with the
acquisition of:
Blanchard Flexible Tax-
Free Bond Fund............ 22,403,925 0 0
Common Trust Fund -
Intermediate Tax Exempt
Bond Fund................. 0 0 148,714,787
Evergreen Short
Intermediate Municipal
Fund - California......... 0 0 14,473,407
Evergreen Tax Free Income
Fund...................... 0 100,118,341 0
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ 15,865,811 9,081,818 134,480,552
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ 20,194,921 (30,465) 135,157,039
Net assets
Beginning of period......... 102,129,222 1,375,729,613 45,106,601
- -------------------------------------------------------------------------------
End of period............... $122,324,143 $1,375,699,148 $180,263,640
- -------------------------------------------------------------------------------
Undistributed net
investment income.......... $ 98,606 $ 385,382 $ 0
- -------------------------------------------------------------------------------
</TABLE>
*Five months ended May 31, 1998. During the period, Municipal Fund changed its
fiscal year end from December 31 to May 31.
See Combined Notes to Financial Statements.
42
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Municipal
Fund
- --------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income......................................... $ 70,854,337
Net realized gain on securities and futures contracts......... 37,097,062
Net change in unrealized gain or loss on securities........... 2,027,467
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations......... 109,978,866
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class B...................................................... (73,972,795)
Net realized gain on securities
Class B...................................................... (17,063,591)
- --------------------------------------------------------------------------------
Total distributions to shareholders.......................... (91,036,386)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold..................................... 39,118,274
Proceeds from reinvestment of distributions................... 53,790,716
Payment for shares redeemed................................... (294,007,649)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions.......................................... (201,098,659)
- --------------------------------------------------------------------------------
Total decrease in net assets................................ (182,156,179)
Net assets
Beginning of period........................................... 1,557,885,792
- --------------------------------------------------------------------------------
End of period................................................. $1,375,729,613
- --------------------------------------------------------------------------------
Undistributed net investment income........................... $ 467,027
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
43
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen National Municipal Bond Funds consist of Evergreen High Grade Mu-
nicipal Bond Fund ("High Grade Fund") (formerly Evergreen High Grade Tax Free
Fund), Evergreen Municipal Bond Fund ("Municipal Fund") (formerly Evergreen Tax
Free Fund) and Evergreen Short Intermediate Municipal Fund ("Short Intermediate
Fund") (collectively, the "Funds"). Each Fund is a diversified series of Ever-
green Municipal Trust (the "Trust"), a Delaware business trust organized on
September 17, 1997. The Trust is an open-end management investment company reg-
istered under the Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C or Class Y shares. Class A shares are
sold with a maximum front-end sales charge of 4.75% for both the High Grade
Fund and Municipal Fund and a maximum front-end sales charge of 3.25% for the
Short Intermediate Fund. Class B and Class C shares are sold without a front-
end sales charge, but pay a higher ongoing distribution fee than Class A. Class
B shares are sold subject to a contingent deferred sales charge that is payable
upon redemption and decreases depending on how long the shares have been held.
Class B shares purchased after January 1, 1997 will automatically convert to
Class A shares after seven years. Class B shares purchased prior to January 1,
1997 retain their existing conversion rights. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year after the month of purchase. Class Y shares are sold at net asset value
and are not subject to contingent deferred sales charges or distribution fees.
Class Y shares are sold only to investment advisory clients of First Union Cor-
poration ("First Union") and its affiliates, certain institutional investors or
Class Y shareholders of record of certain other funds managed by First Union
and its affiliates as of December 30, 1994. High Grade Fund and Short Interme-
diate Fund currently do not offer Class C shares and Municipal Fund does not
offer Class Y shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
An independent pricing service values 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. Securities for which
market quotations are not readily available or valuations are not readily
available from an independent pricing service (including restricted securities)
are valued at fair value as determined in good faith according to procedures
approved by the Board of Trustees.
Securities with remaining maturities of 60 days or less are carried at amor-
tized cost, which approximates market value.
B. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Municipal Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
44
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
C. Derivative Securities
The Municipal Fund may invest in derivative securities. A derivative security
is any investment that derives its value from an underlying security, asset or
market index. Greater market fluctuations may result if these securities are
leveraged. The Fund invests in these types of securities when it is consistent
with its investment objectives.
D. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
E. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal tax liability since they
are expected to distribute all of their net investment company taxable income,
net tax-exempt income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid any excise tax liability by making the required
distributions under the Code. Accordingly, no provision for federal taxes is
required. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is each Fund's policy not to distribute such gains.
F. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. Certain distributions paid during previous
years have been reclassified to conform with current period presentation.
G. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
3. ACQUISITIONS
On July 31, 1997, Short Intermediate Fund acquired substantially all the assets
and assumed certain liabilities of Evergreen Short Intermediate Municipal Fund-
California in exchange for Class A, Class B and Class Y shares of Short Inter-
mediate Fund.
On November 21, 1997, Short Intermediate Fund acquired substantially all the
assets and assumed certain liabilities of Common Trust Fund - Intermediate Tax
Exempt Bond Fund in exchange for Class Y shares of Short Intermediate Fund.
On January 23, 1998, Municipal Fund acquired substantially all the assets and
assumed certain liabilities of Evergreen Tax Free Income Fund, in an exchange
for Class A, Class B and Class C shares of Municipal Fund.
On February 28, 1998, High Grade Fund acquired all of the assets and assumed
certain liabilities of Blanchard Flexible Tax-Free Bond Fund, in an exchange
for Class A shares of High Grade Fund.
On July 24, 1998, High Grade Fund acquired all of the assets and assumed cer-
tain liabilities of CoreFund Intermediate Municipal Bond Fund, in an exchange
for Class A and Class Y shares of High Grade Fund.
45
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
These acquisitions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of net assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each Fund im-
mediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized Net
Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation After
Acquisition
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short Intermediate Evergreen Short Intermediate $ 14,473,407 1,419,771 $ 203,594 $
59,045,106
Fund................... Municipal Fund - California
Short Intermediate Common Trust Fund - Intermediate $148,714,787 14,616,570 $3,195,888 $
194,719,999
Fund................... Tax Exempt Bond Fund
Municipal Fund.......... Evergreen Tax Free Income Fund $100,118,341 12,757,974 $6,341,257
$1,467,541,556
High Grade Fund......... Blanchard Flexible Tax-Free Bond Fund $ 22,403,925 1,966,629 $1,611,908 $
127,402,909
High Grade Fund......... CoreFund Intermediate Municipal $ 1,945,718 171,570 $ 51,328 $
127,732,184
Bond Fund
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C or Class Y. Transactions in
shares of the Funds were as follows:
High Grade Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30,1998 Year Ended
(unaudited) May 31, 1998
--------------------- -----------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................... 658,908 $ 7,489,970 352,430 $ 3,971,088
Shares issued in reinvestment
of distributions............. 189,458 2,144,286 122,837 1,383,168
Shares redeemed............... (592,445) (6,803,809) (971,142) (10,944,155)
Shares issued in connection
with the acquisition of:
Blanchard Flexible Tax-Free
Bond Fund.................... 1,966,629 22,403,925
CoreFund Intermediate
Municipal Bond Fund.......... 76,637 869,114 0 0
- --------------------------------------------------------------------------------
Net increase.................. 332,558 $ 3,699,561 1,470,754 $ 16,814,026
- --------------------------------------------------------------------------------
Class B
Shares sold................... 228,100 $ 2,613,114 414,162 $ 4,656,253
Shares issued in reinvestment
of distributions............. 75,131 849,962 61,515 692,436
Shares redeemed............... (294,040) (3,369,011) (514,611) (5,780,674)
- --------------------------------------------------------------------------------
Net increase (decrease)....... 9,191 $ 94,065 (38,934) $ (431,985)
- --------------------------------------------------------------------------------
Class Y
Shares sold................... 236,254 $ 2,694,423 548,341 $ 6,182,899
Shares issued in reinvestment
of distributions............. 75,016 847,467 46,065 518,516
Shares redeemed............... (200,503) (2,311,276) (641,096) (7,217,645)
Shares issued in connection
with the acquisition of
CoreFund Intermediate
Municipal Bond Fund.......... 94,933 1,076,604 0 0
- --------------------------------------------------------------------------------
Net increase (decrease)....... 205,700 $ 2,307,218 (46,690) $ (516,230)
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
Municipal Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998*
-------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 1,444,006 $ 11,100,649 404,689 $ 3,409,126
Shares issued in
reinvestment of
distributions.......... 4,728,680 36,324,410 1,526,223 11,889,303
Shares redeemed......... (13,239,459) (102,622,662) (12,806,920) (100,036,093)
Shares issued in
connection with the
acquisition of
Evergreen Tax Free
Income Fund........... 0 0 8,443,496 66,261,386
Automatic conversion of
Class B shares......... 0 0 162,305,257 1,285,292,084
- ---------------------------------------------------------------------------------
Net increase
(decrease)............. (7,066,773) $ (55,197,603) 159,872,745 $1,266,815,806
- ---------------------------------------------------------------------------------
</TABLE>
* For the period from January 20, 1998 (Commencement of Class Operations) to
May 31, 1998.
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Five Months Ended Year Ended
(Unaudited) May 31, 1998* December 31, 1997
------------------------ ----------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class B
Shares sold............. 888,771 $ 6,877,964 2,346,134 $ 18,452,022 5,057,416 $ 39,118,274
Shares issued in
reinvestment of
distributions.......... 448,415 3,442,793 130,151 1,014,991 6,963,866 53,790,716
Shares redeemed......... (1,989,940) (15,400,528) (3,205,499) (25,180,245) (38,141,778) (294,007,649)
Shares issued in
connection with the
acquisition of
Evergreen Tax Free
Income Fund............ 3,247,599 25,484,520 0 0
Automatic conversion of
shares to Class A
shares................. (162,305,257) (1,285,292,084) 0 0
- -------------------------------------------------------------------------------------------------------------
Net decrease............ (652,754) $ (5,079,771) (159,786,872) $(1,265,520,796) (26,120,496) $(201,098,659)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Fund changed its fiscal year end from December 31 to May 31, as of May 31,
1998.
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998*
--------------------- ---------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class C
Shares sold..................... 98,142 $ 757,720 10,499 $ 81,748
Shares issued in reinvestment of
distributions.................. 34,757 267,081 7,950 61,789
Shares redeemed................. (158,868) (1,228,215) (94,211) (729,164)
Shares issued in connection with
the acquisition of
Evergreen Tax Free Income Fund.. 0 0 1,066,879 8,372,435
- ---------------------------------------------------------------------------------
Net increase (decrease)......... (25,969) $ (203,414) 991,117 $7,786,808
- ---------------------------------------------------------------------------------
</TABLE>
* For the period from January 26, 1998 (Commencement of Class Operations) to
May 31, 1998.
47
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
Short Intermediate Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 210,929 $ 2,164,348 383,419 $ 3,907,614
Shares issued in
reinvestment of
distributions............ 9,314 95,179 15,389 156,458
Shares redeemed........... (112,747) (1,155,172) (356,623) (3,624,581)
Shares issued in
connection with the
acquisition of
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 736 7,495
- --------------------------------------------------------------------------------
Net increase.............. 107,496 $ 1,104,355 42,921 $ 446,986
- --------------------------------------------------------------------------------
Class B
Shares sold............... 96,129 $ 981,749 107,260 $ 1,092,900
Shares issued in
reinvestment of
distributions............ 9,647 98,609 14,126 143,788
Shares redeemed........... (67,336) (688,933) (227,503) (2,313,782)
Shares issued in
connection with the
acquisition of
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 6,897 70,307
- --------------------------------------------------------------------------------
Net increase (decrease)... 38,440 $ 391,425 (99,220) $ (1,006,787)
- --------------------------------------------------------------------------------
Class Y
Shares sold............... 1,279,741 $ 13,093,854 1,719,348 $ 17,512,581
Shares issued in
reinvestment of
distributions............ 134,307 1,370,565 116,093 1,181,891
Shares redeemed........... (2,402,172) (24,559,676) (4,588,604) (46,764,511)
Shares issued in
connection with the
acquisition of:
Common Trust Fund -
Intermediate Tax Exempt
Bond Fund................ 0 0 14,616,570 148,714,787
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 1,412,138 14,395,605
- --------------------------------------------------------------------------------
Net increase (decrease)... (988,124) $(10,095,257) 13,275,545 $135,040,353
- --------------------------------------------------------------------------------
</TABLE>
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended November 30,
1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------------------
<S> <C> <C>
High Grade Fund....................... $ 54,011,654 $ 55,113,923
Municipal Fund........................ 695,965,076 841,649,251
Short Intermediate Fund............... 62,017,993 65,575,701
</TABLE>
On July 24, 1998, High Grade Fund acquired securities with a cost basis of
$1,825,647 resulting from the Fund's acquisition of CoreFund Intermediate Mu-
nicipal Bond Fund.
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the aver-
age daily net asset of the class. These expenses are currently limited to 0.25%
annually of the average daily net assets of the Class A shares of High Grade
Fund and Municipal Fund and 0.10% annually of the average daily net assets of
the Class A shares of Short Intermediate Fund. In addition, Class B and Class C
also pay distribution fees equal to 0.75% of the average daily net assets of
the class. Distribution Plan expenses are calculated daily and paid monthly.
48
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
During the six months ended November 30, 1998, amounts paid or accrued to EDI
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------
<S> <C> <C> <C>
High Grade Fund.................... $ 84,421 $164,506 $ --
Municipal Fund..................... 1,502,403 611,443 37,750
Short Intermediate Fund............ 3,401 29,906 --
</TABLE>
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI.
7. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Evergreen Investment Management ("EIM") (formerly the Capital Management Group
("CMG"), a division of First Union National Bank ("FUNB"), serves as the in-
vestment adviser to the High Grade Fund and is paid an advisory fee that is
computed daily and paid monthly at an annual rate of 0.50% of the Fund's aver-
age daily net assets.
Evergreen Investment Management Company (formerly Keystone Investment Manage-
ment Company) ("EIMC"), a subsidiary of First Union, is the investment adviser
for Municipal Fund and is paid an advisory fee that is calculated daily and
paid monthly. The advisory fee is calculated at an annual rate of 2.00% of Mu-
nicipal Fund's gross investment income plus an amount determined by applying
percentage rates, starting at 0.50% and declining to 0.25% per annum as net as-
sets increase, to the average daily net assets of the Fund.
Evergreen Asset Management Corp. ("EAMC"), a wholly-owned subsidiary of First
Union, is the investment adviser for the Short Intermediate Fund and is paid an
advisory fee that is computed daily and paid monthly at an annual rate of 0.50%
of the Fund's average daily net assets. Out of its fee, EAMC pays Evergreen In-
vestment Services for its services as administrator, BISYS for its services as
sub-administrator and Lieber & Company, an affiliate of First Union, for its
services as sub-adviser. During the six months ended November 30, 1998, EAMC
waived $7,043 of its advisory fee.
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidi-
ary of First Union, is the administrator and BISYS serves as the sub-adminis-
trator for each Fund. As administrator, EIS provides the Funds with facilities,
equipment and personnel. As sub-administrator to the Funds, BISYS provides the
officers of the Funds. Officers of the Funds and affiliated Trustees receive no
compensation directly from the Funds.
For their services to the High Grade Fund, EIS and BISYS is entitled to an an-
nual fee based on the average daily net assets of the funds administered by EIS
for which First Union or its investment advisory subsidiaries are also the in-
vestment advisers. The administration fee is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets in-
crease, to the average daily net asset value of the Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to 0.004% per annum as net assets increase, to the average daily net
assets of the Fund. For the six months ended November 30, 1998, the High Grade
Fund paid $13,705 to EIS for its services as administrator. For Short Interme-
diate Fund and Municipal Fund, the administration and sub-administration fee is
paid by their respective investment adviser and is not a Fund expense. During
the six months ended November 30, 1998, Municipal Fund reimbursed EIMC for cer-
tain administration and accounting expenses amounting to $103,214.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for each
Fund. The Funds have entered into an expense offset arrangement with ESC relat-
ing to certain cash balances held at First Union for the benefit of the Ever-
green Funds.
At November 30, 1998, FUNB owned directly or beneficially, 74% of the outstand-
ing shares of the Short Intermediate Fund.
49
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
8. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
10. FINANCING AGREEMENTS
Certain of the Evergreen Funds, State Street Bank and Trust ("SSB") and a group
of banks (the "Banks") entered into a financing agreement, dated December 22,
1997, as amended November 20, 1998. Under this agreement, the Banks provide an
unsecured credit facility in the aggregate amount of $400 million ($275 million
committed and $125 million uncommitted). The credit facility is allocated, un-
der the terms of the financing agreement, among the Banks. The credit facility
is to be accessed by the Funds for temporary or emergency purposes only and is
subject to each Fund's borrowing restrictions. Borrowings under this facility
bore interest at 0.50% per annum above the Federal Funds rate. A commitment fee
of 0.065% per annum was incurred on the unused portion of the committed facili-
ty, which will be allocated to all funds. For its assistance in arranging this
financing agreement, the Capital Market Group of First Union was paid a one-
time arrangement fee of $27,500. State Street served as agent for the Banks,
and as administrative agent is entitled to a fee of $20,000 per annum which is
allocated to all of the participating Funds.
During the six months ended November 30, 1998, the Funds had no borrowings un-
der these agreements.
11. NAME CHANGES
Effective January 4, 1999, Evergreen High Grade Tax Free Fund and Evergreen Tax
Free Fund changed their names to Evergreen High Grade Municipal Bond Fund and
Evergreen Municipal Bond Fund, respectively. Additionally, the investment pol-
icy of the Funds has changed with respect to municipal bond subject to the fed-
eral Alternative Minimum Tax ("AMT"). Formerly, the Funds could not invest more
than 20% of their assets in municipal bonds subject to AMT. Currently, the
Funds may invest up to 100% of their assets in such bonds.
Effective, January 4, 1999, Capital Management Group ("CMG") changed its name
to Evergreen Investment Management ("EIM"), a division of First Union National
Bank.
12. SUBSEQUENT EVENTS
On December 22, 1998, the financing agreement referenced above was amended and
renewed among certain Evergreen Funds, SSB and the Bank of New York ("BONY").
Under this agreement, SSB and BONY provide an unsecured credit facility in the
aggregate amount of $150 million ($125 million committed and $25 million uncom-
mitted). The remaining terms and conditions of the agreement are unaffected.
50
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
13. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
51
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Select Equity Index Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE] [BULK POSTAGE STAMP APPEARS HERE]
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedule of Investments (000s)
November 30, 1998
<TABLE>
<CAPTION>
Maturity
Coupon Date
- ----------------------------
<S>
<C> <C>
MUNICIPAL BONDS (97.3%)
Alabama - 0.7%
Jefferson Cnty., AL, Swr. Rev., Ser. D 5.75
% 2/1/27
Alaska - 2.3%
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
5 1/1/27
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
5.25 1/1/22
Valdez, AK, Marine Terminal Rev. Refunding, Pipeline Inc. Proj., Ser. B
5.5 10/1/28
Arizona - 0.7%
Creighton, AZ, Elementary Sch. Dist. No. 14 of Maricopa Cnty., Sch. Improvements (Proj. of 1990),
Ser. C 1991 (FGIC)
6.5 7/1/07
California - 18.0%
Abag, CA Fin. Auth. for Non-Profit Corp.
5.125 5/15/15
Alameda, CA MHRB
5.35 2/20/31
Bakersfield, CA COP, Convention Ctr. Expansion Proj.
5.8 4/1/17
California Hlth. Facs. Fin. Auth. Rev., Catholic Hlth. Sys., Ser. A
5.75 7/1/15
California Hlth. Facs. Fin. Auth. Rev. Cedars Sinai Center, Ser. A
5.125 8/1/17
California Hlth. Facs. Fin. Auth. Rev., Enloe Hlth Sys., Ser. A
5 11/15/18
California Hsg. Fin. Agcy. Rev., Home Mtge.
5.05 8/1/17
California Hsg. Fin. Agcy. Rev., Home Mtge.
6.4 8/1/27
California Hsg. Fin. Agcy. Rev., MFHRB, Ser. B,
6.05 8/1/16
California Hsg. Fin. Agcy. Rev., SFHRB, Ser. A-1, Class III
5.7 8/1/11
California Pollution Control Fin. Auth. & Solid Wst. Disposal Rev.,
5.8 12/1/16
Browning Ferris Industries, Inc.
California Public Works Board, Lease Rev., CA State Univ. Proj.
5.35 12/1/15
California Public Works Board, Lease Rev., CA State Univ. Proj.
5.5 10/1/15
California Public Works Board, Lease Rev., CA State Univ. Proj.
5.5 6/1/19
California Public Works Board, Lease Rev., Trustees of CA State Univ., Ser. A
5.25 10/1/16
California St., Department of Wtr. Resources, Central Valley Proj. Wtr. Sys., Ser. Q (MBIA)
5.375 12/1/27
California St., Pub. Works Lease, California St. Univ. Proj., Ser. A (AMBAC)
5.375 10/1/17
California Statewide Communities Dev. Auth. Rev., COP, John Muir, Mt. Diablo Hlth. Sys.
5.125 8/15/17
California Statewide Communities Dev. Auth. Special Facs., United Air Lines Inc., Los Angeles
5.625 10/1/34
Elk Grove, CA Special Tax, Unified Sch. Dist., Community Facs., Dist. No. 1
6.5 12/1/24
Los Angeles Cnty., CA, Special Tax, Community Facs., Dist. No. 3
5.5 9/1/14
Los Angeles, CA Community Redev. Agcy., Tax Allocation, Bunker Hill
6.5 12/1/16
Los Angeles, CA Convention & Exhibition Ctr. Auth., Lease Rev.
6 8/15/10
Orange Cnty., CA, Pub. Fin. Auth. (AMBAC)
5.75 12/1/10
Paramount, CA, Unified Sch. Dist. RB, Ser. A
5.125 9/1/19
Poway, CA Special Tax, Community Facs. Dist., Parkway Business Ctr., No. 88-1
6.75 8/15/15
Sacramento Cnty., CA, Arpt. Syst. Rev.
6 7/1/11
San Francisco, CA, City & Cnty. Int'l. Arpt. Rev., Second Ser., Issue 10-A (MBIA)
5.7 5/1/26
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
5.25 12/1/16
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
6 12/1/09
San Jose, CA Redev. Tax Allocation Agcy., Merged Area Redev. Proj.
6 8/1/15
San Mateo, CA Foster City Sch. Dist., Capital Appreciation, Ser. C (Eff. Yield 5.60%) (a)
0 9/1/03
San Mateo Cnty., CA, Joint Powers Fin. Auth., Lease Rev., Capital Proj. Program,
1993 Ser. A (MBIA)
6.5 7/1/16
Santa Ana, CA Fin. Auth. Lease Rev., Police Administration & Holding Fac.
6.25 7/1/15
South Orange Cnty., CA Special Tax Rev., Pub. Fin. Auth., Sr. Lien
7 9/1/09
Southern California, Pub. Power Auth., Mead Adelanto Proj., Ser. A (AMBAC)
5 7/1/17
Southern California Pub. Pwr. Auth., Transmission Proj. Rev., Southern Transmission (Eff.
0 7/1/14
Yield 7.30%) (a)
Watsonville, CA Solid Wst. Rev.
5.5 5/15/16
Colorado - 2.2%
Arapahoe Cnty., CO, Pub. Hwy. Auth., Capital Improvements Trust Fund Rev., (E-470 Proj.) (MBIA)
6.15 8/31/26
Colorado St., Pub. Hwy. Auth., (E-470-Proj.), Sr. Ser. A
5.75 9/1/14
Denver, CO, City & Cnty. Arpt. Rev., Arpt. Sys. Rev. (FSA)
5 11/15/25
District of Columbia - 1.2%
District of Columbia, Rev. Bond, Carnegie Endowment
5.75 11/15/26
Florida - 2.4%
Florida St., Board of Ed. Capital Outlay, GO, Ser. A
5 6/1/27
Florida St., Hsg. Fin. Corp. Rev., Homeowner Mtge., Ser. 2 (MBIA)
5.35 1/1/21
<CAPTION>
High Grade
Fund
- --------------------------
Market
Principal Value
- --------------------------
<S> <C>
<C>
MUNICIPAL BONDS (97.3%)
Alabama - 0.7%
Jefferson Cnty., AL, Swr. Rev., Ser. D
$1215 $1309
- --------------------------
Alaska - 2.3%
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
2000 1932
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
1000 1001
Valdez, AK, Marine Terminal Rev. Refunding, Pipeline Inc. Proj., Ser. B
1000 1014
- --------------------------
3947
Arizona - 0.7%
Creighton, AZ, Elementary Sch. Dist. No. 14 of Maricopa Cnty., Sch. Improvements (Proj. of 1990),
Ser. C 1991 (FGIC)
1000 1170
- --------------------------
California - 18.0%
Abag, CA Fin. Auth. for Non-Profit Corp.
Alameda, CA MHRB
Bakersfield, CA COP, Convention Ctr. Expansion Proj.
California Hlth. Facs. Fin. Auth. Rev., Catholic Hlth. Sys., Ser. A
California Hlth. Facs. Fin. Auth. Rev. Cedars Sinai Center, Ser. A
California Hlth. Facs. Fin. Auth. Rev., Enloe Hlth Sys., Ser. A
California Hsg. Fin. Agcy. Rev., Home Mtge.
California Hsg. Fin. Agcy. Rev., Home Mtge.
California Hsg. Fin. Agcy. Rev., MFHRB, Ser. B,
California Hsg. Fin. Agcy. Rev., SFHRB, Ser. A-1, Class III
California Pollution Control Fin. Auth. & Solid Wst. Disposal Rev.,
Browning Ferris Industries, Inc.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., Trustees of CA State Univ., Ser. A
California St., Department of Wtr. Resources, Central Valley Proj. Wtr. Sys., Ser. Q (MBIA)
1000 1040
California St., Pub. Works Lease, California St. Univ. Proj., Ser. A (AMBAC)
1000 1053
California Statewide Communities Dev. Auth. Rev., COP, John Muir, Mt. Diablo Hlth. Sys.
California Statewide Communities Dev. Auth. Special Facs., United Air Lines Inc., Los Angeles
Elk Grove, CA Special Tax, Unified Sch. Dist., Community Facs., Dist. No. 1
Los Angeles Cnty., CA, Special Tax, Community Facs., Dist. No. 3
Los Angeles, CA Community Redev. Agcy., Tax Allocation, Bunker Hill
Los Angeles, CA Convention & Exhibition Ctr. Auth., Lease Rev.
Orange Cnty., CA, Pub. Fin. Auth. (AMBAC)
1000 1117
Paramount, CA, Unified Sch. Dist. RB, Ser.
A
Poway, CA Special Tax, Community Facs. Dist., Parkway Business Ctr., No. 88-1
Sacramento Cnty., CA, Arpt. Syst. Rev.
San Francisco, CA, City & Cnty. Int'l. Arpt. Rev., Second Ser., Issue 10-A (MBIA)
2000 2113
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
San Jose, CA Redev. Tax Allocation Agcy., Merged Area Redev. Proj.
San Mateo, CA Foster City Sch. Dist., Capital Appreciation, Ser. C (Eff. Yield 5.60%) (a)
San Mateo Cnty., CA, Joint Powers Fin. Auth., Lease Rev., Capital Proj. Program,
1993 Ser. A (MBIA)
500 605
Santa Ana, CA Fin. Auth. Lease Rev., Police Administration & Holding Fac.
South Orange Cnty., CA Special Tax Rev., Pub. Fin. Auth., Sr. Lien
Southern California, Pub. Power Auth., Mead Adelanto Proj., Ser. A (AMBAC)
1000 1011
Southern California Pub. Pwr. Auth., Transmission Proj. Rev., Southern Transmission (Eff.
Yield 7.30%) (a)
Watsonville, CA Solid Wst. Rev.
- --------------------------
6939
Colorado - 2.2%
Arapahoe Cnty., CO, Pub. Hwy. Auth., Capital Improvements Trust Fund Rev., (E-470 Proj.) (MBIA)
1500 1693
Colorado St., Pub. Hwy. Auth., (E-470-Proj.), Sr. Ser. A
1000 1117
Denver, CO, City & Cnty. Arpt. Rev., Arpt. Sys. Rev. (FSA)
1000 977
- --------------------------
3787
District of Columbia - 1.2%
District of Columbia, Rev. Bond, Carnegie Endowment
2000 2099
- --------------------------
Florida - 2.4%
Florida St., Board of Ed. Capital Outlay, GO, Ser. A
1000 996
Florida St., Hsg. Fin. Corp. Rev., Homeowner Mtge., Ser. 2 (MBIA)
2000 2033
<CAPTION>
California Fund
- --------------------------
Market
Principal Value
- --------------------------
<S>
<C> <C>
MUNICIPAL BONDS (97.3%)
Alabama - 0.7%
Jefferson Cnty., AL, Swr. Rev., Ser. D
Alaska - 2.3%
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
Valdez, AK, Marine Terminal Rev. Refunding, Pipeline Inc. Proj., Ser. B
Arizona - 0.7%
Creighton, AZ, Elementary Sch. Dist. No. 14 of Maricopa Cnty., Sch. Improvements (Proj. of 1990),
Ser. C 1991
(FGIC)
California - 18.0%
Abag, CA Fin. Auth. for Non-Profit Corp.
$500 $503
Alameda, CA MHRB
1000 1011
Bakersfield, CA COP, Convention Ctr. Expansion Proj.
500 549
California Hlth. Facs. Fin. Auth. Rev., Catholic Hlth. Sys., Ser. A
1000 1087
California Hlth. Facs. Fin. Auth. Rev. Cedars Sinai Center, Ser. A
1000 1015
California Hlth. Facs. Fin. Auth. Rev., Enloe Hlth Sys., Ser. A
500 500
California Hsg. Fin. Agcy. Rev., Home Mtge.
1000 1002
California Hsg. Fin. Agcy. Rev., Home Mtge.
500 534
California Hsg. Fin. Agcy. Rev., MFHRB, Ser. B,
1000 1068
California Hsg. Fin. Agcy. Rev., SFHRB, Ser. A-1, Class III
1000 1053
California Pollution Control Fin. Auth. & Solid Wst. Disposal Rev.,
500 528
Browning Ferris Industries, Inc.
California Public Works Board, Lease Rev., CA State Univ. Proj.
1000 1049
California Public Works Board, Lease Rev., CA State Univ. Proj.
1000 1060
California Public Works Board, Lease Rev., CA State Univ. Proj.
350 364
California Public Works Board, Lease Rev., Trustees of CA State Univ., Ser. A
350 362
California St., Department of Wtr. Resources, Central Valley Proj. Wtr. Sys., Ser. Q (MBIA)
California St., Pub. Works Lease, California St. Univ. Proj., Ser. A (AMBAC)
California Statewide Communities Dev. Auth. Rev., COP, John Muir, Mt. Diablo Hlth. Sys.
700 710
California Statewide Communities Dev. Auth. Special Facs., United Air Lines Inc., Los Angeles
500 513
Elk Grove, CA Special Tax, Unified Sch. Dist., Community Facs., Dist. No. 1
500 619
Los Angeles Cnty., CA, Special Tax, Community Facs., Dist. No. 3
1000 1082
Los Angeles, CA Community Redev. Agcy., Tax Allocation, Bunker Hill
500 561
Los Angeles, CA Convention & Exhibition Ctr. Auth., Lease Rev.
1000 1159
Orange Cnty., CA, Pub. Fin. Auth. (AMBAC)
Paramount, CA, Unified Sch. Dist. RB, Ser. A
500 508
Poway, CA Special Tax, Community Facs. Dist., Parkway Business Ctr., No. 88-1
750 820
Sacramento Cnty., CA, Arpt. Syst. Rev.
1000 1135
San Francisco, CA, City & Cnty. Int'l. Arpt. Rev., Second Ser., Issue 10-A (MBIA)
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
1300 1343
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
500 578
San Jose, CA Redev. Tax Allocation Agcy., Merged Area Redev. Proj.
1100 1268
San Mateo, CA Foster City Sch. Dist., Capital Appreciation, Ser. C (Eff. Yield 5.60%) (a)
100 83
San Mateo Cnty., CA, Joint Powers Fin. Auth., Lease Rev., Capital Proj. Program,
1993 Ser. A (MBIA)
Santa Ana, CA Fin. Auth. Lease Rev., Police Administration & Holding Fac.
300 354
South Orange Cnty., CA Special Tax Rev., Pub. Fin. Auth., Sr. Lien
1000 1233
Southern California, Pub. Power Auth., Mead Adelanto Proj., Ser. A (AMBAC)
Southern California Pub. Pwr. Auth., Transmission Proj. Rev., Southern Transmission (Eff.
1000 473
Yield 7.30%) (a)
Watsonville, CA Solid Wst. Rev.
500 531
- --------------------------
24655
Colorado - 2.2%
Arapahoe Cnty., CO, Pub. Hwy. Auth., Capital Improvements Trust Fund Rev., (E-470 Proj.) (MBIA)
Colorado St., Pub. Hwy. Auth., (E-470-Proj.), Sr. Ser. A
Denver, CO, City & Cnty. Arpt. Rev., Arpt. Sys. Rev. (FSA)
District of Columbia - 1.2%
District of Columbia, Rev. Bond, Carnegie Endowment
Florida - 2.4%
Florida St., Board of Ed. Capital Outlay, GO, Ser. A
Florida St., Hsg. Fin. Corp. Rev., Homeowner Mtge., Ser. 2 (MBIA)
<CAPTION>
New
York Fund
- --------------------------
Market
Principal Value
- --------------------------
<S>
<C> <C>
MUNICIPAL BONDS (97.3%)
Alabama - 0.7%
Jefferson Cnty., AL, Swr. Rev., Ser. D
Alaska - 2.3%
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
Valdez, AK, Marine Terminal Rev. Refunding, Pipeline Inc. Proj., Ser. B
Arizona - 0.7%
Creighton, AZ, Elementary Sch. Dist. No. 14 of Maricopa Cnty., Sch. Improvements (Proj. of 1990),
Ser. C 1991 (FGIC)
California - 18.0%
Abag, CA Fin. Auth. for Non-Profit Corp.
Alameda, CA MHRB
Bakersfield, CA COP, Convention Ctr. Expansion Proj.
California Hlth. Facs. Fin. Auth. Rev., Catholic Hlth. Sys., Ser. A
California Hlth. Facs. Fin. Auth. Rev. Cedars Sinai Center, Ser. A
California Hlth. Facs. Fin. Auth. Rev., Enloe Hlth Sys., Ser. A
California Hsg. Fin. Agcy. Rev., Home Mtge.
California Hsg. Fin. Agcy. Rev., Home Mtge.
California Hsg. Fin. Agcy. Rev., MFHRB, Ser. B,
California Hsg. Fin. Agcy. Rev., SFHRB, Ser. A-1, Class III
California Pollution Control Fin. Auth. & Solid Wst. Disposal Rev.,
Browning Ferris Industries, Inc.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., CA State Univ. Proj.
California Public Works Board, Lease Rev., Trustees of CA State Univ., Ser. A
California St., Department of Wtr. Resources, Central Valley Proj. Wtr. Sys., Ser. Q (MBIA)
California St., Pub. Works Lease, California St. Univ. Proj., Ser. A (AMBAC)
California Statewide Communities Dev. Auth. Rev., COP, John Muir, Mt. Diablo Hlth. Sys.
California Statewide Communities Dev. Auth. Special Facs., United Air Lines Inc., Los Angeles
Elk Grove, CA Special Tax, Unified Sch. Dist., Community Facs., Dist. No. 1
Los Angeles Cnty., CA, Special Tax, Community Facs., Dist. No. 3
Los Angeles, CA Community Redev. Agcy., Tax Allocation, Bunker Hill
Los Angeles, CA Convention & Exhibition Ctr. Auth., Lease Rev.
Orange Cnty., CA, Pub. Fin. Auth. (AMBAC)
Paramount, CA, Unified Sch. Dist. RB, Ser. A
Poway, CA Special Tax, Community Facs. Dist., Parkway Business Ctr., No. 88-1
Sacramento Cnty., CA, Arpt. Syst. Rev.
San Francisco, CA, City & Cnty. Int'l. Arpt. Rev., Second Ser., Issue 10-A (MBIA)
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
San Jose, CA Redev. Tax Allocation Agcy., Merged Area Redev. Proj.
San Mateo, CA Foster City Sch. Dist., Capital Appreciation, Ser. C (Eff. Yield 5.60%) (a)
San Mateo Cnty., CA, Joint Powers Fin. Auth., Lease Rev., Capital Proj. Program,
1993 Ser. A (MBIA)
Santa Ana, CA Fin. Auth. Lease Rev., Police Administration & Holding Fac.
South Orange Cnty., CA Special Tax Rev., Pub. Fin. Auth., Sr. Lien
Southern California, Pub. Power Auth., Mead Adelanto Proj., Ser. A (AMBAC)
Southern California Pub. Pwr. Auth., Transmission Proj. Rev., Southern Transmission (Eff.
Yield 7.30%) (a)
Watsonville, CA Solid Wst. Rev.
Colorado - 2.2%
Arapahoe Cnty., CO, Pub. Hwy. Auth., Capital Improvements Trust Fund Rev., (E-470 Proj.) (MBIA)
Colorado St., Pub. Hwy. Auth., (E-470-Proj.), Sr. Ser. A
Denver, CO, City & Cnty. Arpt. Rev., Arpt. Sys. Rev. (FSA)
District of Columbia - 1.2%
District of Columbia, Rev. Bond, Carnegie Endowment
Florida - 2.4%
Florida St., Board of Ed. Capital Outlay, GO, Ser. A
Florida St., Hsg. Fin. Corp. Rev., Homeowner Mtge., Ser. 2 (MBIA)
<CAPTION>
Pro Forma
Combined
- ---------------------------
Market
Principal
Value
- ---------------------------
MUNICIPAL BONDS (97.3%)
Alabama - 0.7%
Jefferson Cnty., AL, Swr. Rev., Ser. D
$1215 $1309
- ---------------------------
Alaska - 2.3%
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
2000 1932
Alaska, Industrial Dev. & Export Auth. Power Rev., Snettisham Hydroelectric, Ser. 1 (AMBAC)
1000 1001
Valdez, AK, Marine Terminal Rev. Refunding, Pipeline Inc. Proj., Ser. B
1000 1014
- ---------------------------
3947
Arizona - 0.7%
Creighton, AZ, Elementary Sch. Dist. No. 14 of Maricopa Cnty., Sch. Improvements (Proj. of 1990),
Ser. C 1991 (FGIC)
1000 1170
- ---------------------------
California - 18.0%
Abag, CA Fin. Auth. for Non-Profit Corp.
500 503
Alameda, CA MHRB
1000 1011
Bakersfield, CA COP, Convention Ctr. Expansion Proj.
500 549
California Hlth. Facs. Fin. Auth. Rev., Catholic Hlth. Sys., Ser. A
1000 1087
California Hlth. Facs. Fin. Auth. Rev. Cedars Sinai Center, Ser. A
1000 1015
California Hlth. Facs. Fin. Auth. Rev., Enloe Hlth Sys., Ser. A
500 500
California Hsg. Fin. Agcy. Rev., Home Mtge.
1000 1002
California Hsg. Fin. Agcy. Rev., Home Mtge.
500 534
California Hsg. Fin. Agcy. Rev., MFHRB, Ser. B,
1000 1068
California Hsg. Fin. Agcy. Rev., SFHRB, Ser. A-1, Class III
1000 1053
California Pollution Control Fin. Auth. & Solid Wst. Disposal Rev.,
500 528
Browning Ferris Industries, Inc.
California Public Works Board, Lease Rev., CA State Univ. Proj.
1000 1049
California Public Works Board, Lease Rev., CA State Univ. Proj.
1000 1060
California Public Works Board, Lease Rev., CA State Univ. Proj.
350 364
California Public Works Board, Lease Rev., Trustees of CA State Univ., Ser. A
350 362
California St., Department of Wtr. Resources, Central Valley Proj. Wtr. Sys., Ser. Q (MBIA)
1000 1040
California St., Pub. Works Lease, California St. Univ. Proj., Ser. A (AMBAC)
1000 1053
California Statewide Communities Dev. Auth. Rev., COP, John Muir, Mt. Diablo Hlth. Sys.
700 710
California Statewide Communities Dev. Auth. Special Facs., United Air Lines Inc., Los Angeles
500 513
Elk Grove, CA Special Tax, Unified Sch. Dist., Community Facs., Dist. No. 1
500 619
Los Angeles Cnty., CA, Special Tax, Community Facs., Dist. No. 3
1000 1082
Los Angeles, CA Community Redev. Agcy., Tax Allocation, Bunker Hill
500 561
Los Angeles, CA Convention & Exhibition Ctr. Auth., Lease Rev.
1000 1159
Orange Cnty., CA, Pub. Fin. Auth. (AMBAC)
1000 1117
Paramount, CA, Unified Sch. Dist. RB, Ser. A
500 508
Poway, CA Special Tax, Community Facs. Dist., Parkway Business Ctr., No. 88-1
750 820
Sacramento Cnty., CA, Arpt. Syst. Rev.
1000 1135
San Francisco, CA, City & Cnty. Int'l. Arpt. Rev., Second Ser., Issue 10-A (MBIA)
2000 2113
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
1300 1343
San Francisco, CA State Bldg. Auth., Lease Rev., San Francisco Civic Ctr. Complex, Ser. A
500 578
San Jose, CA Redev. Tax Allocation Agcy., Merged Area Redev. Proj.
1100 1268
San Mateo, CA Foster City Sch. Dist., Capital Appreciation, Ser. C (Eff. Yield 5.60%) (a)
100 83
San Mateo Cnty., CA, Joint Powers Fin. Auth., Lease Rev., Capital Proj. Program,
1993 Ser. A (MBIA)
500 605
Santa Ana, CA Fin. Auth. Lease Rev., Police Administration & Holding Fac.
300 354
South Orange Cnty., CA Special Tax Rev., Pub. Fin. Auth., Sr. Lien
1000 1233
Southern California, Pub. Power Auth., Mead Adelanto Proj., Ser. A (AMBAC)
1000 1011
Southern California Pub. Pwr. Auth., Transmission Proj. Rev., Southern Transmission (Eff.
1000 473
Yield 7.30%) (a)
Watsonville, CA Solid Wst. Rev.
500 531
- ---------------------------
31594
Colorado - 2.2%
Arapahoe Cnty., CO, Pub. Hwy. Auth., Capital Improvements Trust Fund Rev., (E-470 Proj.) (MBIA)
1500 1693
Colorado St., Pub. Hwy. Auth., (E-470-Proj.), Sr. Ser. A
1000 1117
Denver, CO, City & Cnty. Arpt. Rev., Arpt. Sys. Rev. (FSA)
1000 977
- ---------------------------
3787
District of Columbia - 1.2%
District of Columbia, Rev. Bond, Carnegie Endowment
2000 2099
- ---------------------------
Florida - 2.4%
Florida St., Board of Ed. Capital Outlay, GO, Ser. A
1000 996
Florida St., Hsg. Fin. Corp. Rev., Homeowner Mtge., Ser. 2 (MBIA)
2000 2033
</TABLE>
Page 1
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedule of Investments (Continued)
November 30, 1998
<TABLE>
<CAPTION>
Maturity
Folorida - continued
Coupon Date
- ------------------------------
<S>
<C> <C>
Jacksonville, FL, Elec. Auth. Rev., Ser. 3-A 5.2
% 10/1/02
Orange Cnty., FL, Hlth. Facs. Auth. Rev., Orlando Reg'l. Hlth.care Sys., Ser. 1996C (MBIA)
6.25 10/1/16
Georgia - 0.7%
De Kalb Cnty., GA, Hlth. Facs., GO
5.3 1/1/03
Georgia St., Muni. Elec. Auth., Power Rev., Special Obligation Bond, Ser. Y (MBIA)
6.5 1/1/17
Hawaii - 0.0%
Hawaii St., GO, Ser. CE
5.2 6/1/04
Idaho - 0.4%
Idaho St., Hsg. Agcy., Single Family Mtge. Rev., Ser. C-1
6.3 7/1/11
Illinois - 6.7%
Bloomingdale, IL, GO
5.45 1/1/09
Chicago, IL, GO, Ser. 1995 (AMBAC)
6.125 1/1/16
Illinois St., Dev. Fin. Auth. PCRRB, (Cmnwlth. Edison Co. Proj.), Ser. 1994D (AMBAC)
6.75 3/1/15
Illinois St., Hlth. Facs. Auth., Hlth. Facs. Refunding Rev., Ser. 1992AA (MBIA)
6.5 6/1/12
Illinois St., Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A (MBIA)
6 7/1/13
Illinois St., Sales Tax Rev.
4.9 6/15/07
Illinois St., Sales Tax Rev.
5.5 6/15/20
Illinois St., Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
McCormick Plantation Expansion, Ser. A
5.25 6/15/27
Indiana - 1.8%
Indiana St., Middle Sch. Building Corp., Lawrence Township of Marion Cnty., First
6.875 7/5/11
Mtge. Rev. (MBIA)
Indiana St., Trans. Fin. Auth., Hwy. Rev., Ser. 1992A (MBIA)
6.8 12/1/16
Massachusetts - 2.2%
Massachusetts St., Bay Trans. Auth., General Trans. Sys. Rev., Ser. A
5.3 3/1/05
Massachusetts St., GO, Ser. A (AMBAC)
6.5 11/1/14
Massachusetts St., Industrial Fin. Agcy. Rev., Parking Facs., Avon Associates LLC, Ser. A (MBIA)
5.375 4/1/20
Massachusetts St., Port Auth. Rev., Ser. A
5 7/1/27
Massachusetts St., Port Auth. Rev., Ser. A
5.75 7/1/12
Michigan - 2.8%
Detroit, MI, Wtr. Supply Sys. Rev., Sr. Lien, Ser. A (MBIA)
6 7/1/14
Detroit, MI, City Sch. Dist. Refunding, Ser. C (FGIC)
5.25 5/1/13
Michigan St., Hosp. Fin. Auth. Rev., Henry Ford Hlth., Ser. A
5.25 11/15/25
Minnesota - 0.3%
Minnesota St., Hsg. Fin. Agcy., Single Family Mtge. Rev., Ser. H
6.7 1/1/18
Mississipi - 0.6%
Mississippi St., Home Corp., Single Family Rev., Class 7, Ser. B (FNMA & GNMA)
5.25 6/1/30
Nebraska - 1.2%
Nebraska St., Investment Fin. Auth., Single Family Hsg. Rev., Ser. F (GNMA)
5.6 9/1/20
Nevada - 0.6%
Clark Cnty., NV, Sch. Dist., Building & Renovations, GO, Ser. B (FGIC)
5.25 6/15/17
New Jersey - 0.0%
Medford Township, NJ, Board of Ed., GO (FGIC)
5.95 2/1/03
New Mexico - 1.6%
Albuquerque, NM, Arpt. Rev., Ser. 1995 A (AMBAC)
6.35 7/1/07
Farmington, NM, PCRB, Pub. Service Co. of San Juan, Ser. C (AMBAC)
5.7 12/1/16
New York - 19.8%
Albany Cnty., NY., Pub. Impt., GO., Ser. B
5.6 3/15/14
Buffalo, NY., GO., Ser. E
6.5 12/1/22
Buffalo, NY., Muni. Wtr. Fin. Auth., Wtr. Sys. Rev., Ser. B
5 7/1/18
Cattaraugus Cnty., NY., IDA., Civic Facs. Rev., Olean General Hosp. Proj., Ser. A
5.25 8/1/23
Erie Cnty., NY., Wtr. Auth. Rev., Fourth Resolution, (Eff. Yield 7.468%) (a)
0 12/1/17
Hempstead Town, NY., GO., Ser. B
5.625 2/1/15
Islip, NY., Resources Recovery Agcy. Rev., Ser. B
7.25 7/1/11
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
5.5 12/1/29
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
5.75 12/1/24
<CAPTION>
High Grade
Fund
- --------------------------
Market
Folorida - continued
Principal Value
- --------------------------
<S> <C>
<C>
Jacksonville, FL, Elec. Auth. Rev., Ser. 3-A
$50 $53
Orange Cnty., FL, Hlth. Facs. Auth. Rev., Orlando Reg'l. Hlth.care Sys., Ser. 1996C (MBIA)
1000 1175
- --------------------------
4257
Georgia - 0.7%
De Kalb Cnty., GA, Hlth. Facs., GO
50 53
Georgia St., Muni. Elec. Auth., Power Rev., Special Obligation Bond, Ser. Y (MBIA)
1000 1194
- --------------------------
1247
Hawaii - 0.0%
Hawaii St., GO, Ser. CE
50 53
- --------------------------
Idaho - 0.4%
Idaho St., Hsg. Agcy., Single Family Mtge. Rev., Ser. C-1
720 770
- --------------------------
Illinois - 6.7%
Bloomingdale, IL, GO
85 90
Chicago, IL, GO, Ser. 1995 (AMBAC)
2150 2390
Illinois St., Dev. Fin. Auth. PCRRB, (Cmnwlth. Edison Co. Proj.), Ser. 1994D (AMBAC)
3000 3410
Illinois St., Hlth. Facs. Auth., Hlth. Facs. Refunding Rev., Ser. 1992AA (MBIA)
1750 2070
Illinois St., Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A (MBIA)
1500 1692
Illinois St., Sales Tax Rev.
60 63
Illinois St., Sales Tax Rev.
1000 1032
Illinois St., Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
McCormick Plantation Expansion, Ser. A
1000 1012
- --------------------------
11759
Indiana - 1.8%
Indiana St., Middle Sch. Building Corp., Lawrence Township of Marion Cnty., First
1500 1841
Mtge. Rev. (MBIA)
Indiana St., Trans. Fin. Auth., Hwy. Rev., Ser. 1992A (MBIA)
1000 1226
- --------------------------
3067
Massachusetts - 2.2%
Massachusetts St., Bay Trans. Auth., General Trans. Sys. Rev., Ser. A
50 54
Massachusetts St., GO, Ser. A (AMBAC)
1000 1205
Massachusetts St., Industrial Fin. Agcy. Rev., Parking Facs., Avon Associates LLC, Ser. A (MBIA)
1000 1023
Massachusetts St., Port Auth. Rev., Ser. A
1000 981
Massachusetts St., Port Auth. Rev., Ser. A
500 559
- --------------------------
3822
Michigan - 2.8%
Detroit, MI, Wtr. Supply Sys. Rev., Sr. Lien, Ser. A (MBIA)
2500 2844
Detroit, MI, City Sch. Dist. Refunding, Ser. C (FGIC)
1000 1062
Michigan St., Hosp. Fin. Auth. Rev., Henry Ford Hlth., Ser. A
1000 1004
- --------------------------
4910
Minnesota - 0.3%
Minnesota St., Hsg. Fin. Agcy., Single Family Mtge. Rev., Ser. H
450 485
- --------------------------
Mississipi - 0.6%
Mississippi St., Home Corp., Single Family Rev., Class 7, Ser. B (FNMA & GNMA)
1000 1084
- --------------------------
Nebraska - 1.2%
Nebraska St., Investment Fin. Auth., Single Family Hsg. Rev., Ser. F (GNMA)
2000 2034
- --------------------------
Nevada - 0.6%
Clark Cnty., NV, Sch. Dist., Building & Renovations, GO, Ser. B (FGIC)
1000 1031
- --------------------------
New Jersey - 0.0%
Medford Township, NJ, Board of Ed., GO (FGIC)
65 70
- --------------------------
New Mexico - 1.6%
Albuquerque, NM, Arpt. Rev., Ser. 1995 A (AMBAC)
500 542
Farmington, NM, PCRB, Pub. Service Co. of San Juan, Ser. C (AMBAC)
2100 2269
- --------------------------
2811
New York - 19.8%
Albany Cnty., NY., Pub. Impt., GO., Ser. B
Buffalo, NY., GO., Ser. E
Buffalo, NY., Muni. Wtr. Fin. Auth., Wtr. Sys. Rev., Ser. B
Cattaraugus Cnty., NY., IDA., Civic Facs. Rev., Olean General Hosp. Proj., Ser. A
Erie Cnty., NY., Wtr. Auth. Rev., Fourth Resolution, (Eff. Yield 7.468%) (a)
Hempstead Town, NY., GO., Ser. B
Islip, NY., Resources Recovery Agcy. Rev., Ser. B
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
1750 1810
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
2250 2417
<CAPTION>
California Fund
- --------------------------
Market
Folorida - continued
Principal Value
- --------------------------
<S>
<C> <C>
Jacksonville, FL, Elec. Auth. Rev., Ser. 3-A
Orange Cnty., FL, Hlth. Facs. Auth. Rev., Orlando Reg'l. Hlth.care Sys., Ser. 1996C (MBIA)
Georgia - 0.7%
De Kalb Cnty., GA, Hlth. Facs., GO
Georgia St., Muni. Elec. Auth., Power Rev., Special Obligation Bond, Ser. Y (MBIA)
Hawaii - 0.0%
Hawaii St., GO, Ser. CE
Idaho - 0.4%
Idaho St., Hsg. Agcy., Single Family Mtge. Rev., Ser. C-1
Illinois - 6.7%
Bloomingdale, IL, GO
Chicago, IL, GO, Ser. 1995 (AMBAC)
Illinois St., Dev. Fin. Auth. PCRRB, (Cmnwlth. Edison Co. Proj.), Ser. 1994D (AMBAC)
Illinois St., Hlth. Facs. Auth., Hlth. Facs. Refunding Rev., Ser. 1992AA (MBIA)
Illinois St., Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A (MBIA)
Illinois St., Sales Tax Rev.
Illinois St., Sales Tax Rev.
Illinois St., Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
McCormick Plantation Expansion, Ser. A
Indiana - 1.8%
Indiana St., Middle Sch. Building Corp., Lawrence Township of Marion Cnty., First
Mtge. Rev. (MBIA)
Indiana St., Trans. Fin. Auth., Hwy. Rev., Ser. 1992A (MBIA)
Massachusetts - 2.2%
Massachusetts St., Bay Trans. Auth., General Trans. Sys. Rev., Ser. A
Massachusetts St., GO, Ser. A (AMBAC)
Massachusetts St., Industrial Fin. Agcy. Rev., Parking Facs., Avon Associates LLC, Ser. A (MBIA)
Massachusetts St., Port Auth. Rev., Ser. A
Massachusetts St., Port Auth. Rev., Ser. A
Michigan - 2.8%
Detroit, MI, Wtr. Supply Sys. Rev., Sr. Lien, Ser. A (MBIA)
Detroit, MI, City Sch. Dist. Refunding, Ser. C (FGIC)
Michigan St., Hosp. Fin. Auth. Rev., Henry Ford Hlth., Ser. A
Minnesota - 0.3%
Minnesota St., Hsg. Fin. Agcy., Single Family Mtge. Rev., Ser. H
Mississipi - 0.6%
Mississippi St., Home Corp., Single Family Rev., Class 7, Ser. B (FNMA & GNMA)
Nebraska - 1.2%
Nebraska St., Investment Fin. Auth., Single Family Hsg. Rev., Ser. F (GNMA)
Nevada - 0.6%
Clark Cnty., NV, Sch. Dist., Building & Renovations, GO, Ser. B (FGIC)
New Jersey - 0.0%
Medford Township, NJ, Board of Ed., GO (FGIC)
New Mexico - 1.6%
Albuquerque, NM, Arpt. Rev., Ser. 1995 A (AMBAC)
Farmington, NM, PCRB, Pub. Service Co. of San Juan, Ser. C (AMBAC)
New York - 19.8%
Albany Cnty., NY., Pub. Impt., GO., Ser. B
Buffalo, NY., GO., Ser. E
Buffalo, NY., Muni. Wtr. Fin. Auth., Wtr. Sys. Rev., Ser. B
Cattaraugus Cnty., NY., IDA., Civic Facs. Rev., Olean General Hosp. Proj., Ser. A
Erie Cnty., NY., Wtr. Auth. Rev., Fourth Resolution, (Eff. Yield 7.468%) (a)
Hempstead Town, NY., GO., Ser. B
Islip, NY., Resources Recovery Agcy. Rev., Ser. B
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
<CAPTION>
New
York Fund
- --------------------------
Market
Folorida - continued
Principal Value
- --------------------------
<S>
<C> <C>
Jacksonville, FL, Elec. Auth. Rev., Ser. 3-A
Orange Cnty., FL, Hlth. Facs. Auth. Rev., Orlando Reg'l. Hlth.care Sys., Ser. 1996C (MBIA)
Georgia - 0.7%
De Kalb Cnty., GA, Hlth. Facs., GO
Georgia St., Muni. Elec. Auth., Power Rev., Special Obligation Bond, Ser. Y (MBIA)
Hawaii - 0.0%
Hawaii St., GO, Ser. CE
Idaho - 0.4%
Idaho St., Hsg. Agcy., Single Family Mtge. Rev., Ser. C-1
Illinois - 6.7%
Bloomingdale, IL, GO
Chicago, IL, GO, Ser. 1995 (AMBAC)
Illinois St., Dev. Fin. Auth. PCRRB, (Cmnwlth. Edison Co. Proj.), Ser. 1994D (AMBAC)
Illinois St., Hlth. Facs. Auth., Hlth. Facs. Refunding Rev., Ser. 1992AA (MBIA)
Illinois St., Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A (MBIA)
Illinois St., Sales Tax Rev.
Illinois St., Sales Tax
Rev.
Illinois St., Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
McCormick Plantation Expansion, Ser. A
Indiana - 1.8%
Indiana St., Middle Sch. Building Corp., Lawrence Township of Marion Cnty., First
Mtge. Rev. (MBIA)
Indiana St., Trans. Fin. Auth., Hwy. Rev., Ser. 1992A (MBIA)
Massachusetts - 2.2%
Massachusetts St., Bay Trans. Auth., General Trans. Sys. Rev., Ser. A
Massachusetts St., GO, Ser. A (AMBAC)
Massachusetts St., Industrial Fin. Agcy. Rev., Parking Facs., Avon Associates LLC, Ser. A (MBIA)
Massachusetts St., Port Auth. Rev., Ser. A
Massachusetts St., Port Auth. Rev., Ser. A
Michigan - 2.8%
Detroit, MI, Wtr. Supply Sys. Rev., Sr. Lien, Ser. A (MBIA)
Detroit, MI, City Sch. Dist. Refunding, Ser. C (FGIC)
Michigan St., Hosp. Fin. Auth. Rev., Henry Ford Hlth., Ser. A
Minnesota - 0.3%
Minnesota St., Hsg. Fin. Agcy., Single Family Mtge. Rev., Ser. H
Mississipi - 0.6%
Mississippi St., Home Corp., Single Family Rev., Class 7, Ser. B (FNMA &
GNMA)
Nebraska - 1.2%
Nebraska St., Investment Fin. Auth., Single Family Hsg. Rev., Ser. F (GNMA)
Nevada - 0.6%
Clark Cnty., NV, Sch. Dist., Building & Renovations, GO, Ser. B (FGIC)
New Jersey - 0.0%
Medford Township, NJ, Board of Ed., GO (FGIC)
New Mexico - 1.6%
Albuquerque, NM, Arpt. Rev., Ser. 1995 A (AMBAC)
Farmington, NM, PCRB, Pub. Service Co. of San Juan, Ser. C (AMBAC)
New York - 19.8%
Albany Cnty., NY., Pub. Impt., GO., Ser. B
$400 $426
Buffalo, NY., GO., Ser. E
465 536
Buffalo, NY., Muni. Wtr. Fin. Auth., Wtr. Sys. Rev., Ser. B
500 502
Cattaraugus Cnty., NY., IDA., Civic Facs. Rev., Olean General Hosp. Proj., Ser. A
500 498
Erie Cnty., NY., Wtr. Auth. Rev., Fourth Resolution, (Eff. Yield 7.468%) (a)
770 197
Hempstead Town, NY., GO., Ser. B
550 588
Islip, NY., Resources Recovery Agcy. Rev., Ser. B
100 126
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
<CAPTION>
Pro
Forma
Combined
- --------------------------
Market
Folorida - continued
Principal Value
- --------------------------
<S> <C>
<C>
Jacksonville, FL, Elec. Auth. Rev., Ser. 3-A
$50 $53
Orange Cnty., FL, Hlth. Facs. Auth. Rev., Orlando Reg'l. Hlth.care Sys., Ser. 1996C (MBIA)
1000 1175
- --------------------------
4257
Georgia - 0.7%
De Kalb Cnty., GA, Hlth. Facs., GO
50 53
Georgia St., Muni. Elec. Auth., Power Rev., Special Obligation Bond, Ser. Y (MBIA)
1000 1194
- --------------------------
1247
Hawaii - 0.0%
Hawaii St., GO, Ser. CE
50 53
- --------------------------
Idaho - 0.4%
Idaho St., Hsg. Agcy., Single Family Mtge. Rev., Ser. C-1
720 770
- --------------------------
Illinois - 6.7%
Bloomingdale, IL, GO
85 90
Chicago, IL, GO, Ser. 1995 (AMBAC)
2150 2390
Illinois St., Dev. Fin. Auth. PCRRB, (Cmnwlth. Edison Co. Proj.), Ser. 1994D (AMBAC)
3000 3410
Illinois St., Hlth. Facs. Auth., Hlth. Facs. Refunding Rev., Ser. 1992AA (MBIA)
1750 2070
Illinois St., Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A (MBIA)
1500 1692
Illinois St., Sales Tax Rev.
60 63
Illinois St., Sales Tax Rev.
1000 1032
Illinois St., Metropolitan Pier & Exposition Auth., Dedicated State Tax Rev.,
McCormick Plantation Expansion, Ser. A
1000 1012
- --------------------------
11759
Indiana - 1.8%
Indiana St., Middle Sch. Building Corp., Lawrence Township of Marion Cnty., First
Mtge. Rev. (MBIA)
1500 1841
Indiana St., Trans. Fin. Auth., Hwy. Rev., Ser. 1992A (MBIA)
1000 1226
- --------------------------
3067
Massachusetts - 2.2%
Massachusetts St., Bay Trans. Auth., General Trans. Sys. Rev., Ser. A
50 54
Massachusetts St., GO, Ser. A (AMBAC)
1000 1205
Massachusetts St., Industrial Fin. Agcy. Rev., Parking Facs., Avon Associates LLC, Ser. A (MBIA)
1000 1023
Massachusetts St., Port Auth. Rev., Ser. A
1000 981
Massachusetts St., Port Auth. Rev., Ser. A
500 559
- --------------------------
3822
Michigan - 2.8%
Detroit, MI, Wtr. Supply Sys. Rev., Sr. Lien, Ser. A (MBIA)
2500 2844
Detroit, MI, City Sch. Dist. Refunding, Ser. C (FGIC)
1000 1062
Michigan St., Hosp. Fin. Auth. Rev., Henry Ford Hlth., Ser. A
1000 1004
- --------------------------
4910
Minnesota - 0.3%
Minnesota St., Hsg. Fin. Agcy., Single Family Mtge. Rev., Ser. H
450 485
- --------------------------
Mississipi - 0.6%
Mississippi St., Home Corp., Single Family Rev., Class 7, Ser. B (FNMA & GNMA)
1000 1084
- --------------------------
Nebraska - 1.2%
Nebraska St., Investment Fin. Auth., Single Family Hsg. Rev., Ser. F (GNMA)
2000 2034
- --------------------------
Nevada - 0.6%
Clark Cnty., NV, Sch. Dist., Building & Renovations, GO, Ser. B (FGIC)
1000 1031
- --------------------------
New Jersey - 0.0%
Medford Township, NJ, Board of Ed., GO (FGIC)
65 70
- --------------------------
New Mexico - 1.6%
Albuquerque, NM, Arpt. Rev., Ser. 1995 A (AMBAC)
500 542
Farmington, NM, PCRB, Pub. Service Co. of San Juan, Ser. C (AMBAC)
2100 2269
- --------------------------
2811
New York - 19.8%
Albany Cnty., NY., Pub. Impt., GO., Ser. B
400 426
Buffalo, NY., GO., Ser. E
465 536
Buffalo, NY., Muni. Wtr. Fin. Auth., Wtr. Sys. Rev., Ser. B
500 502
Cattaraugus Cnty., NY., IDA., Civic Facs. Rev., Olean General Hosp. Proj., Ser. A
500 498
Erie Cnty., NY., Wtr. Auth. Rev., Fourth Resolution, (Eff. Yield 7.468%) (a)
770 197
Hempstead Town, NY., GO., Ser. B
550 588
Islip, NY., Resources Recovery Agcy. Rev., Ser. B
100 126
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
1750 1810
Long Island, NY, Power Auth., Elec. Sys. Rev., Ser. A
2250 2417
</TABLE>
Page 2
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedule of Investments (Continued)
November 30, 1998
<TABLE>
<CAPTION>
Maturity
New York - continued
Coupon Date
- ----------------------------
<S>
<C> <C>
Long Island Pwr. Auth., NY., Elec. 5
% 4/1/13
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
5 12/1/18
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
5.125 12/1/16
Metropolitan Trans. Auth., NY., Svcs. Contractor Rev., Trans. Facs., Ser. 7
5.625 7/1/16
Nassau Cnty., NY., Combined Swr. Dist., GO., Ser. B
6 5/1/14
New Rochelle, NY., GO., Ser. B
6.15 8/15/17
New York & New Jersey, Port Auth., 97th Ser. (FGIC)
6.5 7/15/19
New York & New Jersey Port Auth., 104th Ser. (AMBAC)
5.2 7/15/21
New York City, NY., IDA. Rev., Japan Airlines
6 11/1/15
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., Ser. A
7 6/15/15
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
5.5 6/15/27
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
5.75 6/15/29
New York City, NY, Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev. (MBIA)
5.75 6/15/26
New York St. Dormitory Auth. Rev.
5.25 7/1/13
New York St. Dormitory Auth. Rev.
5.25 7/1/28
New York St. Dormitory Auth. Rev.
5.875 5/15/11
New York St. Env. Facs. Corp., Special Obligation Rev., Riverbank St. Park
5.5 4/1/16
New York St. Hsg. Fin. Agcy. Rev., Multi-family Mtge.
6.25 8/15/14
New York St., Hsg. Fin. Agcy. Rev., Ser. 1994 B (AMBAC)
6.35 8/15/23
New York St., Local Government Assistance Corp.
5.5 4/1/21
New York St. Medical Care Facs., Fin. Agcy. Rev., Mental Hlth. Svcs., Ser. E
6.375 8/15/14
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
5.35 10/1/18
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
5.3 10/1/28
New York St., Mtge. Agcy. Rev., Homeowner Mtge., Ser. 70
5.375 10/1/17
New York St. Mtge. Agcy. Rev. Ser. 73-A
5.3 10/1/28
New York St. Thruway Auth., Svcs. Contract, Local Hwy. & Bridge Rev
5.75 4/1/16
New York St. Urban Dev. Corp., Rev.
6.5 1/1/10
New York St. Urban Dev. Corp., Rev. (Eff. Yield 4.573%) (a)
0 1/1/10
New York St. Urban Dev. Corp., Rev.
6 4/1/10
Niagara Falls, NY., Pub. Impt., GO.
7.5 3/1/14
Niagara Falls, NY., Pub. Impt., GO.
7.5 3/1/16
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
5 4/1/28
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
6.125 4/1/14
St. Lawrence Cnty., NY., Industrial Dev. Civic Facs. Rev., St. Lawrence Univ. Proj., Ser. A
5.625 7/1/13
Suffolk Cnty., NY., IDA., Southwest Swr. Sys. Rev.
6 2/1/08
Triborough Bridge and Tunnel Auth., NY., Special Obligation, Ser. A
5.25 1/1/14
North Dakota - 1.9%
Mercer Cnty., ND, PCRB, (Basin Elec. Power, Cooperative-Antelope Valley), Second Ser. (AMBAC)
6.05 1/1/19
Ohio - 2.2%
Hamilton Cnty., OH, Sales Tax Rev., Hamilton Cnty. Football, Proj. B (MBIA)
5 12/1/18
Ohio St., Board of Ed., Kings Local Sch. Dist., City of Warren, GO, Ser. 1995 (FGIC)
7.5 12/1/16
Ohio St., Hsg. Fin. Agcy., Residential Mtge. Rev., 1995 Ser. A-2 (GNMA)
6.625 3/1/26
Pennsylvania - 1.6%
Delaware Cnty., PA, Villanova Univ. Rev., Ser. A (MBIA)
4.625 12/1/07
Lehigh Cnty., PA, GO (FGIC)
5.125 11/15/08
Pennsylvania St., IDA Rev., Economic Dev. (AMBAC)
5 7/1/04
Pennsylvania St., St. Turnpike Commission, Turnpike Rev., Ser. F (AMBAC)
7.25 12/1/17
Pittsburgh, PA, GO, Ser. D (FGIC)
5 9/1/19
Pittsburgh, PA, Sch. Dist., GO, Ser. A
4.85 9/1/03
Scranton, Lackawanna, PA, Hlth. & Welfare Auth. Rev. (MBIA)
5 1/1/06
Tunkhannock, PA, Area Sch. Dist., GO (AMBAC)
4.55 7/15/08
Univ. of Pittsburgh, PA, The Cmnwlth. System of Higher Ed., Univ. Capital Proj. Rev. (FGIC)
5.05 6/1/10
York Cnty., PA, Solid Wst. & Refuse Auth., Solid Wst. Sys. Rev. (FGIC)
5.5 12/1/12
South Carolina - 2.7%
Greenville, SC, Hosp. Sys., Hosp. Facs. Rev., Ser. A
5.75 5/1/14
South Carolina St., Port Auth. Rev. Refunded
6.625 7/1/11
South Carolina St., Port Auth. Rev., Ser. 1991 (AMBAC)
6.625 7/1/11
Tennessee - 1.1%
Knox Cnty., TN, Hlth., Ed.al & Hsg. Facility Board, Hosp. Facility Rev., (Fort Sanders
Alliance), Ser. 1993 (MBIA)
6.25 1/1/13
Texas - 3.8%
Austin, TX, Arpt. System Rev., Prior Lien, Ser. 1995A (MBIA)
6.125 11/15/25
Dallas, TX, Spl. Tax Rev., Ser. A (AMBAC)
5.25 8/15/16
</TABLE>
<TABLE>
<CAPTION>
High
Grade Fund
- --------------------------
Market
New York - continued
Principal Value
- --------------------------
<S> <C>
<C>
Long Island Pwr. Auth., NY., Elec.
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
Metropolitan Trans. Auth., NY., Svcs. Contractor Rev., Trans. Facs., Ser. 7
Nassau Cnty., NY., Combined Swr. Dist., GO., Ser. B
New Rochelle, NY., GO., Ser. B
New York & New Jersey, Port Auth., 97th Ser. (FGIC)
$500 $558
New York & New Jersey Port Auth., 104th Ser. (AMBAC)
1000 1017
New York City, NY., IDA. Rev., Japan Airlines
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., Ser. A
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
1000 1055
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
2000 2160
New York City, NY, Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev. (MBIA)
700 752
New York St. Dormitory Auth. Rev.
New York St. Dormitory Auth. Rev.
New York St. Dormitory Auth. Rev.
New York St. Env. Facs. Corp., Special Obligation Rev., Riverbank St. Park
New York St. Hsg. Fin. Agcy. Rev., Multi-family Mtge.
New York St., Hsg. Fin. Agcy. Rev., Ser. 1994 B (AMBAC)
1500 1627
New York St., Local Government Assistance Corp.
1000 1031
New York St. Medical Care Facs., Fin. Agcy. Rev., Mental Hlth. Svcs., Ser. E
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
New York St., Mtge. Agcy. Rev., Homeowner Mtge., Ser. 70
1000 1023
New York St. Mtge. Agcy. Rev. Ser. 73-A
1600 1612
New York St. Thruway Auth., Svcs. Contract, Local Hwy. & Bridge Rev
New York St. Urban Dev. Corp., Rev.
New York St. Urban Dev. Corp., Rev. (Eff. Yield 4.573%) (a)
New York St. Urban Dev. Corp., Rev.
Niagara Falls, NY., Pub. Impt., GO.
Niagara Falls, NY., Pub. Impt., GO.
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
St. Lawrence Cnty., NY., Industrial Dev. Civic Facs. Rev., St. Lawrence Univ. Proj., Ser. A
Suffolk Cnty., NY., IDA., Southwest Swr. Sys. Rev.
Triborough Bridge and Tunnel Auth., NY., Special Obligation, Ser. A
- ----------------------
15062
North Dakota - 1.9%
Mercer Cnty., ND, PCRB, (Basin Elec. Power, Cooperative-Antelope Valley), Second Ser. (AMBAC)
3000 3291
- ----------------------
Ohio - 2.2%
Hamilton Cnty., OH, Sales Tax Rev., Hamilton Cnty. Football, Proj. B (MBIA)
2000 2005
Ohio St., Board of Ed., Kings Local Sch. Dist., City of Warren, GO, Ser. 1995 (FGIC)
1000 1326
Ohio St., Hsg. Fin. Agcy., Residential Mtge. Rev., 1995 Ser. A-2 (GNMA)
455 491
- ----------------------
3822
Pennsylvania - 1.6%
Delaware Cnty., PA, Villanova Univ. Rev., Ser. A (MBIA)
100 104
Lehigh Cnty., PA, GO (FGIC)
110 115
Pennsylvania St., IDA Rev., Economic Dev. (AMBAC)
100 105
Pennsylvania St., St. Turnpike Commission, Turnpike Rev., Ser. F (AMBAC)
50 53
Pittsburgh, PA, GO, Ser. D (FGIC)
1000 999
Pittsburgh, PA, Sch. Dist., GO, Ser. A
100 104
Scranton, Lackawanna, PA, Hlth. & Welfare Auth. Rev. (MBIA)
50 52
Tunkhannock, PA, Area Sch. Dist., GO (AMBAC)
100 102
Univ. of Pittsburgh, PA, The Cmnwlth. System of Higher Ed., Univ. Capital Proj. Rev. (FGIC)
90 95
York Cnty., PA, Solid Wst. & Refuse Auth., Solid Wst. Sys. Rev. (FGIC)
1000 1094
- ----------------------
2823
South Carolina - 2.7%
Greenville, SC, Hosp. Sys., Hosp. Facs. Rev., Ser. A
2300 2459
South Carolina St., Port Auth. Rev. Refunded
1075 1164
South Carolina St., Port Auth. Rev., Ser. 1991 (AMBAC)
1075 1163
- ----------------------
4786
Tennessee - 1.1%
Knox Cnty., TN, Hlth., Ed.al & Hsg. Facility Board, Hosp. Facility Rev., (Fort Sanders
Alliance), Ser. 1993 (MBIA)
1700 1971
- ----------------------
Texas - 3.8%
Austin, TX, Arpt. System Rev., Prior Lien, Ser. 1995A (MBIA)
1500 1649
Dallas, TX, Spl. Tax Rev., Ser. A (AMBAC)
1000 1037
</TABLE>
<TABLE>
<CAPTION>
California Fund
- ----------------------
Market
New York - continued
Principal Value
- ----------------------
<S>
<C> <C>
Long Island Pwr. Auth., NY., Elec.
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
Metropolitan Trans. Auth., NY., Svcs. Contractor Rev., Trans. Facs., Ser. 7
Nassau Cnty., NY., Combined Swr. Dist., GO., Ser. B
New Rochelle, NY., GO., Ser. B
New York & New Jersey, Port Auth., 97th Ser. (FGIC)
New York & New Jersey Port Auth., 104th Ser. (AMBAC)
New York City, NY., IDA. Rev., Japan Airlines
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., Ser. A
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
New York City, NY, Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev. (MBIA)
New York St. Dormitory Auth. Rev.
New York St. Dormitory Auth. Rev.
New York St. Dormitory Auth. Rev.
New York St. Env. Facs. Corp., Special Obligation Rev., Riverbank St. Park
New York St. Hsg. Fin. Agcy. Rev., Multi-family Mtge.
New York St., Hsg. Fin. Agcy. Rev., Ser. 1994 B (AMBAC)
New York St., Local Government Assistance Corp.
New York St. Medical Care Facs., Fin. Agcy. Rev., Mental Hlth. Svcs., Ser. E
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
New York St., Mtge. Agcy. Rev., Homeowner Mtge., Ser. 70
New York St. Mtge. Agcy. Rev. Ser. 73-A
New York St. Thruway Auth., Svcs. Contract, Local Hwy. & Bridge Rev
New York St. Urban Dev. Corp., Rev.
New York St. Urban Dev. Corp., Rev. (Eff. Yield 4.573%) (a)
New York St. Urban Dev. Corp., Rev.
Niagara Falls, NY., Pub. Impt., GO.
Niagara Falls, NY., Pub. Impt., GO.
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
St. Lawrence Cnty., NY., Industrial Dev. Civic Facs. Rev., St. Lawrence Univ. Proj., Ser. A
Suffolk Cnty., NY., IDA., Southwest Swr. Sys. Rev.
Triborough Bridge and Tunnel Auth., NY., Special Obligation, Ser. A
North Dakota - 1.9%
Mercer Cnty., ND, PCRB, (Basin Elec. Power, Cooperative-Antelope Valley), Second Ser. (AMBAC)
Ohio - 2.2%
Hamilton Cnty., OH, Sales Tax Rev., Hamilton Cnty. Football, Proj. B (MBIA)
Ohio St., Board of Ed., Kings Local Sch. Dist., City of Warren, GO, Ser. 1995 (FGIC)
Ohio St., Hsg. Fin. Agcy., Residential Mtge. Rev., 1995 Ser. A-2 (GNMA)
Pennsylvania - 1.6%
Delaware Cnty., PA, Villanova Univ. Rev., Ser. A (MBIA)
Lehigh Cnty., PA, GO (FGIC)
Pennsylvania St., IDA Rev., Economic Dev. (AMBAC)
Pennsylvania St., St. Turnpike Commission, Turnpike Rev., Ser. F (AMBAC)
Pittsburgh, PA, GO, Ser. D (FGIC)
Pittsburgh, PA, Sch. Dist., GO, Ser. A
Scranton, Lackawanna, PA, Hlth. & Welfare Auth. Rev. (MBIA)
Tunkhannock, PA, Area Sch. Dist., GO (AMBAC)
Univ. of Pittsburgh, PA, The Cmnwlth. System of Higher Ed., Univ. Capital Proj. Rev. (FGIC)
York Cnty., PA, Solid Wst. & Refuse Auth., Solid Wst. Sys. Rev. (FGIC)
South Carolina - 2.7%
Greenville, SC, Hosp. Sys., Hosp. Facs. Rev., Ser. A
South Carolina St., Port Auth. Rev. Refunded
South Carolina St., Port Auth. Rev., Ser. 1991 (AMBAC)
Tennessee - 1.1%
Knox Cnty., TN, Hlth., Ed.al & Hsg. Facility Board, Hosp. Facility Rev., (Fort Sanders
Alliance), Ser. 1993 (MBIA)
Texas - 3.8%
Austin, TX, Arpt. System Rev., Prior Lien, Ser. 1995A (MBIA)
Dallas, TX, Spl. Tax Rev., Ser. A (AMBAC)
</TABLE>
<TABLE>
<CAPTION>
New
York Fund
- ----------------------
Market
New York - continued
Principal Value
- ----------------------
<S>
<C> <C>
Long Island Pwr. Auth., NY., Elec.
$500 $512
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
500 502
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
500 509
Metropolitan Trans. Auth., NY., Svcs. Contractor Rev., Trans. Facs., Ser. 7
400 414
Nassau Cnty., NY., Combined Swr. Dist., GO., Ser. B
695 794
New Rochelle, NY., GO., Ser. B
600 659
New York & New Jersey, Port Auth., 97th Ser. (FGIC)
New York & New Jersey Port Auth., 104th Ser. (AMBAC)
New York City, NY., IDA. Rev., Japan Airlines
100 110
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., Ser. A
400 431
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
New York City, NY, Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev. (MBIA)
New York St. Dormitory Auth. Rev.
300 316
New York St. Dormitory Auth. Rev.
500 497
New York St. Dormitory Auth. Rev.
250 285
New York St. Env. Facs. Corp., Special Obligation Rev., Riverbank St. Park
250 263
New York St. Hsg. Fin. Agcy. Rev., Multi-family Mtge.
875 946
New York St., Hsg. Fin. Agcy. Rev., Ser. 1994 B (AMBAC)
New York St., Local Government Assistance Corp.
New York St. Medical Care Facs., Fin. Agcy. Rev., Mental Hlth. Svcs., Ser. E
1000 1123
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
1000 1008
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
525 525
New York St., Mtge. Agcy. Rev., Homeowner Mtge., Ser. 70
New York St. Mtge. Agcy. Rev. Ser. 73-A
New York St. Thruway Auth., Svcs. Contract, Local Hwy. & Bridge Rev
700 736
New York St. Urban Dev. Corp., Rev.
1000 1189
New York St. Urban Dev. Corp., Rev. (Eff. Yield 4.573%) (a)
500 306
New York St. Urban Dev. Corp., Rev.
500 553
Niagara Falls, NY., Pub. Impt., GO.
500 658
Niagara Falls, NY., Pub. Impt., GO.
750 990
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
500 487
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
100 109
St. Lawrence Cnty., NY., Industrial Dev. Civic Facs. Rev., St. Lawrence Univ. Proj., Ser. A
250 269
Suffolk Cnty., NY., IDA., Southwest Swr. Sys. Rev.
1000 1137
Triborough Bridge and Tunnel Auth., NY., Special Obligation, Ser. A
1300 1354
19555
North Dakota - 1.9%
Mercer Cnty., ND, PCRB, (Basin Elec. Power, Cooperative-Antelope Valley), Second Ser. (AMBAC)
Ohio - 2.2%
Hamilton Cnty., OH, Sales Tax Rev., Hamilton Cnty. Football, Proj. B (MBIA)
Ohio St., Board of Ed., Kings Local Sch. Dist., City of Warren, GO, Ser. 1995 (FGIC)
Ohio St., Hsg. Fin. Agcy., Residential Mtge. Rev., 1995 Ser. A-2 (GNMA)
Pennsylvania - 1.6%
Delaware Cnty., PA, Villanova Univ. Rev., Ser. A (MBIA)
Lehigh Cnty., PA, GO (FGIC)
Pennsylvania St., IDA Rev., Economic Dev. (AMBAC)
Pennsylvania St., St. Turnpike Commission, Turnpike Rev., Ser. F (AMBAC)
Pittsburgh, PA, GO, Ser. D (FGIC)
Pittsburgh, PA, Sch. Dist., GO, Ser. A
Scranton, Lackawanna, PA, Hlth. & Welfare Auth. Rev. (MBIA)
Tunkhannock, PA, Area Sch. Dist., GO (AMBAC)
Univ. of Pittsburgh, PA, The Cmnwlth. System of Higher Ed., Univ. Capital Proj. Rev. (FGIC)
York Cnty., PA, Solid Wst. & Refuse Auth., Solid Wst. Sys. Rev. (FGIC)
South Carolina - 2.7%
Greenville, SC, Hosp. Sys., Hosp. Facs. Rev., Ser. A
South Carolina St., Port Auth. Rev. Refunded
South Carolina St., Port Auth. Rev., Ser. 1991 (AMBAC)
Tennessee - 1.1%
Knox Cnty., TN, Hlth., Ed.al & Hsg. Facility Board, Hosp. Facility Rev., (Fort Sanders
Alliance), Ser. 1993 (MBIA)
Texas - 3.8%
Austin, TX, Arpt. System Rev., Prior Lien, Ser. 1995A (MBIA)
Dallas, TX, Spl. Tax Rev., Ser. A (AMBAC)
</TABLE>
<TABLE>
<CAPTION>
Pro
Forma
Combined
- ------------------------
Market
New York - continued
Principal Value
- ------------------------
<S>
<C> <C>
Long Island Pwr. Auth., NY., Elec.
$500 $512
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
500 502
Long Island Pwr. Auth., NY., Elec. Sys. Rev., Ser. A
500 509
Metropolitan Trans. Auth., NY., Svcs. Contractor Rev., Trans. Facs., Ser. 7
400 414
Nassau Cnty., NY., Combined Swr. Dist., GO., Ser. B
695 794
New Rochelle, NY., GO., Ser. B
600 659
New York & New Jersey, Port Auth., 97th Ser. (FGIC)
500 558
New York & New Jersey Port Auth., 104th Ser. (AMBAC)
1000 1017
New York City, NY., IDA. Rev., Japan Airlines
100 110
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., Ser. A
400 431
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
1000 1055
New York City, NY, Muni. Wtr. Fin. Auth., Ser. B (MBIA)
2000 2160
New York City, NY, Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev. (MBIA)
700 752
New York St. Dormitory Auth. Rev.
300 316
New York St. Dormitory Auth. Rev.
500 497
New York St. Dormitory Auth. Rev.
250 285
New York St. Env. Facs. Corp., Special Obligation Rev., Riverbank St. Park
250 263
New York St. Hsg. Fin. Agcy. Rev., Multi-family Mtge.
875 946
New York St., Hsg. Fin. Agcy. Rev., Ser. 1994 B (AMBAC)
1500 1627
New York St., Local Government Assistance Corp.
1000 1031
New York St. Medical Care Facs., Fin. Agcy. Rev., Mental Hlth. Svcs., Ser. E
1000 1123
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
1000 1008
New York St. Mtge. Agcy. Rev., Homeowner Mtge.
525 525
New York St., Mtge. Agcy. Rev., Homeowner Mtge., Ser. 70
1000 1023
New York St. Mtge. Agcy. Rev. Ser. 73-A
1600 1612
New York St. Thruway Auth., Svcs. Contract, Local Hwy. & Bridge Rev
700 736
New York St. Urban Dev. Corp., Rev.
1000 1189
New York St. Urban Dev. Corp., Rev. (Eff. Yield 4.573%) (a)
500 306
New York St. Urban Dev. Corp., Rev.
500 553
Niagara Falls, NY., Pub. Impt., GO.
500 658
Niagara Falls, NY., Pub. Impt., GO.
750 990
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
500 487
Niagara, NY., Frontier Auth., Arpt. Rev., Greater Buffalo Int'l. Arpt.
100 109
St. Lawrence Cnty., NY., Industrial Dev. Civic Facs. Rev., St. Lawrence Univ. Proj., Ser. A
250 269
Suffolk Cnty., NY., IDA., Southwest Swr. Sys. Rev.
1000 1137
Triborough Bridge and Tunnel Auth., NY., Special Obligation, Ser. A
1300 1354
- ----------------------
34617
North Dakota - 1.9%
Mercer Cnty., ND, PCRB, (Basin Elec. Power, Cooperative-Antelope Valley), Second Ser. (AMBAC)
3000 3291
- ----------------------
Ohio - 2.2%
Hamilton Cnty., OH, Sales Tax Rev., Hamilton Cnty. Football, Proj. B (MBIA)
2000 2005
Ohio St., Board of Ed., Kings Local Sch. Dist., City of Warren, GO, Ser. 1995 (FGIC)
1000 1326
Ohio St., Hsg. Fin. Agcy., Residential Mtge. Rev., 1995 Ser. A-2 (GNMA)
455 491
- ----------------------
3822
Pennsylvania - 1.6%
Delaware Cnty., PA, Villanova Univ. Rev., Ser. A (MBIA)
100 104
Lehigh Cnty., PA, GO (FGIC)
110 115
Pennsylvania St., IDA Rev., Economic Dev. (AMBAC)
100 105
Pennsylvania St., St. Turnpike Commission, Turnpike Rev., Ser. F (AMBAC)
50 53
Pittsburgh, PA, GO, Ser. D (FGIC)
1000 999
Pittsburgh, PA, Sch. Dist., GO, Ser. A
100 104
Scranton, Lackawanna, PA, Hlth. & Welfare Auth. Rev. (MBIA)
50 52
Tunkhannock, PA, Area Sch. Dist., GO (AMBAC)
100 102
Univ. of Pittsburgh, PA, The Cmnwlth. System of Higher Ed., Univ. Capital Proj. Rev. (FGIC)
90 95
York Cnty., PA, Solid Wst. & Refuse Auth., Solid Wst. Sys. Rev. (FGIC)
1000 1094
- ----------------------
2823
South Carolina - 2.7%
Greenville, SC, Hosp. Sys., Hosp. Facs. Rev., Ser. A
2300 2459
South Carolina St., Port Auth. Rev. Refunded
1075 1164
South Carolina St., Port Auth. Rev., Ser. 1991 (AMBAC)
1075 1163
- ----------------------
4786
Tennessee - 1.1%
Knox Cnty., TN, Hlth., Ed.al & Hsg. Facility Board, Hosp. Facility Rev., (Fort Sanders
1700 1971
Alliance), Ser. 1993 (MBIA)
- ----------------------
Texas - 3.8%
Austin, TX, Arpt. System Rev., Prior Lien, Ser. 1995A (MBIA)
1500 1649
Dallas, TX, Spl. Tax Rev., Ser. A (AMBAC)
1000 1037
</TABLE>
Page 3
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedule of Investments (Continued)
November 30, 1998
<TABLE>
<CAPTION>
Maturity
Texas - continued
Coupon Date
- --------------------------
<S>
<C> <C>
Hays, TX, Consolidated Independent Sch. Dist., GO 5.875
% 8/15/22
Houston, TX, Wtr. Conveyance System Contract, COP, Ser. 1993 H (AMBAC)
7.5 12/15/14
Texas St., Department of Hsg. & Community Affairs, Residential Mtge. Rev., Ser. A (GNMA & FNMA)
5.25 7/1/18
Utah - 0.6%
Salt Lake City, UT, Salt Lake Cnty. Arpt. Rev., Ser. 1993A (FGIC)
6 12/1/12
Virginia - 2.8%
Hanover Cnty., VA, IDA Rev., Memorial Reg'l. Medical Center Proj., Ser. 1995 (MBIA)
6.375 8/15/18
Loudoun Cnty., Virginia, Sanitation Auth. Wtr. & Swr. Rev. (MBIA)
4.75 1/1/21
Virginia St., Hsg. Development Auth., Cmnwlth. Mtge. Rev., Ser. D
5.4 7/1/21
Washington - 4.2%
Chelan Cnty., Washington, Pub. Utility District, Cons. Rev., Ser. A (FSA)
5.25 7/1/33
City of Tacoma, WA, Elec. Sys. Refunding Rev., Ser. 1994 (FGIC)
6.25 1/1/15
Port Seattle, WA, Passenger Facility Charge Rev., Ser. A (MBIA)
5 12/1/23
Seattle, WA, Port Rev., Ser. A (FGIC)
5.5 10/1/22
West Virginia - 0.3%
West Virginia St., Hsg. Dev. Funding Rev., Ser. A
6.05 5/1/27
Wisconsin - 6.6%
Superior, WI, Limited Obligation Refunding Rev., Midwest Energy Resource Co. Proj.,
6.9 8/1/21
Ser. E-1991(FGIC)
Wisconsin St., Hlth. & Edl. Facs. Auth. Rev., Childrens Hosp. of Wisconsin Inc. (AMBAC)
5 2/15/18
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. B
5.6 3/1/28
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. H
5.75 9/1/28
Wisconsin St., Trans. Rev., Prerefunded, Ser. B
5.5 7/1/22
Wisconsin St., Trans. Rev., Unrefunded Balance, Ser. B
5.5 7/1/22
Puerto Rico - 3.3%
Cmnwlth. of Puerto Rico, GO (MBIA)
6.5 7/1/10
Cmnwlth. of Puerto Rico, Capital Appreciation (Eff. Yield 4.982%) (a)
0 7/1/14
Cmnwlth. of Puerto Rico, Hwy. & Trans. RB
5.25 7/1/15
Comnwlth.of Puerto Rico, Industrial, Tourist, Ed'l., Med. & Env. Control Facs.
Hosp. Auxilio Mutuo Obligation Group, Ser. A
6.25 7/1/24
Cmnwlth. of Puerto Rico, Pub. Bldgs. Auth. Rev., Govt. Facs., Ser. B
5 7/1/12
Puerto Rico, Electic Power Auth., Power Refunding Rev., Ser. Y (MBIA)
6.5 7/1/06
Puerto Rico, Hsg., Bank & Fin. Agcy., Single Family Mtge. Rev. (GNMA, FNMA & FHLMC)
6.1 10/1/15
Puerto Rico, Pub. Fin. Corp., Cmnwlth. Appropriated Rev., Ser. A (AMBAC)
5.375 6/1/16
Total Municipal Obligations
(cost $116,514, $24,129 and $19,728 respectively)
Mutual Fund Shares - 1.2%
Federated Municipal Obligation Fund
3.42 11/30/98
Short-Term Investments - 0.5%
Irvine Ranch, CA Wtr. Dist. Rev.
3.25 12/1/98
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.
3.25 12/1/98
Total Investments - 99.0%
(cost $118,651, $24,414 and $20,268 respectively)
Other Assets and Liabilities - net - 1.0%
Net Assets - 100%
</TABLE>
<TABLE>
<CAPTION>
High
Grade Fund
- -----------------------
Market
Texas - continued
Principal Value
- -----------------------
<S>
<C> <C>
Hays, TX, Consolidated Independent Sch. Dist., GO
$1500 $1634
Houston, TX, Wtr. Conveyance System Contract, COP, Ser. 1993 H (AMBAC)
1000 1303
Texas St., Department of Hsg. & Community Affairs, Residential Mtge. Rev., Ser. A (GNMA & FNMA)
1000 1007
- ----------------------
6630
Utah - 0.6%
Salt Lake City, UT, Salt Lake Cnty. Arpt. Rev., Ser. 1993A (FGIC)
1000 1090
- ----------------------
Virginia - 2.8%
Hanover Cnty., VA, IDA Rev., Memorial Reg'l. Medical Center Proj., Ser. 1995 (MBIA)
2000 2381
Loudoun Cnty., Virginia, Sanitation Auth. Wtr. & Swr. Rev. (MBIA)
1000 969
Virginia St., Hsg. Development Auth., Cmnwlth. Mtge. Rev., Ser. D
1545 1565
- ----------------------
4915
Washington - 4.2%
Chelan Cnty., Washington, Pub. Utility District, Cons. Rev., Ser. A (FSA)
1000 997
City of Tacoma, WA, Elec. Sys. Refunding Rev., Ser. 1994 (FGIC)
2500 2761
Port Seattle, WA, Passenger Facility Charge Rev., Ser. A (MBIA)
2500 2468
Seattle, WA, Port Rev., Ser. A (FGIC)
1000 1055
- ----------------------
7281
West Virginia - 0.3%
West Virginia St., Hsg. Dev. Funding Rev., Ser. A
500 537
- ----------------------
Wisconsin - 6.6%
Superior, WI, Limited Obligation Refunding Rev., Midwest Energy Resource Co. Proj.,
4500 5680
Ser. E-1991(FGIC)
Wisconsin St., Hlth. & Edl. Facs. Auth. Rev., Childrens Hosp. of Wisconsin Inc. (AMBAC)
1000 996
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. B
1250 1284
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. H
2500 2585
Wisconsin St., Trans. Rev., Prerefunded, Ser. B
80 85
Wisconsin St., Trans. Rev., Unrefunded Balance, Ser. B
920 940
- ----------------------
11570
Puerto Rico - 3.3%
Cmnwlth. of Puerto Rico, GO (MBIA)
1000 1200
Cmnwlth. of Puerto Rico, Capital Appreciation (Eff. Yield 4.982%) (a)
Cmnwlth. of Puerto Rico, Hwy. & Trans. RB
Comnwlth.of Puerto Rico, Industrial, Tourist, Ed'l., Med. & Env. Control Facs.
Hosp. Auxilio Mutuo Obligation Group, Ser. A
Cmnwlth. of Puerto Rico, Pub. Bldgs. Auth. Rev., Govt. Facs., Ser. B
Puerto Rico, Electic Power Auth., Power Refunding Rev., Ser. Y (MBIA)
500 580
Puerto Rico, Hsg., Bank & Fin. Agcy., Single Family Mtge. Rev. (GNMA, FNMA & FHLMC)
335 357
Puerto Rico, Pub. Fin. Corp., Cmnwlth. Appropriated Rev., Ser. A (AMBAC)
1000 1080
- ----------------------
3217
Total Municipal Obligations
- ----------------------
(cost $116,514, $24,129 and $19,728
respectively) 123646
- ----------------------
Mutual Fund Shares - 1.2%
Federated Municipal Obligation Fund
2137 2137
Short-Term Investments - 0.5%
Irvine Ranch, CA Wtr. Dist. Rev.
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.
Total Investments - 99.0%
- ----------------------
(cost $118,651, $24,414 and $20,268
respectively) 125783
- ----------------------
Other Assets and Liabilities - net -
1.0% 1546
- ----------------------
Net Assets -
100% $127329
======================
</TABLE>
<TABLE>
<CAPTION>
California Fund
- ---------------------
Market
Texas - continued
Principal Value
- ---------------------
<S>
<C> <C>
Hays, TX, Consolidated Independent Sch. Dist., GO
Houston, TX, Wtr. Conveyance System Contract, COP, Ser. 1993 H (AMBAC)
Texas St., Department of Hsg. & Community Affairs, Residential Mtge. Rev., Ser. A (GNMA & FNMA)
Utah - 0.6%
Salt Lake City, UT, Salt Lake Cnty. Arpt. Rev., Ser. 1993A (FGIC)
Virginia - 2.8%
Hanover Cnty., VA, IDA Rev., Memorial Reg'l. Medical Center Proj., Ser. 1995 (MBIA)
Loudoun Cnty., Virginia, Sanitation Auth. Wtr. & Swr. Rev. (MBIA)
Virginia St., Hsg. Development Auth., Cmnwlth. Mtge. Rev., Ser. D
Washington - 4.2%
Chelan Cnty., Washington, Pub. Utility District, Cons. Rev., Ser. A (FSA)
City of Tacoma, WA, Elec. Sys. Refunding Rev., Ser. 1994 (FGIC)
Port Seattle, WA, Passenger Facility Charge Rev., Ser. A (MBIA)
Seattle, WA, Port Rev., Ser. A (FGIC)
West Virginia - 0.3%
West Virginia St., Hsg. Dev. Funding Rev., Ser. A
Wisconsin - 6.6%
Superior, WI, Limited Obligation Refunding Rev., Midwest Energy Resource Co. Proj.,
Ser. E-1991(FGIC)
Wisconsin St., Hlth. & Edl. Facs. Auth. Rev., Childrens Hosp. of Wisconsin Inc. (AMBAC)
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. B
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. H
Wisconsin St., Trans. Rev., Prerefunded, Ser. B
Wisconsin St., Trans. Rev., Unrefunded Balance, Ser. B
Puerto Rico - 3.3%
Cmnwlth. of Puerto Rico, GO (MBIA)
Cmnwlth. of Puerto Rico, Capital Appreciation (Eff. Yield 4.982%) (a)
1600 768
Cmnwlth. of Puerto Rico, Hwy. & Trans. RB
250 260
Comnwlth.of Puerto Rico, Industrial, Tourist, Ed'l., Med. & Env. Control Facs.
Hosp. Auxilio Mutuo Obligation Group, Ser. A
Cmnwlth. of Puerto Rico, Pub. Bldgs. Auth. Rev., Govt. Facs., Ser. B
Puerto Rico, Electic Power Auth., Power Refunding Rev., Ser. Y (MBIA)
Puerto Rico, Hsg., Bank & Fin. Agcy., Single Family Mtge. Rev. (GNMA, FNMA & FHLMC)
Puerto Rico, Pub. Fin. Corp., Cmnwlth. Appropriated Rev., Ser. A (AMBAC)
- ----------------------
1028
Total Municipal Obligations
- ----------------------
(cost $116,514, $24,129 and $19,728
respectively) 25683
- ----------------------
Mutual Fund Shares - 1.2%
Federated Municipal Obligation Fund
Short-Term Investments - 0.5%
Irvine Ranch, CA Wtr. Dist. Rev.
285 285
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.
Total Investments - 99.0%
- ----------------------
(cost $118,651, $24,414 and $20,268
respectively) 25968
- ----------------------
Other Assets and Liabilities - net -
1.0% 360
- ----------------------
Net Assets -
100% $26328
======================
</TABLE>
<TABLE>
<CAPTION>
New
York Fund
- ----------------------
Market
Texas - continued
Principal Value
- ----------------------
<S>
<C> <C>
Hays, TX, Consolidated Independent Sch. Dist., GO
Houston, TX, Wtr. Conveyance System Contract, COP, Ser. 1993 H (AMBAC)
Texas St., Department of Hsg. & Community Affairs, Residential Mtge. Rev., Ser. A (GNMA & FNMA)
Utah - 0.6%
Salt Lake City, UT, Salt Lake Cnty. Arpt. Rev., Ser. 1993A (FGIC)
Virginia - 2.8%
Hanover Cnty., VA, IDA Rev., Memorial Reg'l. Medical Center Proj., Ser. 1995 (MBIA)
Loudoun Cnty., Virginia, Sanitation Auth. Wtr. & Swr. Rev. (MBIA)
Virginia St., Hsg. Development Auth., Cmnwlth. Mtge. Rev., Ser. D
Washington - 4.2%
Chelan Cnty., Washington, Pub. Utility District, Cons. Rev., Ser. A (FSA)
City of Tacoma, WA, Elec. Sys. Refunding Rev., Ser. 1994 (FGIC)
Port Seattle, WA, Passenger Facility Charge Rev., Ser. A (MBIA)
Seattle, WA, Port Rev., Ser. A (FGIC)
West Virginia - 0.3%
West Virginia St., Hsg. Dev. Funding Rev., Ser. A
Wisconsin - 6.6%
Superior, WI, Limited Obligation Refunding Rev., Midwest Energy Resource Co. Proj.,
Ser. E-1991(FGIC)
Wisconsin St., Hlth. & Edl. Facs. Auth. Rev., Childrens Hosp. of Wisconsin Inc. (AMBAC)
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. B
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. H
Wisconsin St., Trans. Rev., Prerefunded, Ser. B
Wisconsin St., Trans. Rev., Unrefunded Balance, Ser. B
Puerto Rico - 3.3%
Cmnwlth. of Puerto Rico, GO (MBIA)
Cmnwlth. of Puerto Rico, Capital Appreciation (Eff. Yield 4.982%) (a)
1100 528
Cmnwlth. of Puerto Rico, Hwy. & Trans. RB
Comnwlth.of Puerto Rico, Industrial, Tourist, Ed'l., Med. & Env. Control Facs.
Hosp. Auxilio Mutuo Obligation Group, Ser. A
700 779
Cmnwlth. of Puerto Rico, Pub. Bldgs. Auth. Rev., Govt. Facs., Ser. B
250 259
Puerto Rico, Electic Power Auth., Power Refunding Rev., Ser. Y (MBIA)
Puerto Rico, Hsg., Bank & Fin. Agcy., Single Family Mtge. Rev. (GNMA, FNMA & FHLMC)
Puerto Rico, Pub. Fin. Corp., Cmnwlth. Appropriated Rev., Ser. A (AMBAC)
- ----------------------
1566
Total Municipal Obligations
- ----------------------
(cost $116,514, $24,129 and $19,728
respectively) 21121
- ----------------------
Mutual Fund Shares - 1.2%
Federated Municipal Obligation Fund
Short-Term Investments - 0.5%
Irvine Ranch, CA Wtr. Dist. Rev.
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.
540 540
Total Investments - 99.0%
- ----------------------
(cost $118,651, $24,414 and $20,268
respectively) 21661
- ----------------------
Other Assets and Liabilities - net -
1.0% (104)
- ----------------------
Net Assets -
100%
$21557
======================
</TABLE>
<TABLE>
<CAPTION>
Pro
Forma
Combined
- -----------------------
Market
Texas - continued
Principal Value
- -----------------------
<S>
<C> <C>
Hays, TX, Consolidated Independent Sch. Dist., GO
$1500 $1634
Houston, TX, Wtr. Conveyance System Contract, COP, Ser. 1993 H (AMBAC)
1000 1303
Texas St., Department of Hsg. & Community Affairs, Residential Mtge. Rev., Ser. A (GNMA & FNMA)
1000 1007
- ----------------------
6630
Utah - 0.6%
Salt Lake City, UT, Salt Lake Cnty. Arpt. Rev., Ser. 1993A (FGIC)
1000 1090
- ----------------------
Virginia - 2.8%
Hanover Cnty., VA, IDA Rev., Memorial Reg'l. Medical Center Proj., Ser. 1995 (MBIA)
2000 2381
Loudoun Cnty., Virginia, Sanitation Auth. Wtr. & Swr. Rev. (MBIA)
1000 969
Virginia St., Hsg. Development Auth., Cmnwlth. Mtge. Rev., Ser. D
1545 1565
- ----------------------
4915
Washington - 4.2%
Chelan Cnty., Washington, Pub. Utility District, Cons. Rev., Ser. A (FSA)
1000 997
City of Tacoma, WA, Elec. Sys. Refunding Rev., Ser. 1994 (FGIC)
2500 2761
Port Seattle, WA, Passenger Facility Charge Rev., Ser. A (MBIA)
2500 2468
Seattle, WA, Port Rev., Ser. A (FGIC)
1000 1055
- ----------------------
7281
West Virginia - 0.3%
West Virginia St., Hsg. Dev. Funding Rev., Ser. A
500 537
- ----------------------
Wisconsin - 6.6%
Superior, WI, Limited Obligation Refunding Rev., Midwest Energy Resource Co. Proj.,
4500 5680
Ser. E-1991(FGIC)
Wisconsin St., Hlth. & Edl. Facs. Auth. Rev., Childrens Hosp. of Wisconsin Inc. (AMBAC)
1000 996
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. B
1250 1284
Wisconsin St., Hsg. & EDA, Home Ownership Rev., Ser. H
2500 2585
Wisconsin St., Trans. Rev., Prerefunded, Ser. B
80 85
Wisconsin St., Trans. Rev., Unrefunded Balance, Ser. B
920 940
- ----------------------
11570
Puerto Rico - 3.3%
Cmnwlth. of Puerto Rico, GO (MBIA)
1000 1200
Cmnwlth. of Puerto Rico, Capital Appreciation (Eff. Yield 4.982%) (a)
2700 1296
Cmnwlth. of Puerto Rico, Hwy. & Trans. RB
250 260
Comnwlth.of Puerto Rico, Industrial, Tourist, Ed'l., Med. & Env. Control Facs.
Hosp. Auxilio Mutuo Obligation Group, Ser. A
700 779
Cmnwlth. of Puerto Rico, Pub. Bldgs. Auth. Rev., Govt. Facs., Ser. B
250 259
Puerto Rico, Electic Power Auth., Power Refunding Rev., Ser. Y (MBIA)
500 580
Puerto Rico, Hsg., Bank & Fin. Agcy., Single Family Mtge. Rev. (GNMA, FNMA & FHLMC)
335 357
Puerto Rico, Pub. Fin. Corp., Cmnwlth. Appropriated Rev., Ser. A (AMBAC)
1000 1080
- ----------------------
5811
Total Municipal Obligations
- ----------------------
(cost $116,514, $24,129 and $19,728
respectively) 170450
- ----------------------
Mutual Fund Shares - 1.2%
Federated Municipal Obligation Fund
2137 2137
Short-Term Investments - 0.5%
Irvine Ranch, CA Wtr. Dist. Rev.
285 285
New York City, NY., Muni. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.
540 540
Total Investments - 99.0%
- ----------------------
(cost $118,651, $24,414 and $20,268
respectively) 173412
- ----------------------
Other Assets and Liabilities - net -
1.0% 1802
- ----------------------
Net Assets -
100% $175214
======================
</TABLE>
Legend of Abbreviations:
AMBAC - Insured by American Municipal Bond Assurance Corporation
FGIC - Insured by Federal Guaranty Insurance Company
FHLMC - Insured by Federal Home Loan Mortgage Corporation
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance Company
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by Municipal Bond Investors Assurance
(a) Effective Yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
See Notes to Pro Forma Combining Financial Statements
Page 4
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities (000's)
November 30, 1998
<TABLE>
<CAPTION>
High Grade California New York
Fund Fund Fund
- -----------------------------------------------------------
<S> <C> <C> <C>
Assets:
Indentified cost of securities $118,651 $24,414 $20,268
Net unrealized gain or loss on securities 7,132 1,554 1,393
- -----------------------------------------------------------
Market value of securities $125,783 $25,968 $21,661
Cash 0 3 2
Interest receivable 2,287 439 334
Receivable for securities sold 3,399 0 0
Receivable for Fund shares sold 191 25 0
Prepaid expenses and other assets 25 26 0
- -----------------------------------------------------------
Total Assets 131,685 26,461 21,997
Liabilities:
Distributions payable 183 77 87
Payable for securities purchased 3,991 0 311
Payable for Fund shares redeemed 12 2 4
Advisory fees payable 52 30 13
Distribution Plan expense payable 48 19 16
Due to custodian 2 0 0
Due to other related parties 3 4 0
Accrued expenses and other liabilities 65 1 9
- -----------------------------------------------------------
Total Liabilities 4,356 133
440
Net Assets $127,329 $26,328 $21,557
===========================================================
Net assets are comprised of:
Paid-in capital $119,777 $24,780 $20,200
Undistributed (overdistributed) net investment income 99 (53)
(14)
Accumulated net realized gain or loss on securities and
futures contracts 321 47
(22)
Net unrealized gain or loss on securities 7,132 1,554 1,393
- -----------------------------------------------------------
Net Assets $127,329 $26,328 $21,557
===========================================================
Class A Shares
Net Assets $67,660 $6,834 $3,599
Shares of Beneficial Interest Outstanding 6,011 681 362
Net Asset Value $11.26 $10.04 $9.95
Maximum Offering Price (Based on sales charge of 4.75%) $11.82 $10.54 $10.45
Class B Shares
Net Assets $32,614 $18,365 $15,946
Shares of Beneficial Interest Outstanding 2,897 1,836 1,617
Net Asset Value $11.26 $10.00 $9.86
Class C Shares
Net Assets - $1,129 $1,437
Shares of Beneficial Interest Outstanding - 113 146
Net Asset Value $9.99 $9.86
Class Y Shares
Net Assets $27,055 - $575
Shares of Beneficial Interest Outstanding 2,403 - 58
Net Asset Value $11.26 - $9.95
<CAPTION>
Pro Forma
Adjustments Combined
--------------- --------------------
<S> <C> <C>
Assets:
Indentified cost of securities $0 $163,333
Net unrealized gain or loss on securities 0 10,079
--------------------------------------
Market value of securities $0 $173,412
Cash 0 5
Interest receivable 0 3,060
Receivable for securities sold 0 3,399
Receivable for Fund shares sold 0 216
Prepaid expenses and other assets 0 51
--------------- --------------------
Total Assets 0 180,143
Liabilities:
Distributions payable 0 347
Payable for securities purchased 0 4,302
Payable for Fund shares redeemed 0 18
Advisory fees payable 0 95
Distribution Plan expense payable 0 83
Due to custodian 0 2
Due to other related parties 0 7
Accrued expenses and other liabilities 0 75
--------------- --------------------
Total Liabilities 0 4,929
Net Assets $0 $175,214
======================================
Net assets are comprised of:
Paid-in capital 0 $164,757
Undistributed (overdistributed) net investment income 0 32
Accumulated net realized gain or loss on securities and
futures contracts 0 346
Net unrealized gain or loss on securities 0 10,079
--------------------------------------
Net Assets $0 $175,214
======================================
Class A Shares
Net Assets $78,093
Shares of Beneficial Interest Outstanding (116)a 6,938
Net Asset Value $11.26
Maximum Offering Price (Based on sales charge of 4.75%) $11.82
Class B Shares
Net Assets $66,925
Shares of Beneficial Interest Outstanding (406)a 5,944
Net Asset Value $11.26
Class C Shares
Net Assets $2,566
Shares of Beneficial Interest Outstanding (31)a 228
Net Asset Value $11.26
Class Y Shares
Net Assets $27,630
Shares of Beneficial Interest Outstanding (7)a 2,454
Net Asset Value $11.26
</TABLE>
a Reflects the impact of converting shares of the target fund into the survivor
fund.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen High Grade Municipal Bond Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations (000's)
November 30, 1998
<TABLE>
<CAPTION>
High Grade California
Fund Fund
- -----------------------------------------
<S> <C> <C>
Investment Income:
Interest income $6,329 $1,389
Expenses:
Advisory fee $603 $148
Administrative services fees 33 2
Distribution Plan expenses 483 218
Transfer agent fee 110 23
Custodian fee 43 9
Printing and postage expenses 23 20
Registration and filing fees 68 4
Professional fees 20 20
Trustees' fees and expenses 3 0
Other 20 3
- -----------------------------------------
Total Expenses 1,406 447
Less: Fee waivers and/or reimbursements 0 (55)
- -----------------------------------------
Net expenses 1,406 392
- -----------------------------------------
Net investment income 4,923 997
Net realized and unrealized gains or losses on securities and futures contracts
Net realized gain or loss on securities and futures contracts 3,095 392
Net change in unrealized gain or loss on securities and futures contracts 1,803 470
- -----------------------------------------
Net realized and unrealized gain or loss on securities and futures contracts 4,898 862
- -----------------------------------------
Net increase in net assets resulting from operations $9,821 $1,859
=========================================
<CAPTION>
New
York Pro Forma
Fund
Adjustments Combined
- ----------------------------------- ---------------
<S> <C>
<C> <C>
Investment Income:
Interest income $1,182
$0 $8,900
Expenses:
Advisory fee $121
(26)a $846
Administrative services fees 3 8
b 46
Distribution Plan expenses 190 1
g 892
Transfer agent fee 23
0 156
Custodian fee 8
0 60
Printing and postage expenses 13
(24)c 32
Registration and filing fees 0
(3)d 69
Professional fees 16
(34)e 22
Trustees' fees and expenses 0 1
c 4
Other 7
(1)c 29
- -------------------------------------------------
Total Expenses 381
(78) 2,156
Less: Fee waivers and/or reimbursements (60) 115
f 0
- -------------------------------------------------
Net expenses 321
37 2,156
- -------------------------------------------------
Net investment income 861
(37) 6,744
Net realized and unrealized gains or losses on securities and
futures contracts
Net realized gain or loss on securities and futures contracts 727
0 4,214
Net change in unrealized gain or loss on securities and futures contracts (109)
0 2,164
- -------------------------------------------------
Net realized and unrealized gain or loss on securities and futures contracts 618
0 6,378
- -------------------------------------------------
Net increase in net assets resulting from operations $1,479
($37) $13,122
=================================================
</TABLE>
a Reflects a decrease based on the surviving fund's fee schedule.
b Reflects an increase based on the surviving fund's administrative rate.
c Reflects an increase (decrease) based on the combined fund.
d Reflects a savings resulting from duplicate state reg fees being eliminated.
e Reflects a savings resulting from duplicate audit fees being eliminated.
f All waivers eliminated as survivor does not have an expense limit.
g Adjustment for 12b-1 accrual differences that were in effect during December
1997 on CA and NY. On January 1, 1998, the service fee increased from 0.15%
to 0.25% of average daily net assets.
<PAGE>
Evergreen High Grade Municipal Bond Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
November 30, 1998
1. Basis of Combination - The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Schedule of Investments and the related
Pro Forma Combining Statement of Operations ("Pro Forma Statements"),
reflect the accounts of Evergreen High Grade Municipal Bond Fund ("High
Grade Fund"), Evergreen California Municipal Bond Fund ("California Fund")
and Evergreen New York Municipal Bond Fund ("New York Fund") at November 30,
1998 and for the respective periods then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of
California Fund and New York Fund. The Reorganization provides for the
acquisition of the assets and identified liabilities of California Fund and
New York Fund by High Grade Fund, in exchange for shares of High Grade Fund.
After the Reorganization, California Fund and New York Fund shareholders
will receive shares of High Grade Fund in liquidation and subsequent
termination thereof. California Fund and New York Fund shareholders will
receive High Grade shares that have the same letter description (i.e.: Class
A, Class B, Class C or Class Y) as the shares they held as of the close of
business immediately prior to the reorganization ("Corresponding shares").
As a result of the Reorganization, the shareholders of California Fund and
New York Fund will become the owners of that number of full and fractional
Corresponding shares of High Grade Fund having an aggregate net asset value
equal to the aggregate net asset value of their shares of California Fund
and New York Fund as of the close of business immediately prior to the date
that California Fund and New York Fund net assets are exchanged for
Corresponding shares of High Grade Fund.
The Pro Forma Statements reflect the expenses of each Fund in carrying out
its obligations under the Reorganization as though the merger occurred at
the beginning of the respective periods presented.
The information contained herein is based on the experience of each Fund for
the respective periods then ended and is designed to permit shareholders of
the consolidating mutual funds to evaluate the financial effect of the
proposed Reorganization. The expenses of California Fund and New York Fund
in connection with the Reorganization (including the cost of any proxy
soliciting agents) will be borne by First Union National Bank of North
Carolina. It is not anticipated that the securities of the combined
portfolio will be sold in significant amounts in order to comply with the
policies and investment practices of High Grade Fund.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statement
of Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of
Class A, Class B, Class C and Class Y shares of High Grade Fund which would
have been issued at November 30, 1998 in connection with the proposed
Reorganization. Shareholders of California Fund and New York Fund would
receive Corresponding shares of High Grade Fund based on conversion ratios
determined on November 30, 1998. The conversion ratios are calculated by
dividing the net asset value of California Fund and New York Fund by the net
asset value per share of the respective class of High Grade Fund. The
conversion ratio for Class C shares of High Grade Fund is calculated by
dividing the net asset value of California Fund and New York Fund by the net
asset value per share of Class B of High Grade Fund.
3. Pro Forma Operations - The Pro Forma Combining Statement of Operations
assumes similar rates of gross investment income for the investments of each
Fund. Accordingly, the combined gross investment income is equal to the sum
of each Fund's gross investment income. Pro Forma operating expenses include
the actual expenses of the Funds adjusted to reflect the expected expenses
of the combined entity. The combined pro forma expenses were calculated by
determining the expense rates based on the combined average assets of the
three funds and applying those rates to the average net assets of the High
Grade Fund for the twelve months ended November 30, 1998 and to the average
net assets of the California Fund and New York Fund for the twelve months
ended November 30, 1998. The adjustments reflect those amounts needed to
adjust the combined expenses to these rates.
[GRAPHIC OMITTED]
<PAGE>
EVERGREEN MUNICIPAL TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability and
Indemnification of Trustees" under the caption "Information on Shareholders'
Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Municipal
Trust's Pre-Effective Amendment No. 1 filed on October 8, 1997 Registration No.
333-36033 ("Pre-Effective Amendment No. 1").
2. Bylaws. Incorporated by reference to Pre-Effective Amendment No. 1.
3. Not applicable.
4. Agreements and Plans of Reorganization. Exhibits A-1 and A-2 to
Prospectus contained in Part A of this Registration Statement.
5. Declaration of Trust Articles III, V, VI and VIII; By-Laws Article II.
Incorporated by reference to Pre-Effective Amendment No. 1.
6. Investment Management and Advisory Agreement between First Union
National Bank and Evergreen Municipal Trust. Incorporated by reference to
Post-Effective Amendment No. 7.
7(a). Distribution Agreements between Evergreen Distributor, Inc. and
Evergreen Municipal Trust. Incorporated by reference to Post-Effective Amendment
No. 7.
7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used
by Evergreen Distributor Inc. Incorporated by reference to Evergreen Municipal
Trust's Pre-Effective Amendment No. 2 filed on November 12, 1997 Registration
No. 333-36033 ("Pre-Effective Amendment No. 2").
8. Form of Deferred Compensation Plan. Incorporated by reference to
Pre-Effective Amendment No. 2.
9. Custody Agreement between State Street Bank and Trust Company and
Evergreen Municipal Trust. Incorporated by reference to Post-Effective Amendment
No. 7.
10(a). Rule 12b-1 Distribution Plans. Incorporated by reference to
Post-Effective Amendment No. 7.
10(b). Multiple Class Plan. Incorporated by reference to Evergreen Municipal
Trust's Post-Effective Amendment No. 10 filed on April 1, 1999 Registration No.
333-36033.
11. Opinion and Consent of Sullivan & Worcester LLP. Previously filed.
12. Tax opinions and consents of Sullivan & Worcester LLP. Filed herewith.
13(a). Administration Agreement between Evergreen Investment Services, Inc.
and Evergreen Municipal Trust. Incorporated by reference to Post-Effective
Amendment No. 7.
13(b). Transfer Agent Agreement between Evergreen Service Company and
Evergreen Municipal Trust. Incorporated by reference to Post-Effective
Amendment No. 7.
14(a). Consent of KPMG LLP. Filed herewith.
14(b). Consent of PricewaterhouseCoopers LLP. Previously filed.
15. Not applicable.
16. Powers of Attorney. Incorporated by reference to Post-Effective
Amendment No. 7.
17. Proxy Cards. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus that is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of Columbus,
State of Ohio, on the 17th day of May, 1999.
EVERGREEN MUNICIPAL TRUST
By: /s/ William J. Tomko
-----------------------
Name: William J. Tomko
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the City of Boston, State of Massachusetts
in the capacities indicated as of the 17th day of May, 1999.
<TABLE>
<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 Vice Chairman of the
Board and 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/ Beth Werths
- -------------------------------
Beth Werths
Attorney-in-Fact
*Beth Werths, 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 and incorporated by reference in Item 16. to
this Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
12 Tax Opinions and Consents of Sullivan & Worcester LLP
14 Consent of KPMG LLP
17 Proxy Cards
May 12, 1999
Evergreen California Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund
200 Berkeley Street
Boston, Massachusetts 02116
Re: Acquisition of Assets of Evergreen California Municipal
Bond Fund by Evergreen High Grade Municipal Bond Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions described below:
Parties to the Transaction. Evergreen California Municipal Bond Fund
("Target Fund") is a series of Evergreen Municipal Trust, a Delaware business
trust.
Evergreen High Grade Municipal Bond Fund ("Acquiring Fund") is also a
series of Evergreen Municipal Trust, a Delaware business trust.
Description of Proposed Transaction. Acquiring Fund will issue its
shares to Target Fund and assume certain stated liabilities of Target Fund, in
exchange for all of the assets of Target Fund. Target Fund will then immediately
dissolve and distribute all of the Acquiring Fund shares which it holds to its
shareholders pro rata in proportion to their shareholdings in Target Fund, in
complete redemption of all outstanding shares of Target Fund.
Scope of Review and Assumptions. In rendering our opinion, we have
reviewed and relied upon the form of Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Acquiring Fund and Target Fund dated as of
April 30, 1999 which is enclosed in a draft preliminary prospectus/proxy
statement to be dated June 2, 1999 which describes the proposed transaction, and
on the information provided in such prospectus/proxy statement. We have relied,
without independent verification, upon the factual statements made therein, and
assume that there will be no change in material facts disclosed therein between
the date of this letter and the date of the closing of the transaction. We
further assume that the transaction will be carried out in accordance with the
Reorganization Agreement.
<PAGE>
Representations. Written representations, copies of which are attached
hereto, have been made to us by the appropriate officers of Target Fund and of
Acquiring Fund, and we have without independent verification relied upon such
representations in rendering our opinions.
Opinions
--------
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, we have the following opinions:
1. The acquisition by Acquiring Fund of all of the assets of Target
Fund solely in exchange for voting shares of Acquiring Fund and assumption of
certain specified liabilities of Target Fund followed by the distribution by
Target Fund of said Acquiring Fund shares to the shareholders of Target Fund in
exchange for their Target Fund shares will constitute a reorganization within
the meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund and Target Fund
will each be "a party to a reorganization" within the meaning of ss. 368(b) of
the Code.
2. No gain or loss will be recognized to Target Fund upon the transfer
of all of its assets to Acquiring Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain specified liabilities
of Target Fund, or upon the distribution of such Acquiring Fund voting shares to
the shareholders of Target Fund in exchange for all of their Target Fund shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of any liabilities of Target
Fund.
4. The basis of the assets of Target Fund acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund
immediately prior to the transfer, and the holding period of the assets of
Target Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Target Fund.
5. The shareholders of Target Fund will recognize no gain or loss upon
the exchange of all of their Target Fund shares solely for Acquiring Fund voting
shares.
6. The basis of the Acquiring Fund voting shares to be received by the
Target Fund shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor.
<PAGE>
7. The holding period of the Acquiring Fund voting shares to be
received by the Target Fund shareholders will include the period during which
the Target Fund shares surrendered in exchange therefor were held, provided the
Target Fund shares were held as a capital asset on the date of the exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of the Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in such
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
<PAGE>
May 12, 1999
Evergreen New York Municipal Bond Fund
Evergreen High Grade Municipal Bond Fund
200 Berkeley Street
Boston, Massachusetts 02116
Re: Acquisition of Assets of Evergreen New York Municipal
Bond Fund by Evergreen High Grade Municipal Bond Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions described below:
Parties to the Transaction. Evergreen New York Municipal Bond Fund
("Target Fund") is a series of Evergreen Municipal Trust, a Delaware business
trust.
Evergreen High Grade Municipal Bond Fund ("Acquiring Fund") is also a
series of Evergreen Municipal Trust, a Delaware business trust.
Description of Proposed Transaction. Acquiring Fund will issue its
shares to Target Fund and assume certain stated liabilities of Target Fund, in
exchange for all of the assets of Target Fund. Target Fund will then immediately
dissolve and distribute all of the Acquiring Fund shares which it holds to its
shareholders pro rata in proportion to their shareholdings in Target Fund, in
complete redemption of all outstanding shares of Target Fund.
Scope of Review and Assumptions. In rendering our opinion, we have
reviewed and relied upon the form of Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Acquiring Fund and Target Fund dated as of
April 30, 1999 which is enclosed in a draft preliminary prospectus/proxy
statement to be dated June 2, 1999 which describes the proposed transaction, and
on the information provided in such prospectus/proxy statement. We have relied,
without independent verification, upon the factual statements made therein, and
assume that there will be no change in material facts disclosed therein between
the date of this letter and the date of the closing of the transaction. We
further assume that the transaction will be carried out in accordance with the
Reorganization Agreement.
<PAGE>
Representations. Written representations, copies of which are attached
hereto, have been made to us by the appropriate officers of Target Fund and of
Acquiring Fund, and we have without independent verification relied upon such
representations in rendering our opinions.
Opinions
--------
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, we have the following opinions:
1. The acquisition by Acquiring Fund of all of the assets of Target
Fund solely in exchange for voting shares of Acquiring Fund and assumption of
certain specified liabilities of Target Fund followed by the distribution by
Target Fund of said Acquiring Fund shares to the shareholders of Target Fund in
exchange for their Target Fund shares will constitute a reorganization within
the meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund and Target Fund
will each be "a party to a reorganization" within the meaning of ss. 368(b) of
the Code.
2. No gain or loss will be recognized to Target Fund upon the transfer
of all of its assets to Acquiring Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain specified liabilities
of Target Fund, or upon the distribution of such Acquiring Fund voting shares to
the shareholders of Target Fund in exchange for all of their Target Fund shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of any liabilities of Target
Fund.
4. The basis of the assets of Target Fund acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund
immediately prior to the transfer, and the holding period of the assets of
Target Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Target Fund.
5. The shareholders of Target Fund will recognize no gain or loss upon
the exchange of all of their Target Fund shares solely for Acquiring Fund voting
shares.
6. The basis of the Acquiring Fund voting shares to be received by the
Target Fund shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor.
<PAGE>
7. The holding period of the Acquiring Fund voting shares to be
received by the Target Fund shareholders will include the period during which
the Target Fund shares surrendered in exchange therefor were held, provided the
Target Fund shares were held as a capital asset on the date of the exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of the Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in such
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Municipal Trust
We consent to the use of our report, dated May 1, 1998, for Evergreen California
Municipal Bond Fund (formerly Evergreen California Tax Free Fund) and Evergreen
New York Municipal Bond Fund (formerly Evergreen New York Tax Free Fund), each a
portfolio of Evergreen Municipal Trust, incorporated herein by reference and to
the reference to our firm under the caption "FINANCIAL STATEMENTS AND EXPERTS"
in the Prospectus/Proxy Statement.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
May 17, 1999
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN CALIFORNIA MUNICIPAL BOND FUND,
A series of Evergreen Municipal Trust
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce, Maureen E. Towle, Sally E. Ganem, Catherine E. Foley and Beth
K. Werths or any of them as Proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all shares of Evergreen
California Municipal Bond Fund, a series of Evergreen Municipal Trust
("California Fund") that the undersigned is entitled to vote at the special
meeting of shareholders of California Fund to be held at 2:00 p.m. on July 23,
1999 at the offices of the Evergreen funds, 200 Berkeley Street, 26th Floor,
Boston, Massachusetts 02116 and at any adjournments thereof, as fully as the
undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
------------------------------
Signature(s) and Title(s), if applicable
Date ___________________, 1999
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
MUNICIPAL TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE
ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN MUNICIPAL TRUST RECOMMENDS A VOTE FOR THE
PROPOSALS.
PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
High Grade Municipal Bond Fund, a series of Evergreen Municipal Trust, will (i)
acquire all of the assets of California Fund in exchange for shares of Evergreen
High Grade Municipal Bond Fund; and (ii) assume the identified liabilities of
California Fund, as substantially described in the accompanying Prospectus/Proxy
Statement.
____ FOR ____ AGAINST ____ ABSTAIN
2. To consider and vote upon such other matters as may properly come before
said meeting or any adjournments thereof.
____ FOR ____ AGAINST ____ ABSTAIN
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN NEW YORK MUNICIPAL BOND FUND,
A series of Evergreen Municipal Trust
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce, Maureen E. Towle, Sally E. Ganem, Catherine E. Foley and Beth
K. Werths or any of them as Proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all shares of Evergreen
New York Municipal Bond Fund, a series of Evergreen Municipal Trust
("New York Fund") that the undersigned is entitled to vote at the special
meeting of shareholders of New York Fund to be held at 2:00 p.m. on July 23,
1999 at the offices of the Evergreen funds, 200 Berkeley Street, 26th Floor,
Boston, Massachusetts 02116 and at any adjournments thereof, as fully as the
undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
------------------------------
Signature(s) and Title(s), if applicable
Date ___________________, 1999
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
MUNICIPAL TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE
ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN MUNICIPAL TRUST RECOMMENDS A VOTE FOR THE
PROPOSALS.
PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
High Grade Municipal Bond Fund, a series of Evergreen Municipal Trust, will (i)
acquire all of the assets of New York Fund in exchange for shares of Evergreen
High Grade Municipal Bond Fund; and (ii) assume the identified liabilities of
New York Fund, as substantially described in the accompanying Prospectus/Proxy
Statement.
____ FOR ____ AGAINST ____ ABSTAIN
2. To consider and vote upon such other matters as may properly come before
said meeting or any adjournments thereof.
____ FOR ____ AGAINST ____ ABSTAIN
